Professional Documents
Culture Documents
2022 Commercial Law Syllabus-Based EREVIEWER
2022 Commercial Law Syllabus-Based EREVIEWER
Compiled by RGL
Commercial Law Reviewer for the 2022 Bar
Tabl of Content What may be insured d. Whereby the insured or his bene ciary su ers loss or
Insurable interest damage or is exposed to liability.
Insurance 3 4. The TEST to determine whether a contract is one of
Double insurance and overinsurance
insurance is whenever the assumption of risk and the
Transportation Law 14 No fault, suicide, and incontestability clauses
indemnification of loss is the principal object and
Perfection of the insurance contract purpose of the contract.
Corporation Law 21 Rights and obligations of parties 5. Applying the "principal object and purpose test," a
corporation, such as an HMO, whether or not organized for
Rescission of insurance contracts
Intellectual Property Code 51 pro t, whose main object is to provide the members of a
group with health services, is NOT engaged in the insurance
A Basic Concepts
Patents 52 business. (Philippine Health Care Providers v. CIR)
1. Definition. — A contract of insurance is an agreement 6. However, it does not follow that the contract that is entered
Trademarks 55 whereby into is not insurance; the nature of the contract will be
a. one undertakes for a consideration examined on a case-to-case basis. Thus, a health care
agreement may be construed as a non-life insurance if it is
Copyrights 61 b. to indemnify another
primarily a contract of indemnity. (Fortune Medicare v.
c. against loss, damage or liability Amorin 2014)
Anti-Money Laundering Act 66
d. arising from an unknown or contingent event. 7. Mutual Insurance Companies. A mutual insurance
company is a cooperative enterprise where the members are
Electronic Commerce Act 70 2. For regulatory purposes, a contract of suretyship shall be
both the insurer and insured.
deemed to be an insurance contract ONLY if made by a surety
Financial Rehabilitation, Insolvency, Liquidation who is doing an insurance business. Additionally, they provide three types of coverage, namely,
protection and indemnity, war risks, and defense costs.
3. Insurance is a contract whereby
and Suspension of Payments 72 8. Mutual Insurance Companies like P&I Clubs are
a. One party called the insurer undertakes for a
considered insurers. A protection and indemnity club, is
consideration
an association composed of shipowners generally formed for
Insurance b. To pay another party called the insured, or his
I bene ciary,
the speci c purpose of providing insurance cover against
The Insurance Code third-party liabilities of its members. (Steamship Mutual
c. Upon the happening of the peril insured against, Underwriting Association (Bermuda) Ltd. v. Sulpicio Lines
Basic Concepts 2017)
By RGL 2 of 83
Commercial Law Reviewer for the 2022 Bar
9. Pro t not material — Absence of PROFIT does NOT 4) Industrial Life — premiums are payable either monthly or c) Over the cargo
negate the existence of an insurance contract. oftener.
i) Trip or Single Risk Cargo Policy;
1 What may be insured 5) Variable Life or Variable Unit-Linked (VUL) Insurance
ii) Open Cargo Policy.
Contractor Policy — see §238(a) on Variable Contract.
Life d) Over freightage and income — cover loss of freightage
Accidental Death Benefit Clause
for failure to complete voyage or delivery of goods.
Every contract or undertaking for the payment of annuities
Gives bene ciaries additional bene ts if the death of the insured is
including contracts for the payment of lump sums under a e) Compulsory Passenger and Cargo Liability
through accidental means.
retirement program where a life insurance company manages Insurance — mandated by RA 9295. P200K for each
or acts as a trustee for such retirement program shall be Marine passenger imposed on shipowners. P50K each for
considered a life insurance contract. survivors of a maritime accident.
Includes policies that cover risks connected with navigation, to
GR: Not a contract of indemnity. The measure of indemnity is the which a ship, cargo, freightage, pro ts, or other insurable interest 2) Inland Marine — do not relate to navigation. Includes
sum xed in the policy. It is therefore a valued policy. in movable property, may be exposed during a certain voyage or a insurance over cargoes, infrastructure and oaters.
xed period of time. 3) Aviation — over aircrafts.
EXC: Unless the interest of a person insured is susceptible of exact
pecuniary measurement, i.e. a creditor insures the life of his Different Types
Risks Insured Against
debtor based on the value of indebtedness. 1) Ocean Marine — connected with navigation; they are 1) All Risk Policy — against ALL conceivable causes except
Kinds of Life Insurance insurance
a) As otherwise excepted, such as
1) Whole Life — o ers permanent protection. Further classi ed a) Over the vessel;
i) Free capture and seizure (FC&S) clause;
as to mode of payment of premium: b) Against liability
ii) Strikes, riots and civil commotion (SR&CC)
a) Single Premium; i) Running Down Clause — insures liability against clause; or
b) Continuous Premium or Ordinary Life; collision;
b) One due to fraud or intentional misconduct of insured.
c) Limited Payment Period. ii) Marine Protection and Indemnity Insurance;
2) Named Perils Policy
2) Term — Insurer pays proceeds if insured dies within a iii) Excess Protection and Indemnity Insurance —
speci ed period; insured gets nothing if he survives the period. covers damage or liability in excess of the value of the a) Perils of the sea or navigation — include only such
ship. It is an exception to the limited liability rule in losses as are of extraordinary nature or arise from some
3) Endowment Policy — proceeds shall be payable to the overwhelming power which cannot be guarded against by
maritime law. Includes cases when shipowner was
assured if he lives to a certain date; to the bene ciary if the the ordinary exertion of human skill or prudence.
negligent.
assured dies before said date.
iv) Water Pollution Liability. b) Perils of the ship — a loss which in the ordinary course
of events, results:
By RGL 3 of 83
Commercial Law Reviewer for the 2022 Bar
i) From the ordinary, natural, and inevitable action of 3) Delay Clause — exempts insurer from liability if there was 3) Over freightage and income
the sea; delay in the voyage;
a) Shipowner and charterer - over the expected freightage,
ii) From ordinary wear and tear of the ship; and 4) Sue and Labor (S&L) Clause — requires the insured and his which arises:
representative to take all reasonable steps that are necessary to
iii) From the negligent failure of the ship’s owner to i) If there is a charter party — when the ship has
limit or reduce an imminent loss.
provide the vessel with the proper equipment to broken ground on the chartered voyage;
convey the cargo. 5) Protection and Indemnity (P&I) Clause — insures the
ii) In carriage of goods — when the goods are
shipowner from liability for damages caused by the ship to
c) Fire and Related Perils; actually on board or there is some contract for
wharves, piers and other harbor installations;
putting them on board, and both ship and goods
d) Jettison — goods are thrown overboard to save other
6) Institute War Clause (IWC) — covers risks covered by are ready for the speci ed voyage.
cargoes and/or the ship;
FC&S + capture, seizure, arrest, restraint or detainment,
b) One who has an interest in the thing from which
e) Barratry — act committed by the master or crew for including by civil authorities.
pro ts are expected to proceed has an insurable interest in
some unlawful or fraudulent purpose contrary to their
7) Memorandum Clause — provides for the list of goods for the pro ts. (§107)
duty;
which the insurer will be liable unless damage exceeds a stated
Concealment
f) Assailing Thieves — theft of cargo committed by force; percentage of total value.
g) All Other like Perils — to be interpreted as covering GR: In ordinary insurance, belief or expectation of third persons
Who has Insurable Interest
risks which are of like kind with particular risks which are are NOT material and need not be disclosed.
enumerated in the preceding part of the same clause, 1) Over the ship
EXC: In marine insurance, where information of the belief or
following ejusdem generis. a) Shipowner - up to the full value of the ship; expectation of a third person, in reference to a material fact, is
Clauses that Modify Coverage If ship also insured by charterer, the shipowner can material.
only recover the portion that he cannot recover from GR: Insurer may rescind contract even if the risk concealed is NOT
1) Inchmaree Clause — included in a hull policy to cover loss or
the charterer. the cause of the loss.
damage
b) Charterer - to the extent that he is liable to be damni ed EXC: In marine insurance, insurer is exonerated ONLY if the risk
a) through the bursting of the boiler, breaking of shafts
by its loss; concealed is the cause of the loss and relates to the:
or
c) Lender on Bottomry - up to the extent of the loan; 1) national character of the insured;
b) through the latent defects of the machinery and
equipment, hull or its appurtenances and d) Mortgagee. 2) liability of the thing insured to capture and detention;
c) faults or errors in the navigation or management of 2) Over cargo 3) liability to seizure from breach of foreign laws of trade;
the vessel.
a) Both the shipowner and shipper. 4) want of necessary documents; OR
2) Running Down Clause — insures liability against collision;
b) In Respondentia.
By RGL 4 of 83
Commercial Law Reviewer for the 2022 Bar
5) use of false and simulated papers. a) Vessel has the requisite documents of nationality or i) Total destruction of the thing insured;
neutrality; and
Representation ii) The irretrievable loss of the thing by sinking, or by
b) Vessel will not carry documents that will cast reasonable being broken up;
1. If intentionally false in any material respect, or in respect of
suspicion on its nationality or neutrality if nationality or
any fact on which the character and nature of the risk iii) Any damage to the thing which renders it valueless
neutrality is expressly warranted. (§122)
depends, the insurer may rescind the entire contract. to the owner for the purpose for which he held it; or
3) Against improper deviation — Instances of deviation:
2. Expectations of insured are not material unless it will amount iv) Any other event which e ectively deprives the
to promissory representation. a) Departure from the course of sailing xed by mercantile owner of the possession, at the port of destination,
usage; of the thing insured.
3. The contract will be avoided only if there is fraud in
representing an expectation that turns out to be false (§114). b) Departure from the most natural, direct and b) Constructive, commercial, or conventional — gives to
advantageous route if not xed by mercantile usage; a person insured a right to abandon, under §141.
Implied Warranties
By RGL 5 of 83
Commercial Law Reviewer for the 2022 Bar
Whenever the ship is prevented from completing its voyage because of a 3) Be neither partial nor conditional; Free from Particular Average (FPA) Clause — free from
peril insured against, the rules are as follows: PA only, and not GA.
4) Made within a reasonable time after receipt of reliable
1) If the goods are reshipped, the insurance over the goods information of the loss; 2) General or Gross — all damages and expenses which are
continue when they are thus reshipped; DELIBERATELY caused in order to save the vessel and/or its
5) Must be factual;
cargo at the same time, from real and known risk. The
2) The insurer may require the additional premium if the hazard
6) Made by giving notice thereof to the insurer orally or in requisites are:
is increased by this extension of liability;
writing; AND
a) There must be a common danger;
3) The marine insurer is bound to pay for damages, expenses,
7) The notice of abandonment must be explicit and must
extra freightage, etc. incurred in saving cargo reshipped, up to b) For the common safety, part of the vessel or of the
specify the particular cause.
the amount insured; and cargo or both is sacri ced deliberately;
Co-insurance
4) The marine insurer shall NOT be liable for any amount in c) From the expenses or damages caused follows the
excess of the insured value or, if there be none, of the insurable There is ALWAYS co-insurance in marine insurance. The requisites for successful saving of the vessel and cargo; and
value. its application are as follows:
d) The expenses and damages should have been incurred
Abandonment 1) There must be PARTIAL loss; and or in icted after taking proper legal steps and
2) There is UNDER insurance, or that the insurance coverage is authority.
The act of the insured by which, after a constructive total loss, he
declares the relinquishment to the insurer of his interest in the LESS than the value of the property insured. The formula for the determination of the general average
thing insured. 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑟 =
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑥 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐷𝑎𝑚𝑎𝑔𝑒 contribution of the insurer is:
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝐴𝑚𝑜𝑢𝑛𝑡 = 𝑥 𝐺𝐴 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
Abandonment in Maritime Law Marine Insurance Averages 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
All extraordinary or accidental expenses which may be incurred during GR: The insured may either hold the insurer directly liable for the
Need for
constructive loss
✘ ✔ the voyage in order to preserve the vessel and/or cargo and any damage whole of the insured value of the property sacri ced for the
or deterioration which the vessel may su er. general bene t, subrogating him to his own right of
Persons whom the contribution from the other interested parties as soon as the
Made in favor of Insured 1) Simple or Particular — may be covered by the insurance
carrier is liable vessel arrives at her destination.
policy. They are all expenses and damages caused to the vessel
or to her cargo which have NOT inured to the bene t and EXC: The insured cannot claim in the following instances:
Abandonment shall be e ective if the following requisites are present:
pro t of ALL the persons interested. If not general, then it
1) There is already separation of interest liable to the
1) There must be an actual relinquishment by the person is particular.
contribution;
insured of his interest in the thing insured;
The owner of the goods which gave rise to the expense or
2) The insured neglects to claim contribution although he has
2) There must be constructive total loss; su ered the damage shall bear the simple averages.
the opportunity to enforce the same; and
By RGL 6 of 83
Commercial Law Reviewer for the 2022 Bar
Shall include insurance against loss by re, lightning, a ect other creditors of the insured. c. Medical expenses coverage.
windstorm, tornado or earthquake and other allied risks, 6. Other substantially similar kinds of insurance.
Casualty
when such risks are covered by extension to re insurance policies or
Insurance covering loss or liability arising from accident or mishap, 7. Criminal negligence is insurable, so long as it is not gross
under separate policies.
excluding those covered in re or marine insurance. It includes, but is amounting to willful misconduct.
NB: Insurer is liable only if there is hostile re and NOT friendly not limited to, Authorized Driver Clause — Insurer will be liable only if the driver
re.
1. Employer's liability insurance — usual exclusions: is an “authorized driver” at the time of accident.
1. Hostile re is one that is uncontrolled, or initially friendly
a. When there is serious or willful misconduct on the part of 1. Duly licensed, need not prove if insured is the driver; and
but passed outside the limits assigned to it.
insured; 2. Authorized by the owner of vehicle to drive.
2. Friendly re is one contained in its proper receptacle.
b. When the employee was hired in violation of law; Theft Clause — makes theft a risk insured against. Theft Is NOT
Alteration
c. When insured failed to comply with health and safety covered by the Malicious Damage Clause.
Will prevent recovery on the policy if the following requisites are regulations; and
present: Compulsory Motor Vehicle Liability
d. When the employer discharges, corces, or discriminates
1) The alteration is on the use or condition of the thing aka Compulsory Third Party Liability (CTPL)
against an employee.
insured; It shall be unlawful for any land transportation operator or owner of a
2. Motor vehicle liability insurance — third party victim may
2) The use or condition is limited in the policy; motor vehicle to operate the same in the public highways unless there is
proceed directly against the insurer for indemnity.
in force
3) It is without consent of the insurer; If direct liability to third party is provided for, a no action
1. a policy of insurance or
4) Within the control of the insured; AND clause is NOT allowed.
2. guaranty
5) It increases the risk. A no action clause disallows suit against insurer unless nal
judgment is obtained by a third party against the insured. a. in cash bond or
Option to Rebuild Clause — insurer may cause the repair,
rebuilding, or replacement of the buildings or structures wholly or 3. Plate glass insurance, b. surety bond
partially destroyed or damaged. 4. Burglary and theft insurance, to indemnify the death, bodily injury, and/or damage to property of a
Prohibitions third-party or passenger.
Excluded are those in the insured’s service and employment
§175. No policy of fire insurance shall be pledged, Coverage, Extent and Limit of Liability
5. Personal accident and health insurance as written by
hypothecated, or transferred to any person, rm or company non-life insurance companies — normally includes 1) Coverage — P100K (+ P100K if vehicle is for public utility);
By RGL 7 of 83
Commercial Law Reviewer for the 2022 Bar
d) Of any person upon whose life any estate or interest vested 2. Su er pecuniary loss or damage from its destruction,
⭐Such an interest, arising from the relation of the party
termination, injury by the happening of the event insured
in him depends. (Sec 10 IC)
obtaining the insurance, either as creditor of or surety for the
against.
assured, or from ties of blood or marriage to him, as will justify a For (b) - (d), the basis of insurable interest is NOT blood
reasonable expectation of advantage or benefit from the continuance relationship but PECUNIARY INTEREST. Kinds of Insurable Interest
of his life. 1) Existing —
In Property Insurance
Its presence has the following purposes: a) Owner;
§18. No contract or policy of insurance on property shall be
1) To reduce moral hazard — dishonesty or character defects in enforceable except for the bene t of some person having b) Lessee;
the individual that increases the chance of loss; and an insurable interest in the property insured.
c) Depositary;
2) Helps in measuring the loss of the insured. §13. Every interest in property, whether real or personal, or
d) Usufructuary;
any relation thereto, or liability in respect thereof, of such
e) Borrower in commodatum;
By RGL 8 of 83
Commercial Law Reviewer for the 2022 Bar
f) Possessor holding the property without loss; Need not exist in 5) Transfer of interest from one partner to another partner of
consideration with the consent of owner; between interest over a property jointly insured; and
g) An unpaid seller, even if ownership had already been Expectation of Need not have legal basis or 6) Transfer of interest from one joint or co-owner to another of
transferred upon delivery; Need for the jointly or co-owned property insured.
bene t must have be based on legally
legal basis
h) Vendee, even while the goods are still in transit. legal basis enforceable obligation 7) When a policy is so framed that it will inure to the bene t of
whomsoever, during the continuance of the risk, may become
2) Inchoate, founded on an existing interest — If insured took out the the owner of the interest insured. (Sec 57 IC)
a) A shareholder over the properties of the policy on his own life and
Bene ciary MUST
designated another — NB: The policy is AVOIDED, and not merely suspended, if there
corporation; HAVE insurable
Beneficiary’s NOT necessary is an express prohibition to alienate but the insured breached
b) Purchaser of a property in a judicial sale subject to interest; otherwise,
interest the prohibition.
redemption. considered a
If one took out an
wagering contract
An heir has NO insurable interest over properties that he will insurance on the life of 3 Double insurance and overinsurance
inherit. another — MUST HAVE
Double Insurance
3) Expectancy, coupled with one existing out of which the Assignee’s
expectancy arises — MUST HAVE NOT necessary A double insurance exists where the same person is insured by several
interest
insurers separately in respect to the same subject and interest. Thus:
a) Interest over the pro ts that are to be earned by a
GR: A change of interest in any part of a thing insured 1) The same person is insured;
business;
unaccompanied by a corresponding change of interest in the
b) Future crops of farmers; 2) There are two or more insurers that insured the person
insurance, SUSPENDS the insurance to an equivalent extent,
separately;
c) Expected commission of agents; until the interest in the thing and the interest in the insurance
are vested in the same person. 3) Over the same subject;
d) Owner of a ship in expected freightage.
EXC: Will NOT suspend in the following cases: 4) Involving the same interest; and
Insurable Interest in Property vs. Life Insurance
1) In life, health, and accident insurance; 5) The same peril is insured against.
As to Property Life
2) If there is a change in interest in the thing insured after the GR: NOT PROHIBITED;
Unlimited, except if secured occurrence of the loss;
Extent Limited up to value EXC: Other Insurance Clause.
by creditor
3) If there is a change in interest in one or more of several things
Time when Perfection of contract Perfection of insurance that are separately insured;
it must exist AND at the time of contract 4) Change of interest through succession;
By RGL 9 of 83
Commercial Law Reviewer for the 2022 Bar
If the insured takes out an insurance over the property insured in If the insured dies within the two-year contestability period, the 2) Violation of the conditions of the policy relating to military or
an amount which is in excess of the value of the insurable insurer is bound to make good its obligation under the policy, naval service in times of war;
interest. regardless of the presence or lack of concealment or
3) Property insurance;
misrepresentation.
Collateral Source Rule 4) Absence of insurable interest;
After the two-year period lapses, OR when the insured dies within
Here, the defendant is prevented from bene ting from the the period, the insurer must make good on the policy, even 5) When VICIOUS fraud was employed in obtaining the policy,
plainti ’s receipt of money from other sources. though the policy was obtained by fraud, concealment, or i.e. fraudulent impersonation, scheme to murder insured;
Under this rule, if an injured person receives compensation for his misrepresentation. (Sun Life of Canada v. Sibya 2016) 6) The cause of the loss is an excepted risk;
injuries from a source wholly independent of the tortfeasor, the The insurer CANNOT prove that the policy is void ab initio or is 7) The bene ciary feloniously kills the insured;
payment should NOT be deducted from the damages which he rescindable by reason of the fraudulent concealment or
8) Bene ciary failed to comply with conditions subsequent, i.e.
would otherwise collect from the tortfeasor. misrepresentation of the insured or his agent:
failure to submit notice of loss; and
AQUINO: Applies in Life Insurance, but NOT in Property Insurance. After a policy of life insurance made payable on the death of the
9) The claim is barred by extinctive prescription.
insured shall have been in force during the lifetime of the
4 No fault, suicide, and incontestability clauses insured for a period of two (2) years from the date of its issue
or of its last reinstatement,
B Perfection of the insurance contract
No Fault Indemnity Clause — Proof of fault or negligence is NOT
The incontestability clause applies if the following requisites are
necessary for payment of any claim if the following are established:
present: O er and acceptance; consensuality
1) A claim may be made against ONE motor vehicle only;
1) The policy must be a Life Insurance policy; Cognition Theory — An insurance contract is perfected the moment
2) Total indemnity shall not exceed P15K; the o eror learns of the acceptance of his o er by the other party.
2) The policy is in force for 2 years from issue or last
3) Proofs of loss submitted under oath. reinstatement. (Manila Bankers Life Insurance Corp. v. Aban 1. The contract, to be binding from the date of application, must
Suicide Clause 2013) have been a completed contract. There can be no contract of
The insurer is liable in case of suicide when it is committed What if the insured dies during the two-year period? The death insurance unless the minds of the parties have met in
AFTER the policy has been in force for 2 years from date of issue of the insured within the two-year period will render the right of the agreement. (Steamship Mutual Underwriting Association
or last reinstatement. insurer to rescind nugatory. (Sun Life v. Sibya 2016) (Bermuda) Ltd. v. Sulpicio Lines 2017)
The insurer is still liable even before the two year period in any of NB: This rule is quite controversial as the prevailing rule had been to 2. An insurance contract can be entered into through an agent.
the following cases: allow the lapse of the 2-year period first before the For example, a bank is an agent of the insurer if it o ers a
incontestability clause can be invoked. special type of savings and insurance account whereby the
1) When a shorter period is provided for;
The clause CANNOT be invoked in the following cases: depositor has automatic insurance coverage for disability or
2) When the suicide was committed in a state of insanity.
death. (BPI v. Laingo 2016)
By RGL 10 of 83
Commercial Law Reviewer for the 2022 Bar
3. However, there are cases when the insurer assumed the risk of 4) When there is an agreement that the premium shall be payable a) Insured must prove insurability; and
loss without approving the application. This includes cases on installment; (Makati Tuscany Condo Corp v. CA) and
b) Pay overdue premium.
when the buyer of a memorial lot is deemed insured the
5) When the equitable doctrine of estoppel applies.
moment it enters into a contract with the seller. (Eternal Non-default options in life insurance
Gardens Memorial Park v. Phil. American Life Insurance Effect of Non-payment
1) To prevent the lapse of life insurance policy, the insured may
Corp.) 1. The obligation of the insurer will NOT become valid and avail of:
Delay in acceptance. — Mere delay in acceptance of the insurance binding if the first premium has not been paid.
a) Grace period;
application will not result in a binding contract. However, in proper 2. If the subsequent premiums have not been paid, the policies
cases, the insurer may be liable for TORT. b) Automatic policy loan from the policy’s cash
issued will be deemed to have been lapsed. Thus, the insurer
surrender value;
Delivery of policy. — not necessary for perfection since an insurance has NO liability to indemnify.
contract is consensual. c) Application of dividend; and
3. It does NOT give the insurer the right to sue or demand
payment from the insured. d) Reinstatement clause.
Premium payment
4. Will not create the vinculum juris between the parties.
An insurer is entitled to payment of the premium as soon as the thing Reinstatement of a lapsed policy of life insurance
insured is exposed to the peril insured against. Devices to Prevent Lapse of Life Insurance Policy The stipulation in a life insurance policy giving the insured the
GR: Cash and carry principle. No policy or contract of 1) Grace Period; privilege to reinstate it upon written application does not give the
insurance issued by an insurance company is valid and binding insured absolute right to such reinstatement by the mere ling of
2) Automatic Policy Loan — Cash surrender value is the
unless and until the premium thereof has been paid, an application. The insurer has the right to deny the
amount of money the company agrees to pay to the
notwithstanding any agreement to the contrary. reinstatement if it is not satis ed as to the insurability of the
policyholder if he surrenders it and releases his claims upon it.
insured and if the latter does not pay all overdue premium and all
EXC: in the case of If at the end of the grace period the premium has not been other indebtedness to the insurer. After the death of the insured
1) A life or an industrial life policy whenever the grace period paid, a policy loan will automatically be made from the the insurance Company cannot be compelled to entertain an
provision applies; policy’s cash value to pay the premium. This is to prevent application for reinstatement of the policy because the
unintentional lapse of the policy. conditions precedent to reinstatement can no longer be
Applies only when the policy had already been in force.
3) Application of Dividend — in case of participating determined and satis ed. (Lalican v. The Insular Life Assurance)
2) Whenever under the broker and agency agreements with duly insurance policy, the insured is entitled to dividends that may The policyholder shall be entitled to have the policy reinstated at any
licensed intermediaries, a ninety (90)-day credit extension is be available. The dividend shall be applied to the premiums time within three (3) years from the date of default of premium
given, which is non-extendible; that are due or payable. payment unless the cash surrender value has been duly paid, or the
3) When there is an acknowledgment in the policy or receipt 4) Reinstatement Clause — at any time within 3 years from extension period has expired. There must be:
that the premium has been paid; date of default subject to conditions:
By RGL 11 of 83
Commercial Law Reviewer for the 2022 Bar
a) upon production of evidence of insurability satisfactory to 3) The contract is rescindable or rendered void ab initio due to If the owner dies, the policy automatically vests in the
the company and the fraud of insured. insured, unless otherwise provided for in the policy.
b) payment of all overdue premiums and any indebtedness to 3. A third person is the bene ciary whose favor the insurance
the company upon said policy. (Sec 233[j] IC) Philam Insurance v. Parc Chateau Condominium 2019 was taken by the insured and who will receive the proceeds of
the insurance.
Refund of premiums WON Philam has NO right to recover the unpaid premium based on
void and ineffective insurance policies. GR: Designation of bene ciary is REVOCABLE.
Return of Premium
YES. The Jumbo Risk Provision clearly indicates that failure to pay EXC: Unless, expressly designated as IRREVOCABLE.
1) When the thing was not exposed to the peril insured against;
in full any of the scheduled installments on or before the due date Thus, an irrevocable bene ciary has VESTED rights over the
2) Time policy. When the policy is surrendered before the shall render the insurance policy void and ine ective as of 4 p.m. of policy.
expiration of the stipulated time. Refund is pro rata; such date. Parc Association's failure to pay on the rst due date,
resulted in a void and ine ective policy as of 4 p.m. of November 30, 4. If a bene ciary is disquali ed:
3) When the contract is voidable and subsequently annulled;
2003. Hence, there is no credit extension to consider as the Jumbo a. Forfeited share shall pass on to other bene ciaries;
4) The insurance contract is voidable due to the fraud or
Risk Provision itself expressly cuts o the inception of the insurance
misrepresentation of insurer or of his agent. b. If there are no other bene ciaries, or that they are also
policy in case of default.
DQed, look at the policy contract;
5) When the contract is annulled on account of
c. If the contract is silent, proceeds go to the estate of
a) fraud or misrepresentation of the insurer or his agent, or
the insured.
b) facts, or the existence of which the insured was ignorant of
C Rights and obligations of parties
5. Grounds for DQ
without his fault. 1. The insurer is the party who promises to pay in case of loss.
a. Those made between persons who were guilty of
6) When by any default of the insured other than actual fraud, 2. The insured is either adultery or concubinage at the time of donation;
the insurer never incurred liability under the policy; and
a. The owner of the policy whose life or property is Conviction, not necessary.
7) When there is overinsurance.
insured; b. Those made between persons found guilty of the
8) When rescission is granted due to the insurer’s breach of same criminal o ense, in consideration thereof;
Here, the insured and the owner of the policy is one
contract.
and the same. c. Those made to a public o cer or his wife,
When NOT recoverable descendants and ascendants, by reason of his o ce.
b. One who took out the insurance over the life of
1) The risk has already attached, is entire and indivisible; persons in whom he has insurable interest.
D Rescission of insurance contracts
2) In life insurance; Here, the owner of the policy is called the assured,
while the person whose life is insured is the insured. 1) When representation is false on material point whether
a rmative or promissory;
By RGL 12 of 83
Commercial Law Reviewer for the 2022 Bar
2) Violation of material warranty on the part of either party or 1) The party involved must know, or ought to know, the
Devices to Ascertain and Control Risks
other material provisions of the policy; fact concealed;
1) Concealment;
3) Intentional or unintentional concealment; 2) The fact concealed must be material;
2) Representation;
4) Violation of a special provision of the policy where the policy 3) No warranty is extended by the party regarding the fact
3) Warranties;
declares that violation thereof shall avoid the policy; concealed; and
4) Conditions;
5) Intentional or fraudulent omission, on the part of one insured, 4) The other party does not have the means of
to communicate information of matters proving or tending to 5) Exception, Exclusion, or Exemption. ascertaining.
prove the falsity of a warranty; and
Concealment Representation
6) With respect to fire insurance,
§26. A neglect to communicate that which a party knows Statements made to give information to the insurer to induce him to
a) alteration in the use or condition of a thing insured from and ought to communicate, xxx. enter into the insurance contract.
that to which it is limited by the policy
§27. xxx whether intentional or unintentional entitles the 1. It is a collateral communication
b) made without the consent of the insurer, injured party to rescind a contract of insurance.
2. Made at the time of, or before, issuance of the policy, oral or
c) by means within the control of the insured, and Thus, good faith is NOT a defense. written.
d) increasing the risks. §28. Each party to a contract of insurance must communicate EXC: It may also be one that induces the party to modify
Other Defenses of Insured Against Revocation to the other, in good faith, all facts the contract.
4) Estoppel. The matter concealed NEED NOT be the cause of the loss. The Insurance Code dispenses with proof of fraudulent intent in
Requisites to rescind on ground of concealment cases of rescission due to concealment, but not so in cases of
By RGL 13 of 83
Commercial Law Reviewer for the 2022 Bar
b. Expressed in another instrument provided that such is 1) Promises or obligations regarding claims procedure that Proof of negligence
signed by the insured and referred to in the policy. are not fundamental to the validity of the contract; and Due diligence in the selection and supervision of
5. It may relate to the past, the present, the future, or to any or 2) Conditions conferring more rights to the insurer enlarging employees
all of these. or repeating the minimum rights provided by law.
Fortuitous event
6. Promissory warranty is a statement which imparts that it is May be either condition precedent like payment of premium or
intended to do or not to do a thing which materially a ects the Contributory negligence
condition subsequent like giving notice of loss.
risk. Doctrine of last clear chance
By RGL 14 of 83
Commercial Law Reviewer for the 2022 Bar
Extent of liability and one who does such carrying only as an ancillary activity,
Fee Gratuitous or for a fee Gratuitous or for a fee
or “sideline”.
Recoverable damages
2) Art 1732 makes no distinction as to the regularity of the Diligence That of a good father of
Extraordinary
Stipulations limiting liability o er of such service. required the family
Limitations under the Montreal Convention 3) Art 1732 does not distinguish between a carrier o ering its Presumption
services to the “general public”, and one to a narrow segment of negligence
✔ ✘
A Common Carriers of the general population.
Provisions on Common
4) No need to secure a Certi cate of Public Convenience.
1 Concept Governing Carriage of the NCC + Provisions on ordinary
5) Transportation may be by land, water or air. law Public Services Act + contracts of the NCC
Common carriers are Special Transpo Laws
6) Transportation need not be by motor vehicle.
1. persons, corporations, rms or associations
Thus, a pipeline operator is considered a common carrier. Exemption
2. engaged in the business of carrying or transporting passengers from CANNOT stipulate MAY stipulate
7) No need to have a xed and publicly known route, nor
or goods or both, Liability
maintain terminals and issue tickets.
3. by land, water, or air, a) Travel agent. Not an entity engaged in the business of
8) Need not be engaged in the business of public transportation.
4. for compensation, transporting either passengers or goods and is therefore,
9) Need not own the vehicle or vessel that he or she operates.
neither a private nor a common carrier. (Crisostomo v. CA)
5. o ering their services to the public.
NB: Under Sec 7 of RA 10668, foreign vessels engaging in
b) Pipeline operators are common carriers because
A common carrier is one that holds itself out as ready to engage in carriage conducted in accordance with the said law shall not
transportation need not be by motor vehicle.
the transportation of goods for hire as a public employment and not as be considered common carriers and are not o ering to the
a casual occupation. public. c) Customs brokers have been regarded as COMMON carriers
because transportation of goods is an integral part of their
The TRUE TEST for a common carrier is NOT the quantity or
2 Common carrier vs. private carrier business.
extent of business actually transacted, or the number and character of
the conveyances used in the activity, but whether the undertaking is d) Towage is the bringing of one vessel from a port to another.
a part of the activity engaged in by the carrier that he has held As to Common Carrier Private Carrier Here, there is NO transportation to speak of.
out to the general public as his business or occupation. e) Arrastre undertakes to transport goods from the ship's side to
Undertaking At least occasional Single transaction
Thus, the CHARACTERISTICS of a common carrier are the warehouse of the consignee. Such is NOT a common
determined following these principles: Part of general business carrier but the diligence required is still extraordinary.
Part of NOT part of general
or occupation; may also
1) Art 1732 makes no distinction between one whose principal business business or occupation
be ANCILLARY
business activity is the carrying of persons or goods or both,
By RGL 15 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 16 of 83
Commercial Law Reviewer for the 2022 Bar
a. is due to the acts of the guest, his family, servants or Void Stipulations The registered owner is deemed the employer of the driver and is
visitors, or thus vicariously liable under Article 2176 in relation with 2180 of
1. A stipulation limiting the liability of the carrier for the injuries
the Civil Code. (Filcar Transport Services v. Espinas 2012)
b. arises from the character of the things brought into to paying passengers is VOID.
the hotel. By Other Passengers and Strangers
2. The common carrier's responsibility pertaining to acts of its
5. The hotel-keeper cannot free himself from responsibility employees as well as to the safety of its passengers in general A common carrier is responsible for injuries su ered by a passenger
by posting notices to the e ect that he is not liable for the cannot be eliminated or limited by stipulation, by the posting on account of the wilful acts or negligence of other passengers
articles brought by the guest. of notices, by statements on the tickets or otherwise. or of strangers, if the common carrier's employees through the
exercise of the diligence of a good father of a family could have
Checked-in Baggage. The rules applicable to goods that are being Duration of Liability
prevented or stopped the act or omission.
shipped are applicable to baggage delivered to the custody of the carrier
Such duty of a common carrier to provide safety to its passengers
as an incident of a contract of carriage of passenger. In Pilapil v. CA, the Court clari ed that where the injury sustained
so obligates it not only during the course of the trip but for so
by the passenger was in no way due
Hand Carried Luggage. The rules on necessary deposit applies. long as the passengers are within its premises and where they
Thus, the passenger is duty bound to: ought to be in pursuance to the contract of carriage. The statutory 1) to any defect in the means of transport or in the method
provisions render a common carrier liable for death of or injury to of transporting, or
1) Give notice to the common carrier or its employees, of the
e ects brought by the passenger; AND passengers 2) to the negligent or willful acts of the common carrier's
a) through the negligence or wilful acts of its employees or employees with respect to the foregoing —
2) To take the precautions which the common carrier or their
substitutes advised relative to the care and vigilance of their b) on account of wilful acts or negligence of other passengers such as when the injury arises wholly from causes created by
e ects. or of strangers if the common carrier’s employees through strangers which the carrier had no control of or prior
the exercise of due diligence could have prevented or knowledge to prevent — there would be no issue regarding the
The law requires the common carrier to observe the same diligence as
stopped the act or omission. (LRTA v. Navidad) common carrier's negligence in its duty to provide safe and suitable
the hotel keepers in case the baggage remains with the passenger;
care, as well as competent employees in relation to its transport
otherwise, extraordinary diligence must be exercised. (Sulpicio Lines v. Liability for Acts of Others business; as such, the presumption of fault/negligence foisted
Sesante 2016)
Vicarious Liability under Article 1756 of the Civil Code should not apply. (G.V.
However, common carriers are still duty-bound to observe Florida v. Heirs of Battung 2015)
extraordinary diligence even for hand carried luggage. Generally, when an injury is caused by the negligence of a servant
or employee, there instantly arises a presumption of law that there Liability for
was negligence on the part of the master or employer either in the
2 Safety of passengers 1) Delay in commencement of voyage
selection of the servant or employee or in the supervision over him
Under Article 1758 of the NCC, when a passenger is carried after the selection, or both. (Mendoza v. Sps Gomez 2014) If the delay is legally inexcusable, the following result:
gratuitously, a stipulation limiting the common carrier’s liability a) The carrier is still liable even if natural disaster caused
is VALID. the damage; (Art 1740)
By RGL 17 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 18 of 83
Commercial Law Reviewer for the 2022 Bar
3) For a common carrier to be absolved from liability in case of 3) Where both parties are negligent but the negligent act of one is 3) Exemplary Damages
force majeure, it is not enough that the accident was caused by appreciably later in point of time than that of the other, or
May be awarded only if the defendant had acted in a wanton,
a fortuitous event. The common carrier must still prove that it where it is impossible to determine whose fault or negligence
fraudulent, reckless, oppressive or malevolent manner.
did not contribute to the occurrence of the incident due to its brought about the occurrence of the incident, the one who
own or its employees' negligence. (Sulpicio Lines v. Sesante had the last clear opportunity to avoid the impending harm 4) Attorney’s Fees and Interest.
2016) but failed to do so, is chargeable with the consequences arising
therefrom. 2 Stipulations limiting liability
4) When there is NO contributory negligence. The
responsibility to avoid the collision with the front vehicle lies A stipulation between the common carrier and the shipper or owner
with the driver of the rear vehicle. Consequently, no other D Extent of liability limiting the liability of the former for the loss, destruction, or
person was to blame but the victim himself since he was the deterioration of the goods to a degree less than extraordinary diligence
one who bumped his motorcycle into the rear of the Isuzu 1 Recoverable damages shall be VALID, provided it be:
truck. He had the last clear chance of avoiding the accident.
1) Actual and Consequential Damages 1) In writing, signed by the shipper or owner;
(Raynera v. Hiceta)
The passenger or his heirs can recover not only actual damages, 2) Supported by a valuable consideration OTHER than the
5) When there is contributory negligence. The proximate
but also consequential or compensatory damages: service rendered by the common carrier; and
cause of the death of the victim is the negligence of petitioner's
bus driver, with the contributory negligence of the driver and a) Loss of earning capacity — 2/3 x (80 – age at time 3) Reasonable, just and not contrary to public policy.
owner of the jeepney. (Travel & Tours Advisers v. Cruz, Sr., et of death) x Net Earnings;
VOID Stipulations
al 2016)
b) Straight death indemnity of P50K under Art 2206; Any of the following or similar stipulations shall be considered
6) The operator of a school bus service is a common carrier
c) Moral damages + Attorney’s fees. unreasonable, unjust and contrary to public policy:
in the eyes of the law. (Sps Perena v. Sps Zarate 2012)
2) Moral Damages 1) That the goods are transported at the risk of the owner or
5 Doctrine of last clear chance shipper;
Recoverable if the cases under Art 2219 of the NCC are the
proximate result of the breach of contract of carriage. 2) That the common carrier will not be liable for any loss,
1) For the doctrine to be applicable, it is necessary to show that
Recoverable only when destruction, or deterioration of the goods;
the person who allegedly had the last opportunity to avert the
accident was aware of the existence of the peril or should, with a) Death of passenger results; or 3) That the common carrier need not observe any diligence in
exercise of due care, have been aware of it. the custody of the goods;
b) The carrier was guilty of fraud and bad faith even if
2) It can never apply where the party charged is required to act death does not result. 4) That the common carrier shall not be responsible for the acts
instantaneously, and if the injury cannot be avoided by the or omission of his or its employees;
Without the award of moral damages, award of exemplary
application of all means at hand after the peril is or should damages and attorney’s fees is improper.
have been discovered.
By RGL 19 of 83
Commercial Law Reviewer for the 2022 Bar
5) That the common carrier's liability for acts committed by The carrier shall NOT be liable for damages to the extent that b. defective packing of that cargo performed by a person
thieves, or of robbers who do not act with grave or irresistible they exceed for each passenger 100,000 Special Drawing other than the carrier or its servants or agents;
threat, violence or force, is dispensed with or diminished; Rights if the carrier proves that:
c. an act of war or an armed con ict;
6) That the common carrier is not responsible for the loss, a. such damage was not due to the negligence or other
d. an act of public authority carried out in connection
destruction, or deterioration of goods on account of the wrongful act or omission of the carrier or its servants
with the entry, exit or transit of the cargo.
defective condition of the car, vehicle, ship, airplane or other or agents; or
equipment used in the contract of carriage. b. such damage was solely due to the negligence or other The liability of the carrier is limited to a sum of 17 Special
wrongful act or omission of a third party. Drawing Rights per kg, unless the consignor has made, at
Fixed amount the time when the package was handed over to the carrier, a
2. In case of destruction or loss of, or of damage to, checked
A stipulation that the common carrier's liability is limited to the special declaration of interest in delivery at destination and
baggage — the event that caused the destruction, loss or
value of the goods appearing in the bill of lading, unless the has paid a supplementary sum.
damage took place
shipper or owner declares a greater value, is binding. 5. Delay. — The carrier is liable for damage occasioned by delay
a. on board the aircraft or
A contract xing the sum that may be recovered by the owner or in the carriage by air of passengers, baggage or cargo.
shipper for the loss, destruction, or deterioration of the goods is b. during any period within which the checked baggage
Nevertheless, the carrier shall NOT be liable for damage
VALID, if it was in the charge of the carrier.
occasioned by delay if it proves that it and its servants and
1. is reasonable and just under the circumstances, and However, the carrier is NOT liable if and to the extent that the agents took all measures that could reasonably be required to
damage resulted from the inherent defect, quality or vice of avoid the damage or that it was impossible for it or them to
2. has been fairly and freely agreed upon.
the baggage. take such measures.
Limitations under the Montreal Convention The liability of the carrier is limited to 1,000 Special In the carriage of persons, the liability of the carrier for each
3 Drawing Rights for each passenger unless the passenger has passenger is limited to 4,150 Special Drawing Rights.
Montreal Convention made, at the time when the checked baggage was handed over
6. The Special Drawing Right (SDR) is an interest-bearing
to the carrier, a special declaration of interest in delivery at
1. In case of death or bodily injury of a passenger — the international reserve asset created by the IMF. It is based on a
destination and has paid a supplementary sum
accident which caused the death or injury took place basket of international currencies comprising the U.S. dollar,
3. In the case of unchecked baggage — the carrier is liable if the Japanese yen, euro, pound sterling and Chinese Renminbi. It
a. on board the aircraft or
damage resulted from its fault or that of its servants or agents. is not a currency, nor a claim on the IMF, but is potentially
b. in the course of any of the operations of embarking or a claim on freely usable currencies of IMF members. The value
4. In the event of the destruction or loss of, or damage to, cargo
disembarking. of the SDR is set daily by the IMF on the basis of xed
— the event which caused the damage so sustained took place
For damages not exceeding 100,000 Special Drawing currency amounts of the currencies included in the SDR
during the carriage by air. However, the carrier is NOT liable
Rights for each passenger, the carrier shall not be able to basket and the daily market exchange rates between the
if such event resulted from one or more of the following:
exclude or limit its liability. currencies included in the SDR basket.
a. inherent defect, quality or vice of that cargo;
By RGL 20 of 83
Commercial Law Reviewer for the 2022 Bar
7. A carrier may stipulate that the contract of carriage shall be Board of Directors and Trustees Intra-corporate disputes
subject to higher limits of liability than those provided for in Basic principles Capital Structure
this Convention or to no limits of liability whatsoever.
Doctrine of centralized management Shares of stock
8. Any provision tending to relieve the carrier of liability or to
x a lower limit than that which is laid down in this Business judgment rule Nature of shares of stock
Convention shall be NULL and VOID. Tenure and quali cations of directors or trustees Consideration for shares of stock
9. Prescription. — The right to damages shall be extinguished if Election and removal of directors or trustees Watered stock
an action is not brought within a period of two (2) years,
Duties, responsibilities and liabilities for unlawful acts Situs of the shares of stock
reckoned from the date of arrival at the destination, or from
the date on which the aircraft ought to have arrived, or from Stockholders and Members Classes of shares of stock
the date on which the carriage stopped.
Rights and obligations of stockholders and members Certi cate of stock
Doctrine of piercing the corporate veil Proprietary rights Allowable restrictions on the sale of shares
De facto corporations vs. Corporations by estoppel Right to dividends Requisites of a valid transfer
By RGL 21 of 83
Commercial Law Reviewer for the 2022 Bar
Methods of Liquidation a Control Test a. That the foreign investors provide practically all the
Other Corporations funds for the joint investment undertaken by these
Control Test nds initial application and "must govern in Filipino businessmen and their foreign partner;
Close corporations reckoning foreign equity ownership in corporations engaged in
nationalized economic activities." b. That the foreign investors undertake to provide
Non-stock corporations practically all the technological support for the joint
Where a corporation and its non-Filipino stockholders own stocks venture;
Foreign corporations
in a SEC registered enterprise,
What constitutes “doing business” c. That the foreign investors, while being minority
a. at least 60% of the capital stock outstanding and stockholders, manage the company and prepare all
Necessity of a license to do business entitled to vote of each of both corporations must be economic viability studies. (Narra Nickel Mining v.
Requisites for issuance of a license owned and held by citizens of the Philippines; AND Redmont Consolidated Mines 2015 Resolution)
b. at least 60% of the members of the Board of Directors of Important Jurisprudential Points
Resident agent
each of both corporations must be citizens of the
Personality to sue and suability Philippines, 1. The term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote
One-person corporations in order that the corporation shall be considered a Philippine
in the election of directors, and thus, refers ONLY TO
Mergers and Consolidations national.
COMMON SHARES, and NOT to the total outstanding
Concept capital stock comprising both common and non-voting
b Grandfather Rule
preferred shares.
E ects and limitations
The Grandfather Rule may be used as a supplement to the Full bene cial ownership of 60% of the outstanding
Control Test, that is, as a further check to ensure that control and capital stock, coupled with 60% of the voting rights, is
A General Principles
bene cial ownership of a corporation is in fact lodged in Filipinos. required. (Gamboa v. Teves 2011 En Banc)
A corporation is The Grandfather Rule is the method by which the percentage of 2. Both the Voting Control Test and the Bene cial
1. an arti cial being Filipino equity in a corporation engaged in nationalized and/or Ownership Test must be applied to determine whether a
partly nationalized areas of activities is computed. A resort to the corporation is a “Philippine national.”
2. created by operation of law,
Grandfather Rule is necessary if doubt exists as to the locus of the
The 60-40 ownership requirement in favor of Filipino
3. having the right of succession and “bene cial ownership” and “control.”
citizens must apply separately to each class of shares,
4. the powers, attributes, and properties expressly authorized “Doubt” refers to various indicia that the “bene cial ownership” whether common, preferred non-voting, preferred
by law or incidental to its existence. and “control” of the corporation do not in fact reside in Filipino voting or any other class of shares. (Heirs of Gamboa v.
shareholders but in foreign stakeholders. These indicators are: Teves 2012 En Banc Resolution)
1 Nationality of corporations
3. The SEC suggested applying the Grandfather Rule on
By RGL 22 of 83
Commercial Law Reviewer for the 2022 Bar
a. two (2) levels of corporate relations for 1. The property of the corporation is not the property of its corporation has a personality distinct from that of its
stockholders or members. stockholders. Thus, FBCI's alleged controlling shareholdings in
i. publicly-held corporations or
Esses and Tri-Star merely represent a proportionate or aliquot
2. A corporation can incur obligations which should not be
ii. where the shares are traded in the stock interest in the properties of the two corporations. Such controlling
attributed to its stockholders, directors and o cers.
exchanges, and to shareholdings do not vest FBCI with any legal right or title to any of
3. Limited Liability Rule — A stockholder is personally liable Esses and Tri-Star's corporate properties.
b. three (3) levels for
for the nancial obligations of the corporation to the extent of
i. closely held corporations or his unpaid subscription.
ii. the shares of which are not traded in the Liability for tort and crimes 3 Doctrine of piercing the corporate veil
stock exchanges. (Narra Nickel Mining v.
The corporation should alone be liable for its own corporate acts Under the doctrine of "piercing the veil of corporate fiction,"
Redmont Consolidated Mines 2015
and liabilities entered into by its authorized o cers. the court looks at the corporation as a mere collection of
Resolution)
Recovery of damages individuals or an aggregation of persons undertaking business as a
4. If the Filipino has
group, disregarding the separate juridical personality of the
a. Political Rights — the voting power of the GR: A corporation is not entitled to moral damages because, not
corporation unifying the group.
"speci c stock", i.e., he can vote the stock or direct being a natural person, it cannot experience physical su ering
or sentiments like wounded feelings, serious anxiety, mental The procedure for the doctrine to be properly applied:
another to vote for him, or
anguish and moral shock. 1) The court must first acquire jurisdiction over the
b. Economic Rights — the investment power over the
EXC: A juridical person can validly claim for libel or any other form corporation or corporations involved before its or their
"speci c stock", i.e., he can dispose of the stock or
of defamation and claim moral damages. separate personalities are disregarded; and
direct another to dispose of it for him, or
Article 2219(7) of the Civil Code expressly authorizes the 2) The doctrine can only be raised during a full-blown trial over a
c. both, i.e., he can vote and dispose of that "speci c
recovery of moral damages in cases of libel, slander or any cause of action duly commenced involving parties duly
stock" or direct another to vote or dispose it for him,
other form of defamation. Article 2219(7) does not qualify brought under the authority of the court by way of service of
then such Filipino is the "bene cial owner" of that "speci c whether the plaintiff is a natural or juridical person. summons or what passes as such service. (Kukan International
stock." (Roy III v. Herbosa 2017 En Banc Resolution) v. Reyes 2010)
Silverio Jr. v. Filipino Business Consultants Inc. Stockholders of a corporation are liable for the debts of the corporation
2 Doctrine of separate juridical personality up to the extent of their unpaid subscriptions. They cannot invoke
WON FBCI's acquisition of the "substantial and controlling shares of
A corporation has a personality separate and distinct from that of the veil of corporate identity as a shield from liability, because the veil
stocks" of Esses and Tri-Star entitles it to the possession of the property
its stockholders or members composing it, as well as from the may be lifted to avoid defrauding corporate creditors. (Halley v.
owned by the latter.
directors, trustees and o cers who act on its behalf. Printwell 2011)
NO. Esses and Tri-Star, just like FBCI, are corporations. A
Consequences The doctrine of piercing the corporate veil applies only in three (3)
By RGL 23 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 24 of 83
Commercial Law Reviewer for the 2022 Bar
De facto corporations vs. Corporations to accept it. beginning of an entity's corporate existence. Here, Puri cacion dealt
B
by estoppel Corporate existence begins only from the moment a certi cate of
with the petitioner as if it were a corporation. This is evident from
the fact that Puri cacion executed two (2) documents conveying her
incorporation is issued. No such certi cate was ever issued to
1. Corporation by estoppel. All persons who assume to act properties in favor of the petitioner.
petitioners or their supposed predecessor-in-interest at the time of
as a corporation knowing it to be without authority to do so
the donation. Petitioners obviously could not have claimed Further, the subsequent act by Puri cacion of re-conveying the
shall be liable as general partners for all debts, liabilities and
succession to an entity that never came to exist. Neither could the property in favor of the petitioner is a ratification by conduct of
damages incurred or arising as a result thereof. (§20)
principle of separate juridical personality apply since there was never the otherwise defective donation.
2. De facto Corporation. any corporation to speak of.
By RGL 25 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 26 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 27 of 83
Commercial Law Reviewer for the 2022 Bar
to the express powers and reasonably necessary to their exercise. If so, corporate assets. Thus, any disposition of corporate funds and
person with authority to transact on its behalf.
the corporation has the power to do it; otherwise, not. assets to the prejudice of creditors is null and void. (Turner v.
(Magallanes Watercraft Association v. Auguis 2016) UM does not have the power to mortgage its properties in Lorenzo Shipping 2010)
order to secure loans of other persons. As an educational
Ultra Vires Act Consequences This doctrine is the underlying principle in the procedure for the
institution, it is limited to developing human capital through formal
distribution of capital assets which allows the distribution of
The resulting contract is void. instruction.
corporate capital only in three instances:
The relationship between a corporation and its representatives is
The contract is not subject to rati cation. 1) amendment of the AOI to reduce the ACS,
governed by the general principles of agency. Unauthorized acts
Acts contrary to
that are merely beyond the powers of the corporation under 2) purchase of redeemable shares by the corporation,
law, morals or The action or defense for the
its articles of incorporation are NOT void ab initio. They may regardless of the existence of unrestricted retained
public policy declaration of its nullity does not
be rati ed. Here, it was not shown that petitioner issued a resolution earnings, and
prescribe.
ratifying the execution of the mortgage contracts.
3) dissolution and eventual liquidation of the corporation.
The rule on in pari delicto applies. The general rule is that knowledge of an o cer is considered (Ong Yong v. Tiu)
knowledge of the corporation. However, even though the Sps
The act is unenforceable.
Torres were o cers of both the thrift banks and petitioner, their D Board of Directors and Trustees
The act shall not prejudice third parties who knowledge of the mortgage contracts cannot be considered as
Acts performed acted in good faith. knowledge of the corporation. The rule that knowledge of an o cer
1 Basic principles
outside the scope is considered knowledge of the corporation applies only when the
of the powers Shareholders may ratify the action, prevent its officer is acting within the authority given to him or her by The directors of a corporation must formally organize and elect:
granted to the enforcement and, if proper, institute a the corporation.
a) a president, who must be a director;
corporation by its derivative suit.
The doctrine of apparent authority does not go into the
articles of b) a treasurer, who must be a resident;
If the action has been implemented, the question of the corporation's competence or power to do a
incorporation c) a secretary, who must be a citizen and resident of the
members of the board shall be liable jointly and particular act. A nding that there is apparent authority is not the
severally for all damages resulting from the ultra same as a nding that the corporate act in question is within the Philippines; and
vires act. corporation's limited powers. d) such other o cers as may be provided in the bylaws.
If the corporation is vested with public interest, the board shall also
University of Mindanao, Inc. v. BSP 2016 as to Sec 41 elect a compliance o cer.
b Trust fund doctrine
The same person may hold two (2) or more positions concurrently,
Acts of an o cer that are not authorized by the board of
Under the doctrine, the capital stock, property, and other assets of except that no one shall act as
directors/trustees do not bind the corporation unless the
a corporation are regarded as equity in trust for the payment of
corporation rati es the acts or holds the o cer out as a 1. president and secretary or
corporate creditors, who are preferred in the distribution of
By RGL 28 of 83
Commercial Law Reviewer for the 2022 Bar
1. The business judgment rule does not apply in process due care b) When the directors or o cers acted with fraud, c) By a foreign court or equivalent foreign regulatory authority
(oversight cases). gross negligence or in bad faith; and for acts, violations or misconduct similar to those enumerated
in paragraphs (a) and (b) above.
2. There is gross negligence if there is sustained or systematic c) When directors or o cers act against the
failure of the board to exercise oversight. corporation in conflict of interest situation.
3 Election and removal of directors or trustees
3. The business judgment rule applies in the observance of
Tenure and quali cations of directors or
substantive due care (hindsight cases). The substantive due care 2
trustees
By RGL 29 of 83
Commercial Law Reviewer for the 2022 Bar
Elections If there is no secretary, or if the secretary, despite demand, fails No later than the day of such
Expiration
or refuses to call the special meeting or to give notice thereof, expiration at a meeting called
Quorum of Term
the stockholder or member of the corporation signing for that purpose
Owners of majority of the outstanding capital stock must be the demand may call for the meeting by directly addressing
the stockholders or members. At a regular or at a special
present either in person, by proxy or in absentia.
meeting duly called for the
The law follows plurality voting. The nominees who received the 4. Removal may be WITH or WITHOUT cause. Increase in purpose, or in the same
highest number of votes shall be elected as members of the board. Removal without cause may NOT be used to deprive number meeting authorizing the
The election is generally done through minority stockholders or members of the right of increase if so stated in the notice
representation to which they may be entitled under Section of the meeting.
a) straight voting; or
23.
b) cumulative voting. If still
5. The SEC shall, motu proprio or upon veri ed complaint, and constituting a
Removal after due notice and hearing, order the removal of a director or quorum, by the
trustee No later than forty- ve (45)
1. Any director or trustee of a corporation may be removed from All other vote of at least a
days from the time the vacancy
o ce by a vote of the stockholders holding or representing at a. elected despite the disquali cation, or causes majority of the
arose
least two-thirds (2/3) of the OCS, or in a nonstock remaining;
b. whose disquali cation arose or is discovered
corporation, by a vote of at least two-thirds (2/3) of the otherwise, same as
subsequent to an election.
members entitled to vote. above
The removal of a disquali ed director shall be without
2. Such removal shall take place either at a regular meeting of prejudice to other sanctions that the SEC may impose on the Emergency Board: Matling Doctrine
the corporation or at a special meeting called for the purpose, board of directors or trustees who, with knowledge of the When applicable
and in either case, after previous notice to stockholders or disqualification, failed to remove such director or trustee.
members of the corporation of the intention to propose such 1. When the vacancy prevents the remaining directors from
removal at the meeting. Vacancies constituting a quorum and
3. A special meeting of the stockholders or members for the Reason Manner of Filling Period to Fill Up 2. Emergency action is required to prevent grave, substantial, and
purpose of removing any director or trustee must be called irreparable loss or damage to the corporation,
By the stockholders
a. by the secretary on order of the president, or or members in a On the same day of the The vacancy may be temporarily lled from among the o cers of the
Removal regular or special meeting authorizing the corporation by unanimous vote of the remaining directors or trustees.
b. upon written demand of the stockholders
representing or holding at least a majority of the meeting called for removal Scope — The action by the designated director or trustee shall be
OCS, or a majority of the members entitled to vote. the purpose limited to the emergency action necessary, and the term shall cease
within a reasonable time
By RGL 30 of 83
Commercial Law Reviewer for the 2022 Bar
1. from the termination of the emergency or Where a director, by virtue of such o ce, acquires a business The doctrine of "corporate opportunity" is precisely a
opportunity which should belong to the corporation, thereby recognition by the courts that the duciary standards could not be
2. upon election of the replacement director or trustee,
obtaining pro ts to the prejudice of such corporation, the director upheld where the duciary was acting for two entities with
whichever comes earlier. must account for and refund to the latter all such competing interests.
Notice to SEC — The corporation must notify the SEC within three pro ts. If there is presented to a corporate o cer or director a business
(3) days from the creation of the emergency board, stating therein the opportunity
Unless the act has been rati ed by a vote of the stockholders
reason for its creation.
owning or representing at least 2/3 of the OCS. 1. which the corporation is nancially able to undertake,
Duties, responsibilities and liabilities for Material Related Party Transactions 2. is from its nature, in the line of the corporation's business
4
unlawful acts 1. “Material”. A transaction is material if its value is at least and is of practical advantage to it,
10% of the corporation’s total assets, as provided in its latest 3. is one in which the corporation has an interest or a
Three-Fold Duty AFS. reasonable expectancy, and
1. DUTY OF OBEDIENCE — shall direct the a airs of the
2. “Related Party”. A party is regarded as related party if such 4. by embracing the opportunity, the self-interest of the
corporation only in accordance with the purposes for which it
person is o cer or director will be brought into con ict with that
was organized.
a. a director, trustee, o cer, or a substantial shareholder of his corporation, the law will not permit him to seize the
2. DUTY OF DILIGENCE — shall not willfully and opportunity for himself.
(one who is directly or indirectly a bene cial owner of
knowingly vote for or assent to patently unlawful acts of the
at least 10% of any class of equity security), and And, if, in such circumstances, the interests of the corporation are
corporation or act in bad faith or with gross negligence in
b. his spouse or relative within the 4th CDCA. betrayed, the corporation may elect to claim all of the benefits
directing the a airs of the corporation.
of the transaction for itself. (Gokongwei, Jr. v. SEC)
3. DUTY OF LOYALTY — shall not acquire any personal or 3. Rule if no disinterested board. The law only requires the
pecuniary interest in con ict with their duty as such directors approval of the shareholders or members if there is no Solidary liabilities for damages
or trustees. (Strategic Alliance Development Corp. v. Radstock disinterested board that may approve the transaction. Directors or trustees who
Securities) 4. Rule if disinterested board disapproves. Where the 1. willfully and knowingly vote for or assent to patently unlawful
disinterested board disapproves the self-dealing transaction, acts of the corporation or
Disloyalty
the shareholders or members cannot override such decision
Observance of the duty of loyalty is relevant when directors or of the board, consistent with the principle of board 2. are guilty of gross negligence or bad faith in directing the
trustees enter in to a supremacy. a airs of the corporation or
1) contract with the corporation (self-dealing contracts), 3. acquire any personal or pecuniary interest in con ict with
Doctrine of Corporate Opportunity
their duty as such directors or trustees
2) negotiate on their compensation, and Corporate o cers "are not permitted to use their position of trust
shall be liable jointly and severally for all damages.
3) personally acquire a corporate opportunity. and con dence to further their private interests."
By RGL 31 of 83
Commercial Law Reviewer for the 2022 Bar
Solidary liability will only attach to the directors, o cers or Otherwise he shall be liable as a trustee for the corporation and must Special Fact Doctrine
employees of the corporation in certain circumstances, such as: account for the pro ts which otherwise would have accrued to
In the absence of special facts, any director, o cer or shareholder is
the corporation. The following requisites must concur:
1. When directors and trustees or, in appropriate cases, the entitled to sell his stock to a third person for such price; and on
o cers of a corporation: 1) The complainant must allege in the complaint that the such terms as he may desire.
director or o cer assented to patently unlawful acts of the
a) vote for or assent to patently unlawful acts of the However, o cers, directors, and controlling stockholders of a
corporation, or that the o cer was guilty of gross negligence
corporation; corporation owe a limited duciary duty toward minority
or bad faith; AND
b) act in bad faith or with gross negligence in stockholders in the matter of sales of stock where there are special
2) The complainant must clearly and convincingly prove such facts which make it inequitable for them to act without regard to
directing the corporate a airs; and
unlawful acts, negligence or bad faith. (Heirs of Tan Uy v. the interests of other shareholders.
c) are guilty of con ict of interest to the prejudice of International Exchange Bank 2013)
the corporation, its stockholders or members, and Under the law, what is required to be disclosed is a fact of “special
other persons; Responsibility for Crimes signi cance” which may be
2. When a director or o cer has consented to the issuance of The following provisions of the RCC provide speci c penalties, a) a material fact which would be likely, on being made
watered stocks or who, having knowledge thereof, did not which render the non-application of the “other violations” generally available, to a ect the market price of a security to a
forthwith le with the corporate secretary his written provision under Section 170: signi cant extent, or
objection thereto; 1. Corporation by estoppel (§20); b) one which a reasonable person would consider especially
3. When a director, trustee or o cer has contractually agreed important in determining his course of action with regard to
2. E ects of non-use of corporate charter and continuous
or stipulated to hold himself personally and solidarily liable the shares of stock. (SEC v. Interport Resources)
inoperation of a corporation (§21);
with the corporation; or
3. Liability of directors, trustees or o cers (§30); Contracts
4. When a director, trustee or o cer is made, by speci c
4. Disloyalty of a director (§33); By self-dealing directors with the corporation
provision of law, personally liable for his corporate action.
(Heirs of Tan Uy v. International Exchange Bank 2013) 5. Liability of directors for watered stocks (§64); A contract of the corporation with
6. Interest on unpaid subscriptions (§65); a. (1) one or more of its directors, trustees, o cers OR
Personal liabilities
A director, trustee, or o cer shall not attempt to acquire, or 7. Payment of balance of subscription (§66); and b. their spouses and relatives within the fourth civil degree of
acquire any interest adverse to the corporation consanguinity or a nity
8. Books to be kept (§73).
1. in respect of any matter which has been reposed in them in is voidable, at the option of such corporation, unless all the following
con dence, and conditions are present:
By RGL 32 of 83
Commercial Law Reviewer for the 2022 Bar
a) The presence of such director or trustee in the board meeting Stockholdings exceeding twenty percent (20%) of the OCS shall 1. in writing,
in which the contract was approved was not necessary to be considered substantial for purposes of interlocking directors. 2. signed and led, by the stockholder or member,
constitute a quorum for such meeting;
3. in any form authorized in the bylaws and
b) The vote of such director or trustee was not necessary for the E Stockholders and Members
approval of the contract; 4. received by the corporate secretary within a reasonable
time before the scheduled meeting.
c) The contract is fair and reasonable under the circumstances; Rights and obligations of stockholders and
1
members Unless otherwise provided in the proxy form, it shall be valid only
d) In case of corporations vested with public interest, material
for the meeting for which it is intended. No proxy shall be
contracts are approved by Corporators are those who compose a corporation, whether as valid and e ective for a period longer than ve (5) years at any one
i) at least two-thirds (2/3) of the entire 1. stockholders or shareholders in a stock corporation or as time.
membership of the board, with
2. members in a nonstock corporation.
ii) at least a majority of the independent directors
b Voting trust
voting to approve the material contract; and Fundamental rights of a stockholder One or more stockholders of a stock corporation may create a
e) In case of an o cer, the contract has been previously 1) Political; voting trust for the purpose of conferring upon a trustee or
authorized by the board of directors. 2) Economic or Proprietary; trustees the right to vote and other rights pertaining to the shares.
Where any of the rst three (3) conditions is absent, in the case of a 3) Remedial. GR: For a period not exceeding ve (5) years at any time.
contract with a director or trustee, such contract may be ratified
EXC: In the case of a voting trust speci cally required as a condition
by the vote of the stockholders representing at least 2/3 of the a Doctrine of equality of shares in a loan agreement, said voting trust may be for a period
OCS or of the members in a meeting called for the purpose.
All stocks issued by the corporation are presumed equal with the exceeding ve (5) years but shall automatically expire upon
Between corporations with interlocking directors same privileges and liabilities, provided that the AOI is silent on full payment of the loan.
Except in cases of fraud, and provided the contract is fair and such di erences. (CIR v. CA)
Proxy Voting Trust Agreement
reasonable under the circumstances, a contract between two (2) or
more corporations having interlocking directors shall not be 2 Participation in management
Legal title to the shares
invalidated on that ground alone. Legal title is NOT transferred
transferred to transferee
If the interest of the interlocking director in one (1) corporation is
a Proxy
substantial and the interest in the other corporation or Revocable at any time, unless Irrevocable for a de nite and
A proxy is a form of agency created in instances when a person is
corporations is merely nominal, the contract shall be subject to the coupled with interest limited period of time
unable to personally cast his or her vote; hence, the act of voting is
provisions regarding self-dealing directors insofar as the latter delegated to another person. There is NO requirement that the
corporation or corporations are concerned. same be notarized. Proxies shall be
By RGL 33 of 83
Commercial Law Reviewer for the 2022 Bar
Can only act at the speci ed NOT limited to any particular 9) Voluntary dissolution where no creditors are a ected (§134). 14) Voluntary dissolution (§135).
meeting meeting
ii By a two-thirds vote iii By cumulative voting
Can vote and exercise all rights
Votes only in the absence of the
of the transferor even when the 1) Amendment of the AOI; Allows minority shareholders to bundle their votes together and
owner of the stock
latter is present. cast them in favor of one or some nominees.
2) Extending or shortening corporate term;
Need NOT be notarized or a Must be notarized and led with 3) Increasing or decreasing capital stock or incurring, creating or 3 Proprietary rights
copy be led with SEC SEC increasing bonded indebtedness;
4) Sale of all or substantially all of the corporation’s properties a Right to dividends
NO right of inspection HAS the right of inspection
and assets, including its goodwill;
Dividends is the unrestricted retained earnings set apart from the
5) Approval of the plan of merger or consolidation (and any general mass of the funds of the corporation and distributed
c Cases when stockholders’ action is required amendment thereto) (§76); among the stockholders in proportion to their shares or interest in
6) Removal of director or trustees; the corporation, in the form of cash, property or stocks.
i By a majority vote Who may declare dividends?
7) Ratifying an act which amounts to disloyalty of a director
1) Electing to retain speci c corporate term indicated in the AOI (corporate business opportunity rule); 1. BOD alone — for cash, property dividends;
(§11); 8) Approving property-for-share exchange and debt to equity 2. BOD + stockholders representing not less than 2/3 of the
2) Calling a special meeting of the stockholders or members for conversion (§38); OCS in a meeting called for the purpose — for stock
the purpose of removing any director or trustee (§27); 9) Investing funds in any other corporation, business, or for any dividends.
3) Granting compensation to directors or trustees (including the purpose other than the primary purpose for which the
amount thereof) (§); corporation was organized (§41); b Right to inspect
4) Concluding a management contract with another corporation 10) Issuing stock dividends (§42); A requesting party who is
(§43); 11) Approving the conclusion of a management contract where 1. not a stockholder or member of record, or
5) Adoption of the by laws (§45); there is interlocking ownership or interlocking management
2. a competitor, director, o cer, controlling stockholder or
(§43);
6) Amendment, repeal, or adoption of a new bylaws (§47); otherwise represents the interests of a competitor
12) Delegating to the board of directors or trustees the power to
7) Quorum in meetings (§51); shall have no right to inspect or demand reproduction of
amend or repeal the bylaws or adopt new bylaws (§47);
corporate records.
8) Fixing the issue price of no-par value shares (§61);
13) Approving a plan for the distribution of assets in non-stock
corporations (§94); Insigne v. Abra Valley Colleges, Inc. 2015
By RGL 34 of 83
Commercial Law Reviewer for the 2022 Bar
WON petitioners were entitled to demand the production of the STB The right of the shareholder to inspect the books and records of 2. Second. The demand was refused;
of Abra Valley the petitioner should not be made subject to the condition of a
3. Third. If such refusal is made pursuant to a resolution or
showing of any particular dispute or of proving any
YES. A person becomes a stockholder of a corporation by acquiring order of the board, the liability shall be imposed upon the
mismanagement or other occasion rendering an examination
a share through either purchase or subscription. Considering that directors or trustees who voted for such refusal; and,
proper. (Terelay Investment and Development v. Yulo 2015)
Abra Valley’s STB was not in the possession of the petitioners, or at 4. Fourth. Where the defense that the person demanding has
their disposal, they could not be reasonably expected or justly A criminal action based on the violation of a stockholder's right to
improperly used any information secured through any prior
compelled to prove that their stock subscriptions and purchases examine or inspect the corporate records and the stock and transfer
examination, or was not acting in good faith or for a legitimate
were recorded therein. This was precisely why they led their book of a corporation under the second and fourth paragraphs of
purpose, the contrary must be shown or proved. (Ang-Abaya
Motion for Production/Inspection of Documents. Section 73 can only be maintained against corporate o cers or
v. Ang)
any other persons acting on behalf of such corporation.
The only time when the demand to examine and copy the Thus, the provision can only be violated by a corporation. ⭐Corporations may raise their objections to the right of
corporation's records and minutes could be refused is when (Yujuico v. Quiambao 2014) inspection through a rmative defense in an ordinary civil
the corporation puts up as a defense to any action that: action for speci c performance or damages, or through a comment
Among the actions that may be led is
in a petition for mandamus.
1. the person demanding had improperly used any
1. an action for speci c performance,
information; NB: Thus, a corporation cannot preempt a stockholder from
2. damages, exercising his right to inspect corporate books by ling an
2. secured through any prior examination of the records or
3. petition for mandamus, or action for injunction as the exception to the right may only
minutes of such corporation or of any other corporation,
be raised as a defense.
or 4. for violation of Section 73, in relation to Section 158 of the
3. was not acting in good faith or for a legitimate purpose in RCC. 2016
Philippine Associated Smelting and Refining v. Lim
making his demand. The corporation carries the burden of proving
WON a petition for injunction with prayer for writ of preliminary
Among the improper purposes which may justify denial of the right a) that the stockholder has improperly used information before; injunction is proper to prevent stockholders from inspecting corporate
of inspection are:
b) lack of good faith; or books.
1) Obtaining of information as to business secrets or to aid a
c) lack of legitimate purpose. (Philippine Associated Smelting and NO. When the corporation, through its o cers, denies the
competitor;
Refining Corp v. Lim 2016) stockholders of such right, the latter could then go to court and
2) to secure business "prospects" or investment or advertising enforce their rights. It is then that the corporation could set up its
In order therefore for the penal provision to apply, the following
lists; defenses and the reasons for the denial of such right.
elements must be present:
3) to nd technical defects in corporate transactions in order to Thus, the proper remedy is the writ of mandamus to be led by
1. First. A director, trustee, stockholder or member has made a
bring "strike suits" for purposes of blackmail or extortion. the stockholders and not a petition for injunction led by the
prior demand in writing;
corporation.
By RGL 35 of 83
Commercial Law Reviewer for the 2022 Bar
6) An absolute restraint on transfer of stock unlimited in time is a) between the corporation, partnership or association and
invalid. the public;
c Pre-emptive right
b) between the corporation, partnership or association and
Pre-emptive right refers to the right of a stockholder of a stock 4 Remedial Rights its stockholders, partners, members, or o cers;
corporation to subscribe to all issues or disposition of shares of any
Suits by stockholders or members of a corporation based on c) between the corporation, partnership or association and
class, in proportion to their respective shareholdings. (Lu Ym v. Lu
wrongful or fraudulent acts of directors or other persons may be the State insofar as its franchise, permit or license to
2018)
classi ed into individual suits, class suits, and derivative suits. operate is concerned; and,
The preemptive right of stockholders in close corporations shall
extend to ALL stock to be issued, including reissuance of treasury 2016 d) among the stockholders, partners or associates themselves.
Florete, Jr v. Florete
shares, whether for money, property or personal services, or in 3) Under the nature of the controversy test, the disagreement
The determination of the stockholder's appropriate remedy hinges on
payment of corporate debts, unless the AOI provides otherwise. must not only be rooted in the existence of an intra-corporate
the object of the wrong done.
relationship, but must as well pertain to the enforcement of
d Right of rst refusal 1) Individual suit — when the object is a speci c the parties' correlative rights and obligations under the
stockholder and the remedy is speci c to him. Corporation Code and the internal and intra-corporate
1) The corporation or the stockholders have the right of rst
2) Representative or class suit — when the object is a regulatory rules of the corporation.
refusal.
de nite class of stockholder and the remedy is speci c to 4) Both tests must concur.
2) The stockholder who wants to sell his shares to any third
them.
person must rst o er it either to the corporation or to the
3) Derivative suit — when the object of the wrong done is Belo Medical Group v. Santos 2017
other existing stockholders usually under the same terms and
conditions. the corporation itself or the whole body of its stock and The con ict is intra-corporate as it involves two (2) shareholders
property without any severance or distribution among although the ownership of stocks of one stockholder is questioned.
3) The right pertains to shares already issued to stockholders.
individual holders. Unless Santos is adjudged as a stranger to the corporation because he
4) If the existing stockholders or the corporation fails to exercise holds his shares only in trust for Belo, then both he and Belo, based
the option to purchase within the period stated, the on o cial records, are stockholders of the corporation.
transferring stockholder may sell his shares to any third person. 5 Intra-corporate disputes See also San Jose v. Ozamiz 2017
5) The present policy of the SEC is to limit the period to one (1)
1) Understood as a suit arising from intra-corporate relations or Corporate Officers. Matling Industrial and Commercial Corp v.
month which is deemed "su cient for the stockholders or for
between or among stockholders or between any or all of them Coros 2010
the corporation to signify their desire to buy the shares of
and the corporation. Conformably with Section 25 of the Corporation Code, a position
stock being o ered for sale by any stockholder. (SEC Opinion,
13 Oct 1964) 2) Following the relationship test, it includes the following must be expressly mentioned in the By-Laws in order to be
suits: considered as a corporate o ce. Thus, the creation of an office
By RGL 36 of 83
Commercial Law Reviewer for the 2022 Bar
pursuant to or under a By-Law enabling provision is not enough to Individual suit 3. No appraisal rights are available for the acts or acts
make a position a corporate office. complained of; and
Where a stockholder or member is denied the right of inspection,
Whoever are the corporate o cers enumerated in the by-laws are the his suit would be individual because the wrong is done to him 4. The suit is not a nuisance or harassment suit;
exclusive O cers of the corporation and the Board has no power to personally and not to the other stockholders or the corporation. 5. The action brought by the stockholder or member must
create other O ces without amending rst the corporate By-laws.
be in the name of the corporation or association.
Representative suit
Real v. Sangu Phil 2011
Where the wrong is done to a group of stockholders, as where 2014
When petitioner sought for reinstatement, he wanted to Ching v. Subic Bay Golf and Country Club, Inc.
preferred stockholders’ rights are violated, a class or
recover his position as Manager, a position which has been WON the complaint filed by petitioners is a derivative suit and such
representative suit will be proper for the protection of all
declared to be not a corporate position. The case is thus a is NOT properly filed.
stockholders belonging to the same group.
termination dispute and, consequently, falls under the jurisdiction
of the Labor Arbiter pursuant to Section 217 of the Labor Code. Derivative suit YES. Although the shareholdings of petitioners are indeed only two
out of the 409 alleged outstanding shares or 0.24%, the Court has
Cacho v. Balagtas 2018 A suit by a shareholder to enforce a corporate cause of action. It is
held that it is enough that a member or a minority of
the corporation that is properly regarded as the REAL
While a corporate o ce is created by an express provision either in stockholders le a derivative suit for and on behalf of a
PARTY IN INTEREST, while the relator-stockholder is
the Corporation Code or the By-laws, what makes one a corporate corporation.
merely a NOMINAL party. (Ang v. Sps Ang 2013)
o cer is his election or appointment thereto by the board of
With regard, however, to the second requisite, the Court nds that
directors. Since the derivative suit is a remedy of last resort, it must be
petitioners failed to state with particularity in the Complaint
shown that the board, to the detriment of the corporation and
It is clear that the termination complained of is intimately and that they had exerted all reasonable e orts to exhaust all
without a valid business consideration, refuses to remedy a
inevitably linked to Balagtas's role as North Star's EVP. Balagtas's remedies available. Such failure allows the RTC to dismiss the
corporate wrong. A derivative suit may only be instituted after
dismissal is an intra-corporate controversy, not a mere labor Complaint, even motu proprio, in accordance with the Interim
such an omission. (Ago Realty & Development Corp. v. Ago 2019)
dispute. Rules.
Ellao v. BATELEC 2018
⭐The requisites are enumerated in the Interim Rules of
Procedure for Intra-Corporate Controversies: ⭐Appraisal right
Here, the position of General Manager is expressly provided for
1. He was a stockholder or member at the time the acts or Any stockholder of a corporation shall have the right to dissent and
under Article VI, Section 10 of BATELEC I's By-laws. It is therefore
transactions subject of the action occurred and the time demand payment of the fair value of the shares in the following
beyond cavil that Ellao's position as General Manager is a
the action was led; instances:
cooperative o ce. Accordingly, his complaint for illegal dismissal
partakes of the nature of an intra-cooperative controversy. 2. He exerted all reasonable e orts, and alleges the same, a) In case an amendment to the AOI has the e ect of
to exhaust all remedies available to obtain the relief he
1) changing or restricting the rights of any stockholder
desires;
or class of shares, or
By RGL 37 of 83
Commercial Law Reviewer for the 2022 Bar
demand for the payment of the fair value of the shares until
2) authorizing preferences in any respect superior to a Nature of shares of stock
either
those of outstanding shares of any class, or of
1) The ownership of shares of stock confers no immediate legal
a. the abandonment of the corporate action involved or
3) extending or shortening the term of corporate right or title to any of the property of the corporation. Each
existence; b. the purchase of the shares by the corporation, share merely represents a distinct undivided share or interest in
b) In case of sale, lease, exchange, transfer, mortgage, pledge or except the right of such stockholder to receive payment of the the common property of the corporation.
other disposition of all or substantially all of the corporate fair value of the shares. 2) Shares of stock constitute property distinct from the capital or
property and assets; tangible property of the corporation and belong to the
4. Surrender Certificate of Stocks for Notation — Within
c) In case of merger or consolidation; and 10 days after demanding payment for his or her shares. A di erent owners. Incorporeal in nature, the shares are personal
failure to do so shall, at the option of the corporation, property.
d) In case of investment of corporate funds for any purpose other
than the primary purpose of the corporation. terminate his appraisal rights. 3) They are in the nature of choses in action but are not such in
5. Unrestricted Retained Earnings Required — No a strict sense. They do not constitute an indebtedness of the
The Corporation Code de nes how the right of appraisal is
payment shall be made to any dissenting stockholder unless corporation to the shareholder and are, therefore, not credits
exercised as follows:
the corporation has unrestricted retained earnings in its as to make the stockholder a creditor of the corporation.
1. Written Demand — by making a written demand on the books to cover the payment. 4) A share of stock only typi es a proportionate or aliquot part
corporation within 30 days after the date on which the
In case the corporation has no available unrestricted retained of the corporation's property, or the right to share in its
vote was taken.
earnings in its books, Section 82 of the RCC provides that if proceeds to that extent when distributed according to law.
2. Appraisal Committee — If the withdrawing stockholder the dissenting stockholder is not paid the value of his shares 5) It does not represent property of a corporation.
and the corporation cannot agree on the fair value of the within 30 days after the award, his voting and dividend
shares within a period of 60 days from the date the rights shall immediately be restored. (Turner v. Lorenzo b Consideration for shares of stock
stockholders approved the corporate action, the fair value Shipping)
shall be determined and appraised by three disinterested Stocks shall not be issued for a consideration less than the par or
The right is regarded as su cient to redress a perceived wrong issued price thereof. Consideration for the issuance of stock may be:
persons.
committed to the corporation; thus, its availability precludes a
The ndings and award of the majority of the appraisers shareholder from instituting a derivative action against a) Actual cash paid to the corporation;
shall be nal, and the corporation shall pay their award within corporate controllers. b) Property, tangible or intangible, actually received by the
30 days after the award is made. corporation and necessary or convenient for its use and lawful
3. Suspension of Rights — All rights accruing to the F Capital Structure purposes at a fair valuation equal to the par or issued value of
the stock issued;
withdrawing stockholder's shares, including voting and
dividend rights, shall be suspended from the time of 1 Shares of stock c) Labor performed for or services actually rendered to the
corporation;
By RGL 38 of 83
Commercial Law Reviewer for the 2022 Bar
d) Previously incurred indebtedness of the corporation; 4) For purposes of registration of chattel mortgages on d) Incurring, creating, or increasing bonded indebtedness;
shares of stock. — The situs is the province or city in which
e) Amounts transferred from unrestricted retained earnings to e) Increase or decrease of ACS;
the corporation has its principal o ce or place of business.
stated capital;
f) Merger or consolidation of the corporation with another
5) For purposes of property taxation. — The general rule is
f) Outstanding shares exchanged for stocks in the event of corporation or other corporations;
that the situs of intangible property is at the domicile or
reclassi cation or conversion;
residence of the owner. However g) Investment of corporate funds in another corporation or
g) Shares of stock in another corporation; and/or business; and
a) Shares of stock in a domestic corporation of a
h) Other generally accepted form of consideration. nonresident foreigner are taxable in the Philippines; h) Dissolution of the corporation.
Common shareholders, as residual owners, have full voting WON petitioner can be compelled to redeem the preferred shares
d Situs of the shares of stock
rights. Holders of other shares have similar rights, except when issued to the private respondent.
1) The situs of share of stock is deemed to be the State where the denied by the corporation’s charter or in compliance with the NO. Preferences granted to preferred stockholders do not give
corporation has its domicile which is ordinarily the State provisions of the constitution or the law. them a lien upon the property of the corporation nor make them
under whose laws it was created. creditors of the corporation, the right of the former being always
Non-voting shares are merely prevented from electing directors
2) The situs retains that of the issuing corporation, even though and other matters presented to the shareholders in general for subordinate to the latter. Dividends are thus payable only when
the certi cate is without the State and is owned by a approval. there are pro ts earned by the corporation and as a general rule, even
nonresident. if there are existing pro ts, the BOD has the discretion to
Holders of nonvoting shares shall nevertheless be entitled to vote on
determine whether or not dividends are to be declared.
3) For purposes of execution, attachment, and the following matters:
garnishment. — The situs is the domicile or residence of the In this case, while the stock certi cate does allow redemption, the
a) Amendment of the AOI;
corporation, which is the place where the principal o ce of option to do so was clearly vested in the petitioner bank. Thus, the
the corporation is located. b) Adoption and amendment of bylaws; redemption rests entirely with the corporation and the stockholder
c) Sale, lease, exchange, mortgage, pledge, or other disposition is without right to either compel or refuse the redemption of its
of all or substantially all of the corporate property; stock.
By RGL 39 of 83
Commercial Law Reviewer for the 2022 Bar
in the AOI.
Common a Nature of the certi cate
Shares with no preferences. Holders of these shares are regarded as Mandatory Redemption
A certi cate of stock is a written instrument signed by the proper
residual owners, who assume all the risks but reap all the bene ts Corporations which have issued mandatory redeemable shares o cer of a corporation stating or acknowledging that the person
in the a airs of the corporation. They may only receive dividends with mandatory redemption features are required to set up and named in the document is the owner of a designated number of
and/or assets upon liquidation following the satisfaction of the maintain a sinking fund to be deposited in a trustee bank, and shares of its stock.
stipulated returns to other funders of the corporation, such as which shall not be invested in risky or speculative ventures. It is prima facie evidence that the holder is a shareholder of a
creditors or preferred shareholders. Treasury corporation. A certi cate, however, is merely a tangible
Founder's Shares of stock which have been issued and fully paid for, but evidence of ownership of shares of stock. (Teng v. SEC 2016)
subsequently reacquired by the issuing corporation through
Where the exclusive right to vote and be voted for in the No transfer, shall be valid, except as between the parties, until the
purchase, redemption, donation, or some other lawful means.
election of directors is granted, it must be for a limited period not transfer is recorded in the books of the corporation showing the
While held in the company's treasury, the stock earns no
to exceed ve (5) years from the date of incorporation.
dividends and has no vote in company a airs. 1. names of the parties to the transaction,
Redeemable 2. the date of the transfer,
Instances giving rise to Treasury Shares
Shares usually preferred, which by their terms are redeemable 3. the number of the certi cate or certi cates, and
1) When the corporation redeems its shares pursuant to its
1. at a xed date, or contract with shareholders; 4. the number of shares transferred.
2. at the option of either issuing corporation, or the 2) When permitted or required by law, as when: No shares of stock against which the corporation holds any
stockholder, or both unpaid claim shall be transferable in the books of the corporation.
a) The corporation eliminates fractional shares
at a certain redemption price. A redemption by the corporation of arising out of stock dividends;
its stock is, in a sense, a repurchase of it for cancellation. Insigne v. Abra Valley Colleges, Inc. 2015
b) The corporation collects or compromises on
Redemption of shares is allowed even if there are no delinquency subscription; or Is the presentation of a stock certificate a condition sine qua non for
unrestricted retained earnings. However, this is subject to the proving one’s shareholding in a corporation?
c) The corporation pays a dissenting stockholder.
condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of 3) In close corporations, in case of: NO. To establish their stock ownership, the petitioners adduced
capital stock. Redemption, therefore, may not be made where competent proof showing that the respondents had allowed the
a) Deadlock (§ 103); or
petitioners to become members of the Board of Directors.
1. the corporation is insolvent or b) Withdrawal by a shareholder (§ 104). Considering that Section 23 of the Corporation Code requires every
2. if such redemption will cause insolvency or inability of director to be the holder of at least one share of capital stock of the
the corporation to meet its debts as they mature. 2 Certi cate of stock corporation, the respondents would not have then allowed any of
the petitioners to be elected to sit in the Board unless they believed
These may be issued by the corporation when expressly provided
By RGL 40 of 83
Commercial Law Reviewer for the 2022 Bar
that the petitioners so elected were not disquali ed for lack of stock 3. Third, the par value, as to par value shares, or the full
All transfers of shares of stock must be registered in the
ownership. Conformably with the doctrine of estoppel, the subscription as to no par value shares, must rst be fully paid.
corporate books in order to be binding on the corporation.
respondents could no longer deny the petitioners’ status as — Indivisibility of Subscription
Speci cally, this refers to the Stock and Transfer Book, which is
stockholders of Abra Valley.
described in Section 74. 4. Fourth, the original certi cate must be surrendered where
the person requesting the issuance of a certi cate is a transferee
Jurisprudence in Lao v. Lao is instructive on this matter, that the
from a stockholder.
b Uncerti cated shares mere inclusion as shareholder in the General Information
Sheet is insu cient proof that one is a shareholder of the The surrender of the original certificate of stock is necessary
Uncerti cated shares are shares that are tracked and represented in company. before the issuance of a new one so that the old certificate may be
the books of a company. These shares are recorded in the company canceled. (Teng v. SEC 2016)
as a “book entry” and are not represented with a paper certi cate.
Guy v. Guy 2016
The SEC may require corporations whose securities are traded in e Lost or destroyed certi cates
trading markets and which can reasonably demonstrate their Cheu was not a stockholder of record of GCI and was therefore
a) The registered owner or his legal representative shall le with
capability to do so to issue their securities or shares of stocks in not entitled to any notice of meeting.
the corporation an a davit in triplicate; and
uncerti cated or scripless form. The corporation shall not consider any transfer e ective until the
b) After verifying the a davit and other information and
indorsed certi cate is submitted for cancellation and a new one
Negotiability; requirements for valid transfer of evidence with the books of the corporation, the corporation
c issued in the name of the transferee.
stocks shall publish a notice in a newspaper of general circulation in
the place where the corporation has its principal o ce, once a
1) It is NOT a negotiable instrument. week for three (3) consecutive weeks at the expense of the
d Issuance registered owner of the certi cate of stock which has been lost,
2) Certi cates of stock may be issued only to registered owners of
stock. The issuance of "bearer" stock certi cates is not allowed stolen or destroyed.
No certi cate of stock shall be issued to a subscriber until the full
under the law. amount of the subscription together with interest and expenses, in The notice shall state that after the expiration of one (1) year
case of delinquent shares, if any is due, has been paid. from the date of the last publication, if no contest has been
F & S Velasco Co., Inc. v. Madrid 2015 presented to the corporation regarding the certi cate of stock,
In Bitong v. CA, the Court outlined the procedure for the issuance
the right to make such contest shall be barred and the
WON the November 18, 2009 Meeting organized by Madrid is legal of NEW certi cates of stock in the name of a transferee:
corporation shall cancel the lost, destroyed or stolen certi cate
and valid; 1. First, the certi cates must be signed by the president or of stock in its books.
NO. Madrid's inheritance of Angela's shares of stock does not ipso vice-president, countersigned by the secretary or assistant
A new certi cate may be issued even before the
facto a ord him the rights accorded to such majority ownership of secretary, and sealed with the seal of the corporation,
expiration of the one (1) year period if the registered
FSVCI's shares of stock. Section 63 of the Corporation Code 2. Second, delivery of the certi cate is an essential element of owner les a bond.
governs the rule on transfers of shares of stock. its issuance,
By RGL 41 of 83
Commercial Law Reviewer for the 2022 Bar
3 Disposition and encumbrance of shares What happens when there’s no bidder who can fully pay?
The delivery contemplated in Section 62 (RCC), however, pertains
The corporation may bid for the same, and the total amount to the delivery of the certi cate of shares by the transferor to the
a Sale of shares due shall be credited as fully paid in the books of the corporation. transferee. No transfer shall be valid, except as between the
Title shall be vested in the corporation as treasury shares. parties, until the transfer is recorded in the books of the
E ect of delinquency
corporation.
Delinquency suspends the political and economic rights of the b Allowable restrictions on the sale of shares
subscriber, except the right to receive dividends.
Allowable restrictions on the sale of shares — Deny d Involuntary dealings
Call by resolution of the board of directors — order the sale of
recognition of share transfers. No shares of stock against which the
delinquent stock and shall speci cally state 1) Involuntary dealing refers to such writ, order or process issued
corporation holds any unpaid claim shall be transferable in the
by a court of record a ecting shares of stocks which by law
1. the amount due on each subscription plus all accrued books of the corporation.
should be registered to be e ective, and also to such
interest, and
Sale of partially paid shares — The incomplete payment of the instruments which are not the willful acts of the registered
2. the date, time and place of the sale which shall not be subscription does not preclude the subscriber from alienating his owner and which may have been executed even without his
less than thirty (30) days nor more than sixty (60) days shares of stock. knowledge or against his consent.
from the date the stocks become delinquent.
2) Involuntary dealings are required to be registered in the
Notice of sale — the same shall be published once a week for two c Requisites of a valid transfer
corporation’s STB.
(2) consecutive weeks.
Teng v. SEC 2016
Auction sale G Dissolution and Liquidation
A delinquent stock shall be sold at a public auction to such bidder Certain minimum requisites must be complied with for there to be
who shall o er to pay a valid transfer of stocks, to wit: 1 Modes of Dissolution
1. the full amount of the balance on the subscription a) there must be delivery of the stock certi cate;
b) the certi cate must be endorsed by the owner or his
a Voluntary and involuntary dissolution
2. together with accrued interest,
attorney-in-fact or other persons legally authorized to make
3. costs of advertisement and Voluntary Dissolution
the transfer; and
Without Creditors With Creditors
4. expenses of sale, for the smallest number of shares or c) to be valid against third parties, the transfer must be
fraction of a share. recorded in the books of the corporation. What to Request for
Veri ed petition
The remaining shares, if any, shall be credited in favor of the It is the delivery of the certi cate, coupled with the endorsement by file dissolution
delinquent stockholder who shall likewise be entitled to the the owner or his duly authorized representative that is the operative
issuance of a certi cate of stock covering such shares. Vote Majority vote of the Petition signed by majority
act of transfer of shares from the original owner to the transferee.
required board + by a resolution vote of the board +
By RGL 42 of 83
Commercial Law Reviewer for the 2022 Bar
adopted by at least a petition is resolved upon Hearing on the petition SEC of the request for order setting the
majority of the OCS by a rmative vote of at and trial on any issued dissolution. deadline for ling
least 2/3 of the OCS
Hearing ✘ raised in the objections objections to the petition
led, if any
1. Notice to the Involuntary Dissolution
stockholders; What is
Certi cate of dissolution A corporation may be dissolved by the SEC motu proprio or
2. the order of the SEC issued
upon ling of a veri ed complaint by any interested party. The
reciting the purpose
At least 20 days prior following may be grounds for dissolution of the corporation:
of the petition and By shortening of corporate term
Notice, to the meeting;
xing the deadline for 1. Upon the expiration of the shortened term, as stated in the a) Non-use of corporate charter as provided under
publication published once in a
ling objections shall approved amended AOI, the corporation shall be deemed Section 21;
and newspaper in the
be published once a dissolved without any further proceedings; b) Continuous inoperation of a corporation as provided
posting corporation’s principal
week for 3 consecutive under Section 21;
o ce 2. In the case of expiration of corporate term, dissolution shall
weeks;
automatically take e ect on the day following the last day of c) Upon receipt of a lawful court order dissolving the
3. order to be posted for
the corporate term stated in the AOI, without the need for corporation;
3 consecutive weeks in
the issuance by the SEC of a certi cate of dissolution.
3 public places d) Upon nding by nal judgment that the corporation
Withdrawal procured its incorporation through fraud;
1. copy of the resolution authorizing dissolution,
certi ed by a majority of the board of directors of Request of Petition e) Upon nding by nal judgment that the corporation:
or trustees and countersigned by the secretary 1) Was created for the purpose of committing,
In the form a veri ed
of the corporation; Form In writing and veri ed concealing or aiding the commission of securities
motion
violations, smuggling, tax evasion, money laundering,
2. proof of
Documents Petition signed by or graft and corrupt practices;
publication; and
to submit Majority vote of the majority vote of the
3. favorable 2) Committed or aided in the commission of
to SEC Vote board + by a resolution board + petition is
recommendation securities violations, smuggling, tax evasion, money
required adopted by at least a resolved upon by
from the 2. list of all its creditors. laundering, or graft and corrupt practices, and its
majority of the OCS a rmative vote of at least
appropriate stockholders knew; and
2/3 of the OCS
regulatory agency, 3) Repeatedly and knowingly tolerated the
when necessary Period to no later than fteen (15) led prior to commission of graft and corrupt practices or other
withdraw days from receipt by the publication of the
By RGL 43 of 83
Commercial Law Reviewer for the 2022 Bar
fraudulent or illegal acts by its directors, trustees, cannot be found shall be escheated in favor of the national 3) There is a view to the e ect that the trustee or receiver CAN
o cers, or employees. government. maintain an action for the corporation even after the
Winding up the affairs of the corporation means the collection three-year period. (Reyes v. Bancom Development 2018)
2 Methods of Liquidation
of all assets, the payment of all its creditors, and the distribution of
the remaining assets, if any among the stockholders thereof in H Other Corporations
By the corporation itself
accordance with their contracts, or if there be no special contract,
Every corporation shall nevertheless remain as a body corporate for on the basis of their respective interests. (Rich v. Paloma III 2018) 1 Close corporations
three (3) years after the e ective date of dissolution, for the
Intra-corporate disputes remain even
purpose of when the corporation is dissolved. Characteristics
1. prosecuting and defending suits by or against it and A corporation’s board of directors is not rendered functus officio by A close corporation is one whose AOI provide that:
enabling it to settle and close its a airs, its dissolution. Thus, a cause of action involving an intra-corporate
1) All of the corporation’s issued stock of all classes, exclusive of
2. dispose of and convey its property, and controversy remains and must be led as an intra-corporate dispute
treasury shares, shall be held of record by not more than a
despite the subsequent dissolution of the corporation. (Aguirre II
3. distribute its assets, speci ed number of persons, not exceeding twenty (20);
v. FQB+7, Inc. 2013)
4. BUT NOT for the purpose of continuing the business 2) All of the issued stock of all classes shall be subject to one or
for which it was established. Liquidation AFTER three years more speci ed restrictions on transfer; and
1) If full liquidation can only be e ected after the three-year 3) The corporation shall not list in any stock exchange or make
Conveyance to a trustee within a three-year period period and there is no trustee, the directors may be permitted any public o ering of any of its stock of any class.
The corporation is authorized and empowered to convey all of its to complete the liquidation by continuing as trustees by legal
property to trustees for the bene t of stockholders, members, implication. A corporation shall be deemed NOT a close corporation when at least
creditors and other persons in interest. After any such conveyance, two-thirds (2/3) of its voting stock or voting rights is owned or
2) The trustee of a corporation may continue to prosecute a case controlled by another corporation which is not a close corporation.
all interest which the corporation had in the property terminates,
commenced by the corporation until rendition of the nal (San Juan Structural and Steel Fabricators, Inc. v. CA)
the legal interest vests in the trustees, and the bene cial interest
judgment, even if such judgment is rendered beyond the
in the stockholders, members, creditors or other GR: ANY corporation may be incorporated as a close corporation;
three-year period.
persons-in-interest.
However, an already defunct corporation is not allowed to EXC:
By management committee or rehabilitation receiver initiate a suit after the lapse of the said three-year period. 1) mining or oil companies,
Distribution of Assets (Alabang Development Corp. v. Alabang Hills Village
2) stock exchanges,
Association 2014)
Upon the winding up of corporate a airs, any asset distributable to
3) banks,
any creditor or stockholder or member who is unknown or
4) insurance companies,
By RGL 44 of 83
Commercial Law Reviewer for the 2022 Bar
a) There is conclusive presumption of notice of fact if the director promptly les his written objection with the secretary of e) appointing a provisional director;
certi cate of stock conspicuously shows the corporation.
f) dissolving the corporation; or
i) a stock of a close corporation is issued or transferred Preemptive Right g) granting such other relief as the circumstances may
to any person who is not eligible to be a holder Extends to ALL stock to be issued, including reissuance of warrant.
thereof treasury shares, whether for money, property or personal
ii) the AOI of a close corporation states the number of services, or in payment of corporate debts, unless the AOI Additional Remedies of Stockholder
persons, not exceeding twenty (20), who are entitled provides otherwise. Any stockholder of a close corporation may, for any reason, compel the
to be stockholders of record corporation
Amendment of AOI
1. Withdraw as Stockholder — To purchase shares held at fair
Shall require the a rmative vote of at least two-thirds (2/3) of
value, which shall not be less than the par or issued value,
the OCS, whether with or without voting rights, or of such
By RGL 45 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 46 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 47 of 83
Commercial Law Reviewer for the 2022 Bar
v. Integrated Silicon Technology Phil. Corp) person exercising duciary duties together with the
corporation. The qualifying circumstance being an essential part of
proof of such authority to act on behalf of the trust or
the plainti ’s capacity to sue must be a rmatively pleaded. Hence,
the ultimate fact that a foreign corporation is not doing business in 4 One-person corporations estate; and
the Philippines must rst be disclosed for it to be allowed to sue in A One Person Corporation is a corporation with a single b) Name, nationality, residence of the nominee and
Philippine courts under the isolated transaction rule. Failing in his stockholder. Only a natural person, trust, or an estate may form alternate nominee, and the extent, coverage and
requirement, the complaint led by plainti with the trial court, it an OPC. limitation of the authority.
must be said, fails to show its legal capacity to sue.
Bylaws are NOT required to be submitted.
Having pleaded these averments in the complaint su ciently
Excepted Corporations
clothed SCPL the necessary legal capacity to sue before Philippine 1) Banks and quasi-banks, Corporate Name
courts. 2) Pre-need, The letters “OPC” shall be indicated either below or at the end of
its corporate name.
3) Trust,
Suability
Corporate structure and o cers
The principles regarding the right of a foreign corporation to 4) Insurance,
bring suit in PH courts may be condensed in four statements: The single stockholder shall be
5) Public and publicly-listed companies, and
1) if a foreign corporation does business in the Philippines 1) The sole director and president of the OPC;
6) Non-chartered GOCCs
without a license, it cannot sue before the Philippine 2) May NOT be appointed as the corporate secretary;
may not incorporate as an OPC
courts;
3) May likewise be the self-appointed treasurer.
7) A natural person who is licensed to exercise a profession may
2) if a foreign corporation is not doing business in the
not organize as an OPC for the purpose of exercising such Here, the single stockholder shall give a bond to the SEC in
Philippines, it needs no license to sue before Philippine
profession except as otherwise provided under special laws. such a sum as may be required, to be renewed every two (2)
courts on an isolated transaction or on a cause of action
years or as often as may be required.
entirely independent of any business transaction; Capital Stock Requirement
3) if a foreign corporation does business in the Philippines Nominee
Shall not be required to have a minimum ACS except as
without a license, a Philippine citizen or entity which has otherwise provided by special law. In the event of the single stockholder’s death or incapacity, the
contracted with said corporation may be estopped from nominee shall take the place of the single stockholder as director
challenging the foreign corporation’s corporate AOI and Bylaws and shall manage the corporation’s a airs.
personality in a suit brought before Philippine courts; and Aside from the requirements set forth in Sec 14, the AOI of the The written consent of the nominee and alternate nominee shall
4) if a foreign corporation does business in the Philippines OPC shall likewise substantially contain the following: be attached to the application for incorporation. Such consent
with the required license, it can sue before Philippine a) If the single stockholder is a trust or an estate, the name, may be withdrawn in writing any time before the death or
courts on any transaction. (Agilent Technologies Singapore nationality, and residence of the trustee, administrator, incapacity of the single stockholder.
executor, guardian, conservator, custodian, or other
By RGL 48 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 49 of 83
Commercial Law Reviewer for the 2022 Bar
exchange of shares of stock of the acquiring corporation. prosecuted by or against the surviving or consolidated stipulations are valid, but only as to the transferor and the
corporation. transferee. These stipulations are not binding on the creditors of
2 E ects and limitations The rights of creditors or liens upon the property of any
the business enterprise who can still go after the transferee for the
enforcement of the liabilities. (Y-I Leisure Phils., Inc. v. Yu 2015
of such constituent corporations shall not be impaired by
A merger of two corporations produces, among others, the following En Banc)
such merger or consolidation. (BPI v. Lee 2012)
e ects:
Pending cases. The surviving corporation in a merger e ectively Y-I Leisure Phils., Inc. v. Yu 2015
1. The constituent corporations shall become a single
becomes a “virtual party” to the civil case involving the dissolved
corporation;
constituent corporations. As such, it became bound by the orders WON fraud must exist in the transfer of all the corporate assets in
2. The separate existence of the constituent corporation shall and processes issued by the trial court despite not having been order for the transferee to assume the liabilities of the transferor.
cease, except that of the surviving or the consolidated properly impleaded therein. (ibid.) NO. The Nell Doctrine pronounced the rule regarding the
corporation;
Surviving entity’s right to foreclosure. Pursuant to such transfer of all the assets of one corporation to another as follows:
3. The surviving or the consolidated corporation shall merger and consolidation, BPI’s right to foreclose the mortgage on GENERALLY, where one corporation sells or otherwise transfers
thereupon and thereafter petitioner's property depends on the status of the contract and the all of its assets to another corporation, the latter is not liable for the
a. possess all the rights, privileges, immunities and franchises corresponding obligations of the parties originally involved, that is, debts and liabilities of the transferor, EXCEPT:
of each of the constituent corporations; and the agreement between its predecessor BSA and petitioner. (Spouses
Ong v. BPI Family Savings Bank 2018) 1. Where the purchaser expressly or impliedly agrees to
b. all property, real or personal, and all receivables due on assume such debts;
whatever account, including subscriptions to shares and Effects on constituent employees. The merger of a corporation
with another does not operate to dismiss the employees of the 2. Where the transaction amounts to a consolidation or
other choses in action, and all and every other interest of,
corporation absorbed by the surviving corporation. Although the merger of the corporations;
or belonging to, or due to each constituent corporation,
shall be deemed transferred to and vested in such absorbed employees are retained as employees of the merged 3. Where the purchasing corporation is merely a
surviving or consolidated corporation without further corporation, the employer retains the right to terminate their continuation of the selling corporation; and
act or deed; and employment for a just or authorized cause. Likewise, the employees
4. Where the transaction is entered into fraudulently in
are not precluded from severing their employment through
4. The surviving or consolidated corporation shall be responsible order to escape liability for such debts.
resignation or retirement. (Philippine Geothermal, Inc. Employees
and liable for Section 40 suitably re ects the business-enterprise transfer
Union v. Unocal Philippines 2016)
a. all the liabilities and obligations of each of the constituent under the exception of the Nell Doctrine. It does not apply
corporations in the same manner as if such surviving or Free and Harmless Clause
1) if the sale of the entire property and assets is necessary in
consolidated corporation had itself incurred such In a business-enterprise transfer, the transferor and the the usual and regular course of business of corporation, or
liabilities or obligations; and transferee may enter into a contractual stipulation stating that the
transferee shall not be liable for any or all debts arising from the 2) if the proceeds of the sale or other disposition of such
b. any pending claim, action or proceeding brought by or property and assets will be appropriated for the conduct of
business which were contracted prior to the time of transfer. Such
against any of such constituent corporations may be
By RGL 50 of 83
Commercial Law Reviewer for the 2022 Bar
its remaining business. Marks vs. collective marks vs. trade names f) Layout-Designs (Topographies) of Integrated Circuits; and
Thus, the litmus test to determine the applicability of Section 40 Acquisition of ownership g) Protection of Undisclosed Information
would be the capacity of the corporation to continue its Concept of actual use Copyright Patent Trademark
business after the sale of all or substantially all its assets.
E ect of registration
An evaluation of the relevant jurisprudence reveals that fraud is Literary and Any visible sign
Any technical
not an essential element for the application of the Well-known marks artistic works capable of
solution of a
business-enterprise transfer. which are distinguishing
Rights conferred by registration problem in any
original the goods or
WON petitioners became a continuation of MADCI's business. Cancellation of registration eld of human
intellectual services of an
activity which is
YES. The business-enterprise transfer rule applies when two Trademark infringement Scope creations in the enterprise and
new, involves an
requisites concur: literary and shall include a
Unfair competition inventive step,
artistic domains stamped or
a) the transferor corporation sells all or substantially all of its and is
Copyrights protected from marked
assets to another entity; and industrially
the moment of container of
b) the transferee corporation continues the business of the Copyrightable works applicable.
their creation. goods.
transferor corporation. Non-copyrightable works
Optional;
Both requisites are present in this case. Rights conferred by copyright Where to
National Library IPO IPO
register
Ownership of a copyright or IPO
Limitations on copyright
Intellectual Property Code Generally up to
20 years from
IV Doctrine of fair use Duration
50 years after
ling or priority 10 years
Intellectual Property Code of the Philippines the death of the
Copyright infringement date
author.
Patents
The term "intellectual property rights" consists of:
Exclusive Yes,
Patentable vs. non-patentable inventions No, National No, National
a) Copyright and Related Rights; Right to International
Exhaustion Exhaustion
Ownership of a patent b) Trademarks and Service Marks; Import Exhaustion
By RGL 51 of 83
Commercial Law Reviewer for the 2022 Bar
WON the Utility Model, described as “Leaf Spring Eye Bushing for artistic works which are original intellectual creations in the literary 3) Industrial Applicability — can be produced and used in
Automobile” is copyrightable. and artistic domain protected from the moment of their creation. any industry.
NO. Ownership of copyrighted material is shown by proof of Patentable inventions, on the other hand, refer to any technical Prior Art
originality and copyrightability. A “work of applied art” is an solution of a problem in any eld of human activity which is new,
1) Everything which has been made available to the public
artistic creation with utilitarian functions or incorporated in involves an inventive step and is industrially applicable.
anywhere in the world, before the filing date or the priority date
a useful article, whether made by hand or produced on an
of the application claiming the invention; and
industrial scale.
2) The whole contents of an application for a patent, utility
It bears stressing that the focus of copyright is the usefulness of the A Patents model, or industrial design registration, published in
artistic design, and not its marketability. The central inquiry is
Basic Patent Principles accordance with this Act, led or e ective in the Philippines,
whether the article is a work of art. Indeed, while works of
with a ling or priority date that is earlier than the ling or
applied art, original intellectual, literary and artistic works are 1. Territoriality — patents are only valid in the country or
priority date of the application.
copyrightable, useful articles and works of industrial design are region in which they have been granted;
not. A useful article may be copyrightable only if and only to Non-Prejudicial Disclosure
2. First-to-File — applicant who les rst gets the patent;
the extent that such design incorporates pictorial, graphic, or The disclosure of information contained in the application during
sculptural features that can be identi ed separately from, and 3. Disclosure — applicant shall disclose the invention in a
the twelve (12) months preceding the ling date or the
are capable of existing independently of the utilitarian aspects manner su ciently clear and complete;
priority date of the application shall NOT prejudice the
of the article. Quid pro quo – protection in exchange for disclosure; applicant on the ground of lack of novelty if such disclosure was
In this case, the petitioner’s models are not works of applied art, nor 4. Conditional — patents are granted only upon compliance made by:
artistic works. They are utility models, useful articles, albeit with with the criteria of patentability; a) The inventor;
no artistic design or value.
5. Limited Rights. also means any person who, at the ling date of application,
Trademark, copyright and patents are di erent intellectual had the right to the patent.
Elements of Patentability
property rights that cannot be interchanged with one
b) A patent o ce and the information was contained
another. 1) Novelty — it must NOT form part of a prior art;
i) in another application led by the inventor, or
A trademark is any visible sign capable of distinguishing the goods 2) Inventive Step — if, having regard to prior art, it is not
(trademark) or services (service mark) of an enterprise and shall obvious to a person skilled in the art at the time of the ling ii) in an application led without the knowledge or
include a stamped or marked container of goods. In relation date or priority date of the application claiming the invention. consent of the inventor by a third party which
thereto, a trade name means the name or designation identifying or obtained the information directly or indirectly from
Someone who is aware or presumed to have knowledge in the
distinguishing an enterprise. the inventor; or
specific industry where the invention is engaged in. Not
Meanwhile, the scope of a copyright is con ned to literary and necessarily an expert. c) A third party which obtained the information directly or
indirectly from the inventor.
By RGL 52 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 53 of 83
Commercial Law Reviewer for the 2022 Bar
a) The employee, if the inventive activity is NOT a part of his b) That the patent does not disclose the invention in a manner
NO. The IPC provides for a shorter period of three (3) months
regular duties even if the employee uses the time, facilities and su ciently clear and complete for it to be carried out by any
from abandonment within which to le for revival.
materials of the employer. person skilled in the art; or
Petitioner's patent application, therefore, should NOT be
b) The employer, if the invention is the result of the c) That the patent is contrary to public order or morality.
revived since it was led beyond the allowable period.
performance of his regularly-assigned duties, unless there is an (§61)
agreement, express or implied, to the contrary. (§30) WON filing of a patent application vests petitioner the right to be
protected from becoming part of the public domain because of 4 Patent infringement
Right of priority convention priority under the Paris Convention for the Protection of
An application for patent led by any person who has previously Industrial Property. Tests in patent infringement
applied for the same invention in another country which by treaty, NO. The right of priority given to a patent applicant is only Godines v. CA
convention, or law a ords similar privileges to Filipino citizens, shall be
relevant when there are two or more conflicting patent applications on
considered as led as of the date of ling the foreign application: Did petitioner's product infringe upon the patent of private
the same invention. Because a right of priority does not
Provided, That: respondent?
automatically grant letters patent to an applicant, possession of a
a) the local application expressly claims priority; right of priority does not confer any property rights on the YES. In using literal infringement as a test, resort must be had,
applicant in the absence of an actual patent. in the rst instance, to the words of the claim. The Court must
b) it is led within twelve (12) months from the date the
earliest foreign application was led; and A right of priority is not equivalent to a patent. After the lapse juxtapose the claims of the patent and the accused product within
of 20 years, the invention becomes part of the public domain and is the overall context of the claims and speci cations, to determine
c) a certi ed copy of the foreign application together with an
free for the public to use. In addition, a patent holder of inventions whether there is exact identity of all material elements.
English translation is led within six (6) months from the
relating to food or medicine does not enjoy absolute monopoly The trial court found that in appearance and form, both the
date of ling in the Philippines. (§31)
over the patent. Both RA No. 165 and the IPC provide for floating power tillers of the defendant and the turtle power
E.I. Dupont de Nemours and Co. v. Francisco 2016 compulsory licensing. The patent holder's proprietary right over tiller of the plainti are virtually the same. The parts or
the patent only lasts for three (3) years from the grant of the components thereof are virtually the same. In operation, the
WON the CA erred in allowing the intervention of respondent patent, after which any person may be allowed to manufacture, use, oating power tiller of the defendant operates also in similar manner
Therapharma, Inc. in petitioner's appeal. or sell the invention subject to the payment of royalties. as the turtle power tiller of plainti .
NO. The mandatory disclosure requirement in the TRIPS Next, courts have adopted the doctrine of equivalents which
Agreement precipitated the shift from a rst-to-invent system to a recognizes that minor modi cations in a patented invention are
rst-to- le system in the new IPC. The patent application is 3 Grounds for cancellation of a patent su cient to put the item beyond the scope of literal infringement.
only confidential BEFORE its publication.
a) That what is claimed as the invention is not new or According to this doctrine, an infringement also occurs when a
WON the abandoned patent application of petitioner may be revived patentable; device appropriates a prior invention by incorporating its
after 13 years. innovative concept and, albeit with some modi cation and
By RGL 54 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 55 of 83
Commercial Law Reviewer for the 2022 Bar
protection of trademarks: an e ective trademark system helps which the claim of distinctiveness is made. (Shang Properties
"Mark" is any visible sign capable of distinguishing the goods
bridge the information gap between producers and Realty v. St. Francis Development 2014)
(trademark) or services (service mark) of an enterprise.
consumers, and thus, lowers the costs incurred by consumers in
IOW, for a mark to be denied registration, it must both be:
"Collective Mark" is any visible sign designated as such in the searching for and deciding what products to purchase. (Citigroup,
application for registration and capable of distinguishing the origin Inc. v. Citystate Savings Bank, Inc. 2018) 1. Geographically-descriptive; AND
or any other common characteristic, including the quality of goods 2. That the public would make a goods/place association,
GENERIC TERMS are commonly used as the name or description of
or services of di erent enterprises. believing that the goods originate in that place.
a kind of goods.
Trademark is any distinctive word, name, symbol, emblem, sign, What is prohibited is not having a generic mark, but having such 2 Acquisition of ownership
or device, or any combination thereof, adopted and used by a generic mark being identi able to the good or service. (Kensonic,
manufacturer or merchant on his goods to identify and distinguish Inc. v. Uni-Line Multi-Resources, Inc. 2018) a Concept of actual use
them from those manufactured, sold, or dealt by others.
DESCRIPTIVE TERMS convey the characteristics, functions,
Trade Name means the name or designation identifying or qualities or ingredients of a product to one who has never seen or does Zuneca Pharmaceutical v.
2020 En Banc Caguioa, J
distinguishing an enterprise. not know that it exists. Natrapharm
In Philippine jurisprudence, the function of a trademark is SUGGESTIVE TERMS are those which require “imagination, The current rule under the IP Code is thus in stark contrast to the
1) to point out distinctly the origin or ownership of the goods; thought and perception to reach a conclusion as to the nature of the rule on acquisition of ownership under the Trademark Law, as
goods" and are eligible for protection in the absence of secondary amended. At present, as expressed in the language of the provisions
2) to secure to him the fruit of his industry and skill;
meaning. of the IP Code, prior use no longer determines the acquisition
3) to assure the public that they are procuring the genuine of ownership of a mark in light of the adoption of the rule that
SECONDARY MEANING is established when a descriptive mark no
article; ownership of a mark is acquired through registration made validly in
longer causes the public to associate the goods with a particular place,
4) to protect the manufacturer against substitution and sale of accordance with the provisions of the IP Code.
but to associate the goods with a particular source.
an inferior and di erent article as his product. (Mirpuri v. CA)
What are the requirements to conclude that a
Trademarks perform three (3) distinct functions: geographically-descriptive mark has acquired secondary
Fredco Manufacturing v. Harvard University 2011
1) they indicate origin or ownership of the articles to which meaning?
they are attached; WON Fredco can validly cancel the registration of Harvard
a) the secondary meaning must have arisen as a result of
University. NO. There are two compelling reasons why Fredco's
2) they guarantee that those articles come up to a certain substantial commercial use of a mark in the Philippines;
petition must fail.
standard of quality; and b) such use must result in the distinctiveness of the mark
insofar as the goods or the products are concerned; and First, Fredco's registration of the mark "Harvard" and its
3) they advertise the articles they symbolize. (W Land Holding,
identi cation of origin as "Cambridge, Massachusetts" falsely
Inc. v. Starwood Hotels and Resorts Worldwide, Inc. 2017) c) proof of substantially exclusive and continuous commercial suggest that Fredco or its goods are connected with Harvard
There is also an underlying economic justification for the use in the Philippines for ve (5) years before the date on
By RGL 56 of 83
Commercial Law Reviewer for the 2022 Bar
University. That should not have been allowed because Section 4(a) or services by means of an interactive website may constitute through registration but subsequently lost the same due to
of R.A. No. 166 prohibits the registration of a mark "which may proof of actual use that is su cient to maintain the non-use or abandonment (e.g., failure to le the
disparage or falsely suggest a connection with persons, living registration of the same. Declaration of Actual Use);
or dead, institutions, beliefs x x x." This provision is intended to
It must be emphasized, however, that the mere exhibition of 2) the registration was done in bad faith;
protect the right of publicity of famous individuals and goods or services over the internet, without more, is not
institutions from commercial exploitation of their goodwill by 3) the mark itself becomes generic;
enough to constitute actual use. It must be shown that the owner
others. What Fredco has done is precisely to exploit commercially has actually transacted. A showing of an actual commercial 4) the mark was registered contrary to the IP Code; or
the goodwill of Harvard University without the latter's consent. link to the country is therefore imperative. 5) the registered mark is being used by, or with the permission
Such violation is a ground for cancellation of Fredco's
Thus, Starwood's use of its "W" mark through its interactive website of, the registrant so as to misrepresent the source of the
registration of the mark "Harvard."
is intended to produce a discernible commercial e ect or activity goods or services on or in connection with which the mark
Second, the Philippines and the US are both signatories to the Paris within the Philippines, or at the very least, seeks to establish is used.
Convention for the Protection of Industrial Property. Thus, commercial interaction with local consumers. Accordingly, Since Natrapharm was not shown to have been in bad faith, it is
under Philippine law, a trade name of a national of a State that is a Starwood's use of the "W" mark in its reservation services thus considered to have acquired all the rights of a trademark owner
party to the Paris Convention, whether or not the trade name forms through its website constitutes use of the mark su cient to under the IP Code upon the registration of the "ZYNAPSE" mark.
part of a trademark, is protected "without the obligation of keep its registration in force.
ling or registration." Consequently, Zuneca's counterclaims against Natrapharm were
correctly dismissed by the lower courts. To be sure, Zuneca did not
Indeed, Section 123.1(e) of R.A. No. 8293 now categorically states
have any right to prevent third parties, including Natrapharm, from
that "a mark which is considered by the competent authority b E ect of registration using marks confusingly similar to its unregistered "ZYNAPS" mark
of the Philippines to be well-known internationally and in
The rights in a mark shall be acquired through registration. because it is not an "owner of a registered mark" contemplated in
the Philippines, whether or not it is registered here," cannot
Section 147.1.
be registered by another in the Philippines.
Zuneca Pharmaceutical v. However, Zuneca, as a prior user in good faith, is protected by
2020 En Banc Caguioa, J
Natrapharm
Section 159.1 and cannot be prevented by Natrapharm from using
How is ownership over a trademark acquired? its ZYNAPS trademark.
W Land Holding v. Starwood Hotels 2017
The "use" which the law requires to maintain the registration of a REGISTRATION. Under the IP Code, ownership of a mark is
mark must be genuine, and not merely token. Genuine use may acquired through registration. The prima facie nature of the
Birkenstock Orthopaedie Gmbh and Co. Kg v.
certi cate of registration is meant to recognize the instances when 2013
be characterized as a bona fide use which results or tends to result, in Philippine Shoe Expo Marketing
the certi cate of registration is not re ective of ownership of the
one way or another, into a commercial interaction or transaction
holder thereof, such as when: WON the subject marks should be allowed registration in the name of
"in the ordinary course of trade."
petitioner.
1) the rst registrant has acquired ownership of the mark
The use of a registered mark representing the owner's goods
By RGL 57 of 83
Commercial Law Reviewer for the 2022 Bar
with the goods or services and those that are related thereto g) the extent to which the mark has been used in the world;
YES. It must be emphasized that registration of a trademark, by
speci ed in the certi cate.
itself, is not a mode of acquiring ownership. If the applicant is not h) the exclusivity of use attained by the mark in the world;
the owner of the trademark, he has no right to apply for its R.A. No. 8293, however, requires the applicant for registration or
i) the commercial value attributed to the mark in the world;
registration. Registration merely creates a prima facie the registrant to le a declaration of actual use (DAU) of the
presumption of the validity of the registration, of the mark, with evidence to that e ect, within three (3) years from the j) the record of successful protection of the rights in the mark;
registrant’s ownership of the trademark, and of the exclusive right to ling of the application for registration; otherwise, the k) the outcome of litigations dealing with the issue of whether
the use thereof. Such presumption, just like the presumptive application shall be refused or the mark shall be removed from the the mark is a well-known mark; and
regularity in the performance of o cial functions, is rebuttable and register.
l) the presence or absence of identical or similar marks validly
must give way to evidence to the contrary.
registered.
In the instant case, petitioner was able to establish that it is the
owner of the mark “BIRKENSTOCK.” It submitted evidence 3 Well-known marks 4 Rights conferred by registration
relating to the origin and history of “BIRKENSTOCK” and its use
Criteria for determining whether a mark is well-known. — In
in commerce long before respondent was able to register the same The owner of a registered mark shall have the exclusive right to
determining whether a mark is well-known, the following criteria or
here in the Philippines. prevent all third parties not having the owner's consent from
any combination thereof may be taken into account:
using in the course of trade identical or similar signs or containers
a) the duration, extent and geographical area of any use of for goods or services which are identical or similar where such use
the mark, in particular, the duration, extent and geographical would result in a likelihood of confusion, which is presumed.
FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016
area of any promotion of the mark, including advertising or
The exclusive right of the owner of a well-known mark which is
The ownership of a trademark is acquired by publicity and the presentation, at fairs or exhibitions, of the
registered in the Philippines, shall extend to goods and services
goods and/or services to which the mark applies;
1. its registration AND which are not similar to those in respect of which the mark is
b) the market share, in the Philippines and in other countries, of registered. (§147)
2. its actual use
the goods and/or services to which the mark applies;
by the manufacturer or distributor of the goods made available to 5 Cancellation of registration
c) the degree of the inherent or acquired distinction of the
the purchasing public.
mark; Upon application of the registrant, the IPO may permit any
A certi cate of registration of a mark, once issued, constitutes
d) the quality-image or reputation acquired by the mark; registration to be surrendered for cancellation, and upon
prima facie evidence of
cancellation the appropriate entry shall be made in the records of
e) the extent to which the mark has been registered in the
1. the validity of the registration, the O ce. (§140)
world;
2. the registrant's ownership of the mark, and
f) the exclusivity of registration attained by the mark in the 6 Trademark infringement
3. the registrant's exclusive right to use the same in connection world;
By RGL 58 of 83
Commercial Law Reviewer for the 2022 Bar
The elements of trademark infringement under the IP Code are 2. the registrant's ownership of the mark, and core of unfair competition had not been established.
the following:
3. the registrant's exclusive right to use the same in connection
1) REGISTRATION — the trademark being infringed is with the goods or services and those that are related thereto
registered in the IPO; speci ed in the certi cate. Zuneca Pharmaceutical v.
2020 En Banc Caguioa, J
Natrapharm
Registration is NOT required to protect the goodwill that
Republic Gas, et. al. v. Petron, et. al. 2013 Should Zuneca be held liable for trademark infringement?
identi es in the mind of the public the goods he manufactures
or deals in. WON probable cause exists to hold petitioners liable for the crime of NO. Even without Section 159.1 of the IP Code, a third party's
Registration is NOT necessary for purposes of filing a case trademark infringement. prior use of an unregistered mark, if said mark subsequently
for unfair competition or false designation of origin. YES. Reading Sec 155 of the IPC, the Court in a very similar case, becomes registered by another, could not be considered as
trademark infringement because there was no trademark registration
2) COLORABLE IMITATION — the trademark or trade made it categorically clear that the mere unauthorized use of a
- a requirement for a trademark infringement action to prosper -
name is reproduced, counterfeited, copied, or colorably container bearing a registered trademark in connection with the sale,
when the third party was using its mark.
imitated by the infringer; distribution or advertising of goods or services which is likely to
cause confusion, mistake or deception among the buyers or Essentially, Section 159.1 is an exception to the rights of the
3) USE — the infringing mark or trade name is used in
consumers can be considered as trademark infringement. trademark owner in Section 147.1.
connection with the sale, o ering for sale, or advertising of any
goods, business or services; or the infringing mark or trade The Court declares ZUNECA as the prior user in good faith
name is applied to labels, signs, prints, packages, wrappers, of the "ZYNAPS" mark and accordingly protected under
receptacles or advertisements intended to be used upon or in Shang Properties Realty v. St. Francis Development 2014 Section 159.1.
connection with such goods, business or services; WON petitioners are guilty of unfair competition in using the marks
4) CONFUSION CAUSED — the use or application of the “THE ST. FRANCIS TOWERS” and “THE ST. FRANCIS Damages
infringing mark or trade name is likely to cause confusion or SHANGRI-LA PLACE.” 1. The owner of a registered mark may recover damages from
mistake or to deceive purchasers or others as to the goods or any person who infringes his rights, and the measure of the
NO. It is essential to prove the existence of fraud, or the
services themselves or as to the source or origin of such goods damages su ered shall be either
intent to deceive, actual or probable. Here, records are bereft of
or services or the identity of such business; and a. the reasonable pro t, or
any showing that petitioners gave their goods/services the general
5) NO CONSENT — it is without the consent of the trademark appearance that it was respondent which was o ering the same to b. a reasonable percentage based upon the amount
or trade name owner or the assignee thereof. the public. Neither did petitioners employ any means to induce the of gross sales of the defendant or the value of the
public towards a false belief that it was o ering respondent’s services in connection with which the mark or trade
A certi cate of registration of a mark, once issued, constitutes
goods/services. Nor did petitioners make any false statement or name was used in the infringement of the rights of the
prima facie evidence of
commit acts tending to discredit the goods/services o ered by complaining party.
1. the validity of the registration, respondent. Accordingly, the element of FRAUD which is the
By RGL 59 of 83
Commercial Law Reviewer for the 2022 Bar
2. On application of the complainant, the court may impound 3. False Designations of Origin; False Description or
during the pendency of the action, sales invoices and other Representation.
San Miguel Pure Foods Co., Inc. v. Foodsphere, Inc. 2018
documents evidencing sales.
Uyco v. Lo 2013 re False Designations of Origin WON Foodsphere is liable for unfair competition.
3. In cases where actual intent to mislead the public or to
defraud the complainant is shown, in the discretion of the The law on trademarks and trade names precisely precludes a person YES. Thus, the essential elements of an action for unfair
court, the damages may be doubled. from pro ting from the business reputation built by another and competition are:
4. The complainant, upon proper showing, may also be granted from deceiving the public as to the origins of products. 1) confusing similarity in the general appearance of the
injunction. The argument that the words “Made in Portugal” and “Original goods; and
Portugal” refer to the origin of the design and not to the origin of 2) intent to deceive the public and defraud a competitor.
Requirement of notice
the goods does not negate the nding of probable cause; at the same
In any suit for infringement, the owner of the registered mark shall The confusing similarity may or may not result from similarity in
time, it is an argument that the petitioners are not barred by this
not be entitled to recover pro ts or damages unless the acts have the marks, but may result from other external factors in the
Resolution from raising as a defense during the hearing of the case.
been committed with knowledge that such imitation is likely to packaging or presentation of the goods. The intent to deceive and
cause confusion, or to cause mistake, or to deceive. defraud may be inferred from the similarity of the appearance of
the goods as o ered for sale to the public. Actual fraudulent
Such knowledge is presumed if the registrant gives notice that his 7 Unfair competition intent need not be shown.
mark is registered by displaying with the mark the words
'"Registered Mark" or ® or if the defendant had otherwise actual Foodsphere's intent to deceive the public, to defraud its competitor,
Republic Gas, et. al. v. Petron, et. al. 2013
and to ride on the goodwill of SMPFCI's products is evidenced by
notice of the registration. (§158)
WON probable cause exists to hold petitioners liable for the crime of the fact that not only did Foodsphere switch from its old box
Penalties unfair competition. packaging to the same paper ham bag packaging as that used by
SMPFCI, it also used the same layout design printed on the same.
Independent of the civil and administrative sanctions imposed by YES. From jurisprudence, unfair competition has been de ned as
law, a criminal penalty of the passing o (or palming o ) or attempting to pass o upon the
a. imprisonment from two (2) years to ve (5) years and public of the goods or business of one person as the goods or
Asia Pacific Resources International v. Paperone 2018
business of another with the end and probable e ect of deceiving
b. a ne ranging from P50K - P200K, the public. WON Paperone is liable for unfair competition.
shall be imposed on any person who is found guilty of committing Passing o (or palming o ) takes place where the defendant, by YES. Relative to the issue on confusion of marks and trade names,
1. Trademark Infringement; imitative devices on the general appearance of the goods, misleads jurisprudence has noted two types of confusion, viz.:
prospective purchasers into buying his merchandise under the
2. Unfair Competition; 1) confusion of goods (product confusion), where the
impression that they are buying that of his competitors.
ordinarily prudent purchaser would be induced to
By RGL 60 of 83
Commercial Law Reviewer for the 2022 Bar
creation.
purchase one product in the belief that he was purchasing a) a ect the force of any subsisting copyright upon the
the other; and original works employed or any part thereof, or
1 Copyrightable works
2) confusion of business (source or origin confusion), b) be construed to imply any right to such use of the original
where, although the goods of the parties are di erent, the 1) Literary and Artistic Works; works, or
product, the mark of which registration is applied for by 2) Derivative Works; c) to secure or extend copyright in such original works.
one party, is such as might reasonably be assumed to
3) Published Edition of Work. §174. Published Edition of Work. — In addition to the right
originate with the registrant of an earlier product; and the
public would then be deceived either into that belief or into to publish granted by the author, his heirs, or assigns, the publisher
Original works
the belief that there is some connection between the two shall have a copyright consisting merely of the right of
§172. Literary and Artistic Works. — 172.1. Literary and reproduction of the typographical arrangement of the published
parties, though inexistent.
artistic works, hereinafter referred to as "works", are original edition of the work.
Thus, while there is confusion of goods when the products are intellectual creations in the literary and artistic domain
competing, confusion of business exists when the products are protected from the moment of their creation xxxx. ABS-CBN v. Gozon 2015
non-competing but related enough to produce confusion of
affiliation. 172.2. Works are protected by the sole fact of their creation, WON news footage is copyrightable under the law;
irrespective of their mode or form of expression, as well as of their
This case falls under the second type of confusion. The content, quality and purpose. YES. It is true that under Section 175 of the IPC, "news of the day
element of intent to deceive and to defraud may be inferred and other miscellaneous facts having the character of mere items of
from the similarity of the appearance of the goods as o ered Derivative works press information" are considered unprotected subject matter.
for sale to the public. Contrary to the ruling of the CA, actual §173. Derivative Works. — 173.1. The following derivative However, the Code does not state that expression of the news
fraudulent intent need not be shown. Factual circumstances were works shall also be protected by copyright: of the day, particularly when it underwent a creative process,
established showing that respondent adopted PAPERONE in its is not entitled to protection.
trade name even with the prior knowledge of the existence of a) Dramatizations, translations, adaptations, abridgments,
arrangements, and other alterations of literary or artistic News or the event itself is NOT copyrightable. However, an
PAPER ONE as a trademark of petitioner.
works; and event can be captured and presented in a speci c medium. As
recognized by this court in Joaquin v. Drilon, television "involves a
b) Collections of literary, scholarly or artistic works, and
whole spectrum of visuals and e ects, video and audio." News
C Copyrights compilations of data and other materials which are
coverage in television involves framing shots, using images, graphics,
original by reason of the selection or coordination or
and sound e ects. It involves creative process and originality.
a. A copyright refers to "the right granted by a statute to the arrangement of their contents.
Television news footage is an expression of the news.
proprietor of an intellectual production to its exclusive use and
173.2. Derivative works shall be protected as new works if such
enjoyment to the extent speci ed in the statute." News as expressed in a video footage is entitled to copyright
new work shall not:
protection. Broadcasting organizations have not only copyright
b. Rights over copyrights are conferred from the moment of
on but also neighboring rights over their broadcasts.
By RGL 61 of 83
Commercial Law Reviewer for the 2022 Bar
Copyrightability of a work is di erent from fair use of a work for b) news of the day and other miscellaneous facts having the 3. speeches, lectures, sermons, addresses, and dissertations,
purposes of news reporting. character of mere items of press information; or pronounced, read or rendered in courts of justice, before
administrative agencies, in deliberative assemblies and in
c) any o cial text of a legislative, administrative or legal
meetings of public character.
nature, as well as any o cial translation thereof.
Olaño v. Lim Eng Co 2016 176.2. The author of speeches, lectures, sermons, addresses, and
Joaquin, Jr. v. Drilon, et. al. dissertations shall have the exclusive right of making a
WON the hatch doors of LEC fall within copyrightable works.
collection of his works.
NO. It is clear that the hatch doors were NOT artistic works To begin with, the format of a show is not copyrightable.
within the meaning of copyright laws. A copyrightable work Petitioner BJPI’s copyright covers audio-visual recordings of each
3 Rights conferred by copyright
refers to literary and artistic works defined as original intellectual episode of Rhoda and Me.
creations in the literary and artistic domain. The copyright does NOT extend to the general concept or §177. Copyright or Economic Rights. — Subject to the
format of its dating game show. Accordingly, by the very nature provisions of Chapter VIII, copyright or economic rights shall
A hatch door, by its nature, is an object of utility. A "useful
of the subject of petitioner BJPI’s copyright, the investigating consist of the exclusive right to carry out, authorize or
article" de ned as an article "having an intrinsic utilitarian function prevent the following acts:
prosecutor should have the opportunity to compare the
that is not merely to portray the appearance of the article or to
videotapes of the two shows. 1. Reproduction of the work or substantial portion of the
convey information" is excluded from copyright eligibility.
Mere description by words of the general format of the two dating work;
The only instance when a useful article may be the subject of
game shows is insu cient; the presentation of the master 2. Dramatization, translation, adaptation, abridgment,
copyright protection is when it incorporates a design element
videotape in evidence was indispensable to the determination of arrangement or other transformation of the work;
that is physically or conceptually separable from the underlying
the existence of probable cause.
product. This means that the utilitarian article can function 3. The first public distribution of the original and each
without the design element. In such an instance, the design §176. Works of the Government. — 176.1. No copyright shall copy of the work by sale or other forms of transfer of
element is eligible for copyright protection. subsist in any work of the Government of the Philippines. ownership;
However, prior approval of the government agency or o ce 4. Rental of the original or a copy irrespective of its
wherein the work is created shall be necessary for exploitation of ownership;
2 Non-copyrightable works
such work for profit. Such agency or o ce may, among other 5. Public display of the original or a copy of the work;
§175. Unprotected Subject Matter. — Notwithstanding the things, impose as a condition the payment of royalties. No prior
6. Public performance of the work; and
provisions of Sections 172 and 173, no protection shall extend, approval or conditions shall be required for the use for any
under this law, to any purpose of 7. Other communication to the public of the work.
a) idea, procedure, system, method or operation, concept, 1. statutes, §193. Scope of Moral Rights. — The author of a work shall have
principle, discovery or mere data as such, even if they are the right:
2. rules and regulations, and
expressed, explained, illustrated or embodied in a work; 1. of Attribution;
By RGL 62 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 63 of 83
Commercial Law Reviewer for the 2022 Bar
regularly-assigned duties, unless there is an no doubt as to the author's identity, or f) The recording made in schools, universities, or
agreement, express or implied, to the educational institutions of a work included in a broadcast:
3. if the author of the anonymous works
contrary.
discloses his identity. Provided, That such recording must be deleted within a
Commissioned a) Commissioner owns the work; reasonable period after they were rst broadcast;
Work g) The making of ephemeral recordings by a broadcasting
b) Creator owns the copyright, unless there is
a written stipulation to the contrary.
5 Limitations on copyright organization;
§184. Limitations on Copyright. — 184.1. The following h) The use of a work by or under the direction or control of the
Audiovisual Shall belong to the producer, the author of the Government, by the National Library or by educational,
Work scenario, the composer of the music, the lm acts shall NOT constitute infringement of copyright:
scienti c or professional institutions where such use is in
director, and the author of the work so adapted. a) The recitation or performance of a work, the public interest and is compatible with fair use;
However, subject to contrary or other i) once it has been lawfully made accessible to the i) The public performance or the communication to the public
stipulations among the creators, the producer public, of a work, in a place where no admission fee is charged, by a
shall exercise the copyright to an extent club or institution for charitable or educational purpose only,
ii) if done privately and
required for the exhibition of the work in any whose aim is not profit making;
manner, iii) free of charge or if made strictly for a charitable or
religious institution or society; j) Public display of the original or a copy of the work not made
except for the right to collect performing by means of a lm, slide, television image or otherwise on
license fees for the performance of musical b) The making of quotations from a published work if they are
screen or by means of any other device or process;
compositions, with or without words, which are compatible with fair use;
incorporated into the work. k) Any use made of a work for the purpose of any judicial
c) The reproduction or communication to the public by mass
proceedings or for the giving of professional advice by a legal
media of articles on current political, social, economic,
Letters a) Writer owns copyright; practitioner.
scienti c or religious topic, lectures, addresses and other
b) Recipient owns letter, but it cannot be works of the same nature; l) The reproduction or distribution of published articles or
published or disseminated without the materials in a specialized format exclusively for the use of the
d) The reproduction and communication to the public of
consent of the writer or his heirs. blind, visually- and reading-impaired persons:
literary, scienti c or artistic works as part of reports of
Anonymous Publishers shall be deemed to represent the current events; Provided, That such copies and distribution shall
and authors of articles and other writings published e) The inclusion of a work in a publication, broadcast, or other 1. be made on a nonpro t basis and
Pseudonymous unless communication to the public, sound recording or lm, if such 2. indicate the copyright owner and the date of the original
Works inclusion is made by way of illustration for teaching
1. the contrary appears, or publication. (as amended by RA No 10372)
purposes and is compatible with fair use;
2. the pseudonyms or adopted name leaves
By RGL 64 of 83
Commercial Law Reviewer for the 2022 Bar
ABS-CBN v. Gozon 2015 c) With knowledge of infringing activity, induces, causes or Any person infringing any right secured by provisions of Part IV of
materially contributes to the infringing conduct of this Act or aiding or abetting such infringement shall be guilty.
FOUR-FACTOR TEST. In determining whether the use made of another. The respective maximum penalty shall be imposed when the
a work in any particular case is FAIR USE, the factors to be
infringement is committed by:
considered shall include: Remedies
a) The circumvention of e ective technological measures;
a. The purpose and character of the use, including whether 216.1 Remedies for Infringement. — Any person infringing
such use is of a commercial nature or is for non-pro t a right protected under this law shall be liable: b) The removal or alteration of any electronic rights
educational purposes; management information; or
a) To an injunction restraining such infringement.
b. The nature of the copyrighted work; c) The distribution of works or copies of works knowing
b) To pay to the copyright proprietor or his assigns or heirs such
that electronic rights management information has been
c. The amount and substantiality of the portion used in actual damages: removed or altered without authority.
relation to the copyrighted work as a whole; and
Provided, That the amount of damages to be awarded shall be
d. The e ect of the use upon the potential market for or doubled against any person who: Olaño v. Lim Eng Co 2016
value of the copyrighted work.
i) Circumvents e ective technological measures; or For a claim of copyright infringement to prevail, the evidence on
GMA-7's rebroadcast of ABS-CBN's news footage without the record must demonstrate:
ii) Remove or alter any electronic rights management
latter's consent is not an issue. The mere act of rebroadcasting
information from a copy of a work, or distribute,
By RGL 65 of 83
Commercial Law Reviewer for the 2022 Bar
no defense that the pirate, in such cases, did not know WON the printing or copying is essential in the commission of the
1) ownership of a validly copyrighted material by the
whether or not he was infringing any copyright; he at least crime of copyright infringement.
complainant; and
knew that what he was copying was not his, and he copied at his
NO. The "gravamen of copyright infringement," according to
2) infringement of the copyright by the respondent. peril.
NBI-Microsoft Corporation v. Hwang is not merely the
The respondent failed to substantiate the alleged reproduction of In cases of infringement, copying alone is not what is unauthorized manufacturing of intellectual works but rather the
the drawings/sketches of hatch doors copyrighted under the First prohibited. The copying must produce an "injurious e ect". unauthorized performance of any of the acts covered by Sec 5.
Certi cate of Registration. LEC's copyright protection For another to represent a work as her own is injury enough.
The mere sale of the illicit copies of the software programs was
thereunder covered only the hatch door sketches/ drawings and
enough by itself to show the existence of probable cause for
not the actual hatch door they depict. To constitute
copyright infringement. There was no need for the petitioner to still
infringement, the usurper must have copied or appropriated the ABS-CBN v. Gozon 2015 prove who copied, replicated or reproduced the software programs.
original work of an author or copyright proprietor; absent
copying, there can be no infringement of copyright. WON lack of knowledge that a material is copyrighted is a defense
against copyright infringement and that good faith is a defense in a
Unlike a patent, a copyright gives no exclusive right to the art
criminal prosecution for violation of the IPC. Anti-Money Laundering Act
disclosed; protection is given only to the expression of the idea
— not the idea itself. NO. Infringement under the IPC is malum prohibitum. The V Anti-Money Laundering Act of 2001 as last amended by
IPC is a special law. The general rule is that acts punished under a RA No 11521 and its 2018 IRR
Anent, LEC's Second Certi cate of Registration, the Court
special law are malum prohibitum. The IPC requires strict
nds that the ownership thereof was not established by the evidence
liability for copyright infringement whether for a civil action or a Covered institutions and their obligations
on record because the element of copyrightability is absent.
criminal prosecution; it does not require mens rea or culpa.
Here, evidence negating originality and copyrightability as Covered and suspicious transactions
elements of copyright ownership was satisfactorily pro ered against WON GMA-7's officers and employees cannot be held liable for
Safe harbor provision
LEC's certi cate of registration. infringement.
When is money laundering committed
Only Dela Peña-Reyes and Manalastas should be implicated.
Section 217 states that "any person" may be found guilty of Authority to inquire into bank deposits
Habana v. Robles infringement. The criminal liability of a corporation's o cers or
Freezing and forfeiture
It does not necessarily require that the entire copyrighted work, or employees stems from their active participation in the
commission of the wrongful act.
even a large portion of it, be copied. If so much is taken that the Covered institutions and their
A
value of the original work is substantially diminished, there is obligations
an infringement of copyright and to an injurious extent, the
work is appropriated. Microsoft v. Manansala 2015 The following are the covered persons under the AMLA:
A copy of a piracy is an infringement of the original, and it is a) The following financial institutions:
By RGL 66 of 83
Commercial Law Reviewer for the 2022 Bar
1) Persons supervised and/or regulated by BSP, including b) Management of bank, savings, securities or other assets; b) Record Keeping. — All records of all transactions of covered
their subsidiaries and a liates, which are also covered persons,
c) Organization of contributions for the creation, operation institutions shall be maintained and safely stored for ve (5)
supervised and/or regulated by the BSP. years from the dates of transactions.
or management of companies; and
2) Persons supervised or regulated by IC. With respect to closed accounts, for at least five (5) years
d) Creation, operation or management of juridical persons
3) Persons supervised or regulated by SEC. or arrangements, and buying and selling business entities. from the dates when they were closed.
b) The following Designated Non-Financial Businesses and 5) Casinos, including internet-based casinos and ship-based c) Reporting of Covered and Suspicious Transactions. —
Professions or DNFBPs: casinos, with respect to their casino cash transactions related to Covered persons shall report to the AMLC all covered
their gaming operations. transactions and suspicious transactions within ve (5)
1) Jewelry dealers. working days from occurrence thereof,
6) Real estate developers and brokers;
2) Dealers in precious metals, and dealers in precious stones. unless the AMLC prescribes a di erent period not exceeding
7) O shore gaming operation, as well as their service fteen (15) working days.
3) Company service providers, which, as a business, provide
providers, supervised, accredited or regulated by the PAGCOR
any of the following services to third parties:
or any government agency;
a) acting as a formation agent of juridical persons; B Covered and suspicious transactions
The term 'covered persons' shall EXCLUDE lawyers and
b) acting as (or arranging for another person to act as) accountants acting as independent legal professionals "Covered Transaction" refers to:
i) a director or corporate secretary of a company, 1. in relation to information concerning their clients or 1) A transaction in cash or other equivalent monetary instrument
ii) a partner of a partnership, or exceeding P500K within one (1) banking day;
2. where disclosure of information would compromise client
iii) a similar position in relation to other juridical con dences or the attorney-client relationship: 2) A transaction with or involving jewelry dealers, dealers in
persons; precious metals and dealers in precious stones in cash or
Provided, That these lawyers and accountants
other equivalent monetary instrument exceeding P1M.
c) providing a registered o ce; business address or 1. are authorized to practice in the Philippines and
accommodation, correspondence or administrative 3) A casino cash transaction exceeding P5M or its equivalent in
2. shall continue to be subject to the provisions of their other currency.
address for a company, a partnership or any other juridical
respective codes of conduct and/or professional responsibility.
person or legal arrangement; and 4) A single cash transaction by real estate developers and
d) acting as (or arranging for another person to act as) a Obligations brokers involving an amount in excess of P7.5M or its
nominee shareholder for another person. equivalent in any other currency.
a) Customer Identification. — Covered institutions shall
4) Persons, including lawyers, accountants and other establish and record the true identity of its clients based on "Suspicious Transaction" refers to a transaction, regardless of
professionals, who provide any of the following services: o cial documents. They shall maintain a system of verifying amount, where any of the suspicious circumstances is determined,
the true identity of their clients. based on suspicion or, if available, reasonable grounds, to be existing.
a) Managing of client money, securities or other assets;
By RGL 67 of 83
Commercial Law Reviewer for the 2022 Bar
whether both countries place the o ense within the same category,
1) There is no underlying legal or trade obligation, purpose a) Any person who, knowing that any monetary instrument or
or denominate the o ense under the same nomenclature.
or economic justi cation; property represents, involves, or relates to the proceeds of any
unlawful activity:
2) The client is not properly identi ed;
E Authority to inquire into bank deposits
1) transacts said monetary instrument or property;
3) The amount involved is not commensurate with the business
or nancial capacity of the client; 2) converts, transfers, disposes of, moves, acquires, possesses Bank Inquiry Order by the Court
or uses said monetary instrument or property; 1. Application for Issuance of Bank Inquiry Order. — By
4) It may be perceived that the client’s transaction is
structured in order to avoid being the subject of reporting 3) conceals or disguises the true nature, source, location, authority of the Council, the AMLC Secretariat shall le
requirements; disposition, movement or ownership of or rights with before the CA, through the OSG, an Ex Parte Application for
respect to said monetary instrument or property; the Issuance of Bank Inquiry Order to examine or inquire into
5) Any circumstance relating to the transaction which is observed
any particular deposit or investment account that is related to
to deviate from the pro le of the client and/or the client’s 4) attempts or conspires to commit ML o enses referred
an unlawful activity or ML o ense.
past transactions with the covered institution; to in (1), (2), or (3) above;
2. Inquiry into or Examination of Related Accounts. — A
6) The transaction is in a way related to an unlawful activity 5) aids, abets, assists in, or counsels the commission of the
court order ex parte must be obtained before the AMLC
or o ense that is about to be, is being, or has been committed; ML o enses referred to in (1), (2), or (3) above; and
can inquire into the related accounts.
7) Any analogous or similar transactions to the foregoing. 6) performs or fails to perform any act as a result of which he
3. No Prior Criminal Charge, Pendency of a Case, or
facilitates the o ense of ML referred to in items (1), (2),
Conviction Necessary.
C Safe harbor provision or (3) above.
4. Compliance with Article III, Sections 2 and 3 of the
b) Any covered person who, knowing that a covered or suspicious
NO administrative, criminal or civil proceedings shall lie Constitution.
transaction is required under the AMLA to be reported to the
against any person
AMLC, fails to do so. 5. Period to Resolve Application. — 24 HOURS;
1. for having made a CTR or an STR
Unlawful activities refer to any act or omission, or series or 6. Bank Inquiry Order. — The AMLC may inquire into or
2. in the regular performance of his duties and combination thereof, involving or having direct relation, to the examine any particular deposit or investment account,
3. in good faith, following: (deleted for brevity) including related accounts, with any banking institution or
non-bank nancial institution, upon order by the Court
4. whether or not such reporting results in any criminal Same Conduct Approach. — In determining whether or not a
of Appeals based on an ex parte application in cases of
prosecution under the AMLA or any other Philippine law. felony or o ense punishable under the penal laws of other
violation of the AMLA when probable cause exists.
countries is "of a similar nature" so as to constitute an unlawful
D When is money laundering committed activity under the AMLA, it is su cient that both the Bank Inquiry Order by the AMLC
Philippines and the other jurisdiction criminalize the
1. The AMLC shall issue an ex parte order authorizing the
Money laundering is committed by: conduct or activity underlying the o ense, regardless of
AMLC Secretariat to inquire into or examine any particular
By RGL 68 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 69 of 83
Commercial Law Reviewer for the 2022 Bar
necessary for the commencement or the resolution of a be e ective immediately, forbidding any transaction, withdrawal,
AMLC-Issued Freeze Order petition for civil forfeiture. deposit, transfer, removal, conversion, concealment or other
Freeze orders issued by the AMLC shall be governed by the disposition of the subject monetary instrument or property.
b) No asset shall be attached or forfeited to the prejudice of a
TFPSA and its IRR.
candidate for an electoral o ce during an election period. Motion to Discharge. — If an APO is imposed on an account of
The AMLC, either upon its own initiative or at the request of the a covered person that it uses for payment of
Petition for Civil Forfeiture — Upon determination that
ATC, is hereby authorized to issue, ex parte, an order to freeze
probable cause exists that any monetary instrument or property is 1. salary,
without delay:
in any way related to an unlawful activity or ML o ense, the
2. rent,
a) property or funds that are in any way related to nancing AMLC shall le with the RTC, through the OSG, a veri ed
of terrorism or terrorist acts; or petition for civil forfeiture. 3. suppliers, and/or
b) property or funds of any person, terrorist organization, Equal Value Assets — Other monetary instrument or property of 4. taxes
association or group of persons in relation to whom there equal value may be included in the Petition where the monetary in the ordinary course of a legitimate business, the covered
is probable cause to believe that they are committing or instrument or property that should be subject of forfeiture: person may apply with the court which issued the APO to
attempting or conspiring to commit, or participating in or discharge the same by submitting a bond or other acceptable
a) cannot be located despite due diligence;
facilitating the commission of nancing of terrorism or securities of equal value to the amount or value subject of the asset
terrorist acts. b) has been substantially altered, destroyed, diminished in
preservation order.
value or otherwise rendered worthless by any act or
The freeze order shall be e ective for a period not exceeding
omission;
twenty (20) days. Upon a petition led by the AMLC before the VI Electronic Commerce Act
expiration of the period, the e ectivity of the freeze order may be c) has been concealed, removed, converted, or otherwise
extended up to a period not exceeding six (6) months upon transferred; Legal recognition of electronic data messages, documents,
order of the Court of Appeals: d) is located outside the Philippines or has been placed or and signatures
Provided, That the twenty-day period shall be tolled upon ling of brought outside the jurisdiction of the court; or
Presumption relating to electronic signatures
a petition to extend the e ectivity of the freeze order. e) has been commingled with other monetary instruments
Admissibility and evidential weight of electronic data
Period of validity of a freeze order: may it be extended? YES or property belonging to either the o ender himself or a
for a total period not exceeding six (6) months. third person or entity, thereby rendering the same di cult message or electronic document
to identify or be segregated for purposes of forfeiture. Obligation of con dentiality
The following rules shall be observed in asset forfeiture
proceedings: Asset Preservation Order. — Upon veri ed petition by the
AMLC, with prayer for issuance of asset preservation order, and
a) No prior criminal charge, pendency of a case, or Legal recognition of electronic data
after determination that probable cause exists that any monetary A
conviction for an unlawful activity or ML o ense is messages, documents, and signatures
instrument or property is in any way related to an unlawful
activity, the RTC may issue an asset preservation order which shall
By RGL 70 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 71 of 83
Commercial Law Reviewer for the 2022 Bar
Out-of-Court or Informal Restructuring Agreement or c) recognizing creditor rights and respecting priority of
Financial Rehabilitation and Insolvency Act of 2010
claims, and
VII Rehabilitation Plan
1. Financial Rehabilitation Rules of Procedure d) ensuring equitable treatment of creditors who are
(2013) ⭐ Minimum requirements
similarly situated. MBTC v. SF Naguiat Enterprises 2015)
2. Financial Liquidation And Suspension of Standstill period
A corporate rehabilitation case is a special proceeding in rem
Payments Rules of Procedure for Insolvent Cram down e ect wherein the petitioner seeks to establish the status of a party or
Debtors a particular fact, i.e., the inability of the corporate debtor to pay its
By RGL 72 of 83
Commercial Law Reviewer for the 2022 Bar
debts when they fall due. earnestness and good faith of the distressed corporation in
dismissed petitioner's rehabilitation plan.
nancing the proposed rehabilitation plan.
It is summary and non-adversarial in nature. Its end goal is to
secure the approval of a rehabilitation plan to facilitate the 2. Liquidation Analysis — It is intended to ascertain if
successful recovery of the corporate debtor. It does not seek relief 1 Rehabilitation the distressed corporation’s creditors can recover by way
from an injury caused by another party. (Golden Cane Furniture of the present value of payments projected in the plan, more
Manufacturing v. Steelpro Philippines 2016, Allied Banking v. Rehabilitation — the restoration of the debtor to a condition if the debtor continues as a going concern than if it is
Equitable PCI 2018) of successful operation and solvency, if it is shown that its immediately liquidated.
continuance of operation is economically feasible and its
Viva Shipping Lines v. Keppel Philippines Mining 2016 creditors can recover by way of the present value of payments
2 Insolvent
projected in the plan, more if the debtor continues as a going
New Frontier Sugar v. RTC, Branch 39, Iloilo City doctrinally concern than if it is immediately liquidated. Insolvent — the nancial condition of a debtor that is generally
requires compliance with the procedural rules for appealing
In our jurisdiction, rehabilitation proceedings have a two-fold unable to pay its or his liabilities as they fall due in the ordinary
corporate rehabilitation decisions. Resort to liberal construction
purpose: course of business or has liabilities that are greater than its or his
must be rational and well-grounded, and its factual bases must be so
assets.
clear such that they outweigh the intent or purpose of an apparent 1. Equitable — Cram Down Principle. A rehabilitation plan
reading of the rules. may be approved even over the opposition of the creditors Philippine Bank of Communications v.
2014
Due process dictates that creditors be impleaded to give them an holding a majority of the corporation’s total liabilities if there is Basic Polyprinters and Packaging
opportunity to protect the property owed to them. Creditors are a showing
As to the issue of insolvency, it must be noted that liquidity is
indispensable parties to a rehabilitation case, even if a a. that rehabilitation is feasible and NOT an issue in a petition for rehabilitation. Consequently,
rehabilitation case is non-adversarial. the basic issues in rehabilitation proceedings concern the viability
b. the opposition of the creditors is manifestly
A corporate rehabilitation case cannot be decided without the unreasonable. and desirability of continuing the business operations of the
creditors' participation. The court's role is to balance the interests of petitioning corporation.
2. Rehabilitative —
the corporation, the creditors, and the general public. Moreover, FRIA has de ned a corporate debtor as a corporation
a. May involve a reduction of liability.
Liberality in corporate rehabilitation procedure only duly organized and existing under Philippine laws that has become
generally refers to the trial court, NOT to the proceedings b. The non-impairment clause may NOT be invoked insolvent. However, petitioner is correct in arguing that Basic
before the appellate court. Thus, Rule 2, Section 2 of the Interim (Victorio-Aquino v. Pacific Plans 2014) Polyprinters did not present any material nancial commitment in
Rules of Procedure on Corporate Rehabilitation, which refers to Two fundamental requirements that must be provided for in the the rehabilitation plan. Basic Polyprinters' nancial commitments
liberal construction, is limited to the RTC. Rehabilitation Plan: were insu cient for the purpose.
The RTC found that petitioner's assets were non-performing. a) The commitment to add P10M working capital appeared
1. Material Financial Commitment — becomes
Petitioner admitted this in its Amended Petition when it stated that to be doubtful considering that the insurance claim from
signi cant in gauging the resolve, determination,
its vessels were no longer serviceable. The RTC thus correctly which said working capital would be sourced had already
By RGL 73 of 83
Commercial Law Reviewer for the 2022 Bar
been written-o . A claim that has been written-o is 4 Suspension of payments In voluntary proceedings, a group of debtors may jointly le a
considered a bad debt or a worthless asset, and cannot be petition for rehabilitation
deemed a material financial commitment for purposes of 1) An individual debtor who, possessing sufficient property to
cover all his debts but foreseeing the impossibility of 1. when one or more of its members foresee the impossibility of
rehabilitation.
meeting them when they respectively fall due, may le a meeting debts when they respectively fall due, and
b) The conversion of all deposits for future subscriptions to veri ed petition that he be declared in the state of suspension 2. the nancial distress would likely adversely a ect
common stock and the treatment of all payables to o cers of payments by the court of the province or city in which he
and stockholders as trade payables was hardly constituting a. the nancial condition,
has resided for six (6) months prior to the ling of his petition.
material nancial commitments. b. operations of the other members of the group, and/or
2) The petitioner shall attach to his/her petition, as a minimum:
Basic Polyprinters’s proposal to enter into the dacion en pago to c. the participation of the other members of the group is
create a source of “fresh capital” was not feasible because the object a) a schedule of debts and liabilities;
essential under the terms and conditions of the proposed
thereof would not be its own property but one belonging to its b) an inventory of assets; and Rehabilitation Plan.
a liate, TOL Realty and Development Corporation, a corporation
c) a proposed agreement with his creditors. In involuntary proceedings, creditors le a petition for rehabilitation
also undergoing rehabilitation.
with the court if:
B Modes of Rehabilitation 1. there is no genuine issue of fact or law on the claim/s of
3 Liquidation the petitioner/s, AND
1 Court-supervised rehabilitation
that the due and demandable payments thereon have not
been made for at least sixty (60) days OR
a Voluntary vs. involuntary
that the debtor has failed generally to meet its liabilities as
they fall due; OR
Voluntary Involuntary
2. a creditor, other than the petitioner/s, has initiated
Debtor Creditors foreclosure proceedings against the debtor that will prevent
- Owner of Sole Proprietorship; Any creditor or group of the debtor from paying its debts as they become due or will
creditors with a claim of at render it insolvent.
- Majority of Partners; or
least P1M or 25% of the SCS,
- Majority of the Board + at least whichever is higher. Metrobank v. Fortuna Paper Mill & Packaging 2018
⅔ of the OCS or Members in
WON Fortuna is qualified to file a petition for rehabilitation under
case of Corporation
the Interim Rules.
YES. This Court need not distinguish whether the claim has
By RGL 74 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 75 of 83
Commercial Law Reviewer for the 2022 Bar
remedy as they may still submit their claims to the b) subject to the discretion of the court, to cases pending or TIDCORP v. PVB 2019 Caguioa, J
rehabilitation court for proper consideration so that they may led at a specialized court or quasi-judicial agency which,
WON the Stay Order of the Rehabilitation Court divested the RTC's
participate in the proceedings. Any attempts to seek legal or other upon determination by the court, is capable of resolving the
jurisdiction to hear and decide PVB's Complaint.
recourse against the distressed corporation shall be su cient to claim more quickly, fairly and e ciently than the court:
support a nding of indirect contempt of court.
Provided, That any nal and executory judgment of such NO. The Stay Order issued by the Rehabilitation Court did not
Here, the acts of sending a notice of informal conference and a court or agency shall be referred to the court and shall be preclude the RTC from hearing and deciding respondent PVB's
Formal Letter of Demand are part and parcel of the entire process treated as a non-disputed claim; Complaint. Section 18(c) of the FRIA explicitly states that a stay
for the assessment and collection of de ciency taxes from a order shall not apply "to the enforcement of claims against sureties
c) ⭐to the enforcement of claims against sureties and other and other persons solidarily liable with the debtor, and third party
delinquent taxpayer — an action or proceeding for the enforcement
persons solidarily liable with the debtor, and third party or or accommodation mortgagors as well as issuers of letters of credit.
of a claim which should have been suspended pursuant to the
accommodation mortgagors as well as issuers of letters of
Commencement Order. Unmistakably, Misajon, et al.'s foregoing In Situs Dev’t v. Asiatrust Bank, the Court held that when a stay
credit,
acts are in clear de ance of the Commencement Order. order is issued, the rehabilitation court is only empowered to
unless the property subject of the third party or suspend claims against the debtor, its guarantors, and sureties
Stay or suspension order accommodation mortgage is necessary for the who are NOT solidarily liable with the debtor. Hence, the
rehabilitation of the debtor as determined by the court upon making of claims against sureties and other persons solidarily liable
1) suspend all actions or proceedings, in court or otherwise, for
recommendation by the rehabilitation receiver; with the debtor is not barred by a stay order.
the enforcement of claims against the debtor;
d) to any form of action of customers or clients of a securities
2) suspend all actions to enforce any judgment, attachment or
market participant;
other provisional remedies against the debtor;
e) to the actions of a licensed broker or dealer to sell pledged c Rehabilitation receiver and management
3) prohibit the debtor from selling, encumbering, committee
securities of a debtor pursuant to a securities pledge or margin
transferring or disposing in any manner any of its properties
agreement for the settlement of securities transactions; The rehabilitation receiver shall be deemed an o cer of the court
except in the ordinary course of business; and
f) the clearing and settlement of nancial transactions with the principal duty of
4) prohibit the debtor from making any payment of its through the facilities of a clearing agency or similar entities as 1. preserving and maximizing the value of the assets of the
liabilities outstanding as of the commencement date well as any form of actions of such agencies or entities to debtor during the rehabilitation proceedings,
except as may be provided herein. reimburse themselves for any transactions settled for the
2. determining the viability of the rehabilitation of the
debtor; and
⭐The Stay or Suspension Order shall NOT apply: debtor,
g) any criminal action against the individual debtor or owner,
a) to cases already pending appeal in the SC as of 3. preparing and recommending a Rehabilitation Plan to
partner, director or o cer of a debtor shall not be a ected by
commencement date; the court, and
any proceeding commenced under the FRIA. (§18)
4. implementing the approved Rehabilitation Plan.
By RGL 76 of 83
Commercial Law Reviewer for the 2022 Bar
The management committee may overrule or revoke the actions d. cash ow cannot sustain daily operations; and
of the previous management or the governing body of the debtor. e Rehabilitation plan
e. negative net worth and the assets are near full
(§33 Rule 2, 2013 Rules) depreciation or fully depreciated.
The court shall have a maximum period of one (1) year from the
date of the filing of the petition to con rm a Rehabilitation Plan. In addition to the tests of economic feasibility, FRIA emphasizes
d Determination of claims
If no Rehabilitation Plan is con rmed within the said period, the on rehabilitation that provides for better present value
1) Within twenty (20) days from his assumption into o ce, the proceedings may, upon motion or motu proprio, be converted recovery for its creditors. Present value of the credit takes into
rehabilitation receiver shall establish a preliminary registry into one for the liquidation of the debtor. account the interest that the amount of money would have earned
of claims. if the creditor were paid on time.
Feasibility
2) He shall give notice to the debtor, creditors and stakeholders
In Phil. Asset Growth Two, Inc., et al. v. Fastech Synergy Phils., Inc., BPI Family Savings v. St. Michael Medical Center 2015
on where and when they may inspect the registry by causing
et al., the Court took note of the characteristics of a feasible
the publication of the place and date of inspection in a
rehabilitation plan as opposed to an infeasible rehabilitation plan. WON the CA correctly affirmed SMMCI’s Rehabilitation Plan as
newspaper of general circulation in the Philippines once every
By RGL 77 of 83
Commercial Law Reviewer for the 2022 Bar
approved by the RTC. The Plan shall be deemed rejected unless approved by ALL The rehabilitation proceedings shall, upon motion by any
classes of creditors whose rights are adversely modi ed or a ected stakeholder or the rehabilitation receiver, be terminated by order of
NO. Rehabilitation shall refer to the restoration of the debtor to
by the Plan. the court either declaring a successful implementation of the
a condition of successful operation and solvency. Restoration is the
Rehabilitation Plan or a failure of rehabilitation.
central idea behind the remedy of corporate rehabilitation. In Approval — The Plan is deemed to have been approved by a class
common parlance, to “restore” means “to bring back to or put back of creditors if members of the said class holding more than fty There is failure of rehabilitation in the following cases:
into a former or original state.” percent (50%) of the total claims of the said class vote in favor of
a) Dismissal of the petition by the court;
the Plan.
In this case, it cannot be said that the petitioning corporation, b) Failure to submit a Rehabilitation Plan;
SMMCI, had been in a position of successful operation and Notwithstanding the rejection of the Rehabilitation Plan, the
solvency at the time the Rehabilitation Petition was led. While it court may con rm the Rehabilitation Plan if all of the c) A Rehabilitation Plan is not con rmed by the court;
had indeed “commenced business” through the preparatory act of following circumstances are present: d) Under the Rehabilitation Plan submitted by the debtor, there
opening a credit line with BPI Family, SMMCI itself admits that it a) The Rehabilitation Plan complies with the requirements is no substantial likelihood that the debtor can be rehabilitated
has not formally operated nor earned any income since its speci ed in this Act; within a reasonable period;
incorporation. This simply means that there exists no viable
b) The rehabilitation receiver recommends the con rmation e) The Rehabilitation Plan or its amendment is approved by the
business concern to be restored. Perforce, the remedy of corporate
of the Rehabilitation Plan; court but in the implementation thereof,
rehabilitation is improper, thus rendering the dispositions of the
courts a quo in rm. c) The shareholders, owners or partners of the juridical i) the debtor fails to perform its obligations thereunder
debtor lose at least their controlling interest as a result of or
Aside from the harped on merger of St. Michael Hospital with
SMMCI, the only proposed source of revenue the Rehabilitation the Rehabilitation Plan; and ii) there is a failure to realize the objectives, targets or
Plan suggests is the capital which would come from SMMCI’s d) The Rehabilitation Plan would likely provide the goals set forth therein, including the timelines and
potential investors, which negotiations are merely pending. As case objecting class of creditors with compensation which has a conditions for the settlement of the obligations due to
law intimates, nothing short of legally binding investment net present value greater than that which they would have the creditors and other claimants;
commitment/s from third parties is required to qualify as a received if the debtor were under liquidation. f) Determination that the Rehabilitation Plan may no longer be
material nancial commitment. SMMCI likewise failed to include implemented in accordance with its terms, conditions,
Confirmation — If no objections are led within the relevant
any liquidation analysis in its Rehabilitation Plan. restrictions, or assumptions;
period or, if objections are led, the court nds them lacking in
merit, or determines that the basis for the objection has been g) There is a nding that fraud was committed in securing the
cured, or determines that the debtor has complied with an order to approval of the Rehabilitation Plan or its amendment;
f Creditor approval and con rmation cure the objection, the court shall issue an order con rming the
h) In cases falling under Section 65 of this Rule, where, after
The rehabilitation receiver shall convene the creditors, either as a Rehabilitation Plan.
nding merit in the objection/s raised against the con rmation
whole or per class, for purposes of voting on the approval of the g Failure of rehabilitation of the Rehabilitation Plan,
Plan.
By RGL 78 of 83
Commercial Law Reviewer for the 2022 Bar
i) the defect is not cured within such time as the court may le a veri ed petition with the court for the approval of a
a Minimum requirements
may order, or Pre-negotiated Rehabilitation Plan which has been endorsed or
approved An OCRA shall comply with both requirements:
ii) if the court determines that the debtor acted in bad
faith, or 1. by creditors holding at least two-thirds (2/3) of the a) Approval by the:
total liabilities of the debtor,
iii) that it is not feasible to cure the defect; and 1) debtor;
2. including secured creditors holding more than fty
i) Failure of the debtor to comply with these Rules, the Rules of 2) creditors representing at least sixty-seven percent (67%)
percent (50%) of the total secured claims of the debtor
Court, or any order of the court. of the secured obligations of the debtor;
AND
Upon a breach of, or upon a failure of the Rehabilitation Plan, the 3) creditors representing at least seventy- ve percent (75%)
3. unsecured creditors holding more than fty percent
court, upon motion by an a ected party, may: of the unsecured obligations of the debtor; and
(50%) of the total unsecured claims of the debtor.
1) issue an order directing that the breach be cured within a 4) creditors holding at least eighty- ve percent (85%) of
Within ve (5) working days from the date of ling the petition,
speci ed period of time, failing which the proceedings may be the total liabilities of the debtor; AND
if the court determines that the petition is su cient in form and
converted to a liquidation;
substance, it shall issue an Order. b) Publication of the notice of the OCRA once a week for at
2) issue an order converting the proceedings to a liquidation; least three (3) consecutive weeks in a newspaper of general
3) allow the debtor or rehabilitation receiver to submit b Period and e ect of approval circulation in the Philippines.
amendments to the Rehabilitation Plan;
The Order shall have the same effects as a Commencement Order. It b Standstill period
4) issue any other order to remedy the breach consistent with shall retroact to the date of the ling of the petition and shall be
the best interests of the creditors; or e ective for one hundred twenty (120) days from the ling of Standstill Period. — May be agreed upon by the parties and shall be
5) enforce the applicable provisions of the Rehabilitation Plan the petition unless earlier lifted by the court on account of e ective and enforceable not only against the contracting parties but
through a writ of execution. also against the other creditors provided it complies with the following
a) the approval of the Pre-Negotiated Rehabilitation Plan, or
conditions:
b) the termination of the rehabilitation proceedings.
2 Pre-negotiated rehabilitation a) approval of the agreement for a standstill period by creditors
The court shall have a maximum period of one hundred representing more than fty percent (50%) of the total
twenty (120) days from the date of the ling of the petition to liabilities of the debtor;
a How initiated
approve the Rehabilitation Plan. If the court fails to act within the
b) publication of the notice of the agreement in a newspaper of
An insolvent debtor, said period, the Rehabilitation Plan shall be deemed
general circulation in the Philippines, once a week for two (2)
APPROVED.
1. by itself OR consecutive weeks; and
2. jointly with any of its creditors, Out-of-Court or Informal Restructuring c) the standstill period shall NOT exceed one hundred
3
Agreement or Rehabilitation Plan twenty (120) days from the date of e ectivity.
By RGL 79 of 83
Commercial Law Reviewer for the 2022 Bar
WON the CA correctly affirmed Sarabia’s rehabilitation plan as Oppositions which push for high interest rates are generally there is no genuine issue of fact or law on the claims
approved by the RTC, with the modification on the reinstatement of frowned upon in rehabilitation proceedings given that the inherent
the surety obligations of Sarabia’s stockholders. purpose of a rehabilitation is to nd ways and means to minimize AND that the due and demandable payments thereon have not
the expenses of the distressed corporation during the rehabilitation been made for at least:
YES. Section 23, Rule 4 of the Interim Rules of Procedure on
period.
Corporate Rehabilitation (Interim Rules) states that a sixty (60) days one hundred eighty (180)
rehabilitation plan may be approved even over the opposition of the days
creditors holding a majority of the corporation’s total liabilities if
there is a showing that rehabilitation is feasible and the C Liquidation OR that the debtor has failed generally to meet its liabilities as they
opposition of the creditors is manifestly unreasonable. fall due AND
Also known as the “cram-down” clause, it forces the creditors to 1 Voluntary liquidation vs. Involuntary a creditor, other than the there is no substantial likelihood
accept the terms and conditions of the rehabilitation plan,
liquidation vs. Conversion petitioner, has initiated that the debtor may be
preferring long-term viability over immediate but incomplete foreclosure proceedings against rehabilitated
recovery. the debtor that will prevent the
By RGL 80 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 81 of 83
Commercial Law Reviewer for the 2022 Bar
d) no separate action for the collection of an unsecured However, these rights are subject to the temporary stay of 1) Within twenty (20) days from his assumption into o ce, the
claim shall be allowed. foreclosure proceedings for a period of 180 days, upon the liquidator shall establish a preliminary registry of claims of
issuance of the Liquidation Order. (MBTC v. S.F. Naguiat) secured and unsecured creditors.
Such actions already pending will be transferred to the
Liquidator for him to accept and settle or contest. If the Secured creditors who have
Yngson, Jr. v. PNB 2012
liquidator contests or disputes the claim, the court shall allow,
1. waived their security or lien, or
hear and resolve such contest except when the case is already on WON PNB, as a secured creditor, can foreclose on the mortgaged
appeal. In such a case, the suit may proceed to judgment, and 2. have xed the value of the property subject of their
properties of a corporation under liquidation without the knowledge
any nal and executory judgment therein for a claim against security or lien by agreement with the liquidator and
and prior approval of the liquidator or the SEC.
the debtor shall be led and allowed in court; and is admitted as a creditor for the balance,
YES. PNB was not barred from foreclosing on the mortgages.
e) no foreclosure proceeding shall be allowed for a period of shall be considered as unsecured creditors.
Under Sec 114 of RA 10142, the right of a secured creditor to
180 days. enforce his lien during liquidation proceedings is retained. 2) Right of Set-off. — If the debtor and a creditor are mutually
debtor and creditor of each other, one debt shall be set o
Rights of secured creditors As to petitioner's argument on the right of rst preference as regards
against the other, and only the balance, if any, shall be allowed
⭐The Liquidation Order shall NOT a ect the right of a secured unpaid wages, the Court has elucidated in the case of Development
in the liquidation proceedings.
creditor to enforce his lien. He may: Bank of the Philippines v. NLRC that a distinction should be
made between a preference of credit and a lien. 3) Within thirty (30) days from the expiration of the period for
a) waive his rights under the security or lien, prove his claim ling of applications for recognition of claims, interested
in the liquidation proceedings and share in the distribution A preference applies only to claims which do not attach to speci c
parties may submit a challenge to a claim or claims to the
of the assets of the debtor; or properties. A lien creates a charge on a particular property. The
court, serving a certi ed copy on the liquidator and the
right of first preference as regards unpaid wages recognized by Article
b) maintain his rights under his security or lien. creditor holding the challenged claim.
110 of the Labor Code, does NOT constitute a lien on the property of
If the secured creditor maintains his rights under the the insolvent debtor in favor of workers. It is but a preference of 4) Upon the expiration of the thirty (30)-day period, the
security or lien: credit in their favor, a preference in application. Consequently, the rehabilitation receiver shall submit to the court the registry of
right of rst preference for unpaid wages may not be invoked in this claims containing the undisputed claims that have not
1) the value of the property may be xed in a manner agreed
case to nullify the foreclosure sales conducted pursuant to PNB's been subject to challenge.
upon by the creditor and the liquidator.
right as a secured creditor to enforce its lien on speci c properties of Such claims shall become nal upon the ling of the register
2) the liquidator may sell the property and satisfy the its debtor, ARCAM. and may be subsequently set aside only on grounds of fraud,
secured creditor's entire claim from the proceeds of the
accident, mistake or inexcusable neglect.
sale; or
5) The liquidator shall resolve disputed claims and submit his
3) the secured creditor may enforce the lien or foreclose on 3 Determination of claims ndings thereon to the court for nal approval. The
the property pursuant to applicable laws.
liquidator may disallow claims.
By RGL 82 of 83
Commercial Law Reviewer for the 2022 Bar
Suspension of payments; suspension of except those used in the ordinary operations of commerce or
D
payment order of industry in which the petitioner is engaged as long as the
proceedings are pending;
An individual debtor who
c) prohibiting the petitioner from making any payment outside
1. has assets that exceed his liabilities BUT of the necessary or legitimate expenses of his business or
2. foresees the impossibility of paying his debts when they industry, as long as the proceedings are pending; and
respectively fall due d) appointing a commissioner.
may le a verified petition for suspension of payments in the
Motion to Suspend Pending Execution
court having jurisdiction over the province or city where he has
resided for six (6) months prior to the ling. Property held as security by secured creditors shall not be subject
to such suspension order.
Individual debtor shall refer to a natural person who is a resident
AND citizen of the Philippines that has become insolvent. The order suspending execution shall lapse when three (3)
months shall have passed without the proposed agreement being
If the Court nds the petition su cient in form and substance, it shall
accepted by the creditors or as soon as such proposed agreement is
issue a Suspension of Payments Order:
rejected.
a) prohibiting creditors from suing or instituting proceedings for
collection against the debtor, except:
i) creditors having claims for
1) personal labor,
2) maintenance,
3) expense of last illness and
4) funeral of the wife or children of the debtor
incurred within sixty (60) days immediately prior to the
ling of the petition; and
ii) secured creditors;
b) prohibiting the petitioner from selling, transferring,
encumbering or disposing his property,
By RGL 83 of 83