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COMMERCIAL LAW REMINDERS


Prof. Maria Zarah R. Villanueva-Castro
TRUSTRECEIPTS

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Whatisatrustreceipttransaction?

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A trust receipt as a security transaction


ction
ion in
iintended to aid in financing importers and retail
dealerswhodonothavesufficientfundsorresourcestofinancetheimportationorpurchaseof
unds o
merchandise, and who may not
be able to acquire credit except through utilization, as
not
ot be
b
collateral,ofthemerchandiseimportedorpurchased.(ROSARIOTEXTILEMILLSCORP.,ETAL.
e impor
mpor
vs. HOME BANKERS SAVINGS
& TRUST CO., G.R. No. 137232, 29 June 2005 citing Samo vs.
NGS &
People,115Phil.346)

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WhataretheobligationsoftheentrusteeinaTrustReceipttransaction?
ligations
gations
t Receip

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The entrustee
to (1) hold the goods,
documents or instruments in trust for the
eee is
is obliged
ob
ods,
s, doc
entrusterandshalldisposeofthemstrictlyinaccordancewiththetermsandconditionsofthe
and sha
sh
n accor
trustreceipt;(2)receivetheproceedsintrustfortheentrusterandturnoverthesametothe
pt; (
trust fo
ver
er t
entrustertotheextentoftheamountowedtotheentrusterorasappearsonthetrustreceipt;
owed t
arss on th
(3) insure the goods for their total
value against loss from fire, theft,
tal valu
heft, pilferage or other
casualties;(4)keepsaidgoodsortheproceedstherefromwhetherinmoneyorwhateverform,
r the pr
p
in
n mo
m n
separate and capable of identification
as property of the entruster;
entificat
ntificat
ntruster
truster (5) return the goods,
documentsorinstrumentsintheeventofnonsale
orupondemandoftheentruster;and(6)
in the
he
deman
observeallothertermsandconditionsofthetrustreceiptnotcontrarytotheprovisionsofthe
co
t not co
the
he
TrustReceiptsLaw.(METROPOLITAN BANKvs.SEC.GONZALES,etal.,G.R.No.180165,7April
ONZALES
NZALES
7 April
2009)

If the entrustee were to return the goods to
entruster as he was not ablee to sel
sell them,
o the en
se
wouldtheobligationsecuredbythetrustreceiptbeextinguished?Isdeficiencyclaimproper
eceipt
ceipt
ency
ncy cla
inatrustreceipttransaction?

NO. A trust receipt is a security agreement, pursuant to which a ba
bank
ank aacquires a security
interestinthegoods.xxxTheinitialrepossessionbythebankofthegoodssubjectofthetrust
th goo
the
receiptdidnotresultinthefullsatisfactionoftheloanobligation.Aclaimfordeficiencywould
tion.
ion. A c
thusbeinorder.(LANDL&COMPANYINC.,VS.METROPOLITANBANK&TRUSTCOMPANYG.R.
AN BA
No.159622,30July2004)




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Iftheentrusteeweretocancelthetrustreceiptandtakepossessionofthegoods,wouldthis
amounttodacionenpago?

Neithercansaidrepossessionamounttodacionenpago.Dationinpaymenttakesplacewhen
propertyisalienatedtothecreditorinsatisfactionofadebtinmoneyandthesameisgoverned
by sales.  Dation in payment is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the obligation. (Ibid,
citingPNBvs.Hon.Pineda,G.R.46658,13May1991)

nt
The repossession of the goods by the ent
entrustee
was merely to secure the payment of its
or the
obligation to the entrustor and not for
for
the purpose of transferring ownership thereof in
satisfactionoftheobligation.

LETTERSOFCREDIT

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Howdoestheindependenceprincipleapply
endence
tolettersofcredit?
of credit

Thesocalledindependenceprincipleassuresthesellerorthebeneficiaryofpromptpayment
indepen
ndepe
he sell
sel err
independent
of aany breach of the main contract
nt of
ontract and precludes the issuing bank from
determiningwhetherthemaincontractisactuallyaccomplishedornot.Underthisprinciple,
ng whe
actually
banks assume
m no liability or responsibility
ility
ty for
for the form, sufficiency, accuracy,
curacy
uracy genuineness,
falsification or legal effect of any documents,
conditions
ocument
cument or for the general and/or
or particular
partic
stipulated in the documents or superimposed
thereon, nor do they
any liability or
superimp
perimp
ey assume
assu
responsibilityforthedescription,quantity,weight,quality,condition,packing,delivery,valueor
n,, quant
on, pac
pa
existence of the goods represented
the good
faith or acts and/or
resented
res
ented by any documents, or for
r the
g
go
omissions,solvency,performanceorstandingoftheconsignor,thecarriers,ortheinsurersof
rmance
mance
gnor,
or, the
f
thegoods,oranyotherpersonwhomsoever.

The independence principle thus liberates the issuing
from the duty of ascertaining
ssuing
uing bank
b
ce taini
cer
compliance by the parties in the main contract.
The obligation under the letter
is
t.. The
r of
of credit
cr
cre
independentoftherelatedandoriginatingcontract.(TRANSFIELDPHILIPPINES,INC.vs.LUZON
ontract.
INC.
NC vs
HYDROCORPORATION,G.R.No.146717,22November2004)
Novem


Whatisastandbyletterofcredit?Howdoesitdifferfromacommercialletterofcredit?
ercial
rcial let
l

There are three significant differences between commercial


rcia and
rcial
an standby credit. First,
commercial credits involve the payment of money under a
a contract
co
of sale. Such credits
become payable upon the presentation by the sellerbeneficiary of documents that show he
hastakenaffirmativestepstocomplywiththesalesagreement.Inthestandbytype,thecredit
is payable upon certification of a partys nonperformance of the agreement. The documents
thataccompanythebeneficiarysdrafttendtoshowthattheapplicanthasnotperformedhis
obligation. The beneficiary of a commercial credit must demonstrate by documents that he
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hasperformedhiscontract.Thebeneficiaryofthestandbycreditmustcertifythathisobligor
hasnotperformedthecontract.(Ibid)


Howdoesaletterofcreditdifferfromacontractofguaranty?

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Theconcept ofguaranteevisvistheconceptofanirrevocableletterofcreditareinconsistent
witheachother.Theguaranteetheorydestroystheindependenceofthebanksresponsibility
from the contract upon which it was opened and the nature of both contracts is mutually in
off guarantee,
g
conflict with each other. In contracts of
the guarantors obligation is merely
efault o
collateralanditarisesonlyuponthedefaultofthepersonprimarilyliable.Ontheotherhand,
e bank
inanirrevocableletterofcredit,thebankundertakesaprimaryobligation.Moreover,aletter
geme
ementt by a bank or other person made at the request of a
of credit is defined as an engagement
honor
onor d
customerthattheissuershallhonordraftsorotherdemandsofpaymentuponcompliancewith
the
he cre
theconditionsspecifiedinthecredit.(MWSSvs.HON.REYNALDOB.DAWAY,G.R.
No.160732,
21June2004).

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ExplaintheSHELTERRULE.

INSTRU
NSTRU
NEGOTIABLEINSTRUMENTS

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Aholderwhoisnotaholderinduecoursebutderiveshistitlethroughaholderinduecourse,
due co
rough
ough
and who is not himself a party
to any fraud or illegality affecting
the instrument, has all the
arty to
cting
ing the
th
rightsofsuchformerholderinrespectofallpartiespriortothelatter.(Section58,NIL)
r in re
thee latte


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Whenthedraweebankpaysamateriallyalteredcheck,canitclaimreimbursementfromthe
heck,
ck, ca
rom the
drawer?

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Whenthedraweebankpaysamateriallyalteredcheck,itviolatesthetermsofthecheck,as
ered che
ch
f the ch
c
well as its duty to charge its clients account
he h
had made.
ntt only
only for bona fide disbursements
nts
ts he
Sincethedraweebankdidnotpayaccordingtotheoriginaltenoroftheinstrument,asdirected
strumen
by the drawer, then it has no right to claim reimbursement from the drawer
drawer, much less, the
right to deduct the erroneous payment it made from the drawers
which it was
erss account
ac
acc
expectedtotreatwithutmostfidelity.(METROBANKvs.CABILZO,06DECEMBER2006)
06 DECE

Exception:whenthedrawerwastheonewhomadeorauthorizedthealterationorwhenhe
orize
failedtoexercisereasonablediligencetoavoidit.(ibid)




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Distinguishbetween:contractofindorsementand guaranty.

Acontractofindorsementisprimarilythatoftransfer,whileacontractofguarantyisthatof
personalsecurity.Theliabilityofaguarantor/suretyisbroaderthanthatofanindorser.Thus,
unlessthebillispromptlypresentedforpaymentatmaturityandduenoticeofdishonorgiven
totheindorserwithinareasonabletime,hewillbedischargedfromliabilitythereon.Onthe
otherhand,exceptwhererequiredbytheprovisionsofthecontractofsuretyship,ademandor
noticeofdefaultisnotrequiredtofixthesuretysliability.Hecannotcomplainthatthecreditor
has not notified him in the absence of special agreement to that effect in the contract of
suretyship. (ALLIED BANKING CORP. vs. CO
COURT OF APPEALS, et al., G.R. No.125851, 11 July
2006)


r from
from liability
l
Will discharge of the drawer
due to lack of protest operate to discharge him
aking
king which
w
from his letter of undertaking
he signed as additional security for the draft (bill of
exchange)?

ill be m
f unde
Thedrawercanstillbemadeliableundertheletterofundertakingevenifheisdischargeddue
rotest
otest th
rafts.
fts. xx
tofailuretoprotestthenonacceptanceofthedrafts.xxxItbearsstressingthatitisaseparate
m the si
s
e drawe
contractfromthesightdraft.Theliabilityofthedrawerundertheletterofundertakingisdirect
ary.
ry Itt is
ility
ity und
andprimary.Itisindependentfromhisliabilityunderthesightdraft.Liabilitysubsistsoniteven
d
naccep
RODU
ODU
if the sight dr
draft was dishonored for nonacceptance
or nonpayment. (PRODUCERS
BANK OF
NC., G.R
THEPHILS.vs.EXCELSAINDUSTRIES,INC.,G.R.No.152071,8May2009)

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rty?
ty? Wh
lity?
ty?
Whoisanaccommodationparty?Whatisthenatureofhisliability?

one
equisite
tyy
Anaccommodationpartyisonewhomeetsallthethreerequisites,viz:(1)hemustbeaparty
r, or
ceive
eive
to the instrument, signing as maker, drawer, acceptor,
or ind
indorser; (2) he must not receive
of lendin
e other
valuetherefor;and(3)hemustsignforthepurposeoflendinghisnameorcredit
tosomeother
person.

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nstrum
ven tho
th
The accommodation party is liable on the instrum
instrument
to a holder for value even
even
though the
kne
an acco
holder,atthetimeoftakingtheinstrument,knewhimorhertobemerelyanaccommodation
en an a
party,asifthecontractwasnotforaccommodation.Therelationbetweenanaccommodation
hee acco
partyandtheaccommodatedpartyisoneofprincipalandsuretytheaccommodationparty
511,
11, SEP
being thesurety.(ANGvs.ASSOCIATEDBANK,ETAL.,G.R.NO.146511,SEPTEMBER5,2007)


nt without the consent of the
The accommodated party was allowed extension of payment
accommodationparty.Isthelatterstillliable?

Sincetheliabilityofanaccommodationpartyremainsnot onlyprimarybutalsounconditional
toaholderforvalue,eveniftheaccommodatedpartyreceivesanextensionoftheperiodfor

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thepaymentwithouttheconsentoftheaccommodationparty,thelatterisstillliableforthe
wholeobligationandsuchextensiondoesnotreleasehimbecauseasfarastheholderforvalue
isconcerned,heisasolidarycodebtor.(Ibid.)


Acheck,payabletotheorderofXandYwasdepositedtoabank(collectingbank)withthe
lone indorsement of X. X, subsequently withdrew the entire proceeds thereof. State the
implications.

rde
de
Whereaninstrumentispayabletotheorderoftwoormorepayeesorindorseeswhoarenot
nee indo
partners,allmustindorseunlesstheoneindorsinghasauthoritytoindorsefortheothers.The
ssing in
paymentofaninstrumentoveramissingindorsementistheequivalentofpaymentonaforged
indo
nd rse
se
indorsementoranunauthorizedindorsementinitselfinthecaseofjointpayees.

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check is
i
Acollectingbank,whereacheckisdepositedandwhichindorsesthecheckuponpresentment
s an indo
ind
dorsin
ors
withthedraweebank,isanindorser.Thisisbecauseinindorsingachecktothedraweebank,a
ps the b
phrase
collectingbankstampsthebackofthecheckwiththephrase"allpriorendorsementsand/or

ent
nt guaranteed"
gu
gua
and, for all intents
nts and
an purposes, treats the check as a
and
lack of endorsement
negotiable instrument,
of an indorser. Without the collecting
trument
umen hence, assumes the warranty
rranty
ranty o
bankswarranty,thedraweebankwouldnothavepaidthevalueofthesubjectcheck.
anty, the
th
ave
ve paid

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The collecting
cting
ting bank or last indorser, generally
nerally
erally suffers the loss because it
t has the duty to
ascertainthegenuinenessofallpriorindorsementsconsideringthattheactofpresentingthe
ndorsem
act
ct of
check for payment to the drawee is an
that the party making
the presentment has
an assertion
ass
ng the

doneitsdutytoascertainthegenuinenessofpriorindorsements.
nuinenes
uinene
(METROBANKvs.BAFINANCE
MET
ETROBA
CORPORATION,G.R.No.179952,4December2009)
52,, 4 Dec

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Cantheholdersuethedraweebankifthelatterrefusespaymentofachecknotwithstanding
ses
es paym
nding
ding
sufficiencyoffunds?

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NO.Acheckofitselfdoesnotoperateasanassignmentofanypartofthefundstothecreditof
ssignme
ssignmen
to
o the cr
thedrawerwiththebank,andthebankisnotliabletotheholder,unlessanduntilitacceptsor
ott liable
bl
until it
certifies the check(Section 189, NIL). Thus, if aa bank refuses to pay a check
eckk (notwithstanding
(not
the sufficiency of funds), the payeeholder cannot sue the bank. The
payeeholder should
e paye
insteadsuethedrawerwhomightinturnsuethebank.Section189isasoundlawbasedon
9 is a so
logic and established legal principles; no privity of contract exists
the draweebank
tss between
betw
andthepayee.(VILLANUEVAvs.NITE,G.R.No.148211,25July2006)
2006)
2006)

Doesthealterationontheserialnumberofthecheckconstitutematerialalteration?

The alterations on the serial numbers do not constitute material alteration within the
contemplationoftheNegotiableInstrumentsLaw.Analterationissaidtobematerialifitalters
theeffectoftheinstrument.Itmeansanunauthorizedchangeinaninstrumentthatpurports

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to modify in any respect the obligation of a party or an unauthorized addition of words or
numbersorotherchangetoanincompleteinstrumentrelatingtotheobligationofaparty.In
other words, a material alteration is one which changes the items which are required to be
statedunderSection1oftheNIL.(THEINTERNATIONALCORPORATEBANK,INC.v.COURTOF
APPEALS,G.R.No.129910,September5,2006)

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Distinguishbetween:inlandandforeignbillofexchange.

Aninlandbillofexchangeisabillwhichisoronitsfacepurportstobe,bothdrawnandpayable
or
withinthePhilippines(Sec.129,NIL).Thus,aforeignbillofexchangemaybedrawnoutsidethe
Thus,
us, a f
Philippines, payable outside the Philippines,
or both drawn and payable outside of the
Philippin
Philippines (BANK OF PHILIPPINE
ISLANDS
E ISL
IS
AND
ND vs. CIR, G.R. No. 137002, 27 July 2006).  Further, a
foreign bill of exchange must be
be pro
protested in case of dishonor to charge the drawer and the
indorserswhileaninlandbillofexchangeneednotbeprotested.
illl of exc


Whatisamanagerscheck?
ers
rs chec
che

Amanagerscheckisonedrawnbythebanksmanageruponthebankitself.Itissimilartoa
s check
s manag
mana
cashierscheckbothastoeffectanduse.Acashierscheckisacheckofthebankscashieron
check
heck b
A cashie
hisownoranothercheck.Ineffect,itisabillofexchangedrawnbythecashierofabankupon
an
a bill of
shier
hie o
thebankitself,andacceptedinadvancebytheactofitsissuance.Itisreallythebanksown
nce by
s really
eally
checkandmaybetreatedasapromissorynotewiththebankasamaker.Thecheckbecomes
omissory
missory
maker.
ker. T
the primary obligation of the bank
bank
which issues it and constitutes
promise to pay
ank wh
ess its
its written
w
upondemand.Themereissuanceofitisconsideredanacceptancethereof.(EQUITABLEPCIvs.
uance o
ance
nce the
th
ONG15September2006)

Discusstheeffectsofcertifyingacheck.

Theeffectsare:
1) Itisequivalenttoacceptanceandistheoperativeactthatmakesthebankliable.
e opera
k liable.
liable
2) Itamountstotheassignmentofthefundsofthedrawerinthehandsofthedrawee.
unds
of the d
3) Ifobtainedbytheholder,personssecondarilyliablearedischarged.
d.


Explainthemeaningofcheckkiting.

It refers to the wrongful practice of taking advantage of the
the
the time that elapses
he float,
f
betweenthedepositofthecheckinonebankanditscollectionatanother.Inanticipationof
thedishonorofthecheckthatwasdeposited,theoriginalcheckwillbereplacedwithanother
worthless check. (Notes and Cases on Banks, Negotiable Instruments and other Commercial
Documents,Aquino,2006ed)

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INSURANCE

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Thepolicyreads:TheinsuranceofanyeligibleLotPurchasershallbeeffectiveonthedatehe
contractsaloanwiththeAssured.However,thereshallbenoinsuranceiftheapplicationofthe
Lot Purchaser is not approved by the Company. It would appear that at the time of loss, a
loan has been contracted with the Assured but it is not clear whether the Insurer has
approvedtheinsuranceapplication.Whenshouldthepolicybedeemedeffective?

While one provision appears to state that the insurance coverage of the clients of Assured
alreadybecameeffectiveuponcontractingaloanwiththeAssured,anotherappearstorequire
ga
theInsurertoapprovetheinsurancecontractbeforethesamecanbecomeeffective.
ontract
ntract

It must be remembered that an ins
insurance
contract is a contract of adhesion which must be
in
ura
ra
construedliberallyinfavoroftheinsuredandstrictlyagainsttheinsurerinordertosafeguard
the
he ins
ns
the latters interest. Thus, the
the va
vague contractual provision must be construed in favor of the
insuredandinfavoroftheeffectivityoftheinsurancecontract.
hee effec
ract
ac

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Theseeminglyconflictingprovisionsmust
beharmonizedtomeanthatuponapartyspurchase
nflicting
flicting
ized to
of a memorial lot
on installment from the Assured,
lot
ot on
ured,
red, an
a insurance contract covering the lot
purchaser is
created and the same is effective,
s create
tive,
ve, valid,
val and binding until terminated by the
Insurer by
the insurance application.
y disapproving
disap
plication.
cation. The second sentence is in the nature of a
resolutory co
condition which would lead to
to
the cessation of the insurance contract.
Moreover,
o the
contr
ont
themereinactionoftheinsurerontheinsuranceapplicationmustnotworktoprejudicethe
the
he insu
t work t
insured;itcannotbeinterpretedasaterminationoftheinsurancecontract.Theterminationof
s a term
ontract.
theinsurancecontractbytheinsurermustbeexplicitandunambiguous.
nsurer
mbiguou
biguo (ETERNALGARDENS
MEMORIALPARKvs.PHILAMLIFE,G.R.No.166245,09April2008)
MLIFE, G.
08)
8)

Does the buyer have insurable
even while the goods are stilll in
in
b interest over the goods
ds even
eve
transit?

YES.Thebuyersinterestisbasedontheperfectedcontractofsale.Theperfectedcontractof
cted
ed con
d contr
cont
salebetweenhimandtheseller/shipperofthegoodsoperatestovestinhimanequitabletitle
he good
n equita
even before delivery or before he performed
The contract of
med the conditions of the sale.
e. The
shipment, whether under F.O.B., C.I.F., or C & F is immaterial in the
of
the determination
de
det
whetherthebuyerhasinsurableinterestornotinthegoodsintransit.(FILIPINOMERCHANTS
t. (FILIPI
INSURANCECO.vs.CA,28November1989)

Distinguishbetween:LossPayableClauseandStandardorUnionMortgageClause.
nion
ion Mo

UnderaLossPayableClause,themortgageeismademerelyabeneficiaryunderthecontract.
Anydefaultonthepartofthemortgagor,whichbythetermsofthepolicydefeathisrights,will
alsodefeatallrightsofthemortgageeunderthecontract,eventhoughthelattermaynothave
been in any fault. On the other hand, a Standard or Union Mortgage Clause create collateral
independentcontractsbetweentheinsurerandthemortgageeandprovidethattherightsof
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themortgageeshallnotbedefeatedbytheactsordefaultsofthemortgagor.(Vance,pp.654
655)

WhatisaMortgageRedemptionInsurance?

A Mortgage Redemption Insurance is a group insurance policy of mortgagors which is
intendedasadevicefortheprotectionofboththemortgageeandthemortgagor.

On the part of the mortgagee, it has to enter into such contract so that in the event of the
urin
rin the subsistence of the mortgage contract, the
unexpected demise of the mortgagor during
applied to the payment of the mortgage debt, thereby
proceeds from such insurance will be applied
gor from
relieving the heirs of the mortgagor
from paying the obligation. In a similar vein, ample
gagor
gor suc
protectionisgiventothemortgagorsuchthatintheeventofdeath,themortgageobligation
e application
appl
will be extinguished by the
of the insurance proceeds to the mortgage
tly,
y, where
whe the mortgagor pays the insurance premium under the
indebtedness. Consequently,
makin
mo
mort
group insurance policy,, making
making the loss payable to the mortgagee,
the insurance is on the
, and the
th
e a par
mortgagor'sinterest,andthemortgagorcontinuestobeapartytothecontract.Inthistypeof
the mor
e of th
policyinsurance,themortgageeissimplyanappointeeoftheinsurancefund,suchlosspayable
t make
hee contt
clausedoesnotmakethemortgageeapartytothecontract.(GREATPACIFICLIFEASSURANCE
A, 316 SC
S
CORP.vs.CA,316SCRA677)

ct
brogatio
ogatio
Inacontractofinsurance,howdoessubrogationtakeplace?

an inde
mage to
Uponpaymenttotheconsigneeofanindemnityforthelossofordamagetotheinsuredgoods,
brogatio
rogatio
a caus
theinsurersentitlementtosubrogationprotantoequipsitwithacauseofactionincaseofa
igence. In the exercise of its subrogatory
brogator
ogato right, an insurer may
contractual breach or negligence.
carrie
oses,
ses, it
itt stands in the place and in
n
proceed against an erring carrier.To
all intents and purposes,
ORP
RPORA
ORA
OME
ME
substitution of the consignee.(FEDERAL EXPRESS CORPORATION
vs. AMERICAN HOME
MPANY,
PANY, I
us 18,
ust
ASSURANCECOMPANYandPHILAMINSURANCECOMPANY,INC.,G.R.No.150094,August18,
2004)

Statetheexceptionstothesubrogationrule.

Thereisnosubrogationinthefollowingcases:

from
rom lia
(1) Whentheinsured,byhisownact,releasesthepartyatfaultfromliability.
carrier
ca
rrier
(2) Whentheinsurerpaystheinsuredwithoutnotifyingthecarrierwhohasingoodfaith
settledtheinsuredsclaimforloss.
rom
(3) Whentheinsurerpaystheinsuredforalossexceptedfromthepolicy.
(4) Whenlifeinsuranceisinvolved.



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Inwhatcasesisthedesignationofbeneficiaryinlifeinsurancevoidduetodisqualifications
underthelaw?

Inthefollowingcases,thedesignationofbeneficiaryisvoid:

(a) Thosemadebetweenpersonswhowereguiltyofadulteryorconcubinageatthetimeof
thedonation;
(b) Those made between persons found guilty of the same criminal offense, in
considerationthereof;
sw
(c) Thosemadetopublicofficerorhiswife,descendantsandascendants,byreasonofhis
office.

plies
es to
o life insurance (Article 2012, NCC) and the insurance
(NOTE: The disqualification applies
only
nly the
contractitselfremainsvalid, onlythedesignationofbeneficiaryisvoid.)

ilities
lities w
mm
Underthepolicy,disabilitieswhichexistedbeforethecommencementoftheagreementare
ome ma
om
m its ef
e
excludedif theybecomemanifest
within one yearfromitseffectivity.The
insuredallegedly
ntment
ment b
who w
preventedpresentmentbytheinsurerofthedoctorwhowilltestifyonhermedicalcondition
e doctor
docto
urer
er thu
u
becauseofthedoctorpatientprivilege.Theinsurerthusassumedthatthetestimonywould
as it wa
e insure
beadverse asitwaswillfullysuppressedbytheinsured.Decidewhethertheinsurerisliable.

ab
b
ontracts
ntracts that when their terms contain
ntai limitations on
ntain
It is an established
rule in insurance contracts
rictly
ictly ag
e contra
ontra
liability,theyshouldbeconstruedstrictlyagainsttheinsurer.Thesearecontractsofadhesion
erpreted
preted and enforced stringently aagainst
gainst the insurer which
the terms of which much be interpreted
CROSS HEALTH CARE, INC. vs. OLIVARES,
IVARES
VARE G.R. No. 169737, 12
prepared the contract.  (BLUE CROSS
February2008)

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thee insu
nsu
pre
re
Theinsurerneverpresentedanyevidencetoprovethattheinsuredsstrokewasduetoapre
octors
ctors report would be adverse to
to the
the
existing condition. It merely speculated that the doctors
privilege
ivilege
esu
sumptio
insuredbasedonherinvocationofdoctorpatientprivilege.Thiswasadisputablepresumption
atbest.(Ibid)

e insu
victim?
Inathirdpartyliabilityinsurance,couldtheinsurerbesueddirectlybythevictim?Couldthe
insurerbemadesolidarilyliablewiththeinsuredorthewrongdoer?

The
h insu
Thevictimmayproceeddirectlyagainsttheinsurerforindemnity.Theinsuranceisintendedto
by innocent
inno
nno
provide compensation for death or bodily injuries suffered by
third parties or
r vehicles.
vehicle The victims and their
passengers as a result of the negligent operation of motor
gard
dependentsareassuredofimmediatefinancialassistance,regardlessofthefinancialcapacity
ofvehicleowners.

Bethatasitmay,thedirectliabilityoftheinsurerunderindemnitycontractsagainstthirdparty
liabilitydoesnotmeanthattheinsurercanbeheldliableinsolidumwiththeinsuredand/or
theotherpartiesfoundatfault.Fortheliabilityoftheinsurerisbasedoncontract,thatofthe
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insured carrier is based on tort. (WILLIAM TIU AND VIRGILIO TE LAS PIAS vs. PEDRO A.
ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO AND PHIL PHOENIX SURETY AND
INSURANCE,INC.[G.R.No.138060,01September2004)Thethirdpartyliabilityoftheinsureris
onlyuptotheextentoftheinsurancepolicyandthatrequiredbylaw;anditcannotbeheld
solidarily liable for anything beyond that amount. Any award beyond the insurance coverage
wouldalreadybethesoleliabilityoftheinsuredand/ortheotherpartiesatfault.(THEHEIRS
OFGEORGEPOEvs.MALAYANINSURANCECOMPANY,INC.,G.R.156302,7April2009)

Inwhatcasesisthepolicybindingevenifpremiumisunpaid?

n case
ase
(1) Whenthegraceperiodappliesincaseoflifeandindustriallifepolicy;
gement
(2) Whenthereisanacknowledgementinthepolicyofreceiptofpremium;
ent
nt that
at
(3) Whenthereisanagreementthatthepremiumshallbepayableoninstallment;
extensi
(4) Whenthereisacreditextension;and
e doctrin
(5) Whentheequitabledoctrineofestoppelapplies(SummarybasedontherulinginUCPB
ANCE
NCE vs
NC.,
GENERALINSURANCEvs.MASAGANATELAMART,INC.,G.R.137172,04April2001)

f premiu
Whenisreturnofpremiumwarranted?

remium
ngg cases
case
Returnofpremiumiswarrantedinthefollowingcases:

th
ed to the
c.. 78,
(1) Thethinginsuredwasnotexposedtotheperiodinsuredagainst(Sec.78,ICP)
ore the
ec. 79, IC
(2) Timepolicyissurrenderedbeforethestipulatedperiodlapses(Sec.79,ICP)
uee to
to fa
f the
the insurer
in
(3) The contract is voidable due
fault or misrepresentation of
or default of
ctual fra
theinsuredotherthanactualfraud(Sec.81,
ICP)
veral ins
(4) Overinsurancebyseveralinsurers(Sec.82,ICP)

policy?
Whatdevicesareusedtopreventlapseoflifeinsurancepolicy?

wing
ng de
e od; (b)
(
To prevent lapse of life insurance policy, the following
devices are used: (a) grace per
period;
idend;
dend; and (d) restatement clause.
se.
e. (Aquino,
(A
(Aq
automatic policy loan; (c) application of dividend;
Essentialsof InsuranceLaw,p.80)

WhatisanAllRisksinsurancepolicy?

n those
those due to willful and
An All Risks insurance policy covers all kinds of loss other than
PPEALS,
fraudulentactoftheinsured.(MAYERSTEELPIPEvs.COURTOFAPPEALS,274SCRA432)

Whatisanindustriallifeinsurance?

Anindustriallifeinsuranceisonewherethepremiumsarepayableeithermonthlyoroftener,if
thefaceamountoftheinsuranceprovidedinanypolicyisnotmorethan500timesthatofthe
currentstatutoryminimumdailywageintheCityofManila,andifthewordsindustrialpolicy
areprinteduponthepolicyaspartofthedescriptivematter.(Sec.229,ICP)
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Whatarecovernotes?Whatarethelimitationsontheissuanceofcovernotes?

Cover notes are interim or preparatory contracts of insurance. An interim coverage may be
necessarybecausetheinsurermayneedmoretimetoprocesstheinsuranceapplication.The
issuanceofcovernotesissubjecttothefollowing:

(1) IssuanceorrenewalisuponapprovaloftheInsuranceCommission.
(2) Durationisnotmorethan60daysfromissuance.
n pr
p
(3) Cancellationbyeitherpartyisuponprior7daynoticetotheother.
60
0 days
(4) Mainpolicytobeissuedwithin60daysaftercovernotewasissued.
e is subj
(5) Extensionof60daycoverageissubjecttoInsuranceCommissionsapproval.

e origina
Inreinsurance,whendoestheoriginalinsuredhavedirectrecourseagainstthereinsurer?

ayy direct
rein
ei
Theoriginalinsuredmaydirectlysuethereinsurerifthereinsurancepolicyclearlycontainsa
ui in his
wever,
ever,
stipulationpourautruiinhisfavor.Suchstipulation,however,shouldnot,inanyway,affector
al insure
insur
l insure
insur
curtail,theoriginalinsuredsrecoursetotheoriginalinsurerandthelattersrecourseagainst
thereinsurer.

hee Inchm
chm
nsuranc
suranc
ExplaintheInchmareeClauseinamarineinsurance.

olicy
icy to
ugh the
This is a clause included in a hull policy
to cover loss or damage through
the bursting of the
ugh
h laten
y orr equ
boiler,breakingofshaftsorthroughlatentdefectsofthemachineryorequipment,hullorits
or in n
ors
f the v
appurtenancesandfaultsorerrorsinnavigationormanagementofthevessel.(CEBUSHIPYARD
vs. WILL
. No. 13
ENGINEERINGWORKS,INC.vs.WILLIAMLINES,INC.,etal.,G.R.No.132607,05May1999)The
y provided
provi
e
clause should be expressly
for because damage of
of this
this ssort are not included in the
)
termperilsofthesea. (Ibid.)

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rance.
nce.
Statetherequisitesofcoinsuranceinmarineinsurance.

o the fol
must be
b
Coinsuranceinmarineinsuranceissubjecttothefollowingrequisites:(a)theremustbepartial
an th
ured.
red.
loss;and(b)theinsurancecoverageislessthanthevalueofthepropertyinsured.

ExplaintheFPAClause.

f the in
FPAorFreefromParticularAverage)clauselimitstheliabilityoftheinsurerincaseofpartial
loss.(Sec.136,ICP)

Whataretherulesonclaimsunderthenofaultindemnityprovision?

Proofoffaultornegligenceisnotnecessaryforpaymentofanyclaimfordeathorinjurytoa
thirdpartysubjecttothefollowing:

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(1) Aclaimmaybemadeagainstonemotorvehicleonly.
(2) If the victim is an occupant of a vehicle, his claim shall lie against the insurer of the
vehicleinwhichheisriding,mountingordismountingfrom.
(3) If the victim is not an occupant, the claim shall lie against the insurer of the directly
offendingvehicle.
(4) Inanycase,righttorecoverfromtheowneroftheresponsiblevehicleshallremain.
(5) TotalindemnityinrespectofanypersonshallnotexceedP15,000.00.(ICMemoCircular
42006)
(6) Proofs of loss shall consist of: (a) police report; (b) death certificate; and (c) medical
ho
hos
reportandevidenceofmedicalorhospitaldisbursement.

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TR
TRANSPORTATION

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Isatravelagencyacommoncarrier?
on
n carrie
carri

No.Atravelagencyisnotanentityengagedinthebusinessoftransportingeitherpassengersor
s not an
ness
ss of t
goods.Itscovenantwithitscustomersissimplytomaketravelarrangementsintheirbehalf.Its
nt with i
ake trav
tra
services include
tickets and facilitating
travel
e procuring
proc
procu
ngg trav
tra
e permits or visas as well as booking
customersfortours.(CRISOSTOMOvs.CA,G.R.No.138334.25August2003)
or tours
No. 138

Explaintheregisteredownerrule.Whatisthepurposeoftherule?
re
iss the p

Regardlessofwhotheactualownerisofamotorvehiclemightbe,theregisteredowneristhe
err is of
he regis
operator of the same with respect
pect to
to the public and third persons,
ons,
ns, and
an as such, directly and
primarily responsible for the
consequences of its operation.. In
contemplation of law, the
he cons
IIn con
co
owner/operator of record is
the employer of the driver, the
operator and employerr
is the
the
he actual
act
being consideredmerelyashisagent.

Themainpurposeofvehicleregistrationistheeasyidentificationoftheownerwhocanbeheld
y identifi
dentifi
an
n bee he
responsible for any accident, damage or injury
caused by the vehicle. Easy identification
uryy caus
dentific
entifi
prevents inconvenience and prejudice to a third
injured by one who is
or
third party
p
iss unknown
unkn
unidentified. (NOSTRADAMUS VILLANUEVA vs.
R. DOMINGO and LEANDRO
LUIS R.
vs. PRISCILLA
P
PR
LEAND
DOMINGO,G.R.No.144274.September20,2004)

Iftheregisteredownerwasmadeliabletothevictim,canheclaimreimbursementfromthe
m reimb
actualowner/operatorofthevehicle?

Yes. The registered owner has a right to be indemnified by the
the real or actual owner of the
amountthathemayberequiredtopayasdamagefortheinjurycausedtothevictim.(Ibid)

Whoisashipagent?Ishisliabilitythesamewhetherheactsasagentoftheshipowneror
thecharterer?

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Article 586 of the Code of Commerce states that a ship agent is the person entrusted with
provisioning or representing the vessel in the port in which it may be found.Hence,
whetheractingasagentoftheownerofthevesselorasagentofthecharterer,petitionerwill
beconsideredastheshipagentandmaybeheldliableassuch,aslongasthelatteristheone
that provisions or represents the vessel. (MACONDRAY vs. PROVIDENT INSURANCE
CORPORATION,G.R.No.154305,09December2004)

Does extraordinary diligence require the carrier to vouch for the correctness of the entries
madeinthetravelpapersofapassenger?

ass the
NO. It may be true that the carrier has
the d
duty to inspect whether its passengers have the
ver, suc
necessary travel documents, however,
such duty does not extend to checking the veracity of
A carrier
arr could not vouch for the authenticity of a passport
every entry in these documents. A
tries
ies therein.
the
and the correctness of the entries
The power to admit or not an alien into the country
annot b
is a sovereign act, which cannot
cannot
be interfered with even by the carrier.(JAPAN AIRLINES vs.
al,l, G.R. N
05)
MICHAELASUNCIONetal,G.R.No.161730,28January2005)

could
uld no
n
of a pa
p
Thus,thecarriercouldnotbefaultedforthedenialofapassengersshorepasswhereitwas
immigra
mmigr
ared
red sho
o
discoveredbyimmigrationofficialsthatheappearedshorterthanhisheightasindicatedinhis
bid)
passport.(Ibid)

wn
erated
ated u
EM re
DoestheownerofthevehiclebeingoperatedundertheBOUNDARYSYSTEMremainliableas
commoncarrier?

ability
bility th
t
e who
wh
YES.Indeed,toexemptfromliabilitytheownerofapublicvehiclewhooperatesitunderthe
ground t
uld be
boundarysystemonthegroundthatheisamerelessorwouldbenotonlytoabetflagrant
vic La
vice
ding
ng pub
violationsofthePublicServiceLaw,butalsotoplacetheridingpublicatthemercyofreckless
uree of
of their
t
gely
ely
and irresponsible drivers  reckless because the measure
earnings depends largely
e; and
upon the number of trips they make and, hence,, the
the sspeed at which they drive;
no
o pos
hey mig
irresponsiblebecausemostifnotallofthemareinnopositiontopaythedamagestheymight
uly 2004)
200
cause.(SPOUSESHERNANDEZ et al. vs. SPOUSES DOLOR et al, G.R. No. 160286; 30 July

gee but
but it also offers carrying services.
rvices.
ices. For
F liability
The defendants main business is brokerage
mage oc
o
purposes, may the defendant be sued as common carrier if the damage
occurred in the
performanceofitscarryingservices?

incipal
ncipal business
b
YES. Article 1732 does not distinguish between one whose principal
activity is the
n ancilla
carryingofgoodsandonewhodoessuchcarryingonlyasanancillaryactivity.Itsufficesthat
co
petitioner undertakes to deliver the goods for pecuniary consideration.
(A.F. SANCHEZ
BROKERAGE INC. vs. THE HON.COURT OF APPEALS and FGU INSURANCECORPORATION, G.R.
No.147079,21December2004) 



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Explainthedoctrineoflastclearchance.Whendoesthedoctrineapply?

The doctrine states that where both parties are negligent but the negligent act of one is
appreciablylaterthanthatoftheother,orwhereitisimpossibletodeterminewhosefaultor
negligence caused the loss, the one who had the last clear opportunity to avoid the loss but
failedtodoso,ischargeablewiththeloss.(PHILIPPINENATIONALRAILWAYSvs.BRUNTY,G.R.
No.169891,02November2006)Thedoctrineappliestoasuitbetweentheownersanddrivers
oftwocollidingvehicles.Itdoesnotapplywhereapassengerdemandsresponsibilityfromthe
carrier to enforce its contractual obligations, for it would be inequitable to exempt the
att the other driver was guilty of negligence. (TIU vs.
negligent driver/owner on the ground that
ptember
ember
ARRIESGADO,etal.,GR138060,01September2004).

off a Bill
ExplainthethreefoldcharacterofaBillofLading.

oth
h as a
Abillofladingoperatesbothasa(1)receiptandasa(2)contract.Itisacontractforthegood
to transport
tran
e as
a stipulated. It becomes effective
as
shipped and a contract to
and deliver the same
accepte
a (3)
3) doc
do
upondeliverytoandacceptedbytheshipper.Itisalsoa(3)documentoftitle.

f claim
clai
The consignee failed
failed to file a formal notice of
claim within 24 hours from receipt of the
merchand
erchan
cle
le 366
damagedmerchandiseasrequiredunderArticle366oftheCodeofCommerce.Isthefilingof
off claim
aim
the acc
anoticeofclaimaconditionprecedenttotheaccrualofarightofactionagainstthecarrier
mag
dise?
ise?
forthedamagescausedtothemerchandise?


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f loss
oss o
ott an em
Therequirementtogivenoticeoflossordamagetothegoodsisnotanemptyformalism.The
ose
se of
s
reliev
fundamental reason or purpose
of such
a stipulation is not to relieve
relieve the carrier from just
nform it
en dama
liability,butreasonablytoinformitthattheshipmenthasbeendamagedandthatitischarged
to give
gi it an opportunity to examine
amine
mine the
t nature and extent of the
he
with liability therefor, and to
ortunity to make an investigation of
injury. This protects the carrier by affording it an opportunity
of aa
tigat
ated
ed
m false
claimwhilethematterisstillfreshandeasilyinvestigatedsoastosafeguarditselffromfalse
andfraudulentclaims.

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strued a
the
he acc
The24hourclaimrequirementhasbeenconstruedasaconditionprecedenttotheaccrualofa
r dam
ipper
pper o
rightofactionagainstacarrierforlossof,ordamageto,thegoods.Theshipperorconsignee
t of acti
act
mustallegeandprovethefulfillmentofthecondition.Otherwise,norightofactionagainstthe
CEE vs.
vs. ABOITIZ
A
carrier can accrue in favor of the former. (UCPB GENERAL INSURANCE
SHIPPING
CORP.,etal.,G.R.No.168433,10February2009)


y??
WhataretheclausesthatmaybeincludedinaCharterParty?

Theyareasfollows:

1. JasonClauseaprovisionwhichstatesthatincaseofmaritimeaccidentforwhichthe
shipowner is not responsible by law, contract or otherwise, the cargo shippers,

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consigneesorownersshallcontributewiththeshipowneringeneralaverage(Pandect
ofCommercialLawandJurisprudence,JusticeJoseVitug,2006ed.)

2. ClauseParamountaprovisionwhichstatesthatCOGSAshallapply,eventhoughthe
transportationisdomestic,subjecttotheextentthatifanytermofthebillofladingis
repugnanttotheCOGSAorapplicablelaw,thentotheextentthereof,theprovisionof
thebillofladingisvoid(ibid)

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CORPORATIONLAW

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ExplaintheCONCESSIONTHEORY.

Under this theory, a corporation
is aa creature without any existence until it has received the
tion
ion is
imprimaturofthestateactingaccordingtolaw.
ting
ng acco

Distinguishbetweenstockandnonstockcorporation.
stock a

A stock corporation
is d
dividend
into shares and authorized to
oration
ration iis one whose capital stock
k is
iv
distributetotheholdersofsuchsharesdividends.Ontheotherhand,anonstockcorporation
o the ho
nds.
ds. On
is one where
here
e no
n part of its income is distributable
no
ributabl
ibutab as dividends to its members, trustees or
officers.(MANILAINTERNATIONALAIRPORATAUTHORITYvs.CA,495SCRA591)
AN
ORAT
RAT AU
591)
91)

Whatareessentialfortheexistenceofadefactocorporation?
cee of a d

The filing of articles of incorporation
of incorporation are
rporatio and the issuance of the certificate
certific
essentialfortheexistenceofadefactocorporation.Ithasbeenheldthatanorganizationnot
of a d
been
een he
t
registered with the Securities and Exchange Commission
(SEC)
cannot be considered
sion
o (S
S
d aa
corporation in any concept, not even as a corporation
(SEVENTH DAY ADVENTIST
ion
on de
de facto.
f
ENTIST
CONFERENCECHURCHOFSOUTHERNPHILS.,INC.vs.NORTHEASTERNMINDANAOMISSIONOF
vs. NORT
NOR
ISS
S ION
ON O
SEVENTHDAYADVENTIST,INC.GRNo.150416,21July2006)
21
1 July 2

Whatisasoleproprietorship?Doesitenjoyseparatepersonality?
sepa
separ

an

Asoleproprietorshipistheoldest,simplest,andmostprevalentformof busines
businessenterprise. It
isanunorganizedbusinessownedbyoneperson.Thesoleproprietorispersonallyliableforall
is perso
pers
thedebtsandobligationsofthebusiness.

A sole proprietorship does not possess a juridical personality


and distinct from the
tyy separate
sepa
separ
personalityoftheowneroftheenterprise.Thelawmerelyrecognizestheexistenceofasole
ecog
proprietorshipasaformofbusinessorganizationconductedforprofitbyasingleindividualand
requiresitsproprietororownertosecurelicensesandpermits,registeritsbusinessname,and
paytaxestothenationalgovernment.Thelawdoesnotvestaseparatelegalpersonalityonthe
sole proprietorship or empower it to file or defend an action in court. (EXCELLENT QUALITY
APPAREL,INC.vs.WINMULTIRICHBUILDERS,INC.,G.R.No.175048,10February2009)
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ExplainbrieflytheDOCTRINE OFPIERCINGTHEVEILOFCORPORATEENTITY.

Acorporationwillbelookeduponasalegalentityasageneralrule,anduntilsufficientreason
to the contrary appears; but when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend a crime, the law will regard the
corporationasanassociationofpersons,orincaseoftwocorporations,mergethemintoone.
(KOPPEL[PHIL.]INC.vs.YATCO,77Phil496;YUTIVOSONSHARDWARECO.vs.COURTOFTAX
APPEALS,1SCRA160)

be
WhenshouldtheDOCTRINEOFPIERCINGberaised?

rporate fiction should be raised before the trial court. The
The issue of piercing the veil of corporate
rst
st time
issuecannotbetreatedforthefirsttimeonappeal.

pursue
Toallowthepetitionertopursuesuchadefensewouldunderminebasicconsiderationsofdue
theories
heories
br
brou
process.Pointsoflaw,theories,issuesandargumentsnotbroughttotheattentionofthetrial
ought n
eviewing
ewing
courtwillnotbeandoughtnottobeconsideredbyareviewingcourt,asthesecannotberaised
n ap
for the first time on
on
appeal. It would be unfair to the
the aadverse party who would have no
presen
to
o th
t e
opportunitytopresentfurtherevidencematerialtothenewtheorynotventilatedbeforethe
(ALMOC
(ALMOCE
2008)
008)
trialcourt.(ALMOCERAvs.ONG,18February2008)

c
dentity
ntity o
pierce
Citespecificcaseswheretheseparateidentityofthecorporationcouldbepierced.

fiction
petuate
1. Whentheveilofcorporatefictionismadeasashieldtoperpetuateafraudorconfuse
s the rel
ployee
oyee
legitimateissuessuchastherelationofemployerandemployee(CLAPAROLSvs.CIR,65
SCRA613);
eld
ld for
N & HA
2. Whenusedasashieldfortaxevasion(CIRvs.NORTON&HARRISONCO.,11SCRA714);
agains
gains forum shopping (FIRST PHIL.
HIL.
IL.
3. When used to shield violation of the prohibition against
INTERNATIONALBANKvs.CA,252SCRA259);
ation
on is
is being utilized to violate intellectual
nte
t llectu
ectu
4. When the separate identity of the corporation
VILLANU
LLANU
nee 2007
200
propertyrightsofathirdperson(UYvs.VILLANUEVA,GRNo.157851,29June2007)

ExplaintheINSTRUMENTALITYRULE.

an

conduct
Whereonecorporationissoorganizedandcontrolledanditsaffairsareconductedsothatitis,
hee corp
infact,amereinstrumentalityoradjunctoftheother,thefictionofthecorporateentityofthe
voke th
instrumentalitymaybedisregarded.Thecontrolnecessarytoinvoketheruleisnotmajority
s, policie
orevencompletestockcontrolbutsuchdominationoffinances,policiesandpracticesthatthe
will
ill orr
controlledcorporationhas,sotospeak,noseparatemind,willorexistenceofitsown,andis
co
butaconduitforitsprincipal.Itmustbekeptinmindthatthecontrolmustbeshowntohave
been exercised at the time the acts complained of took place.  Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the complaint is
made.(CONCEPTBUILDERSvs.NLRC,G.R.No.108734,29May1996)

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ExplainbrieflytheDOCTRINE OFRELATION.

Underthisdoctrine,whenthedelayineffectingorfilingtheamendedarticlesofincorporation
fortheextensionofcorporatetermisduetoaninsuperableinterferenceoccurringwithoutthe
corporations intervention which could not have been prevented by prudence, diligence, and
care,thesamewillbetreatedashavingbeeneffectedbeforetheexpirationoftheoriginalterm
ofthecorporation.

Whatsharescouldbedeprivedofvotingrights?

citly
tly pro
Section of the Corporation Code explicitly
provides that no share may be deprived of voting
rights except those classified and issued
issued as preferred or redeemable shares, unless
e,, an
nd
d that there shall always be a class or series of shares
otherwise provided in this Code,
and
ights.
ghts Th
whichhavecompletevotingrights.Thereisnothinginthearticlesofincorporationoraniotaof
hows
ows th
evidence on record that shows
that class B shares were categorized as either preferred or
ASTILLO,
STILLO, et. al.  vs. ANGELES BALINGHASAY,
NGHA
GH
redeemable shares. (CASTILLO,
et. al., GR No. 150976, 18
October2004)

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CTRINE
TRINE
ExplaintheDOCTRINEOFEQUALITYOFSHARES.

e articles
artic
tic of incorporation do not
t provid
Where the
provide any distinction of the shares of stock, all
ed
d
umed
med to
the
he sa
sharesissuedbyacorporationarepresumedtobeequalandentitledtothesamerightsand
bilities.
lities.
privilegesandsubjecttothesameliabilities.

iption
ption m
r of th
thee
Woulddepositonstocksubscriptionmakeapersonastockholderofthecorporation?

ription
iption
oney
ney rec
h
Thedepositonstocksubscriptionismerelyanamountofmoneyreceivedbyacorporationwith
uance
nce o
vent
nt
aviewofapplyingthesameaspaymentforadditionalissuanceofsharesinthefuture,anevent
a deposit
depos on stock subscription does
es not
not
which may or may not happen. The person making a
titled to dividends, voting rights
so
r oth
have the standing of a stockholder and he is not entitled
entitled
or
other
OMMISS
MMISS
NUE
UE vs.
prerogativesandattributesofastockholder.(COMMISSIONEROFINTERNALREVENUEvs.FIRST
os. 1720
EXPRESSPAWNSHOPCOMPANY,INC.,G.R.Nos.17204546,16June2009)

inform
informa
Whichshouldprevailinthedeterminationofshareholders,thegeneralinformationsheetor
thecorporatebooks?

o the
S will still have to be
SE
The information in the General Information Sheet submitted to
the SEC
etween the General Information
correlated with the corporate books of the Company. As between
g (LA
g.
(L
Sheetandthecorporatebooks,itisthelatterthatiscontrolling.(LAOvs.LAO,G.R.No.170585,
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Could any stockholder, at his pleasure, pullout the machines and equipment, following the
saleofhissharestoathirdparty?

NO.Thepropertyofacorporationisnotthepropertyofitsstockholdersormembers.Under
the trust fund doctrine, the capital stock, property, and other assets of a corporation are
regardedasequityintrustforthepaymentofcorporatecreditorswhicharepreferredoverthe
stockholders in the distribution of corporate assets. The distribution of corporate assets and
propertycannotbemadetodependonthewhimsandcapricesofthestockholders,officers,or
directors of the corporation unless the indispensable conditions and procedures for the
we
protectionofcorporatecreditorsarefollowed.(YAMAMOTOvs.NISHINOLEATHERINDUSTRIES,
G.R.No.150283,16April2008)

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eestablished for the legal existence of a subsidiary to be
State the requisites that must
be es
disregarded.

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ayy be
a subsidiary of another, it does
doe
o not necessarily follow that its
While a corporation may
be a
ence can
c just be disregarded.  A
corporate legal existence
A subsi
subsidiary has an independent and
persona
rsona
paren
parent
separatejuridicalpersonality,distinctfromthatofitsparentcompany;hence,anyclaimorsuit
ter
er does
do not bind the former, and
doe
nd
d vvice
cee versa. In applying the doctrine, the
against the latter
quisite must be established: (1) control,
quisites
control,
ontrol, not merely majority or complete stock
following requisites
2)) such
ch
ed by t
control;(2)suchcontrolmusthavebeenusedbythedefendanttocommitfraudorwrong,to
y or
ot
r dis
d
perpetuate th
the violation of a statutory
or oth
other positive legal duty, or
dishonest acts in
s; and (3
(
d breac
contraventionofplaintiffslegalrights;and(3)theaforesaidcontrolandbreachofdutymust
just
ust loss
AVIS, In
I
proximatelycausetheinjuryorunjustlosscomplainedof.(JARDINEDAVIS,Inc.vs.JRBREALTY,
G.R.No.151438,15July2005)

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iss rem
racter
acter th
Whenthecorporatemaskisremoved,isthecorporatecharactertherebyabrogated?

rporate
porate
ation is
NO.Thecorporatemaskmayberemovedandthecorporateveilpiercedwhenacorporationis
f fraud
enie
n nce is
the mere alter ego of another. Where badges of
of
fraud exist, where public convenience
stified
ified thereby,
th
atee corp
cor
defeated, where a wrong is sought to be justified
or where a separate
corporate
ns to
to em
es,
s, the
the notion of
identity is used to evade financial obligations
employees or to third parties,
the
n that ha
h
separatelegalentityshouldbesetasideandthefactualtruthupheld.Whenthathappens,the
legitim
legitima
corporatecharacterisnotnecessarilyabrogated.Itcontinuesforotherlegitimateobjectives.
al., G.R.
G.R No. 159121, 03
G.R.
(PAMPLONA PLANTATION COMPANY, INC et al.  vs. TINGHIL, et al.,
February2005)

o the
of
the members of a nonstock
Can a corporation provide limitations on the voting rights of
corporation?

YES. Section 89 of the Corporation Code pertaining to nonstock corporations provides that
"(t)herightofthemembersofanyclassorclasses(ofanonstockcorporation)tovotemaybe
limited,broadenedordeniedtotheextent specified in the articles of incorporation or the by
laws."ThisisanexceptiontoSection6ofthesamecodewhereitisprovidedthat"noshare
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maybedeprivedofvotingrightsexceptthoseclassifiedandissuedaspreferredorredeemable
shares,unlessotherwiseprovidedinthisCode.Hence,thestipulationintheByLawsproviding
for the election of the Board of Directors by districts is a form of limitation on the voting
rightsofthemembersofanonstockcorporationasrecognizedundertheaforesaidSection
89.Section24oftheCode,whichrequiresthepresenceofamajorityofthemembersentitled
tovoteintheelectionoftheboardofdirectors,appliesonlywhenthedirectorsareelectedby
themembersatlarge,suchasisalwaysthecaseinstockcorporationsby virtueofSection6.
(LUISAOAS,etal.vs.COURTOFAPPEALS,etal.,G.R.No.128464,20June2006).


E..
ExplaintheBUSINESSJUDGMENTRULE.

geme
ement are left solely to the honest decisions of officers and
Questions of policy or of management
d so long
lon
directorsofacorporation,andsolongastheyactingoodfaith,theirordersarenotreviewable
OURT O
bythecourts.(SABERvs.COURTOFAPPEALS,G.R.No.132981,August31,2004)

e officer
rsonally
onally
Inwhatinstancesareofficers,directors,ortrusteespersonallyliableforcorporateacts?

are:
e: whe
wh
patent
aten ly
Theinstancesare:when1.Heassents(a)toapatentlyunlawfulactofthecorporation,or(b)
h or gro
s affairs
forbadfaithorgrossnegligenceindirectingitsaffairs,or(c)forconflictofinterest,resultingin
to
o the
he
rss or ot
damagestothecorporation,itsstockholdersorotherpersons;2.Heconsentstotheissuance
st
edge
ge the
e with
wi
ofwateredstocksorwho,havingknowledgethereof,doesnotforthwithfilewiththecorporate
eto;
o; 3.
H agrees to hold himself personal
secretary his written objection thereto;
3.He
personally and solidarily
e is mad
f aw, to
liablewiththecorporation;or4.Heismade,byaspecificprovisionoflaw,topersonallyanswer
BLIC vs
ONCERN
NCER
forhiscorporateaction.(REPUBLICvs.INSTITUTEFORSOCIALCONCERN,FELIPE
SUZARAAND
56306 Ja
K CORPO
CORP
RAMONGARCIA,G.R.NO.156306January28,2005;SOLIDBANKCORPORATIONvs.MINDANAO
N, et a
2005)
005)
FERROALLOYCORPORATION,etal.,G.R.No.153535,28July2005)

ch
h make
ble for
What would constitute apatently unlawful act which
makes a director personally liable
for
theobligationsofthecorporation?

sonally
son
ally liable for debts of the corporation,
orporati
rporat
For a wrongdoing to make a director personally
the
e dire
nlawful act. Mere
wrongdoing approved or assented to by the
director must be a patently unlawful
closure
failuretocomplywiththenoticerequirementoflaborlawsoncompanyclosureordismissalof
nlawfu acts are those
employees does not amount to a patently unlawful act. Patently unlawfu
unlawful
off such
declaredunlawful bylaw whichimposespenaltiesforcommissionofsuchunlawfulacts.There
mustbealawdeclaringtheactunlawfulandpenalizingtheact.

mont
Inthiscase,Article283oftheLaborCode,requiringaonemonthpriornoticetoemployees
andtheDepartmentofLaborandEmploymentbeforeanypermanentclosureofacompany,
doesnotstatethatnoncompliancewiththenoticeisanunlawfulactpunishableunderthe
Code. There is no provision in any other Article of the Labor Code declaring failure to give such
noticeanunlawfulactandprovidingforitspenalty.(CARAGvs.NATIONALLABORRELATIONS
COMMISSION,etal.,G.R.No.147590,April2,2007)
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Explain theDOCTRINEOFAPPARENTAUTHORITY.

Whenacorporationknowinglypermitsoneofitsofficers,oranyotheragent,toactwithinthe
scope of an apparent authority, itholds him out to the public as possessing the power to do
thoseacts;andthus,thecorporationwill,asagainstanyonewhohasingoodfaithdealtwithit
through such agent, be estopped from denying the agents authority. (LAPULAPU
FOUNDATIONvs.CA,29January2004)

ble?
e?
Isteleconferencingnowlegallypermissible?

ology, the courts may take judicial notice that business
YES. In this age of modern technology,
y individuals
in vid
ind
transactions may be made by
through teleconferencing.  In the Philippines,
conferen
onfere
teleconferencing and videoconferencing
of members of board of directors of private
n light
corporations is a reality, in
in
light of Republic Act No. 8792.  The Securities and Exchange
Memo
n No
N
Commission issued SEC Memorandum
Circular No. 15, on
November 30, 2001, providing the
mplied w
ences
ces. (
guidelinestobecompliedwithrelatedtosuchconferences.(EXPERTRAVEL&TOURS,INC.vs.
152392
CA,etal.,G.R.No.152392,26May2005)

bylaws
by
laws
the pre
Incasethebylawscouldnotbefiledwithintheprescribedperiod,wouldjuridicalexistence
cally
ally ce
automaticallycease?

cto
to lose
e the re
NO.Acorporationwouldnotipsofactoloseitspowersforfailuretofiletherequiredbylaws.
ERS
RS ASS
681) At
(LOYOLAGRANVILLASHOMEOWNERSASSOCIATIONvs.CA,276SCRA681)Attheveryleast,the
a de fac
t to ex
corporationmaybeconsideredadefactocorporationwhoserighttoexistmaynotbeinquired
SAWADJ
intoinacollateralmanner.(SAWADJAANvs.CA,8June2005)

CT
ExplaintheTRUSTFUNDDOCTRINE.

d other
regarde
Underthisdoctrine,thecapitalstock,propertyandotherassetsofacorporationareregarded
orate
ate de
of
cor
corp
asequityintrustforthepaymentofthecorporatedebts.Hence,nodisposition
ofcorporate
fundstotheprejudiceofcreditorsisallowed.

Whoareentitledtoreceivedividends?

ate of
f the declaration of
Dividends are payable to the stockholders of record as of the date
date
of
dividendsorholdersofrecordonacertainfuturedate,asthecasemaybe,unlesstheparties
ase
se ma
m
have agreed otherwise. And a transfer of shares which is not
ot recorded
reco
in the books of the
corporationisvalidonlyasbetweentheparties,hence,thetransferorhastherighttodividends
nsfe
asagainstthecorporationwithoutnoticeoftransferbutitservesastrusteeoftherealowner
of the dividends, subject to the contract between the transferor and transferee as to who is
entitledtoreceivethedividends.(COJUANGCOvs.SANDIGANBAYAN,24April2009)


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UnderwhatconditionscouldthePCGGvotesequesteredshares?

Itissettledthatasageneralrule,theregisteredownerofthesharesofacorporation,evenif
they are sequestered by the government through the PCGG, exercises the right and the
privilegeofvotingonthem.ThePCGGasamereconservatorcannot,asarule,exerciseactsof
dominionbyvotingtheseshares.

Theregisteredownerofsequesteredsharesmayonlybedeprivedofthesevotingrights,and
thePCGGauthorizedtoexercisethesame,onlyifitisabletoestablishthat(1)thereisprima
ess
facieevidenceshowingthatthesaidsharesareillgottenandthusbelongtotheState;and(2)
ation,
tion, th
there isanimminentdangerofdissipation,thusnecessitatingthecontinuedsequestrationof
reupon
thesharesandauthoritytovotethereuponbythePCGGwhilethemainissueispendingbefore
DLE
LE EAS
theSandiganbayan.(TRANSMIDDLEEAST(PHILS.)vs.SANDIGANBAYAN,etal.,G.R.No.172556,
09June2006)

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ertificate
onditio
nditi
IstheissuanceofacertificateofmergerbytheSECaconditionprecedenttothetransferof
bed
ed corp
cor
orporati
sharesoftheabsorbedcorporationtothesurvivingcorporation?

s not be
ere agr
ag
Amergerdoesnotbecomeeffectiveuponthemereagreementoftheconstituentcorporations.
cally
ally provided
pro
Co
As specifically
under Section 79 of the
the Corporation
Code, the merger shall only be
upon the issuance of a certificate
ficate
cate o
es and Exchange
effective upon
of merger by the Securities
determ
ot inc
Commission (SEC), subject to its prior determi
determination that the merger is not
not
inconsistent with
party
arty to
poratio
theCodeorexistinglaws.Whereapartytothemergerisaspecialcorporationgovernedbyits
ularly
arly m
e recommendation
recom
re
com
own charter, the Code particularly
mandates that a favorable
of the
ncy
cy should
shou first be obtained. The issuance
issuanc
ssuanc of the certificate of
appropriate government agency
ot only
roval
oval bu
mergeriscrucialbecausenotonlydoesitbearoutSEC'sapprovalbutalsomarksthemoment
es o
oper
peratio
atio
ty
whereupontheconsequencesofamergertakeplace.Byoperationoflaw,upontheeffectivity
but its
ellll ass
ofthemerger,theabsorbedcorporationceasestoexistbutitsrights,andpropertiesaswellas
o and
v
ve
oration
liabilities shall be taken and deemed transferred to
and vested
in the surviving corporation
ELOPME
OPM
14 866
143
66 &
(POLIAND INDUSTRIAL LTD. vs. NATIONAL DEVELOPMENT
CO., et al., G.R. Nos. 143866
143877,22August2005).

diately
ately acquire title
Determine whether the buyer at execution ssale of shares will immediately
thereto.

sonal
onal property,
p
pr
It should be restated that since there is no right to redeem personal
the rights of
or execution)
exec
execu
ownership are vested to the purchaser at the foreclosure (or
sale and are not
edempt
dempt
entangled in any suspensive condition that is implicit in aredemptiveperiod.
xxxThere is no
r shares of stock should be
valid reason why the buyers at execution sale of petitioners
preventedfromobtainingtitletothesame.Thependencyofa caseinvolvingthepartiesdoes
not affect the registrability of the shares of stock bought at execution sale, although the
registrationiswithoutprejudicetotheproceedingstodeterminetheliabilityofthepartiesas
againsteachother.(LEEvs.HON.TROCINO,etal.,G.R.No.164648,19June2009)

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Should dead members of a nonstock corporation be counted for quorum and voting
purposes?

Inanonstockcorporation,membershipispersonalandnontransferableunlessthearticlesof
incorporation or bylaws states otherwise. Section 91 states that termination extinguishes all
the rights of a member of the corporation, unless otherwise stated in the articles of
incorporation.Hence,deadmembersarenottobe countedindeterminingtherequisitevotein
mi
corporatemattersortherequisitequoruminthemembersmeeting.(TANvs.SYCIP,499SCRA
216,17August2006)
atio
tio of
Aretherequirementsforterminationofmembershipinanonstockcorporationrequiredto
Incorpor
corpo
beprovidedintheArticlesofIncorporation?

tion
on Code
Cod provides:
Section 91 of the Corporation

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SEC. 91. Termination


nation of membership.Membership
p shall
shall
hall be terminated in the
mannerandforthecausesprovidedinthearticlesofincorporationorthebylaws.
for
or the
s of inco
Termination
on of
of membership
m
shall have the effect
ffec
ec of
of extinguishing all rights of a
member
in th
the corporation or in its property,
otherwise provided in the
err in
erty,
rty, unless
un
articlesofincorporationorthebylaws.(Emphasissupplied)
cles of in
Emphasis
mphasis

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Clearly,therightofanonstockcorporationtoexpelamembermaybeestablishedin
ation to
stablis
tablis
theby
laws alone. It need not be provided
GOLF AND
d for
for in
in the articles of incorporation.
on (VALLEY
on.
(VA
COUNTRYCLUBvs.VDA.DECARAM,G.R.No.158805,16April2009)
M, G.R. N

WhataretheconditionsforthepenalprovisionunderSection144oftheCorporationCodeto
the pen
n 144 of
apply in case of violation of
right to inspect
of a
a stockholders
s
ect
ct the
the corporate books/records ass
providedforunderSection74oftheCorporationCode?

es

an

(1)Adirector,trustee,stockholderormemberhasmadeapriordemandinwritingforacopyof
made
ade a
a copy
opy
excerptsfromthecorporationsrecordsorminutes;
tes;
es

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(2) Any officer or agent of the concerned corporation


shall refuse to allow the
corpora
orpora
the
he said
said director,
trustee,stockholderormemberofthecorporationtoexamineandcopysaidexcerpts;
atio
ti
d excerp

an

(3) If such refusal is made pursuant to a resolution or order of the
board of directors or
he boar
boa
trustees,theliabilityunderthissectionforsuchactionshallbeimposeduponthedirectorsor
posed
osed u
trusteeswhovotedforsuchrefusal;and,
(4) Where the officer or agent of the corporation sets up
the defense that the person
p th
demanding to examine and copy excerpts from the corporations records and minutes has
improperly used any information secured through any prior examination of the records or
minutesofsuchcorporationorofanyothercorporation,orwasnotactingingoodfaithorfora
legitimatepurposeinmakinghisdemand,thecontrarymustbeshown orproved.(ANGABAYA
vs.ANG,G.R.No.178511,4December2008)
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Whataretherequisitesforfilingaderivativesuit?

Therequisitesforfilingaderivativesuitareasfollows:

a) The party bringing suit should be a shareholder as of the time of the act or transaction
complainedof,thenumberofhissharesnotbeingmaterial;
b)Thepartyhastriedtoexhaustintracorporateremedies,i.e.,hehasmadeademandonthe
boardofdirectorsfortheappropriatereliefbutthelatterhasfailedorrefusedtoheedhis
plea;
o
c)  The cause of action actually devolves on
on the corporation, the wrongdoing or harm having
oration
ation
been,orbeingcausedtothecorporationandnottotheparticularstockholderbringingthe
NC., et
e
suit.(FILIPINASPORTSERVICES,INC.,etal.vs.Go,etal.,G.R.No.161886,March16,2007);
blee for th
d)Noappraisalrightsareavailablefortheact/scomplainedof;and
orr harassment
hara
e) The suit is not a nuisance or
suit (Sec.1, Rule 8, Interim Rules of Procedure for
versies)
IntraCorporateControversies)

of intra
ed as a r
Whenisexhaustionofintracorporateremediesexcusedasarequirementforderivatesuit?

that
hat the
th
must
ust sat
Whileitistruethatthecomplainingstockholdermustsatisfactorilyshowthathehasexhausted
o redres
corpora
allmeanstoredresshisgrievanceswithinthecorporation;suchremedyisnolongernecessary
e corpo
omplete
mplete
wherethecorporationitselfisunderthecompletecontrolofthepersonagainstwhomthesuit
ed
d The reason is obvious: a deman
itute
tut an action and
is being filed.
demand upon the board to institute
d have
have been useless and an exercise
ise in
prosecute the same effectively would
in fu
futility. (HIYIELD
LS,
S, G.R.
) Note,
REALTY,INC.vs.COURTOFAPPEALS,G.R.No.168863,23June2009)Note,though,thatinYU,
hee Sup
Su
et al. vs. YUKAYGUAN, et al., G.R.
G.R. No
No. 177549, 18 June 2009, the
Supreme Court held that
te reme
exhaustion of intracorporate
remedies cannot be dispensed with
with eeven if the company is a
iss nothing
noth
orr rules
rules supporting the distinction
n
family corporation. There is
in the pertinent laws or
i
mily cor
ypes
es
between,andthedifferenceintherequirementsfor,familycorporationsvisvisothertypes
derivat
ofcorporations,intheinstitutionbyastockholderofaderivativesuit.

vities
ities in
nfined
fined to:
t (1)
In an Agreement, the foreign companys activities
in the Philippines were confined
purpose
ssed
ed by
maintainingastockofgoodssolelyforthepurposeofhavingthesameprocessedbyanother
ntt wit
d in the
company;and(2)consignmentofequipmentwithsuch
companytobeusedintheprocessing
Philippin
ofproductsforexport.DotheseactsamounttodoingbusinessinthePhilippines?

y to
to be
NO.  By and large, to constitute doing business, the activity
be undertaken in the
f the
Philippines is one that is for profitmaking. Under Section 1 of
the Im
Implementing Rules and
ctivities do not constitute doing
Regulations of the Foreign Investment Act, the foregoing activities
NTEG
business.(AGILENTTECHNOLOGIESSINGAPORE(PTE)LTD.vs.INTEGRATEDSILICON,GR154618,
14April2004)




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Would participation in a bidding for the development and operation of a modern marine
container terminal constitute doing business in the Philippines for which a license must be
secured?

Participatinginthebiddingprocessconstitutesdoingbusinessbecauseitshowstheforeign
corporationsintentiontoengageinbusinesshere.Thebiddingfortheconcessioncontractis
but an exercise of the corporations reason for its existence. xxx it is the performance by a
foreigncorporationoftheactsforwhichitwascreated,regardlessofthevolumeofbusiness,
that determines whether a foreign corporation needs a license or not. (HUTCHISON PORTS
36 31 August 2000; EUROPEAN RESOURCES AND
367
PHILIPPINES LIMITED vs. SBMA, GR 131367,
NIEUBUR
IEUBUR BIRKHAHN, et al., G.R. No. 159586, 26  July
TECHNOLOGIES, INC, et al.  vs. INGENIEUBURO
2004)

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e importation
impo
impor
Petitioner is engaged in the
and exportation of lace products.  On several
rchased
chased lace products from the petitioner with the instruction to
occasions, respondent purchased
goods
oods to
t
pan
pany
deliverthepurchasedgoodstoaHongKongbasedcompany.Uponreceiptofthegoodsin
ducts w
Hong
ng Ko
HongKong,theproductswereconsideredsold.TheHongKongbasedcompany,inturn,had
o delive
e Philippines.
Phi
Phil
the obligation to
deliver the lace products to the
 Determine whether the
oing
ing bus
petitionerisdoingbusinessinthePhilippines.

d
ing
ng business in the Philippines.
nes.
es. To
It is not do
doing
To be doing or transacting business in the
stt actua
e Phili
Philippines,theforeigncorporationmustactuallytransactbusinessinthePhilippines,thatis,
s within
a contin
performspecificbusinesstransactionswithinthePhilippineterritoryonacontinuingbasisinits
unt.
nt.  A
ess within
wit
own name and for its own account.
Actual transaction of business
the Philippine
site
ite for
for the Philippines to acquiree jurisdiction
juris
territory is an essential requisite
over a foreign
e the for
a Philip
Phili
corporationandthusrequiretheforeigncorporationtosecureaPhilippinebusinesslicense.If
s not
iness
ess in
t
a foreign corporation does
not transact such kind of business
in the Philippines, even if it
s has
has no
n jurisdiction to require such
uch
ch
exports its products to the P
Philippines, the Philippines
ense
nse.. (B.
(B
. GTVL
foreigncorporationtosecureaPhilippinebusinesslicense.(B.VANZUIDENBROS.LTD.vs.GTVL
05, May
MANUFACTURINGINDUSTRIES,INC.,G.R.No.147905,May28,2007)

emixed
mixed concrete
c
Does the engagement of a Filipino nationall to
to run
run a foreign companys premixed
ing
ng bu
operationsinthePhilippinesamounttodoingbusiness?

gn
n comp
com
YES.TheactofnegotiatingtoemployaFilipinonationaltorunaforeigncompanyspremixed
tional
onal aacts in directing and
concrete operations in the Philippines are managerial and operational
ree not
not mere acts of a passive
establishing commercial operations in the Philippines. These are
. 156848
investor.(PIONEERINTERNATIONALvs.HON.GUADIZ,G.R.No.156848,11October2007)






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Whatarethegeneral teststodeterminewhetheraforeigncorporationisdoingbusinessin
thePhilippines?

Substance Test  whether the foreign corporation is continuing the body of the business or
enterpriseforwhichitwasorganizedorwhetherithassubstantiallyretiredfromitandturned
itovertoanother.

Continuity Test  continuity of commercial dealings and arrangements, and contemplates, to
thatextent,theperformanceofactsorworksortheexerciseofsomeofthefunctionsnormally
cu
cuti
incident to, and in the progressive prosecution
of, the purpose and object of its organization
(PTE)
PTE) LT
(AGILENTTECHNOLOGIESSINGAPORE(PTE)LTD.vsINTEGRATEDSILICON,GR154618,14April
2004)

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corpora
Do the powers of a foreign corporations
resident agent include the authority to execute a
mshoppi
shoppi
certificationagainstforumshoppingonbehalfofitsprincipal?

while a
re of act
ac
NO.Thisisbecausewhilearesidentagentmaybeawareofactionsfiledagainsthisprincipal(a
on doin
es, being
be
foreign corporation
doing business in the Philippines,
the one authorized to receive
ther
er legal
leg processes on its behalf),
), such
suc resident may not be aware of actions
such
services and other
its
ts principal,
prin
ppines
pines againsta
a
initiated byits
whether in the Philippines
domesticcorporation or private
o in
or
in the country where such corporation
orporati
rporat
individual, or
was organized and registered, against a
eg
lipino
pino ci
URS,
PhilippineregisteredcorporationoraFilipinocitizen.(EXPERTRAVEL&TOURS,INC.vs.COURT
.R.
R. No. 1
OFAPPEALSandKOREANAIRLINES,G.R.No.152392,26May2005)

corporat
orporat
utt licen
Wheretheinsured(aforeigncorporationdoingbusinesswithoutlicense)isincapacitatedto
ourts, wo
rer,
er, in ex
e
suebeforethePhilippinecourts,woulditfollowthatitsinsurer,inexercisingitssubrogation
om suc
rights,wouldalsosufferfromsuchincapacity?

obligat
acity of
NO.Rightsinheritedbyasubrogeepertainonlytotheobligationsnottocapacity.Incapacityof
er exerc
n becau
theinsuredwillnotaffectthecapacityoftheinsurerexercisingitsrightofsubrogationbecause
ed by
by law
l
s. (LORENZO
(LOR
capacity is personal to its holder. It is conferred
and not by the parties.
SHIPPINGvs.CHUBB&SONS,8June2004)

e filing
Would a pending intracorporate case against an officer preclude the
filing of a criminal
actionagainstthesaidofficer?

w RTC)
RTC) does not preclude the
The filing of the civil/intracorporate case before the SEC (now
ree the re
simultaneousandconcomitantfilingofacriminalactionbeforetheregularcourts;suchthat,a
fraudulent act may give rise to liability for violation of the rules
rules and regulations of the SEC
cognizablebytheSECitself,aswellascriminalliabilityforviolationoftheRevisedPenalCode
cognizable by the regular courts, both charges to be filed and proceeded independently, and
maybesimultaneouslywiththeother.


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A dispute involving the corporation and its stockholders is not necessarily an intracorporate
dispute cognizable only by the Securities and Exchange Commission.  Nor does it ipso facto
negatethejurisdictionoftheRegionalTrialCourtoverthesubjectcases.Itshouldbeobvious
thatnoteveryconflictbetweenacorporationanditsstockholdersinvolvescorporatematters
thatonlytheSECcanresolveintheexerciseofitsadjudicatoryorquasijudicialpowers.The
betterpolicyindeterminingwhichbodyhasjurisdictionoveracasewouldbetoconsidernot
onlytherelationshipofthepartiesbutalsothenatureofthequestionsraisedinthesubjectof
the controversy. (PEOPLE vs. FERNANDEZ and HAJIME UMEZAWA, GR No. 149403, 04 March
2005)

f a mana
Statetherequisitesforthecreationofa
managementcommittee.

f a man
n
Therequisitesforthecreationofamanagementcommittee,towit:(1)animminentdangerof
dest
dissipation, loss, wastage or
or destr
destruction of assets or other properties of respondent
ysis
sis of its
corporation;and(2)paralysisofitsbusinessoperationswhichmaybeprejudicialtotheinterest
petitione
etition
ofthepartieslitigants,petitioners,orthegeneralpublic.

, the
he rec
re
een no
Inthecaseatbar,therecordsshowthattherehasbeennoslackinthebusinessoperationsof
on. Furth
Furt
utt proof
proo
pro
o of abusing corporate positions and
the corporation.
Further, mere possibility without
ass
e corporation
corpo
dissipation of
of asse
assets and properties of the
is not a valid ground for the
en of
ent
/receive
receive
appointmentofamanagementcommittee/receiver.(SYCHIMvs.SYSIYHO,G.R.No.164958,
20
27January2006)

EST.
ST.
ExplaintheSERIOUSSITUATIONTEST.

court sh
s
e compa
Inappointingareceiver,thecourtshouldconsiderwhetherthecompanysfinancialsituationis
iss a cle
hatt it wi
f
seriousandwhetherthereisaclearandimminentdangerthatitwillloseitscorporateassetsif
P
OURT
R OF
, 04
areceiverisnotappointed.(PRYCECORPORATIONvs.COURTOFAPPEALS,G.R.No.172302,04
February2008)

tify
fy the a
Doesthemisconductofdirectorsorofficersjustifytheappointmentofareceiver?

offic
office
appoin
Misconduct of corporate directors or other officers
is not a ground for the appointment
of a
fficers, w
receiverwherethereareoneormoreadequatelegalactionagainsttheofficers,wheretheyare
ing
ng corporation
corp
solvent, or other remedies. The appointment of a receiver for a going
is a last
medy
edy is
iis available. Relief by
resort remedy, and should not be employed when another remedy
f there
receivershipisanextraordinaryremedyandisneverexercisedifthereisanadequateremedy
estrainin
strainin
atlaworiftheharmcanbepreventedbyaninjunctionorarestrainingorder.Badjudgmentby
com
directors,orevenunauthorizeduseandmisapplicationofthecompanysfunds,willnotjustify
the appointment of a receiver for the corporation if appropriate relief can otherwise be had.
(AOASvs.CA,G.R.No.128464,20June2006)



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Discusstheeffect/softhecreationofamanagementcommittee.

The appointment will result in suspension of all actions against the corporation, the avowed
objective of which is to enable such management committee or rehabilitation receiver to
effectively exercise its powers free from any judicial or extrajudicial interference that might
unduly hinder or prevent the rescue of the distressed company.(TYSONS SUPER CONCRETE,
INC.,etal.vs.COURTOFAPPEALS,etal.,G.R.No.140081,23June2005)

Are labor claims likewise suspended upon the creation of a management committee or
appointmentofareceiver?

n of
of aa management committee or the appointment of a
The law is clear: upon the creation
fo act
for
ct
rehabilitationreceiver,allclaimsforactionsshallbesuspendedaccordingly.Noexceptionin
oned
ned in
favoroflaborclaimsismentionedinthelaw.(LINGKODMANGGAGAWASARUBBERWORLD,et
ILS.)
LS.) INC
al.VS.RUBBERWORLD(PHILS.)INC.,etal.,G.R.NO.153882,JANUARY29,2007)

ed regar
edings?
dings
Areactionssuspendedregardlessofthestageofproceedings?

n of all a
e corp
corpo
o
Thesuspensionofallactionsforclaimsagainstthecorporationembracesallphasesofthesuit,
the tria
tri
before
efore t
beitbeforethetrialcourtoranytribunalorbeforethisCourt.Nootheractionmaybetaken,
th rendition
the
re
g the
the state
st
including the
of judgment during
of suspension. It must be stressed that
ut
ended
ded are
a the proceedings of a suit
uit
it and
a not just the
an
what are automatically
stayed or suspended
ion
on stag
me final
paymentofclaimsduringtheexecutionstageafterthecasehadbecomefinalandexecutory.
RLINES,
INES, I
us 29, 20
(GARCIA,ETAL.VS.PHILIPPINEAIRLINES,INC.,G.R.No.164856,August29,2007)

also stayed
sta
f a
a management
man
Are nonpecuniary claims also
with the creation of
committee or
?
appointmentofareceiver?

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on
n receiver,
rece
recei
When a corporation is taken over by a rehabilitation
all creditors stand on equal
equal
y paying
A claim
Al
footing,notanyoneshouldbegivenpreferencebypayingaheadofothercreditors.Allclaims
on
n Corp
e aa cla
whether pecuniary or not. The Interim Rules on
Corporate Rehabilitation define
claim as
er natu
e debto
referring to all claims, demands of whatever
nature or character against the
debtor or its
e The
ssing,
sing, th
properties,whether for money or otherwise.
The definition is so encompassing,
there are no
eptemb
eptembe
distinctionsorexemptions.(SOBREJUANITEvs.ASB,G.R.No.165675,30September2005)

der?
er?
Isenforcementofmaritimelienalsoaffectedbythesuspensionorder?

ement committee, rehabilitation
PD 902A mandates that upon appointment of a management
ons
ons,
receiver,boardorbody,allactionsforclaimsagainstcorporations,partnershipsorassociations
undermanagementorreceivershippendingbeforeanycourt,tribunal,boardorbodyshallbe
suspended. PD 902A does not make any distinction as to what claims are covered by the
suspension of actions for claims against corporations under rehabilitation. No exception is
madethereininfavorofmaritimeclaims.Thus,sincethelawdoesnotmakeanyexemptionsor
distinctions,neithershouldwe.Ubilexnondistinguitnecnosdistingueredebemos.
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The issuance of the stay order by the rehabilitation court does not impair or in any way
diminish a creditors preferred status. The enforcement of its claim through court action was
merely suspended to give way to the speedy and effective rehabilitation of the distressed
shipping company. Upon termination of the rehabilitation proceedings or in the event of the
bankruptcy and consequent dissolution of the company, the creditor can still enforce its
preferred claim upon the company. (NEGROS NAVIGATION vs. COURT OF APPEALS, 10
December2008)


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e prior
Doesapetitionforrehabilitationrequirepriorfilingofpetitionforsuspensionofpayment?

bl

es

e asset
asse
Acorporationmayhaveconsiderableassetsbutifitforeseestheimpossibilityofmeetingits
ear,
ar, it s
obligationsformorethanoneyear,itisconsideredastechnicallyinsolvent.Thus,atthefirst
ilee a pet
instance,acorporationmayfileapetitionforrehabilitationaremedyprovidedunderSec.41
on
n Corp
oftheRulesofProcedureonCorporateRecovery.

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oned tec
te
c. 312,
12, itwasreferringtothedefinition
WhenSec.41mentionedtechnicalinsolvencyunderSec.312,
vency
ency in
requir
requiri
oftechnicalinsolvencyinthesaidsection;itwasnotrequiring,therefore,apreviousfilingofa
spension
ensio
URT
RT OF
OF
petitionforsuspensionofpayments.(PNBvs.COURTOFAPPEALS,G.R.No.165571,20January
2009)

an

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on Plan
to
o non
DoestheapprovaloftheRehabilitationPlanviolatethecreditorsrighttononimpairmentof
contracts?

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bl

es

provides
rovides
off a ma
m
Section6[c]ofP.D.No.902Aprovidesthat"uponappointmentofamanagementcommittee,
d or
or body,
bo
ee,
e, all
all actions
a
ac
rehabilitation receiver, board
pursuant to this Decree,
for claims against
ent
nt or
or receivership
r
corporations, partnerships or
or ass
associations under management
pending before
b
anycourt,tribunal,boardorbodyshallbesuspended."

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ointmen
ntmen
mere
merely
TheapprovaloftheRehabilitationPlanandtheappointmentofarehabilitationreceivermerely
ent corporations.
corp
erred
rred status
t
suspend the actions for claims against respondent
A creditors preferred
mortgage
nforcem
overtheunsecuredcreditorsrelativetothemortgageliensisretained,buttheenforcementof
h en
ing
ng preference)
pref
such preference is suspended. Considering that
enforcement of loan (including
is
f contracts, specifically its lien
en in
in the
th mortgaged
merely suspended, there is no impairment of
properties.(ibid)


mplying
plying
DecidewhetherreceivershipwillexcusetheCompanyfromcomplyingwiththereinstatement
orderoftheLaborArbiter.
Caselawrecognizesthatunlessthereisarestrainingorder,theimplementationoftheorderof
reinstatement is ministerial and mandatory. This injunction or suspension of claims by
legislativefiat partakesofthenatureofarestrainingorderthatconstitutesalegaljustification
for respondents noncompliance with the reinstatement order. The Companys failure to

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exercisethealternativeoptionsofactualreinstatementandpayrollreinstatementistherefore
justified.Suchbeingthecase,theCompanysobligationtopaythesalariespendingappeal,as
thenormaleffectofthenonexerciseoftheoptions,didnotattach.
While reinstatement pending appeal aims to avert the continuing threat or danger to the
survivaloreventhelifeofthedismissedemployeeandhisfamily,itdoesnotcontemplatethe
periodwhentheemployercorporationitselfissimilarlyinajudiciallymonitoredstateofbeing
resuscitated in order to survive. (GARCIA vs. PHILIPPINE AIRLINES, INC., G.R. No. 164856, 20
January2009)

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e liquida
DoestheSEChavejurisdictionovertheliquidationofadissolvedcorporation?

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end
nd to
to the liquidation of a corporation.  While the SEC has
SECs jurisdiction does not extend
olution
ution of a corporation, jurisdiction over the liquidation of the
jurisdiction to order the dissolution
o the ap
a
corporationnowpertainstotheappropriateregionaltrialcourts.Thisisthecorrectprocedure
of a co
leme
em
becausetheliquidationofacorporationrequiresthesettlementofclaimsforandagainstthe
clearly
early fa
f the re
corporation,whichclearlyfallsunderthejurisdictionoftheregularcourts.(CONSUELOMETAL
PLANT
PLANTE
.R. No.
No
CORPORATIONvs.PLANTERSDEVELOPMENTBANK,G.R.No.152580,26June2008)

ha
hav
Does the SEC
SEC have
the power to collect fees
fees fo
for examining and filing of articles of
ation
tion an
incorporationandbylaws?

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d receivefeesasauthorizedbylawisnotinquestion.Its
receiv
w iss not
TheauthorityoftheSECtocollectand
ning
ing and
an
ration and bylaws and
power to collect fees for examining
and filing articles of incorporation
es of inc
apital
pital sto
to
amendmentsthereto,certificatesofincreaseordecreaseofthecapitalstock,amongothers,is
hed is it
i
D No. 9
D.
recognized.LikewiseestablishedisitspowerunderSec.7ofP.D.No.902Atorecommendto
stment
tment of the charges which it is
the President the revision, altera
alteration, amendment or adjustment
G
No.
o. 1640
authorizedtocollect.(SECvs.GMANETWORK,INC.,G.R.No.164026,23December2008)

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ATIO
TION
NC
SECURITIESREGULATIONCODE

an

UnderwhatconditionsmaytheSECissueaceaseanddesistorder?
ease

There are two essential requirements that must be complied with by
by the
the SSEC before it may
issueaceaseanddesistorder:First,itmustconductproperinvestigationor
verification;and
stigation
gation
Second, there must be a finding that the act or practice, unless
will operate as a
s restrained,
restr
restra
fraudoninvestorsorisotherwiselikelytocausegraveorirreparableinjuryorprejudicetothe
eparable
parabl
investing public. (SECURITIES AND EXCHANGE COMMISSION
N vs. PERFORMANCE FOREIGN
EXCHANGECORP.G.R.154131,20July2006)

Hence,amereclarificatoryconferenceundertakenbytheSECcannotbeconsideredaproper
investigation or verification process to justify the issuance of a CDO. It was merely an initial

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Whatdoestenderoffermean?Whendoesitapply?

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stageofsuchprocessconsideringthataftertheSECissuedtheCDO,itsoughtverificationfrom
theBangkoSentralngPilipinasonthenatureoftherespondentsbusinessactivity.(Ibid.)

IstheCDOvalidevenifsignedbyonlyoneSECcommissioner?

NO.TheSECisacollegialbodycomposedofaChairpersonandfour(4)Commissioners.Inorder
toconstituteaquorumtoconductbusiness,thepresenceofatleastthree(3)Commissionersis
required.

EC
C
TheissuanceoftheCDOisanactoftheSECitselfdoneintheexerciseofitsoriginaljurisdiction
s.. It
to review actual casesor controversies.
It sho
should be clear now that its power to issue a CDO
to an i
cannot,undertheSRC,bedelegatedtoanindividualcommissioner.

Out
ut Rul
ExplaintheMandatoryCloseOutRule.

roker
oker o
jus
just
Therulevestsuponabrokerordealer,theobligation,notjusttheright,tocancelorotherwise
rs order,
orde if payment is not received
ed
d within
wit
with
liquidate a customers
three days from the date of
ord
d "sha
"sh
rd "ma
"m
purchase. The word
"shall" as opposed to the word
"may," is imperative and operates to
, which
ABACU
BACU
USS
imposea duty,whichmaybelegallyenforced.(ABACUSSECURITIESCORPORATIONvs.AMPIL,
0016, 27
G.R.No.160016,27February2006)

iol
gulation
ulation
HowmayviolationsoftheSecuritiesRegulationCodebepursued?

hee Secu
specializ
AcriminalchargeforviolationoftheSecuritiesRegulationCodeis
aspecializeddispute.Hence,
dministr
ministr
mpeten
peten
itmustfirstbereferredtoanadministrativeagencyofspecialcompetence,i.e.,theSEC.Under
urisdictio courts will not determine
mine
ine a
a controversy involving a
the doctrine of primary jurisdiction,
ction
tion of
o
al, where
e
questionwithinthejurisdictionoftheadministrativetribunal,wherethequestiondemandsthe
e specia
pecia
rtise
se
exerciseofsoundadministrativediscretionrequiringthespecializedknowledgeandexpertise
ical
cal and
an intricate matters of fact.
and
t. The
of said administrative tribunal to determine technical
forceme
rceme is particularly vested in tthe
hee SE
Securities Regulation Code is a special law. Its enforcement
SEC.
ode
de and
d regula
regu
Hence,allcomplaintsforanyviolationoftheCodeanditsimplementingrulesandregulations
mplaint
EC
C shall
shouldbefiledwiththeSEC.Wherethecomplaintiscriminalinnature,theSECshallindorse
ry investigation
in
ion.
on. (BAVIERA
(BA
the complaint to the DOJ for preliminary
and prosecution.
vs.
PAGLINAWAN,GRNo.168380,February8,2007)

ders
e of
Atenderofferisanofferbytheacquiringpersontostockholdersofapubliccompanyforthem
r
totendertheirsharesthereinonthetermsspecifiedintheoffer.TheTenderOfferRuleapplies
alsoinanindirectacquisitionarisingfromthepurchaseofsharesofaholdingcompanyofthe
listed firm. Tender offer is in place to protect minority shareholders against any scheme that
dilutes the share value of their investments. It gives the minority shareholders the chance to

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exitthecompanyunderreasonableterms,givingthemtheopportunitytoselltheirsharesat
thesamepriceasthoseofthemajorityshareholders.

UnderexistingSECRules,the15%and30%thresholdacquisitionofsharesundertheforegoing
provision was increased to thirtyfive percent (35%).  It is further provided therein that
mandatory tender offer is still applicable even if the acquisition is less than 35% when the
purchasewouldresultinownershipofover51%ofthetotaloutstandingequitysecuritiesofthe
public company. Whatever may be the method by which control of a public company is
obtained, either through the direct purchase of its stocks or an indirect means, mandatory
INC
N vs. NATIONAL LIFE INSURANCE COMPANY, G.R.
tender offer applies. (CEMCO HOLDINGS INC.
No.171815,August7,2007)

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duct
uct of
Can the RTC order the conduct
of a stockholders meeting in connection with an intra
s jurisdi
corporatedisputeunderitsjurisdiction?

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s the
the power
p
Yes. The RTC now has
to hear and decide the
the in
intracorporate controversy and
d power
powe is the authority to issue
e orders
order necessary or incidental to the
concomitant to said
hee powers
pow
t. Thus,
Thus,
hus, the RTC may, in appropriate cases,
carrying out of the
expressly granted to it.
ding
ing of a
olders
ders o
ordertheholdingofaspecialmeetingofstockholdersormembersofacorporationinvolvingan
orate dis
(YUICO
YUICO
intracorporatedisputeunderitssupervision(YUICOvs.QUIAMBAO,513SCRA208,29January
2007)


an

versy?
ersy?
Whatisanintracorporatecontroversy?

Whatisanelectioncontest?

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y is one
hee follo
foll
Anintracorporatecontroversyisonewhich"pertainstoanyofthefollowingrelationships:(1)
partne
th
between the corporation, partnership
or association and the
the p
public; (2) between the
asso
assoc
farr as its
e
corporation,partnershiporassociationandtheStateinsofarasitsfranchise,permitorlicense
on,
n, partnership
part
partn
d its
to operate is concerned; (3) between the corporation,
or association and
4)) among
amo the stockholders, partners
ners or
stockholders, partners, members or officers; and (4)
or
associatesthemselves.

an

or claim
Anelectioncontestreferstoanycontroversyordisputeinvolvingtitleorclaimtoanyelective
thee ma
officeinastockornonstockcorporation,thevalidationofproxies,themannerandvalidityof
oclamati
clamati of winners, to the
elections, and the qualifications of candidates, including the proclamation
office of director, trustee or other officer directly elected by
by the
the stockholders in a close
ree the
corporationorbymembersofanonstockcorporationwherethearticlesofincorporationor
bylawssoprovide.


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CantheSECpassuponthevalidityofproxiesinrelationtoelectioncontroversies?
NO.ThispowerhasbeenwithdrawnfromtheSECbytheSRCandtransferredtotheregular
courts. Questions relating to the proper solicitation of proxies used in election are now
cognizable by the regular courts. However, the power of the SEC to regulate proxies remains
extant and could very well be exercised when stockholders vote on matters other than the
electionofdirectors.(GSISvs.CA,G.R.No.183905,16April2009)

Statethereasonfortheprohibitionagainstinsidertrading.

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off inve
Theintentofthelawistheprotectionofinvestorsagainstfraudcommittedwhenaninsider,
ntage o
usingsecretinformation,takesadvantageofanuninformedinvestor.Insidersareobligatedto
tthe
e oth
disclose material information to th
other party or abstain from trading the shares of his
corporation.

bl

es

an

Ba

bl

sed
ed on
on two factors: first, existence of a relationship giving access,
The duty to disclose is based
informa
nforma
blee on
o
directlyorindirectlytoinformationintendedtobeavailableonlyforacorporatepurposesand
benefit of anyone and second, the
he inher
inhe
not for the personal benefit
inherent unfairness involved when a
ntage
tage of
g t is un
partytakesadvantageofsuchinformationknowingitisunavailabletothosewithwhomheis
vs. INTERPORT
INTE
ORATIO
RATION
N et al., G.R. No. 135808, 6 October
dealing. (SEC vs.
RESOURCES CORPORATION,
2008)

Ba

for
or purp
Whatisafactofspecialsignificanceforpurposesofinsidertrading?

r
Ba

an
R

bl

es

an

ybe
be (a)
(a) a material fact which would
db
e lik
A fact of special significance maybe
be
likely, on being made
hee mark
mar
signifi
generally available, to effect the
market price of a security to a signific
significant extent, or (b) one
tant
ant in
nd
which a reasonable person would
would consider especially important
in
determining his course of
of sto
actionregardtothesharesofstock.(ibid)

es

AWS
WS
BANKINGLAWS

o
bl

Whatdegreeofdiligencearebanksrequiredtoobserve?
d to
t obs

an

Sincethebankingbusinessisimpressedwithpublicinterest,ofparamountimportancethereto
unt
nt impo
is the trust and confidence of the public in general. Consequently,
ly,, the
the highest degree of
diligenceisexpected,andhighstandardsofintegrityandperformanceareevenrequired,ofit.
ance ar
Bythenatureofitsfunctions,abankisunderobligationtotreattheaccountsofitsdepositors
at the a
with meticulous care, always having in mind the fiduciary
of their relationship.
ary
ry nature
na
(CITIBANK,N.A.vs.SPOUSESLUISANDCARMELITACABAMONGAN,etal.,G.R.No.146918,02
A
May2006).

Banks handle daily transactions involving millions of pesos. By the very nature of their works
thedegreeofresponsibility,careandtrustworthinessexpectedoftheiremployeesandofficials

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an

HowdoesDOSRIviolationdifferfromestafa?

o
bl

es

an

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bl

es

an

Ba

bl

es

an

Ba

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es

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r

isfargreaterthanthoseofordinaryclerksandemployees.Banksareexpectedtoexercisethe
highestdegreeofdiligenceintheselectionandsupervisionoftheiremployees.(ibid)

Thus, the Court held that the bank was negligent when it allowed the pretermination of the
account despite noticing the discrepancies in the signature and photograph of the person
claiming to be the concerned depositor. Further the required waiver document has not been
notarizedcontrarytothestandardproceduredesignedtoprotectthebank.(ibid)

Thebankwasalsofoundnegligentandthuscouldnotbeconsideredamortgageeingoodfaith
e re
itappearingthatithadknowledgethattherespondentwasintheUnitedStatesatthetimeher
did
id not
not question their due execution.  (CHINA BANKING
SPAs wereallegedly executed, yet, it did
VS.LAGON11JULY2006)

att bank
TheCourtalsoemphasizedthatbankscannotmerelyrelyoncertificatesoftitleinascertaining
roperties
opertie
thestatusofmortgagedproperties;astheirbusinessisimpressedwithpublicinterest,theyare
ore
re care
ings
ngs
expectedtoexercisemorecareandprudenceintheirdealingsthanprivateindividuals.Indeed,
dealing
rely
ly sole
sol
therulethatpersonsdealingwithregisteredlandscanrelysolelyonthecertificateoftitledoes
s. (URSA
Octob
Octobe
notapplytobanks.(URSALvs.COURTOFAPPEALS14October2005)

e relatio
sitor
itor and
What is the
relationship between the depositor
and the bank with respect to the amount
d by the
depositedbytheformerwiththelatter?

s depos
visions
ThecontractbetweenthebankanditsdepositorisgovernedbytheprovisionsoftheCivilCode
creditor
editor
bank and
onsimpleloan.Thereisadebtorcreditorrelationshipbetweenthebankanditsdepositor.The
positor
ositor is
orr lend
bankisthedebtorandthedepositoristhecreditor.Thedepositorlendsthebankmoneyand
deposito
deposit
eposit
thebankagreestopaythedepositorondemand.Thesavingsdepositagreementbetweenthe
he con
co
rights
ghts an
s.
bankandthedepositoristhecontractthatdeterminestherightsandobligationsoftheparties.
004) Failure
Fai
the
he
(BPI vs. FIRST METRO, G.R. N
No. 132390, December 8, 2004)
of the Bank to honor the
r and no
n
from a
timedepositisfailuretopayitsobligationasadebtorandnotabreachoftrustarisingfroma
of the
the deposit.
de
ship
h being
bein
depository's failure to return the subject matter of
 Thus, the relationship
edy
dy since
o enforc
enfor
contractual,mandamusisnotanavailableremedysincemandamusdoesnotlietoenforcethe
LUCMAN
UCMAN vs. MALAWI, et al., G.R.
R. No.
performance of contractual obligations. (LUCMAN
No. 158794,
December19,2006)


with
ith pro
ADOSRIviolationconsistsinthefailuretoobserveandcomplywithprocedural,reportorialor
to a dire
ceilingrequirementsprescribedbylawinthegrantof aloantoadirector,officer,stockholder
and other related interests in the bank, i.e. lack of written appr
approval of the majority of the
directorsofthebankandfailuretoentersuchapprovalinto corporaterecordsandtotransmit
acopythereoftotheBSPsupervisingdepartment.Theelementsofabuseofconfidence,deceit,
fraudorfalsepretenses,anddamage,whichareessentialtotheprosecutionforestafa,arenot
elements of a DOSRI violation. (SORIANO vs. PEOPLE OF THE PHILS., et al., G.R. No. 159517, 30
June2009)
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Respondents, as directors and officers of a bank, were accused of engaging in unsafe,
unsound, and fraudulent banking practices, more particularly, acts that violate the
prohibition on selfdealing. In question was the manner with which the directors have
handled the affairs of the bank, in particular, the fraudulent loans and dacion en pago
authorizedbythedirectorsinfavorofseveraldummycorporationsknowntohavecloseties
and are indirectly controlled by the directors. Decide whether the case is within the
jurisdictionoftheBSPorregularcourt.

es

Ba
r

he
Theallegationcallfortheexaminationoftheallegedlyquestionableloans.Whethertheseloans
dealing
arecoveredbytheprohibitiononselfdealingisamatterfortheBSPtodetermine.Theseare
s; rath
rathee
notordinaryintracorporatematters;rather,theyinvolvebankingactivitieswhichare,bylaw,
BSP
SP
regulatedandsupervisedbytheBSP.

bl

es

an

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bl

and jurisprudence
jur
It is wellsettled in both law and
that the Central Monetary Authority, through
ested
sted wi
w exclusive authoritytoassess,evaluateanddeterminethe
theMonetaryBoard,isvestedwith
k, and
and finding such condition to be
condition of any bank,
be one of insolvency, or that its
ness
ess wou
to its de
continuanceinbusinesswouldinvolveaprobablelosstoitsdepositorsorcreditors,forbidbank
ncial
cial ins
he Philip
ornonbankfinancialinstitutiontodobusinessinthePhilippines;andshalldesignateanofficial
other
ther co
err to im
i
oftheBSPorothercompetentpersonasreceivertoimmediatelytakechargeofitsassetsand
liabilities.

bl

es

an

Ba

ratio
eral
ral law
pora
or
TheCorporationCode,however,isagenerallawapplyingtoalltypesofcorporations,whilethe
ically ba
titutions
tutions
NewCentralBankActregulatesspecificallybanksandotherfinancialinstitutions,includingthe
f. As
b
cial law
dissolution and liquidation thereof.
As be
between a general and special
law, the latter shall
non
on de
d
HO
N MARELLA, G.R. Nos.
prevail  generalia specialibus non
derogant. (ARCENAS, JR. vs. HON
HON.
9))
168332/169053,19June2009)

an

Ba

be inte
bank
ank
Wouldtheperiodtoforeclosearealestatemortgagebeinterruptedifthemortgageebank
weretobeplacedunderreceivership?

an

o
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es

receiver'
eceiver'
nisteri
nisterin
NO.xxxForeclosureofmortgagesispartofthereceiver's/liquidator'sdutyofadministeringthe
s and cr
scriptive
riptive
bank'sassetsforthebenefitofitsdepositorsandcreditors.Thetenyearprescriptiveperiod
bank
nder
der rec
wouldnotbeinterruptedifthemortgageebankweretobeplacedunderunderreceivership.
strued
TheMonetaryBoard'sprohibitionfromdoingbusinessshouldnotbeconstruedasbarringany
re
e is
is not
no among those
and all business dealings and transactions by the bank. Foreclosure
stent
nt wi
w
activities which banks are prevented from doing for it is consistent
with the purpose of
erve
rve the
the assets of the bank in
receivership proceedings, i.e., to receive collectibles and preserve
dissipat
substitution of its former management, and prevent the dissipation
of its assets to the
ETERA
TERA BANK, G.R. No. 135706,
detriment of the creditors. (SPS. LARROBIS vs. PHILIPPINE VETERANS
October1,2004)


TheMonetaryBoardissuedaResolutionorderingtheliquidationofPhilippineVeteransBank.
A number of employees accepted their separation pay while the others chose to question
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r

their separation. Subsequently, Congress enacted RA 7169 authorizing the reopening of the
bank.TheaffectedemployeesarenowclaimingthatRA7169effectivelynullifiedtheearlier
resolutionoftheMonetaryBoardandineffect,alsonullifiedtheirtermination.

Upon implementation of the Monetary Board resolution and prior to the passage of R.A. No.
7169,theBankhadalreadyceasedtoexist.Itssubsequentrehabilitationwasnotanordinary
rehabilitation.R.A.No.7169hadtobepassedasalegislativefiattobreathelifeintotheBank.
WhileitistruethattheBankuseditsoldname,anewlawhadtobeenactedtorestructureits
outstandingliabilities.xxx

d not,
The enactment of R.A. No. 7169 did
not, ttherefore, nullify the subject resolution of the
d the Ba
B
MonetaryBoardwhichearlierplacedtheBankunderliquidationandcausedtheterminationof
Th
Ba
employment of the petitioners. The
The Banks
subsequent rehabilitation did not, by any test of
ready
eady adeadrelationshipbetweenthepetitionersandtheBank.
a
reason,revivewhatwasalready
NLRC,
LRC, 17
(CORNISTADOMINGOvs.NLRC,17October2006)

an

o
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es

an

Ba

bl

es

an

Ba

bl

es

an

Ba

f RA
RA 7653
76 (The New Central Bank
nk Act)
Does Section 30 of
Act) require a current and complete
thee bank
d placed
placed
examinationofthebankbeforeitcanbeclosedandplacedunderreceivership?

53
3 no
No. From the
the wor
words used in Sec. 30, RA 7653
no lo
longer requires an examination before the
of a
a closure order. Where the words
words of a statute are clear, plain
ain and free from
issuance of
meanin and applied without attempted
meaning
mpted interpretation.
ambiguity, it must be given its literal meaning
anothe
port o
TheCourtcannotlookfororimposeanothermeaningonthetermreportortoconstrueitas
synonymouswithexamination.

ation
tion be
did not
no
Theabsenceofanexaminationbeforetheclosureofabankdidnotmeanthattherewasno
r N
on
n of
tthe Monetary Board and the
hee
basis for the closure order.
Needless to say, the decision
of th
have som
so
nd
d its
ts
CentralBank,likeanyotheradministrativebody,musthavesomethingtosupportitselfandits
vidence.
ence
53 that
findingsoffactmustbesupportedbysubstantialevidence.ButitisclearunderRA7653that
equired
uired
thebasisneednotarisefromanexaminationasrequiredintheoldlaw.

ure
re off a
itious
tious in
Thepurposeofthelawistomaketheclosureofabanksummaryandexpeditiousinorderto
no
nger
ger req
protectpublicinterest.Thisisalsowhypriornoticeandhearingarenolongerrequiredbefore
TARY BO
a bank can be closed. (RURAL BANK OF SAN MIGUEL, INC. vs. MONETARY
BOARD, G.R. No.
150886,16February2007)

Discusstheeffectsofabankclosure.

The banks closure did not diminish the authority and powers o
of the designated liquidator to
effectuate and carry on the administration of the bank. The bank liquidator is allowed to
continue receiving collectibles and receivables or to pay off creditors claims and other
transactions pertaining to the normal operations of the bank. Among these transactions are the
prosecutionofsuitsagainstdebtorsforcollectionandtheforeclosureofmortgages.Thebankis

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allowedtocollectinterestsonitsloanswhileunderliquidation,providedthattheinterestsare
legal.Infine,theinterestrateontheloanagreeduponbetweenthepartiesisnotexcessiveor
unconscionable; and that during the closure of respondent bank, it could still function as a
bondinginstitution,hence,couldcontinuecollectinginterestsfrompetitioners.(BACOLORvs.
BANCOFILIPINOSAVINGSANDMORTGAGEBANK,G.R.No.148491,08February2007)

Doestheliquidationofabankrequireapriortaxclearance?

No.TheliquidationofabankisundertakenaccordingtoSec.30oftheNewCentralBankAct.
din for receivership and liquidation of a bank. It is
ding
The said provision lays down the proceedings
clearanc
earanc
silentasregardsthesecuringofataxclearancefromtheBIR.Theomissioncannotcompelthe
learanc
CourttoapplybyanalogythetaxclearancerequirementoftheSECsincethedissolutionofa
diffe
iff ren
en
corporationbytheSECistotallydifferentfromthereceivershipandliquidationofabankbythe
BSP.

fference
ference
olunta
un
Therearesubstantialdifferencesintheprocedureforinvoluntarydissolutionandliquidationof
the Cor
f a bank
ban
acorporationundertheCorporationCode,andthatofabankingcorporationundertheNew
so that
annot s
CentralBankAct,sothattherequirementsinonecannotsimplybeimposedintheother.(IN
OR A
DATION OF THE RURAL BANK OF BOKOD
RE: PETITION FOR
ASSISTANCE IN THE LIQUIDATION
INC. (RBBI),
(R
NSURAN
SURAN CORPORATION (PDIC) vs. BUREAU OF
(BENGUET), INC.
PHILIPINE DEPOSIT INSURANCE
L REVEN
18 Dece
INTERNALREVENUE(BIR),G.R.No.158261,18December18,2006)

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der RA
May tr
AretrustaccountsalsoprotectedunderRA1405(BankSecrecyLaw)?Maytrustaccountsbe
under
der ca
w?
examinedinconnectionwithaplundercasewithoutviolatingthelaw?

o cover
e term
RA 1405 is broad enough to
cover trust accounts because the
term deposit as used in RA
roadly
oadly
counts
unts w
1405istobeunderstoodbroadlyandnotlimitedonlytoaccountswhich
giverisetoacreditor
nk.. If
f th
debtor relationship between the depositor and the bank.
If
the money deposited under an
an
nss to
to th
ccount,
account may be used by banks for authorized loans
third persons, then such account,
relation
lation
or and
nd th
regardlessofwhetheritcreatesacreditordebtorrelationshipbetweenthedepositorandthe
ich
ch the
otect
tect for
f the
fo
bank, falls under the category of accounts which
the law precisely seeks to protect
ent of th
purposeofboostingtheeconomicdevelopmentofthecountry.

examin
examina
However,thereareexceptionsontheprotectionunderRA1405:(1)theexaminationsofbank
eliction
liction
accountsisuponorderofacompetentcourtincasesofbriberyorderelictionofdutyofpublic
matter
atter of
of litigation. The first
officials, and (2) the money deposited or invested is the subjectmatter
titioner
itioner
exceptionappliessincetheplundercasependingagainstthepetitionerisanalogoustobribery
y deposited
depos
or dereliction of duty and the second, because the money
in petitioners bank
e plunder
p
pl
accounts form part of the subject matter of the same
case. (EJERCITO vs.
SANDIGANBAYANANDPEOPLEOFTHEPHILIPPINES,G.R.No.15729495,30November2006)




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r

Whenacodepositorinquiresintothedeposit,doesheneedthewrittenconsentoftheother
depositor?

A copayee in a check deposited in a bank is likewise a codepositor. No written consent
thereforeoftheothercopayeeisneededinaninquiryofthedepositsbythe saidcodepositor.
(CHINABANKINGCORPORATIONvs.COURTOFAPPEALS,G.R.No.140687,18December2006)

Canaforeignerowncapitalstockinaruralbank?

rov
No. Section 4, Republic Act No. 7353, prov
provides
that with the exception of shareholdings of
old
d equi
corporationsorganizedprimarilytoholdequitiesinruralbanksasprovidedforunderSection
12C of Republic Act No. 337, as amende
amended, and of Filipinocontrolled domestic banks, the
hall
all be f
capitalstockofanyruralbankshallbefullyownedandhelddirectlyorindirectlybycitizensof
ns,
s, assoc
thePhilippinesorcorporations,associationsorcooperativesqualifiedunderPhilippine
lawsto
stock.
tock. (B
ownandholdsuchcapitalstock.(BULOS,JR.vs.KOJIYASUMA,G.R.No.164159,July17,2007)

clause o
? 
Explainthedragnetclauseorblanketmortgageclause?

bl

es

an

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bl

es

iss one
one which is specifically phrased
ed to
to subsume
su
A dragnet clause is
all debts of past and future
d and
origins. Such clauses
clauses are "carefully scrutinized
and strictly construed." Mortgages of this
enable t
nuous
uous de
d
characterenablethepartiestoprovidecontinuousdealings,thenatureorextentofwhichmay
nown
own or anticipated at the time,, and
and th
not be known
they avoid the expense and iinconvenience of
new transaction.
t
tra
use"
se" operates
o
executing a new security on each new
A "dragnet clause"
as a
to
o the
the borrowers
b
ailable additional funds
convenience and accommodation to
as it makes available
dditiona
itiona
eby
by savi
withouttheirhavingtoexecuteadditionalsecuritydocuments,therebysavingtime,travel,loan
gal
al servi
ra
a. (PRO
(PR
closingcosts,costsofextralegalservices,recordingfees,etcetera.(PRODUCERSBANKOFTHE
RIES,
IES Inc
009)
PHILS.vs.EXCELSAINDUSTRIES,Inc.,G.R.No.152071,8May2009)

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Machang Realty was incorporated to hold and purchase
Pigue
chase
hase real
re properties in trust for Pigue
gue
Bank. This was conceived by Pigue Bank in view
of the limit on a banks allowable
ew
w of
owabl
investments in real estate to 50% of its capital
al assets.
asset In the implementation of
assets
of the
the trust
t
agreement, Pigue Bank sold to Machang Realty
of its real properties while
while
the latter
ealty some
so
som
hile the
simultaneously leased to the former the
properties for 20 years. Eventually,
e prope
prop
ntually,
ually, Machang
repudiatedthetrust,claimedthetitlesforitselfanddemandedpaymentofrentals,deposits
se
t of rent
and goodwill, with a threat to eject Pigue Bank. Pigue Bank filed
filed a
a complaint for
reconveyanceofthepropertiesagainstMachangRealty.Willthecaseprosper?
see prosp

The agreement between the parties adverted to as an implied
ed trust
trust
rus is contrary to law. Thus,
whilethesaleandleaseofthesubjectpropertyisgenuineandbindinguponthe
parties,the
nd b
implied trust cannot be enforced even assuming the parties intended to create it. xxx "the
courtswillnotassistthepayorinachievinghisimproperpurposebyenforcingaresultanttrust
for him in accordance with the clean hands doctrine." Pigue Bank cannot thus demand
reconveyance of the property based on its alleged implied trust relationship with Machang
Realty.
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Thepartiesbeinginparidelicto,thus,noaffirmativereliefshouldbegiventooneagainstthe
other.PigueBankshouldnotbeallowedtodisputethesaleofitslandstoMachangRealtynor
should Machang Realty be allowed to further collect rent from Pigue Bank. The clean hands
doctrinewillnotallowthecreationnortheuseofajuridicalrelationsuchasatrusttosubvert,
directlyorindirectly,thelaw.Neitherpartycametocourtwithcleanhands;neitherwillobtain
relief from the court asthe one who seeks equity and justice must come to court with clean
hands.(TALAREALTY,etal.vs.COURTOFAPPEALS,7April2009)

Ba
r

INTELLECTUALPROPERTY

an

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an

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Ba

ExplaintheDOCTRINEOFSECONDARYMEANING.
Y MEAN

Awordorphraseoriginallyincapableofexclusiveappropriationwithreferencetoanarticleon
apable
pable
the market, because geographically
aphically
phically or otherwise descriptive, might nevertheless have been
usedsolongandsoexclusivelybyoneproducerwithreferencetohisarticlethat,inthattrade
sively
vely by
and to that branch of the
the
public, the word or
or phra
phrase has come to mean that the
he purchasing
pur
articlewashisproduct.(LYCEUMOFTHEPHILS.vs.CA,219SCRA610)
uct.
ct. (L
(LYC
Y
219 SCR

If the mark GALLO
GALLO
GALLO has been registered for
r wine
wine products, would its use on cigarette
productsconstituteaninfringementoftrademark?
onstitut
emark?
mark?

NO. The goods are different from each
There are (1) substantial
differences on the
ch other.
oth
othe
al diffe
trademarkitselfapplyingthedominancyandholistictest,(2)theyareofdifferentchannelsof
ancy
ncy an
of diffe
trade, (3) they have different qualities
marked
ualities
alities and purpose, (4) there is a m
arked
rke difference on the
priceofgoods.


Itiswellsettledbyjurisprudencethatatrademarkregistrationcanonlyextendtothoseitems
denc
ation
tion ca
ms
that are included in the certificate. (MIGHTY CORPORATION
ATION and LA CAMPANA FABRICA
A DE
DE
TABACO,INC.vs.E.&J.GALLOWINERYandTHEANDRESONSGROUP,INC.,G.R.
No.154342.
NDRESO
DRESO
154342.
July14,2004citingSterlingProductsInternationalInc.vs.FarbenfabrikenBayer(27SCRA1214
l Inc. vs
v
SCRA
CRA 12
[1969])

ExplaintheDOCTRINEOFEQUIVALENTS.

The doctrine of equivalents provides that an infringement also takes
kess place
plac when a device
appropriatesapriorinventionbyincorporatingitsinnovativeconceptand,althoughwithsome
ept and,
and
modification and change, performs substantially the same function
in substantially the same
ction
tion in
waytoachievesubstantiallythesameresult.(SMITHKLINEBECKMANCORPORATIONvs.CA,et
ECKMA
al.,G.R.No.126627,14August2003)





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r

Statetheelementsofunfaircompetition.

The essential elements of an action for unfair competition are (1) confusing similarity in the
generalappearanceofthegoodsand(2)intenttodeceivethepublicanddefraudacompetitor.
Theconfusingsimilaritymayormaynotresultfromsimilarityinthemarks,butmayresultfrom
otherexternalfactorsinthepackagingorpresentationofthegoods.Theintenttodeceiveand
defraudmaybeinferredfromthesimilarityoftheappearanceofthegoodsasofferedforsale
to the public. Actual fraudulent intent need not be shown. (INNOUT BURGER, INC. vs.
SEHWANI,INC.,G.R.No.179127,24December2008)

a prejud
Doesaninfringementcaseconstituteaprejudicialquestiontoanunfaircompetitioncase?

ion
on s nce
NO.Thereisnoprejudicialquestionsincethetwoactionsanactionforinfringementandunfair
nt of eac
competitionareindependentofeachofother.Thebasisofanactionforunfaircompetitionis
ement,
ment, t
fraud,whilethatofinfringement,thefactofregistration.

s no
no prejudicial
pr
ivilil (infringement)
(inf
At any rate, there is
question if the civil
and criminal (unfair
on can,
can, according to law, proceed independently
indepe
competition) action
of each other. Under Rule
of the R
roced
ocedurr
111,Section3oftheRevisedRulesonCriminalProcedure,inthecasesprovidedinArticles32,
2176 of
ndent
dent civ
33,34and2176oftheCivilCode,theindependentcivilactionmaybebroughtbytheoffended
t shall
shall
all proceed independently off the
party.  It
the criminal action and shall require only a
nc
s. HON.
l.,, G.R
G
preponderanceofevidence.(SAMSONvs.HON.REYNALDOB.DAWAY,etal.,G.R.Nos.160054
55.21July2004)

onfusion
nfusion arising from the use of similar
imilar
milar or colorable imitation
What are the two types of confusion
marks?

sion
n of
in
Section22,IPCcoverstwotypesofconfusion:a)confusionofgoods(productconfusion),in
e induce
induc
in the
whicheventtheordinarilyprudentpurchaserwouldbeinducedtopurchaseoneproductinthe
belief that he was purchasing the other and b)
b) confu
confusion of business (source o
or orig
origin
e differe
differ
uct
ct is su
s
confusion),thoughthegoodsof thepartiesaredifferent,thedefendantsproductissuchas
might reasonably be assumed to originate with
with the
the plaintiff, and the public would
would then be
ction
tion be
deceived either into that belief or into the belief
belief that there is some connection
between the
ORPORAT
RPORA
plaintiffanddefendant,which,infact,doesnotexist.(MCDONALDSCORPORATION,etal.vs.
L.C.BIGMAKBURGER,INC.,etal.,G.R.No.143993,August18,2004)

e manuf
manu
DoestheexemptionprovidedbyRA623applyeventolargescalemanufacturing?
ate the Use of Duly Stamped or
YES. RA 623, as amended by R.A. 5700 or An Act to Regulate
Marked Bottles, Casks, Kegs, Barrels and other similar Containers was meant to protect the
intellectualpropertyrightsoftheregistrantsofthecontainersandpreventunfairpracticesand
fraud on the public. However, Section 6 of the said Act specifically allows the reuse of such
bottlesascontainersforsisi,patis,bagoong,andothernativeproducts.

39
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ChanRobles Internet Bar Review : ChanRobles Professional Review, Inc.

an

o
bl

es

an

Ba

bl

es

an

Ba

bl

es

an

Ba

bl

es

Ba
r

The law did not distinguish between small scale and large scale manufacturing. Hence,
notwithstandingthatthenativeproductsareproducedonalargescale,thereuseofregistered
bottlesstillcomeswithintheexceptionprovidedbythelaw.(TWINACEHOLDINGSCORP.vs.
RUFINAANDCOMPANY(G.R.No.160191,08June2006)












40
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