Ceniza Bar Notes

Commercial Law 2022

NOTE: The concepts, principles, doctrines, legal provisions,

enumerations and definitions of terms discussed below may not
appear in the Bar exam questions exactly as presented. You are
therefore expected to apply them in each of the specific
question/problem that may be asked of you.

Good luck and May the Force be with You!!!

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Corporation Law

 Doctrine of separate juridical personality

 Will ownership of majority shares in a subsidiary corporation makes a parent

corporation liable for the obligations of a subsidiary corporation?

“While it is true that CyberOne AU owns majority of the shares of

CyberOne PH, this, nonetheless, does not warrant the conclusion that
CyberOne PH is a mere conduit of CyberOne AU”. A stockholder owning all
or nearly all the capital stock of a corporation is not a ground to disregard a
corporation's personality. (Gesolgon vs. CyberOne PH., Inc., G.R. No. 210741,
October 14, 2020)

 Doctrine of piercing the corporate veil

 Is it necessary to establish fraud when applying the piercing the veil of

corporate fiction?

No. The existence or non-existence of fraud is immaterial under this

theory because "the doctrine of alter ego is based upon the misuse of a
corporation by an individual or another corporation for wrongful
or inequitable purposes.

Unlike in piercing the veil of corporate fiction due to cases of fraud,

there is no need to determine whether there was deception in alter ego cases.

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 (Susan Roquel vs. PNB and PNB Global Remittance, G.R. No. 246270, June
30, 2021)

 The doctrine of piercing the veil of corporate fiction is a legal precept that
allows a corporation's separate personality to be disregarded under certain
circumstances, so that a corporation and its stockholders or members, or a
corporation and another related corporation could be treated as a single entity.

 To justify the piercing of the veil of corporate fiction, "it must be shown by
clear and convincing proof that the separate and distinct personality of the
corporation was purposefully employed to evade a legitimate and binding
commitment and perpetuate a fraud or like wrongdoings.

 The doctrine of piercing the corporate veil applies only in three basic instances,
namely:
(a) when the separate distinct corporate personality defeats public
convenience, as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation;
(b) in fraud cases, or when the corporate entity is used to justify a wrong,
protect a fraud, or defend a crime; or
(c) is used in alter ego cases

 piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements:

a) control of the corporation by the stockholder or parent corporation

b) fraud or fundamental unfairness imposed on the plaintiff, and
c) harm or damage caused to the plaintiff by the fraudulent or unfair act
of the corporation.

The absence of any of these elements prevents piercing the corporate veil.

 De facto corporations versus corporations by estoppel

 Can a donation to an unregistered corporation be valid?

Yes. One who assumes an obligation to an ostensible corporation as

such, cannot resist performance thereof on the ground that there was in fact no
corporation. Anyone who assumes an obligation to an ostensible corporation
as such cannot resist performance thereof on the ground that there was in fact
no corporation.

The person who has contracted or otherwise dealt with the non-
existent corporation is estopped to deny the latter's legal existence in any action
leading out of or involving such contract or dealing. (Missionary Sisters of Our
Lady of Fatima vs. Alzona, G.R. No. 224307, Aug. 6, 2018)

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  De facto Corporations. – The due incorporation of any corporation claiming in
good faith to be a corporation under the law, and its right to exercise corporate
powers, shall not be inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the Solicitor General
in a quo warranto proceeding. (Sec. 19, RCC)

The filing of articles of incorporation and the issuance of the certificate of

incorporation are essential for the existence of a de facto corporation

It is the act of registration with SEC through the issuance of a certificate

of incorporation that marks the beginning of an entity's corporate
existence.

 Corporation by Estoppel - All persons who assume to act as a corporation

knowing it to be without authority to do so shall be liable as general partners
for all debts, liabilities and damages incurred or arising as a result thereof.

When any such ostensible corporation is sued on any transaction entered by it

as a corporation or on any tort committed by it as such, it shall not be allowed
to use its lack of corporate personality as a defense.

Anyone who assumes an obligation to an ostensible corporation as such cannot

resist performance thereof on the ground that there was in fact no corporation.

(Sec. 20, RCC)

 Doctrine of Apparent Authority

 The doctrine of apparent authority or what is sometimes referred to as the

"holding out" theory, or the doctrine of ostensible agency, imposes liability, not
"as the result of the reality of a contractual relationship, but rather because of the
actions of a principal or an employer in somehow misleading the public into
believing that the relationship or the authority exists". (Citystate Savings Bank
vs. Tobias, G.R. No. 227990, March 7, 2018)

 The doctrine of apparent authority provides that even if no actual authority has
been conferred on an agent, his or her acts, as long as they are within his or her
apparent scope of authority, bind the principal. However, the principal's liability
is limited to third persons who are reasonably led to believe that the agent was
authorized to act for the principal due to the principal's conduct.

 Apparent authority is determined by the acts of the principal and not by the acts
of the agent.

 When a corporation intentionally or negligently clothes its agent with apparent

authority to act in its behalf, it is estopped from denying its agent's apparent

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 authority as to innocent third parties who dealt with this agent in good faith.
(Calubad v. Ricarcen Development Corp., G.R. No. 202364, [August 30, 2017])

 Its existence may be ascertained through:

1) the general manner in which the corporation holds out an officer or agent
as having the power to act, or in other words, the apparent authority to act
in general, with which it clothes him; or
2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, within or beyond the scope of his
ordinary powers.

 Business Judgment Rule

 Questions of policy and management are left to the honest decision of the
officers and directors of a corporation; and the courts are without authority to
substitute their judgment for that of the BOD unless said judgment had been
attended with bad faith. (Ching v. Quezon City Sports Club, Inc., G.R. No.
200150, November 7, 2016)

 Contracts intra vires entered into by the board of directors are binding upon the
corporation and courts will not interfere unless such contracts are so
unconscionable and oppressive as to amount to wanton destruction to the rights
of the minority.

 Liability of Directors/Officer

 Can a corporate officer be held solidarily liable with the corporation if the
contract of the corporation provides for such solidary liability?

No. As a general rule, a corporation's representatives are not bound by

the terms of the contract executed by the corporation. (Spouses Fernandez vs.
Smart Comm., Inc., G.R. No. 212885, July 17, 2019)

 Can a President/Director be held solidarily liable with the corporation for the
labor claims of an OFW?

Yes. Personal liability of such corporate director, trustee, or officer may

validly attach when he is made by a specific provision of law personally
answerable for his corporate action.
Sec. 10 of R. A. No. 8042, as amended by R. A. No. 10022, provides
that "if the recruitment/ placement agency is a juridical being, the corporate
officers and directors and partners as the case may be, shall themselves be
jointly and solidarily liable with the corporation or partnership for the aforesaid
claims and damages. (Oscares vs. Magsaysay Maritime Corp., G.R. No.
245858, December 2, 2020)

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  A corporate director, trustee, or officer is solidarily liable with the corporation:

1. When directors and trustees or the officers of a corporation:

a) vote for or assent to patently unlawful acts of the corporation;

b) act in bad faith or with gross negligence in directing the corporate
affairs; c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks

or who, having knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;
3) When a director, trustee or officer has contractually agreed or stipulated
to hold himself personally and solidarily liable with the Corporation; or
4) When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.

 Grounds for disqualifying a director/trustee/officer.

 A person shall be disqualified from being a director, trustee or officer of any

corporation if, within five (5) years prior to the election or appointment as such,
the person was:

a) Convicted by final judgment:

1) Of an offense punishable by imprisonment for a period
exceeding six (6) years;
2) For violating Revised Corporation Code;
3) For violating the Securities Regulation Code;
b) Found administratively liable for any offense involving fraudulent
acts; and
c) By a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated in paragraphs (a)
and (b) above.

(Sec. 26 R. A. No. 11232)

 Ultra Vires Acts

 Can a corporation which committed an illegal ultra vires act raise the defense of
estoppel?

No. The doctrine of estoppel cannot operate to give effect to an act which is
otherwise null and void or ultra vires. Estoppel cannot be predicated on an illegal
act. (Waterfront Philippines, Inc., et. al. vs. SSS, G.R. No. 249337, July 06, 2021)

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  Ultra Vires Acts of Corporations. – No corporation shall possess or exercise
corporate powers other than those conferred by this Code or by its articles of
incorporation and except as necessary or incidental to the exercise of the powers
conferred. (Sec.. 44, R.A. No.11232)

 Corporate acts that are outside the express definitions under the law or articles of
incorporation or those committed outside the object for which a corporation is
created are ultra vires.

 An ultra vires act may be classified as either (a) illegal ultra vires or (b) merely ultra
vires.

 Illegal ultra vires is the doing of an act which is contrary to law, morals, or public
order, or one that contravenes some rules of public policy or public duty, and is,
like similar transactions between individuals, void. It cannot serve as a basis of a
court action, nor acquire validity by performance, ratification, or estoppel.

 A mere ultra vires act is that which is not illegal and void ab initio, but is merely
outside of the scope of the articles of incorporation, and is thus, merely voidable
and may become binding and enforceable when ratified by the stockholders.

 Trust Fund Doctrine

 Can stockholders of a solvent corporation be held liable solidarily with the

corporation under the trust fund doctrine?

No. As long as a corporation remains solvent the subscriber's only liability

runs to the corporation. Except by way of assignment, the creditor of a solvent
corporation, being in no sense a party to the subscription contract, is unable to reach
an unpaid subscription. (Jennifer Enano-Bote, et. al. vs. Jose Alvarez, et. al., G.R.
No. 223572, Nov. 10, 2020)

 All assets and property belonging to the corporation held in trust for the benefit of
creditors that were distributed or in the possession of the stockholders, regardless
of full payment of their subscriptions, may be reached by the creditor in satisfaction
of its claim.

 Under the trust fund doctrine, a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation of paying for his shares,
in whole or in part, without a valuable consideration, or fraudulently, to the
prejudice of creditors.

 Two instances when the creditor is allowed to maintain an action upon any unpaid
subscriptions based on the trust fund doctrine:

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 (1) where the debtor corporation released the subscriber to its capital stock from
the obligation of paying for their shares, in whole or in part, without a
valuable consideration, or fraudulently, to the prejudice of creditors; and
(2) where the debtor corporation is insolvent or has been dissolved without
providing for the payment of its creditors.

 Shares of Stocks

 Is the presentation of a stock certificate a condition sine qua non for proving one’s
shareholding in a corporation?

No. A stock certificate is prima facie evidence that the holder is a

shareholder of the corporation, but the possession of the certificate is not the sole
determining factor of one’s stock ownership. (Insigne v. Abra Valley Colleges, Inc.,
G.R. No. 204089, July 29, 2015)

 A certificate of stock is a written instrument signed by the proper officer of a

corporation stating or acknowledging that the person named in the document is the
owner of a designated number of shares of its stock.

 A certificate of stock is a written instrument signed by the proper officer of a

corporation stating or acknowledging that the person named in the document is the
owner of a designated number of shares of its stock.

 It is prima facie evidence that the holder is a shareholder of a corporation. A

certificate, however, is merely a tangible evidence of ownership of shares of stock.
It is not a stock in the corporation and merely expresses the contract between the
corporation and the stockholder. The shares of stock evidenced by said certificates,
meanwhile, are regarded as property and the owner of such shares may, as a general
rule, dispose of them as he sees fit, unless the corporation has been dissolved, or
unless the right to do so is properly restricted, or the owner's privilege of disposing
of his shares has been hampered by his own action. (Anna Teng vs. SEC and Ting
Ping Lay, G.R. No. 184332, February 17, 2016)

 requisites must be complied with for there to be a valid transfer of stocks, to wit:

1) There must be delivery of the stock certificate;

2) the certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and
3) to be valid against third parties, the transfer must be recorded in the books of
the corporation.

(Sec. 63, R.A. No. 11232)

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 Increase/Decrease of Authorize Capital

 Can a corporation proceed with a proposed Increase/ Decrease of Authorize

Capital when not all the stockholders approved such proposal?

Yes. There is no legal requirement under the law that necessitates prior
approval of all the stockholders for the increase/reduction in capital stock.
(Metroplex Berhad vs. Sinophil Corp., G.R. No. 208281, June 28, 2021)

 Under the Corporation Code, such decrease only requires the approval of a majority
of the board of directors and, at a stockholder's meeting duly called for the purpose,
two-thirds (2/3) vote of the outstanding capital stock. So long as written notice of
the proposed increase or diminution of the capital stock was made to all
stockholders, the presence and approval of at least 2/3 of the capital stock is enough
to make the increase or diminution valid.

 Derivative Suit

 Can stockholders of a corporation question the loan and mortgage agreement of

another corporation that used the properties of the corporation as collateral for the
loan?

No. As a general rule, the stockholders have no standing to seek the

cancellation of the loan and mortgage agreements where the corporation itself is not
is not a party thereto. This is because the claim is in the nature of a derivative suit
which must be directed against corporation's officers, directors, or stockholders.
(Metropolitan Bank & Trust Co. vs. Salazar Realty Corp., G.R. No. 218738, March
9, 2022)

 A derivative action is a suit by a shareholder to enforce a corporate cause of action.

Under the Corporation Code, where a corporation is an injured party, its power to
sue is lodged with its board of directors or trustees. But an individual stockholder
may be permitted to institute a derivative suit on behalf of the corporation in order
to protect or vindicate corporate rights whenever the officials of the corporation
refuse to sue, or are the ones to be sued, or hold control of the corporation. In such
actions, the corporation is the real party-in-interest while the suing stockholder, on
behalf of the corporation, is only a nominal party. (BSP vs. Vicente Jose Campa,
et. al., G.R. No. 185979, March 16, 2016)

 Derivative suits presupposes that the corporation is the injured party and the
individual stockholder may file a derivative suit on behalf of the corporation to
protect or vindicate corporate rights whenever the officials of the corporation refuse
to sue, or are the ones to be sued, or hold control of the corporation. (BSP vs.
Vicente Jose Campa, et. al., G.R. No. 185979, March 16, 2016)

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  Under Section 1, Rule 8 of A.M. No. 01-2-04-SC, otherwise known as the Interim
Rules of Procedure Governing Intra-Corporate Controversies under Republic Act
No. 8799, the following are required before a derivative suit may be filed:

l) The person filing the suit must be a stockholder or member at the time the
acts or transactions subject of the action occurred and the time the action was
filed;

2) He must have exerted all reasonable efforts, and alleges the same with
particularity in the complaint, 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;

3) No appraisal rights are available for the act or acts complained of; and

4) The suit is not a nuisance or harassment suit.

 Intra-Corporate Controversy

 An intra-corporate dispute is understood as a suit arising from intra-corporate

relations or between or among stockholders or between any or all of them and the
corporation.

 The two-tier tests in determining the existence of intra-corporate controversy are

the relationship test and the nature of the controversy test.

The “relationship test” requires that the controversy must arise out of intra-
corporate or partnership relations between any or all of the parties and the
corporation, partnership, or association of which they are stockholders, members or
associates, between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively.

Under the nature of the controversy test, the incidents of that relationship
must also be considered for the purpose of ascertaining whether the controversy
itself is intra-corporate. The controversy must not only be rooted in the existence of
an intra-corporate relationship, but must as well pertain to the enforcement of the
parties' correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the relationship
and its incidents are merely incidental to the controversy or if there will still be
conflict even if the relationship does not exist, then no intra-corporate controversy
exists.

 Not all conflicts between the stockholders and the corporation are classified as intra-
corporate. There are other factors to consider in determining whether the dispute
involves corporate matters as to consider them as intra-corporate controversies.

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 Right to Inspect

 Will an action for injunction lie to prevent the exercise of by a stockholder of his
right to inspect corporate books?

An action for injunction filed by a corporation generally does not lie to

prevent the enforcement by a stockholder of his or her right to inspection

If a stockholder demands the inspection of corporate books, the

corporation could refuse to heed to such demand. When the corporation, through
its officers, denies the stockholders of such right, the latter could then go to court
and enforce their rights. It is then that the corporation could set up its defenses and
the reasons for the denial of such right. Thus, the proper remedy available for the
enforcement of the right of inspection is undoubtedly the writ of mandamus to be
filed by the stockholders and not a petition for injunction filed by the corporation.
(Philippine Associated Smelting and Refining Corp. vs. Pablito Lim et. al., G.R.
No. 172948, October 05, 2016)

 The Corporation Code has granted to all stockholders the right to inspect the
corporate books and records, and in so doing has not required any specific amount
of interest for the exercise of the right to inspect. (Terelay Investment and Dev.
Corp. vs. Cecilia Teresita Yulo, G.R. No. 160924, Aug. 05, 2015)

 Specifically, stockholders cannot be prevented from gaining access to the:

1) records of all business transactions of the corporation; and

2) minutes of any meeting of stockholders or the board of directors, including
their various committees and subcommittees.

 To prevent the execise of right of inspection, the corporation carries the burden of
proving the exceptions, to wit:

1) that the stockholder has improperly used information before;

2) lack of good faith; or
3) lack of legitimate purpose.

 Dissolution/Liquidation

 Can a dissolved corporation redeem a property subject of a foreclosure sale?

No. Any redemption exercised by a dissolved corporation pursuant to a

void real estate mortgage is likewise void, and could not be given any effect. Any
new business in which the dissolved corporation would engage in, other than those
for the purpose of liquidation, will be a void transaction because of the non-
existence of the corporate party. (Dr. Gil Rich vs. Guillermo Paloma III, et. al., G.R.
No. 210538, March 7, 2018)

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  The Corporation Code empowers every corporation whose corporate existence has
been legally terminated to continue as a body corporate for three (3) years after the
time when it would have been dissolved. This continued existence would only be
for the purposes of "prosecuting and defending suits by or against it and enabling it
to settle and close its affairs, to dispose of and convey its property and to distribute
its assets."

 This continued existence would only be for the purposes of "prosecuting and
defending suits by or against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its assets."

 The extended authority necessarily excludes the purpose of continuing the business
for which it was established. The reason for this is simple: the dissolution of the
corporation carries with it the termination of the corporation's juridical personality.

 Any new business in which the dissolved corporation would engage in, other than
those for the purpose of liquidation, "will be a void transaction because of the non-
existence of the corporate party."

 Foreign Corporations

 One formed, organized or existing under laws other than those of the Philippines’
and whose laws allow Filipino citizens and corporations to do business in its own
country or State.

 It shall have the right to transact business in the Philippines after obtaining a license
for that purpose in accordance with this Code and a certificate of authority from the
appropriate government agency.

 No foreign corporation transacting business in the Philippines without a license, or

its successors or assigns, shall be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of the Philippines.

 Even without a license, such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws. (Sec. 150, RCC)

 Merger

 Can a surviving corporation validly argue that it was not responsible for acts
committed by its predecessor corporation?

No. Good faith is not an excuse to exempt the surviving corporation from
the effects of a merger or consolidation. (Spouses Ong vs. BPI Family Savings
Bank, Inc., G.R. No. 208638, Jan. 24, 2018)

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  A merger is the union of two or more existing corporations in which the surviving
corporation absorbs the others and continues the combined business.

 The merger dissolves the non-surviving corporations, and the surviving corporation
acquires all the rights, properties and liabilities of the dissolved corporations.

 The merger or consolidation shall have the following effects:

(a) The constituent corporations shall become a single corporation which, in

case of merger, shall be the surviving corporation x x x; and, in case of
consolidation, shall be the consolidated corporation x x x;
(b) The separate existence of the constituent corporations shall cease, except
that of the surviving or the consolidated corporation;
(c) The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities, and powers and shall be subject to all the duties and
liabilities of a corporation;
(d) The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and franchises of each constituent corporation; and
all real or personal property, all receivables due on whatever account,
including subscriptions to shares and other choses in action, and every other
interest of, belonging to, or due to each constituent corporation, shall be
deemed transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
(e) The surviving or consolidated corporation shall be responsible for all the
liabilities and obligations of each constituent corporation as though such
surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or
against any constituent corporation may be prosecuted by or against the
surviving or consolidated corporation.

Insurance Law
 Insurable Interest

 Can an entity/corporation have insurable interests on a property that it does not

own?

Yes. Insurable interest in property is not limited to property ownership in

the subject matter of the insurance. An insurable interest in property does not
necessarily imply a property interest in, or a lien upon, or possession of, the subject
matter of the insurance, and neither the title nor a beneficial interest is requisite to
the existence of such an interest.
(UCPB Gen. Ins. Co., Inc. vs. Asgard Corrugated Box Mfg. Corp., G.R. No.
244407, January 26, 2021)

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  Insurable interest in property is "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured.”

 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.

 Material Concealment/Misrepresentation

 Is it necessary for the insurer to prove fraudulent intent in cases of rescission due
to false representation?

Yes. The Insurance Code dispenses with proof of fraudulent intent in cases
of rescission due to concealment, but not so in cases of rescission due to false
representations. (The Insular Life Ass. Co., Ltd. vs. Heirs of Alvarez, G.R. Nos.
207526 & 210156, October 3, 2018)

 A concealment is the neglect to communicate that which a party knows and ought
to communicate.

 A concealment whether intentional or unintentional entitles the injured party to

rescind a contract of insurance. Thus, no proof of fraudulent intent is necessary.

 A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

 A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

 If a representation is false in a material point, whether affirmative or promissory,

the injured party is entitled to rescind the contract from the time when the
representation becomes false. (Sec. 45, R. A. No. 10607)

 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, R. A. No. 10607)

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  Double Insurance

 A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. (Sec. 93, R.A. No. 10607)

 The elements of double insurance are:

1) The subject matter is the same;

2) The interest insured is also the same; and
3) The risk or peril insured against is likewise the same.
4) Several insurers insuring separately;
5) Same person insured;

 Suicide Clause

 In defeating a life insurance claim on the ground of suicide, who has the burden of
proving the existence of the excepted risk?

The burden of proving an excepted risk or condition that negates liability

lies on the insurer and not on the Beneficiary. An insurer who seeks to defeat a
claim because of an exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the exception or limitation.
If loss is proved apparently within a contract of insurance, the burden is upon the
insurer to establish that the loss arose from a cause of loss which is excepted or for
which it is not liable, or from a cause which limits its liability. (Dela Fuente vs.
Fortune Life Insurance Co., Inc., G.R. No. 224863, December 2, 2020)

 The insurer in a life insurance contract shall be liable in case of suicide only
when it is committed after the policy has been in force for a period of two (2)
years from the date of its issue or of its last reinstatement, unless the policy
provides a shorter period:

 However, if suicide is committed in the state of insanity shall be compensable

regardless of the date of commission.

(Section 183, R. A. No. 10607)

Transportation Law
 Common Carrier vs. Private Carrier

A private carrier is one who, without making the activity a vocation, or without
holding himself or itself out to the public as ready to act for all who may desire his or its
services, undertakes, by special agreement in a particular instance only, to transport goods
or persons from one place to another either gratuitously or for hire.

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 In contrast, a common carrier is a person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering such services to the public.

 A freight forwarding entity and an accredited non-vessel operating is a common

carrier. As a common carrier, one of its obligations was to pick up the shipment and
then transport and deliver the same to the consignee's premises in good condition.
(Unitrans Int’l Forwarders, Inc. vs. Ins. Co. of North America, et. al., G.R. No.
203865, March 13, 2019)

 Vigilance Over Goods

 Can a common carrier be held liable for the loss of goods due to theft?

Yes. Under Article 1745 (6) of the New Civil Code, a common carrier is
held responsible — and will not be allowed to divest or to diminish such
responsibility — even for acts of strangers like thieves or robbers, except where
such thieves or robbers in fact acted "with grave or irresistible threat, violence
or force." (Annie Tan vs. Great Harvest Enterprises, Inc., G.R. No. 220400, March
20, 2019)

 Common carriers are obligated to exercise extraordinary diligence over the goods
entrusted to their care.

 A common carrier is fully responsible for the goods entrusted to him or her, unless
there is enough evidence to show that the loss, destruction, or deterioration of the
goods falls under any of the enumerated exceptions under the law.

 Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or

calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.

(Article 1734, New Civil Code)

 Liability of a common carrier

 Rules on the liability of a common carrier:

(1) Common carriers are bound to observe extraordinary diligence over the
goods they transport, according to all the circumstances of each case;

15
 (2) In the event of loss, destruction, or deterioration of the insured carriers
are goods, common responsible, unless they can prove that such loss,
destruction, or deterioration was brought about by, among others, "flood,
storm, earthquake, lightning, or other natural disaster or calamity"; and
(3) In all other cases not specified under Article 1734 of the Civil Code,
common carriers are presumed to have been at fault or to have acted
negligently, unless they observed extraordinary diligence.
In cases where cargos are lost, destroyed, or deteriorated, an action
based on the contract of carriage may be filed against the shipowner of the
vessel based on Civil Code provisions on common carrier.
||. | (Aleson Shipping Lines vs. CGU Int’l Ins. Plc., G.R. No. 217311, July 15, 2020)

 Contributory Negligence

 Contributory negligence is conduct on the part of the injured party, contributing as

a legal cause to the harm he has suffered, which falls below the standard to which
he is required to conform for his own protection.

 When the plaintiff's own negligence was the immediate and proximate cause of his
injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant's lack of due care,
the plaintiff may recover damages, but the courts shall mitigate the damages to be
awarded. (Art. 2179, New Civil Code)

 Doctrine of Last Clear Chance

 The doctrine of last clear chance provides that where both parties are negligent
but the negligent act of one is appreciably later in point of time than that of the
other, or where it is impossible to determine whose fault or negligence brought
about the occurrence of the incident, the one who had the last clear opportunity to
avoid the impending harm but failed to do so, is chargeable with the consequences
arising therefrom. Stated differently, the rule is that the antecedent negligence of
a person does not preclude recovery of damages caused by the supervening
negligence of the latter, who had the last fair chance to prevent the impending
harm by the exercise of due diligence. (Greenstar Express, Inc. vs. Universal
Robina Corp., G.R. No. 205090, October 17, 2016])

 Stipulation Limiting Liability

 a stipulation between the common carrier and the shipper or owner limiting the
liability of the former for the loss, destruction, or deterioration of the goods to a
degree less than extraordinary diligence shall be valid, provided it be:

(1) In writing, signed by the shipper or owner;

16
 (2) Supported by a valuable consideration other than the service rendered by
the common carrier; and
(3) Reasonable, just and not contrary to public policy.

(Article 1744, New Civil Code)

 Montreal Convention

 On liability for death or bodily injury to a passenger

a) Adopted a two-tier liability for death or bodily injury to a passenger.

The first tier imposes strict liability on the airline carrier for damage
sustained in case of death or bodily injury of a passenger

The carrier’s liability for damages shall not exceed 113,100 Special
Drawing Rights (“SDRs”).

b) The carrier’s liability immediately attaches for as long as the accident

which caused the death or injury took place on board the aircraft or in the
course of any of the operations of embarking or disembarking (Art. 17).
c) The burden of proof is on the carrier.
d) To avoid additional liability, the carrier must prove that the damage was
solely due to the negligence or wrongful act or omission of a third
party. (Article 21)
e) The defense that the carrier or its agents has taken all reasonable measures
to avoid the damage is no longer available under the Montreal Convention.

 Liability for Checked in Baggage

In the case of destruction, or loss of, or of damage to, checked-in

baggage, the carrier shall be liable for damages as long as the destruction, loss
or damage took place on board the aircraft or during any period within which the
checked baggage was under the carrier’s custody.

The passenger may claim higher amount than the limit only if he has
made a special declaration of interest at the time of check-in, and has paid a
supplementary sum if the case so requires. In such case, the carrier will be liable
to pay a sum not exceeding the declared sum.

The carrier may be held not liable if and to the extent that the damage
resulted from the inherent defect, quality or vice of the baggage.

17
  Liability for Unchecked Baggage (hand-carried)

In case of unchecked baggage, including personal items, the carrier

shall be liable if the damage resulted from its faults or that of its agents. (Article
17).

 Period to File a Complaint

In case of damage to baggage, the complainant must file his or her

written complaint within seven (7) days from the date of receipt of the checked-
in baggage.

In case of delay of delivery, on the other hand, the complaint must be

made at the latest within twenty-one (21) days from the date of receipt of the
baggage. (Art. 31)

Note:

The time limitations for filing complaints are important since no

action can lie against the carrier if the complaints were made beyond the
period stated.

Exception:

In the cases where the carrier employed fraud.

 Will the commission of willful misconduct by the employees of the airline limit
the liability under the Convention?

Carrier is not entitled to the limitation of liability if the damage is

caused by willful misconduct or default on its part. (Art. 25)

The Convention shall be inapplicable, where there was satisfactory

evidence of malice or bad faith attributable to its officers and employees.

Intellectual Property Code

 Patent

 Cancellation of Patents may be filed on any of the following grounds:

(a) That what is claimed as the invention is not new or patentable;

(b) That the patent does not disclose the invention in a manner sufficiently clear
and complete for it to be carried out by any person skilled in the art; or

18
 (c) That the patent is contrary to public order or morality.

(Sec. 61, R.A. No. 8293)

 Patent Ownership

1) The right to a patent belongs to the inventor, his heirs, or assigns.

2) When two (2) or more persons have jointly made an invention, the right to
a patent shall belong to them jointly.
(Sec. 28, R.A. 8293)
3) For inventions created pursuant to a commission, ownership shall belong to:

a) The person who commissions the work shall own the patent, unless
otherwise provided in the contract.
b) In case the employee made the invention in the course of his
employment contract, the patent shall belong to:

i. The employee, if the inventive activity is not a part of his

regular duties even if the employee uses the time, facilities
and materials of the employer.
ii. The employer, if the invention is the result of the
performance of his regularly-assigned duties, unless there is
an agreement to the contrary.

(Sec. 29, R.A. No. 8293)

 The First-to-File Rule

If two (2) or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to the person
who filed an application for such invention, or where two or more applications
are filed for the same invention, to the applicant who has the earliest filing date
or, the earliest priority date. (Sec. 29, R.A. 8293)

 The Prior User Rule

The Prior User rule provides that “any prior user, who, in good faith was
using the invention or has undertaken serious preparations to use the invention in
his enterprise or business, before the filing date or priority date of the application
on which a patent is granted, shall have the right to continue the use thereof as
envisaged in such preparations within the territory where the patent produces its
effect. (Sec. 73, R.A. No. 8293)

 Term of Patent shall be twenty (20) years from the filing date of the application.
(Sec. 54, R.A. 8293)

19
 Patent Infringement

 Patent Infringement is the making, using, offering for sale, selling, or importing a
patented product or a product obtained directly or indirectly from a patented
process, or the use of a patented process without the authorization of the patentee
constitutes patent infringement.

 The doctrine of equivalents provides that an infringement also takes place when a
device appropriates a prior invention by incorporating its innovative concept and,
although with some modification and change, performs substantially the same
function in substantially the same way to achieve substantially the same result.

 Copyright

 Copyright is "the right granted by statute to the proprietor of an intellectual

production to its exclusive use and enjoyment." It "may be obtained and enjoyed
only with respect to the subjects and by the persons, and on terms and conditions
specified in the statute." (Republic vs. Heirs of Tupaz IV, G.R. No. 197335,
September 7, 2020)

 Can someone who merely contributed to the development of a concept or idea claim
ownership of the copyright?

No. One who merely contributes concepts or ideas is not deemed an

author. The law on copyright only protects the expression of an idea, not the idea
itself. (Republic vs. Heirs of Tupaz IV, G.R. No. 197335, September 7, 2020)

 Copyright is "the right granted by statute to the proprietor of an intellectual

production to its exclusive use and enjoyment[.]" It "may be obtained and enjoyed
only with respect to the subjects and by the persons, and on terms and conditions
specified in the statute."

 Rules on Copyright Ownership

a) In the case of original literary and artistic works, copyright shall belong to
the author of the work;
b) In the case of works of joint authorship, the co-authors shall be the original
owners of the copyright and in the absence of agreement, their rights shall
be governed by the rules on co-ownership.

If, however, a work of joint authorship consists of parts that can be used
separately and the author of each part can be identified, the author of each
part shall be the original owner of the copyright in the part that he has
created;

20
 c) In the case of work created by an author during the course of his
employment, the copyright shall belong to:

i. The employee, if the creation of the object of copyright is not a part

of his regular duties even if the employee uses the time, facilities and
materials of the employer.
ii. The employer, if the work is the result of the performance of his
regularly-assigned duties, unless there is an agreement to the
contrary.

d) In the case of a work-commissioned by a person other than an employer of

the author and who pays for it and the work is made in pursuance of the
commission, the person who so commissioned the work shall have
ownership of work, but the copyright thereto shall remain with the creator,
unless there is a written stipulation to the contrary;
e) In the case of audiovisual work, the copyright shall belong to the producer,
the author of the scenario, the composer of the music, the film director,
and the author of the work so adapted. However, subject to contrary or
other stipulations among the creators, the producers shall exercise the
copyright to an extent required for the exhibition of the work in any
manner; and
f) In respect of letters, the copyright shall belong to the writer subject to the
provisions of Article 723 of the Civil Code.

 Fair Use Doctrine

Fair use is defined as "a privilege to use the copyrighted material in a reasonable
manner without the consent of the copyright owner or as copying the theme or
ideas rather than their expression."

Four factors to determine if there was fair use of a copyrighted work:

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

 Rights conferred by Copyright

Copyright or economic rights shall consist of the exclusive right to carry

out, authorize or prevent the following acts:

a) Reproduction of the work or substantial portion of the work;

21
 b) Dramatization, translation, adaptation, abridgment, arrangement or
other transformation of the work;
c) The first public distribution of the original and each copy of the work
by sale or other forms of transfer of ownership;
d) Rental of the original or a copy of an audiovisual or cinematographic
work, a work embodied in a sound recording, a computer program, a
compilation of data and other materials or a musical work in graphic
form, irrespective of the ownership of the original or the copy which is
the subject of the rental;
e) Public display of the original or a copy of the work;
f) Public performance of the work; and
g) Other communication to the public of the work. (Sec. 5, P.D. No. 49a)

 Limitations on Copyright

The following acts shall not constitute infringement of copyright:

(a) The recitation or performance of a work, once it has been lawfully made
accessible to the public, if done privately and free of charge or if made
strictly for a charitable or religious institution or society;

(b) The making of quotations from a published work if they are compatible
with fair use and only to the extent justified for the purpose, including
quotations from newspaper articles and periodicals in the form of
press summaries: Provided, That the source and the name of the
author, if appearing on the work, are mentioned;

(c) The reproduction or communication to the public by mass media of

articles on current political, social, economic, scientific or religious
topic, lectures, addresses and other works of the same nature, which
are delivered in public if such use is for information purposes and has
not been expressly reserved: Provided, That the source is clearly
indicated;

(d) The reproduction and communication to the public of literary, scientific

or artistic works as part of reports of current events by means of
photography, cinematography or broadcasting to the extent necessary
for the purpose; (Sec. 12, P.D. No. 49)

(e) The inclusion of a work in a publication, broadcast, or other

communication to the public, sound recording or film, if such
inclusion is made by way of illustration for teaching purposes and is
compatible with fair use: Provided, That the source and the name of
the author, if appearing in the work, are mentioned;

22
 (f) The recording made in schools, universities, or educational institutions
of a work included in a broadcast for the use of such schools,
universities or educational institutions: Provided, That such recording
must be deleted within a reasonable period after they were first
broadcast: Provided, further, That such recording may not be made
from audiovisual works which are part of the general cinema
repertoire of feature films except for brief excerpts of the work;

(g) The making of ephemeral recordings by a broadcasting organization by

means of its own facilities and for use in its own broadcast;

(h) The use made of a work by or under the direction or control of the
Government, by the National Library or by educational, scientific or
professional institutions where such use is in the public interest and is
compatible with fair use;

(i) The public performance or the communication to the public of a work,

in a place where no admission fee is charged in respect of such public
performance or communication, by a club or institution for charitable
or educational purpose only, whose aim is not profit making, subject
to such other limitations as may be provided in the Regulations; (n)

(j) Public display of the original or a copy of the work not made by means
of a film, slide, television image or otherwise on screen or by means
of any other device or process: Provided, That either the work has been
published, or, that the original or the copy displayed has been sold,
given away or otherwise transferred to another person by the author
or his successor in title; and

(k) Any use made of a work for the purpose of any judicial proceedings or
for the giving of professional advice by a legal practitioner.

(Sec.184, R.A. No. 8292)

 Nature of Copyright Infringement

Infringement of a copyright is a trespass on a private domain owned

and occupied by the owner of the copyright, and, therefore, protected by law,
and infringement of copyright, or piracy consists in the doing by any person,
without the consent of the owner of the copyright, of anything the sole right to
do which is conferred by statute on the owner of the copyright.

23
 Trademark

 What are the rights conferred by registration?

The owner of a registered mark shall have the exclusive right to prevent
all third parties not having the owner’s consent from using in the course of trade
identical or similar signs or containers for goods or services which are identical or
similar to those in respect of which the trademark is registered where such use
would result in a likelihood of confusion. (Sec. 147, R.A. 8293)

 Who has the better right over the mark, the registrant or the prior user?

The registered owner of the mark has the better right over the prior user of
the same mark. Under the law, ownership of a mark is acquired through registration
and the the rule that ownership of a mark is acquired through use has been
abandoned already.

Prior use no longer determines the acquisition of ownership of a mark in

light of the adoption of the rule that ownership of a mark is acquired through
registration made validly in accordance with the provisions of the IP Code. (Zuneca
Pharmaceutical vs. Natrapharm, Inc., G.R. No. 211850, September 8, 2020)

 The ownership of a trademark is acquired by its registration and its actual use by
the manufacturer or distributor of the goods made available to the purchasing
public.

 Section 138 provides that a certificate of registration of a mark shall be prima facie
evidence of the validity of the registration, the registrant's ownership of the mark,
and of the registrant's exclusive right to use the same in connection with the goods
or services and those that are related thereto specified in the certificate.

 The existence of bad faith in trademark registrations may be a ground for its
cancellation at any time by filing a petition for cancellation under Section 151 (b)
of the IP Code

 Registration of World-Famous Mark

"A mark which is considered by the competent authority of the Philippines to

be well-known internationally and in the Philippines, whether or not it is
registered here," cannot be registered by another in the Philippines.

It has been ruled that the essential requirement under Article 6bis of the Paris
Convention is that the trademark to be protected must be “well-known” in the
country where protection is sought.

24
 Who Determines if the trademark is well known ?

The power to determine whether a trademark is well-known lies in the

competent authority of the country of registration or use. The competent authority
would either be the registering authority if it has the power to decide this, or the
courts of the country in question if the issue comes before the courts.

 Who are the competent authorities that can declare a mark as well-known?

The competent authorities that can declare a mark as well-known are:

1) the courts
2) the Director General, and
3) the Director of the Bureau of Legal Affairs

(Suyen Corp. v. Danjaq LLC, G.R. No. 250800, July 6, 2021)

 What are the rights conferred by registration?

The owner of a registered mark shall have the exclusive right to prevent
all third parties not having the owner’s consent from using in the course of trade
identical or similar signs or containers for goods or services which are identical or
similar to those in respect of which the trademark is registered where such use
would result in a likelihood of confusion.

(Sec. 147, R.A. 8293)

 Can confusing similarity of trademarks be determined by using the holistic test?

No more. The Supreme Court hereby makes it crystal clear that the
use of the Holistic Test in determining the resemblance of marks has been
abandoned. (Kolin Electronics Co., Inc. vs. Kolin Phils. Int’l, Inc., G.R. No.
228165, February 9, 2021)

 The scope of protection afforded to registered trademark owners is not limited to

protection from infringers with identical goods. The scope of protection extends to
protection from infringers with related goods, and to market areas that are the
normal expansion of business of the registered trademark owners.

 The use of the Holistic Test in determining the resemblance of marks has been
abandoned.

 Is the registered owner of a mark deemed conclusive owner of the mark?

No. A certificate of registration may be cancelled if it is proven that the

registration was obtained fraudulently or contrary to the provisions of the

25
 Intellectual Property Code. (Medina vs. Global Quest Ventures, Inc., G.R. No.
213815, February 8, 2021)

 A certificate of registration accords the registrant a prima facie presumption of their

ownership of the mark. However, this presumption may be rebutted by proof
that the registration was obtained fraudulently or contrary to the provisions
of the Intellectual Property Code.|

 Is the mark AGENT BOND confusingly similar with the mark JAMES BOND?

Yes. The mark AGENT BOND resembles the registered mark JAMES
BOND and is likely to deceive or cause confusion. Thus, the same is not registrable.
(Suyen Corp. vs. Danjaq LLC, G.R. No. 250800, July 6, 2021)

 Trademark dilution is the lessening of the capacity of a famous mark to identify and
distinguish goods or services, regardless of the presence or absence of:

a) competition between the owner of the famous mark and other parties; or
b) likelihood of confusion, mistake or deception

 The two kinds of trademark dilution are:

a) dilution by tarnishment is association arising from the similarity between a

mark or trade name and a famous mark that harms the reputation of the
famous mark.
b) dilution by blurring is association arising from the similarity between a mark
or trade name and a famous mark that impairs the distinctiveness of the
famous mark.

 Absolute certainty of confusion or even actual confusion is not required to accord

protection to trademarks already registered with the IPO.

 The likelihood of confusion refers to two instances - a confusion of products or a

confusion of business. "Confusion of business exists when the products are non-
competing but related enough to produce confusion of affiliation.

 Trademark Infringement

 Elements of trademark infringement

1) The trademark being infringed is registered in the Intellectual Property

Office; however, in infringement of trade name, the same need not be
registered;
2) The trademark or trade name is reproduced, counterfeited, copied,
or colorably imitated by the infringer;

26
 3) The infringing mark or trade name is used in connection with the sale,
offering for sale, or advertising of any goods, business or services; or the
infringing mark or trade name is applied to labels, signs, prints, packages,
wrappers, receptacles or advertisements intended to be used upon or in
connection with such goods, business or services;
4) The use or application of the infringing mark or trade name is likely to cause
confusion or mistake or to deceive purchasers or others as to the goods or
services themselves or as to the source or origin of such goods or services or
the identity of such business; and
5) It is without the consent of the trademark or trade name owner or the assignee
thereof.

 Infringement of Trade Name

Trade nameis any designation which is adopted and used by person to

denominate goods which he markets, or services which he renders, or business
which he conducts, or has come to be so used by other.(Juan v. Juan, G.R. No.
221732, August 23, 2017)

A trade name need not be registered with the IPO before an

infringement suit may be filed by its owner against the owner of an infringing
trademark. All that is required is that the trade name is previously used in trade
or commerce in the Philippines. (Coffee Partners, Inc. vs. San Francisco Coffee
& Roastery, Inc., G.R. No. 169504, March 3, 2010)

 Unfair Competition

 Will the adoption of the mark "PISTA" for hams be confusingly similar to "FIESTA"
ham?

Yes, the marks Pista and Fiestaare confusingly similar. These marks are
similarly pronounced, have the same number of syllables, share common
consonants and vowels, and have the same general appearance in their respective
product packages. (San Miguel Pure Foods Co., Inc. vs. Foodsphere, Inc., G.R.
Nos. 217781 & 217788, June 20, 2018)

 The "true test," therefore, of unfair competition has thus been "whether the acts of
the defendant have the intent of deceiving or are calculated to deceive the ordinary
buyer making his purchases under the ordinary conditions of the particular trade to
which the controversy relates."

 The essential elements of unfair competition are:

a) Confusing similarity in the general appearance of the goods; and

b) Intent to deceive the public and defraud a competitor.

27
FRIA
 Concepts

 Insolvent shall refer to the financial condition of a debtor that is generally unable
to pay its or his liabilities as they fall due in the ordinary course of business or has
liabilities that are greater than its or his assets. (Sec. 4 (p), FRIA)

 Commencement Order refers to the order issued by the court under Section 16 of
the law and after it finds that the petition for rehabilitation is be sufficient in form
and substance (Sec. 4 (e), FRIA)

 Rehabilitation shall refer to the restoration of the debtor to a condition of

successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than
if it is immediately liquidated. (Sec. 4 (gg), FRIA)

 Rehabilitation Plan shall refer to a plan by which the financial well-being and
viability of an insolvent debtor can be restored using various means including, but
not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization, dacion en pago, debt-equity conversion and sale of the business (or
parts of it) as a going concern, or setting-up of new business entity as prescribed in
Sec 62, or other similar arrangements as may be approved by the court or creditors.
(Sec. 4 (ii), FRIA)

 Court-Supervised Rehabilitation

 The effectivity date of the Commencement Order shall be retroactive to the date of
filing of the petition for voluntary or involuntary proceedings. (FRIA, Sec. 4[d])

Unless earlier lifted by the court, the Commencement Order shall be effective for
the duration of the rehabilitation proceedings for as long as there is a substantial
likelihood that the debtor will be successfully rehabilitated. (FRIA, Sec. 21)

 Effects of the Commencement Order:

(a) vest the rehabilitation receiver with all the powers and functions under the
law, such as the right to review and obtain all records to which the debtor’s
management and directors have access, including bank accounts of
whatever nature of the debtor, subject to the approval by the court of the
performance bond filed by the rehabilitation receiver;
(b) prohibit, or otherwise serve as the legal basis for rendering null and void the
results of any extrajudicial activity or process to seize property, sell
encumbered property, or otherwise attempt to collect on or enforce a claim

28
 against the debtor after the commencement date unless otherwise allowed in
this Act, subject to the provisions of Section 50 of the law;
(c) serve as the legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the debtor’s
creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien
against the debtor’s property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor
to the court:

Attempts to seek legal or other recourse against the debtor outside these
proceedings shall be sufficient to support a finding of indirect contempt of
court.

(Sec. 17, FRIA)

 Effects of a Stay Order

The issuance of a Stay or Suspension Order shall have the following effects:

1) Suspend all actions or proceedings, in court or otherwise, for the

enforcement of claims against the debtor;
2) Suspend all actions to enforce any judgment, attachment or other
provisional remedies against the debtor
3) Prohibit the debtor from selling, encumbering, transferring or disposing
in any manner any of its properties except in the ordinary course of
business; and
4) Prohibit the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be provided
under the FRIA.

Under the Rehabilitation Rules, stay order is not automatic upon filing of a
petition for rehabilitation. The court has to issue a stay order. And, the court can
issue the stay order only if it finds the petition "sufficient in form and substance."

 Cram Down Power of the Rehabilitation Court

The court may approve a rehabilitation plan over the opposition of

creditors, holding a majority of the total liabilities of the debtor if, in its judgment,
the rehabilitation of the debtor is feasible and the opposition of the creditors is
manifestly unreasonable.

The court shall have the power to approve or implement the Rehabilitation
Plan despite the lack of approval, or objection from the owners, partners or
stockholders of the insolvent debtor. (Sec 68, FRIA)

29
  Out of Court Settlement

 Minimum Requirements of Out-of-Court or Informal Restructuring Agreements

and Rehabilitation Plans:

(a) The debtor must agree to the out-of-court or informal

restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven
percent (67%) of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five
percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent
(85%) of the total liabilities, secured and unsecured, of the debtor.

(Sec. 84, FRIA)

 Standstill Period is the period that may be agreed upon by the parties pending
negotiation and finalization of the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan contemplated herein shall be effective and
enforceable not only against the contracting parties but also against the other
creditors:

Requirements:

(a) such agreement is approved by creditors representing more than fifty

percent (50%) of the total liabilities of the debtor;
(b) notice thereof is published in a newspaper of general circulation in the
Philippines once a week for two (2) consecutive weeks; and
(c) the standstill period does not exceed one hundred twenty (120) days
from the date of effectivity.

The notice must invite creditors to participate in the negotiation for out-of-
court rehabilitation or restructuring agreement and notify them that said
agreement will be binding on all creditors if the required majority votes
prescribed in Sec. 84 of the law are met. (Sec. 85, FRIA)

AMLA

 Money Laundering

 Money laundering is a crime whereby the proceeds of an unlawful activity are

transacted, thereby making them appear to have originated from legitimate
sources. (Sec. 4, R. A. No. 9160)

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  Elements of money laundering offense:

a) There was an unlawful activity

b) Proceeds obtained from the unlawful activity
c) Transaction to make it appear that the proceeds came from legitimate source
d) Knowledge that the proceeds came from unlawful activity

 How committed?

 Money laundering is committed by any person who, knowing that any monetary
instrument or property represents, involves, or relates to the proceeds of any
unlawful activity:

(a) transacts said monetary instrument or property;

(b) converts, transfers, disposes of, moves, acquires, possesses or uses said
monetary instrument or property;
(c) conceals or disguises the true nature, source, location, disposition, movement
or ownership of or rights with respect to said monetary instrument or property;
(d) attempts or conspires to commit money laundering offenses referred to in pars
(a), (b) or (c);
(e) aids, abets, assists in or counsels the commission of the money laundering
offenses referred to in paragraphs (a), (b) or (c) above; and
(f) performs or fails to perform any act as a result of which he facilitates the
offense of money laundering referred to in paragraphs (a), (b) or (c) above.

“Money laundering is also committed by any covered person who, knowing that a
covered or suspicious transaction is required under this Act to be reported to the
Anti-Money Laundering Council (AMLC), fails to do so.”

(Sec. 4, R.A. No. 9160, as amended)

 Unlawful Activities (NO need to memorize. Just be familiar)

Unlawful activity’ refers to any act or omission or series or combination thereof

involving or having direct relation to the following:

(1) Kidnapping for ransom;

(2) Violation of the Comprehensive Dangerous Drugs Act of 2002;
(3) Violation of the Anti-Graft and Corrupt Practices Act;
(4) Plunder under R.A. No. 7080, as amended;
(5) Robbery and extortion;
(6) Jueteng and Masiao;
(7) Piracy on the high seas;
(8) Qualified theft;
(9) Swindling and Other Forms of Swindling;

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 (10) Smuggling;
(11) Violations of R.A. No. 8792 or the Electronic Commerce Act of 2000;
(12) Hijacking and other violations under R. A. No. 6235; destructive arson and
murder;
(13) Terrorism and conspiracy to commit terrorism under R.A. No. 9372;
(14) Financing of terrorism under the Terrorism Financing Prevention and
Suppression Act of 2012:
(15) Bribery and Corruption of Public Officers under the RPC, as amended;
(16) Frauds and Illegal Exactions and Transactions under the RPC, as amended;
(17) Malversation of Public Funds and Property under the RPC, as amended;
(18) Forgeries and Counterfeiting under the RPC, as amended;
(19) Violations of the Anti-Trafficking in Persons Act;
(20) Violations of the Revised Forestry Code of the Philippines, as amended;
(21) Violations of R. A. No. 8550 or the Philippine Fisheries Code of 1998;
(22) Violations of R.A. No. 7942 or the Philippine Mining Act of 1995;
(23) Violations of of the Wildlife Resources Conservation and Protection Act;
(24) Violation of the Nat’l Caves and Cave Resources Management Protection Act;
(25) Violation of the Anti-Carnapping Act of 2002;
(26) Illegal/Unlawful Possession, Manufacture, Dealing In, Acquisition or
Disposition of Firearms, Ammunition or Explosives;
(27) Violation of the Anti-Fencing Law;
(28) Violation of the Migrant Workers and Overseas Filipinos Act of 1995, as
amended;
(29) Violation of the Intellectual Property Code of the Philippines;
(30) Violation of the Anti-Photo and Video Voyeurism Act of 2009;
(31) Violation of R.A. No. 9775 or the Anti-Child Pornography Act of 2009;
(32) Violations of Special Protection of Children Against Abuse, Exploitation and
Discrimination Act;
(33) Fraudulent practices and violations of the Securities Regulation Code of 2000;
(34) Violation of the "Strategic Trade Management Act", in relation to the
proliferation of weapons of mass destruction and its financing;
(35) Violation of Sec. 254 of the NIRC of 1997, as amended, where the deficiency
basic tax due in the final assessment is in excess of Twenty-five million pesos
(P25,000,000.00) per taxable year, for each tax type covered and there has been
a finding of probable cause by the competent authority…
(36) Felonies and offenses of a similar nature that are punishable under the penal
laws of other countries.

 Covered Persons (NO need to memorize. Just be familiar)

 ‘Covered persons’, natural or juridical, refer to:

(1) banks, non-banks, quasi-banks, trust entities, foreign exchange dealers,

pawnshops, money changers, remittance and transfer companies and other
similar entities and all other persons and their subsidiaries and affiliates
supervised or regulated by the BSP;

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(2) insurance companies, pre-need companies and all other persons supervised or
regulated by the Insurance Commission (IC);

(3) (i) securities dealers, brokers, salesmen, investment houses and other similar
persons managing securities or rendering services as investment agent, advisor,
or consultant, (ii) mutual funds, close-end investment companies, common
trust funds, and other similar persons, and (iii) other entities administering or
otherwise dealing in currency, commodities or financial derivatives based
thereon, valuable objects, cash substitutes and other similar monetary
instruments or property supervised or regulated by the Securities and Exchange
Commission (SEC);

(4) jewelry dealers in precious metals, who, as a business, trade in precious metals,
for transactions in excess of One million pesos (P1,000,000.00);

(5) jewelry dealers in precious stones, who, as a business, trade in precious stones,
for transactions in excess of One million pesos (P1,000,000.00);

(6) company service providers which, as a business, provide any of the following
services to third parties: (i) acting as a formation agent of juridical persons; (ii)
acting as (or arranging for another person to act as) a director or corporate
secretary of a company, a partner of a partnership, or a similar position in
relation to other juridical persons; (iii) providing a registered office, business
address or accommodation, correspondence or administrative address for a
company, a partnership or any other legal person or arrangement; and (iv)
acting as (or arranging for another person to act as) a nominee shareholder for
another person;

(7) persons who provide any of the following services:

(i) managing of client money, securities or other assets;

(ii) management of bank, savings or securities accounts;
(iii) organization of contributions for the creation, operation or management
of companies; and
(iv) creation, operation or management of juridical persons or arrangements,
and buying and selling business entities.

“Notwithstanding the foregoing, the term ‘covered persons’ shall exclude

lawyers and accountants acting as independent legal professionals in relation to
information concerning their clients or where disclosure of information would
compromise client confidences or the attorney-client relationship: Provided, That
these lawyers and accountants are authorized to practice in the Philippines and shall
continue to be subject to the provisions of their respective codes of conduct and/or
professional responsibility or any of its amendments.”

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 (8) casinos, including internet and ship-based casinos, with respect to their casino
cash transactions related to gaming operations.

(9) Real estate developers and brokers;

(10) Offshore gaming operation, as well as their service providers, supervised,

accredited or regulated by PAGCOR or any government agency;

 Reportable Transactions

 Covered Transactions

 Covered transaction' is a transaction in cash or other equivalent monetary

instrument involving a total amount in excess of Five Hundred Thousand
Pesos (P500,000.00) within one (1) banking day.

 For covered persons casino operators, a single casino transaction involving

an amount in excess of Five Million Pesos (₱5,000,000.00) or its equivalent
in any other currency.

 For real estate dealers and brokers, a single cash transaction involving an
amount in excess of P7,500,000 or its equivalent in any other currency.

 Suspicious Transactions

 'Suspicious transaction' are transactions with covered institutions,

regardless of the amounts involved, where any of the following
circumstances exist:

(1) There is no underlying legal or trade obligation, purpose or economic

justification;
(2) The client is not properly identified;
(3) The amount involved is not commensurate with the business or
financial capacity of the client;
(4) Taking into account all known circumstances, it may be perceived that
the client’s transaction is structured in order to avoid being the subject
of reporting requirements under the law;
(5) Any circumstance relating to the transaction which is observed to
deviate from the profile of the client and/or the client’s past
transactions with the covered institution;
(6) The transaction is in any way related to an unlawful activity or offense
that is about to be, is being or has been committed; or
(7) Any transaction that is similar or analogous to any of the foregoing.

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 Safe Harbor Clause

 When reporting covered or suspicious transactions to the AMLC, covered

institutions and their officers and employees shall not be deemed to have violated
R.A. No. 1405, as amended, R.A. No. 6426, as amended, R.A. No. 8791 and
other similar laws, x x x.

No administrative, criminal or civil proceedings, shall lie against any person for
having made a covered or suspicious transaction report in the regular
performance of his duties in good faith, whether or not such reporting results in
any criminal prosecution under this Act of any other law.” (Sec. 9(c) of R.A.
9160 as amended by R.A. 9194)

 Freeze Orders

 May be issued upon a verified ex-parte petition by the AMLC

 Determination of the existence of probable cause exists that any monetary

instrument or property is in any way related to an unlawful activity

 May be issued only by the Court of Appeals

 freeze order which shall be effective immediately

 Initially valid for period of 20 days

 Within the 20-day period, the Court of Appeals shall conduct a summary
hearing, to determine whether or not to modify or lift the freeze order, or
extend its effectivity.

 The total period of the freeze order issued by the Court of Appeals shall not
exceed six (6) months.

 After 6 months, the freeze order shall be seemed ipso facto lifted.

 No court shall issue a temporary restraining order or a writ of injunction

against any freeze order, except the Supreme Court.

 Inquiry on Bank Deposits

 the AMLC may inquire into or examine any particular deposit or

investment, with any banking institution or non-bank financial institution

 Can be done only upon order of any competent court

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  Application for inquiry into bank deposits shall be based on an ex-parte
application

 There must be probable cause that the deposits or investments involved are
related to an unlawful activity

 Authority to inquire into bank deposits may include inquiry over related
accounts

 No court order shall be required in cases involving

a) Kidnapping for ransom

b) Violation of the Comprehensive Dangerous Drugs Act
c) Hijacking and other violations under R. A. No. 6235; destructive
arson and murder;
d) Felonies or offenses of a nature similar to those mentioned
above, which are punishable under the penal laws of other
countries, and
e) terrorism and conspiracy to commit terrorism

E-Commerce

 “Electronic Data Message” refers to information generated, sent, received or stored by

electronic, optical or similar means. (Sec. 5 (C), R. A. No. 8792)

 Rule on Electronic Data Message

Information shall not be denied validity or enforceability solely on the

ground that it is in the form of an electronic data message purporting to give rise
to such legal effect, or that it is merely incorporated by reference in that electronic
data message. (Sec. 6, R. A. No. 8792)

 “Electronic Document” refers to information or the representation of information, data,

figures, symbols or other modes of written expression, described or however represented,
by which a right is established or an obligation extinguished, or by which a fact may be
proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved
or produced electronically. (Sec. 5 (f), R. A. No. 8792)

 Rule on “Electronic Document”

Electronic documents shall have the legal effect, validity or

enforceability as any other document or legal writing.

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 For evidentiary purposes, an electronic document shall be the functional
equivalent of a written document under existing laws. (Sec. 7, R. A. No. 8792)

 “Electronic Signature” refers to any distinctive mark, characteristic and/or sound in

electronic form, representing the identity of a person and attached to or logically associated
with the electronic data message or electronic document or any methodology or procedures
employed or adopted by a person and executed or adopted by such person with the intention
of authenticating or approving an electronic data message or electronic document. (Sec. 5
(e), R. A. No. 8792)

 Rule on “Electronic Signature”

In any proceedings involving an electronic signature, it shall be

presumed that:

a) The electronic signature is the signature of the person to whom it

correlates; and
b) The electronic signature was affixed by that person with the intention
of signing or approving the electronic document, unless the person
relying on the electronically signed electronic document knows or has
notice of defects in or unreliability of the signature or reliance on the
electronic signature is not reasonable under the circumstances. (Sec.
9, R. A. No. 8792)

Admissibility and Evidential Weight of Electronic Data Messages or Electronic Documents

Rule:

In any legal proceedings, nothing in the application of the rules on evidence shall
deny the admissibility of an electronic data message or electronic document in evidence:

a) On the sole ground that it is in electronic form;

b) On the ground that it is not in the standard written form, and the electronic
data message or electronic document meeting, and complying with the
requirements under Secs. 6 or 7 shall be the best evidence of the agreement
and transaction contained therein. (Sec. 12, R. A. No. 8792)

In assessing the evidential weight of an electronic data message or electronic

document, the reliability of the manner in which it was generated, stored or
communicated, the reliability of the manner in which its originator was identified,
and other relevant factor shall be given due regard. (Sec. 12, R. A. No. 8792)

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SMC/ComBarNov2022

***

If you find this material helpful, a short prayer of thanks to HIM will
be enough to compensate the effort
that goes with the preparation of this work.

Good Luck and may God be with you in your Bar Exams
journey!!!

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