MEM AIDE for 2020-2021 Commercial Law Bar [ymh]

i. CORPORATION
Def: - an artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence.

Kinds:
• Stock Corporation: has a capital stock divided into shares and is authorized to distribute to the
holders of such shares dividends or allotments of the surplus profits based on the shares held.
• Non-stock Corporation: no part of its income is distributable as dividends to its members, trustees &
officers.
o Any profit goes for furtherance of the purpose for which it was organized.
o for charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, etc.;
o death of member terminates membership (generally non-transferrable);
o may also conduct business but only incidental to its purpose.
• De facto corporation: possesses all powers of a de jure corp except that it is open to direct attack by
the state in a Q.W. proceeding.*
REQs: a) a valid law (i.e. RCC) under which it might be incorporated
b) bonafide attempt to organize
c) actual exercise of corp powers
d) issuance of certificate of incorporation by SEC
• Corporation by estoppel: all persons who assume to act as a corporation knowing it to be w/o
authority to do so shall be liable as general partners for all debts, liabilities & damages incurred or
arising as a result thereof when any such ostensible corp is sued on any transaction entered by it
as a corp or on any tort committed by it as such, it shall NOT be allowed to use as a defense that it
lacks corporate personality. (same with 3rd persons dealing w/ such corp)

NOTE: The due incorporation of any corp claiming in good faith to be a corp under the law, & its
right to exercise corp powers, shall NOT be inquired into collaterally in any private suit. (only by
Sol.Gen in a Q.W. proceeding)

• Corporation sole. – For the purpose of administering and managing, as trustee, the affairs, property
and temporalities of any religious denomination, sect or church, a corporation sole may be formed
by (only one qualified individual) the chief archbishop, bishop, priest, minister, rabbi, or other
presiding elder of such religious denomination, sect, or church. (Sec. 108)
• Close corp - one whose AoI provides that:
(a) all the issued stock of all classes shall be held of record by not more
than a specified number of persons, not exceeding 20;
(b) all the issued stocks shall be subject to one or more specified
restrictions on transfer, and
(c) the corp shall not list in any stock exchange or make any public
offering of its stocks of any class.
• Domestic corp: formed, organized, or existing under Philippine laws.
• Foreign corp: formed, organized, or existing under any laws other than those of the Philippines and
whose laws allow Filipino citizens and corporations to do business in its own country or State

Composition and Membership in BOD

• Directors shall be elected for a term of 1 year from among the holders of stocks registered in the
corporation’s books, while trustees shall be elected for a term not exceeding three (3) years from
among the members of the corporation. Each director and trustee shall hold office until the
successor is elected and qualified. A director who ceases to own at least one (1) share of stock or a
trustee who ceases to be a member of the corporation shall cease to be such. (Sec. 22)
• No more residency requirement
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• Corps vested with public interest (at least 20% of the members of its BoD shall be independent
directors (a person who, apart from shareholdings and fees received from the corp, is independent
of management and free from any business or other relationship which could, or could reasonably
be perceived to materially interfere with the exercise of independent judgment in carrying out the
responsibilities as a director.)

Power, duties and prerogatives of BoD

• NOTE the Corp. powers under Se. 35-44 RCC)
• Doctrine of Centralized Management: Unless otherwise provided in this Code, the board of directors
or trustees shall exercise the corporate powers, conduct all business, and control all properties of
the corporation. (Sec. 22)
o The Board possessing all corporate powers is the direct agent of the corporation, considered by
law to be the principal and to whom the Board owes fiduciary duties of diligence & loyalty
o The Board, possessing legal title to all assets and business enterprise of the company does not
only act as an agent, but as a trustee, of the SHs & its corporate decisions as GR, cannot be
overturned by SHs.
o Mgt. Committee are appointed by the Board in its exercise of plenary corp powers; considered
to be Board’s sub-agent
• Corporate powers may be delegated to ExeComm (composed of at least 3 BoD members) by a
majority vote of all its members.
• Powers that CANNOT be delegated to ExeComm:
*approval of actions requiring of SHs approval;
*filling of vacancies in Board;
*adoption, amendment or repeal of bylaws;
*distribution of cash dividends
• Corp powers may also be exercised thru corp officers/agents; to the extent that the authority has
been conferred.
• Corp powers may also be implied under doctrine of apparent authority (ascertained thru: *the
general manner in w/c the corp holds out an officer as having power to act; AND *the acquiescence
of the corp in his acts of a particular nature.)
• Business Judgment Rule – questions of policy & mgt. are left solely to the honest decision of the
D/O of a corp & the courts are w/o authority to substitute their judgment to that of the BoD’s; so long
as it acted in good faith, its orders are not reviewable by the courts or SEC.
• Ultra Vires Doctrine (Sec. 44 RCC) – “No corp shall possess or exercise corp powers other than
those conferred by this Code, or by its AoI and except such as are necessary or incidental to the
exercise of the powers conferred.”
• Ultra vires act - one committed outside the object for w/c the corp. is created as defined by the law
of its organization & therefore beyond the power conferred upon it by law.
- merely VOIDABLE, may be enforced by 1) performance, 2) ratification or 3) estoppel
(as compared to illegal acts – VOID)
- EFFECTS: *in executed contracts – courts cannot interfere
*in executory contracts – no enforcement (unenforceable)
*partly executed – principle of unjust enrichment shall apply

Power, duties and prerogatives of SH

• Liability of Single SH (OPC) - A sole shareholder claiming limited liability has the burden of
affirmatively showing that the corporation was adequately financed. Where the single SH cannot
prove that the property of the OPC is independent of his personal property, the SH shall be jointly
and severally liable for the debts and other liabilities of the OPC. (piercing the corporate veil applies
with equal force)
• Right to Dividends – no right until DECLARED by BoD
Notes: DQ Stocks – entitled to Cash Div. but shall be applied to unpaid bal.
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- entitled to Stock Div, but w/held until fully paid.

Stock Divs requires 2/3 SHs approval
*Stock Corps are prohibited from retaining surplus profit in excess of 100% of
paid in capital stock EXCEPT:
1) justified by corp expansion (BoD approved)
2) prohibited by loan agreement to declare dividends w/o yet obtaining consent;
3) retention necessary under special circumstance
• Right to Inspect - @ reasonable hours on business days
- SH must not have improperly used any info obtained thru previous examination
- demand must be made in good faith & for legitimate purpose
- mandamus – proper remedy if denied the right to inspect
- an incident of ownership, predicated upon the necessity of self-protection
- the inspection has to be germane to petitioner’s interest as SH; has to be proper and lawful in
character & not inimical to the interest of the corp.
• Pre-emptive Right – SH’s right to subscribe to all issues or disposition of shares of any class in
proportion to his present stockholdings, to enable him to retain his proportionate control in the
corp & to retain his equity in the surplus.
- N/A if: * issued to comply w/ laws to offer to public;
*issued in good faith & w/ 2/3 SH approval;
*issued in payment of previously contracted debts;
*denied or restricted in AoI
- SH must be given reasonable time to exercise such right
- compare vs. Right of first refusal – right of SH to demand from other SH who may wish
to sell or assign their shares to first offer their shares to the corporation of to other
existing SHs. (contractual stipulation)
• Appraisal Right - right of the SH to demand the payment of the FV of his shares after dissenting
against a proposed corporate act in the cases specified by law. (right to opt out)
o Available in the ff:
▪ AoI amendment changing right of SH, or extending/shortening corp existence
▪ Sale/lease/transfer of all/substantially all of corp property and assets
▪ Merger/consolidation
▪ Investment of corp funds other than for its primary purpose

Articles of Incorporation
• Once duly approved by SEC, constitutes the corporation’s charter, and the basis by which to
adjudge whether it exists for legal purposes. (juridical capacity to contract)
• A solemn contract
• Contents of AoI (Sec. 13)
• For amendment – majority of Bod and 2/3 SH
o Amendment effect upon SEC approval OR from date of filing if not acted within 6 months
• Vs. Bylaws – adoption requires majority of SH
- Requires 2/3 SH to delegate power to amend bylaws to BoD
▪ Takes effect only upon SEC issuance of certification
▪ Purpose is to regulate the conduct and define the duties of the members of BoD, SHs,
and officers. (internal rules)
▪ GR: Third persons are not bound by by-laws, except when they have knowledge of the
provisions either actually or constructively.

ii. INTRA-CORPORATE DISPUTE

• These are suits arising from intra-corporate relations or between or among SHs or between any/all
of them & the corporate
*falls within the jurisdiction of regular courts (previously with SEC)
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*when dispute involves illegal dismissal charge, may fall w/in L.A.’s jurisdiction (w/ EE-ER
relationship) XPN: Corporate Officers
*the mere fact that EE was also SH at the time of filing of the case
does NOT make it an intra-corporate dispute.
• Tests: 1) Relationship of parties: bet. Corp & the public
bet. Corp & the State (ie.franchise, permit)
bet. Corp & its SHs
bet. SHs/members themselves
2) Nature under controversy is rooted in the enforcement of the parties’ correlative rights
and obligations under the code and the internal and regulatory rules of the corp.
• Individual actions – those brought by SH in his own name against the corp when a wrong is
committed directly against him (ex: denied right to inspect)
vs.
• Representative Actions – brought by SH in behalf of himself & all other SHs similarly situated when
a wrong is committed against a group of SHs
vs.
• Derivative Suits – brought in the name & on behalf of the corp to redress wrongs committed against
it, or protect/vindicate corporate rights whenever officials of the corp refuse to sue, or are the ones
to be sued, or has control of the corp.
- the real party in interest is the corp. (SH merely a nominal party)

iii. Intellectual property (RA 8293)

COPYRIGHT
• Definition - right over literary & artistic works (l.a.w.) which are *original intellectual creations in the
literary and artistic domain, *protected from the moment of creation.
• Copyrightable works:
o Original Works (l.a.w.) Sec. 172
o Derivative Works (dramatization, collections, etc.) Sec. 173
• Non-copyrightable works
o Unprotected subject matter
▪ Idea, procedure, system… or mere date as such even if exposed or embodied in
a work
▪ News of the day and other misc. facts, press info
▪ Official text of a legislative, admin, legal nature
▪ Works of Government
• Rights Conferred by Copyright
▪ Economic Right – to carry out, authorize or prevent: reproduction, dramatization etc.
▪ Moral rights (Sec. 193) – right of attribution
o To require that the authorship of the works be attributed to him, in
particular, the right that his name, be indicated in a prominent way on the
copies, and in connection with the public use of his work;
o To make any alterations of his work prior to publication, or withhold the
same
o To object to any distortion, mutilation or other modification of, or other
derogatory action in relation to, his work which would be prejudicial to his
honor or reputation; and
o To restrain the use of his name with respect to any work not of his own
creation or in a distorted version of his work.
▪ Right to participate in the proceeds

FAIR USE PRINCIPLE (Sec. 185)

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• Fair Use - permits a secondary use that serves the copyright objective of stimulating productive
thought & public instruction w/o excessively diminishing the incentives for creativity.
• Not a copyright infringement
• Examples: *criticizing, commenting, news reporting
*using for instructional purpose, incl. producing multiple copies for classroom
use, for scholarship, research, etc.
*decompilation – reproduction of the code & translation of the forms of the
computer program to achieve the inter-operability of an independently
created computer program w/ other computer programs.
• Factors to determine fair use: (P.A.N.E)
a) purpose & character of use
b) amount & substantiality of the portions used
c) nature of the copyrighted work
d) effect of the use upon the potential market of the copyrighted work
iv. INSURANCE (PD 612, as amended by RA 10607)

• Insurance is a system of indemnification; an agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event.
• Characteristics: *risk-distributing device; *contract of adhesion/fine-print rule; *aleatory; *contract of
indemnity; *contract of utmost good faith; *consensual
• Elements: 1.) insurable interest
2.) assumption of risk
3.) scheme to distribute losses
4.) payment of premium
• What can (may) be insured (Sec. 3) - any unknown or contingent event, whether past or future,
which may damnify a person having an insurable interest, or create a liability against him, may be
insured against.
• Insurable interest ((existence thereof is a matter of Public Policy)
o Life (Sec. 10) - Every person has an insurable interest in the life and health:
▪ a. Of himself/spouse/children;
▪ b. Of any person on whom he depends wholly or in part for education
and support, or in whom he has pecuniary interest;
▪ c. Of any person under a legal obligation to him for payment of money,
or respecting property or services, of which death or illness might delay
or prevent the performance; and,
▪ d. Of any person upon whose life any estate or interest vested in him
depends.
o Property (Sec. 13 & 14) – Any interest in real or personal property, or liability in respect
thereof;
may consist in: i) an existing interest;
ii) an inchoate interest founded on an existing interest; and,
iii) any expectancy coupled with an existing interest.
Rule: in property – if he derives pecuniary benefit or advantage from its
preservation or would suffer pecuniary loss, damage or prejudice by its destruction,
regardless of WON he has title, lien, or possession of such property.

Claims for life insurance

• Suicide (Sec. 183) – Insurer is liable if committed after 2 yrs from date of issue or last reinstatement
(unless policy provides shorter period)
▪ XPN: if committed in the state of insanity – liable regardless of date of commission

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• Incontestability Clause (Sec. 48) - After 2yrs of being in force, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of
the insured or his agent.
▪ Applies to life insurance payable on the death of the insured
▪ 2yrs maybe shortened but cannot be extended
▪ Defenses not barred by incontestability clause:
*Lack of insurable interest *Vicious fraud
*Cause of death is an excepted risk *Prescription
*Unpaid premiums
*Failed to furnish proof/comply with conditions after occurrence of loss
• Concealment (Sec. 26) - a neglect to communicate that w/c a party knows & ought to communicate
(whether un/intentional) (ground for rescission)
o Test of Materiality – 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 inquiries or
in fixing the premium rate (same test w/ (mis)representations.)
*Good faith is NOT a defense.
• Misrepresentation or omissions
o Representation – factual statements made by the insured at the time or prior to the issuance of
the policy to give info to the insurer and induce him to enter into insurance contract & assume
the risk. Kinds: *affirmative or *promissory
o Acceptance of premium will not stop the insurer from rescinding the contract/policy on the
ground of misrepresentation. (no estoppel even with knowledge of such ground – wait for 2-year
incontestability)

v. DATA PRIVACY ACT (RA 10173) -> “Confidentiality” “Data Breach”

• State Policy: to protect the fundamental human right to privacy of communication while ensuring
free flow of information to promote innovation & growth. *to secure & protect P.I.
• PERSONAL INFORMATION (PI) – any info whether recorded in material form or not, from which
the identity of an individual is apparent or can be reasonably or directly ascertained by the entity
holding the info, or when put together w/ other info would directly & certainly identify an individual.
vs.
• SENSITIVE PERSONAL INFORMATION (SPI) – PI that:
1) is about an individual’s race, ethnic origin, marital status, age, color & religious, philosophical
or political affiliations;
2) about an individual’s health, education, genetic or sexual life, proceeding to any offense,
sentence thereof...;
3) issued by govt. agencies peculiar to an individual (i.e. SSS#, health records, ITR, etc.)
4) established by an E.O. or act of Congress to be kept classified.

SCOPE
• Applies to the processing of all types of PI (by PI controllers/processors) even if not w/in the Phil,
but use equipment w/in or maintain an office/branch here. (i.e. BPOs)
• Does NOT apply to: *officer/ EE of govt. institution;
*contract service personnel of govt. institution;
*recipient of discretionary benefit of a financial nature;
*PI processed for journalistic, artistic, literary/research purposes;
*info necessary to carry out functions of public authority
*info necessary for banks, etc.;
*from residents of foreign jurisdiction
Note: Journalists & their sources are still protected.

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PROCESSING OF PERSONAL INFO (Sec. 11-15)

• Allowed subject to law compliance & adherence to the principles of *transparency, *legitimate
purpose & *proportionality.
• Data subject must have *given consent or *necessary/related to fulfillment of a contract/compliance
of a legal obligation, necessary to protect vitally important interests of data subject (life & health).
• Processing of SPI & Privileged Info – PROHIBITED; except:
a) consent given
b) provided by existing laws & regulations
c) necessary to protect the life/health, for
medical treatment....
• A P.I. controller - may subcontract the P.I. processing but is still responsible for ensuring proper
safeguards to ensure confidentiality
- extended w/ the protection of privileged info they lawfully control/process

RIGHTS OF DATA SUBJECT (Sec. 16-19)

- entitled to: 1) be informed if his PI is being processed;
2) be furnished info before processing (or next practical opportunity)
3) reasonable access to such info;
4) dispute inaccuracy/error of PI / have it corrected;
5) suspend, withdraw, order blocking of his PI;
6) damages if any was sustained as a result of data privacy breach
*Right to Data Portability – right of data subject to obtain a copy undergoing processing in an
electronic or structured format (for his further use) from PI controller.

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