COMMERCIAL LAW

I. CORPORATION

(kinds of corporations, including corporations sole; composition of / membership in the

board of directors, powers, duties and prerogatives of boards of directors and stockholders;
and articles of incorporation and by laws)

1. When is the “Grandfather Rule” applied in determining the nationality of a corporation?

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 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of the Philippines.
When in the mind of the Court, there is doubt, based on the attendant facts and circumstances of
the case, in the 60-40 Filipino equity ownership in the corporation, then it may apply the
"Grandfather Rule." The Grandfather Rule was originally conceived to look into the citizenship of
the individuals who ultimately own and control the shares of stock of a corporation for purposes of
determining compliance with the constitutional requirement of Filipino ownership. (Narra Nickel
Mining and Development Corp. vs. Redmont Consolidated Mines Corporation, G.R. No. 195580,
January 28, 2015)

2. The following is the composition of Sana Oil Company, a public utility company:

Outstanding Kind of Stock Number of shares owned by

Stock Filipinos
100 Common Shares 60
100 Class A Preferred Shares (with right to 60
elect directors)
100 Class B Preferred Shares (without right to 50
elect directors)

Is the company compliant with the 60-40 requirement under the Constitution?

No. In cases of public utility corporations, mere legal title is not enough to meet the required
Filipino equity, which means that it is not sufficient that a share is registered in the name of a
Filipino citizen or national. He should also have full beneficial ownership of the share. To determine
if a corporation is a “Philippine National,” the Voting Control Test and the Beneficial Ownership
Test must be applied.

Under the Voting Control Test, there should be at least 60% voting shares owned by Filipinos. For
Sana Oil Company, there should at least be a total of 120 of common shares and Class A preferred
shares (in any combination) owned and controlled by Filipinos for it to be compliant with the 60%
of the voting rights in favor of Filipinos requirement. Here, it has 60 common shares and 60 Class
A preferred shares (with right to elect directors). Thus, Sana Oil Company passed the Voting Control
Test.

However, under the Beneficial Ownership Test, at least 60% of all the outstanding capital stock
should be owned by Filipinos. For Sana Oil Company, there should be at least a total of 180 shares
of all the outstanding capital stock owned and controlled by Filipinos (provided that among those
 180 shares a total of 120 of the common shares and Class A preferred shares (in any combination)
are owned and controlled by Filipinos). Here, there are only 170 shares owned by Filipinos out of
all the outstanding capital stock. Thus, Sana Oil Company is not compliant under the Beneficial
Ownership Test. (Roy III vs. Herbosa, G.R. No. 207246, November 22, 2016)

3. A owns 90% of the share of the capital stock in XYZ Corporation. On one occasion, XYZ
Corporation, represented by A as President and General Manager, executed a contract
to sell a subdivision lot in favor of B. However, XYZ failed to develop the subdivision.
Thus, B filed an action for rescission and damages against XYZ Corporation and A. Will
the action prosper? Explain.

The action will prosper against XYZ Corporation but not against A. A has a separate and distinct
personality from the corporation. His mere ownership of 90% of the shares of the capital stock of
XYZ does not make him one with the corporation. Mere ownership by a single stockholder, or by
another corporation, of all or nearly all of the capital stock of a corporation is not itself a suffering
ground for disregarding the separate corporate personality. (Secosa vs. Heirs of Erwin Suarez
Francisco, G.R. No. 160039, June 29, 2004)

4. Can the court award moral damages to a corporation?

General Rule: No. A corporation, being an artificial person and having existence only in legal
contemplation cannot recover moral damages as it cannot suffer physical suffering and mental
anguish (Prime White Cement vs. IAC, G.R. No. L-68555, March 19, 1993).

Exception: A corporation with good reputation, if besmirched, is allowed to recover moral

damages upon proof of existence of factual basis of damage (actual injury) and its causal relations
(Crystal vs. BPI, G.R. No. 172428, November 28, 2008).

5. Explain the Corporate Entity Theory.

As a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members, and is not affected by the personal rights, obligations and transactions
of the latter. The property of the corporation is its property and not that of the stockholders, as
owners. On the other hand, the corporation is not liable for the debts, obligations or liabilities of
its stockholders (Cruz vs. Dalisay, A.M. No. R-181-P, July 31, 1987).

6. What is the Doctrine of Piercing the Corporate Veil?

Under this doctrine, the legal fiction that a corporation is an entity with a juridical personality
separate and distinct from its members or stockholders may be disregarded and the corporation
will be considered as a mere association of persons, such that liability will attach directly to the
officers and the stockholders. It is an equitable doctrine developed to address situation where the
separate corporate personality of a corporation is abused or used for wrongful purposes (Dutch
Movers, Inc. vs. Lequin, G.R. No. 210032, April 25, 2017).
7. Differentiate the Doctrine of Outside Reverse Piercing and Insider Reverse Piercing the
Corporate Veil?

In a traditional veil-piercing action, a court disregards the existence of the corporate entity so a
claimant can reach the assets of a corporate insider. In a reverse piercing action, however, the
plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider.”
“Reverse piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes
the corporation liable for the debt of the shareholders.” It has two (2) types: outsider reverse
piercing and insider reverse piercing.

Outsider reverse piercing occurs when a party with a claim against an individual or corporation
attempts to be repaid with assets of a corporation owned or substantially controlled by the
defendant. In contrast, in insider reverse piercing, the controlling members will attempt to ignore
the corporate fiction in order to take advantage of a benefit available to the corporation, such as
an interest in a lawsuit or protection of personal assets. (International Academy of Management
and Economics (I/AME)vs. Litton and Company, Inc., G.R. No. 191525, December 13, 2017)

8. What are the grounds for application of the “traditional” Doctrine of Piercing the
Corporate Veil?
The Doctrine of Piercing the Corporate Veil applies upon the following circumstances:

a. If the fiction is used to perpetuate fraud (Fraud Test);

b. The complete control of one corporate entity to another which perpetuated the wrong is the
proximate cause of the injury (Control Test);
c. If a certain corporation is only an adjunct or an extension of the personality of the corporation
(Alter Ego or Instrumentality Test); and
d. If the fiction is pierced to make the stockholders liable for the obligation of the corporation
(Objective Test). (Philippine National Bank vs Ritratto Group, Inc., G.R. No. 142616, July 31,
2001)

9. Distinguish Treasury shares from Redeemable shares.

TREASURY SHARES REDEEMABLE SHARES

As to Shares which have been issued and
definition fully paid for, but subsequently
reacquired by the issuing
corporation through purchase,
redemption, donation, or some
other lawful means.
As to the May only be acquired if the
necessity of corporation has URE to cover the
Unrestricted shares to be purchased or acquired.
Retained
Earnings
(URE)
As to voting They shall have voting rights since
rights these shares are not part of the
outstanding capital stock of the
corporation before reissuance.
Shares which grant the corporation
the right to purchase or reacquire
the shares at the option of the
corporation or holder, based on the
face or issued value plus a specified
premium.
May be acquired regardless of the
existence of URE in the books of the
corporation.
May be deprived of voting rights,
unless otherwise provided in the
Code.
11. Summarize the voting requirements in the exercise of a corporation of its corporate
powers.

POWERS OF BOARD OF DIRECTORS OUTSTANDING CAPITAL

CORPORATION STOCK (OR MEMBERS FOR
NONSTOCK CORP)
Sec. 15 – Amendment of At least majority of the board Vote or written assent of at least
articles of incorporation 2/3 of the outstanding capital
stock or members
Sec. 23 – Election of - At least majority of the
directors outstanding capital stock or
members
Sec. 24 – Appointment of At least majority of the board -
corporate officers
Removal of corporate At least majority of the board -
officers
Sec. 27 – Removal of - At least 2/3 of the outstanding
directors/trustees capital stock or members
Sec. 28 – Filling vacancy If the ground is not expiration If the ground is:
in the board of the term, removal, increase a. Expiration of term, removal,
in number of board seats and increase in number of
the remaining directors directors; or
constitute a quorum b. Not expiration, removal,
increase in number of board
– at least majority of the seats but the remaining
remaining directors/trustees directors do not constitute a
quorum

– at least majority of the

outstanding capital stock or
members
Sec. 29 – Payment of Directors/trustees without At least majority of the
compensation of directors participation outstanding capital stock or
members
Sec. 34 – Appointment of Majority of the quorum -
the members of the
executive committee
Sec. 34 – Creation of Majority of the quorum -
special committees
Sec. 36 – At least majority of the board At least 2/3 of the outstanding
Extension/shortening of capital stock or members
the term
Sec. 37 – Incurring, At least majority of the board At least 2/3 of the outstanding
creating or increasing capital stock
bonded indebtedness;
Increasing or decreasing
capital stock
Incurring debt in the Majority of the quorum -
ordinary course of
business
 POWERS OF BOARD OF DIRECTORS OUTSTANDING CAPITAL
CORPORATION STOCK (OR MEMBERS FOR
NONSTOCK CORP)
Sec. 39 – Sale or other In the ordinary course of -
disposition of assets business – majority of the
quorum
All or substantially all of At least 2/3 of the outstanding
corporate assets – At least capital stock or members
majority of the board
Sec. 41 – Investing funds Majority of the quorum -
for its primary purpose
Sec. 41 – Investing funds Majority of the quorum -
for incidental purpose for
which corporation is
created
Invest the funds for a At least majority of the board At least 2/3 of the outstanding
secondary purpose or in capital stock or members
another business
Sec. 42 – Declaration of Majority of the quorum -
cash dividends
Sec. 42 – Declaration of Majority of the quorum At least 2/3 of the outstanding
stock dividends capital stock
Sec. 43 – Entering into a Majority of the quorum for At least majority of the
management contract both managed and managing outstanding capital stock or
corporation members of each managed and
managing corporation;

In case of corporations with

interlocking directors/trustees or
stockholders/members - at least
2/3 of the outstanding capital
stock or members from the
managed corporation
Sec. 45 – Adoption of by- Majority of the outstanding
laws capital stock or members
Sec. 47 – Amendment of At least majority of the board At least majority of the
by-laws outstanding capital stock or
members;

If authority to amend will be

delegated by stockholders to the
board - at least 2/3 of the
outstanding capital stock or
members

Revocation of the delegation

made to the board – At least
majority of the outstanding
capital stock or members
Sec. 61 – Fixing the Majority of the quorum At least majority of the
issued value of no par (pursuant to authority outstanding capital stock
value shares (if not fixed conferred by the AOI or the
in the AOI) by-laws)
 POWERS OF BOARD OF DIRECTORS OUTSTANDING CAPITAL
CORPORATION STOCK (OR MEMBERS FOR
NONSTOCK CORP)
Sec. 76 – Merger or At least majority of the board At least 2/3 of the outstanding
consolidation capital stock or members
Sec. 102 – Amendment of At least majority of the board At least 2/3 of the outstanding
AOI of a close corporation capital stock, with or without
voting rights or of such greater
proportion of shares as provided
in the AOI
Sec. 134 – Voluntary At least majority of the board At least majority of the
dissolution where no outstanding capital stock or
creditors are affected members
Sec. 135 – Voluntary At least majority of the board At least 2/3 of the outstanding
dissolution where capital stock or members
creditors are affected
(Divina, Divina on Commercial Law Volume I, 2021, pp. 483-486)

12. On what can holders of nonvoting shares be entitled to vote?

Holders of nonvoting shares shall be entitled to vote on the following matters:

e. Amendment of the articles of incorporation;
f. Adoption and amendment of by-laws;
g. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of
the corporate property;
h. Incurring, creating, or increasing bonded indebtedness;
i. Increase or decrease of authorized capital stock;
j. Merger or consolidation of the corporation with another corporation/s;
k. Investment of corporate funds in another corporation or business for any purpose other
than its primary purpose; and
l. Dissolution of the corporation. (Sec. 6, Revised Corporation Code)

13. When can a stock corporation acquire its own shares?

A stock corporation can acquire its own shares for a legitimate corporate purpose, including:

a. To eliminate fractional shares arising out of stock dividends;

b. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale;
and
c. To pay dissenting or withdrawing stockholders entitled to such payment. (Sec. 40, Revised
Corporation Code)

14. What is a de facto corporation? What are its requisites?

A de facto corporation is a corporation which exists by virtue of an irregularity or a defect in the

organization or constitution or from some omission to comply with the conditions precedent by
which corporations de jure are created, organized with a colorable compliance with the
requirements of a valid law. Its existence cannot be inquired collaterally, such inquiry may be made
by the Solicitor General in a quo warranto proceeding. (Sec. 19, Revised Corporation Code)

The requisites of a de facto Corporation are:

 m. a valid law under which the corporation is organized;
n. a bona fide attempt on good faith to incorporate; and
o. an assumption of corporate powers. (Seventh Day Adventist Conference Church of Southern
Philippines vs. Northeastern Mindanao Mission of Seventh Day Adventist, G.R. No. 150416,
July 21, 2006)

15. What is a corporation by estoppel?

A corporation by estoppel is a defective corporation which exists when a group of persons assumes
to act as a corporation knowing it to be without authority to do so and enters into a transaction
with a third person on the strength of such appearance. It is neither a de jure nor a de facto
corporation. (International Express vs. CA, G.R. No. 119002, October 19, 2000)

16. Who are estopped from denying the existence of a corporation by estoppel?

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party.
All persons who assume to act as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof. When any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use its lack of corporate
personality as a defense. (Sec. 20, Revised Corporation Code)

A third party who, knowing an association to be unincorporated, nonetheless treated it as a

corporation and received benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who benefited from the
transaction made by the ostensible corporation, despite knowledge of its legal defects, may be
held liable for contracts they impliedly assented to or took advantage of. (Lim vs. Philippine Fishing
Gear Industries, Inc., G.R. No. 136448, November 3, 1999). Also, third parties will only be estopped
if they try to escape liability but have benefited from the alleged corporation (International Express
vs. CA, G.R. No. 119002, October 19, 2000).

17. Can the board be compelled to declare dividends every year?

General Rule: No. The declaration of dividends is a business judgment lodged in the governing
board.

Exceptions:
p. In cases when the articles of incorporation provide that such declaration is required every
year; or
q. When the corporation has unrestricted retained earnings which exceed 100% of its paid-
in capital stock every year.

Exception to the exception in (b):

➢ When such retention is justified by definite corporate expansion projects or programs
approved by the board of directors; or
➢ When the corporation is prohibited under any loan agreement with any financial institution or
creditor, whether local or foreign, from declaring dividends without their consent, and such
consent has not yet been secured; or
➢ When it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation. (Sec. 42, Revised Corporation Code)
18. What is an ultra vires act? What is its legal implication?

An ultra vires act is an act done by a corporation outside of the express and implied powers vested
in it by its charter and by law.

A distinction should be made between corporate acts or contracts which are illegal and those which
are merely ultra vires. The former contemplates the doing of an act which is contrary to law,
morals, or public policy or public duty, and are, like similar transactions between public order, or
contravene some rules of individuals, void. They cannot serve as basis of a court action, nor acquire
validity by performance, ratification, or estoppel.

Mere ultra vires acts, on the other hand, or those which are not illegal and void ab initio, but are
not merely within the scope of the articles of incorporation are merely voidable and may become
binding and enforceable when ratified by the stockholders. (Bernas vs. Cinco, G.R. Nos. 163356-
57, July 01, 2015)

19. Discuss the Trust Fund Doctrine.

Under Trust Fund Doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors, who are preferred in the
distribution of corporate assets.

It also provides that subscriptions to the capital stock of a corporation constitute a fund to which
creditors have a right to look up to for satisfaction of their claims. The creditors of a corporation
have the right to assume that the board of directors will not use the assets of the corporation to
purchase its own stock for as long as the corporation has outstanding debts and liabilities. There
can be no distribution of assets among the stockholders without first paying corporate debts. Thus,
any disposition of corporate funds and assets to the prejudice of creditors is null and void. (Turner
vs. Lorenzo Shipping Corporation, G.R. No. 157479, November 24, 2010; Boman Environmental
Development Corporation vs. CA, G.R. No. L-77860, November 22, 1988).

20. Discuss the concept of Business Judgment Rule.

Under the Business Judgment Rule, questions of policy or of management are left solely to the
honest decision of officers and directors of a corporation, and the court is without authority to
substitute its judgment of the board of directors; 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.
(Montelibano vs. Bacolod-Murcia Milling Co., Inc., G.R. No. L-15092, May 18, 1962)

21. What is the Doctrine of Centralized Management?

The corporate powers of all corporations shall be exercised by the board of directors. Just as a
natural person may authorize another to do certain acts in his behalf, so may the board of directors
of a corporation validly delegate some of its functions to individual officers or agents appointed by
it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule
is that the declarations of an individual director relating to the affairs of the corporation, but not in
the course of, or connected with the performance of authorized duties of such director, are held
 not binding on the corporation. (Manila Metal Container Corporation vs. PNB, G.R. No. 166862,
December 20, 2006)

22. Distinguish Proxy Voting from Voting Trust.

PROXY VOTING TRUST AGREEMENT

Form Proxies shall be in writing, signed
by the stockholder or member
and filed before the scheduled
meeting with the corporate
secretary. Unless required by the
by-laws, proxies need not be
notarized nor is it required to be
filed with the SEC.
Ownership or title of Legal title to the shares remains
shares with the beneficial owner.
Rights Concerned (1) A proxy votes merely as an
agent
(2) A proxy must vote in person
(3) No right to inspect is granted,
unless separately authorized for
that purpose.
(4) A proxy cannot be voted and
cannot qualify as director of a
corporation unless he is a
stockholder in his own right.
A voting trust agreement must
be in writing and notarized, and
shall specify the terms and
conditions thereof. A certified
copy of such agreement shall be
filed with the corporation and
with the Securities and
Exchange Commission;
otherwise, said agreement is
ineffective and unenforceable.
A trustee is vested legal title to
the shares and the beneficial
owner of the shares ceased to
be stockholder of record of the
corporation.
(1) A trustee votes as owner of
the shares
(2) A Trustee may vote in person
or by proxy
(3) Right to inspect is granted. All
rights of a stockholder may be
exercised by trustees except
proprietary rights.
(4) A trustee is qualified to be
elected as director or trustee.

Duration Unless otherwise provided in the
proxy, it shall be valid only for
the meeting for which it is
intended. No proxy shall be valid
and effective for a period longer
than five (5) years at any one
time.
Revocability Revocable anytime unless
coupled with an interest
Duration may exceed five (5)
years, in case a voting trust is
specifically required as a
condition in a loan agreement
but shall automatically expire
upon full payment of the loan.
Irrevocable

23. What is cumulative voting?

Cumulative voting is the manner of voting in which the stockholder, or a member when so provided
by the by-laws of a nonstock corporation, is entitled to give a candidate as many votes as the
number of directors or trustees to be elected multiplied by the number of his shares or to distribute
them among the candidates as he may see fit. (Sec.s 23 and 88, Revised Corporation Code)
24. What is appraisal right? When can it be exercised?

It refers to the right of the stockholder to dissent and demand payment of the fair value of his
shares, after dissenting from a proposed corporate action involving a fundamental change in the
charter or articles of incorporation in the instance provided for under the Code. (Sec. 80, Revised
Corporation Code)

It can be exercised in any of the following cases:

a. In case an amendment to the articles of incorporation has the effect of changing or restricting
the rights of any stockholder or class of shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence;
b. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in the Code;
c. In case of merger or consolidation;
d. In case of investment of corporate funds for any purpose other than its primary purpose of the
corporation; (Sec. 80, Revised Corporation Code)
e. When a stockholder of a close corporation compels said corporation, for any reason, to
purchase shares at fair value, which shall not be less than the par or issued value, when the
corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital
stock. (Sec. 104, Revised Corporation Code)

Note: In items a to d, the corporation must have unrestricted retained earnings (URE). URE are
undistributed earnings of the corporation which have not been allocated for any managerial,
contractual, or legal purposes and which are free for distribution to the stockholders as dividends

25. What are the remedial rights available to stockholders and members, in case of a
wrongful or fraudulent acts of a director, officer or agent?

The remedial rights available to stockholders and members are (1) individual suit; (2)
representative or class suit; and (3) derivative suit.

An individual suit involves direct injury to the rights of stockholders and members, such as denial
of his right to inspect corporate books and records or preemptive rights. A representative or class
suit is one in which one or more members of a class sue for themselves as a class or for all to
whom the right was denied, either as an individual action or a derivative suit. A derivative suit is
an action based on injury to the corporation – to enforce a corporate right – wherein the corporation
itself is joined as a necessary party, and recovery is in favor of and for the corporation. It is a suit
granted to any stockholder to institute a case to remedy a wrong done directly to the corporation
and indirectly to stockholders.

26. How is the appropriate remedy by stockholders for wrongful or fraudulent corporate
actions determined?

The determination of the appropriate remedy by stockholders against their corporation hinges on
the object of the wrong done. When the object is a specific stockholder or a definite class of
stockholders, an individual suit or class/representative suit must be resorted to. When the object
of the wrong done is the corporation itself or “the whole body of its stock and property without
any severance or distribution among individual holders,” it is a derivative suit that a stockholder
must resort to. (Florete, Jr. vs. Florete, Sr., G.R. Nos. 174909 and 177275, January 20, 2016)
27. How may a director or trustee be removed from office?

The director or trustee may be removed either by the stockholders or members themselves or by
the Securities and Exchange Commission (SEC).

The stockholders or members may remove a director or trustee through a meeting for that purpose.
Notice must be given and such notice must contain the intention to remove a director or trustee.
During the meeting, the removal must be approved by at least 2/3 of the outstanding capital stock
or the members entitled to vote. The SEC, on the other hand may remove an officer, after due
notice and hearing, if such director or trustee was elected despite being disqualified or has become
disqualified after being in office. (Sec. 27, Revised Corporation Code)

28. A bought from B 2,200 shares of stocks of XYZ Corp evidenced by a notarized deed of
sale of shares of stocks. B endorsed and delivered the certificate of stocks to A and
requested XYZ Corp to record the sale in its stock and transfer books and to issue new
certificate of stocks in favor of A. The corporate secretary denied the recording of the
sale stating that under an existing stockholder’s resolution that existing stockholders
have the right of first refusal in the event shares of other stockholders are offered for
sale. A opposed the refusal and claimed that the restriction does not appear in the
articles of incorporation, the by-laws and the certificate of stock. He filed an action for
mandamus to compel Lexi Corp to record the sale. Can A compel the recording of the
transfer of stocks in the stock and transfer book of the corporation?

Yes. The registration of a transfer of shares of stock is a ministerial duty on the part of the
corporation. Aggrieved parties may then resort to the remedy of mandamus to compel corporations
that wrongfully or unjustifiably refuse to record the transfer or to issue new certificates of stock.
This remedy is available even upon the instance of a bona fide transferee who is able to establish
a clear legal right to the registration of the transfer. The right of a transferee/assignee to have
stocks transferred to his name is an inherent right flowing from his ownership of the stocks.
(Andaya vs. Rural Bank of Cabadbaran, G.R. No. 188769, August 3, 2016)

29. What is the effect of delinquency of stock?

A delinquent stock shall not be entitled to be voted for, to vote, or to be represented at any
stockholder’s meeting. The holder of a delinquent stock shall not be entitled to any of the rights of
a stockholder except the right to dividends, until and unless payment is made by the holder of
such delinquent stock, with accrued interest, costs and expenses of advertisement, if any. (Sec.
70, Revised Corporation Code)

30. What is a One Person Corporation? Who may or may not incorporate as such?

A One Person Corporation is a corporation with a single stockholder. Only a natural person, trust,
or an estate may form a One Person Corporation.

The following may not incorporate as a One Person Corporation:

a. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and
non-chartered government-owned and -controlled corporations;
 b. A natural person who is licensed to exercise a profession may not organize as a One Person
Corporation for the purpose of exercising such profession except as otherwise provided under
special laws. (Sec. 116, Revised Corporation Code)

31. When can an unlicensed foreign corporation be considered as doing business in the
Philippines?

Under the Continuity Test, doing business implies a continuity of commercial dealings and
arrangements, and contemplates to some extent the performance of acts or works or the exercise
of some functions normally incident to and in progressive prosecution of, the purpose and object
of its organization.

Under the Substance Test, a foreign corporation is doing business in the country if it is continuing
the body or substance of the enterprise of the business for which it was organized. ( Agilent
Technologies Singapore (Pte.) Ltd. vs. Integrated Silicon Technology Philippines Corporation, G.R.
No. 154618, April 14, 2004, citing Mentholatum vs. Mangaliman)

32. State the rules regarding the right of a foreign corporation to bring suit in Philippine
courts.

The principles regarding the right of a foreign corporation to bring suit in Philippine courts may
thus be condensed in four statements:

r. If a foreign corporation does business in the Philippines without a license, it cannot sue before
the Philippine courts;
s. If a foreign corporation is not doing business in the Philippines, it needs no license to sue
before Philippine courts on an isolated transaction or on a cause of action entirely independent
of any business transaction;
t. If a foreign corporation does business in the Philippines without a license, a Philippine citizen
or entity which has contracted with said corporation may be estopped from challenging the
foreign corporation’s corporate personality in a suit brought before Philippine courts; and
u. If a foreign corporation does business in the Philippines with the required license, it can sue
before Philippine courts on any transaction. (Agilent Technologies Singapore (PTE), Ltd. vs.
Integrated Silicon Technology Phil. Corp., G.R. No. 154618, April 14, 2004)

33. When does merger or consolidation take effect?

The merger or consolidation is effective upon issuance by the SEC of a certificate approving the
articles and plan of merger or of consolidation. (Sec. 78, Revised Corporation Code)

34. Under the Nell Doctrine, so called because it was first pronounced by the Supreme
Court in the 1965 ruling in Nell v. Pacific Farms, Inc., the general rule is that where one
corporation sells or otherwise transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the transferor. State the exceptions to
the Nell Doctrine.

The following are the exceptions to the Nell Doctrine:

(1) When the buyer expressly or impliedly assumes the liabilities of the seller;
(2) If the same amounts to a merger or consolidation;
 (3) If the sale is entered into fraudulently or made in bad faith;
(4) If the buyer is merely a continuation of the personality of the selling corporation or the so-
called business-enterprise transfer rule. (Nell Company vs. Pacific Farms Inc., G.R. No. L-
20850, November 29, 1965)

II. INTRA-CORPORATE DISPUTE (CONCEPT)

III. INTELLECTUAL PROPERTY

(COPYRIGHT, INCLUDING FAIR USE PRINCIPLE AND MORAL RIGHTS)

35. What are the kinds of intellectual property rights?

Under Sec. 4 of Republic Act No. 8293 or the Intellectual Property Code, the term “intellectual
property rights” consists of:

a. Copyright and Related Rights, referring to the literary and artistic works which are original
intellectual creations in the literary and artistic domain protected from the moment of their
creation;
b. Trademarks and Service Marks, referring to any visible sign capable of distinguishing the
goods (trademark) or services (service mark) of an enterprise and shall include a stamped or
marked container of goods;
c. Geographic Indications, pertaining to indications which identify a good as originating from
a given territory, a region or locality where a given quality, reputation or other characteristic
of the good is essentially attributable to its geographic indication (Art. 22, TRIPS Agreement);
d. Industrial Designs, or any composition of line or colors or any three-dimensional form,
whether or not associated with lines or colors; provided that such composition or form gives
a special appearance to and can serve as a pattern for an industrial product or handicraft (Sec.
112, IPC);
e. Patents, defined as any technical solution of a problem with any field of human activity which
is new, involves an inventive step and is industrially applicable (Sec. 21, Intellectual Property
Code);
f. Layout-Designs (Topographies) of Integrated Circuits, pertaining to the three-
dimensional disposition, however expressed, of the elements, at least one of which is an active
element and of some or all of the interconnections of an integrated circuit, or such a three-
dimensional disposition prepared for an integrated circuit intended for manufacture (Sec.
112.3, Intellectual Property Code); and
g. Protection of Undisclosed Information, meaning protection of information lawfully held
from being disclosed to, acquired by, or used by others without their consent in a manner
contrary to honest commercial practices so long as such information: i) is secret in the sense
that it is not, as a body or in the precise configuration and assembly of its components,
generally known among or readily accessible to persons within the circles that normally deal
with the kind of information in question; ii) has commercial value because it is a secret; and
iii) has been subject to reasonable steps under the circumstances, by the person lawfully in
control of the information, to keep it secret.) (Art. 39, TRIPS Agreement)
36. Distinguish trademark, patent and copyright from one another.

TRADEMARK PATENT COPYRIGHT

Definition Any visible sign Exclusive right granted Right granted to the
capable of to an inventor over an author or originator of
distinguishing the invention or a utility certain literary or
goods (trademark) or model or industrial artistic productions,
services (service mark) design to sell, use, whereby he or she is
of an enterprise and and make the same invested, for a specific
shall include a for commerce and period, with the sole
stamped or marked industry and exclusive privilege
container of goods of multliplying copies
(Sec. 121.1, of the same and
Intellectual Property publishing and selling
Code, as amended) them (Kensonic, Inc.
vs. Uni-Line Multi
Tradename – name or Resources, Inc.
designation identifying (Phils.), G.R. Nos.
or distinguishing an 211820-21, June 6,
enterprise (Sec. 121.3, 2018; Juan vs. Juan,
Intellectual Property G.R. No. 221372,
Code, as amended) August 23, 2017)
Scope Attaches to goods or Covers any technical Confined to literary
services of an solution of a problem and artistic work, and
enterprise and in any field of human scientific and scholarly
stamped or marked activity which is new, works which are
containers involves an inventive original intellectual
step, and is industrially creations in the literary
applicable and artistic domain
Term of Certificate of 20 years from filing of Generally, during the
protection registration remains in the application for the life of the author and
force for 10 years, grant of patent (Sec. for 50 years after his
provided the registrant 54, Intellectual death (also applicable
shall file a declaration Property Code, as to posthumous works),
of actual use and amended) subject to the
evidence to that effect, provisions of Sec.s
or shall show valid 213.2 to 213.5 of the
reasons based on the Intellectual Property
existence of obstacles Code, as amended
to such use, within one (Sec. 213.1,
(1) year from the fifth Intellectual Property
anniversary of the date Code, as amended)
of the registration of
the mark. Otherwise,
the mark shall be
removed from the
Register. (Sec. 145,
Intellectual Property
Code, as amended)
Commencement Requires registration Requires registration Protected from the
of protection of before the Code can before the Code can moment of creation
right protect them against protect them against (Sec. 172, Intellectual
 TRADEMARK PATENT COPYRIGHT
third person third person Property Code, as
competitors competitors amended)

Exception:
Trade name – acquired
by use; protected,
even prior to or
without registration,
against any unlawful
act committed by third
parties (Sec. 165.2(a),
Intellectual Property
Code, as amended)
Remedies First act of trademark First act of patent First act of copyright
against infringement gives rise infringement does not infringement gives rise
infringement to criminal liability. give rise to criminal to criminal liability.
liability. Infringer can
only be held criminally
liable if he repeats the
commission of the
same infringing acts
after finality of the
court judgment
against him in a civil
action for
infringement. (Sec.s
76 and 84, Intellectual
Property Code, as
amended)

37. A has been using the name and mark "Lavandera Ko" in his laundry business since
1994. He has a certificate of copyright over said name and mark. Over the years, his
business expanded with numerous franchise outlets in the Philippines. A then formed
a corporation to handle the said business. He called it Laundromatic Corporation
(Laundromatic) and it was incorporated in 1997, while "Lavandera Ko" was registered
as a business name in 1998 with the Department of Trade and Industry (DTI).

Later on, A discovered that his brother, B, was able to register the name and mark
"Lavandera Ko" with the Intellectual Property Office (IPO) in 2010, the registration of
which was filed in 1995. He also discovered that B had been selling A’s franchises. Thus,
A filed a petition for injunction, unfair competition, infringement of copyright,
cancellation of trademark and name before the RTC. The RTC dismissed the action,
finding that neither party was the originator of the subject mark. The judge ruled that
the mark was created by a certain C in 1942 in his musical composition "Lavandera
Ko.” Is the RTC correct?

No. The RTC’s ruling is erroneous as it confused trade or business name with copyright. “Lavandera
Ko,” the mark in question in this case is being used as a trade name or specifically, a service name
since the business in which it pertains involves the rendering of laundry services. As such, the basic
contention of the parties is who between them has the better right to use “Lavandera Ko” as a
 service name, given that the law guarantees the protection of trade names and business names
prior to or even without registration, against any unlawful act committed by third parties. A cause
of action arises when the subsequent use of any third party of such trade name or business name
would likely mislead the public as such act is considered unlawful.

Hence, the RTC erred in denying the parties the proper determination as to who has the ultimate
right to use the said trade name by ruling that neither of them has the right or a cause of action
since ‘Lavandera Ko” is protected by a copyright. The case was remanded to the RTC to determine
who between A and B has a better right over “Lavandera ko”. (Fernando Juan v. Roberto Juan,
G.R. No. 221372, August 23, 2017)

38. What are technology transfer arrangements?

These refer to contracts or agreements involving the transfer of systematic knowledge for the
manufacture of a product, the application of a process, or rendering of a service including
management contracts; and the transfer, assignment or licensing of all forms of intellectual
property rights, including licensing of computer software except computer software developed for
mass market. (Sec. 4.2, Intellectual Property Code, as amended)

It is in the nature of a licensing contract, where the licensor is the Intellectual property rights
owner, and the licensee is the second party who was granted authority to commercially exploit the
same intellectual property right.

39. What are the prohibited stipulations in technology transfer agreements?

The following stipulations are prohibited in technology transfer agreements:

a. Those which impose upon the licensee the obligation to acquire from a specific source capital
goods, intermediate products, raw materials, and other technologies, or of permanently
employing personnel indicated by the licensor;
b. Those pursuant to which the licensor reserves the right to fix the sale or resale prices of the
products manufactured on the basis of the license;
c. Those that contain restrictions regarding the volume and structure of production;
d. Those that prohibit the use of competitive technologies in a non-exclusive technology
transfer agreement;
e. Those that establish a full or partial purchase option in favor of the licensor;
f. Those that obligate the licensee to transfer for free to the licensor the inventions or
improvements that may be obtained through the use of the licensed technology;
g. Those that require payment of royalties to the owners of patents for patents which are not
used;
h. Those that prohibit the licensee to export the licensed product unless justified for the
protection of the legitimate interest of the licensor such as exports to countries where
exclusive licenses to manufacture and/or distribute the licensed product(s) have already been
granted;
i. Those which restrict the use of the technology supplied after the expiration of the technology
transfer arrangement, except in cases of early termination of the technology transfer
arrangement due to reason(s) attributable to the licensee;
j. Those which require payments for patents and other industrial property rights after their
expiration, termination arrangement;
k. Those which require that the technology recipient shall not contest the validity of any of the
patents of the technology supplier;
 l. Those which restrict the research and development activities of the licensee designed to
absorb and adapt the transferred technology to local conditions or to initiate research and
development programs in connection with new products, processes or equipment;
m. Those which prevent the licensee from adapting the imported technology to local conditions,
or introducing innovation to it, as long as it does not impair the quality standards prescribed
by the licensor;
n. Those which exempt the licensor for liability for non-fulfilment of his responsibilities under
the technology transfer arrangement and/or liability arising from third party suits brought
about by the use of the licensed product or the licensed technology; and
o. Other clauses with equivalent effects. (Sec. 87, Intellectual Property Code, as amended)

40. What contractual stipulations are required in all technology transfer agreements?

The following stipulations are required in all technology transfer arrangements:

a. That the laws of the Philippines shall govern the interpretation of the same and in the event
of litigation, the venue shall be the proper court in the place where the licensee has its
principal office;
b. Continued access to improvements in techniques and processes related to the technology
shall be made available during the period of the technology transfer arrangement;
c. In the event the technology transfer arrangement shall provide for arbitration, the Procedure
of Arbitration of the Arbitration Law of the Philippines or the Arbitration Rules of the United
Nations Commission on International Trade Law (UNCITRAL) or the Rules of Conciliation and
Arbitration of the International Chamber of Commerce (ICC) shall apply and the venue of
arbitration shall be the Philippines or any neutral country; and
d. The Philippine taxes on all payments relating to the technology transfer arrangement shall be
borne by the licensor. (Sec. 88, Intellectual Property Code, as amended)

41. What are the requisites for the patentability of an invention?

The requisites for the patentability of an invention under Sec. 21 of the Intellectual Property
Code are:
a. Novelty or newness - The invention shall not form part of a prior art (Sec. 23, Intellectual
Property Code, as amended);
b. An inventive step – This is satisfied if having regard to prior art, it is not obvious to a
person skilled in the art at the time of the filing date or priority date of the application
claiming the invention (Sec. 26.1, Intellectual Property Code, as amended) ; and
c. Industrial applicability – The invention should be capable of being produced and used in
any industry (Sec. 27, Intellectual Property Code, as amended).

42. What is the first-to-file rule?

The first-to-file rule states that:

a. If two (2) or more persons have made the invention separately and independently of each
other, the right to the patent shall belong to the person who filed an application for such
invention;
b. Where two or more applications are filed for the same invention, patent will issue to the
applicant who has the earliest filing date or, the earliest priority date; and
d. If two or more applications for the same invention have the same filing date or priority date,
the patent will be issued jointly to all applicants. (Sec. 29, Intellectual Property Code, as
amended).
43. Who owns the patent to an invention created pursuant to a commission but not under
an employer-employee relationship?

General Rule: The one who commissioned the work shall own the patent.
Exception: There is a contrary stipulation. (Sec. 30.1, Intellectual Property Code, as amended).

44. Who owns the patent to an invention created by an employee?

In case the employee made the invention in the course of his employment contract, the patent
shall belong to:

a. The employee, if the inventive activity is not a part of his regular duties even if the employee
uses the time, facilities and materials of the employer;
b. The employer, if the invention is the result of the performance of his regularly-assigned
duties, unless there is an agreement, express or implied, to the contrary. (Sec. 30.1,
Intellectual Property Code, as amended).

45. What is the Doctrine of Right of Priority?

It provides that a patent filed by any person who has previously applied for the same invention in
another country which by treaty, convention, or law affords similar privileges to Filipino citizens,
shall be considered as filed as of the date of filing the foreign application, subject to the following
requirements:

a. That the local application expressly claims priority;

b. It is filed within twelve (12) months from the date the earliest foreign application was filed;
and
c. Certified copy of the foreign application together with an English translation is filed within six
(6) months from the date of filing in the Philippines. (Sec. 30.1, Intellectual Property Code,
as amended).

46. What are the remedies of the true and actual inventor deprived of the patent without
his consent or through fraud?

If he is declared by final court order or decision to be the true and actual inventor, the court shall
order for his substitution as patentee, or at the option of the true inventor, cancel the patent,
and award actual and other damages in his favor if warranted by the circumstances. (Sec. 68,
Intellectual Property Code, as amended)

47. X invented a device which, through the use of noise, can recharge a cellphone battery.
He applied for and was granted a patent on his device, effective within the Philippines.
As it turns out, a year before the grant of X’s patent, Y, also an inventor, invented a
similar device which he used in his cellphone business in Manila. X files an injunctive
suit against Y to stop him from using the device on the ground of patent infringement.
Will the suit prosper?

No. Y is a prior user in good faith. Under Sec. 73.1 of the Intellectual Property Code, as amended,
any user, who, in good faith was using the invention or has undertaken serious preparations to use
the invention in his enterprise or business, before the filing date or priority date of the application
on which a patent is granted, shall have the right to continue the use thereof as envisaged in such
preparations within the territory where the patent produces its effect.
48. What are the limitations on the use of invention by the government?

The limitations on the use of invention by the government are:

a. The scope and duration of the use shall be limited to the purpose for which it was authorized
(Sec. 74.2(d), Intellectual Property Code, as amended) ;
b. Such use shall be non-exclusive (Sec. 74.2(e), Intellectual Property Code, as amended) ;
c. The right holder shall be Notified as soon as reasonably practicable (Sec. 74.2(b),
Intellectual Property Code, as amended); and
d. The right holder shall be paid adequate remuneration in the circumstances of each case,
taking into account the economic value of the authorization (Sec. 74.2(f), Intellectual
Property Code, as amended);

49. What are the two tests in patent infringement? How are these tests used?

The two tests in Patent Infringement are literal infringement and the doctrine of equivalents.

In using literal infringement as a test, resort must be had, in the first instance, to the words of
the claim. To determine whether the particular item falls within the literal meaning of the patent
claims, the court must juxtapose the claims of the patent and the accused product within the
overall context of the claims and specifications, to determine whether there is exact identity of all
material elements.

Under the doctrine of equivalents, an infringement occurs when a device appropriates a prior
invention by incorporating its innovative concept and, albeit with some modification and change,
performs substantially the same function in substantially the same way to achieve substantially the
same result. (Godines vs. CA, G.R. No. 97343, September 13, 1993)

50. What is voluntary licensing?

Voluntary licensing is the grant by the patent owner to a third person of the right to exploit a
patented invention. It is used to encourage the transfer and dissemination of technology and to
prevent or control practices that may have an adverse effect on competition and trade. (Sec. 85,
Intellectual Property Code, as amended)

51. What are the rights of a licensor in voluntary licensing?

In the absence of any provision to the contrary in the technology transfer arrangement, the grant
of a license shall not prevent the licensor from granting further licenses to third person nor from
exploiting the subject matter of the technology transfer arrangement himself. (Sec. 89, Intellectual
Property Code, as amended)

52. What is compulsory licensing?

Compulsory Licensing is the grant of the Director of Legal Affairs of a license to exploit a patented
invention, even without the agreement of the patent owner, in favor of any person who has shown
his capability to exploit the invention. (Sec. 93, Intellectual Property Code, as amended)
53. X invented and patented a miracle medicine for the cure of COVID-19. Being the sole
manufacturer, X sold the medicine at an exorbitant price. Because of the current high
prevalence of COVID-19 nationwide, the Department of Health (DOH) asked X for a
license to produce and sell the medicine to the public at a substantially lower price. X
refused, citing the huge costs and expenses incurred for research and development.
Assuming you are the legal consultant of DOH, how will you resolve the matter?

DOH may file a petition for compulsory license with the Director of Legal Affairs of the
Intellectual Property Office to exploit the patented medicine even without the agreement of X on
the ground of public interest, in particular, health. (Sec. 93.2, Intellectual Property Code, as
amended). Once granted, the DOH may then produce and sell the medicines for a cheaper price
subject to payment of reasonable royalties to X.

54. How is trademark acquired?

It shall be acquired through registration made validly in accordance with the provisions of the law
(Sec. 152.1, Intellectual Property Code, as amended).

Note: The Supreme Court has abandoned its previous rulings that registration does not confer
ownership of the trademark and that the first user in good faith defeats the right of the first filer
in good faith. It held that trademarks are acquired solely through registration. (Zuneca
Pharmaceutical vs. Natrapharm, Inc., G.R. No. 211850, September 8, 2020)

55. How is the ownership of trade name acquired?

Trade name is acquired by use. Notwithstanding any laws or regulations providing for any
obligation to register trade names, such names shall be protected, even prior to or without
registration, against any unlawful act committed by third parties (Sec. 165.2(a), Intellectual
Property Code, as amended). In particular, any subsequent use of the trade name by a third party,
whether as a trade name or a mark or collective mark, or any such use of a similar trade name or
mark, likely to mislead the public, shall be deemed unlawful (Sec. 165.2(b), Intellectual Property
Code, as amended).

56. Fredco filed a Petition for Cancellation of Registration No. 12345 before the Bureau of
Legal Affairs of the Intellectual Property Office (IPO) against Harvard University, a
corporation organized and existing under the laws of Massachusetts, USA. Fredco
alleged that Registration No. 12345 was issued to Harvard University for the mark
“Harvard Veritas Shield Symbol” for decals, bags, serving trays sweatshirts, t-shirts,
hats and flying discs. Fredco alleged that the mark “Harvard” for t-shirts, polo shirts,
sandos, briefs, jackets, and slacks was first used in the Philippines by New York
Garments, Fredco’ predecessor-in-interest. Harvard University argued that it is the
lawful owner of the name and mark “Harvard” in numerous countries worldwide,
including Philippines. Fredco made use of the mark “Harvard” for jeans coupled with a
claim that it originated in Cambridge. Was Fredco’s registration of such mark valid?

No. The law prohibits the registration of a mark “which may disparage or falsely suggest a
connection with persons, living or dead, institutions, beliefs.” Fredco’s use of the mark “Harvard,”
coupled with its claimed origin in Cambridge, Massachusetts, obviously suggests a false connection
with Harvard University. On this ground, Fredco’s registration of the mark “Harvard” should have
been disallowed. (Fredco Manufacturing Corporation vs. President and Fellows of Harvard College,
G.R. No. 185917, June 1, 2011)
57. Distinguish between Dominancy Test and Holistic Test.

The Dominancy Test focuses on the similarity of the dominant features of the competing
trademarks that might cause confusion, mistake, and deception in the mind of the ordinary
purchaser, and gives more consideration to the aural and visual impressions created by the marks
on the buyers of goods, giving little weight to factors like prices, quality, sales outlets, and market
segments.

In contrast, the Holistic or Totality Test considers the entirety of the marks as applied to the
products, including the labels and packaging, and focuses not only on the predominant words but
also on the other features appearing on both labels to determine whether one is confusingly similar
to the other as to mislead the ordinary purchaser. (Great White Shark Enterprises, Inc. vs. Caralde,
G.R. No. 192294, November 21, 2012)

58. What is the idem sonans rule in trademark?

Under this rule, two names are said to be “idem sonans” if the attentive ear finds difficulty in
distinguishing them when pronounced. (Martin vs. State, 541 S.W. 2d 605) A mark with a different
spelling but is similar in sound with a registered trademark when read may be ruled as being
confusingly similar with the said registered mark. (Divina, Divina on Commercial Law Volume II,
2021, p. 267)

59. What is the rule on the registrability of well-known marks?

If the well-known mark is registered in the Philippines, any mark identical with, confusingly
similar to, or constitutes a translation of such well-known mark, cannot be used for identical goods
or services or be registered in the Philippines with respect to goods or services which are not similar
to those with respect to which registration is applied for: provided, that use of the mark would
indicate a connection between the goods or services and the owner of the registered mark, and
that the interests of the owner of the registered mark are likely to be damaged by such use.

If the well-known mark is not registered in the Philippines, the scope of protection only
extends to marks used for identical goods or services. (Sec. 123.1(e), Intellectual Property Code,
as amended)

60. Is it necessary that a foreign well-known mark be registered in the Philippines before
said well-known mark may be protected in the Philippines?

No. The fact that a foreign well-known mark is neither registered nor used in the Philippines is of
no moment. The scope of protection initially afforded by Art. 6(b) of the Paris Convention has been
expanded in the 1999 Joint Recommendation Concerning Provisions on the Protection of Well-
Known Marks, wherein the World Intellectual Property Organization (WIPO) General Assembly and
the Paris Union agreed to a non-binding recommendation that a well-known mark should be
protected in a country even if the mark is neither registered nor used in that country. (Sehwani
Inc. and/or Benita‘s Frites Inc. vs. In-N-Out Burger, Inc. G.R. No. 171053, October 15, 2007)
61. What are the elements of trademark infringement?

The elements of trademark infringement are the following:

a. The trademark being infringed is registered in the Intellectual Property Office;

b. The trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer;
c. The infringing mark is used in connection with the sale, offering for sale, or advertising of
any goods, business or services; or the infringing mark is applied to labels, signs, prints,
packages, wrappers, receptacles or advertisements intended to be used upon or in
connection with such goods, business or services;
d. The use or application of the infringing mark is likely to cause confusion or mistake or to
deceive purchasers or others as to the goods or services themselves or as to the source or
origin of such goods or services or the identity of such business; and
e. The use or application of the infringing mark is without the consent of the trademark owner
or the assignee thereof. (Diaz vs. People of the Philippines, G.R. No. 180677, February 18,
2013)

62. What are the remedies of the owner of the registered trademark if his rights to the
trademark are infringed?

The remedies of the owner of the registered trademark if his rights to the trademark are
infringed are:

a. Filing a civil action for trademark infringement to recover damages from the infringer. The
measure of damages shall either be the reasonable profit which the owner would have made
had the infringer not infringe the owner’s rights, or the profit which the infringer actually
made out of the infringement, or such reasonable percentage to be determined by the court
if the mentioned measures cannot be reasonably ascertained;
b. Recovery of attorney’s fees and the costs of suit;
c. Application with the court for the issuance of an order to impound during the pendency of
the civil action;
d. Application for injunction;
e. Application with the court for the issuance of an order to destroy infringing materials and
goods;
f. Filing of a criminal action for trademark infringement. (Secs. 156, 157, and 170, Intellectual
Property Code, as amended)

63. Is notice required in order to recover damages for infringement?

Yes. In any suit for infringement, the owner of the registered mark shall not be entitled to recover
profits or damages unless the acts have been committed with knowledge that such imitation is
likely to cause confusion, or to cause mistake, or to deceive. Such knowledge is presumed if the
registrant gives notice that his mark is registered by displaying with the mark the words “Registered
Mark” or the letter R within a circle or if the defendant had otherwise actual notice of the
registration. (Sec. 180, Intellectual Property Code, as amended)

64. What are the acts constituting unfair competition?

Any person shall be guilty of unfair competition who shall:

 a. Employ deception, or any other means contrary to good faith by which he shall pass off the goods
manufactured by him or in which he deals, or his business, or services for those of the one having
established such goodwill; or
b. Commit any acts calculated to produce said result. (Sec. 168.2, Intellectual Property Code, as
amended)

65. Who may use the Madrid System for the international registration of trademarks?

An application for international registration may be filed only by a natural person or legal entity
having a connection through establishment, domicile, or nationality with a Contracting Party to the
Madrid Agreement or the Protocol.

A mark may be the subject of an international application only if it has already been registered
with the trademark office of the Contracting Party with which the applicant has the necessary
connections (referred to as the office of origin). However, where all the designations are effected
under the Protocol, the international application may be based simply on an application for
registration filed with the office of origin. An international application must be presented to the
International Bureau of WIPO through the intermediary of the office of origin. (Summary of the
Madrid Agreement Concerning the International Registration of Marks (1891) and the Protocol
Relating to that Agreement (1989) as prepared by the WIPO)

66. What is the term of protection under the Madrid Protocol?

The term of protection under the Madrid Protocol is valid for ten (10) years from the date of
registration. The registration is renewable at the end of each 10-year period directly with the WIPO
with effect in the designated Contracting Parties concerned . (Art. 6, Madrid Protocol)

67. X and Y are famous personalities in show business who kept their live affair secret.
They use a special instant messaging service which allows them to see one another’s
typing on their own screen as each letter key is pressed. When A, the controller of the
service facility, found out their identities, he kept a copy of all the messages X and Y
sent each other and published them. Is A liable for copyright infringement? Why or
why not?

Yes. Under the law, text messages are not expressly enumerated as among the copyrightable
works. However, these messages are akin to letters or may at least fall under “other literary,
artistic, scientific, and scholarly works.” They are therefore protected from the moment of creation
(Sec. 172.1, Intellectual Property Code, as amended). The publication of the messages without the
consent of their writers constitutes infringement of copyright.

68. What are the requirements of to be entitled to a copyright?

To be entitled to copyright, the thing being copyrighted must be original, created by the author
through his own skill, labor and judgment, without directly copying or evasively imitating the work
of another. (Sambar vs. Levi Strauss, G.R. No. 132604, March 6, 2002)

69. What is the scope of protection for derivative works?

Derivative works shall be protected as new works. However, such new work shall not affect the
force of any subsisting copyright upon the original works employed or any part thereof, or be
 construed to imply any right to such use of the original works, or to secure or extend copyright in
such original works. (Sec. 173.2, Intellectual Property Code, as amended)

70. What original works are not protected by copyright?

No protection shall extend, under this law, to the following:

a. Any idea, procedure, system, method or operation, concept, principle, discovery or mere data
as such, even if they are expressed, explained, illustrated or embodied in a work;
b. News of the day and other miscellaneous facts having the character of mere items of press
information;
c. Any official text of a legislative, administrative or legal nature, as well as any official translation
thereof;
d. Any work of the Government of the Philippines (prior approval of the government agency or
office wherein the work is created is necessary for exploitation of such work for profit); and
e. Statutes, rules and regulations, and speeches, lectures, sermons, addresses, and dissertations,
pronounced, read, or rendered in courts of justice, before administrative agencies, in
deliberative assemblies and in meetings of public character. (Secs 174, 176.1, and 176.2,
Intellectual Property Code, as amended)
71. What are the rules on copyright ownership?

The rules on ownership under the Intellectual Property Code, as amended, are as follows:

TYPE OF WORK OWNER

Only one creator Copyright shall belong to the author of the work. (Sec. 178.1)

Joint ownership General Rule: The co-authors shall be the original owners of the
copyright and in the absence of agreement, their rights shall be
governed by the rules on co-ownership.

Exception: If, however, a work consists of parts that can be used

separately and the author of each part can be identified, the author of
each part shall be the original owner of the copyright in the part that
he has created. (Sec. 178.2)
Created in the The copyright shall belong to:
course of (a) The employee, if the creation of the object of copyright is not a part
employment of his regular duties even if the employee uses the time, facilities
and materials of the employer.
(b) The employer, if the work is the result of the performance of his
regularly-assigned duties, unless there is an agreement, express or
implied, to the contrary. (Sec. 178.3)
Commissioned General Rule: The person who so commissioned the work shall have
work ownership of the work, but the copyright thereto shall remain with the
creator.

Exception: There is a written stipulation to the contrary. (Sec. 178.5)

Letters Person/s to whom they are addressed and delivered. (Sec. 178.6)
Anonymous or General Rule: The publishers shall be deemed to represent the
pseudonymous authors of articles and other writings published without the names of
works the authors or under pseudonyms.
 Exception: The contrary appears, or the pseudonyms or adopted
name leaves no doubt as to the author's identity, or if the author of
the anonymous works discloses his identity. (Sec. 179)

72. What is the doctrine of fair use?

Under this doctrine, the fair use of a copyrighted work for criticism, comment, news reporting,
teaching including limited number of copies for classroom use, scholarship, research, and similar
purposes is not an infringement of copyright. (Sec. 185, Intellectual Property Code, as amended)

73. What are the factors to be considered in determining fair use?

The four factors in determining fair use are the following:

a. The purpose and character of the use, including whether such use is of a commercial nature
or is for non-profit educational purposes;
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in relation to the copyrighted work as a
whole; and
d. The effect of the use upon the potential market for or value of the copyrighted work. (Sec.
185, Intellectual Property Code, as amended)

74. How is copyright infringement committed?

Copyright infringement is committed when a person:

a. Directly commits an infringement;

b. Benefits from the infringing activity of another person who commits an infringement if the
person benefiting has been given notice of the infringing activity and has the right and
ability to control the activities of the other person;
c. With knowledge of infringing activity, induces, causes or materially contributes to the
infringing conduct of another. Sec. 216, Intellectual Property Code, as amended)

75. Atty. X was the author of Law for Dummies. While Atty. X was researching for books to
assist him in updating his own book, he chanced upon the book of Y entitled Surviving
Law School. He discovered further that the book of Y was strikingly similar to the
contents, scheme of presentation, illustrations and illustrative examples of Law for
Dummies. Atty. X sued Y and the latter’s publisher for infringement and/or unfair
competition with damages. Y, in his defense, alleged that his book was not a copy of
any existing valid copyrighted book and that the similarities may be due to the authors'
exercise of the "right to fair use of copyrighted materials, as guides. Is Y’s argument
tenable?

No. Y’s act of lifting from the book of Atty. X’s substantial portions of discussions and examples,
and his failure to acknowledge the same in his book is an infringement of Atty. X’s copyrights.
Substantial reproduction of a book does not necessarily require that the entire copyrighted work,
or even a large portion of it, be copied. If so much is taken that the value of the original work is
substantially diminished, there is an infringement of copyright and to an injurious extent, the
work is appropriated. (Habana vs. Robles, G.R. No. 131522, July 19, 1999)
76. X was charged with copyright infringement. In her defense she argues that copyright
infringement is malum in se, in that copying alone is not what is being prohibited, but
its injurious effect which consists in the lifting from the copyright owners’ film or
materials, that were the result of the latter’s creativity, work and productions and
without authority, reproduced, sold and circulated for commercial use to the detriment
of the latter. Is X’s argument tenable?

No. In its current form, the Intellectual Property Code is malum prohibitum and prescribes a strict
liability for copyright infringement. Good faith, lack of knowledge of the copyright, or lack of intent
to infringe is not a defense against copyright infringement. (ABS CBN vs. Gozon G.R. No. 195956
March 11, 2015)

IV. INSURANCE (WHAT CAN BE INSURED, CLAIMS FOR LIFE INSURANCE)

77. What is the test to determine if a contract is an insurance contract or not?

The test depends on the nature of the promise, the act required to be performed, and the exact
nature of the agreement in the light of the occurrence, contingency, or circumstances under which
the performance becomes requisite. An insurance contract is a contract of indemnity wherein one
undertakes for a consideration to indemnify another against loss, damage, or liability arising from
an unknown or contingent event (White Gold Marine Services, Inc. vs. Pioneer Insurance and
Surety Corp., G.R. No. 154514, July 28, 2005).

78. What are the elements of an insurance contract?

The elements of an insurance contract are (a) payment of premium, (b) assumption of risk by the
insurer, (c) risk of loss to the insured, (d) insurable interest, and (e) scheme to distribute losses
(Gulf Resorts, Inc. v. Philippine Charter Insurance Corporation, G.R. No. 156167, May 16, 2005).

79. In marine insurance, when the cargo was lost due to the ship being unseaworthy, may
the shipper, who has no knowledge of the unseaworthiness of the ship, be entitled to
the proceeds of the insurance policy?

No. The fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy. The cargo owner is required to look for a common carrier that keeps its
vessels seaworthy. In the absence of stipulation that insurer answers for perils of the ship,
insurance cannot be recovered on losses from perils of the ship (Roque vs. IAC, G.R. No. L-66935,
November 11, 1985).
80. Differentiate perils of the sea and perils of the ship.

PERILS OF THE SEA PERILS OF THE SHIP

Cause of Loss Fortuitous accidents or casualties
of the seas (Aquino, Essentials of
Insurance Law, 2018, p. 310)
Compensability Generally compensable
a. Natural and inevitable action
of the sea;
b. Ordinary wear and tear of the
ship; or
c. Negligent failure of the ship’s
owner to provide the vessel
with proper equipment to
convey the cargo under
ordinary conditions (Aquino,
Essentials of Insurance Law,
2018, p. 311)
Not compensable unless the
insurance policy is an “All Risk
Marine Insurance Policy”

81. What is Compulsory Motor Vehicle Liability Insurance (CMVLI)?

It is an insurance policy that directly insures against liability. The insurer’s liability accrues
immediately upon the occurrence of the injury upon which liability depends, and does not depend
on the recovery of judgment by the injured party against the insured.

It is a contract of insurance against passenger and third-party liability for death or bodily injuries
and damage to property arising from motor vehicle accidents ( Sec. 386(f), Insurance Code).

82. What is an insurable interest?

An insurable interest is that interest which a person is deemed to have in the subject matter
insured, where he has a relation or connection with or concern in it, such that the person will derive
pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the happening of the event
insured against. (Lalican vs. The Insular Life Assurance Company Limited, G.R. No. 183526, August
25, 2009)

83. Discuss the insurable interest of a mortgagor and a mortgagee with respect to a
mortgaged property.

The insurable interests of the mortgagor and mortgagee are separate and distinct. The mortgagor,
as owner of the property, has insurable interest over the property to the extent of its value. The
mortgagee has insurable interest to the extent of the debt secured and such interest continues
until the mortgage debt is extinguished (Rizal Commercial Banking Corp. vs. CA, G.R. No. 128833,
April 20, 1998).
84. Differentiate insurable interest in life insurance and insurable interest in property
insurance.
LIFE INSURANCE PROPERTY INSURANCE
Extent Unlimited, except if secured by Limited to the value of the
the creditor property

Time when the At the time of the perfection of At the time of perfection of the
insurable interest the insurance contract contract and at the time of the
must exist loss

Need for legal basis Expectation of benefit need not Expectation of benefit must have
have legal basis or need not be legal basis.
based on legally enforceable
obligation.
Beneficiary’s interest Insurable interest is not Beneficiary must have insurable
necessary if the insured took out interest.
the policy on his own life and
designated another.

Beneficiary must have insurable

interest if one took out an
insurance on the life of another.

85. Differentiate double insurance and over-insurance.

DOUBLE INSURANCE OVER INSURANCE

Value of Policy/ies The subject, although insured A property is insured for an
by several insurers, is not amount in excess of its value.
necessarily insured for an
amount in excess of its value.

Number of Insurers There are always several There may be one or several
insurers. insurer/s involved.

Applicability in Life and There can be double There can be no over-

Property Insurance insurance in both life and insurance in life insurance.
property insurance.

86. Differentiate double insurance and reinsurance.

DOUBLE INSURANCE REINSURANCE

Capacity of the Insurer The insurer remains in such The insurer becomes an
capacity only. insured (reinsured) in the
reinsurance policy.

Number of Insured There is only one insured. There are two separate
insured.
 Subject Matter The subject matter is the The subject matter is the
property insured. liability of the insured.

Interest Insured The same interest is insured. It involves separate interests.

Perils Insured Against Same peril is insured against Different perils are insured
in separate policies. against in separate policies.

87. A is the proud owner of a newly-built house worth Php 5,000,000.00. As a protection
against any possible loss or damage to his house, A applied for a fire insurance thereon
with B Company on October 11, 2019 and paid the premium in cash. It took the
company a week to approve A’s application. On October 18, 2019, B Company mailed
the approved policy to A which the latter received five (5) days later. However, A’s
house had been razed by fire which transpired a day before his receipt of the approved
policy. A filed a written claim with B Company under the insurance policy. Decide A’s
claim with reasons.

A’s claim should be denied. What governs insurance contract is the cognition theory whereby
the insurance contract is perfected only from the time the applicant came to know of the acceptance
of the offer by the insurer. In this case, the loss occurred a day prior to A’s knowledge of the
acceptance by B Company of his application. There being no perfected insurance contract, A is not
entitled to recover from B Company. (Great Pacific Life Assurance Corporation vs. CA, G.R. No. L-
31845, April 30, 1979)

88. What is the effect of non-payment of the first premium?

The obligation of the insurer will not become valid and binding if the first premium has not been
paid. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by
an insurance company is valid and binding unless and until the premium thereof has been paid
(Sec. 77, Insurance Code).

89. When is an insurance contract binding even if premium is unpaid?

The exceptions to the rule that the insurance contract is not valid and binding unless the premiums
have paid are:

a. When the grace period applies in case of life and industrial life policy;
b. When there is an acknowledgment in the policy or receipt that the premium has been paid;
c. When there is an agreement that the premium shall be payable on installment;
d. When there is a credit extention; and
e. When the equitable doctrine of estoppel applies ( UCPB General Insurance Co., Inc. vs.
Masagana Telemart, Inc., G.R. No. 137172, April 4, 2001).

90. Does the right of the insured to reinstatement of a life insurance give him or her an
absolute right to reinstatement?

No. The insurer has the right to deny the reinstatement if the following circumstances are present:
(1) the insurer is not satisfied as to the insurability of the insured; and (2) if the insured does not
 pay the overdue premiums and all other indebtedness to the insurance company ( Andres vs. The
Crown Life Insurance Company, G.R. No. L-10874, January 28, 1958).

91. When is the return of premium warranted?

The return of premium is warranted in the following cases:

a. When the thing was not exposed to the peril insured against (Sec. 80(a), Insurance Code);
b. “Time policy” when the policy is surrendered before the expiration of the stipulated ( Sec. 80(b),
Insurance Code);
c. When the contract is voidable and subsequently annulled under the provisions of the Civil Code
(Sec. 82, Insurance Code);
d. When the contract is annulled on account of the fraud or misrepresentation of the insurer or
of his agent or on account of facts, or the existence of which the insured was ignorant of
without his fault (Sec. 82, Insurance Code);
e. When by any default of the insured other than actual fraud, the insurer never incurred liability
under the policy (Sec. 82, Insurance Code); and
f. When there is over-insurance by several insurers (Sec. 83, Insurance Code).

92. What is the test of materiality in concealment and in representation?

Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in forming his estimate
of the disadvantages of the proposed contract, or in making his inquiries ( Secs. 31 and 46,
Insurance Code).

93. X applied for life insurance with Metropolitan Life Insurance Company. The application
contained the question, “Have you ever had any ailment or disease of the stomach or
intestines, liver, kidney or genitourinary organ?” X, a laundry woman who has no
medical knowledge answered “No.” The application was approved and premium was
paid. Six months later, X died from stomach cancer. The post-mortem examination of
X shows that she had the cancer at the time she applied for a policy. Can the beneficiary
of X collect on the policy? Explain.

No, the beneficiary of X cannot collect on the policy. The matter concealed was material. Hence,
the insurer has a valid defense against the beneficiary. The defense is available even if X was not
aware of her fatal illness because Sec. 27 of the Insurance Code gives the right to the insurer to
avoid the policy whether the concealment is intentional or unintentional. \

94. On June 18, 1997, A applied for and was granted a housing loan by XYZ Bank. This loan
was secured by a promissory note, a real estate mortgage over the lot, and a mortgage
redemption insurance taken on the life of A with XYZ Bank as beneficiary. A died. A
year after his death, XYZ Bank filed with Secured Life a death claim under A’s name
pursuant to the Group Mortgage Redemption Insurance. Secured Life denied the claim
after determining that A was not eligible for coverage as he was supposedly more than
60 years old at the time of his loan’s approval. Relying on A’s Health Statement Form
where he wrote “1942” as his birth year, Secured Life rescinded the Group Mortgage
Redemption Insurance obtained by XYZ Bank on A’s life. Is A guilty of fraudulent
 misrepresentation as to warrant the rescission of the Group Mortgage Redemption
Insurance obtained by XYZ Bank on A’s life?

No. Proof of fraudulent intent in cases of rescission of an insurance contract due to false
representations is indispensable. When an abundance of available documentary evidence can be
referenced to demonstrate a design to defraud, presenting a singular document with an erroneous
entry does not qualify as clear and convincing proof of fraudulent intent. Fraud is not to be
presumed, for "otherwise, courts would be indulging in speculations and surmises." ( Insular Life
vs. Heirs of Alvarez, G.R. No. 207526, October 3, 2018)

95. X insured his life for Php 20,000,000.00. He was asked these questions, “Within the
past 5 years, have you: (a) consulted any doctor or other health practitioner? (b)
submitted to ECG, x-rays, blood tests, and other tests? (c) attended or have been
admitted to any hospital or other medical facility?” X disclosed the fact that he
consulted a doctor but only for cough and flu complications. While playing golf one day,
he collapsed at the fairway and was declared dead on arrival at the hospital. His death
certificate stated that he suffered a massive heart attack. It was discovered that two
(2) months prior to his application for insurance, X was examined and confined at a
hospital where he was diagnosed with hypertension.

a. Will the rescission of the contract be justified on the ground of concealment?

Yes. Materiality is to be determined solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries. The information which the
insured failed to disclose were material and relevant to the approval and issuance of the
insurance policy because the matters concealed would have definitely affected petitioner's
action on his application. Hence, the concealment of such material fact entitles the insurer to
rescind the insurance contract. (Sunlife Assurance Company of Canada vs. CA and Spouses
Bacani, G.R. No. 105135 June 22, 1995)

b. Will the waiver of medical examination be deemed a waiver of concealment as a

ground for rescission?

No. The waiver of a medical examination renders even more material the information required
of the applicant concerning his previous health condition, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether
to issue the policy or not. (Sunlife Assurance Company of Canada vs. CA and Spouses Bacani,
G.R. No. 105135, June 22, 1995)

c. Assuming that there was concealment, can the same be invoked even if it was not
the cause of the loss?

Yes. It is well-settled that the insured need not die of the disease he had failed to disclose to
the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates
of the risks of the proposed insurance policy or in making inquiries. ( Sunlife Assurance
Company of Canada vs. CA and Spouses Bacani, G.R. No. 105135, June 22, 1995 )
96. What is the effect of misrepresentation?

The injured party is entitled to rescind the contract from the time when the representation becomes
false if a representation is false in a material point, whether affirmative or promissory ( Sec. 45,
Insurance Code).

97. On May 3, 2017, a life insurance policy was issued by the insurer to W payable upon
her death. She designated her husband H as her beneficiary. In the application form
for the life insurance policy, there was a question whether W had ever consulted a
psychiatrist to which she answered “Never” although the truth was that she had
undergone psychiatric counseling for depression. On May 10, 2019, W deliberately
jumped off a building and died. H filed a claim on the policy. The insurer denied the
claim on the ground that W committed suicide and that W was guilty of fraudulent
misrepresentation. Is the insurer’s refusal to pay the proceeds of the policy justified?

No. Under Sec. 183 of the Insurance Code, the insurer in life insurance contract shall be liable in
case of suicide only when it is committed after the policy has been in force for a period of two (2)
years from the date of its issue or of its last reinstatement, unless the policy provides a shorter
period. Also, under Sec. 48 of the same Code, after a life insurance policy made payable on the
death of the insured shall have been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of fraudulent concealment or misrepresentation
of the insured or his agent. Here, the policy was in force for more than two (2) years since it was
issued on May 3, 2017. Hence, the insurer can no longer raise as grounds for refusal of payment
the fact of suicide and fraudulent misrepresentation.

98. What is the effect of a breach of warranty?

Breach of Material Warranty/Provision Breach of Immaterial Provisions

General Rule: General Rule:
It gives the insurer the right to rescind the It will not avoid the policy (Sec. 75,
insurance contract (Sec. 74, Insurance Code). Insurance Code).

Exception:
a. The loss occurs before the time of
performance of the warranty;
b. The performance becomes unlawful;
and
c. The performance becomes impossible
(Sec. 73, Insurance Code).
Exception:
When the parties stipulate that violation of
particular provisions, though normally
immaterial, shall avoid the policy (Sec. 75,
Insurance Code). In effect, the parties
converted the immaterial provision into a
material one (Aquino, Essentials on Insurance
Law, 2018).
99. What are the defenses that may be invoked by the insured or his beneficiaries against
revocation of the insurance contract by the insured?

The defenses that may be invoked by the insured or his beneficiaries against revocation of the
insurance contract are:

a. Guaranteed Insurability Clause (Secs. 48, 183, and 243(b), Insurance Code)
b. Failure to invoke before commencement of the action ( Sec. 48, Insurance Code; Philamcare
Health Systems, Inc. vs. CA, G.R. No. 125678, March 18, 2002)
c. Waiver (Sec. 33, Insurance Code)
d. Estoppel (Art. 1431, Civil Code)

100. Discuss the rules on loss in insurance.

Loss for which insurer is liable
a. Proximate cause of the loss was a peril
insured against (Sec. 86, Insurance Code);
b. The thing insured is damaged because it
was being rescued from the peril insured
against (Sec. 87, Insurance Code);
c. Loss caused by efforts to rescue the thing
insured from peril insured against (Sec. 87,
Insurance Code);
d. Peril insured against is the immediate
cause, if the proximate cause is not an
excepted peril (Sec. 88, Insurance Code);
and
e. Loss through negligence of insured
(Exception: where there was gross
negligence amounting to willful acts) (Sec.
89, Insurance Code).
Loss for which insurer is not liable
a. Loss where the peril insured against was
a remote cause (Sec. 86, Insurance
Code);
b. Peril insured against is the immediate
cause, but the proximate cause is an
excepted peril (Sec. 88, Insurance
Code);
c. Loss caused by the willful act of the
insured (Sec. 89, Insurance Code); and
d. Loss due to connivance of the insured
(Sec. 89, Insurance Code).

101. When are the defects in the notice or proof of loss waived?

All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and
which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are
waived (Sec. 92, Insurance Code).

102. When is the delay in the presentation to an insurer of notice or proof of loss waived?

The delay is waived if caused by any act of the insurer, or if the insurer omits to take objection
promptly and specifically upon that ground ( Sec. 93, Insurance Code).
103. An insurance company issued a marine insurance policy covering a shipment by sea
from Mindoro to Batangas of 1,000 pieces of Mindoro garden stones against “Total Loss
Only.” The stones were loaded in two lighters, the first with 600 pieces and the second
with 400 pieces. Because of rough seas, damage was caused to the second lighter
resulting in the loss of 325 out of the 400 pieces. The owner of the shipment filed claims
against the insurance company on the ground of constructive total loss inasmuch as
more than ¾ of the value of the stones had been lost in one of the lighters. Is the
insurance company liable under its policy? Why?

No, the insurance company is not liable because there was no total loss. The liability of the insurer
under the policy is for “Total Loss Only.” In this case, the insurance was over the 1,000 pieces of
garden stones and only 325 were lost. There is no constructive total loss even if the loss constitutes
2/3 of the stones shipped in the second lighter. Although they were shipped on separate lighters,
the two shipments totaling 1,000 pieces of garden stones were under a single and indivisible
coverage (Oriental Assurance vs. Court of Appeals and Panama Saw Mill, G.R. No. 94052, August
9, 1991).

104. What is the rule as to the refusal by an insurance company to pay or settle claims
arising from its policies?

Under Sec. 247(a) of the Insurance Code, no insurance company doing business in the Philippines
shall refuse, without just case, to pay or settle claims arising under coverages provided by its
policies.

105. What are considered as unfair claims settlement practices?

Any of the following acts by an insurance company, if committed without just cause and performed
with such frequency as to indicate a general business practice, shall constitute unfair claim
settlement practices:

a. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to

coverage at issue;
b. Failing to acknowledge with reasonable promptness pertinent communications with respect to
claims arising under its policies;
c. Failing to adopt and implement reasonable standards for the prompt investigation of claims
arising under its policies;
d. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear; or
e. Compelling policyholders to institute suits to recover amounts due under its policies by offering
without justifiable reason substantially less than the amounts ultimately recovered in suits
brought by them (Sec. 247, Insurance Code).

106. What are the sanctions prescribed by law for unfair claims settlement practices?

If it is found, after notice and an opportunity to be heard, that an insurance company has
committed unfair claims settlement practice/s, each instance of non-compliance may be treated as
a separate violation and shall be considered sufficient cause for the suspension or revocation of
the company’s certificate of authority ( Sec. 247©, Insurance Code).
107. What is the prescriptive period for the filing of a complaint for the recovery of the
proceeds of the insurance?

The Insurance Code does not provide for a prescriptive period, except for the one-year period
provided for in the case of Compulsory Third Party Liability Insurance under Sec. 397 of the
Insurance Code.

However, the parties may stipulate a prescriptive period in the policy subject to the limitation under
Sec. 63 of the Insurance Code, declaring void a stipulation limiting the time for commencing an
action thereunder to a period of less than one (1) year from the time when the cause of action
accrues.

If no prescriptive period is provided for in the policy, the prescriptive period is ten (10) years from
the rejection of the claim by the insurer. This is consistent with Art. 1144 of the Civil Code which
provides that the prescriptive period for written contracts is ten (10) years.

108. When is the insurer subrogated to the rights of the insured?

The right of subrogation accrues upon payment by the insurance company of the insurance claim.
The payment by the insurer to the insured operates as an equitable assignment to the insurer of
all the remedies which the insured may have against the third party whose negligence or wrongful
act caused the loss (Keihin-Everett Forwarding Co., Inc. vs. Tokio Marine Malayan Insurance Co.,
Inc. and Sunfreight Forwarders & Customs Brokerage, G.R. No. 212107, January 28, 2019).

109. What are the limitations to the right of subrogation of the insurer?

If the claim of the insured against a third party is limited, the right of subrogation of the insurer is
likewise limited. As subrogee, the insurer steps into the shoes of the insured and may exercise only
those rights that the insured may have against the wrongdoer who caused the damage ( Aboitiz
Shipping Corp. vs. Insurance Company of North America, G.R. No. 168402, August 6, 2008).

110. What is the prescriptive period in cases where the insurer is subrogated to the rights
of the insured against the wrongdoer based on a quasi-delict?

The current rule is that the prescriptive period is four (4) years from the time the tort is committed
against the insured by the wrongdoer. Following the principles of subrogation, the insurer only
steps into the shoes of the insured and therefore, for purposes of prescription, inherits only the
remaining period within which the insured may file an action against the wrongdoer. The
prescriptive period of the action that the insured may file against the wrongdoer begins at the time
that the tort was committed and the loss/injury occurred against the insured ( Vicente Henson Jr.
vs. UCPB General Insurance, Co., G.R. No. 223134, August 14, 2019).
111. What are the requirements for the formation of insurance corporations?

The requirements for the formation of insurance corporations are:

a. The corporation must possess the capital and assets required of an insurance corporation
doing the same kind of business in the Philippines and invested in the same manner;
b. The Insurance Commissioner had granted a certificate to the effect that the insurer has
complied with the provisions of the Insurance Code;
c. It must have obtained a certificate of authority to transact business from the Insurance
Commissioner; and
d. It must have paid the fees prescribed and filed the necessary documents to the Insurance
Commissioner (Secs. 192 and 193, Insurance Code).

112. What is the coverage of the authority of the Insurance Commissioner?

The Commissioner may issue such rulings, instructions, circulars, orders, and decision as he may
deem necessary to secure the enforcement of the provisions of the Insurance Code, subject to the
approval of the Secretary of Finance (Sec. 414, Insurance Code). The Supreme Court has observed
that the Insurance Code has vested the Office of the Insurance Commission with both regulatory
and adjudicatory authority over insurance matters (Republic vs. Del Monte Motors, Inc., G.R. No.
156956, October 9, 2006).

V. REPUBLIC ACT NO. 10173 (DATA PRIVACY ACT OF 2012)

113. What is the state policy of the Data Privacy Act?

It is the policy of the State to protect the fundamental human right of privacy, of communication
while ensuring free flow of information to promote innovation and growth. The State recognizes
the vital role of information and communications technology in nation-building and its inherent
obligation to ensure that personal information in information and communications systems in the
government and in the private sector are secured and protected. (Sec. 2, Data Privacy Act)

114. What is the scope of the Data Privacy Act?

It applies to the processing of all types of personal information and to any natural and juridical
person involved in personal information processing including those personal information controllers
and processors who, although not found or established in the Philippines, use equipment that are
located in the Philippines, or those who maintain an office, branch or agency in the Philippines
subject to the immediately succeeding paragraph: Provided, That the requirements of Sec. 5
(Protection Afforded to Journalists and Their Sources) are complied with. (Sec. 4, Data Privacy Act)

115. What is the extraterritorial application of the Data Privacy Act?

It applies to an act done or practice engaged in and outside of the Philippines by an entity if:
a. The act, practice or processing relates to personal information about a Philippine citizen or a
resident;
b. The entity has a link with the Philippines, and the entity is processing personal information in
the Philippines or even if the processing is outside the Philippines as long as it is about
Philippine citizens or residents such as, but not limited to, the following:
i. A contract is entered in the Philippines;
 ii. A juridical entity unincorporated in the Philippines but has central management and
control in the country; and
iii. An entity that has a branch, agency, office or subsidiary in the Philippines and the
parent or affiliate of the Philippine entity has access to personal information; and
c. The entity has other links in the Philippines such as, but not limited to:
i. The entity carries on business in the Philippines; and
ii. The personal information was collected or held by an entity in the Philippines. (Sec. 6,
Data Privacy Act)

116. Who is a data subject?

A data subject is an individual whose personal information is processed (Sec. 3(c), Data Privacy
Act).

117. What is personal information?

It refers to any information, whether recorded in a material form or not, from which the identity of
an individual is apparent or can be reasonably and directly ascertained by the entity holding the
information, or when put together with other information would directly and certainly identify an
individual (Sec. 3(g), Data Privacy Act).

118. What is “sensitive personal information”?

The term “sensitive personal information” refers to personal information:

d. About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical
or political affiliations;
e. About an individual’s health, education, genetic or sexual life of a person, or to any proceeding
for any offense committed or alleged to have been committed by such person, the disposal of
such proceedings, or the sentence of any court in such proceedings;
f. Issued by government agencies peculiar to an individual which includes, but not limited to,
social security numbers, previous or current health records, licenses or its denials, suspension
or revocation, and tax returns; and
g. Specifically established by an executive order or an act of Congress to be kept classified . (Sec.
1(l), Data Privacy Act)

119. What are the main differences between personal information (PI) and sensitive
personal information (SPI)?

PERSONAL INFORMATION SENSITIVE PERSONAL

Processing Processing of PI is allowed if not
otherwise prohibited by law, and when
at least one ground for lawful
processing exists.
Penalty There are penalties for unlawful acts
involving PI.
(Divina, Divina on Commercial Law Volume II, 2021, p. 509)
INFORMATION
Processing of SPI is prohibited unless
at least one ground for lawful
processing exists.
Penalties for unlawful acts involving SPI
are more severe.
120. Differentiate outsourcing or subcontracting and data sharing.

OUTSOURCING/ DATA SHARING

SUBCONTRACTING
Parties The parties have to be at least one
personal information controller and
one personal information processor.
Objective A personal information processor
has no other reason for processing
the personal data other than that as
instructed by the personal
information controller.
All parties to a data sharing
agreement are considered personal
information controllers.
Each party has its own purpose for
processing the personal data
involved.

121. What are the general data privacy principles that govern the processing of personal
information?
The processing of personal data shall be allowed subject to adherence to the principles of
transparency, legitimate purpose, and proportionality.

a. Transparency. The data subject must be aware of the nature, purpose, and extent of the
processing of his or her personal data, including the risks and safeguards involved, the
identity of personal information controller, his or her rights as a data subject, and how these
can be exercised. Any information and communication relating to the processing of personal
data should be easy to access and understand, using clear and plain language.
b. Legitimate purpose. The processing of information shall be compatible with a declared
and specified purpose which must not be contrary to law, morals, or public policy.
c. Proportionality. The processing of information shall be adequate, relevant, suitable,
necessary, and not excessive in relation to a declared and specified purpose. Personal data
shall be processed only if the purpose of the processing could not reasonably be fulfilled by
other means. (Sec. 18, Rule IV, IRR of the Data Privacy Act)

122. What are the rights of a data subject?

The rights of a data subject are as follows:

a. Right to be informed;
b. Right to object;
c. Right to access;
d. Right to rectification;
e. Right to erasure or blocking;
f. Right to damages;
g. Right to file a complaint;
h. Right to data portability; and
i. Transmissibility of rights. (Sec. 34, Rule VIII, IRR of Data Privacy Act)

123. What are the limitations to the rights of a data subject?

The rights of a data subject shall not be applicable if the processed personal data are used only
for the needs of scientific and statistical research and, on the basis of such, no activities are
carried out and no decisions are taken regarding the data subject: Provided, that the personal data
shall be held under strict confidentiality and shall be used only for the declared purpose.
The rights are also not applicable to the processing of personal data gathered for the purpose of
investigations in relation to any criminal, administrative, or tax liabilities of a data
subject.

Any limitation on the rights of the data subject shall only be to the minimum extent necessary to
achieve the purpose of said research or investigation. (Sec. 37, Data Privacy Act)

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