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2018 Mercantile Law Last Minute Tips (Jurisprudence)

LETTERS OF CREDIT / TRUST RECEIPTS LAW

(1) Explain the nature of letters of credit. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode
of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid,
and a buyer, who wants to have control of the goods before paying. (HSBC vs. National Steel Corp, February 24, 2016)

(2) What are the three distinct and independent contracts in a letter of credit? These are: (1) the contract of sale between the buyer and the
seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant
to the terms and conditions stated therein. (Metrobank vs. Ley Construction, December 3, 2014)

Explain the independence principle. The independence principle assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. (PNB
vs. San Miguel, January 15, 2014)

Explain the fraud exception to the independence principle. The untruthfulness of a certificate accompanying a demand for payment under a
letter of credit may qualify as fraud sufficient to support an injunction against payment. The remedy for fraudulent abuse is an injunction.
Injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of
the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the
recovery of damages would be seriously damaged. (Transfield vs. Luzon Hydro, November 22, 2004)

(3) Ordinarily, there are three (3) parties to a letter of credit – the buyer, seller-beneficiary, and issuing bank. Owing to the complexity of
contracts under letter of credit transactions, there may be a correspondent bank which facilitates the ease of completing the
transactions. What is a correspondent bank? A correspondent bank may be a notifying bank, a negotiating bank or a confirming bank. A
notifying bank undertakes to inform the seller-beneficiary that a letter of credit exists and assumes no liability to pay under the letter of credit.
A negotiating bank purchases drafts at a discount from the seller-beneficiary and presents them to the issuing bank for payment. A confirming
bank may honor the letter of credit issued by another bank or confirms that the letter of credit will be honored by the issuing bank and, therefore,
assumes a direct obligation to the seller-beneficiary. (HSBC vs. National Steel Corp, February 24, 2016)

(4) Is the Uniform Customs and Practice for Documentary Credit (UCP), drafted by the International Chamber of Commerce, applicable
to the Philippine letters of credit? Yes. The use of international custom in Philippine jurisdiction is justified by Article 2 of the Code of
Commerce which provides that acts of commerce are governed by, among others, usages and customs generally observed. Thus, the UCP
applies even if it is not incorporated into the letter of the credit. (HSBC vs. National Steel Corp, February 24, 2016)

(5) What is the nature of trust receipts? A trust receipt is considered a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or purchased.

What are the obligations of the entrustee in a trust receipt transaction? There are two obligations in a trust receipt transaction: the first
refers to money received under the obligation involving the duty to turn it (entregarla) over to the owner of the merchandise sold, while the
second refers to the merchandise received under the obligation to return it (devolvera) to the owner. (Ng vs. People, April 23, 2010)

(6) Explain whether there is trust receipt transaction in the following:

(a) Goods under “trust receipt” are not for sale but for use in the construction business of the importer. No. There is no alternative
obligation but only one obligation which is the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where
the borrower is obligated to pay the bank the amount spent for the purchase of the goods. (Land Bank vs. Perez, June 13, 2012)
(b) Goods under “trust receipt” are to be used for towers he was commissioned to build. No. The goods were never intended for sale. The
transaction is a merely a loan. (Ng vs. People, April 23, 2010)
(c) Goods under “trust receipt” are received by the debtor before the trust receipt itself was entered into. No. Ownership over the goods
was already transferred to the debtor. The transaction is a mere loan. (Consolidated Bank vs. CA, April 1, 2001)
(d) Instruments under “trust receipt” were assigned to debtor. No. It is an assignment of credit where there is an absolute conveyance of
title. (BSP vs. Libo-on, November 23, 2015)

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CORPORATION CODE

(7) Can a corporation recover moral damages? As a rule, no. A juridical person, like a corporation, is generally not entitled to moral damages
because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings or serious anxiety. The grant of
moral damages to corporations, however, may be allowed if there is proof of the existence of the factual basis of the damage and its causal
relation to the defendant‘s acts. (First Lepanto vs. Chevron, January 18, 2012) Thus, a corporation can claim moral damages when it sued for
libel or any other form of defamation (Republic vs. Tuvera, February 16, 2007) or when the corporation has a reputation that is debased,
resulting in its humiliation in the business realm (Manila Electric vs. T.E.A. M., December 13, 2007)

(8) Sceptre Security Agency hired Timoteo as security guard in 1976. In 2003, Karen, Sceptre’s Operation Manager, required Timoteo to
submit a resignation letter as the same was supposedly required for applying for a position at another security agency, Royale Security
Agency. He was also asked to fill up Royale’s employment application form. In some of his assignment in Royale, Timoteo still used the
patches and agency cloths of Sceptre. Sometime after, when he reported at Royale’s office, he was informed that per instructions of the
general manager of Sceptre, he would no longer be given any assignment. Timoteo filed a complaint before the Labor Arbiter, and
among his prayers is for Royale’s corporate fiction be pierced for the purpose of compelling it to recognize the petitioner’s length of
service with Sceptre and for holding it liable for the benefits that have accrued to him arising from his employment with Sceptre. Is the
piercing of corporate veil proper? Yes. The manner by which Timoteo was made to resign from Sceptre and how he became an employee of
Royale suggest the perverted use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner tendered his
resignation and that he applied at Royale at the instance of Karen and on the impression they created that these were necessary for his continued
employment. They orchestrated the petitioner‘s resignation from Sceptre and subsequent employment at Royale, taking advantage of their
ascendancy over the petitioner and the latter‘s lack of knowledge of his rights and the consequences of his actions.

When does the doctrine of piercing the corporate veil apply? The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud
cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person. (Sarona vs. NLRC, January 18, 2012)

Does mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation
sufficient ground for disregarding the separate corporate personality? No. (Lozada vs. Mendoza, October 12, 2016)

How about the existence of interlocking directors, corporate officers and shareholders? No. While ownership by one corporation of all or a
great majority of stocks of another corporation and their interlocking directorates may serve as indicia of control, by themselves and without
more, however, are insufficient to establish an alter ego relationship or connection (PNB vs. Hydro Resources, March 13, 2013)

What then are the elements for piercing the corporate veil? Piercing the corporate veil based on the alter ego theory requires the concurrence
of three elements, namely: (1) control, not mere majority or complete stock control, but complete domination in finances and of policy; (2) such
control must have been used by the defendant to commit fraud or wrong; and, (3) the aforesaid control and breach of duty must have
proximately caused the injury or unjust loss complained of. (WPM International vs. Labayen, September 17, 2014)

Can the courts pierce the veil of corporate fiction as against another corporation which is not impleaded in the case? No. The principle of
piercing the veil of corporate fiction is applied only to determine established liability; it is not available to confer on the court a jurisdiction it
has not acquired over a party not impleaded in a case. Where the court has not acquired jurisdiction over the corporation, any proceedings taken
against that corporation and its property would infringe on its right to due process. (Kukan vs. Reyes, September 29, 2010)

Can the piercing the veil allowed by making the responsible persons impleaded and held solidarily liable even after final judgment and
on execution? Yes, provided that such persons deliberately used the corporate vehicle to unjustly evade the judgment obligation or resorted to
bad faith in evading their obligation. (Dutch Movers vs. Lequin, April 25, 2017)

(9) Is a change of corporate name considered under the law as the creation of a new corporation? No. The changing of the name of a
corporation is no more the creation of a corporation than the changing of the name of a natural person is begetting of a natural person. (Zuelling
Freight vs. NLRC, July 22, 2013)

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(10) Is the corporate name “Filipino Indian Chamber of Commerce in the Philippines, Inc. (FICCPI)” confusingly similar to “Indian
Chamber of Commerce Phils., Inc. (ICCPI), such that the latter’s corporate name should not be approved? Yes. The different words do
not distinguish the corporate names. The word ―Filipino‖ is merely a description, while the words ―Philippines‖ and ―Phils., Inc.‖ are simply
geographical locations, which do not make one distinct from the other. (ICCPI vs. FICCPI, August 3, 2016)

(11) By virtue of its ownership of certain units, Alderaan Corp. is a member of Dantooine Corp., a condominium corporation. Can Alderaan
Corp. send representatives to vote in the meetings of the members of Dantooine Corp.? Yes. Section 58 allows stockholders and members
to vote in person or by proxy in all meetings of stockholders or members.

Can the named representatives of Alderaan Corp. be elected as directors and officers of Dantooine Corp.? No. A director or trustee must
be a member of record of the corporation. Moreover, the power of the proxy is merely to vote. If said proxy is not a member in his own right, he
cannot be elected as a director or proxy. (Lim vs. Moldex, January 25, 2017)

(12) Can the board of directors vote for, during the board meeting, for the payment of compensation for additional duties performed within
their powers? No. Directors of corporations presumptively serve without compensation; so that while the directors, in assigning themselves
additional duties, act within their power, they nonetheless act in excess of their authority by voting for themselves compensation for such
additional duties. (Agdao Residents, Inc. vs. Maramion, October 17, 2016)

Can a corporation exercise the powers of another corporation whose shares the former acquired? No. Acquiring shares in another
corporation is not a means to create new powers for the acquiring corporation. Being a shareholder of another corporation does not
automatically change the nature and purpose of a corporation's business. (University of Mindanao, Inc. vs. BSP, January 11, 2016)

(13) Section 25 of the Corporation Code states that the corporate officers are the president, secretary, treasurer and such other officers as
may be provided for in the by-laws. One of the provisions of the by-laws of Marc II Marketing states that its Board of Directors may
appoint such other officers as it may determine to be necessary or proper. Pursuant to the said provision, Alfredo, through a board
resolution, was appointed as the General Manager. Is Alfredo a corporate officer? No. Alfredo is not a corporate officer of the corporation
because his position as General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws. The enabling
clause in the corporation‘s by-laws empowering its Board of Directors to create additional officers, i.e., General Manager, and the subsequent
passage of a board resolution to that effect cannot make such position a corporate office. (Marc II Marketing vs. Joson, December 12, 2011)

(14) Explain the rules on liability of directors, trustees and officers in relation to the corporation. The following are the rules:
A. Officers of the corporation are not personally liable for acts as such officers unless it is shown that they have exceeded their authority.
B. If the officer acted without authority, but the corporation ratified his actions subsequently or permits him to act with apparent authority, the
corporation shall be liable.
C. If by merely error in business judgment, not amounting to bad faith or negligence, losses resulted, directors and/or officers are not liable.
D. Director, trustee, or officer of a corporation may be made solidarily liable with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of the following:
a) The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs;
c) The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as director or trustee.
d) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file
with the corporate secretary his written objection thereto;
e) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the
corporation;
f) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.
(Lanuza vs. BF Corporation, October 1, 2014; Aratea vs. Suico, March 16, 2007; Filipinas Port vs. Go, March 16, 2007; People‘s
Aircargo vs. CA, October 7, 1998)

(15) What is the Nell Doctrine? It states that where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is
not liable for the debts and liabilities of the transferor. Exceptions to this doctrine are: (a) where the purchaser expressly or impliedly agrees to
assume such debts; (b) where the transaction amounts to consolidation or merger of corporations; (c) where the purchasing corporation is merely
a continuation of the selling corporation; and (d) where the transaction is entered into fraudulently in order to escape liability for such debts. (Y-
I Leisure vs. Yu, September 8, 2015)

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(16) What is the doctrine of apparent authority? The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent‘s authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him
out to the public as possessing the power to do those acts. (Advance Paper vs. ARMA Traders, December 11, 2013)

(17) Is the presentation of a stock certificate a conditio sine qua non for proving one's shareholding in a corporation? No. A stock certificate is
prima facie evidence that the holder is a shareholder of the corporation, but the possession of the certificate is not the sole determining factor of
one's stock ownership. A certificate of stock is merely the paper representative or tangible evidence of the stock itself and of the various interests
therein. (Insigne vs. Abra Valley Colleges, July 29, 2015)

(18) Section 52 provides that unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations. What is the
basis of the quorum? For stock corporations, the quorum is based on the number of outstanding voting stocks while for non-stock corporations,
only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum. (Lim vs. Moldex,
January 25, 2017)

(19) Dividends are payable to the stockholders of record as of the date of the declaration of dividends or holders of record on a certain
future date, as the case may be, unless the parties have agreed otherwise. What is the effect if there is failure to record the transfer of
shares in the book of the corporation? A transfer of shares which is not recorded in the books of the corporation is valid only as between the
parties; hence, the transferor has the right to dividends as against the corporation without notice of transfer but it serves as trustee of the real
owner of the dividends, subject to the contract between the transferor and transferee as to who is entitled to receive the dividends. (Cojuangco
vs. Sandiganbayan, April 24, 2009)

When is this rule on registration of transfer of shares not applicable? The rule is not applicable when the corporation unduly refuses to
recognize the assignment of shares. Hence, a stockholder‘s failure to register the assignment in the corporate books is not fatal to its claim for
the delivery of the stocks under the subscription agreement where the corporation itself unduly refuses to recognize the assignment. (Interport
Resources vs. Securities Specialist, June 6, 2016)

(20) Is surrender of certificate of stock required before the transfer of shares be recorded in the books? No. To compel to deliver to the
corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the right to have the stocks
transferred to the transferee‘s name, which is not sanctioned by law. The only limitation imposed by law is when the corporation holds any
unpaid claim against the shares intended to be transferred.

How about in the case of issuance of a new certificate of stock? Yes. The surrender of the original certificate of stock is necessary before the
issuance of a new one so that the old certificate may be cancelled. A corporation is not bound and cannot be required to issue a new certificate
unless the original certificate is produced and surrendered. Surrender and cancellation of the old certificates serve to protect not only the
corporation but the legitimate shareholder and the public as well, as it ensures that there is only one document covering a particular share of
stock. (Teng vs. SEC, February 17, 2016)

(21) In case of death of a shareholder, who shall have the right to vote under said share? On the death of a shareholder, the executor or
administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the
estate is effected, the stocks of the decedent are held by the administrator or executor. (Lopez Realty vs. Tanjangco, November 12, 2014)

(22) Can a stockholder who owns only 0.001% of a corporation demand for examination of corporate records? Yes. The Corporation Code
has granted all stockholders the right to inspect the corporate books and records, and in so doing has not required any specific amount of interest
for the exercise of the right to inspect.

When can the demand to examine and copy the corporation’s records and minutes be refused? It is when the corporation puts up as a
defense to any action that the person demanding had improperly used any information secured through any prior examination of the r ecords or
minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand.
(Terelay Investment vs. Yulo, August 5, 2015)

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(23) The RTC opined that refusing to allow inspection of the stock and transfer book, as opposed to refusing examination of other corporate
records, is not punishable as an offense under the Corporation Code. Is this correct? No. The act of ref using to allow inspection of the
stock and transfer book of a corporation, when done in violation of Section 74(4) of the Corporation Code, is punishable as an offense under
Section 144 of the same code.

Can a criminal action for violation of Section 74 in relation to Section 144 of the Corporation Code be filed against the previous
president and corporate secretary by the newly-elected officers for refusal to turn over the corporate records and books? No. What said
provisions contemplates a situation wherein a corporation, acting thru one of its officers or agents, denies the right of any of its stockholders to
inspect the records, minutes and the stock and transfer book of such corporation (Yujuico vs. Quiambao, June 2, 2014)

(24) Can the right of dissenting stockholders to demand payment of the value of their shareholdings be exercised in the absence of
unrestricted retained earnings? No. No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained
earnings in its books to cover the payment.

What happens then if the dissenting stockholders are not paid the value of their shareholdings? In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of the Corporation Code provides that if the dissenting stockholder is not paid the value of
his shares within 30 days after the award, his voting and dividend rights shall immediately be restored.

Why are unrestricted retained earnings required before the right of appraisal can be exercised? The trust fund doctrine backstops the
requirement of unrestricted retained earnings to fund the payment of the shares of stocks of the withdrawing stockholders.

What is the trust fund doctrine? The trust fund doctrine means that the capital stock, property and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the
distribution of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate creditors. Hence,
any disposition of corporate funds to the prejudice of creditors is null and void. (Turner vs. Lorenzo Shipping, November 24, 2010)

(25) Are the stockholders of a corporation liable for the debts of the corporation up to the extent of their unpaid subscriptions? Yes.
Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. The creditor is allowed to
maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt. (Halley vs.
Printwell, May 30, 2011)

(26) Bancommerce purchased and Traders Royal Bank (TRB) sold identified recorded assets of TRB in consideration of Bancommerce’s
assumption of identified recorded liabilities of TRB. Does this transaction amount to merger? No. Bancommerce and TRB remained
separate corporations with distinct corporate personalities. There is no merger by mere sale of assets and assumption of liabilities. The
Corporation Code provides that the merger shall be effective only upon the issuance by the SEC of a certificate of merger.

What is de facto merger? A de facto merger is where one corporation acquires all or substantially all of the properties of another corporation in
exchange of shares of stock of the acquiring corporation. The acquiring corporation would end up with the business enterprise of the target
corporation; whereas, the target corporation would end up with basically its only remaining assets being the shares of stock of the acquiring
corporation. (Bank of Commerce vs. Radio Philippines, April 21, 2014).

(27) Explain the two (2) kinds of corporate acquisition. These two kinds of corporate acquisitions are asset sales and stock sales. In asset sales, the
corporate entity sells all or substantially all of its assets to another entity. In stock sales, the individual or corporate shareholders sell a
controlling block of stock to new or existing shareholders.

Explain these two (2) kinds of corporate acquisition vis-à-vis existing employee-employer relationship. In asset sales, the seller in good
faith is authorized to dismiss the affected employees, but is liable for the payment of separation pay under the law. The buyer in good faith, on
the other hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the payment of their claims. In contrast with asset
sales, the transaction in stock sales takes place at the shareholder level. Because the corporation possesses a personality separate and distinct
from that of its shareholders, a shift in the composition of its shareholders will not affect its existence and continuity. Thus, notwithstanding the
stock sale, the corporation continues to be the employer of its people and continues to be liable for the payment of their just claims. (SME Bank
Inc. v. De Guzman, October 8, 2013)

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Section 80 of Corporation Code provides that, in merger and consolidation, the surviving or consolidated corporation shall posses and
be responsible for the assets and liabilities of the constituent corporations. Are employees of considered assets and liabilities of a
corporation such that the surviving or consolidated corporation must possess and be responsible for? No. Human beings are never
embraced in the term "assets and liabilities." The absorption of the employees of the constituent corporation, if made, is neither by operation of
law nor by legal consequence of contract. There is no government regulation or law that compels the merger of the two corporations or the
absorption of the employees of the dissolved corporation by the surviving corporation. (BPI vs. BPI Employees Union, August 10, 2010)

(28) How should the word “capital” in Section 11, Article XII be construed? ―Capital‖ for purposes of determining Filipino ownership of a
public utility refers only to shares of stock that can vote in the election of directors. (Gamboa vs. Teves, June 28, 2011) Preferred shares are to
be factored in only if they are entitled to vote (Roy vs. Herbosa, November 22, 2016)

(29) Explain the two tests in determining the nationality of a corporation. The first is the control test. It provides that shares belonging to
corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality.
The second test is the grandfather rule. It provides that if the percentage of Filipino ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.

Give an example of the application of the two tests. If 100,000 shares are registered in the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which belong to Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if
less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership, respectively, belongs to Filipino citizens, only 50,000
shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens. Under the control test, there is no
need to further trace the ownership of the 60% (or more) Filipino stockholdings since a corporation which is at least 60% Filipino-owned is
considered as Filipino. The grandfather rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the
joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings. Stated differently, where the 60-40
Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.

What is the prevailing mode of determining whether or not a corporation is a Filipino corporation entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines? The control test is still the prevailing mode of determining whether
or not a corporation is a Filipino corporation. When there is doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may apply the grandfather rule. (Narra Nickel Mining vs. Redmont Consolidated, April 21,
2014)

(30) Generally, when is a foreign corporation “doing business” in the Philippines? A foreign corporation is ―doing business‖ in the Philippines
when it performs act or acts that imply a continuity of dealings or arrangements and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or of the purpose and object of
the business organization.

Determine whether the following constitutes “doing business” in the Philippines:

(a) Appointment by a foreign corporation of a distributor in the Philippines. It depends. The appointment of a distributor in the
Philippines is not sufficient to constitute "doing business" unless it is under the full control of the foreign corporation. If the distributor is
an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines. (Steelcase vs. Design International, April 18, 2012)
(b) Foreign corporation importing molasses from Philippine exporter, where the parties amended the contract thrice for the exporter
to deliver the molasses. No. There is no showing that the transactions signify the intent of the parties to establish a continuous business or
extend its operations in the Philippines. (Cargill vs. Intra Strate, March 15, 2010)
(c) Offline international air carrier selling passage tickets in the Philippines, through a general agent. Yes. Appointing representatives
operating under full control of the foreign corporation constitutes doing business. (Air Canada vs. CIR, January 11, 2016)
(d) Purchases of a Philippine corporation from a Hong Kong corporation, where the goods purchased shall be delivered to another
Hong Kong corporation. No. The series of transactions between parties transpired and were consummated in Hong Kong. There is no
single activity which was performed here in the Philippines. (B. Van vs. GTVL, May 28, 2007)

(31) Does the corporation have the capacity to sue after dissolution? Yes, for a limited three-year period. The time during which the corporation,
through its own officers, may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three years from the time the

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period of dissolution commences. An already defunct corporation, however, can no longer initiate a suit after the lapse of the said three-year
period. (Alabang Development vs. Alabang Hills Village, June 2, 2014)

(32) Vitaliano filed, in his individual capacity and on behalf of FQB+7, Inc., a complaint for intra-corporate dispute and damages against
Nat, Pris, and Tony, who purportedly are the officers of the FQB+7 as stated in the General Information Sheet, when in fact no election
was ever held. Subsequently, FQB+7 was dissolved by SEC for non-compliance with reportorial requirements. The RTC dismissed the
intra-corporate dispute ratiocinating that a dissolved corporation is allowed only to continue for a period of three (3) years, not for the
purpose of continuing it business but to settle and close its affairs, and that the intra-corporate dispute aims to continue its business. Is
the RTC correct? No. The complaint does not seek to enter into contracts, issue new stocks, acquire properties, or execute business
transactions, which essentially constitute continuing of business. Its aim is not to continue the corporate business, but to determine and vindicate
an alleged stockholder‘s right to participate in the election of directors and a corporation‘s right to remove usurpers and strangers from its
affairs. (Aguirre vs. FQB+7, January 9, 2013)

(33) What is the term of office of members of the board of trustees in an educational corporation? The term of office is five years unless
otherwise provided in the articles of incorporation or by-laws. (Barayuga vs. Adventist University, August 17, 2011)

Can an educational institution secure loans of third persons? No. As an educational institution, it is limited to developing human capital
through formal instruction. It is not a corporation engaged in the business of securing loans of others. (University of Mindanao, Inc. vs. BSP,
January 11, 2016)

(34) A, B, C, D, and E were members of the 2003-2004 Board of Directors of FLP Corporation. At the election for the 2004-2005 Board of
Directors, not one of them was elected. They filed in court a derivative suit on behalf of FLP Corporation against the newly-elected
members of the Board of Directors. They questioned the validity of the election as it was allegedly marred by lack of quorum, and
prayed for the nullification of the said election. The 2004-2005 Board of Directors moved to dismiss the complaint because the
derivative suit is not proper. Decide. The derivative suit is not proper. In a derivative suit, the cause of action actually devolves on the
corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit.
Here, petitioners are the injured party, whose rights to vote and to be voted upon were directly affected by the election of the new set of board of
directors. The party-in-interests are A, B, C, D, and E as stockholders, who wield such right to vote. The cause of action devolves on A, B, C, D,
and E, not the corporation, which did not have the right to vote. (Legaspi Towers 300 vs. Muer, June 18, 2012)

What are the requisites for derivative suit to prosper? The requisites for a derivative suit are as follows: a) the party bringing suit should be a
shareholder as of the time of the act or transaction complained of, the number of his shares not being material; b) he has tried to exhaust intra-
corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his
plea; cc) no appraisal rights are available for the act or acts complained of; d) the suit is not a nuisance or harassment suit; and d) the cause of
action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular
stockholder bringing the suit. (Ching vs. Subic Bay Golf, September 10, 2014; Forest Hills vs. Fil-estate, July 20, 2016)

Which court has jurisdiction over derivative suit? RTC designated as special commercial courts. (Hills vs. Fil-estate, July 20, 2016)

(35) What are the guidelines to determine whether the Labor Arbiters or the RTC have jurisdiction over controversies involving dismissal of
a corporate officer? First, a person‘s status as director and stockholder does not automatically convert his dismissal as an intra-corporate
dispute. Second, in order to determine whether a dispute constitutes an intra-corporate controversy or not, two elements must be considered,
namely: (a) the status or relationship of the parties; and (b) the nature of the question that is the subject of their controversy. (Matling Industries
vs. Coros, October 13, 2010)

Explain the nature of the controversy test. Under the nature of the controversy test, the incidents of that relationship must also be considered
for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an
intra-corporate relationship, but must as well pertain to the enforcement of the parties‘ correlative rights and obligations under the Corporation
Code, by-laws, and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental
to the controversy or if there will still be conflict even if the relationship does not exist, then no intra-corporate controversy exists. (Cosare vs.
Broadcom Asia, February 5, 2014)

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(36) Which court has jurisdiction to hear and decide applications for the appointment of receivers or management committees of a
corporation? Regional Trial Court has original and exclusive jurisdiction to hear and decide intra-corporate controversies, including incidents
of such controversies like applications for the appointment of receivers or management committees.(Villamor vs. Umale, September 24, 2014)

How about the dissolution and the liquidation of corporation? The SEC has jurisdiction to order dissolution of a corporation but the
Regional Trial Court has jurisdiction over the liquidation. The liquidation of a corporation requires the settlement of claims for and against the
corporation, which clearly falls under the jurisdiction of the regular courts. (Consuelo Metal vs. Planters Development Bank, June 26, 2008)

SECURITIES REGULATION CODE

(37) When is there an investment contract? For an investment contract to exist, the following elements, referred to as the Howey test must concur:
(1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits;
and (5) profits arising primarily from the efforts of others.

(38) Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet service. To make a profit, PCI
devised a scheme in which, for the price of US$234.00, a buyer could acquire from it an internet website of a 15-Mega Byte (MB)
capacity. At the same time, by referring to PCI his own down-line buyers, a first-time buyer could earn commissions, interest in real
estate in the Philippines and in the United States, and insurance coverage worth ₱50,000.00. To benefit from this scheme, a PCI buyer
must enlist and sponsor at least two other buyers as his own down-lines. These second tier of buyers could in turn build up their own
down-lines. For each pair of down-lines, the buyer-sponsor received a US$92.00 commission. But referrals in a day by the buyer-
sponsor should not exceed 16 since the commissions due from excess referrals inure to PCI, not to the buyer-sponsor. Is this an
investment contract? No. PCI appears to be engaged in network marketing, a scheme adopted by companies for getting people to buy their
products outside the usual retail system where products are bought from the store‘s shelf. Under this scheme, adopted by most health product
distributors, the buyer can become a down-line seller. The latter earns commissions from purchases made by new buyers whom he refers to the
person who sold the product to him. The network goes down the line where the orders to buy come. (SEC vs. Prosperity.Com, January 25, 2012)

(39) After investigation and findings that Primanila Plans flagrantly violated the Securities Regulation Code, the SEC issued a motu proprio
a cease and desist order without prior hearing. Is the SEC correct? Yes. Under Section 64.1, the SEC, after proper investigation or
verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior
hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public (Primanila Plans vs. SEC, August 6, 2014)

(40) What are the rules in filing actions under Securities Regulation Code? The following are the rules:
(a) If the action filed is a criminal case for violation of the SRC, it must first be filed with the SEC. If the SEC finds that there is probable
cause, then it should refer the case to the DOJ. A criminal charge for violation of the SRC is a specialized dispute. Hence, it must first be
referred to an administrative agency of special competence. (Baviera vs. Paglinawan, February 8, 2007)
(b) If the action filed is civil case pertaining to civil liabilities arising from violations under SRC, it must be filed with the Regional Trial
Courts. (Pua vs. Citibank, September 16, 2013)

(41) Explain the concept of tender offer. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to
acquire equity securities of a public company. A public company is defined as a corporation which is listed on an exchange, or a corporation
with assets exceeding ₱50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such
company. 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 exit the company under reasonable terms, giving them the opportunity to sell their shares at the same
price as those of the majority shareholders.

When is tender offer mandatory? Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing provision
was increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is still applicable even if the acquisition is
less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company.

Will the mandatory tender offer cover indirect acquisition of equities, i.e. through purchase of the shares in a non-listed company,
which, in turn, owns the shares in the public company? Yes. The coverage of the mandatory tender offer rule covers not only direct

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acquisition but also indirect acquisition or "any type of acquisition." This is clear from the discussions of the Bicameral Conference Committee
on the Securities Act of 2000. (CEMCO Holdings vs. National Life, August 7, 2007)

(42) Explain the rules on proxy solicitation. General rule is that the SEC has the power to investigate violations of its rules on proxy solicitation.
Exception is when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the
violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy (an intra-corporate controversy) within the
original and exclusive jurisdiction of the regional trial courts. (SEC vs. Astra Securities, October 22, 2014)

BANKING LAWS

(43) What is the degree of diligence required of banks in its transactions? A banking institution is obliged to exercise the highest degree of
diligence as well as high standards of integrity and performance in all its transactions because its business is imbued with public interest.
(Comsavings Bank vs. Capistrano, August 28, 2013) Accordingly, in cases of mortgage, banks may not simply rely on the face of the title. The
ascertainment of the status of the property offered to it as loan security is indispensable part of its operations. (PNB vs. Villa, August 1, 2016)

(44) What is the relationship of depositors and the bank? The relationship is that of a creditor-debtor. The bank is the debtor and the depositor is
the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. Accordingly, legal compensation under
the New Civil Code may apply, provided all the requisites are present. (Areza vs. Express Savings, September 10, 2014)

(45) Who owns the money deposited in a joint account? The depositors are joint owners or co-owners of said account and their share in the
deposits shall be presumed equal, unless the contrary is proved. The common banking practice is that regardless of who puts the money into the
account, each of the named account holder has an undivided right to the entire balance and any of them may deposit and/or withdraw, partially
or wholly, the funds without the consent of the other. As between account holders, their right against each other may depend on what they have
agreed upon and the purposes for which the account was opened and how it will be operated. (Apique vs. Evangeline, August 5, 2015)

(46) What are deposit substitutes? Deposit substitutes are alternative form of obtaining funds from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower‘s own account, for the purpose of relending or purchasing of
receivables and other obligations.

Section 8 of General Banking Law provides that borrowing from the public means from twenty (20) or more persons. Explain this 20-
lender rule in relation to deposit substitutes. For purposes of determining twenty (20) or more persons, this would cover every transaction
executed in the primary or secondary market in connection with the purchase or sale of securities. Primary markets facilitate the issuance of new
securities. Secondary markets facilitate the trading of existing securities, which allows for a change in the ownership of the securities. The
transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors. (BDO vs.
Republic, January 13, 2015, August 16, 2016)

(47) Can banks outsource services such as check clearing, delivery of bank statements, fund transfers, card production, operations
accounting and control, and cash servicing? Yes. While deposit and loan functions cannot be legally contracted out as they are directly
related or integral to the main business or operation of banks, the foregoing services are but ancillary functions whose outsourcing is allowed.
(BPI Employees Union vs. BPI, July 24, 2013)

(48) Armovit was issued BPI Express Credit Card. When she treated her British friends to lunch in Mario’s Restaurant, she handed her
credit card to settle the bill. The waiter told her that, upon verification with BPI, the credit card had been summarily cancelled for
failure to pay outstanding obligations. She denied having defaulted and, as she was forced to ask her guests to share in the bill,
demanded compensation for embarrassment and humiliation. BPI countered that, although she already settled her loan, her account
was suspended because she failed to submit the required application form in order to reactivate her credit card privileges. There is no
stipulation of this requirement in the agreement. Is BPI correct? No. The relationship between the credit card issuer and the credit card
holder is a contractual one that is governed by the terms and conditions found in the card membership agreement. The terms and conditions
printed in the credit card application form did not show that she must submit her new application as the antecedent condition for her credit card
to be taken out of the list of suspended cards. (BPI Express vs. Armovit, October 8, 2014)

(49) The Monetary Board of the Bangko Sentral ng Pilipinas may forbid a bank from doing business and place it under receivership without
prior notice and hearing. Is this “close now, hear later” scheme valid? Yes. It is a valid exercise of police power. The "close now, hear later"

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doctrine is justified as a measure for the protection of the public interest. Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government.
(Vivas vs. Monetary Board, August 7, 2013)

(50) Will there be violation of the restrictions on DOSRI if the bank officer secured a loan using the name of another person? Yes. The
restrictions on DOSRI are broad enough to cover various modes of borrowing including direct and indirect borrowing. A direct borrowing is
obviously one that is made in the name of the DOSRI himself or where the DOSRI is a named party, while an indirect borrowing includes one
that is made by a third party, but the DOSRI has a stake in the transaction. The latter type – indirect borrowing – applies here. (Soriano vs.
People, February 1, 2010)

(51) Explain BSP’s open market operation as a tool to maintain price stability. Open market operation is a monetary tool where the BSP
publicly buys or sells government securities from (or to) banks and financial institutions in order to expand or contract the supply of money. By
controlling the money supply, the BSP is able to exert some influence on the prices of goods and services and achieve its inf lation objectives.
(Bank of Commerce vs. Planters Development, September 24, 2012)

(52) Dona Adela Export is declared insolvent. Its creditors executed an agreement, a provision of which states that Dona Adela Export
waives all rights to confidentiality provided under law on secrecy of bank deposits. Is the waiver valid? No. One of the exceptions to the
confidentiality under bank secrecy laws is when the depositor gives his written permission. Here, there was no written consent given by Dona
Adela Export or its representative it is waiving the confidentiality of its bank deposits. (Dona Adela Export vs. TIDCORP, February 11, 2015)

(53) RA 9160 allows the Court of Appeals, upon application ex parte by the AMLC and after determination that probable cause exists that
any monetary instrument or property is in any way related to an unlawful activity as defined therein, may issue a freeze order which
shall be effective immediately. The freeze order shall be for a period of twenty (20) days. Can the freeze order be extended? Yes. On
motion of the petitioner filed before the expiration of twenty days from issuance of a freeze order, the court may for good cause extend its
effectivity for a period not exceeding six months.

What is probable cause required for the issuance of a freeze order? The probable cause required for the issuance of a freeze order refers to
"such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a
money laundering offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject
thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense. (Ligot vs. Republic, March 6, 2013)

(54) Challenged as unconstitutional is Section 11 of RA 9160, specifically the Anti-Money Laundering Council (AMLC)’s authority to file
with the Court of Appeals an ex parte application for inquiry into certain bank deposits and investments for being violative of due
process clause. Resolve. The challenged provision is constitutional. There is no physical seizure of property involved at that stage. It is the
preliminary and actual seizure of the bank deposits or investments in question which brings these within reach of judicial process, specifically a
determination that the seizure violated due process. Moreover, AMLC‘s power of inquiry does not transform it into an investigative body
exercising quasi-judicial powers. Hence, there can b no violation of right to procedural due process. (Subido Pagente Certeza Mendoza and
Binay Law Offices vs. Court of Appeals, December 6, 2016)

(55) Under Act 3135, persons whose property is sold pursuant to extrajudicial foreclosure shall have the right to redeem the property has
one-year redemption period. Section 47 of RA 8791 (General Banking Law) shortened the redemption period for juridical persons,
providing that juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the
property until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case
shall be more than three (3) months after foreclosure, whichever is earlier. The said provision is challenged as unconstitutional for being
violative of equal protection clause. Is the challenge correct? No. The difference in the treatment of juridical persons and natural persons was
based on the nature of the properties foreclosed – whether these are used as residence, for which the more liberal one-year redemption period is
retained, or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in
the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets. (Goldenway Merchandising vs. Equitable
PCI, March 13, 2013)

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NEGOTIABLE INSTRUMENTS LAW

(56) Can there be negotiable instruments in electronic form? No. Electronic messages cannot be considered negotiable instruments as they lack
the features of negotiability, e.g. signed by the maker/drawer and the ability to be transferred. (HSBC vs. CIR, June 4, 2014)

(57) What is the effect of the fictitious-payee rule? A check payable to a specified payee may be considered as a bearer instrument if it is payable
to the order of a fictitious or non-existing person, and such fact is known to the person making it so payable. In this fictitious-payee situation, the
drawee bank is absolved from liability and the drawer bears the loss. The underlying theory is that one cannot expect a fictitious payee to
negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to
be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss.

Explain commercial bad faith as an exception to the fictitious-payee rule. A showing of commercial bad faith on the part of the drawee
bank, or any of the transferee of the check, will work to strip it of this defense. The exception will cause it to bear the loss. (PNB vs. Rodriguez,
September 26, 2008)

(58) In the course of their business, Alvin pre-signed several checks to answer for business expenses. Although signed, these checks had no
payee’s name, date or amount. The checks were entrusted to Napoleon with specific instruction not to fill them out without previous
notification and approval of Alvin. Sometime later, without Alvin’s knowledge and consent, Napoleon went to Octavio to secure a loan
on the excuse that Alvin needed the money for construction of his house. Octavio acceded and Napoleon simultaneously delivered to him
one of Alvin’s pre-signed check, filling out the blank portions with “Cash” and “Two Hundred Thousand Pesos Only.” When Octavio
deposited the check, it was dishonored for the reason “ACCOUNT CLOSED.” Is Alvin liable on the instrument? No. This is a case of an
incomplete but delivered negotiable instrument under Section 14, which is a personal defense that cannot be invoked against a holder in due
course. Octavio, however, is not a holder in due course. Since he knew that the underlying obligation was not actually for Alvin, the rule that a
possessor of the instrument is prima facie a holder in due course is inapplicable. His inaction and failure to verify, despite knowledge of that the
petitioner was not a party to the loan, may be construed as gross negligence amounting to bad faith.

What are the requisites for one to be a holder in due course? Section 52 provides that a holder in due course is a holder who has taken the
instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was
overdue, and without notice that it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That
at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
(Patrimonio vs. Guitierrez, June 4, 2014)

(59) If a bank pays out on a forged check, is it liable to reimburse the drawer from whose account the funds were paid out? No. The general
rule is to the effect that a forged signature is "wholly inoperative," and payment made "through or under such signature" is ineffectual or does
not discharge the instrument. If payment is made, the drawee cannot charge it to the drawer‘s account. The traditional justification for the result
is that the drawee is in a superior position to detect a forgery because he has the maker‘s signature and is expected to know and compare it. The
rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they
have on file. (Samsung Construction vs. Far East Bank, August 13, 2004)

(60) Santia loaned P2.5M to Pacific Lending, evidenced by a promissory note issued by Aglibot, the manager of Pacific Lending, on behalf of
the latter. As security for payment of the note, Aglibot also issued eleven (11) post-dated personal checks. Upon presentation of the
checks, they were dishonored for having been drawn against insufficient funds. What is the liability of Aglibot? Aglibot is an
accommodation party. An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. In lending his name to the
accommodated party, the accommodation party is in effect a surety for the latter. The mere fact that Aglibot issued her own checks to Santia
made her personally liable to the latter on her checks without the need for Santia to first go after Pacific Lending for the payment of its loan.
(Aglibot vs. Santia, December 5, 2012)

(61) Explain the liability of depositary/collecting bank. A depositary/collecting bank where a check is deposited, and which endorses the check
upon presentment with the drawee bank, is an endorser, which under Section 66 of the Negotiable Instruments Law, warrants "that the
instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that
the instrument is at the time of his endorsement valid and subsisting." In check transactions, the depositary/collecting bank or last endorser

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generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the
endorsements.

Explain the 24-hour clearing rule. The 24-hour clearing rule provides that any check which should be refused by the drawee bank in
accordance with long standing and accepted banking practices shall be returned through the Philippine Clearing House Corporation/local
clearing office, as the case may be, not later than the next regular clearing (24-hour). The modification, however, is that items which have been
the subject of material alteration or bearing forged endorsement may be returned even beyond 24 hours so long that the same is returned within
the prescriptive period fixed by law, which is ten (10) years because a check or the endorsement thereon is a written contract. The item need not
be returned through the clearing house but by direct presentation to the presenting bank. (Areza vs. Express Savings, September 10, 2014)

(62) In case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the altered tenor of acceptance?
The acceptor/drawee, despite the tenor of his acceptance, is liable only to the extent of the bill prior to alteration. This appears to be in
consonance the Negotiable Instruments Law which states that a material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. Thus, when the drawee bank pays a
materially altered check, it violates the terms of the check, as well as its duty to charge its client‘s account only for bona fide disbursements he
had made. If the drawee did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer‘s account which it was expected
to treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. It may pass the liability back to the collecting bank.
(Areza vs. Express Savings, September 10, 2014)

(63) Is a check an evidence of indebtedness? Yes. A check constitutes an evidence of indebtedness and is a veritable proof of an obligation. Hence,
it can be used in lieu of and for the same purpose as a promissory note. In fact, a check functions more than a promissory note since it not only
contains an undertaking to pay an amount of money but is an order addressed to a bank and partakes of a representation that the drawer has
funds on deposit against which the check is drawn, sufficient to ensure payment upon its presentation to the bank. Indeed, a check, the entries of
which are in writing, could prove a loan transaction. (Pua vs. Tiong, October 23, 2013)

(64) Does the issuance of the check operate as an assignment of any part of the funds? No. The issuance of the check does not of itself operate
as an assignment of any part of the funds in the bank to the credit of the drawer. The bank becomes liable only after it accepts or certifies the
check. After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of
the depositor-drawer. (RCBC vs. Hi-Tri Dev‘t Co., June 13, 2012)

(65) Are cashier’s check deemed as cash? Yes. It is a well-known and accepted practice in the business sector that a cashier's check is deemed as
cash. Since the said check had been certified by the drawee bank, by the certification, the funds represented by the check are transferred from
the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with
rights and duties of one in such situation.

Can manager’s check and cashier’s check be subject to countermand by the payee after indorsement? No. While manager‘s and cashier‘s
checks are still subject to clearing, they cannot be countermanded for being drawn against a closed account, for being drawn against insufficient
funds, or for similar reasons such as a condition not appearing on the face of the check. Accepted banking practices do not countenance the
countermanding of manager‘s and cashier‘s checks on the basis of a mere allegation of failure of the payee to comply with its obligations
towards the purchaser. (Metrobank vs. Chiok, November 6, 2014)

While a manager’s check is automatically accepted by the bank upon its issuance, is a holder other than a holder in due course still
subject to defenses? Yes. (RCBC vs. Odrada, October 19, 2016)

(66) Nowella, the treasurer of a university, encashed a crossed check payable to the university treasurer. She claims that it is the practice of
the past administration of the university. Is the encashment proper? No. The crossing of a check means that the check may not be encashed
but only deposited in the bank. By encashing the crossed checks, respondent put the funds covered thereby under the risk of being lost, stolen,
co-mingled with other funds or spent for other purposes. (Wesleyan University vs. Reyes, July 30, 2014)

What are the effects of a crossed check? The effects of a crossed check are the following: A crossed check (a) may not be encashed but only
deposited in the bank; (b) may be negotiated only once — to one who has an account with a bank; and (c) warns the holder that it has been

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issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a
holder in due course. (Dino vs. Judal-Loot, April 19, 2010)

What does it mean when a crossed check has a notation “account payee only”? It means the check can only be deoposited in the named
payee‘s account. (Equitable Banking vs. Special Steel, June 13, 2012)

INSURANCE LAW

(67) Is a health care agreement an insurance contract? Yes. A health care agreement is in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent agreed upon under the contract. (Fortune Medicare vs. Amorin, March
12, 2014)

(68) Explain insurable interest in property. An insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest
founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. An insurable
interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and
neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. (Gaisano
Cagayan vs. Insurance Company, June 8, 2006)

(69) After some convincing by Perla, Manuel filed an application for pension plan with Philam Plans. Manuel signed the application and left
to Perla the task of supplying the information needed in the application. Ma. Celeste, Perla’s daughter, signed the application as sales
counselor. Few months after, Manuel died of blood poisoning. The beneficiary, Lourdes, filed a claim which Philam Plans denied on the
ground that Philam found that Manuel was on maintenance medicine for his heart and had an implanted pacemaker, and suffering
from diabetes mellitus and taking insulin. Is there material concealment? Yes. Since Manuel signed the application without filling in the
details regarding his continuing treatments for heart condition and diabetes, the assumption is that he has never been treated for the said
illnesses. The responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the
information that Philam needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla
the needed information and delegated to her the filling up of the application, then she acted on his instruction, not on Philam‘s instruction.
(Florendo vs. Philam Plans, February 22, 2012)

(70) What is the incontestability clause? The incontestability clause is a provision in law that after a policy of life insurance made payable on the
death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation
of the insured or his agent. (Manila Bankers vs. Aban, July 29, 2013)

When is the insurance deemed reinstated for purposes of incontestability clause? The date of last reinstatement pertains to the date that the
insurer approved· the application for reinstatement. (Insular Life vs. Khu, April 18, 2016)

Will the incontestability clause set in when the insured dies within the two-year period, regardless of the presence or lack of
concealment or misrepresentation? Yes. When the insured the dies within said period, the insurer must make good on the policy, even though
the policy was obtained by fraud, concealment, or misrepresentation. The death of the insured within the two-year period will render the right of
the insurer to rescind the policy nugatory. (Sun Life vs. Sibya, June 8, 2016)

(71) When is there double insurance? Double insurance exists where: (a) the person insured is the same; (b) two or more insurers insuring
separately; (c) there is identity of subject matter; (d) there is identity of interest insured; and (e) there is identity of the risk or peril insured
against. Thus, there arises no double insurance since they were issued to two different persons/entities having distinct insurable interests.
(Malayan Insurance vs. Philippine First, July 11, 2012)

(72) Cite the exceptions to the rule that no insurance contract takes effect unless premium is paid. The exceptions are: (a) in case of life or
industrial life policy, whenever the grace period provision applies; (b) where the insurer acknowledged in the policy or contract of insurance
itself the receipt of premium, even if premium has not been actually paid; (c) where the parties agreed that premium payment shall be in
installments and partial payment has been made at the time of loss; (d) where the insurer granted the insured a credit term for the payment of the

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premium, and loss occurs before the expiration of the term; and (e) where the insurer is in estoppel as when it has consistently granted a 60 to
90-day credit term for the payment of premiums. (Gaisano vs. Development Insurance, February 27, 2017)

(73) Malayan Insurance issued fire insurance policy to PAP Co. for the latter’s machineries. During the subsistence of the policy, the
machineries were totally lost by fire. The fire insurance claim, however, was denied by Malayan Insurance on the ground that the
insured machineries were transferred by PAP Co. to a location different from that indicated in the policy without its consent. Is
Malayan Insurance liable? No. Malayan Insurance cannot be held liable for the loss of the insured properties under the fire insurance policy.
The insurer is entitled to rescind the insurance contract in case of an alteration in the use or condition of the thing insured. An insurer can
exercise its right to rescind an insurance contract when the following conditions are present, to wit: 1) the policy limits the use or condition of
the thing insured; 2) there is an alteration in said use or condition; 3) the alteration is without the consent of the insurer; 4) the alteration is made
by means within the insured‘s control; and 5) the alteration increases the risk of loss. Here, there is alteration in the condition of the machineries
without the consent of the insurer which increased the risk of loss. (Malayan Insurance vs. PAP Co., August 7, 2013)

(74) A provision in car insurance provides that the insurer shall not be liable for any malicious damage caused by the insured, any member
of his family or by a person in the insured’s service. Castor instructed her driver, Lanuza, to bring the above-described vehicle to a
nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to respondent and despite diligent efforts to
locate the same, said efforts proved futile. Resultantly, respondent promptly reported the incident to the police and concomitantly
notified petitioner of the said loss and demanded payment of the insurance proceeds. Insurer denied the claim since it is a case of
“malicious damage” for which the insurer is not liable. Is the insurer correct? No. Since the exception refers only to "malicious damage" to
the motor vehicle caused by a person under the insured‘s service, it does not contemplate "loss of property.‖ If the intention of the insurer was to
include the term "loss" within the term "damage" then logic dictates that it should have included a clear definition of the said term as part of the
provisions of the said insurance contract.(Alpha Insurance vs. Castor, September 2, 2013)

(75) When does the right to subrogation accrue? The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. Payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may
have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract. (Malayan Insurance vs Alberto, February 1, 2012) Thus, where the insurer has been subrogated to the rights of
the insured, non-presentation of the insurance contract or policy is not necessarily fatal since the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. (Asian Terminals vs .Malayan Insurance, April 4, 2011)

What is the effect if the insurer pays the insured and it turns out that indemnification is not due? The insurer takes the risk of not being
able to seek recompense from the alleged wrongdoer. A subrogee in effect steps into the shoes of the insured and can recover only ifthe insured
likewise could have recovered. (Loadstar Shipping vs. Malayan Insurance, November 26, 2014)

(76) Assume that the policy provides that the claims shall be forfeited if no action is instituted within twelve (12) months from final rejection
of insurer. When does final rejection begin to run? Final rejection begins to run from denial by the insurer of the claims of the insured and
not the rejection or denial by the insurer of the insured‘s motion or request for reconsideration. The rejection referred to should be construed as
the rejection in the first instance. (H. H. Hollero vs. GSIS, September 24, 2014)

(77) Under Section 203 (now 209) the Insurance Code, every domestic insurance company shall, to the extent of an amount equal in value to
twenty-five percent of the minimum net worth required by law, invest its funds only in securities, satisfactory to the Commissioner. Are
the securities deposited by the insurance company pursuant to this section subject of levy by a creditor? No. The same section provides
that no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit under this section
or held on deposit pursuant to the requirement of the Commissioner. The securities are held as a contingency fund to answer for the claims
against the insurance company by all – not only one of – its policy holders and their beneficiaries. (Capitol Insurance vs. Del Monte Motor,
December 9, 2015)

TRANSPORTATION LAW

(78) What is a common carrier? A common carrier is a person, corporation, firm or association engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering such services to the public. Given the nature of the business and
for reasons of public policy, the common carrier is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case.

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What is the test to determine if one is a common carrier? The true test for a common carrier is whether the undertaking is a part of the
activity engaged in by the carrier that he has held out to the general public as his business or occupation. If the undertaking is a si ngle
transaction, not a part of the general business or occupation engaged in, as advertised and held out to the general public, the individual or the
entity rendering such service is a private, not a common, carrier. (Perena vs Zarate, August 29, 2012)

Explain whether the following are common carriers:

Stevedore. No. Stevedoring refers to the handling of the cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel.
A stevedore is not a common carrier for it does not transport goods or passengers. (Mindanao Terminal vs. Phoenix Assurance, May 8, 2009)
(a) Freight Forwarder. It depends. A freight forwarder‘s liability is limited to damages arising from its own negligence, including negligence in
choosing the carrier; however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their
transportation, it becomes liable as a common carrier for loss or damage to goods. (Unsworth Transport vs. Court of Appeals, July 26, 2010)
(b) School Bus. Yes. Despite catering to a limited clientèle, operators of school bus services operated as a common carrier because they held
themselves out as a ready transportation indiscriminately to the students of a particular school for a fee. (Perena vs. Zarate, August 29, 2012)
(c) Customs Broker/Brokerage. It depends. A customs broker/brokerage may be regarded as a common carrier if it undertakes to deliver the
goods for its customers. The law does not distinguish between one whose principal business activity is the carrying of goods and one who does
such carrying only as an ancillary activity (Westwind Shipping vs. UCPB, November 25, 2013; Torres-Madrid vs. FEB, July 11, 2016)
(d) Arrastre Operator. No. Relationship between consignee and arrastre operator is akin to that existing between consignee and/or owner of the
shipped goods and the common carrier, or that between a depositor and a warehouseman. Since the safekeeping of the goods is its responsibility,
it must prove that losses were not due to its negligence or to that of its employees. (Asian Terminal vs. First Lepanto, June 16, 2014)
(e) Resort with tour packages for its ferry operations. Yes. Its ferry services are so intertwined with its main business as to be properly
considered ancillary thereto. The tour packages it offers, which include the ferry services, may be availed of by anyone who can afford to pay
the same. These services are thus available to the public. (Cruz vs. Sun Holidays, June 29, 2010)

(79) Should the common carrier be held liable if its passenger was suddenly shot by a co-passenger? No. While the law requires the highest
degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does
not, however, make the carrier an insurer of the absolute safety of its passengers. (G.V. Florida vs. Heirs of Battung, October 14, 2015)

(80) What is the duration of liability of common carriers? The extraordinary responsibility of the common carrier lasts from the time the goods
are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them. (Westwind Shipping vs. UCPB, November 25,
2013)

(81) Are the surviving brothers and sisters of a passenger of a vessel that sinks during a voyage entitled to recover moral damages from the
vessel owner as common carrier? No. Moral damages may be recovered in an action upon breach of contract of carriage only when: (a) where
death of a passenger results, or (b) it is proved that the carrier was guilty of fraud and bad faith, even if death does not result. Article 2206 of the
Civil Code entitles only the descendants, ascendants, illegitimate children, and surviving spouse, not to brothers and sisters, of the deceased
passenger to demand moral damages for mental anguish by reason of the death of the deceased. (Sulpicio Lines vs. Curso, March 17, 2010)

(82) Are common carriers automatically relieved from liability if loss, destruction, or deterioration of the goods should be caused by the
faulty nature of the containers? No. Under Article 1742 of the Civil Code, even if the loss, destruction, or deterioration of the goods should be
caused by the faulty nature of the containers, the common carrier must exercise due diligence to forestall or lessen the loss. (Philam Insurance
vs. Heung-A, July 23, 2014)

(83) Should the common carrier be notified first of belongings brought by the passengers to be liable for the lost thereof? No. By allowing
passengers to board the vessel with belongings without any protest, common carriers became sufficiently notified of such belongings. So long as
the belongings were brought inside the premises of the ship/vessel, the common carrier was thereby effectively notified and consequently duty-
bound to observe the required diligence in ensuring the safety of the belongings during the voyage. (Sulpicio Lines vs. Sesante, July 27, 2016)

(84) When is a consignee, although not a signatory to the contract of carriage between the shipper and the carrier, becomes a party to the
contract? He can become a party by reason either (a) relationship of agency between the consignee and the shipper/consignor; (b) the
unequivocal acceptance of the bill of lading delivered to the consignee, with full knowledge of its contents or c) availment of the

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stipulation pour autrui, i.e., when the consignee, a third person, demands before the carrier the fulfillment of the stipulation made by
consignor/shipper in the consignee‘s favor, specifically the delivery of the goods shipped. (MOF Company vs. Shin Yang, December 18, 2009)

(85) In case there is absence of shipper’s declaration of the value of goods in the bill of lading and when COGSA applies, what is the liability
of the common carrier? When there is a loss/damage to goods covered by contracts of carriage from a foreign port to a Philippine port and in
the absence of shipper‘s declaration of the value of the goods in the bill of lading, the provisions of the COGSA pertaining to the limitation
liability of US $500 per package shall apply. (Philam Insurance vs. Heung-A, July 23, 2014)

(86) Can a valid agreement extend the one-year prescriptive period under COGSA? Yes. The carrier is discharged from liability for loss or
damage to the cargo unless the suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered. Recognized, however, is the validity of an agreement between the carrier and the shipper/consignee extending the one-year period to
file a claim. (Cua vs. Wallem Philippines, July 11, 2012)

(87) Does the one-year prescriptive period under COGSA apply to an action filed against an arrastre operator? No. Carriage of goods, under
COGSA, covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred
that the period of time when the goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the
COGSA. COGSA itself does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the
arrastre operator. (Insurance Company vs. Asian Terminals, February 15, 2012)

(88) The limited liability rule limits the liability of the shipowner or agent to the value of the vessel, its appurtenances and freightage earned
in the voyage, provided that the owner or agent abandons the vessel. Consequently, when the vessel is totally lost, in which case
abandonment is not required because there is no vessel to abandon, the liability of the shipowner or agent for damages is extinguished.
When does this rule do not apply? It does not apply: (1) where the injury or death to a passenger is due either to the fault of the shipowner, or
to the concurring negligence of the shipowner and the captain; (2) where the vessel is insured; and (3) in workmen's compensation claims, which
includes claims by seafarers under the POEA Standard Employment Contract.. (Phil-Nippon vs. Gudelosao, July 13, 2016)

(89) Does a contract of carriage arises when an airline issues a ticket to a passenger confirmed on a particular flight on a certain date? Yes.
If that does not happen, then the carrier opens itself to a suit for breach of contract of carriage. (Ramos vs. China Southern, September 21, 2016)

(90) Under the Warsaw Convention, where can plaintiff bring the action for damages? The plaintiff may bring the action for damages before
(1) court where the carrier is domiciled; (2) court where the carrier has its principal place of business; (3) court where the carrier has an
establishment by which the contract has been made; or (4) court of the place of destination. (Lhuillier vs. British Airways, March 15, 2010)

(91) What is the registered owner rule? The registered owner rule provides that the registered owner of the motor vehicle involved in a vehicular
accident could be held liable for consequences. The registered owner rule prevails over any stipulation to the contrary.

What is the remedy of the registered owner who is being held as liable for damages? The registered owner is allowed to recover
reimbursement from the actual and present owner by way of its cross-claim or otherwise, under the principle of unjust enrichment. (Metro
Manila Transit vs. Cuevas, June 15, 2015)

Where the defendant is the both the registered owner of the vehicle (registered owner rule) and the employer of the driver of the motor
vehicle (vicarious liability under Article 2180), how should the liability of the defendant be determined? In cases where both the
registered-owner rule and Article 2180 apply, the plaintiff must first establish that the employer is the registered owner of the vehicle in
question. Once the plaintiff successfully proves ownership, there arises a disputable presumption that the requirements of Article 2180 have
been proven – that first, there exists an employment relationship between the driver and the owner; second, that the driver acted within the scope
of his or her assigned tasks. The burden of proof then shifts to the defendant to show that no liability under Article 2180 has arisen. (Caravan
Travel vs. Abejar, G.R. No. 170631, February 10, 2016)

(92) Can the Land Transportation Franchising Regulatory Board (LTFRB) preventively suspend bus operator’s entire fleet of buses under
certificate of public convenience (CPC) for violations of law and regulations? Yes. The law gives to the LTFRB ample power and discretion
to decree or refuse the cancellation of a certificate of public convenience issued to an operator as long as there is evidence to support its action.
Its power to suspend the CPCs issued to public utility vehicles depends on its assessment of the gravity of the violation, the potentia l and actual
harm to the public, and the policy impact of its own actions. (LTFRB vs. G.V. Florida, June 28, 2017)

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INTELLECTUAL PROPERTY LAW

(93) What protection is accorded under the Paris Convention for the Protection of Industrial Property? Under the Paris Convention, the
Philippines is obligated to assure nationals of the signatory-countries that they are afforded an effective protection against violation of their
intellectual property rights in the Philippines in the same way that their own countries are obligated to accord similar protection to Philippine
nationals. Thus, under Philippine law, a trade name of a national of a State that is a party to the Paris Convention, whether or not the trade name
forms part of a trademark, is protected without the obligation of filing or registration. (Ecole de Cuisine vs. Renaud Cointreau, June 5, 2013)

(94) Dupont filed a patent application for treatment of hypertension in Philippines in 1987. A year ago, it filed the same application for
patent in the USA. The Philippines and USA are signatories to the Paris Convention for the Protection of Industrial Property, which
provides that an applicant who has filed a patent application in the United States may have a right of priority over the same invention in a
patent application in the Philippines. Does the prior patent application in the USA removed the invention from the public domain in the
Philippines? No. This right of priority does not immediately entitle a patent applicant the grant of a patent. A right of priority is not equivalent to
a patent. Otherwise, a patent holder of any member-state of the Paris Convention need not apply for patents in other countries where it wishes to
exercise its patent. (E.I Dupont vs. Francisco, August 31, 2016)

(95) Is news as expressed in a video footage entitled to copyright protection? Yes. News as expressed in a video footage is entitled to copyright
protection. Copyrightability of a work is different from fair use of a work for purposes of news reporting. (ABS-CBN vs. Gozon, March 11,
2015)

(96) MC 4-08-88 clarifying E.O. No. 205, provides for the “must-carry rule” mandating that the local TV broadcast signals of an authorized
TV broadcast station should be carried in full by the CATV operator, without alteration or deletion. Does this rule violate copyright?
No. One of the limitations on copyright is that there is no infringement for the use made of a work by or under the direction or control of the
Government. The carriage of local TV broadcast signals by virtue of the must-carry rule in Memorandum Circular No. 04-08-88 is under the
direction and control of the government though the National Telecommunications Commission, which is vested with exclusive jurisdiction to
supervise, regulate and control telecommunications and broadcast services/facilities in Philippines. (ABS-CBN vs. PMMSI, January 19, 2009)

(97) Explain how ownership of trademark is acquired. The ownership of a trademark is acquired by its registration and its actual use by the
manufacturer or distributor of the goods made available to the purchasing public. A certificate of registration of a mark, once issued, constitutes
prima facie evidence of the validity of the registration, of the registrant‘s ownership of the mark, and of the registrant‘s exclusive right to use the
same in connection with the goods or services and those that are related thereto specified in the certificate. (Berris Agricultural vs. Norvy
Abyadang, October 13, 2010)

(98) Explain the two (2) types of confusion of marks and trade names. These are: (1) confusion of goods (product confusion), where the
ordinarily prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other; and (2) confusion of
business (source or origin confusion), where, although the goods of the parties are different, the product, the mark of which registration is
applied for by one party, is such as might reasonably be assumed to originate with the registrant of an earlier product, and the public would then
be deceived either into that belief or into the belief that there is some connection between the two parties, though inexistent. (Dermaline vs.
Myra Pharmaceuticals, August 16, 2010)

(99) Differentiate Dominancy Test from Holistic Test. The Dominancy Test focuses on the similarity of the prevalent or dominant features of the
competing trademarks that might cause confusion, mistake, and deception in the mind of the purchasing public. Duplication or imitation is not
necessary; neither is it required that the mark sought to be registered suggests an effort to imitate. In contrast, the Holistic or Totality Test
necessitates a consideration of the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing
similarity. The discerning eye of the observer must focus not only on the predominant words, but also on the other features appearing on both
labels so that the observer may draw conclusion on whether one is confusingly similar to the other. (Skechers USA vs. Inter Pacific Industrial,
March 23, 2011)

Explain whether there are confusingly similar marks in the following and identify the appropriate test to be used:
(a) Infant powdered milk products with mark “NAN” and Australian powdered milk for adults with mark “NANNY”. Marks are
confusingly similar. Dominancy test applies. The registered trademark owner enjoys protection in product and market areas that are
the normal potential expansion of his business. (Societe des Produits Nestle vs. Dy, Jr., August 8, 2010)

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(b) “Big Mac” mark for double-decker hamburger and “Big Mak” sandwich. Marks are confusingly similar. Dominancy test applies.
"Big Mak" sounds exactly the same as "Big Mac." The first word in "Big Mak" is exactly the same as the first word in "Big Mac." Last
letter in "Mak" while a "k" sounds the same as "c" when the word "Mak" is pronounced. (Mc Donald‘s vs. L.C. Big Mak, August 18, 2004)
(c) “KOLIN” mark in red color background covering products such as automatic voltage regulator, converter, recharger, stereo
booster and the like, and “KOLIN” mark italicized and colored black covering on television, cassette recorder, audio/video
electronic equipment and the like. Marks are not confusingly similar. Holistic test (not expressly mentioned in the case) applied.
Considering the general appearances of each mark as a whole, the possibility of any confusion is unlikely. Also, products involved are
various kinds of electronic products, which are relatively luxury items, that casual buyer is predisposed to be more cautious and
discriminating in and would prefer to mull over his purchase. (Taiwan Kolin vs. Kolin Electronics, March 25, 2015)
(d) “OK Hotdog INASAL Cheese Hotdog Flavor Mark” for curl snack products and “Mang INASAL, Home of Real Pinoy Style
Barbeque” for fast food restaurant, with the word “INASAL” in both stylized. Marks are confusingly similar. Dominancy test applied.
Given that the "INASAL" element is, at the same time, the dominant and most distinctive feature of the Mang Inasal mark, the said
element's incorporation in the OK Hotdog Inasal mark, thus, has the potential to project the deceptive and false impression that the latter
mark is somehow linked or associated with the former mark. Also, the goods for which the registration of the OK Hotdog Inasal Mark is
sought are related to the services being represented by the Mang Inasal mark. (Mang INasal vs. IFP Manufacturing, June 19, 2017)
(e) “D-10 80 WP” mark and “NS D-10 PLUS” mark, both used for fungicide, with packaging using the same type of material (foil),
have identical color schemes and marks are both red in color. Marks are confusingly similar. Dominancy test applied. ―D-10‖ is the
dominant feature of the marks, and confusion or mistake is more likely to occur. Holistic test likewise applied. The packaging will likely to
cause confusion. (Berris Agricultural vs. Norvy Abyadang, October 13, 2010)
(f) “PHILIPS” mark and “PHILITES” mark, where both owners of the mark are engaged in the same line of business of selling
similar goods such as fluorescent bulbs and incandescent lights. Packaging for both likewise shows the light bulbs in the wrapper.
Marks are confusingly similar. Dominancy test applied. ―PHILI‖ is the dominant feature that can likely cause confusion. Holistic test
likewise applied. The packaging will likely to cause confusion. (Dy vs. Koninklijke, March 22, 2017)

(100) What is the gravamen of the offense of trademark infringement? It is the tendency of the allegedly infringing mark to be confused with
the registered trademark.

What are the elements of the offense of trademark infringement? The elements of the offense of trademark infringement are the following:
(a) the trademark being infringed is registered in the Intellectual Property Office; (b) the trademark is reproduced, counterfeited, copied, or
colorably imitated by the infringer; (c) the infringing mark is used in connection with the sale, offering for sale, or advertising of any goods,
business or services; or the infringing mark is applied to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be
used upon or in connection with such goods, business or services; (d) the use or application of the infringing mark is likely to cause confusion or
mistake or to deceive purchasers or others as to the goods or services themselves or as to the source or origin of such goods or services or the
identity of such business; and (e) the use or application of the infringing mark is without the consent of the trademark owner or the assignee
thereof. (Diaz vs. People, February 18, 2013)

In case of trade name, is prior registration with the Intellectual Property Office required before an infringement suit may be filed? No.
All that is required is that the trade name is previously used in trade or commerce in the Philippines. (Coffee Partners vs. San Francisco Coffee,
March 3, 2010)

(101) Distinguish trademark infringement from unfair competition. The distinctions between suits for trademark infringement and unfair
competition are as follows: (a) the former is the unauthorized use of a trademark, whereas the latter is the passing off of one's goods as those of
another; (b) fraudulent intent is unnecessary in the former, while it is essential in the latter; and (c) in the former, prior registration of the
trademark is a pre-requisite to the action, while it is not necessary in the latter. (Co vs. Yeung, September 10, 2014)

(102) Article 28 of the New Civil Code provides that "unfair competition in agricultural, commercial or industrial enterprises or in labor
through the use of force, intimidation, deceit, machination or any other unjust, oppressive or high-handed method shall give rise to a
right of action by the person who thereby suffers damage." Is this the same “unfair competition” under Intellectual Property Code? No.
The concept of "unfair competition" under Article 28 is very much broader than that covered by intellectual property laws. Under the present
article, the term covers even cases of discovery of trade secrets of a competitor, bribery of his employees, misrepresentation of all kinds,
interference with the fulfillment of a competitor‘s contracts, or any malicious interference with the latter‘s business. Thus, an action for damages
where the products are not covered by patent registration may fall under Article 28. (Willaware Products vs. Jesichris, September 3, 2014)

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(103) Which court or tribunal has jurisdiction over unfair competition cases? The civil courts and the Intellectual Property Office have
concurrent jurisdiction. (In-n-Out Burger vs. Sehwani, December 24, 2008)

(104) What is a geographically descriptive term? A ‗geographically descriptive term‘ is any noun or adjective that designates geographical
location and would tend to be regarded by buyers as descriptive of the geographic location of origin of the goods or services. Unless secondary
meaning has been established, a geographically-descriptive mark, due to its general public domain classification, is perceptibly disqualified from
trademark registration.

When does a geographically-descriptive mark acquire a secondary meaning? A geographically-descriptive mark acquire secondary
meaning when the following are present: (a) the secondary meaning must have arisen as a result of substantial commercial use of a mark in the
Philippines; (b) such use must result in the distinctiveness of the mark insofar as the goods or the products are concerned; and (c) proof of
substantially exclusive and continuous commercial use in the Philippines for five (5) years before the date on which the claim of distinctiveness
is made. (Shang Properties vs. St. Francis Development, July 21, 2014)

FINANCIAL REHABILITATION AND INSOLVENCY ACT

(105) Is liquidity an issue in a petition for rehabilitation? No. The basic issues in rehabilitation proceedings concern the viability and
desirability of continuing the business operations of the petitioning corporation. The determination of such issues is to be carried out by the
court-appointed rehabilitation receiver. (PBCom vs. Basic Polyprinters, October 20, 2014) Liquidation is diametrically opposed to rehabilitation.
Both cannot be undertaken at the same time. In rehabilitation, corporations have to maintain their assets to continue business operations. In
liquidation, on the other hand, corporations preserve their assets in order to sell them. Without these assets, business operations are effectively
discontinued. The proceeds of the sale are distributed equitably among creditors, and surplus is divided or losses are re-allocated. (Viva
Shipping vs. Keppel Philippines, February 17, 2016)

Explain the concept of rehabilitation. Rehabilitation is the process of restoring the debtor to a position of successful operation and solvency, if
it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments
projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated. It contemplates a continuance of
corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.

What is the two-fold purpose of rehabilitation? Rehabilitation proceedings have a two-pronged purpose, namely: (a) equitable purpose – to
efficiently and equitably distribute the assets of the insolvent debtor to its creditors; and (b) rehabilitative purpose – to provide the debtor with a
fresh start. On the one hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor's remaining assets to its
creditors; and on the other, to provide debtors with a "fresh start" by relieving them of the weight of their outstanding debts and permitting them
to reorganize their affairs. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow
creditors to be paid their claims from its earnings.

What is a corporate debtor? A corporate debtor is a corporation duly organized and existing under Philippine laws that has become
insolvent. The term ―insolvent‖ is defined as the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due
in the ordinary course of business or has liabilities that are greater than its or his assets. (PBCom vs. Basic Polyprinters, October 20, 2014)

(106) Can a corporate rehabilitation case be decided without the creditors’ participation? No. The rehabilitation court‘s role is to balance
the interests of the corporation, the creditors, and the general public. The failure of petitioner to implead its creditors as respondents cannot be
cured by serving copies of the petition on its creditors. Since the creditors were not impleaded as respondents, the copy of the petition only
serves to inform them that a petition has been filed. (Viva Shipping vs. Keppel Philippines, February 17, 2016)

(107) Is a material financial commitment significant in a rehabilitation plan? Yes. A material financial commitment becomes significant in
gauging the resolve, determination, earnestness and good faith of the distressed corporation in financing the proposed rehabilitation plan. This
commitment may include the voluntary undertakings of the stockholders or the would-be investors of the debtor-corporation indicating their
readiness, willingness and ability to contribute funds or property to guarantee the continued successful operation of the debtor corporation
during the period of rehabilitation. (PBCom vs. Basic Polyprinters, October 20, 2014)

(108) Explain the cram down clause. The cram down clause provides that rehabilitation plan may be approved even over the opposition of the
creditors holding a majority of the corporation‘s total liabilities if there is a showing that rehabilitation is feasible and the opposition of the

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creditors is manifestly unreasonable. This provision is necessary to curb the majority creditors‘ natural tendency to dictate their own terms and
conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to
accept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery. This is
incorporated under Section 64 of the FRIA. (BPI vs. Sarabia Manor, July 29, 2013)

(109) Can a corporate debtor seek adjudication in the rehabilitation court of insurance claims against its insurers? No. Rehabilitation
proceedings are summary and non-adversarial in nature. They do not include adjudication of claims that require full trial on the merits, like
corporate debtor‘s insurance claim against respondent insurers. (Steel Corporation vs. Mapre, October 16, 2013)

(110) Should criminal proceedings against corporate officers be suspended pending corporate rehabilitation? No. It would be absurd for
one who has engaged in criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of which
he is an officer. (Panlilio vs. RTC, February 2, 2011)

(111) Will being placed under corporate rehabilitation and having a receiver ipso facto deprive a corporation and its officers the power
to recover its unlawfully detained property? No. Prohibited corporate actions and transactions during corporate rehabilitation involve mostly
some kind of disposition or encumbrance of the corporation‘s assets, during the pendency of the rehabilitation proceedings but none of which
touch on the debtor corporation‘s right to sue. (Umale vs. ASB Realty, June 15, 2011)

ELECTRONIC COMMERCE ACT / RULES ON ELECTRONIC EVIDENCE

(112) What is an electronic document under the Electronic Commerce Act? Electronic document refers to information or the representation
of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or
an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved
or produced electronically.

Is an original printout of a facsimile transmission an electronic document or electronic data message under the Electronic Co mmerce
Act? No. The law focused on ―paperless‖ transactions. Facsimile transmissions are not "paperless," but are paper-based. In an ordinary facsimile
transmission, there exists an original paper-based information or data that is scanned, sent through a phone line, and re-printed at the receiving
end. It is, at best, an exact copy preserving all the marks of an original. (MCC Industrial Sales vs. Ssangyong, October 17, 2007)

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