PRE-WEEK AND PREDICTIONS FOR COMMERCIAL LAW

2023 Bar Exams

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This covers ALL of the COMMERCIAL Law Bar Questions from 2016-2022.

We will make the discussion as specific as possible, so you would precisely know which questions are
always asked and/or factored in the Bar.

The topics that were asked multiple times in the previous Bar Examinations will likely be asked in the
2023 Bar Examinations. Why? Because the examiners see these topics as IMPORTANT!

Some repeated topics, such as those topics under the Negotiable Instruments Law, were not included,
since they are not covered by the Bar syllabus.

COVERAGE OF THE PRE-WEEK AND PREDICTIONS FOR COMMERCIAL LAW:

(a) Topics that were asked for at least two (2) times will be discussed.
(b) Topics that were particularly emphasized in the Bar syllabus.

BAR STATS FROM 2016-2022

1. Common carrier - 7
2. Trademark - 5
3. Incontestability clause – 4
4. Mergers and consolidations - 4
5. E-commerce Act - 3
6. Suicide in life insurance cases – 3
7. Fair use doctrine - 3
8. Tender offer – 3
9. Bank secrecy law - 3
10. Meaning of capital; Grandfather rule - 3
11. Double insurance – 2
12. Business judgment rule – 2
13. Intra-corporate dispute – 2
14. Insurable interest in property – 2
15. Derivative suit – 2
16. Pre-emptive right – 2
17. Patentability - 2
18. Insider trading- 2
19. Piercing the corporate veil - 2
20. Doctrine of separate juridical personality– 2
21. Doing business in the Philippines- 2
22. What are securities under the SRC– 2
23. Authority to inquire into bank deposits by AMLC– 2
24. Extraordinary diligence of banks– 2
25. One-person corporation– 1
26. Independent director – 1
27. Trust fund doctrine - 1
28. Unfair competition - 1
29. Splitting of deposits - 1
30. When non-voting shares can vote - 1
31. Interlocking directors – 1
32. Irrevocable designation in life insurance - 1
33. insurable interest in life insurance – 1
34. Declaration of dividends - 1
35. Compel the registration of shares - 1
36. Payment of balance of subscription - 1
37. The AOI must not contravene the Corporation Code - 1
38. Appraisal right - 1
39. Vote necessary for increase in ACS - 1
40. Well-known mark – 1
41. Prior user of patented product – 1
42. Marine insurance -1
43. Right to inspect books – 1
44. Nell doctrine – 1
45. Money laundering offense – 1
46. Bareboat charter – 1
47. Transfer of shares – 1
48. Removal of director – 1
INITIAL TIPS FOR COMMERCIAL LAW
1. COMMERCIAL LAW and CIVIL LAW are the subjects with the MOST provisions assigned. This
is good news for all of us.
a. Why? Most of the Bar questions for these subjects would not be complicated.
b. The questions would mostly involve BASIC principles, since the Bar examiners have to
cover the WHOLE syllabus.
i. Thus, they will likely have no chance to dig deep in AMLA, Bank Secrecy laws,
and so on.
2. As long as you understood the basics of COMMERCIAL LAW, you will get a good grade.
3. DO NOT OVERCOMPLICATE THINGS!
CORPORATION CODE
1. Doctrine of separate juridical personality– 2
2. Piercing the corporate veil - 2
3. Business judgment rule – 2
4. Intra-corporate dispute – 2
5. Derivative suit – 2
6. Pre-emptive right – 2
7. Mergers and consolidations - 4

SECURITIES REGULATION CODE

1. What are securities under the SRC– 2
2. Tender offer – 3
3. Insider trading – 2

FOREIGN INVESTMENTS ACT

1. Doing business in the Philippines - 2
2. Meaning of capital; Grandfather rule – 3

INSURANCE LAW
1. Incontestability clause – 4
2. Suicide in life insurance cases – 3
3. Double insurance – 2
4. Insurable interest in property - 2

TRANSPORTATION LAW
1. Common carrier - 7

LAW ON INTELLECTUAL PROPERTY

1. Patentability – 2
2. Trademark – 5
3. Copyright; Fair use doctrine - 3

BANKING LAW
1. Extraordinary diligence of banks - 2
2. Bank secrecy law – 3
3. Authority to inquire into bank deposits by AMLC– 2

E-COMMERCE LAW
1. E-commerce Act - 3

PUBLIC SERVICE ACT

1. NEW PROVISIONS!
CORPORATION CODE

Doctrine of separate juridical personality– 2

1. Meaning
a. A corporation has a separate and distinct personality from its stockholders.
i. “Corporation” includes one person corporations.
ii. Even the ownership by a single stockholder of all or nearly all of the capital stock
of a corporation is not, in and of itself, a ground for disregarding a corporation’s
separate personality. (Aboitiz v. Chiongbian, 2014)
b. Hence, the corporation is not affected by the personal rights, obligations, and
transactions of the stockholders. (Sulo ng Bayan v Araneta, 1976)
i. The interest of the stockholders to the corporate assets, if any, is indirect,
inchoate, expectant, contingent, remote, conjectural, consequential, and
collateral.
c. Further, the stockholders are not personally liable for the obligations and transactions
entered into by the corporation.
i. NOTE: In short, this doctrine goes BOTH WAYS!
2. A sole proprietorship does not possess a juridical personality separate and distinct from the
personality of the owner of the enterprise. (Stanley Fine v. Gallano, 2014)
a. Thus, the owner of the sole proprietorship is personally liable for the obligations and
transactions entered into by the sole proprietorship.
b. Further, the person who owns the sole proprietorship is considered as a real party-in-
interest and has standing to file an action against the debtors of the sole proprietorship.
c. The law merely recognizes the existence of a sole proprietorship as a form of business
3. A consequence of a corporation’s separate personality is that consent by a corporation through
its representatives is not consent of the representative, personally.
a. The corporation’s obligations, incurred through official acts of its representatives, are
its own. A stockholder, director, or representative does not become a party to a contract
just because a corporation executed a contract through that stockholder, director or
representative. Hence, a corporation’s representatives are generally not bound by the
terms of the contract executed by the corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the corporation. (Lanuza v. BF
Corporation, 2014)
i. In other words, the contracts signed by the corporate officer, as a corporate
officer of the corporation, does not bind such corporate officer personally.
ii. On the other hand, the contracts signed by the corporate officer, in his own
capacity, and not on behalf of the corporation, bind him personally.
1. EX: A contract of loan was perfected between the bank and the
corporation. The President signed the contract of loan, on behalf of the
corporation, and as the President of the corporation. Is the President
personally liable? No.
2. EX: A contract of loan was perfected between the bank and the
corporation. The President signed the contract of loan, in his private
capacity, and not as the President of the corporation. Is the President
personally liable? Yes.
4. Liability for torts
a. Being an entity with a separate juridical personality, a corporation can be held liable for
torts committed by its officers under express direction from the stockholders or directors,
acting as a body. (PNB v. CA, 1978)
i. NOTE: The stockholders, directors, and corporate officers are not personally
liable for torts.
5. Liability for crimes
 a. Corporate officers and/or agents may be held individually liable for a crime committed
under the Intellectual Property Code.
i. Petitioners, being corporate officers and/or directors, through whose act, default
or omission the corporation commits a crime, may themselves be individually
held answerable for the crime. Mere membership in the Board or being President
per se does not mean knowledge, approval, and participation in the act alleged
as criminal. There must be a showing of active participation, not simply a
constructive one. (ABS-CBN Corporation vs. Gozon, 2015)
1. In short, those who ACITVELY PARTICIPATED in the commission of
the crime are criminally liable.
6. Can the corporation recover moral damages?
a. General Rule:
i. The rule is the corporation cannot recover moral damages as it has no feelings,
emotions nor senses; therefore, it cannot experience physical suffering and
mental anguish, which are bases for moral damages under Art. 2217 of Civil
Code. (MERALCO v. Nordec, 2018)
b. Exception:
i. Libel and defamation - Art. 2219 of the NCC expressly authorizes the recovery of
moral damages in cases of libel, slander, or any other form of defamation. It does
not qualify whether the plaintiff is a natural or juridical person. (Filipinas
Broadcasting Network v Ago Medical and Educational Center, 2005)
7. When can the stockholders, directors, and corporate officers become personally liable for the
obligations of the corporation?
a. A corporation has a personality separate and distinct from those of the persons
composing it. Thus, as a rule, corporate directors and officers are not liable for the illegal
termination of a corporation’s employees. It is only when they acted in bad faith or with
malice that they become solidarily liable with the corporation. (Rivera vs. Genesis
Transport, 2015)
i. In short, the corporate veil will be pierced if there’s bad faith or malice on the
part of the stockholders, directors, and/or corporate officers.
8. SUMMARY!
a. The doctrine of separate juridical personality applies to corporations, not to sole
proprietorships.
b. If the corporate officer signed as the “President,” as the “Vice President,” as the
“Treasurer,” and so on, he is not personally bound by the contract.
c. If there’s no fraud, the corporation has a separate personality from the stockholders,
directors, and officers!
i. Since “fraud” was mentioned, I want to remind you that the doctrine of separate
personality and the doctrine of piercing the corporate veil are closely related
principles! LET’S GO TO THE NEXT TOPIC!
Piercing the corporate veil - 2
1. Meaning
a. The separate personality of the corporation from its stockholders, directors, and
members will be disregarded, and the corporation will be considered as a mere
association of persons. Thus, the liability against the corporation will attach directly to
the officers and the stockholders.
2. What are the two (2) types of piercing the corporate veil?
a. Traditional piercing - the court disregards the existence of a corporate entity so a
claimant can reach the assets of a corporate insider.
i. EX: Mr. A and ABC Corporation entered into a contract of loan. Mr. B is the sole
stockholder of ABC Corporation. Assuming that the separate personality of ABC
Corporation from its stockholders, directors, and officers will be disregarded,
there will be a TRADITIONAL PIERCING of corporate veil, so the assets of Mr. B
can be reached by Mr. A for the payment of the loan.
1. Mr. A -> ABC Corporation -> Mr. B, the stockholder
ii. In other words, the corporate veil of the debtor corporation will be pierced, so
the assets of its stockholders can be reached.
1. It’s that simple.
b. Reverse Piercing - the plaintiff seeks to reach the assets of a corporation to satisfy claims
against a corporate insider.
i. EX: Mr. A and Mr. B entered into a contract of loan. In order to escape liability,
Mr. B transferred all of his assets to ABC Corporation. Assuming that the
separate personality of ABC Corporation will be disregarded, there will be a
REVERSE PIERCING of corporate veil, so the assets of ABC Corporation can be
reached by Mr. A for the payment of the loan.
1. Mr. A -> ABC Corporation
ii. EX: Mr. A and ABC Corporation entered into a contract of loan. In order to
escape liability, the stockholders and directors of ABC Corporation dissolved the
corporation, and transferred all of its assets to XYZ Corporation. Assuming that
the separate personality of XYZ Corporation will be disregarded, there will be a
REVERSE PIERCING of corporate veil, so the assets of XYZ Corporation can be
reached by Mr. A for the payment of the loan.
1. Mr. A -> XYZ Corporation
iii. In other words, the corporate veil of ANOTHER entity will be pierced, and its
assets will be reached, because the debtor individual or corporation hid or
transferred his assets into that entity.
1. It’s more complex than traditional piercing.
c. NOTE: I only showed to you the difference between traditional and reverse piercing, so
you have a clear picture of this topic. When you answer in the Bar, you do not have to
include this in your answer. You just have to state in your legal basis (1) what is the
doctrine of separate juridical personality, and (2) why will the corporate veil be pierced.
3. Why will the corporate veil be pierced?
a. Because any of following instances are present:
i. When the corporate identity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime. (Fraud case)
ii. When the corporate entity is a mere alter ego, business conduit or
instrumentality of a person or another corporation. Here, the corporate entity
does not act on its own, but acts through another person or corporation. (Alter
ego case)
iii. When piercing the corporate veil is necessary to achieve justice or equity. (Equity
case)
1. NOTE: Focus on the first two!
b. Fraud cases
 i. LOKO Co., using a fraudulent scheme, was able to sell its shares to investors. The
sale proceeds were then secretly diverted by LOKO Co. to its wholly owned
subsidiaries. Later, LOKO Co. became insolvent and was placed under
receivership. On behalf of the investor-stockholders, the receiver demanded the
inspection of the books and records of LOKO Co.’s subsidiaries. Can LOKO Co.’s
stockholders exercise, through the receiver, their right of inspection of the books
and records of LOKO Co.’s subsidiaries? Explain briefly. (PREVIEW OF THE
LMT)
1. Yes, LOKO Co.’s stockholders can exercise, through the receiver, their
right of inspection of the books and records of LOKO Co.’s subsidiaries.
2. Case law dictates that when the corporate identity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the
separate personality of the corporation will be disregarded. Thus, the
corporate veil will be pierced in order to reach its assets to satisfy the
claims of the injured party.
3. Here, LOKO Co.’s stockholders can exercise, through the receiver, their
right of inspection of the books and records of LOKO Co.’s subsidiaries,
because LOKO Co. secretly diverted the proceeds of the sale of shares to
the investors to its wholly owned subsidiaries, to the prejudice of the
stockholders. Thus, LOKO Co.’s separate personality from its
subsidiaries must be disregarded, allowing the inspection of the books of
the subsidiaries.
ii. Due process and Piercing the Corporate Veil
1. General Rule:
a. The corporate veil of a corporation that is not a party to the case
must not be pierced. It would offend due process rights if what
petitioner ultimately seeks in its allegation is to hold a
corporation responsible for the respondent’s liability. (Pioneer
Insurance v Morning Star Travel, 2015)
i. Thus, during the execution stage, only the assets of the
judgment debtor must be pursued. The assets of another
corporation shall not be reached, because the judgment
debtor and the other corporation are separate and
distinct persons.
2. Exception:
a. If there was fraud - However, if it is shown by clear and
convincing proof that the separate and distinct personality of the
corporation was purposely employed to evade a legitimate and
binding commitment and perpetuate a fraud or like
wrongdoings, the corporate veil may be pierced. (I/AME
Academy v Litton and Company, 2017)
iii. NOTE: For fraud cases, the analysis is straightforward. Check the facts if there
was fraud. If there was, the veil must be pierced. If there was not, the veil must
not be pierced. The separate juridical personality of the corporation must be
upheld.
c. Alter ego doctrine
i. Requisites:
1. Control, not merely majority or complete stock control, but Complete
domination, as to the finances, policy, and business practice, with
respect to the transaction attacked, so that the corporate entity as to this
transaction had, at the time, no separate mind, will, or existence of its
own;
 2. Such control must have been used by the defendant to commit Fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and unjust act in contravention of plaintiff’s legal
right; and
3. The aforesaid control and breach of duty must have Proximately caused
the injury, harm or unjust loss complained of. (PNB v Hydro Resources
Contractors, 2013)
a. NOTE: The most important phrase is “complete domination as
to the finances, policy, and business practices”!
ii. “Control”; “Complete domination”
1. The facts must show “complete domination as to the finances, policy,
and business practices,” not merely “control.”
a. What is control? There is control if (1) one corporation owned
the majority or all of the stocks of another corporation or (2) both
corporations have interlocking directors.
i. Again, control is NOT ENOUGH.
ii. The facts must show complete domination!
2. Ownership by one corporation of all or a complete majority of stocks of
another corporation and their existence of interlocking directors merely
serve as indicia of control, but by themselves and without more, these
circumstances are insufficient to establish the alter ego relationship or
connection between the two corporations. (Zambrano v Philippine
Carpet, 2017)
d. Effect of Piercing
i. It denies the corporation of separate legal personality for the “particular”
transaction or instance for which the doctrine was applied. It does not result in
the abrogation of the corporation. (Pamplona Plantation v Tinghil, 2005)
ii. The doctrine does not deny the corporation of legal personality for any and all
purpose. (Lanuza v. BF Corporation, 2014)
1. In other words, the separate legal personality of the corporation is
disregarded for that particular instance, but it is still upheld for other
instances.
e. SUMMARY!
i. There are three (3) principles you have to consider: (1) alter ego cases, (2) fraud
cases, and (3) doctrine of separate juridical personality.
1. If the facts showed “complete domination as to the finances, business
policy, and practices” and “fraud,” the alter ego doctrine will apply.
a. If there was no complete domination, go to the next principle.
2. If there was no complete domination, but there was fraud, the corporate
veil will be pierced because the corporate identity was used to defeat
public convenience, justify wrong, protect fraud, or defend crime.
(fraud case)
a. If there was no fraud, go to the next principle.
3. If there was no complete domination, and there was no fraud, the
doctrine of separate juridical personality will apply.
ii. In sum, the examiners will probably ask any of these three (3) scenarios:
1. Separate juridical personality of corporations v. Sole proprietorships
2. Separate juridical personality of corporations v. Piercing of corporate veil
(alter ego doctrine and fraud cases)
3. Separate juridical personality of corporations v. The corporate officer
signed, in his own capacity, and not as a corporate officer of the
corporation
Business judgment rule – 2

1. The questions of policy or management are left solely to the HONEST decision of officers and
directors of a corporation and the courts are without authority to substitute their judgment for
the judgment of the board of directors; the board is the business manager of the corporation and
so long as it acts in GOOD FAITH, its orders are not reviewable by the courts or the SEC. (Saber
v CA, 2004)
a. Hence, the Court cannot reverse the acts of the board of directors or the officers.
b. Further, the board of directors and the officers cannot be held personally liable for the
transactions it entered in behalf of the corporation.
i. EX: The board of directors of a real estate corporation decided to invest the
corporate funds in the development of a shopping complex in Metro Manila.
After a couple of months, the shopping complex was closed due to tenants.
Because of the losses that the corporation suffered from the investment, the
corporation had to file a petition for rehabilitation due to insolvency. Can the
stockholders hold the directors personally liable for the losses that the
corporation suffered? (PREVIEW OF LMT)
1. No, the directors cannot be held personally liable for the losses that the
corporation suffered.
2. Case law dictates that questions of policy or management are left solely
to the honest decision of the directors of the corporation. As long as the
directors acted in good faith, they shall not be personally liable for the
transactions it entered on behalf of the corporation.
3. Here, the directors cannot be held personally liable for the losses that the
corporation suffered, since the facts did not show that they acted in bad
faith when they invested the funds of the corporation to develop a
shopping complex. Thus, they shall be presumed to be in good faith.
2. Exceptions
a. In these exceptions, the director will be PERSONALLY LIABLE for his acts:
i. Disloyalty (Doctrine of Corporate Opportunity)
1. Where a director, by virtue of such office, acquires a business
opportunity
a. Which should belong to the corporation,
b. thereby obtaining profits to the prejudice of such corporation,
c. the director must account for and refund to the latter all such
profits, unless
i. the act has been ratified by a vote of the stockholders
owning or representing at least two-thirds (2/3) of the
outstanding capital stock.
2. This provision shall be applicable, notwithstanding the fact that the
director risked one's own funds in the venture. (Sec. 33, Revised
Corporation Code)
ii. Patently unlawful acts
1. The director or trustee who willfully or knowingly voted for or assented
to a patently unlawful corporate act shall be personally liable. (Sec. 30)
a. NOTE: Patently unlawful acts are those declared unlawful by
law which imposes penalties for commission of such unlawful
acts. There must be a law declaring the act unlawful and
penalizing the act. (Carag vs. NLRC, 2007)
iii. Gross negligence or bad faith
1. The director or trustee who is guilty of gross negligence or bad faith in
directing corporate affairs shall be personally liable. (Sec. 30)
iv. Watered stocks
 1. The director or trustee who consented to the issuance of watered stocks
or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto, shall be personally
liable. (Sec. 64)
b. NOTE: In all of these exceptions, there was BAD FAITH on the part of the director.
c. NOTE: There are other exceptions provided by law. However, let’s focus on these four.
Intra-corporate dispute – 2

1. There are two (2) tests to determine if a dispute is intra-corporate in nature:

a. Relationship test
i. Under this test, a dispute is intra-corporate if it is:
1. between the corporation, partnership, association, and the Public;
2. between the corporation, partnership, association, and the State insofar
as the franchise, permit, or license to operate is concerned;
3. between the corporation, partnership, or association, and the
Stockholders, partners, members, or officers; and
4. Among the stockholders, partners, members, or officers themselves.
b. There is the Nature of Controversy test.
i. Under this test, a dispute is intra-corporate if it is intrinsically connected with:
1. the Regulation of the corporation, or
2. the Enforcement of the parties’ rights and obligations under the
Corporation Code and the internal regulatory rules of the corporation.
c. NOTE: You must APPLY BOTH TESTS. The examiner will look for BOTH TESTS in your
answer!
2. The RTC has exclusive and original jurisdiction over intra-corporate disputes, not the SEC.
3. Let’s apply the tests!
a. Mr. A bought the shares of Mr. B in ABC Corporation. ABC Corporation REFUSED to
register the sale in the stock and transfer books, and REFUSED to register the shares
under the name of Mr. A. Mr. A is now asking you if there is an intra-corporate dispute
between him and ABC Corporation. Is this an intra-corporate dispute? Explain.
(SAMPLE FOR LMT)
i. No, this is not an intra-corporate dispute.
ii. Under the relationship test a dispute is intra-corporate if it is between the
between the corporation, partnership, or association, and the stockholders,
partners, members, or officers. Further, under the nature of the controversy test,
a dispute is intra-corporate if it is intrinsically connected with the regulation of
the corporation, or the enforcement of the parties’ rights and obligations under
the Corporation Code and the internal regulatory rules of the corporation.
iii. Here, this is not an intra-corporate dispute, because even though the dispute
involved the enforcement of rights and obligations under the Corporation Code,
the dispute was between ABC Corporation and Mr. A, a stranger to the
corporation.
1. NOTE: Based on the relationship test, this is not an intra-corporate
dispute.
b. Mr. A is the registered stockholder of ABC Corporation. He died. All of his shares in
ABC Corporation were transferred in the name of his first son, Mr. B. Later, Mr. C, Mr.
A’s second son, filed an action for reconveyance of the shares, because the shares were
allegedly transferred in the name of Mr. B, before the estate of Mr. A was settled. Is this
an intra-corporate dispute? (SAMPLE FOR LMT)
i. No, this is not an intra-corporate dispute.
ii. Under the relationship test a dispute is intra-corporate if it is among the
stockholders themselves. Further, under the nature of the controversy test, a
dispute is intra-corporate if it is intrinsically connected with the regulation of the
corporation, or the enforcement of the parties’ rights and obligations under the
Corporation Code and the internal regulatory rules of the corporation.
iii. Here, this is not an intra-corporate dispute, because (1) the dispute was between
Mr. B, a stockholder, and Mr. C, a stranger to the corporation, and (2) the dispute
did not involve the enforcement of the parties’ rights and obligations under the
Corporation Code and the internal regulatory rules of the corporation. The
 dispute between Mr. B and Mr. C could be resolved by the applying pertinent
provisions of the Civil Code, particularly those relative to obligations and
contracts.
c. Mr. A allegedly sold his shares to his son, Mr. B. Later, Mr. B died. Mr. A filed an action
to recover the shares he sold to his son, on the ground of absence of cause of
consideration. Is this an intra-corporate dispute?
i. No. The relationship of private respondent when he sold his shares of stock to
his son was one of vendor and vendee, and nothing else. The question raised in
the complaints is whether or not there was indeed a sale in the absence of cause
or consideration. The proper forum for such a dispute is the regular courts. No
special corporate skill is necessary to resolve the issue of the validity of the
transfer of shares from one stockholder to another of the same corporation.
The determination whether a contract is simulated or not is an issue that could
be resolved by applying pertinent provisions of the Civil Code, particularly
those relative to obligations and contracts. (Intestate Estate of Ty v CA, 2001)
d. Dispute as to the proper association dues in a condominium corporation
i. The case before the RTC involved an intra-corporate dispute – the Moreno
spouses were asking for an accounting of the association dues and were
questioning the manner the petitioner calculated the dues assessed against
them. (Chateau De Baie v Sps. Moreno, 2011)
e. Dispute as to management of corporate property AND forcible entry
i. While the case purports to be one for forcible entry filed by Mariam against
BIRI's employees and contractors in their individual capacities, the true nature of
the controversy is an intra-corporate dispute between BIRI and its shareholder,
Mariam, regarding the management of, and access to, the corporate property
subject of the MOA. We therefore find that the MCTC never acquired
jurisdiction over the ejectment case filed by Mariam. (Tumangan v Kairuz, 2018)
f. Termination of corporate officers, i.e., President of the corporation
i. This is an intra-corporate dispute. The proper body is the RTC and not the
NLRC.
ii. A corporate officer's dismissal is always a corporate act, or an intracorporate
controversy which arises between a stockholder and a corporation, and the
nature is not altered by the reason or wisdom with which the Board of Directors
may have in taking such action. The issue of the alleged termination involving a
corporate officer, not a mere employee, is not a simple labor problem but a
matter that comes within the area of corporate affairs and management and is a
corporate controversy in contemplation of the Corporation Code. (Wesleyan
University v Maglaya, 2017)
1. Who are corporate officers? Those officers that are specifically
enumerated in the by-laws.
2. What if the by-laws are silent? Who are the corporate officers of the
corporation?
a. Those mentioned in the Revised Corporation Code, i.e.,
President, Secretary, and Trasurer.
g. Inspection of corporate books/records
i. Even though Belo Medical Group filed a case for interpleader the controversy
was actually an intra-corporate dispute.
ii. Applying the relationship test, this Court notes that both Belo and Santos are
named shareholders in Belo Medical Group's Articles of Incorporation and
General Information Sheet for 2007. The conflict is clearly intra-corporate as it
involves two (2) shareholders although the ownership of stocks of one
stockholder is questioned. Unless Santos is adjudged as a stranger to the
 corporation because he holds his shares only in trust for Belo, then both he
and Belo, based on official records, are stockholders of the corporation.
iii. Further, applying the nature of the controversy test, this is an intra-corporate
dispute. The Complaint for interpleader seeks a determination of the true owner
of the shares of stock registered in Santos' name. Ultimately, however, the goal
is to stop Santos from inspecting corporate books. This goal is so apparent that,
even if Santos is declared the true owner of the shares of stock upon completion
of the interpleader case, Belo Medical Group still seeks his disqualification from
inspecting the corporate books based on bad faith. Therefore, the controversy
shifts from a mere question of ownership over movable property to the exercise
of a registered stockholder's proprietary right to inspect corporate books. (Belo
Medical Group v Jose Santos and Vicky Belo, 2017)
h. Refund of price paid for stock ownership
i. This case is an intra-corporate dispute, over which the Regional Trial Court has
jurisdiction.
ii. Applying the relationship test, the dispute involved the corporation and its
shareholders. The dispute was between the corporation, SBGCCI, and its
shareholders, Villareal and Filart.
iii. Applying the nature of controversy test, Villareal and Filart's right to a refund
of the value of their shares was based on SBGCCI and UIGDC's alleged
failure to abide by their representations in their prospectus. Specifically,
Villareal and Filart alleged in their letter-complaint that the world-class golf
course that was promised to them when they purchased shares did not
materialize. This is an intra-corporate matter that is under the designated
Regional Trial Court's jurisdiction. It involves the determination of a
shareholder's rights under the Corporation Code or other intra-corporate rules
when the corporation or association fails to fulfill its obligations. (SEC v Subic
Bay Golf, 2015)
i. In intra-corporate controversies, all orders of the trial court are immediately executory.
i. All decisions and orders issued under these Rules shall immediately be
executory except the awards for moral damages, exemplary damages and
attorney’s fees, if any. No appeal or petition taken therefrom shall stay the
enforcement or implementation of the decision or order, unless restrained by an
appellate court. (Oca vs. Custodio, 2017)
1. An interlocutory order and a final order are immediately executory.
j. SUMMARY!
i. Always apply the two tests. DO NOT BE SATISFIED WITH ONE OR THE
OTHER!
1. Relationship test – the usual disputes would involve (1) the corporation
and the stockholders, directors, and corporate officers, OR (2) among the
stockholders themselves!
a. A transferee of shares is a stranger to the corporation, unless the
corporation will register the shares under his name.
2. Nature of the controversy test – will the dispute require (1) the
application of the provisions of the Revised Corporation Code or (2) only
the application of the provisions of the Civil Code?
a. Examples of disputes that only require the application of the
Civil Code:
i. Vendor-vendee relationship, i.e., breach of contract of
sale of shares
ii. Reconveyance of shares, i.e., the true owner is seeking
the recovery of his shares that were unduly registered in
the name of another person.
Derivative suit – 2
1. Requisites of Derivative Suit: (SECANN)
a. The party bringing the suit should be a Shareholder as of the time of the act or
transaction complained of
b. The party has tried to Exhaust intra-corporate remedies, i.e., he has made a demand on
the board for the appropriate relief and the board failed or refused to heed his plea
c. The Cause of action actually devolves on the Corporation, the wrongdoing or harm
having been, or being caused to the corporation and not to the particular stockholder
bringing the suit.
d. No Appraisal right is available for the act/s complained of;
e. The stockholder or member must bring an action in the Name of the corporation, and
not in his own name; and
f. The suit is not a Nuisance or harassment suit. (Ching v Subic Bay Golf and Country Club,
2014; Villamor v Umale, 2014)
2. “The party bringing the suit should be a Shareholder as of the time of the act or transaction
complained of”
a. This is the MOST IMPORTANT requisite of derivative suit.
b. The party who filed the suit on behalf of the corporation must be a REGISTERED
STOCKHOLDER at the time the act or transaction happened.
i. If he was REGISTERED AS A STOCKHOLDER AFTER the act or transaction
happened, the derivative suit will fail.
3. “The party has tried to Exhaust intra-corporate remedies”
a. General Rule:
i. It is required that the stockholder “should have exerted all reasonable efforts to
exhaust all remedies available under the articles of incorporation, by-laws, laws
or rules governing the corporation or partnership to obtain the relief he desires.
(Forest Hills Golf v Fil-Estate Properties, 2016)
b. Exception:
i. While the complaining stockholder must satisfactorily show that he has
exhausted all means to redress his grievances within the corporation, such
remedy is no longer necessary where the corporation itself is under the
COMPLETE CONTROL of the person AGAINST WHOM the suit is being
filed. The reason is obvious: a demand upon the board to institute an action and
prosecute the same effectively would have been useless. (Hi-Yield Realty v CA,
2009)
1. EX: The derivative suit was against the board of directors of the
corporation. In such case, exhaustion of intra-corporate remedies is not
necessary.
4. “The stockholder or member must bring an action in the Name of the corporation, and not in his
own name”
a. A derivative suit is an action brought by minority shareholders in the name of the
corporation to redress wrongs committed against the corporation, for which the directors
refuse to sue. (Western Institute of Technology v Salas, 1997)
b. In derivative suits, the real party-in-interest is the corporation, and the suing
stockholder is a mere nominal party. (Villamor v Umale, 2014)
c. If the derivative suit was filed in the name of the stockholders, the suit can be dismissed
on the ground of failure to state cause of action.
i. Why? Because the cause of action belonged to the corporation, not the
stockholders.
5. “No Appraisal right is available for the act/s complained of”
a. When is appraisal right available?
i. In case an amendment to the articles of incorporation has the effect of changing
or restricting the rights of any stockholder or class of shares, or of authorizing
 preferences in any respect superior to those of outstanding shares of any class, or
of extending or shortening the term of corporate existence;
ii. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of
all or substantially all of the corporate property and assets as provided in this
Code;
iii. In case of merger or consolidation; and
iv. In case of investment of corporate funds for any purpose other than the primary
purpose of the corporation. (Sec. 80)
b. If appraisal right is not available, i.e., the corporate act was not covered by Sec. 80, this
requisite was complied with.
4. “The suit is not a Nuisance or harassment suit.”
a. Failure to specifically allege the fraudulent acts in intra-corporate controversies is
indicative of a nuisance or harassment suit and may be dismissed motu proprio.
i. This is because fraud in intra-corporate controversies must be based on “devises
and schemes employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which
may be detrimental to the interest of the public and/or of the stockholders,
partners, or members of any corporation, partnership, or association. (Guy v
Guy, 2012)
5. SUMMARY!
a. Take note of these two (2) requisites: (1) The party bringing the suit should be a
Shareholder as of the time of the act or transaction complained of, and (2) The
stockholder or member must bring an action in the Name of the corporation, and not in
his own name.
i. Usually, the filing of the derivative suit becomes improper because of the
absence of any of these two (2) requisites!
Pre-emptive right – 2
1. All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective shareholdings, unless such
right is denied by the articles of incorporation or an amendment thereto: Provided, That such
preemptive right shall not extend to shares issued in compliance with laws requiring stock
offerings or minimum stock ownership by the public; or to shares issued in good faith with the
approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock in
exchange for property needed for corporate purposes or in payment of previously contracted
debt. (Sec. 38)
a. “Subscribe to all issues or disposition of shares”
i. “Subscribe to all issues or disposition of shares” means the shares must be issued
for the first time.
1. EX: The authorized capital stock is P10Million. P5Million was subscribed
at the time of the incorporation. After 3 years, the corporation authorized
the issuance of the remaining P5Million. Will the shareholders have the
right to subscribe to these new “issuances”? Yes, as provided by Sec. 38.
2. EX: The authorized capital stock is P10Million. P10Million was
subscribed at the time of the incorporation. After 5 months, P5Million
worth of shares were bought by the corporation, which formed part of its
treasury shares. After 3 years, the corporation sought to sell the treasury
shares. Will the existing shareholders have the right to subscribe to these
treasure shares? No, since the sale of treasury shares shall not be
considered as “issuances or dispositions” of shares. This is just a re-sale
of shares by the corporation.
b. When can the right of preemption be denied:
i. Denied by the Articles of Incorporation;
ii. Shares issued in compliance with laws requiring stock offerings or minimum
stock ownership by the public; and
iii. Shares issued in good faith with the approval of the stockholders representing
two-thirds (2/3) of the outstanding capital stock in exchange for property
needed for corporate purposes or in payment of previously contracted debt.
1. NOTE: A denial of pre-emptive right in the by-laws is INEFFECTIVE.
c. SUMMARY!
i. Remember the meaning of “issues or disposition of shares.”
Mergers and consolidations - 4
1. Requisites for a valid merger
a. Vote by the board
i. At least majority of the board of directors of EACH corporation (the surviving
and the absorbed corporations) (Sec. 76)
b. Vote by the stockholders
i. Stockholders representing at least 2/3 of outstanding capital stock of EACH
corporation (the surviving and the absorbed corporations) (Sec. 76)
1. NOTE: The non-voting shares, such as the non-voting preferred shares,
shall have the right to vote in case of merger or consolidation. (Sec. 6)
c. Certificate of merger that is issued by the SEC
i. If the Commission is satisfied that the merger or consolidation of the
corporations concerned is consistent with the provisions of this Code and
existing laws, it shall issue a certificate approving the articles and plan or merger
or of consolidation, at which time the merger or consolidation shall be effective.
(Sec. 78)
1. NOTE: If the certificate was not issued by the SEC, there was no merger.
2. Effect of merger
a. The surviving corporation shall possess all the rights, privileges, properties, and
receivables due of the absorbed corporation.
b. The surviving corporation likewise acquires all the liabilities and obligations of the
absorbed corporation as if it had itself incurred these liabilities or obligations.
i. Thus, the surviving corporation becomes bound by the employment contracts
entered into by the absorbed corporation.
ii. These employment contracts are not terminated. They subsist unless their
termination is allowed by law. Thus, the absorbed corporation’s employees are
not impliedly dismissed. They will become part of the manpower complement of
the surviving corporation. (Philippine Geothermal v. UNOCAL Philippines,
2016)
1. NOTE: This is the possible Bar question for merger.
2. TANGENT: They can only be dismissed from employment, if the
surviving corporation can prove that there was redundancy.
3. SUMMARY!
a. In mergers under Sec. 75-79 of the Revised Corporation Code, the surviving corporation
assumes ALL THE LIABILITIES incurred by the absorbed corporation, as if the
surviving corporation had itself incurred these liabilities.
Securities Regulation Code

What are securities?

1. "Securities" are shares, participation or interests in a corporation or in a commercial enterprise or
profit-making venture and evidenced by a certificate, contract, instruments, whether written or
electronic in character. It includes:
a. Shares of stocks, bonds, debentures, notes, evidences of indebtedness, asset-backed
securities;
b. Investment contracts, certificates of interest or participation in a profit sharing
agreement, certifies of deposit for a future subscription;
c. Fractional undivided interests in oil, gas or other mineral rights;
d. Derivatives like option and warrants;
e. Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments
f. Proprietary or nonproprietary membership certificates in corporations; and
g. Other instruments as may in the future be determined by the Commission.
2. Example of “bonds, debentures, and notes”
a. An example that comes to mind would be the long-term commercial papers that large
companies, like San Miguel Corporation (SMC), offer to the public for raising funds that
it needs for expansion. When an investor buys these papers or securities, he invests his
money, together with others, in SMC with an expectation of profits arising from the
efforts of those who manage and operate that company. SMC has to register these
commercial papers with the SEC before offering them to investors. (SEC v.
Prosperity.com, Inc., 2012)
3. What does the phrase “investment contracts” mean?
a. The United States Supreme Court held in Securities and Exchange Commission v. W.J.
Howey Co. that, for an investment contract to exist, the following elements, referred to as
the Howey test must concur:
i. a contract, transaction, or scheme;
ii. an investment of money;
iii. investment is made in a common enterprise;
iv. expectation of profits; and
v. profits arising primarily from the efforts of others. (SEC v. Prosperity.com, Inc.,
2012)
b. A network marketing scheme is not an investment contract.
i. Network marketing is a scheme adopted by companies for getting people to
buy their products outside the usual retail system where products are bought
from the store’s shelf.
1. Under this scheme, adopted by most health product distributors, the
buyer can become a down-line seller.
2. The latter earns commissions from purchases made by new buyers
whom he refers to the person who sold the product to him. The
network goes down the line where the orders to buy come.
ii. This scheme shall not be considered as an investment contract, because (1) there
was no investment in a common enterprise, and (2) the profits that the down-line
seller will make arose primarily because of his efforts, i.e., he will offer the
product to other people, and not because of the efforts of other people.
4. EX: In order to attract investors, a business corporation offered to any person who invests at least
P1Million a “promissory note,” where it obligated itself to pay the holder a 50% return on
investment within one month. The business corporation did not register this investment scheme
with the SEC. Did the business corporation violate the SRC?
a. Yes, the business corporation violated the SRC.
 b. The term “securities” under the SRC, is defined as shares, participation or interests in a
corporation or in a commercial enterprise or profit-making venture and evidenced by a
certificate, contract, instruments, whether written or electronic in character. It includes
evidences of indebtedness. Further, the SRC provides that securities shall not be sold or
offered for sale or distribution within the Philippines, without a registration statement
duly filed with and approved by the Commission.
c. Here, the business corporation violated the SRC, because the “promissory note” was an
evidence of indebtedness that was offered to the public as an interest in the profits of
the business corporation. Thus, it should have been registered first with the SEC, before
it was offered to the public.
5. Importance of determining what is and what is not a security
a. If it is not a security, it does not have to be registered with the SEC.
i. We don’t have to dig deeper.
b. If it is a security, registration with the SEC may be required.
i. Those offered to the public (offered to twenty or more persons within a twelve-
month period) must be registered.
1. Securities shall not be sold or offered for sale or distribution within the
Philippines, without a registration statement duly filed with and
approved by the Commission. Prior to such sale, information on the
securities, in such form and with such substance as the Commission may
prescribe, shall be made available to each prospective purchaser. (Sec. 8.
1, SRC)
ii. Those NOT offered to the public do not have to be registered.
1. The sale of securities by an issuer to fewer than twenty (20) persons in
the Philippines during any twelve-month period are deemed EXEMPT
TRANSACTIONS. (Sec. 10.1(k), SRC)
Tender offer

1. Concept
a. “Tender offer” means a publicly announced intention by a person acting alone or in
concert with other persons to acquire outstanding equity securities of a public company
as defined in SRC Rule 3, or outstanding equity securities of an associate or related
company of such public company which controls the said public company. (Cemco
Holdings v National Life Insurance Company, 2007)
2. Coverage
a. Any person or group of persons acting in concert that intends to acquire directly or
indirectly thirty five percent (35%) or more of equity shares in a public company in one
or more transactions within a period of twelve (12) months shall disclose such intention
and contemporaneously make a tender offer for the percentage sought to all holders of
such class within the said period.
i. NOTE: directly or indirectly + 35% or more + public company + within 12
months
b. If any acquisition of less than thirty five percent (35%) would result in ownership of
over fifty percent (50%) of the total outstanding equity securities of a public company,
the acquirer shall be required to make a tender offer under this Rule for all the
outstanding equity securities to all remaining stockholders of the said company at a price
supported by a fairness opinion provided by an independent financial advisor or
equivalent third party. (Sec. 2, Rule 19, SRC Implementing Rules and Regulations)
i. NOTE: directly or indirectly + Less than 35% + over 50% + public company
3. Exemptions from the Mandatory Tender Offer Requirement

a. Unless the acquisition of securities is intended to circumvent or defeat the objectives of

the tender offer rules, the mandatory tender offer requirement shall not apply to the
following:
i. Any purchase of shares from the unissued capital stock provided the acquisition
will not result to a fifty percent (50%) or more ownership of shares by the
purchaser;
ii. Any purchase of shares from an increase in authorized capital stock;
iii. Purchase in connection with foreclosure proceedings involving a duly
constituted pledge or security arrangement where the acquisition is made by the
debtor or creditor;
iv. Purchases in connection with a privatization undertaken by the government of
the Philippines;
v. Purchases in connection with corporate rehabilitation under court supervision;
vi. Purchases at the open market at the prevailing market price; and
vii. Merger or consolidation. (Rule 19.3, SRC Implementing Rules and Regulations)
1. “Purchases at the open market at the prevailing market price” means
purchases made in the Philippine Stock Exchange.
4. “Intends to acquire directly or indirectly”
a. The coverage of the mandatory tender offer rule covers not only direct acquisition but
also indirect acquisition.
i. Thus, it includes acquisitions of corporations that are stockholders of a public
company. (Cemco Holdings v National Life Insurance Company, 2007)
1. EX: ABC Corporation has assets in the amount of Php1Billion. It has
1,000 stockholders and each stockholder holds 100 shares at least. One of
ABC’s stockholders is YYY Corporation. YYY owns 35% of ABC
Corporation’s total issued shares. On August 1, 2023, Mr. A acquired
YYY Corporation. Is Mr. A required to make a tender offer?
 a. Yes, because any person or group of persons acting in concert
that intends to acquire directly or indirectly thirty five percent
(35%) or more of equity shares in a public company in one or
more transactions within a period of twelve (12) months shall
disclose such intention and contemporaneously make a tender
offer.
i. NOTE: There was an “indirect” acquisition in this case,
because the shares of ABC were not directly acquired by
Mr. A.
ii. Instead, Mr. A acquired YYY, which was the owner of
35% of ABC’s total issued shares.
5. “Public company”
a. Requisites:
i. A corporation with at least Php50,000,000.00 in assets;
ii. With at least 200 shareholders; and
iii. And at least 200 shareholders have 100 shares. (Sec. 19, SRC)
b. If one is absent, it is private company. Thus, the tender offer provisions will not apply.
6. The acquirer in such a tender offer shall be required to accept ALL securities tendered. (Rule
19.2, SRC Implementing Rules)
7. No bidding involved in tender offer
a. The offeror or the buyer in an issue tender offer transaction proposes to buy or acquire, at
the STATED PRICE AND GIVEN TERMS, the shares of stock from the stockholders
who in turn shall simply accept or reject the tender to effect the sale. No bidding is
involved. (Osmeña III v SEC, 2007)
8. The price and the terms must be the same for ALL the shares that were tendered.
a. Where any person varies the terms of a tender offer or request or invitation for tenders
before the expiration thereof by increasing the consideration offered to holders of such
securities, such person shall pay the increased consideration to each security holder
whose securities are taken up and paid for whether or not such securities have been
taken up by such person before the variation of the tender offer or request or invitation.
(Sec. 19.1(d), SRC)
i. EX: Mr. A made a mandatory tender offer to all the existing shareholders of ABC
Corp. Mr. A’s initial offer was Php100 per share. Mr. B accepted the offer of Mr.
A, so tendered his shares to him. After three days, Mr. A bought the shares of
Mr. C for the price of Php150 per share. Should Mr. A pay Mr. B once again?
ii. Yes, Mr. A must pay Mr. B again.
iii. Under the Securities Regulation Code, in case of variation of the price of the
tender offer, the acquirer must pay the INCREASE IN THE PRICE to those
shareholders who tendered their shares BEFORE the variation of the price of the
tender offer was made.
iv. Here, Mr. A must pay Mr. B again, because he varied the terms of the tender
offer when he bought the shares of Mr. C at Php150 per share, which was more
than the initial tender offer of Php100 per share. Thus, Mr. A must pay Mr. B an
additional Php50 per share.
Insider trading

1. What does “insider” mean?

a. The issuer;
b. A director or officer (or any person performing similar functions) of, or a person
controlling the issuer;
c. A person whose relationship or former relationship to the issuer gives or gave him access
to material information about the issuer or the security that is not generally available to
the public;
d. A government employee, director, or officer of an exchange, clearing agency and/or self-
regulatory organization who has access to material information about an issuer or a
security that is not generally available to the public; or
e. A person who learns such information by a communication from any forgoing insiders.
2. What does “material nonpublic information” (MNI) mean?
a. NOTE: The phrase “material nonpublic information” is also worded as “material
information about an issuer or a security that is not generally available to the public.”
b. For purposes of this Section, information is "material nonpublic" if: (a) It has not been
generally disclosed to the public and would likely affect the market price of the
security after being disseminated to the public and the lapse of a reasonable time for the
market to absorb the information; or (b) would be considered by a reasonable person
important under the circumstances in determining his course of action whether to buy,
sell or hold a security. (Sec. 27.2, SRC)
3. What does “insider trading” mean?
a. It shall be unlawful for an insider to sell or buy a security of the issuer, while in
possession of material information with respect to the issuer or the security that is not
generally available to the public, unless:
i. The insider proves that the information was not gained from such relationship;
or
ii. If the other party selling to or buying from the insider (or his agent) is identified,
the insider proves: (i) that he disclosed the information to the other party, or (ii)
that he had reason to believe that the other party otherwise is also in possession
of the information.
b. A purchase or sale of a security of the issuer made by an insider defined in Subsection
3.8, or such insider’s spouse or relatives by affinity or consanguinity within the second
degree, legitimate or common-law, shall be presumed to have been effected while in
possession of material non-public information if transacted after such information came
into existence but prior to dissemination of such information to the public and the
lapse of a reasonable time for the market to absorb such information:
i. Provided, however, That this presumption shall be rebutted upon a showing by
the purchaser or seller that he was not aware of the material non-public
information at the time of the purchase or sale. (Sec. 27.1, SRC)
4. SUMMARY!
a. Remember the requisites of insider trading:
i. Insider
1. Issuer, director or officer of the issuer
2. Has a relationship to the issuer, giving him access to MNI
a. EX: spouse of issuer
3. Government employee, director of officer of exchange, has access to MNI
4. Any person who learns the MNI from any of the foregoing
a. EX: driver of the issuer heard the MNI during their travel.
ii. Material nonpublic information (MNI)
1. Not generally disclosed to the public + affect price after dissemination
iii. Buys or sells securities of the issuer
Foreign Investments Act

“Doing business” in the Philippines

1. The phrase "doing business" shall include:
a. soliciting orders,
b. service contracts,
c. opening offices, whether called "liaison" offices or branches;
d. appointing representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totaling one hundred eighty
(180) days or more;
e. participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and
f. any other act or acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works (CONTINUITY TEST), or
g. the exercise of some of the functions normally incident to, and in progressive prosecution
of, commercial gain or of the purpose and object of the business organization
(SUBSTANCE TEST):
2. Provided, however, That the phrase "doing business: shall not be deemed to include
a. mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or
b. the exercise of rights as such investor; nor
c. having a nominee director or officer to represent its interests in such corporation; nor
d. appointing a representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account.
3. Soliciting orders
a. EX: Advertising its products for sale in the Philippines
4. Service contracts
a. EX: Entering into construction agreements with domestic real property developers.
5. Opening officers, whether called “liason” offices or branches
a. By its own admission, Saudia, while a foreign corporation, has a Philippine office.
b. Section 3(d) of Republic Act No. 7042, otherwise known as the Foreign Investments Act
of 1991, provides the following: The phrase “doing business” shall include . . . opening
offices, whether called “liaison” offices or branches; . . . and any other act or acts that
imply a continuity of commercial dealings or arrangements and contemplate to that
extent the performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of commercial gain or of the purpose and
object of the business organization.
c. A plain application of Section 3(d) of the Foreign Investments Act leads to no other
conclusion than that Saudia is a foreign corporation doing business in the Philippines. As
such, Saudia may be sued in the Philippines and is subject to the jurisdiction of
Philippine tribunals. (Saudi Arabian Airlines (Saudia) vs. Rebesencio, 2015)
6. Appointing representatives or distributors under the control of the foreign corporation v.
Appointing representatives or distributors transacting in their own name and own account
a. While Section 3(d) above states that "appointing a representative or distributor domiciled
in the Philippines which transacts business in its own name and for its own account" is
not considered as "doing business," the Implementing Rules and Regulations of
Republic Act No. 7042 clarifies that "doing business" includes "appointing
representatives or distributors, operating under full control of the foreign corporation,
domiciled in the Philippines or who in any calendar year stay in the country for a period
or periods totaling one hundred eighty (180) days or more[.]”
b. An offline carrier is "any foreign air carrier not certificated by the [Civil Aeronautics]
Board, but who maintains office or who has designated or appointed agents or
employees in the Philippines, who sells or offers for sale any air transportation in
 behalf of said foreign air carrier and/or others, or negotiate for, or holds itself out by
solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or arranges
for such transportation."
c. Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the
Philippines. (Air Canada v CIR, 2016, Leonen)
i. NOTE: Even if the ticket sales agent act under its own name and under its own
account, the offline carrier is still deemed doing business in the Philippines,
because the ticket sales agent acts under the full control of the offline carrier.
7. Participating in the management, supervision, or control of any domestic business v.
Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to
do business, or the exercise of rights as such investor, or having a nominee director or officer to
represent its interests in such corporation
a. A foreign corporation that invests in a domestic corporation, and has a nominee director
or officer in the domestic corporation does NOT conduct business in the Philippines.
b. It must be proven that the foreign corporation MANAGES the domestic corporation,
before it can be considered as conducting business in the Philippines.
8. Catch-all tests
a. Continuity Test - any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or
b. Substance Test - the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business
organization. (Agilent Technologies v Integrated Silicon, 2004; Section 3(d), FIA)
9. Foreign Companies entering into Reinsurance contracts abroad; Not Doing Business
a. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance
were made through an international insurance broker, and not through any entity or
means remotely connected with the Philippines. Moreover, there is authority to the effect
that a reinsurance company is not doing business in a certain state merely because the
property or lives which are insured by the original insurer company are located in that
state. The reason for this is that a contract of reinsurance is generally a separate and
distinct arrangement from the original contract of insurance, whose contracted risk is
insured in the reinsurance agreement. Hence, the original insured has generally no
interest in the contract of reinsurance. (Avon Insurance PLC v CA, 1997)
i. NOTE: In short, a foreign reinsurer is not doing business in the Philippines
because 1) the reinsurance contract was entered into abroad, and 2) reinsurance
contracts are separate and distinct from the original insurance contracts.
ii. TANGENT: A contract of reinsurance is one by which an insurer (the "direct
insurer" or "cedant") procures a third person (the "reinsurer") to insure him
against loss or liability by reason of such original insurance. (Communication
and Information Systems Corporation v. Mark Sensing, 2017)
Meaning of capital; Grandfather rule
1. Nationality of corporations
a. Place of Incorporation test; Entity test
i. It provides that the nationality of the corporation is determined by the country
where it was incorporated.
ii. This is the general rule.
b. Control test; Aggregate test
i. It provides that the nationality of the corporation is determined by the
nationality of its stockholders.
ii. This is the exception.
iii. The control test applies:
1. When there is a war, as regards the public enemy
2. For nationalized or partly nationalized industries, as provided under the
Constitution and the Foreign Investments Act.
a. For nationalized or partly nationalized industries, the “capital”
of the business must be reserved to Filipinos.
iv. What’s the meaning of “capital”
1. The Court upheld the validity of SEC-MC No. 8, which provides that
“the required percentage of Filipino ownership shall be applied to
BOTH:
a. the total number of outstanding shares of stock entitled to vote
in the election of directors, and
b. the total number of outstanding shares of stock, whether or not
entitled to vote in the election of directors.” (Roy v. Herbosa)
i. EX: ABC Corporation is a public utility corporation in
the Philippines. It has issued (1) 1,000,000 common
shares, (2) 1,000,000 voting preferred shares, and (3)
1,000,000 non-voting preferred shares. Under Sec. 11,
Art. XII of the Constitution, corporations at least sixty
(60) per centum of whose capital is owned by Filipino
citizens can operate public utilities in the Philippines.
Following the formula in Roy v. Herbosa, compute the
required percentage of Filipino ownership for ABC
Corporation’s shares.
1. Total number of outstanding shares of stock
entitled to vote
a. ABC Corporation has 2,000,000 shares
entitled to vote, i.e., common shares and
voting preferred shares. Thus, 1,200,000
common shares and voting preferred
shares must be owned by Filipinos.
i. 800,000 common shares can be
owned by foreigners, as long as
the remaining 200,000 common
shares and 1,000,000 voting
preferred shares are owned by
Filipinos.
2. Total number of outstanding shares of stock,
whether or not entitled to vote
a. ABC Corporation has 3,000,000 shares,
i.e., common shares, voting preferred
shares, and non-voting preferred shares.
Thus, 1,800,000 common shares, voting
 preferred shares, and non-voting
preferred shares must be owned by
Filipinos.
i. 1,200,000 shares can be owned
by foreigners, as long as the
remaining 1,800,000 shares are
owned by Filipinos.
3. SUMMARY!
a. Applying the two tests:
i. 1,200,000 voting shares must be
owned by Filipinos, AND
ii. 1,800,000 shares, whether voting
or not, must be owned by
Filipinos.
b. If any of the tests would not complied
with, Sec. 11, Art. XII of the Constitution
would be violated.
2. What does “outstanding shares of stock” mean?
a. It means the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether
or not fully or partially paid, except treasury shares. (Sec. 173,
Revised Corporation Code)
b. NOTE: Always EXCLUDE the treasury shares in the computing
the percentage of Filipino ownership!
v. Grandfather rule; Beneficial Ownership test
1. The grandfather rule applies only when the Control Test is first complied
with. (Narra Nickel Mining v Redmont Consolidated Mines, 2015)
a. NOTE: To determine if the control test was complied with, the
formula in Roy v. Herbosa must be applied.
i. Applying the control test, if the corporation’s Filipino
equity falls below the threshold 60% requirement, the
corporation is immediately considered foreign-owned.
There is no need to resort to the grandfather rule.
ii. On the other hand, a corporation that complies with the
60% requirement can still be considered foreign-owned
if there is a doubt as to who has the beneficial
ownership and control of the corporation.
1. In that instance, there is a need to further inquire
into the ownership of the corporate shareholders
in both the investing and investee corporation.
2. Hence, the grandfather rule applies when there is DOUBT as to the
BENEFICIAL OWNERSHIP AND CONTROL of the capital of the
corporation.
a. “Doubt” refers to various indicia that the “beneficial ownership
and control” of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders.
b. The following are indicators of doubt:
i. Foreign investors provide practically all the funds;
ii. Foreign investors undertake to provide practically all the
technological support for the joint venture;
iii. Foreign investors, while being minority stockholders,
manage the company and prepare all economic viability
studies.
 c. “Beneficial owner” means any person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares voting power and/or
investment returns or power. (Roy v Herbosa, 2016)
3. ILLUSTRATION:
a. ABC Corporation is a public utility corporation. It has 2,000,000
voting shares, and 1,000,000 non-voting shares. 1,500,000 voting
shares are owned by DEF Corporation, a corporation that was
incorporated under the Philippine laws, while the remaining
500,000 voting shares are owned by foreign individuals. Further,
500,000 non-voting shares are owned by XYZ Corporation, a
corporation that was incorporated under the Philippine laws,
while the remaining 500,000 non-voting shares are owned by
foreign individuals. Upon investigation, the SEC found out that
DEF Corporation is fully-owned by Spaniards, and XYZ
Corporation is fully-owned by South Koreans. Is ABC
Corporation Filipino-owned?
i. No, ABC Corporation is not Filipino-owned
ii. Under the Constitution, corporations at least sixty (60)
per centum of whose capital is owned by Filipino
citizens can operate public utilities in the Philippines..
Under the control test, the total number of outstanding
shares of stock entitled to vote in the election of
directors, and the total number of outstanding shares of
stock, whether or not entitled to vote in the election of
directors must be owned by Filipinos. Meanwhile, the
grandfather rule applies when, after complying with the
control test, there is still a “doubt” as to the beneficial
ownership and control of the capital of the corporation.
iii. Here, ABC Corporation is not Filipino-owned, because
applying the grandfather rule, it was actually owned by
foreigners.
1. The control test was complied with since (1)
1,500,000 out of the 2,000,000 voting shares were
owned by DEF Corporation, a corporation
organized under the Philippine laws, and (2)
2,000,000 out of the 3,000,000 total shares were
owned by DEF Corporation and XYZ
Corporation, corporations organized under the
Philippines.
2. However, upon the investigation of SEC, there
was a doubt as to the beneficial ownership and
control of DEF and XYZ Corporation. Applying
the grandfather rule, ALL of the shares of DEF
and XYZ Corporation are owned by foreigners.
Thus, 100% of ABC Corporation was actually
owned by foreigners.
2. SUMMARY!
a. If the industry is not a nationalized or partly nationalized industry, apply the place of
incorporation test, i.e., if it was incorporated under the Philippine laws, it is a Filipino
corporation.
b. If the industry is a nationalized or partly nationalized industry, apply the control test, i.e.,
(1) the total outstanding shares entitled to vote and (2) the total outstanding shares,
whether or not entitled to vote, must be reserved to Filipinos.
c. If the control test was complied with and there is no “doubt,” then the corporation is
owned by Filipinos.
d. If the control test was complied with, but there is a “doubt,” we have to apply the
grandfather rule.
i. If based on the grandfather rule, (1) the total outstanding shares entitled to vote
and (2) the total outstanding shares, whether or not entitled to vote, are still
reserved to Filipinos, then the corporation is owned by Filipinos.
ii. If based on the grandfather rule, (1) the total outstanding shares entitled to vote
and (2) the total outstanding shares, whether or not entitled to vote, are NOT
reserved to Filipinos, then the corporation is not owned by Filipinos, in violation
of the law.
Insurance Law

Incontestability clause – 4
1. After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two (2) years from the date of its issue or of its
last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by
reason of the fraudulent concealment or misrepresentation of the insured or his agent. (Sec. 48,
IC)
2. “During the lifetime of the insured”
a. The life insurance policy was issued in November 2013. The insured died in April 2015.
Immediately, the beneficiaries of the insured filed an insurance claim with the insurance
company. On September 2015, or within the 2-year period from the issuance of the
policy, the insurance company informed the beneficiaries that their claim is denied, and
the policy will be revoked, because the insured made misrepresentations and
concealments in his insurance application. Did the insurance company err when it denied
the claims and revoked the insurance policy?
i. Yes, the insurance company erred.
ii. The Court held that if the insured dies within the two-year contestability
period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation. (Sun
Life of Canada v. Sibya, 2016)
1. NOTE: In short, upon the DEATH of the insured, the insurance
company LOSES its right to rescind the policy, whether the 2-year period
has expired or not.
3. SUMMARY!
a. Requisites for a valid rescission of a life insurance policy by reason of concealment or
misrepresentation
i. The insurer must revoke the life insurance policy DURING THE LIFETIME OF
THE INSURED; and
ii. The insurer must revoke it WITHIN 2 YEARS FROM ISSUANCE OR LAST
REINSTATMENT.
1. NOTE: If one is absent, the insurer cannot revoke it anymore. It doesn’t
matter how serious the concealment or misrepresentation may be.
Suicide in life insurance cases – 3
1. When can the insurer of a life insurance policy be liable for the suicide of the insured?
a. When suicide is committed AFTER THE POLICY HAS BEEN IN FORCE FOR 2 YEARS
from the date of its issuance or last reinstatement, unless the policy provides a shorter
period; and
b. When suicide is committed in a STATE OF INSANITY, REGARDLESS OF THE DATE of
commission. (Sec. 183)
2. SUMMARY!
a. Requisites for a valid denial of life insurance claims in case of suicide of the insured
i. The insured must be SANE; and
ii. The insured committed suicide WITHIN 2 YEARS FROM ISSUANCE OR LAST
REINSTATEMENT.
1. NOTE: If one is absent, the insurer cannot deny the insurance claims of
the beneficiaries of the insured who committed suicide.
Double insurance – 2
1. Requisites for double insurance
a. Same Insured
b. Two or more insurers
c. Same subject
d. Same insurable interest
2. EXAMPLES:
a. Presence of double insurance
i. Mr. A insured his 3-storey house with ABC Insurance Co. and DEF Insurance Co.
1. Same insured – Same person (Mr. A) was insured
2. Two or more insurers – The same person (Mr. A) was insured by two
insurance companies (ABC and DEF)
3. Same subject – The same person (Mr. A) insured the same house (3-
storey house) with the two insurance companies (ABC and DEF)
4. Same insurable interest – The insurable interest of Mr. A over the house
is the same (as an owner of “his” house)
b. Absence of double insurance
i. Samson Manufacturing, Inc. insured its own goods with Delilah Insurance for
Php 2,000,000.00. The same goods were insured by Alibaba Shipping Co. with
Assured Corp. for the same amount pursuant to its contract of carriage with
Samson Manufacturing, Inc. Both policies warranted that no other insurance
exists, and in case another insurance does exist, such would not void either
policy, but in no case should the claim exceed the total amount of Php
2,000,000.00 at the time of loss. Is this a case of double insurance? Explain briefly.
(2022 Bar Examinations)
1. Same insured – Different persons (Samson and Alibaba) were insured
2. Two or more insurers – Delilah and Assured were the insurance
companies
3. Same subject – Samson and Alibaba insured the same goods with
Delilah and Assured
4. Same insurable interest – Both Samson and Alibaba have insurable
interests over the goods, since both of them will suffer in case the goods
were lost. (Lalican v Insular Life, 2009) However, the insurable interests
of Samson and Alibaba are different. Samson insured the goods as the
owner, while Alibaba insured the goods as the common carrier.
a. Thus, there was no double insurance, because there were (1)
different insured persons and (2) different insurable interests.
3. Double insurance is not the same as over-insurance.
a. Over-insurance occurs when amount of insurance exceeds the value of the interest
insured.
4. Double insurance can happen without over-insurance.
a. EX: Mr. A insured his car with ABC Insurance Co. and DEF Insurance Co. The car was
valued at P10Million. The amount of the insurance policy with ABC was P4Million, while
the amount of the insurance policy with DEF was P5Million.
i. Was there double insurance? Yes.
1. Same insured – Mr. A
2. Two or more insurers – ABC and DEF
3. Same subject – the same car
4. Same insurable interest – Mr. A insured the car as its owner
ii. Was there over-insurance? No.
1. The TOTAL amount of insurance was P9Million. It did not exceed the
value of the interest insured, which was P10Million.
5. Over-insurance can happen without double insurance.
a. EX: Mr. A insured his car with ABC Insurance Co. The car was valued at P10Million. The
amount of the insurance policy with ABC was P11Million.
i. Was there double insurance? No.
1. Same insured – Mr. A
2. Two or more insurers – There was only one insurer (ABC)
3. Same subject – the same car
4. Same insurable interest – Mr. A insured the car as its owner
a. There’s no double insurance, since there’s only one insurer.
ii. Was there over-insurance? Yes.
1. The TOTAL amount of insurance was P11Million. It exceeded the value
of the interest insured, which was P10Million.
Insurable interest in property - 2
1. A person has insurable interest over a property if he will derive benefit from the preservation of
the same, and will suffer pecuniary loss from the destruction/injury/damage of the same.
(Lalican v Insular Life, 2009)
a. To be more specific, an insurable interest in property may consist in:
i. An existing interest;
ii. An inchoate interest founded on an existing interest; or
iii. An expectancy, coupled with an existing interest in that out of which the
expectancy arises. (Sec. 14, Insurance Code)
b. The insured does not have to be the owner or lessee of the property insured. Further, he
does not have to possess a lien over the same.
i. It is sufficient that the insured is so situated with reference to the property that
he would be liable to loss should it be injured or destroyed by the peril against
which it is insured. Anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction. (UCPB
General Insurance Co., Inc. v. Asgard Corrugated Box Manufacturing Corp.,
2021)
1. EX: A common carrier has insurable interest over the properties it
transports.
2. EX: A husband has insurable interest in the separate property of his wife
since the fruits thereof belong the conjugal partnership and may be used
for the support of the family.
2. There can be DIFFERENT insurable interests over the SAME property
a. Corporate property – Both the corporation and its stockholders have insurable interests
over corporate property, because both will derive benefit from the preservation of
corporate property, and will suffer loss from its destruction. However, their insurable
interests are DIFFERENT. Let’s be more specific!
i. The corporation’s insurable interest is an existing interest – The corporation is
the owner of the corporate property
ii. The stockholder’s insurable interest is a inchoate interest founded on an
existing interest - The existing interest is their ownership of stocks in the
corporation. Thus, they have inchoate interest over the properties the corporation
owns.
b. Mortgaged property – Both the mortgagor and the mortgagee have insurable interests
over the mortgaged property because both will derive benefit from the preservation of
corporate property, and will suffer loss from its destruction. However, their insurable
interests are DIFFERENT. Let’s be more specific!
i. Mortgagor’s insurable interest is an existing interest – He owns the mortgaged
property
ii. Mortgagee’s insurable interest is an existing interest – He is the creditor of the
mortgagor, and the mortgagor used the property as security for the debt.

Mortgagor Mortgagee
Insurable interest Existing interest as an owner Existing interest as the creditor of the
mortgagor
Extent of insurable Full value of the mortgaged Only to the extent of the debt secured
interest property (Geagonia v. CA, 1995)
Common carrier
1. What is a common carrier?
a. Common carriers are:
i. Persons, corporations, firms, or associations
ii. Engaged in the business of carrying or transporting passengers or good or both,
iii. By land, water, or air,
iv. For compensation,
v. Offering their services to the public. (Art. 1732, NCC)
b. What is the test to determine if the carrier is common or private?
i. Whether carriage is held out to the general public as the carrier's business or
occupation, and not merely a single transaction/casual occupation.
ii. In private carriage, the provisions on ordinary contracts of the govern the
contract. Further, the diligence required is only the diligence of a good father of
the family. (Spouses Perena v Spouses Zarate, 2012)
c. Art. 1732 does not distinguish whether:
i. Principal business activity or merely ancillary activity;
ii. Regular/scheduled basis, or merely occasional/episodic/unscheduled basis.
iii. General public or narrow segment/limited clientele. (Cruz v Sun Holidays,
2010)
iv. Fixed and publicly known routes or one that does not. (Asia Lighterage and
Shipping v CA, 2003)
2. Diligence required of common carriers
a. Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them. (Art. 1733)
3. Duration of relationship of common carrier and passenger
a. Train
i. The carrier is bound to exercise utmost diligence with respect to passengers the
moment the person who purchases the ticket or token from the carrier presents
himself at the proper place and in a proper manner to be transported. (LRTA v
Navidad, 2003)
1. The relationship BEGINS when the passenger presented himself at the
train station for transportation.
2. It includes the WAITING TIME of the passenger before the carrier
arrives.
ii. It has been recognized as a rule that the relation of carrier and passenger does
not cease at the moment the passenger alights from the carrier's vehicle at a place
selected by the carrier at the point of destination, but continues until the
passenger has had a reasonable time or a REASONABLE OPPORTUNITY TO
LEAVE the carrier's premises. And, what is a reasonable time or a reasonable
delay within this rule is to be determined from all the circumstances.
1. Thus, a person who, after alighting from a train, walks along the
station platform is considered still a passenger. So also, where a
passenger has alighted at his destination and is proceeding by the usual
way to leave the company's premises, but before actually doing so is
halted by the report that his brother, a fellow passenger, has been shot,
and he in good faith and without intent of engaging in the difficulty,
returns to relieve his brother, he is deemed reasonably and necessarily
delayed and thus continues to be a passenger entitled as such to the
protection of the railroad and company and its agents. (La Mallorca v.
CA, 1966)
a. NOTE: The reasonable opportunity to leave depends upon the
VEHICLE.
b. Car
 i. Thus, the relation of carrier and passenger does not necessarily cease where the
latter, after alighting from the car, aids the carrier's servant or employee in
removing his baggage from the car. (La Mallorca v. CA, 1966)
c. Airplane
i. Such person must have a bona fide intention to use the facilities of the carrier,
possess sufficient fare with which to pay for his passage, and present himself to
the carrier for transportation in the place and manner provided. (Singapore
Airlines Limited v Fernandez, 2003)
1. The relationship BEGINS once the passenger is already in the departure
area.
2. It includes the WAITING TIME before the carrier arrives.
ii. NOTE: The relationship does not cease after the passenger alights from the plane.
He must be given a reasonable opportunity to leave the premises.
d. Bus
i. Further, by stepping and standing on the platform of the bus, the victim is
already considered a passenger and is entitled to all the rights and protection
pertaining to such a contractual relation. Hence, it has been held that the duty
which the carrier of passengers owes to its patrons extends to persons boarding
the cars as well as to those alighting therefrom. (Dangwa Transportation Co. v
CA, 1991)
ii. As far as the father is concerned, when he returned to the bus for his bayong
which was not unloaded, the relation of passenger and carrier between him
and the petitioner remained subsisting.
iii. With respect to the child who followed the father in returning to the bus, after
being 5 meters away from the bus, the Court ruled that his presence near the bus
was not unreasonable, so he shall still be considered as a passenger of the
carrier. (La Mallorca v CA, 1966)
e. Shipping companies
i. Lastly, the very nature of petitioner's business as a shipper, the passengers of
vessels are allotted a longer period of time to disembark from the ship than
other common carriers such as a passenger bus. For vessels, it is a common
shipping procedure that a minimum time of 1 hour is allowed for passengers to
disembark and retrieve their baggage. (Aboitiz Shipping v CA, 1989)
4. SUMMARY!
a. Test to determine if the carrier is common or private
i. Remember the words “general public.”
b. Art. 1732 does not distinguish whether:
i. Principal business activity or merely ancillary activity;
ii. Regular/scheduled basis, or merely occasional/episodic/unscheduled basis.
iii. General public or narrow segment/limited clientele. (Cruz v Sun Holidays, 2010)
iv. Fixed and publicly known routes or one that does not. (Asia Lighterage and
Shipping v CA, 2003)
c. Duration of relationship
i. Remember the phrase “reasonable opportunity to leave.”
Intellectual Property Law

Patentability
1. Requisites for patentability:
a. Technical solution of a problem in any field of human activity;
b. New/novel;
c. Involves an Inventive step;
d. Industrially applicable; and
e. Subject matter is patentable. (Sec. 21, Intellectual Property Code)
2. New/Novel
a. An invention is not considered new if it forms part of a prior art. (Sec. 23, Intellectual
Property Code)
3. Involves an inventive step
a. An invention involves an inventive step if, having regard to prior art, it is not obvious to
a person skilled in the art, at the time of the filing date or priority date of the application
claiming the invention. (Sec. 26, Intellectual Property Code)
4. Prior art
a. It shall consist of:
i. Everything which has been made available to the public anywhere in the world,
before the filing date or the priority date of the application claiming the
invention; and
ii. The whole contents of an application for a patent, utility model, or industrial
design registration, published in accordance with this Act, filed or effective in the
Philippines, with a filing or priority date that is earlier than the filing or
priority date of the application. (Sec. 24, Intellectual Property Code)
5. Non-prejudicial disclosure
a. The disclosure of information contained in the application during the twelve (12)
months preceding the filing date or the priority date of the application shall not
prejudice the applicant on the ground of lack of novelty if such disclosure was made by:
i. The inventor (himself)
ii. A patent office and the information was contained (a) in another application
filed by the inventor and should not have been disclosed by the office, or (b) in
an application filed without the knowledge or consent of the inventor by a third
party which obtained the information directly or indirectly from the inventor; or
iii. A third party which obtained the information directly or indirectly from the
inventor. (Sec. 25, Intellectual Property Code)
6. SUMMARY!
a. Prior art must be related to novelty and inventive step.
i. If there’s a prior art, the invention is not novel. Thus, it is not patentable.
1. EX: Mr. A created a smartphone. This is not patentable, since it is not
new. There are smartphones that are available to the public.
ii. If having regard a prior art, the invention is obvious to persons skilled in the art,
the invention does not involve an inventive step. Thus, it is not patentable.
1. EX: Mr. A created a smartphone with 5 cameras. This is not patentable,
since installing additional cameras to a smartphone is OBVIOUS to other
manufacturers of smartphone.
b. Non-prejudicial disclosure must be related to novelty.
i. If there was a prejudicial disclosure, the invention is not novel. Thus, it is not
patentable.
ii. If there was a non-prejudicial disclosure, the invention is still novel. Thus, it is
still patentable.
1. EX: On February 1, 2021, Mr. A held a press conference, where he told
that he was able to invent the cure for AIDS. On June 1, 2021, he filed an
 application for patent registration for this cure. His invention is still
novel, because he applied for registration WITHIN 12 months from the
time he disclosed the same.
2. EX: On February 1, 2021, Mr. A held a press conference, where he told
that he was able to invent the cure for AIDS. On June 1, 2022, he filed an
application for patent registration for this cure. His invention is NOT
considered novel, because he applied for registration AFTER 12 months
from the time he disclosed the same.
c.
Trademark
1. When is ownership of a mark acquired? Is it prior use or registration?
a. In effect, based on the language of the provisions of the IP Code, even if the mark was
previously used and not abandoned by another person, a good faith applicant may
still register the same and thus become the owner thereof, and the prior user cannot
ask for the cancellation of the latter's registration. If the lawmakers had wanted to
retain the regime of acquiring ownership through use, this phrase should have been
retained in order to avoid conflicts in ownership. The removal of such a right
unequivocally shows the intent of the lawmakers to abandon the regime of ownership
under the Trademark Law, as amended. (Zuneca Pharmaceutical v. Natrapharm, 2020)
2. What constitutes fraud or bad faith?
a. Bad faith means that the applicant or registrant has knowledge of prior creation, use
and/or registration by another of an identical or similar trademark. In other words, it is
copying and using somebody else's trademark.
b. Fraud, on the other hand, may be committed by making false claims in connection with
the trademark application and registration, particularly, on the issues of origin,
ownership, and use of the trademark in question, among other things. (Mustang-
Bekleidungswerke GmbH + Co. KG v. Hung Chiu Ming)
i. In short, there is bad faith if the registrant has KNOWLEDGE of prior use,
creation, and/or registration by another of an identical or similar trademark.
(Shangri-la International Hotel Management, Ltd. v. Developers Group of
Companies, Inc.)
3. SUMMARY!
a. Let’s simplify:
i. Ownership of a mark is acquired through REGISTRATION IN GOOD FAITH,
not through prior use. Sec. 122 of the Intellectual Property Code provides that
“the rights in a mark shall be acquired through registration made validly in
accordance with the provisions of this law.”
ii. If the mark was REGISTERED IN BAD FAITH, the trademark can be cancelled.
Sec. 151(b) of the Intellectual Property Code provides that a trademark
registration can be cancelled if “its registration obtained fraudulently or contrary
to the provisions of this Act.”
1. Who will then own the mark? None. However, the one in good faith can
REGISTER the mark so he can acquire ownership over the same.
Copyright; Fair use
1. Patentable inventions v. Trademark v Copyright
a. Trademark, copyright and patents are different intellectual property rights that cannot be
interchanged with one another.
i. Nature
1. Trademark - any visible sign capable of distinguishing the goods or
services of an enterprise, and shall include a stamped or marked
container of goods.
2. Trade name - the name or designation identifying or distinguishing an
enterprise.
3. Copyright - literary and artistic works which are original intellectual
creations in the literary and artistic domain protected from the moment
of their creation.
4. Patentable inventions - any technical solution of a problem in any field of
human activity which is new, involves an inventive step and is
industrially applicable. (Pearl & Dean v Shoemart, 2003)
a. NOTE: A copyright registration should be sought for the
creation itself, not for the creation’s mark or name. Thus, a
copyright registration CANNOT protect the mark or name of a
creation.
ii. Requirement of registration
1. For trademark, ownership of a mark is acquired through registration.
(Zuneca Pharmaceutical v. Natrapharm, 2020) Thus, registration is
required.
2. For trade name, notwithstanding any laws or regulations providing for
any obligation to register trade names, such names shall be protected,
even prior to or without registration, against any unlawful act
committed by third parties. (Sec. 165.2, Intellectual Property Code)
3. For copyright, the original intellectual creation is protected from the
moment of creation. (Sec. 172, Intellectual Property Code) Registration is
not required. (ABS-CBN v. Gozon, 2015)
4. For patent, a patent is granted to provide rights and protection to the
inventor after an invention is disclosed to the public. (E. I Dupont v.
Director Francisco, 2016) Thus, registration of patent is required.
2. Fair use doctrine
a. The fair use of copyrighted work for the following purposes shall NOT be considered as
an infringement:
i. Criticism,
ii. Comment,
iii. News reporting,
iv. Teaching, including limited number of copies for classroom use,
v. Scholarship,
vi. Research, or
vii. Similar purposes, or
viii. Decompilation. (Sec. 185.1, Intellectual Property Code)
b. In determining whether the use made of the work is fair use, the follow FACTORS to be
considered: (THIS IS CALLED THE FOUR FACTOR TEST!)
i. Purpose and character of use, including whether the use is commercial in nature
or non-profit;
ii. Amount and substantiality of the portion used;
iii. Nature of the copyrighted work; and
iv. Effect of the use to the potential market/value of the work. (Sec. 185.1)
3. SUMMARY!
a. Remember the distinctions of trademark, trade name, copyright, and patentable
inventions.
b. How to apply the provisions in Sec. 185 in the Bar
i. If there’s no infringement, you just have to quote that “fair use of copyrighted
work for criticism, comment, news reporting, teaching, and similar purposes
shall NOT be considered as infringement.” There’s no need to quote the four
factor test.
ii. If there’s infringement, you have to quote that “fair use of copyrighted work for
criticism, comment, news reporting, teaching, and similar purposes shall NOT be
considered as infringement. However, the following factors shall be further
considered in order to determine if there was infringement: (1) Purpose and
character of use, including whether the use is commercial in nature, and so on.”
1. PRO TIP: If there’s a SALE of the reproduced book, there’s infringement.
That’s not “fair use” anymore. Thus, you must also quote the four factor
test, and the most important phrase in your answer is “use is commercial
in nature.”
Banking Law
1. Extraordinary diligence of banks
a. The bank’s FIDUCIARY DUTY to its depositors
i. The banks must treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. (Simex International v.
CA)
ii. The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family, i.e., extraordinary diligence. (PBC v.
CA, 2004)
b. The banks must exercise GREATER CARE in their property dealings
i. The general rule allows every person dealing with registered land to rely on the
face of the title when determining its absolute owner.
1. This is also called as the “mirror doctrine.”
ii. However, banks are considered businesses impressed with public interest,
requiring "high standards of integrity and performance." Thus, the standard
operating practice for banks when acting on a loan application is "to conduct an
ocular inspection of the property offered for mortgage and to verify the
genuineness of the title to determine the real owner(s) thereof. (Andres v. PNB)
1. Thus, a bank will be a mortgagee in good faith if it inspected and
investigated the property in accordance with the standards imposed on
banks. (Parcon-Song v. Parcon, 2020)
a. This is also called as “caveat emptor.”
2. Relying on the face of the title is INSUFFICIENT.
c. SUMMARY!
i. If money was deducted from the depositor’s account, without notifying the
depositor, the bank shall be held liable, because it must exercise extraordinary
diligence in treating the accounts of its clients.
ii. A bank shall be considered a mortgagee in bad faith, if it did not investigate the
property before entering into a mortgage contract, and it was discovered later
on that the property was owned by a third person.
2. Bank secrecy laws; Authority of the AMLC to examine bank deposits
a. Philippine peso deposit accounts (RA No. 1405)
i. General Rule:
1. All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of
the Philippines, its political subdivisions and its instrumentalities, are
hereby considered as of an absolutely confidential nature and may not
be examined, inquired or looked into by any person, government
official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent
court in cases of bribery or dereliction of duty of public officials, or in
cases where the money deposited or invested is the subject matter of the
litigation. (Sec. 2, RA No. 1405)
ii. Notable Exceptions:
1. Written permission or consent. Waiver of rights made voluntarily, with
sufficient awareness, and with full knowledge of the consequences
2. Impeachment of public officials
3. Order of competent court in case of bribery or dereliction of duty
4. Money deposited or invested is the subject matter of litigation. It is the
very thing in dispute, not the mere money equivalent of the checks.
(The Real Bank v. Maningas, 2022)
5. The Office of the Ombudsman
 a. The Ombudsman has the power to issue subpoena, as well as
examine and access bank accounts and records, provided the
following requisites are present
i. A case pending is before a court,
ii. The account is clearly identified,
iii. The inspection must be limited to the subject matter of
pending case, and
iv. The bank personnel and the account holder must be
notified to be present during inspection. (Marquez v
Desierto, 2001)
6. Anti-Money Laundering Council (AMLC)
a. Upon the order of the Court of Appeals
i. Notwithstanding the provisions of Republic Act No.
1405, as amended; Republic Act No. 6426, as amended;
Republic Act No. 8791, and other laws, the AMLC may
inquire into or examine any particular deposit or
investment account, including related accounts, with
any banking institution or non-bank financial institution,
upon order by the Court of Appeals based on an ex
parte application in cases of violation of the AMLA
when it has been established that probable cause exists
that the deposits or investments involved, including
related accounts, are in any way related to an unlawful
activity or money laundering offense.
b. Without the order of the Court of Appeals
i. The AMLC shall issue an ex parte order authorizing the
AMLC Secretariat to inquire into or examine any
particular deposit or investment account, including
related accounts, with any banking institution or non-
bank financial institution and their subsidiaries and
affiliates when it has been established that probable
cause exists that the deposits or investments involved,
including related accounts, are in any way related to any
of the following unlawful activities:
1. Kidnapping for ransom under Article 267 of
Act No. 3815, otherwise known as the Revised
Penal Code, as amended;
2. Drugs - Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15
and 16 of Republic Act No. 9165, otherwise
known as the Comprehensive Dangerous Drugs
Act of 2002;
3. Hijacking and other violations under Republic
Act No. 6235;
4. Destructive arson
5. Murder, as defined under the Revised Penal
Code, as amended;
6. Felonies or offenses of a nature similar to those
mentioned in Rule 11, Sections 2.1 (a), (b) and
(c), which are punishable under the penal laws
of other countries;
7. Terrorism and conspiracy to commit terrorism
as defined and penalized under Republic Act
No. 9372; and
 8. Financing of terrorism under Section 4 and
offenses punishable under Sections 5, 6, 7 and 8
of the TFPSA.
b. Foreign currency deposit accounts (RA No. 6426)
i. General Rule:
1. All foreign currency deposits authorized under this Act, as amended by
PD No. 1035, as well as foreign currency deposits authorized under PD
No. 1034, are hereby declared as and considered of an absolutely
confidential nature and, except upon the written permission of the
depositor, in no instance shall foreign currency deposits be examined,
inquired or looked into by any person, government official, bureau or
office whether judicial or administrative or legislative, or any other
entity whether public or private; Provided, however, That said foreign
currency deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency
or any administrative body whatsoever. (Sec. 8, RA No. 6426)
ii. Notable Exceptions:
1. Written permission of the depositor.
2. Anti-Money Laundering Council (AMLC)
a. Upon the order of the Court of Appeals
i. Notwithstanding the provisions of Republic Act No.
1405, as amended; Republic Act No. 6426, as amended;
Republic Act No. 8791, and other laws, the AMLC may
inquire into or examine any particular deposit or
investment account, including related accounts, with
any banking institution or non-bank financial institution,
upon order by the Court of Appeals based on an ex
parte application in cases of violation of the AMLA
when it has been established that probable cause exists
that the deposits or investments involved, including
related accounts, are in any way related to an unlawful
activity or money laundering offense. (Sec. 1.6, Rule 11,
2018 IRR of AMLA)
b. Without the order of the Court of Appeals
i. The AMLC shall issue an ex parte order authorizing the
AMLC Secretariat to inquire into or examine any
particular deposit or investment account, including
related accounts, with any banking institution or non-
bank financial institution and their subsidiaries and
affiliates when it has been established that probable
cause exists that the deposits or investments involved,
including related accounts, are in any way related to any
of the following unlawful activities:
1. Kidnapping for ransom under Article 267 of
Act No. 3815, otherwise known as the Revised
Penal Code, as amended;
2. Drugs - Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15
and 16 of Republic Act No. 9165, otherwise
known as the Comprehensive Dangerous Drugs
Act of 2002;
3. Hijacking and other violations under Republic
Act No. 6235;
4. Destructive arson
 5. Murder, as defined under the Revised Penal
Code, as amended;
6. Felonies or offenses of a nature similar to those
mentioned in Rule 11, Sections 2.1 (a), (b) and
(c), which are punishable under the penal laws
of other countries;
7. Terrorism and conspiracy to commit terrorism
as defined and penalized under Republic Act
No. 9372; and
8. Financing of terrorism under Section 4 and
offenses punishable under Sections 5, 6, 7 and 8
of the TFPSA. (Sec. 2.1, Rule 11, 2018 IRR of
AMLA)
a. NOTE: For these instances, NO COURT
ORDER IS REQUIRED. (Sec. 11, RA
9160 as amended)
c. Garnishment
i. Philippine peso deposit accounts CAN BE ATTACHED OR GARNISHED.
1. Why? Because (1) attachment or garnishment is not equal to examination
or inquiry, and (2) attachment and garnishment were not mentioned in
RA No. 1405.
ii. Foreign currency deposit accounts CANNOT BE ATTACHED OR GARNISHED.
1. This is explicitly stated in RA No. 6426.
d. Safety deposit box
i. This is not a deposit account under RA 1405 or RA 6426.
ii. A deposit account under RA 1405 or RA 6426 is a contract of loan, wherein the
bank is the debtor and the depositor is the creditor.
iii. Meanwhile, the owner of the safety deposit box is the lessor, while the person
who stores his personal properties inside a safety deposit box is a lessee. Thus, a
contract of lease was entered into between the parties.
iv. Thus, the bank secrecy laws do NOT APPLY to safety deposit boxes!
1.
E-Commerce Act
1. Legal recognition of electronic data messages
a. Information shall not be denied legal effect, validity or enforceability solely on the
grounds that it is in the data message purporting to give rise to such legal effect, or that it
is merely referred to in that electronic data message. (Sec. 6, RA No. 8792)
2. Evidentiary purposes
a. For evidentiary purposes, an electronic document shall be the functional equivalent of a
written document under existing laws. (Sec. 7)
3. ILLUSTRATION:
a. In a Facebook livestream, an author offered his books online for sale by asking interested
viewers to type in “Mine” in the chatbox. A set of his books was sold to a social media
influencer who later turned out to be a “joy reserver.” A “joy reserver” refers to an online
buyer who enthusiastically shows interest in an item, but will not actually buy it. The
author made a screenshot of the social media influencer’s “Mine” message as proof of the
acceptance of the offer. Does the screenshot of the message prove the perfection of the
sale contract? Explain briefly. (2022 Bar Examination)
i. Yes, the screenshot of the message prove the perfection of the sale contract.
ii. Under the E-Commerce Act, for evidentiary purposes, an electronic document
shall be the functional equivalent of a written document under existing laws.
iii. Here, the screenshot of the message prove the perfection of the sale contract,
since it is equivalent to a written deed of sale that was signed by the parties.
4. NOTES!
a. Use Sec. 6 as legal basis, if the question is similar to “is the contract valid and/or
enforceable”
b. Use Sec. 7 as legal basis, if the question is similar to “does the electronic document
prove”
c. IN ANY CASE, DO NOT USE THE “ORIGINAL DOCUMENT RULE” AS YOUR LEGAL
BASIS.
i. For Commercial Law Bar questions, use Commercial Law principles, not
Remedial Law principles.
ii. Let’s respect our Bar examiners. If he or she is a Commercial Law Bar examiner,
let’s show that we thoroughly understood the syllabus that was made for the
subject.
PUBLIC SERVICE ACT (CA 146, as amended by RA No. 11659)
1. Critical Infrastructure
a. Critical Infrastructure refers to any public service which owns, uses, or operates systems
and assets, whether physical or virtual, so vital to the Republic of the Philippines that the
incapacity or destruction of such systems or assets would have a detrimental impact on
national security, including telecommunications and other such vital services as may be
declared by the President of the Philippines. (Sec. 2(e), RA No. 11659)
2. Foreign State-Owned Enterprise
a. Foreign State-owned Enterprise refers to an entity in which a foreign State:
i. directly or indirectly owns more than fifty-percent (50%) of the capital taking
into account both the voting rights and beneficial ownership;
ii. control, through ownership interests, the exercise of more than fifty percent
(50%) of the voting rights; or
iii. holds the power to appoint a majority of members of the board of directors or
any other equivalent management body. (Sec. 2(g))
3. Public Service As Public Utility
a. Public Utility - Public Utility refers to a public service that operates, manages or controls
for public use any of the following:
i. Distribution of Electricity;
ii. Transmission of Electricity;
iii. Petroleum and Petroleum Products Pipeline Transmission Systems;
iv. Water Pipeline Distribution Systems and Wastewater Pipeline Systems,
including sewerage pipeline systems;
v. Seaports; and
vi. Public Utility Vehicles.
b. All concessionaires, joint ventures and other similar entities that wholly operate, manage
or control for public use the sectors above are public utilities.
c. Nothing in this Act shall be interpreted as a requirement for legislative franchise where
the law does not require any. No other person shall be deemed a public utility unless
otherwise subsequently provided by law. (Sec. 4)
4. Unlawful Acts
a. It shall be unlawful for any public service:
i. To refuse or neglect, when requested by the Postmaster General or his
authorized representative, to carry public mail on the regular trips of any public
land transportation service maintained or operated by any such public service,
upon such terms and conditions and for a consideration in such amounts as may
be agreed upon between the Postmaster General and the public service carrier or
fixed by the Commission in the absence of an agreement between the Postmaster
General and the carrier. In case the Postmaster General and the public service
carrier are unable to agree on the amount of the compensation to be paid for the
carriage of the mail, the Postmaster General shall forthwith request the
Commission to fix a just and reasonable compensation for such carriage and the
same shall be promptly fixed by the Commission in accordance with section
sixteen of this Act.
ii. To refuse or neglect, when requested by the Administrative Agency to urgently
use, deliver or render the public service for the purpose of avoiding further loss
on human, material, economic, or environment during a state of calamity. (Sec. 9)
5. Powers of the President to Suspend or Prohibit Transaction or Investment.
a. In the interest of national security, the President, after review, evaluation and
recommendation of the relevant government department or Administrative Agency,
may, within sixty (60) days from the receipt of such recommendation, suspend or
prohibit any proposed merger or acquisition transaction, or any investment in a public
 service that effectively results in the grant of control, whether direct or indirect, to a
foreigner or a foreign corporation.
b. The Philippine Competition Commission (PCC) may be consulted on all matters relating
to mergers and acquisitions.
c. The NEDA shall promulgate rules and regulations to implement the provisions of this
section. (Sec. 23)
6. Investments by an Entity Controlled by or Acting on Behalf of the Foreign Government, or
Foreign State-owned Enterprises.
a. An entity controlled by or acting on behalf of the foreign government or foreign state-
owned enterprises shall be prohibited from owning capital in any public service
classified as public utility or critical infrastructure: Provided, That the prohibition shall
apply only to investments made after the effectivity of this Act: Provided, further, That
foreign state-owned enterprises which own capital prior to the effectivity of this law are
prohibited from investing in additional capital upon the effectivity of this Act: Provided,
finally, That notwithstanding the immediately preceding clause, the sovereign wealth
funds and independent pensions funds of each state may collectively own up to thirty
percent (30%) of the capital of such public services.
b. In the interest of national security, an entity controlled by or acting on behalf of the
foreign government or foreign-owned enterprises shall not make any date or information
disclosure, nor extend assistance, support or cooperation to any foreign government,
instrumentalities or agents.
c. The NEDA shall promulgate rules and regulations to implement the provisions of this
section. (Sec. 24)
7. Reciprocity Clause.
a. Foreign nationals shall not be allowed to own more than fifty percent (50%) of the capital
of entities engaged in the operation and management of critical infrastructure unless the
country of such foreign national accords reciprocity to Philippine Nationals as may be
provided by foreign law, treaty or international agreement. Reciprocity may be satisfied
by according rights of similar value in other economic sectors. The NEDA shall
promulgate rules and regulations for this purpose.
b. Unless otherwise provided by law, or by any international agreement, a public service
shall employ a foreign national only after the determination of non-availability of a
Philippine National who is competent, able and willing to perform the services for which
the foreign national is desired.
c. Any foreign national seeking admission to the Philippines for employment purposes and
any public service which desires to engage a foreign national for employment in the
Philippines must obtain an employment permit pursuant to Presidential Decree No. 442,
otherwise known as the "Labor Code of the Philippines", as amended.
d. Public services employing foreign nationals issued employment permits in industries to
be determined by the Department of Labor and Employment (DOLE) shall implement an
understudy/skills development program to ensure the transfer of technology/skills to
Filipinos, whether next-in-rank or otherwise, with the potential of succeeding the foreign
national in the same establishment or its subsidiary, within a specific period as may be
determined by the DOLE, upon consultation with relevant government agencies and
industry experts. (Sec. 25)