Commercial Law - Atty. Rondez

Green Notes
2014
Commercial
Law
Preparedby:Atty.RenatoRondez
MERCANTILE LAW
principal or master be a natural

person or a corporation. Hence,
when a tortuous act is committed
by an officer or agent of a
corporation
under
express
direction or authority of the
corporation, it would be liable.
PRIVATE CORPORATIONS
How are corporations classified?
Corporations are generally classified as
stock or non-stock.
A stock corporation is one which
has capital stock divided into shares and
is authorized to distribute to the holders
of such shares dividends or allotments of
the surplus profits on the basis of the
shares held.
A non stock corporation is one
where no part of its income is
distributable
as
dividends
to
its
members, trustees or officers, and when
any profit is obtained as an incident if its
operations shall, whenever necessary or
proper be used for the furtherance of the
purpose/s for which the corporation was
organized.
What is the doctrine of separate
legal personality?
This
doctrine
holds
that
a
corporation has a personality
separate and distinct from its
individual
stockholders
or
members.
This affects liability for acts or
contracts, right to bring actions,
acquisition
of
property,
and
changes
in
the
identity
of
stockholders or members.
Insofar as moral damages, the
general rule is that it is not
entitled
to
it.
Recognized
exceptions are when the claim for
it is based on Article 2219 (7) of
the Civil Code in an action for libel
or defamation or it claims that its
reputation has been besmirched.
Corporate tort liability
Tort liability can be imposed on a
corporation because generally
speaking, the rules governing
liability of a principal or master for
a tort committed by an agent or
servant are the same whether the
What is the effect of piercing the

veil of corporate fiction?
The effect is to make stockholders
or members liable for a corporate
obligation.
The fraud test applies when
corporate fiction is used to justify
a wrong, protect fraud or defend a
crime.
The other tests to determine
applicability are: (a) control test
(b) alter-ego or instrumentality
test, or (c) equity test
How
is
the
nationality
of
a
corporation determined?
As a general rule, nationality is
determined
by
place
of
incorporation.
The control test as a means of
determining nationality looks at
the nationality of the stockholders
or members of the corporation.
The grandfather test as a means
of determining nationality looks at
the percentage of foreign holdings
in a corporation which is a
stockholder
in
a
Filipino
corporation to determine whether
or not the percentage requirement
of Filipino ownership has been
met.
What is the doctrine of relation?
This refers to the retroactivity of
the filing of the amendment to
extend the corporate term to the
date of the passage of the
appropriate resolutions to extend
the term in instances when the
failure to file the amended articles
is due to the neglect of the officer
with whom it is required to be filed
or a wrongful refusal to receive it.
This is also known as the relating
back doctrine.
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How are shares classified?

1. Shares may be classified as
common, holders of which are
entitled to a pro-rata division of
profits, or preferred, holders of
which are entitled to some priority
on distribution of profits and
assets over common shareholders.
2. They can also be classified as with
par value, referring to a fixed
minimum issue price stated in the
articles and the certificate, or with
no par value, referring to the
absence of any stated value in the
articles and the certificate.
3. Banks, trust companies, insurance
companies, public utilities and
building and loan associations
cannot issue no par value shares.
What is a redeemable share?
These are shares of stocks issued
by a corporation which said
corporation can purchase or take
up from their holders upon expiry
of the period stated in certificates
of stock representing said shares.
After a redemption, it is required
that the corporation should have
sufficient assets in its books to
cover
debts
and
liabilities,
inclusive
of
capital
stock.
Redemption, therefore, may not
be made where the corporation is
insolvent or if such redemption will
cause insolvency or inability of the
corporation to meet its debts as
they mature.
What is a treasury share?
A treasury share is a share that
has been issued and paid for but
subsequently
reacquired
by
purchase, redemption, donation or
any other lawful means.
It may again be disposed of for a
reasonable price as determined by
the board.
Note that its acquisition must be
always be funded by surplus
profits, otherwise it violates the
Trust Fund Doctrine as capital is
impaired.
What are the rules on non-voting

shares?
Preferred shares may be deprived
of voting rights, together with
redeemable shares but if so, there
must be a class/series which shall
have full voting rights.
Nevertheless, even if voting rights
are not enjoyed, holders of such
shares shall still vote in the
following
instances:
(1)
amendment
of
articles
(2)
adoption or amendment of by laws
(3) sale, lease, exchange, pledge
or other disposition of all or
substantially all of corporate
property (4) increase/decrease of
corporate bonded indebtedness
(5) increase/decrease of capital
stock (6) merger/consolidation (7)
investment in another corporation
or business, and (8) dissolution
What is the effect of Gamboa v.
Teves?
The ruling in Gamboa v. Teves
(652 SCRA 690, June 28, 2011)
prescribes that in determining the
meaning of the term capital as
prescribed in Section 11, Article
XII,
National
Economy
and
Patrimony of the Constitution it is
deemed to refer to shares of stock
that can vote in the election of
directors of the corporation.
What is a subscription contract?
It is a contract for the acquisition
of unissued shares in an existing
corporation or one that is to be
formed regardless of the way the
contract is denominated.
They can be either be a preincorporation or post incorporation
subscription contract.
A pre-incorporation subscription
contract is irrevocable for a period
of 6 months from date of
subscription unless all other
subscribers
consent
or
the
corporation fails to materialize
within the period. However, it
becomes absolutely irrevocable if
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the articles have been filed with

the SEC.
Who is a promoter?
A promoter is one who brings
about
the
formation
and
organization of a corporation.
He has joint personal liability for a
corporation
that
was
never
formed.
When the corporation has been
formed, upon ratification by the
board
of
his
contracts,
he
becomes
an
agent
of
the
corporation. Liability then is borne
by the corporation in its capacity
as principal.
What are the non-amendable parts
of the Articles of Incorporation?
The following items cannot be
amended:
(a)
Names
of
incorporators;
(b)
Names
of
original subscribers to the capital
stock of the corporation and their
subscribed and paid up capital; (c)
Names of the original directors; (d)
Treasurer elected by the original
subscribers; (e) Members who
contributed to the initial capital of
the non-stock corporation; and (e)
Witnesses
to
and
acknowledgement of the articles.
When does a corporation commence
to have existence?
A corporation commences to have
existence from the issuance by the
SEC
of
a
certificate
of
incorporation under its official
seal. The effect of which is to
constitute its stockholders or
members and their successors as
a Body Politic and Corporate under
the name and for the term stated
in the Articles.
It is said to have been given de
jure existence or can be said to be
incorporated.
The exception is a Corporation
Sole,
which
is
deemed
incorporated upon filing of its
Articles.
What must a corporation do after

incorporation?
A corporation has to formally
organize
and
commence
transaction of business within 2
years from date of incorporation.
If it fails to do so, its corporate
powers cease and it is deemed
dissolved.
If it commences, but becomes
continuously inoperative for 5
years, the same is ground for
suspension or revocation of the
certificate.
What are By-Laws? What are its
elements?
By-laws are: the rules of action
adopted by a corporation for its
internal government and for the
government of its stockholders or
members and those having the
direction,
management
and
control of its affairs in relation to
the
corporation
and
among
themselves.
The elements of valid by-laws are:
(a) they must not be contrary to
the code, it is void if contrary to
the code (b) not be contrary to
moral or public policy (c) must not
impair obligations of contract as
a general rule (d) they must be
general and uniform in application
(e) they must be consistent with
the Charter / Articles (f) they must
be reasonable or capable of
compliance.
General Capacity v. Specific Capacity
The general capacity theory
maintains that a corporation is
said to hold such powers as are
not prohibited or withheld from it
by general law.
The specific capacity theory
maintains that the corporation
cannot exercise powers except
those expressly/impliedly given.
What is the doctrine of individuality
of
subscription?
What
is
the
doctrine of equality of shares?
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The doctrine of individuality of

subscription
holds
that
a
subscription is one entire and
indivisible whole contract. It
cannot be divided into portions.
The doctrine of equality of shares
holds that where the articles of
incorporation do not provide for
any distinction of the shares of
stock, all shares issued by the
corporation are presumed to be
equal and enjoy the same rights
and privileges and are also subject
to the same liabilities.
What are pre-emptive rights?

Pre-emptive rights referring to the
right to subscribe to all issues or
disposition of shares in proportion
to a stockholders shareholdings
may be denied.
As a general rule, pre-emptive
rights exist but may be restricted
or denied by the Articles or an
amendment thereto. It will not
exist when (a) the shares are
issued in compliance with laws
requiring
stock
offerings
or
minimum stock ownership (b) the
shares are issued in good faith
with approval of stockholders
representing
2/3
of
the
outstanding
capital
stock
in
exchange for property needed for
corporate purposes or in payment
of a previously contracted debt.
If restricted by an amendment, a
stockholder may exercise his
appraisal right.
How can corporate assets be

disposed of?
A corporation can freely dispose of
its assets.
However,
any
sale,
lease,
exchange, mortgage, pledge or
other
disposition
of
all
or
assets will be required to be
undertaken upon a majority vote
of the Board and 2/3 vote of
stockholders or members, written
notice having been given when

the contemplated disposition will
rendered it incapable of continuing
the business or accomplishing its
purpose.
When can the corporation acquire

its own shares?
The power to acquire its own
shares can only be undertaken if it
is
for
legitimate
corporate
purpose/s provided that it has
unrestricted retained earnings.
The legitimate corporate purposes
for acquisition are (a) elimination
of fractional shares or those less
than 1 share (b) to collect or
compromise an indebtedness to
the corporation arising out of an
unpaid
subscription
in
a
delinquency sale and to purchase
delinquent shares at the auction
(c)
to
pay
dissenting
or
withdrawing stockholders entitled
to the payment of their shares.
What kind of dividends can be
declared and when are they given?
Generally dividends may be given
in cash or in stock.
The right of a stockholder to the
dividend is immediate if it is a
cash dividend. The corporation
becomes
a
debtor
of
the
stockholder. If it is a stock
dividend, it is subject to a
stockholder vote and an increase
of capital stock, if it comes from a
new issuance.
However, that any cash dividend
due on delinquent stock shall first
be applied to the unpaid balance,
costs, and expenses or if it be a
stock dividend, it is withheld until
the unpaid subscription is paid.
When and how can dividends be
declared?
The Board may declare dividends
out
of
unrestricted
retained
earnings or total assets less
liabilities and legal capital, they
must be accumulated from normal
and continuous operations not
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allocated for any managerial,

contractual or legal purpose and
which are free for distribution to
stockholders as dividends payable
in cash, in property or in stock to
all stockholders on the basis of
outstanding stock held by them.
Can a declaration of dividends be

compelled?
Dividend declaration is generally
discretionary
but
becomes
mandatory when its surplus profits
are in excess of 100% of paid in
capital
stock.
However,
the
mandatory character shall not
obtain: (a) when justified by
definite
corporate
expansion
projects or programs approved by
the Board (b) when it is prohibited
by a loan agreement with any
financial institution or creditor
from declaring dividends without
its consent and the consent is not
yet obtained (c) when it can be
shown that such retention is
necessary
under
special
circumstances obtaining in the
corporation, as there is a need for
a special reserve for probable
contingencies.
What are management contracts?
How can they be entered into?
It is any contract whereby a
corporation undertakes to manage
or operate all or substantially all of
the
business
of
another
corporation is a management
contract even if called a service or
operating contract.
It can be undertaken with the
approval by a majority vote of the
Board and majority vote of the
stockholders or members of both
the managed and the managing
corporation. Provided that, if the
stockholder/s representing the
same
interest
of
both
the
managing
and
managed
corporations own or control more
than 1/3 of the outstanding capital
stock entitled to vote of the
managing corporation
or
a
majority of the Board of the

managing corporation likewise
constitute a majority of the board
of the managed corporation, the
contract must be approved by 2/3
vote of the outstanding capital
stock or of the members of the
managed corporation.
What are ultra vires acts?

Ultra Vires acts are acts that are in
violation of the Code as it provides
that: no corporation shall possess
or exercise corporate powers
except those conferred by the
code, its Articles and except as
such are necessary or incidental to
the exercise of the powers so
conferred.
A ratification is possible provided
the act is not illegal.
If ultra vires in part only and if
separable, it is valid as to the part
not ultra vires, invalid as to the
other part.
What is the trust fund doctrine?
The subscribed capital stock of the
corporation is a trust fund for the
payment of the debts of the
corporation which the creditors
have the right to look up to satisfy
their credits, and which the
corporation may not dissipate.
The exceptions are: (a) Reduction
of the authorized capital stock; (b)
Purchase of redeemable shares;
(c) Dissolution and eventual
liquidation.
What are the management rights of
a stockholder?
(a) To attend and vote in person or
by proxy at a stockholders
meetings; (b) To elect and remove
directors; (c) To approve certain
corporate acts; (d) To compel the
calling of the meetings; (e) To
have the corporation voluntarily
dissolved; (f) To enter into a voting
trust agreement; and (g) To
adopt/amend/appeal the by-laws
or adopt new by-laws.
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What are the proprietary rights of a

stockholder?
(a) To transfer stock in the
corporate book; (b) To receive
dividends when declared; (c) To
the issuance of certificate of stock
or other evidence of stock
ownership; (d) To participate in the
distribution of corporate assets
upon dissolution; and (e) To preemption in the issue of shares.
What are the remedial rights of a

stockholder?
(a) To inspect corporate books; (b)
To recover stock unlawfully sold
for delinquency; (c) To demand
payment in the exercise of
appraisal right; (d) To be furnished
recent financial statements or
reports
of
the
corporations
operation; and (e) To bring suits
(derivative suit, individual suit,
and representative suit).
What is a derivative suit? An
individual suit? A representative
suit?
A derivative suit is one brought by
one or more stockholders or
members in the name and on
behalf of the corporation to
redress wrongs committed against
it or to protect or vindicate
corporate rights, whenever the
officials of the corporation refuse
to sue or are the ones to be sued
or hold control of the corporation.
An individual suit is one brought
by a stockholder against the
corporation for direct violation of
his contractual rights.
A representative suit is one
brought by a person in his own
behalf and on behalf of all
similarly situated.
What are the requisites of a
derivative suit?
In the case of Hi-Yield Realty, Inc.
v. Court of Appeals, 590 SCRA 548
and
reiterated
in
Lisam
Enterprises Inc. v. Banco De Oro
Unibank, Inc., 670 SCRA 310, it

was held that the requisites of a
derivative suit are: (a) the party
bringing the 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,
and (c) the cause of action
actually
devolves
on
the
corporation, the wrongdoing or
harm having been caused the
corporation, and not the particular
stockholder bringing the suit.
What are the primary obligations of

a stockholder?
Stockholders have the following
obligations: (a) Obligation to pay
the corporation the consideration
for his subscription, including
interest
when
required;
(b)
Obligation to pay the creditors of
the corporation to the extent of
their subscription, or beyond, in
case the doctrine of piercing the
veil
of
corporate
fiction
is
applicable.
What is a proxy?
Proxy is a written authorization,
empowering
another
person
(proxy) to represent a shareholder
and vote in his stead in the
stockholders meeting.
What is a voting trust agreement?
It is an agreement whereby one or
more stockholders transfer their
shares of stocks to a trustee, who
thereby acquires for a period of
time the voting rights (and/or any
other specific rights) over such
shares; and in return, trust
certificates are given to the
stockholder/s,
which
are
transferable like stock certificates,
subject, to the trust agreement.
What powers are reserved only for
stockholders or members?
The powers that are expressly
reserved by law to stockholders or
members are:(a) removal of
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directors or trustees (b) granting

of compensation, other than per
diems, to directors (c) ratification
of acts of self dealing director or
trustee, interlocking director/s,
disloyal director/s (d) delegation of
power to amend by-laws (e)
calling of a meeting, upon good
cause,
when
no
person
is
authorized to call it (f) when
management
of
a
close
corporation is vested in the
stockholders.
What are the percentage voting

requirements when stockholders or
members act?
The required vote is usually 2/3 of
the outstanding capital stock.
In the following, it is a majority: (a)
election of members of the Board
(b) removal of directors or trustees
(c) approval of management
contracts (d) adoption of by laws/
its amendment or repeal and to
revoke power of amendment
delegated to the Board (e) fix
issue price of no par value shares
(f)
fixing
compensation
of
directors.
Why is the board the repository of
corporate powers?
The law provides that all corporate
powers of all corporations formed
under it shall be exercised, all
business
conducted
and
all
property held by a Board of
Directors or Trustees.
It is the board which determines
corporate policy and prescribes
the
manner
of
general
management of its business
activities.
This is so for the purpose of
efficiency in exchange for profits.
How does one become a member of
the board?
One must possess the following
qualifications: (1)He must own at
least 1 share or at least it should
be listed in his name as owner, if it
is a non stock corporation, he
must be a member; (2) Every

director/trustee must continuously
own at least a share during his
term or be a member; (3) A
majority must be residents of the
Philippines; (4) He must not have
been convicted by final judgment
of an offense punishable by a
period in excess of 6 years or a
violation of the code, committed
within a period of 5 years prior to
the date of election; (5) Be a
Filipino citizen in the instances
required by law; (6) Such other
qualifications
as
may
be
prescribed in the By-laws.
What is meant by independent

director?
An Independent Director is a
person who, apart from his fees
and shareholdings, is independent
of management and free from any
business or other relationship
which could, or could reasonably
be
perceived
to,
materially
interfere with his exercise of
independent judgment in carrying
out his responsibilities as a
director.
How is the power of removal
exercised?
The removal of directors or
trustees require that (a) it must
take place at a regular meeting of
the corporation or a special
meeting called for that purpose (b)
there must be previous notice to
stockholders or members of the
intention to propose such removal.
The notice must be specific and in
writing, by publication or sending
of a copy
the notice (c) the
removal is effected by 2/3 vote of
capital stock /members entitled to
vote except that a director elected
by cumulative voting cannot be
removed as its effect is to deprive
minority stockholders or members
of their representation.
How are vacancies filled?
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Vacancies are filled by the

stockholders or members if the
cause
is:
(a)
removal;
(b)
expiration; (c) other causes when
the remaining members of the
board do not constitute a quorum
or leaves the filling up of the
vacancy to them; (d) when there is
an increase in the number of
directors/trustees.
A vacancy can also be filled by the
board if the cause of the vacancy
is not removal or expiration and
the remaining members still
constitute a quorum. This can only
be exercised by the board if they
acting within their term.
When is a board member considered
as disloyal?
A director is disloyal if by virtue of
his office, he acquires for himself a
business opportunity which should
belong to the corporation, thereby
obtaining profit, he must account
for it by refunding the same to the
corporation, even if the director
risked his own funds in the
venture, unless, his act is ratified
by a vote of the stockholders
owning or representing 2/3 of
outstanding capital stock. This is
also known as the Doctrine of
Corporate
Opportunity.
The
provision does not apply if: (a) he
acts in good faith, or, (b) the
corporation is unable to undertake
the opportunity or the same is not
essential to the corporation.
The duty of loyalty of a director
precludes
the
director
from
acquiring an opportunity that is
open to the corporation because
that is in effect competing with
the corporation, oftentimes with
the
advantage
of
inside
information thus depriving it of the
profits
that
it
would
have
otherwise earned.
What
is
the
rule
on
board
compensation?
The
general
rule
is
board
members are not entitled to
receive any compensation except

reasonable per diems.
Exceptions are: (a) when the bylaws provide for compensation; (b)
when granted by a majority vote
of the stockholders or members
subject to the limit that it should
not exceed 10% of the net income
before income tax during the
preceding year; (c) when board
members
render
service
as
officers.
What is the business judgment rule?
The business judgment rule holds
that courts will not interfere in the
decisions made by the board as
regards the internal affairs of the
corporation, unless such contracts
are
so
unconscionable
and
oppressive as to amount to a
wanton destruction of rights of the
minority.
When is there solidary liability
imposed upon members of the
board?
Solidary liability is imposed when:
(a) He willfully and knowingly
votes for and assents to a patently
unlawful act of the corporation; (b)
There is gross negligence or bad
faith in directing the affairs of the
corporation; (c) He acquires any
personal or pecuniary interest in
conflict of duty; (d) He agrees or
stipulates in a contract to hold
himself liable with the corporation;
or (e) A specific provision of law
requires it.
What is the special fact doctrine?
What is inside information?
It is a doctrine holding that a
corporate officer with superior
knowledge gained by virtue of
being an insider owes a limited
fiduciary duty to a shareholder in
transactions involving transfer of
stock.
Information not known to the
public that one has obtained by
virtue of being an insider like a
director.
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What is the rule on self dealing

directors?
The general rule is that a contract
between
a
self
dealing
director/trustee or officer and the
corporation is voidable at the
option
of
the
corporation.
Notwithstanding,
the
contract
shall be valid when: (a) presence
of the director/trustee in the board
meeting in which the contract was
approved was not necessary to
constitute a quorum (b) his vote is
not necessary to approve the
contract (c) that the contract is
fair and reasonable under the
circumstances. In the case of an
officer, the contract has previously
been approved by the board. If
however, conditions (a) and (b)
are absent, the contract may be
ratified by 2/3 vote of the
outstanding capital stock in a
meeting duly called for such
purpose with full disclosure of the
adverse interest being made at
the meeting and that the contract
is
nevertheless
fair
and
reasonable.
What is the rule on inter-locking
directors?
The rule that obtains as far as
contracts between corporations
with interlocking directors is that
the contract is valid as long as
there is no fraud and the contract
is fair and reasonable. However, if
a directors interest in one
corporation is substantial and his
interest in the other corporation/s
is nominal, the contract shall be
subject to the rule on self-dealing
directors
insofar
as
the
corporation/s where he has a
nominal share as it is as if the
corporation is transacting with a
self
dealing
director.
Shareholdings in excess of 20% of
the outstanding capital stock shall
be considered substantial.
What is the rule on
during board meetings?
abstention
An abstention may have the

practical effect of a no vote
since the motion may fail for lack
of sufficient yes votes. Unless a
greater number is called for in the
articles or by-laws, a matter is
deemed approved by the board
if at any meeting at which a
quorum is present at least a
majority of the required quorum of
directors votes in favor of the
action.
What is a certificate of stock? What

is
its
nature?
What
is
an
uncertificated share?
A certificate of stock is a paper
representation
or
tangible
evidence of the stock itself and of
various interests therein.
The nature of a certificate of stock
is that it is a prima facie proof that
the stock described therein is valid
and genuine in the absence of an
evidence to the contrary.
An uncertificated share is a
subscription duly recorded and
paid in the corporate books but
has no corresponding certificate of
stock yet issued.
What is involuntary dealing?
It refers to such writ, order or
process issued by a court of record
affecting shares of stocks which by
law should be registered to be
effective, and also to such
instruments which are not the
willful acts of the registered owner
and which may have been
executed
even
without
his
knowledge or against his consent.
An involuntary dealing is required
to be registered to constitute
constructive notice.
What is the right of appraisal?
The right of appraisal is the right
of
stockholder
to
demand
payment of the fair value of his
shares after dissenting from a
proposed
corporate
action
involving a fundamental change in
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the corporation in the cases

provided for by law.
It is available when (a) articles
are amended and such has the
effect of changing or restricting
the rights of a shareholder or a
class of shares or authorizing
preferences
in
any
respect
superior to those outstanding
shares of any class (b) extending
or shortening the corporate term
(c) in cases of sale, lease,
exchange
transfer,
mortgage,
pledge or disposition of all or
assets or property (d) in cases of
mergers/consolidations
(e)
investment by the corporation in
another corporation or business
other than its primary purpose (f)
a
stockholder
in
a
close
corporation for any reason may
compel the said corporation to
allow the exercise of his appraisal
right.
How is the right of appraisal
exercised?
After voting against the proposed
corporate
action,
a
written
demand must be made on the
corporation within 30 days after
the date on which the vote was
taken for payment of the fair value
of his shares.
If no demand is made within 30
days, he is deemed to have
waived the exercise of the right.
The stockholder must submit his
certificate of stock within 10 days
for notation that such shares are
dissenting shares.
If the certificate is not submitted
for notation within 10 days, the
corporation may consider the
exercise of the right terminated at
its option.
Upon a demand, all rights accruing
to the share are suspended
including voting rights, only the
right to receive the fair value is
not suspended, he is then paid.
But , if there is no payment within
30 days after the award, he is

restored to all his rights.
What are the modes of dissolution?

Voluntary dissolution referring to:
(a) where no creditors are
affected; (b) where creditors are
affected; and (c) by shortening of
the corporate term.
Involuntary dissolution referring
to: (a) expiration of the corporate
term; (b) non-user; (c) continuous
inoperation for a period of at least
5 years; (d) legislative action; and
(e) SEC action in cases of violation
of the Code.
What are the modes of liquidation?
A corporation may liquidate within
the statutory period through: (a)
By the corporation itself or its
board of directors or trustees; (b)
By a trustee to whom the assets of
the
corporation
had
been
conveyed;
and
(c)
By
a
management
committee
or
rehabilitation receiver appointed
by the SEC.
A corporation is allowed a 3 year
period to enable it to close its
business, collect from debtors and
settle with creditors.
Can liquidation continue beyond the
3 year period?
Liquidation can continue beyond
the 3 year period.
Receivers or trustees can act as
such beyond the 3 year period.
Pending suits upon expiration of
the 3 year period may still be
prosecuted by the handling lawyer
who will then be constituted as a
trustee for such purpose.
What are close corporations?
It is one whose articles provide
that: (a) All the corporations
issued stock of all classes,
exclusive of treasury shares, shall
be held of record by not more than
a specified number or persons not
exceeding 20; (b) All the issued
stock of all classes shall be subject
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to
one
or
more
specified
restrictions on transfer; and (c)
The corporation shall not list in
any stock exchange or make any
public offering of any of its stock
of any class.
What
are
some
of
the
characteristics
of
a
closed
corporation?
Stockholders may act as directors
without need of election, however,
they shall assume all obligations
and liabilities of directors.
It may have a greater quorum
requirement.
Pre-emptive rights extend to all
stock issues, even treasury shares.
A stockholder may withdraw and
avail of his right of appraisal.
What is a deadlock?
It is when the directors or
stockholders
are
so
divided
respecting the management of the
business and affairs of the
corporation
that
the
votes
required for any corporate action
cannot be obtained and as a
result, business and affairs can no
longer be conducted to the
advantage of the stockholders.
When
an
unlicensed
foreign
corporation has the capacity to sue
If it is not transacting or doing
business in the Philippines, it can
sue
under:
(a)The
isolated
business transaction rule, (b) A
cause
of
action
that
is
independent of any business
transaction, (c) A cause of action
that arises out of a business
transaction that is not entered into
in the Philippines, and (d) A cause
of action to protect its name,
reputation or goodwill subject to
the rule on reciprocity under the
IPR.
What is a foreign corporation and
the basis for our authority over it?
It is a corporation formed,
organized or existing under any
law other than those of the

Philippines, and whose laws allow
Filipino citizens and corporation to
do business in its own country or
state.
The basis of authority over it is:
(a) consent and (b) doing business
in the Philippines.
What tests may be applied to

determine transacting business in
the Philippines?
(a) Continuity test doing
business implies a continuity of
commercial
dealings
and
arrangements, and contemplates
to some extent the performance of
acts or works or the exercise of
some functions normally incident
to and in progressive prosecution
of, the purpose and object of its
organization; (b) Subsequent test
a foreign corporation is doing
business in the country if it is
continuing the body or substance
of the enterprise of business for
which it was organized; and (c)
Contract test whether the
contracts entered into by the
foreign corporation, or by an agent
acting under the control and
direction
of
the
foreign
corporation, are consummated in
the Philippines.
Why is there need for a foreign
corporation to obtain a license to
transact business?
The purpose of the law in requiring
that a foreign corporation doing
business in the Philippines to be
licensed is to subject it to the
jurisdiction of the courts. The
object is not to prevent foreign
corporation from performing single
acts but to prevent it from
acquiring a domicile for the
purpose of business without taking
steps necessary to render it
amenable to suits in local courts.
Does a foreign corporation possess
the personality to sue? To be sued?
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As a general rule, only foreign

corporations that have been
issued a license to operate a
business in the Philippines have
the personality to sue.
By way of exception, a party is
estopped
to
challenge
the
personality
of
a
foreign
corporation to sue, even if it has
no
license,
after
having
acknowledged
the
same
by
entering to a contract with it.
An unlicensed foreign corporation
doing business in the country
cannot maintain any action but it
can be sued.
What principles govern a foreign
corporations right to sue?
The principles governing a foreign
corporations right to sue are: (a)
if it does business without a
license, it cannot sue before
Philippine courts (b) if it is not
doing business, it needs no license
to sue before Philippine courts on
an isolated business transaction or
on a cause of action entirely
independent of any business
transaction or to protect its name,
reputation or goodwill (c) if it does
business with the required license,
it can sue before Philippine courts
on any transaction .
When is a dispute with an intracorporate relationship within the
jurisdiction of the NLRC?
In the case of Cosare v. Broadcom
Asia, Inc, G.R. No. 201298,
February 5, 2014, the NLRC was
held to have jurisdiction over the
dismissal of an AVP for Sales, who
was also a stockholder, as he is
not a corporate officer whose
dismissal is cognizable by the RTC.
A corporate officer was defined as
one who meets the following: (a)
the creation of the position is
under the corporations charter or
by-laws; and (b) the election of the
officer is by the directors or the
stockholders.
What are the kinds of corporate

insolvency?
There are two kinds of insolvency
contemplated in it: (1) actual
insolvency, i.e., the corporations
assets are not enough to cover its
liabilities;
and
(2)
technical
insolvency defined under Sec. 312, i.e., the corporation has
enough assets but it foresees its
inability to pay its obligation for
more than one year.
SEC supervision over corporations
In the case of United Church of
Christ in the Philippines, Inc. v.
Bradford United Church of Christ,
Inc., 674 SCRA 92, it was held that
the SEC shall have absolute
jurisdiction,
supervision
and
control over all corporations. Even
with their religious nature, the SEC
may exercise jurisdiction over
them in matters that are legal and
corporate.
Rehabilitation defined
In the case of San Jose Timber
Corporation v. SEC, 667 SCRA 13,
rehabilitation was defined as
restoration of the debtor to a
position of successful operation
and solvency.
A
successful
rehabilitation
depends on 2 factors: (a) positive
change in the business fortunes of
the debtor, and (b) the willingness
of the creditors and shareholders
to arrive at a compromise
agreement on repayment and the
extent of dilution.
SECURITIES REGULATION CODE
What are securities?
In
general,
securities
are
evidences of investment in a
common enterprise made with the
expectation of deriving a profit
solely from the efforts of others
who acquire control over the fund
invested.
As defined by law, they are
Shares, Participation or Interest
(SPI) in a Corporation or in a
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Commercial enterprise or Profitmaking

venture
(CCP)
and
evidenced
by
a
Certificate,
Contract;
Instrument, whether
written or electronic in character
(CCI).
What are tender offers?
A Tender Offer is a public offer to
purchase a specified number of
shares from shareholders usually
at a premium in an attempt to
gain control of the issuing
company. Note that in some
instances, the premium is payable
only if the offeror is able to obtain
the required number of shares.
A Tender Offer disclosure will be
required if a person, including a
partnership, limited partnership,
syndicate, corporation or any
other group intends to acquire at
least fifteen percent (15%) or at
least thirty percent (30%) over a
period of twelve months any class
of equity security of a listed
corporation or any class of equity
security of a corporation with
assets of at least 50 million and
having 200 or more stockholders
with at least 100 shares each.
What are proxy solicitations?

Proxy Solicitations is an action to
secure the right to vote of so
much a number of shares to
ensure the approval of a proposed
corporate action/s.
The principal purpose of regulating
proxy solicitations by requiring the
filing of a proxy statement is to
provide
shareholders
with
appropriate information to permit
an intelligent decision on whether
to permit their shares to be voted
as solicited for a particular matter
at a forthcoming stockholders
meeting.
What is security price manipulation?
Security price manipulation is an
artificial control of security prices.
It is an attempt to force securities
to sell at prices either above or
below those which would exist as

a result of the normal operations
of supply and demand. The
manipulator hopes to profit by
creating fictitious prices at the
expense of the general trading
public.
What is insider trading?

Insider Trading occurs when an
insider sells or buys a security of
the issuer, while in possession of
material information with respect
to the issuer or the security that is
not generally available to the
public.
Unless: (a) the insider proves that
the information was not gained
from such relationship; or (b) If the
other party selling to or buying
from the insider (or his agent) is
identified, the insider proves: (1)
that he disclosed the information
to the other party, or (2) that he
had reason to believe that the
other party otherwise is also in
possession of the information.
INSURANCE
What is the concept of insurance?
Insurance is a means by which one
seeks to be covered against the
consequences of an event that
may cause loss or damage.
The concept is that the premiums
that are paid are accumulated in a
pool from which payment of
claims are to be obtained. As a
basis, it is assumed that the
people contributing premiums are
in excess of those making claims
resulting in a larger pool of money
than the amounts being claimed
What are pure and speculative
risks?
The risks that may be insured
against are what are known as
pure
risks
as
opposed
to
speculative risks.
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A pure risk is whether a person will

suffer or will not suffer a loss from
the occurrence of an event.
A speculative risk is whether a
person will profit or suffer a loss
from the occurrence of an event.
Insurance is risk distributing

Insurance is a risk distributing
device because when the insurer
assumes the risk, it is distributing
potential liability, in part, among
others.
It is not risk shifting because the
entirety of risk of loss is not
shifted to another.
What is the nature of a health care
agreement?
In the case of Fortune Medicare,
Inc. v. Amorin, G.R. No. 195872,
March 12, 2014, it was held to be
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
contingency, the health care
provided must pay for the same to
the extent provided under the
contract.
The Court also interpreted an
ambiguity in favor of the insured
allowing him to recover for his
medical expenses incurred while
abroad.
In marine insurance, what is
meant by perils of the sea and
perils of the ship?
Perils of the sea refers to all kinds
of marine casualties and damages
done to the ship or goods at sea
by the violent action of the winds
or waves, one that could not be
foreseen and is not attributable to
the fault of anybody.
Perils of the ship are losses or
damages that result from (a)
natural and inevitable action of
the sea (b) ordinary wear and tear
of the ship (c) negligent failure of
the ship owner to provide the
vessel with the proper equipment
to convey the cargo

ordinary conditions.
under
What matters when concealed, do

not vitiate a marine insurance
policy?
The concealment of the following
matters will not vitiate the policy
but will merely exonerate the
insurer in case of a loss are: (a)
the national character of the
insured (b) the liability of the thing
insured to capture and detention
(c) the liability to seizure from
breach of foreign laws of trade (d)
the want of the necessary
documents
(e) the use of
false/simulated documents.
What are the implied warranties in
marine insurance?
In every contract of marine
insurance upon a ship or freight,
freightage or upon anything which
is the subject of marine insurance,
there are implied warranties: (a)
that the ship is seaworthy; (b) It
shall
carry
the
requisite
documents to show its nationality
or neutrality and that it shall not
carry any document that will cast
reasonable
suspicion
on
the
vessel; (c) That the vessel shall
not make any improper deviation;
and (d) That the vessel does not
or will not engage in any illegal
venture.
When is the implied warranty of
seaworthiness complied with?
The
implied
warranty
of
seaworthiness is complied with as
a general rule when it is
seaworthy at the time of the
commencement of the risk except
(a) when the insurance is made for
a specified length of time, it must
be
seaworthy
at
the
commencement of every voyage it
undertakes at that time (b) when
the insurance is upon cargo, which
by the terms of the policy,
description of the voyage, or
established custom of trade, is
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required to be transshipped at an
immediate port, in which case
each vessel upon which the cargo
is shipped or transshipped must
be
seaworthy
at
the
commencement of each particular
voyage
(c) where different
portions
of
the
voyage
contemplated in the policy differ in
respect to the things requisite to
make the ship seaworthy, in which
case it must be seaworthy at the
commencement of each portion.
When
is
a
deviation
proper?
Improper?
A deviation is proper: (a) When it
is caused by circumstances over
which neither the master nor the
owner of the ship has any control.
(b) When necessary to comply
with a warranty, or to avoid a
peril, whether or not the peril is
insured against. (c) When made in
good faith, and upon reasonable
grounds of belief in its necessity to
avoid a peril. (d) When made in
good faith, for the purpose of
saving human life or relieving
another vessel in distress
Any deviation that consists of a
departure from the course of the
voyage as defined by law or an
unreasonable delay in pursuing
the voyage or the commencement
of an entirely different voyage is
an improper deviation and the
insurer will not liable for any loss
happening to the thing insured
subsequent to it, regardless of
whether the risk was increased or
diminished.
What constitutes an actual total
loss?
An actual total loss occurs when
there is : (a) total destruction of
the
thing
insured;
(b)
an
irretrievable loss of the thing by
sinking or by being broken up; (c)
any damage to the thing which
renders it valueless to the owner
for the purpose that he held it; or
(d) any other event which
effectively deprives the owner of

the possession, at the port of
destination, of the thing insured.
What is a constructive total loss?

A constructive total loss occurs
when(a) more than thereof in
value is actually lost or would
have to be expended to recover it
from the peril (b) if it is injured to
such extent as to reduce its value
by more than of value (c) if the
thing injured is a ship, and the
contemplated
voyage
cannot
lawfully be performed without
incurring either an expense to the
insured of more than the value
of the thing abandoned or a risk
which a prudent man would not
take under the circumstances (d)
if the insured is freightage or
cargo and the voyage cannot be
performed, nor another ship
procured by the master, within a
reasonable
with
reasonable
diligence to forward the cargo
without incurring the like expense
or risk mentioned in item (c) but
freightage cannot be abandoned
unless the ship is also abandoned.
When does co-insurance exist?
Co-insurance exists when the
subject matter is insured for an
amount less than it value. In this
case, the insured is considered as
a co-insurer for the portion not
covered by insurance.
This will apply only if the loss is
partial.
This is also known as the average
clause.
What is the rule on liability for an
average?
As a rule, when it has been agreed
that
an
insurance
upon
a
particular thing or class of things
shall be free from a particular
average, a marine insurer is not
liable for a particular average loss
not depriving the insured at the
port of destination, of the whole
such thing, or class of things, even
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though
it
becomes
entirely
worthless, but such insurer is
liable for his proportion of all
general average loss assessed
upon the thing insured.
What is fire insurance?

Is insurance against loss by
through a hostile fire.
A fire is hostile when it: (a) burns
at a place where it is not intended
to burn (b) is friendly but becomes
hostile because it escapes from
the place where it is intended to
burn and becomes uncontrollable
(c) is a friendly fire which becomes
hostile because of the unsuitable
material used to light it and it
becomes inherently dangerous
and uncontrollable.
What is an alteration?
An alteration is a change in the
use or condition of a thing insured
from that to which it is limited by
the policy, made without the
consent of the insurer, by means
within the control of the insured,
and increasing the risk, which
entitles the insurer to rescind the
contract of insurance.
What is casualty insurance?
Generally, it is one that covers
loss or liability arising from an
accident or mishap, excluding
those that fall exclusively within
other types of insurance like fire or
marine insurance.
It includes employers liability,
workmens compensation, public
liability, motor vehicle liability,
plate glass liability, burglary and
theft ,personal accident and
health insurance as written by
non-life companies, and other
substantially similar insurance.
Can a CBA provision be interpreted
as an insurance contract?
In the case of Mitsubishi Motors
Philippines Salaried Employees
Union
v.
Mitsubishi
Motors
Philippines Corporation, G.R. No.

175773, June 17, 2013, a CBA
provision providing for an MMPC
obligation to pay for the medical
expenses of MMPSEU dependents
was considered as a non- life
insurance contract and interpreted
as a contract of indemnity.
This interpretation barred the
application of the collateral
source rule, which disallows a
wrongdoer from claiming a benefit
arising from a contract which the
injured party may have with third
persons to lessen his liability. In
this case, MMPC is not the
wrongdoer, rather, it is a no-fault
insurer.
What is suretyship?
Suretyship
is
an
agreement
whereby a party called the surety
guarantees the performance by
another party called the principal
or obligor
of an obligation or
undertaking in favor of a 3 rd party
called the obligee.
It is deemed to be an insurance
contract when made by a surety
who or which, as such, is doing an
insurance business as provided by
the Insurance Code.
The liability of the surety is
solidary with the obligor but
limited to the amount of the bond
and determined strictly by the
terms of the contract in relation to
the principal contract between
obligor and obligee.
What is life insurance?
It is insurance on human lives and
insurance appertaining thereto or
connected therewith. It is payable
on: (a) death of the person, unless
excepted or (b) surviving a
specified
period,
or
(c)
contingently on the continuance or
cessation of life.
Suicide
is
generally
not
compensable unless committed
after the policy has been in force
for a period of two years from
date of issue or last reinstatement
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or a shorter period if provided, or

if committed in a state of insanity.
What is covered by compulsory third

party
motor
vehicle
liability
insurance?
It provides protection or coverage
to answer for bodily injury or
property damage that may be
sustained by another arising from
the use of a motor vehicle.
It is an insurance policy that
directly insures against liability.
The insurers liability accrues
immediately upon the occurrence
of the injury upon which liability
depends, and does not depend on
the recovery of judgment by the
injured party against the insured.
What is a no fault indemnity
claim?
A no fault indemnity claim is a
claim for payment for death or
injury to a passenger or third party
without necessity of proving fault
or negligence.
This is payable by the insurer
provided (a) indemnity in respect
of one person shall not exceed
PHP 15,000.00, and (b) the
necessary proof of loss under oath
to substantiate the claim are
submitted.
A claim under the no fault
indemnity clause may be made
against one motor vehicle insurer
only as follows: (a) in case of an
occupant of a vehicle- against the
insurer of the vehicle in which the
occupant is riding, mounting or
dismounting from (b) in any other
case, from the insurer of the
directly offending vehicle (c) in all
cases, the right of the party
paying the claim to recover
against the owner of the vehicle
responsible for the accident shall
be maintained.
How is the authorized driver
defined?
The authorized driver clause is
interpreted to refer to the insured
or any person driving on the order

of the insured or with his
permission provided, such person
is permitted to operate a motor
vehicle in accordance with our
licensing laws or regulations and
who is not otherwise disqualified.
When the insured is the one
driving the vehicle, a license is not
necessary. He has a right to
recover the damage even if he has
no drivers license or that the
same had expired at the time of
the accident.
How can the theft clause be

interpreted?
In
the
case
of
Paramount
Insurance Corporation v. Spouses
Yves
and
Maria
Teresa
Remondeulaz, G.R. No. 173773,
November
28,
2012
the
respondents entrusted possession
of their vehicle only to the extent
that Sales will introduce repairs
and improvements thereon and
not to permanently deprive them
of possession thereof. Since theft
can also be committed by
misappropriation, the fact that
Sales failed to return the subject
vehicle
to
the
respondents
constitutes Qualified Theft. Hence,
since the respondents car is
undeniably
covered
by
a
Comprehensive
Motor
Vehicle
Insurance Policy that allows for
recovery in cases of theft,
petitioner is liable under the policy
for the loss of respondents vehicle
under the "theft clause.
When is there insurable interest?
Insurable interest will exist when
the insured has such a relation or
connection with, or concern in,
such subject matter that he will
derive
pecuniary
benefit
or
advantage from its preservation or
will suffer pecuniary loss or
damage from its destruction,
termination, or injury by the
happening of the event insured
against.
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What
differentiates
insurable
interest
in life
from
that
in
property?
Insurable interest in life can be
based on consanguinity, affinity,
contract or a pecuniary interest,
while insurable interest in property
is based on pecuniary interest.
Insurable interest in life must exist
only at the effectivity of the
contract except that taken by a
creditor on the life of the debtor
must exist at the time of
effectivity of the contract and
when loss occurs, although it may
not exist in the meantime.
The value of insurable interest in
life is not limited unless taken by a
creditor on the life of the debtor
is limited to the actual value of the
interest in the property.
Who has insurable interest in life?
Himself, his spouse and of his
children.
Any person on whom he depends
wholly or in part for education or
support, or in whom he has a
pecuniary interest.
Any
person
under
a
legal
obligation to him for the payment
of money, respecting property or
services, of which death or illness
might
delay
or
prevent
erformance.
Any person upon whose life, any
estate or interest vested in him
depends.
What does insurable interest in
property consist of?
An existing interest.
An inchoate interest founded on
an existing interest.
An expectancy, coupled with an
existing interest in that out of
which the expectancy arises.
A carrier or depository of any kind
has insurable interest in the thing
held by him as such to the extent
of his liability but not to exceed
the value thereof.
What can and cannot be insured

against?
Any unknown or contingent event,
whether past or future, which may
damnify a person having insurable
interest or create a liability against
him may be insured against.
Insurance for or against the
drawing of any lottery or for or
against any chance or ticket in a
lottery drawing a prize cannot be
acquired.
Who will qualify as an insured?
Anyone except a public enemy or
a nation at war with the
Philippines and every citizen or
subject of such nation may be
insured.
Who will qualify as a beneficiary?
In life insurance, anyone, except
those who are prohibited by law to
receive
donations
from
the
insured.
In property insurance, only the
insured with insurable interest will
qualify as a beneficiary.
In insurance against liability, the
party in whose favor liability exists
is the beneficiary.
When is there multiple insurable
interest?
Multiple insurable interest exists
when more than one insurable
interest may exist in the same
property.
Examples
are
that
of:
(a)
mortgagor and mortgagee (b) a
trustor and trustee (c) a lessor and
a lessee
What is double insurance? Over

insurance?
Double insurance exists where the
same person is insured by several
insurers separately in respect to
same subject and interest.
Its requisites are: (a) same person
is insured (b) there are several
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insurers (c) subject insured is the

same (d) interest insured is the
same (e) risk or peril insured
against is the same.
Over insurance occurs when
property is insured for an amount
in excess of its value.
the thing insured is exposed to the

peril insured against.
The payment of a premium is
essential to the validity of an
insurance policy is known as the
cash and carry basis or no
premium payment no policy rule.
When is an insurance contract

perfected?
It is perfected when the assent or
consent is manifested by the
meeting of the minds of the offer
and acceptance upon the thing
and the cause which are to
constitute the contract.
When is insurance effective despite

non-payment of the premium?
This occurs: (a) in case of life or
industrial life where the premium
is payable monthly or oftener,
whenever
the
grace
period
applies; (b) when the insurer
makes a written acknowledgment
of the receipt of premium, such is
conclusive
evidence
of
the
payment of the premium to make
it binding notwithstanding any
stipulation therein that it shall not
be binding until the premium is
paid; and (c) where the obligee
has
accepted
the
bond
or
suretyship contract.
It also occurs when the insurer is
estopped from claiming otherwise.
How is an offer and acceptance

made in life or health insurance?
If the premium is not paid when
the insurance is applied for, it is
an invitation to the insurer to
make an offer which the insured
must accept. If a premium is paid
with
the
application,
it
is
considered an offer.
Acceptance occurs when a policy
is issued strictly in accordance
with the offer. If otherwise, the
insurer is making an offer, which
the insured can accept or reject.
Unreasonable delay in the return
of
the
premium
raises
a
presumption that the offer has
been accepted.
How is an offer and acceptance
made in property and liability
insurance?
When the insured applies for the
insurance, he is already making an
offer to the insurer, who may now,
accept, reject or make a counteroffer.
Acceptance occurs in the same
manner as in life and health
insurance.
What is meant by the premium and
why must it be paid?
The premium is the agreed price
for assuming and carrying the risk
which the insurer is entitled to the
payment of a premium as soon as
What are the non-default options in

life insurance?
The non-default options are: (a)
grace period (b) cash surrender
value (c) paid up insurance (d)
automatic loan clause, and (e)
reinstatement
How is reinstatement of the policy
effected?
Reinstatement can be permitted
within 3 years, or a stipulated
longer period, from the date of
default.
This is not an absolute right as it is
conditioned on insurability of the
insured or evidence of good health
and the payment of all overdue
premiums and indebtedness, if
any.
What
is
concealment
and
its
requisites?
Concealment is a neglect to
communicate that which a party
knows and ought to communicate.
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Its requisites are: (a) such facts

that must be within his knowledge
as
concealment
requires
knowledge of the fact concealed
by the party charged with
concealment (b) fact/s must be
material to the contract as it must
be of such nature that had the
insurer known of it, it would not
have
accepted
the
risk
or
demanded a higher premium (c)
that the other party had no means
of ascertaining such fact/s (d) that
the party with a duty to
communicate makes no warranty.
by the insured to the insurance

company, tending to induce the
insurer to take the risk.
Representations may be oral or
written.
They can be affirmative when it is
an affirmation of a fact existing
when the contract begins or
promissory when it is a statement
by the insured concerning what is
to happen during the term of the
insurance.
When
is
there
a
waiver
of
information?
A waiver takes place either, by the
terms of the insurance or by the
neglect to make inquiries as to
such facts where they are
distinctly implied in other facts of
which
information
is
communicated.
Is a representation part of the

insurance contract?
A representation does not form
part of the contract as an express
provision thereof as it is a
collateral inducement to the same.
While it does not form part of the
contract, it may qualify an implied
warranty.
What is the effect of concealment

and when must it take place?
Whether intentional or not, it
entitles the injured party to
rescind the contract of insurance.
Generally, concealment requires a
party to have knowledge of the
fact concealed prior to or at the
effectivity of the policy.
Information
acquired
after
effectivity is not concealment and
does not constitute ground to
rescind the policy, as after the
policy
is
issued,
information
subsequently acquired is no longer
material as it will not affect or
influence the party to enter into
contract. However, in case of the
reinstatement of a lapsed policy,
facts known after effectivity but
before reinstatement must be
disclosed.
To what date does a representation

refer to?
It presumed to refer to the date on
which the contract goes into
effect.
There is no false representation if
it is true at the time the contract
takes effect although false at the
time it is made.
There is a false representation, if it
is true at the time it is made but
false at the time the contract
takes effect.
What are representations? What are

the kinds of representations?
A representation is an oral or
written statement of a fact or a
condition affecting the risk made
When is a representation false and

what is its effect?
A representation is said to be false
when the facts fail to correspond
with its assertions or stipulations.
If it is false on a material point,
whether affirmative or promissory,
the injured party is entitled to
rescind the contract from the time
the representation becomes false.
However, the right to rescind is
considered
waived
by
the
acceptance of premium payments
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despite knowledge of the ground

to rescind.
There is no waiver, if the insurer
had no knowledge of the ground
at the time of the acceptance of
the premium.
How is concealment distinguished

from misrepresentation?
Concealment is the neglect of one
party to communicate to the other
material facts. The information he
gives in compliance with his duty
to
reveal
information
is
representation.
What is the incontestability clause ?
It is a clause in a life insurance
policy that is (a)payable on the
death of the insured, and (b)
which has been in force during the
lifetime of the insured for a period
of 2 years from the date of issue
or its last reinstatement that
would prevent the insurer from
proving that the policy is void ab
initio or is subject to rescission by
reason
of
a
fraudulent
concealment or misrepresentation
of the insured or his agent.
What is a warranty? What are the
kinds of warranties?
It is a statement or promise stated
in the policy or incorporated
therein by reference, whereby the
insured, expressly or impliedly
contracts as to the past, present
or future existence of certain facts
conditions or circumstances, the
literal truth of which is essential to
the validity of the contract.
Warranties can be affirmative
when they refer to to matters that
exist at or before the issuance of
the policy or promissory when
they
refer
to
promises
or
undertaking of the insured that
certain matters shall exist or will
be done or will be omitted after
the policy takes effect.
They can also be express when
provided for in the policy or
implied when they are inferred

from the nature of the insurance.
What is the effect of a violation of a

warranty?
The violation of a material
warranty,
or
other
material
provision of the policy, on the part
of either party thereto, entitles the
other to rescind.
However, a breach of a warranty
without fraud, merely exonerates
an insurer from the time it occurs,
or where it is broken at its
inception, prevents the policy from
attaching to the risk.
When is the non-performance of a
warranty excused?
The
non-performance
of
a
promissory warranty is excused if
before the arrival of the time for
performance: (a) the loss insured
against
happens;(b)
the
performance becomes unlawful at
the place of the contract; or (c)
the
performance
becomes
impossible.
What are the rules on losses?
Loss of which a peril insured
against is the proximate cause,
although a peril not contemplated
by the contract may have been a
remote cause but the insurer is
not liable for a loss of which the
peril insured against was only a
remote cause.
Loss caused by efforts to rescue
the thing insured from a peril
insured
against
that
would
otherwise have caused a loss, if in
the course of such rescue, the
thing is exposed to peril not
insured
against,
which
permanently deprives the insured
of its possession, in whole or in
part, or where a loss is caused by
efforts to rescue the thing insured
from a peril insured against.
An insurer is not liable for a loss
caused by the willful act or
through the connivance of the
insured; but he is not exonerated
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by the negligence of the insured,

or of the insureds agent or others.
What is a notice of loss, who and

when should it be given?
A notice of loss is the formal
notice given by the insured or
some person entitled to the
benefit of the insurance without
unnecessary delay informing the
insurer of the occurrence of the
loss insured against.
What is meant by proof of loss?
It refers to the evidence given by
the insured to the insurer upon the
occurrence of the loss by insured
against, stating the particulars
and the necessary data to enable
the insurer to determine its
liability and the extent thereof.
What is claim settlement?
This refers to the indemnification
of the loss suffered by the insured.
The claimants entitled to the
indemnification
may
be
the
insured, the reinsured, the insurer
entitled to subrogation, or a third
party in an insurance policy
providing
indemnity
against
liability.
What is unfair claim settlement?
Knowingly misrepresenting facts
or policy provisions.
Failing to acknowledge pertinent
communications with reasonable
promptness.
Failing to adopt and implement
reasonable standards for prompt
investigation of claims.
Not attempting to effectuate
prompt,
fair
and
equitable
settlement of claims in cases
where liability is reasonably clear.
Compelling policy holders to file
suit
by
offering
amounts
substantially less than that which
they are entitled to.
What is the effect of a fraudulent
claim?
In the case of United Merchants

Corporation v. Country Bankers
Insurance Corporation, G.R. No,
198588, July 11 2012, the
Supreme Court held that: Where a
fire insurance policy provides that
if the claim be in any respect
fraudulent,
or
if
any
false
declaration be made or used in
support
thereof,
or
if
any
fraudulent means or devices are
used by the insured or anyone
acting in his behalf to obtain any
benefit under the policy and the
evidence is conclusive that the
proof of the claim which the
insured submitted was false and
fraudulent as both as to kind,
qualify and amount of the goods
and their value destroyed by fire,
such proof of claim is a bar against
the insured from recovering on the
policy even for the amount of his
actual loss. It has long been
settled that a false and material
statement made with intent to
deceive or defraud voids on
insurance policy, In Yu Cua v.
South British Insurance Co., the
claim was fourteen times bigger
than the real loss; In Go Lu v.
Yorkshire Insurance Co., eight
times; and in Tuason v. North
China Insurance Co., six times. In
the present case, the claim is
twenty five times the actual claim
proved.
What is the prescriptive period for

the commencement of an action?
The parties can agree on a period
provided it is not less than 1 year
from the time the cause of action
accrues.
If the period prescribed void
because it is less than 1 year or
there is no period, the insured can
bring the action within 10 years
from the time the cause of action
accrues.
In a comprehensive motor liability
insurance claim, a written notice
of claim must be filed within 6
months from the date of accident,
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otherwise, the claim is waived,

even if an action is subsequently
brought within 1 year from
rejection of the claim.
When does subrogation take place?

Subrogation inures to the insurer
without need of assignment or
express stipulation upon payment
made to the insured. The act of
payment makes the insurer a
subrogee in equity.
However, subrogation occurs only
in property insurance.
What
is
the
concept
behind
subrogation?
In the case of Malayan Insurance
Co., Inc. vs Rodelio Alberto and
Enrico Alberto Reyes, GR No.
194320, February 1, 2012 it was
held that subrogation is the
substitution of one person by
another with reference to a lawful
claim or right, so that he who is
substituted succeeds to the rights
of the other in relation to a debt or
claim, including its remedies or
securities. The 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 if grow
out of, any privity of contract. It
accrues simply upon payment by
the insurance company of the
insurance claim.
It is intended to make the person

who caused the loss legally
responsible for it, prevents the
insured from recovering twice, and
upholds
public
policy
by
preventing tortfeasors from being
absolved from liability.
NEGOTIABLE INSTRUMENTS
When is there an unconditional
order or promise to pay?
The promise or order is still
unconditional
though
coupled
with:(a)An
indication
of
a
particular fund out of which
reimbursement is to be made or a
particular account to be debited
with
the
amount;
or(b)
A
statement of the transaction
which gives rise to the instrument.
The test of negotiability when
there is another stipulation is
whether or not the promise would
give rise to a cause of action for
breach of contract if the additional
act is not done. If it does, the
instrument
is
rendered
nonnegotiable.
What is the fictitious payee rule?
When it is payable to the order of
a fictitious or non-existing person,
the instruments being payable to
bearer depends on the intention of
the person making it so payable.
An actual, existing, and living
payee may also be fictitious if
the drawer did not intend for the
payee in fact to receive the
proceeds of the check. If this is
absent, the effect is that the
instrument cannot be considered
as payable to bearer.
How are conflicts between words
and numbers resolved?
In the case of People v. Romero,
306 SCRA 90, the drawer of a
check with a balance of PHP
1,144,760.00
could
not
be
convicted for estafa because of
the dishonor of his check for lack
of
funds
where
the
check
indicated the amount of PHP
1,000,200.00 in words and the
amount of PHP 1,200,000.00 in
figures as the NIL provides that in
resolving
this
ambiguity
the
amount in words should prevail.
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What is meant by absence of a

consideration ?
The meaning of absence or want
of consideration means a total
lack of any valid consideration for
the contract, in consequence of
which the alleged contract must
fall. Consequently, if the Maker
makes a promissory note to the
Payee in payment for a parcel of
land which does not exist. As
between the parties, there can be
no recovery on the note as there is
absence of consideration. But if
the Payee indorses the note to
another, who is a holder in due
course, there can be recovery
from the Maker because absence
of consideration is only a personal
defense not available against a
holder in due course.
Who is an accommodation party?
An accommodation party is one
who has signed the instrument as
maker,
drawer,
acceptor,
or
indorser, without receiving value
therefor, and for the purpose of
lending his name to some other
person. Such a person is liable on
the instrument to a holder for
value,
notwithstanding
such
holder, at the time of taking the
instrument, knew him to be only
an accommodation party.
The
requisites
to
be
an
accommodation party are: (a)
The party to the instrument
signs as maker, drawer, acceptor
or indorser (b) Without receiving
value therefor, and (c) For the
purpose of lending his name to
some other person.
What are the effects of forgeries?
The effects of a forgery are: (a)
The instrument is not declared
totally void nor are the genuine
signatures
thereon
rendered
inoperative. It is only the forged
signature
that
is
declared
inoperative. Hence: rights still
exist and may be enforced by
virtue of the instrument as

between parties whose signatures
were not forged, and (b) A forged
instrument just prevents any
subsequent party from acquiring
any rights as against any party
whose name appears prior to the
forgery. There is no right to retain
the
instrument, or to
give
discharge or to enforce payment.
However, rights will exist and may
be
enforced
as
between
subsequent parties but no one can
acquire a right as against parties
prior to the forgery, who also have
rights and may enforce them as
against each other.
When is the drawer is liable for a
forgery?
In the case of Security Bank and
Trust
Corporation
v.
Triump
Lumber
and
Construction
Corporation, 301 SCRA 537 it was
held that a drawer who discovered
the loss of his checkbook and did
not notify the bank of the loss
should bear the loss caused by the
subsequent
payment
of
the
checks in which the signature of
the drawer had been forged.
Is the payee on a check with a
forged endorsement allowed to
recover?
The payee of a negotiable
instrument acquires no interest
with respect thereto until its
delivery to him. When a debtor
does not deliver the check to his
creditor and a third party was able
to collect the proceeds by forging
the endorsement of the payee, the
payee has no cause of action
against anyone on the basis of the
check due to the absence of
delivery. However, in the case of
Westmont Bank v. Ong, 375 SCRA
212, the payee of the check can
sue the collecting bank to whom
the check was deposited despite
absence of delivery to the payee
in order to avoid circuitry of suits.
What is a material alteration?
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A material alteration is any

alteration which changes: (a)The
date (b)The sum payable, either
for principal or interest (c)
The time or place of
payment (d) The number of the
relations of the parties (e)The
medium or currency in which
payment is to be made (f)Or which
adds a place of payment where no
place of payment is specified, or
any other change or addition
which alters the effect of the
instrument in any respect.
Where a negotiable instrument is
materially altered without the
assent of all parties liable thereon,
it is avoided, except as against a
party who has himself made,
authorized, or assented to the
alteration
and
subsequent
indorsers.
What is the effect of an alteration of
the serial number?
The alteration of the serial number
of the check is not material and
does not entitle the drawee bank
which paid it to recover the
payment. The alteration of the
serial number of the check did not
change the relations between the
parties nor the effect of the
instrument.
The drawee bank has no right to
dishonor the check and return it to
the collecting bank.
Who is an irregular indorser?
An irregular indorser is one whose
signature is out of place. Instead
of the expected signature of a
party to the instrument, the
signature of the irregular indorser
is found in its place.
Where a person, not otherwise a
party to an instrument, places
thereon his signature in blank
before delivery, he is liable as an
indorser, in accordance with the
following
rules:
(a)If
the
instrument is payable to the order
of a third person, he is liable to
the payee and to all subsequent
parties, (b)If the instrument is

payable to the order of the maker
or drawer, or is payable to bearer,
he is liable to all parties
subsequent to the maker or
drawer, (c) If he signs for the
accommodation of the payee, he
is liable to all parties subsequent
to the payee.
What is effect of the crossing or

striking out of indorsements?
When a holder strikes out any
indorsement
which
is
not
necessary to his title. The indorser
whose indorsement is struck out,
and all indorsers subsequent to
him, are thereby relieved from
liability on the instrument.
An instrument payable to bearer
can be negotiated by mere
delivery.
Even
if
a
bearer
instrument is indorsed specially,
the
same
continues
to
be
negotiated by mere delivery.
Hence, the special indorsement of
a bearer instrument is not
necessary to the title of the
holder. Such being the case, the
holder may strike out said
indorsement at any time.
An instrument payable to order
can be negotiated by indorsement
completed by delivery. However, if
the only or last indorsement is an
indorsement in blank the order
instrument is converted to one
which is payable to bearer. All
special indorsements subsequent
to the blank indorsements may be
stricken out by the holder because
they are not necessary to this title.
However, in the case of an
instrument payable to order with
special indorsements all the way
up to the holder, the later cannot
strike out any of the special
indorsements because all of them
are necessary to his title. This is
so because the holder must be
able to trace his title to the
instrument through an unbroken
chain of indorsements.
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Who is a holder in due course?

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.
What is meant by good faith?
It means that it is required that at
the time the holder purchased the
instrument there must be total
absence of knowledge on the part
of the holder regarding any
infirmity in the instrument or
defect of title of the person
negotiating it.
If the instrument was issued for an
unlawful consideration, or the
indorser was guilty of an illegal act
or ill-motive in negotiating the
instrument, the holder must not
be aware of any of them at the
time he took the instrument.
What is meant by defects or
infirmities?
The title of a person who
negotiates
an
instrument
is
defective within the meaning of
this Act when he obtained the
instrument, or any signature
thereto, by fraud, duress, or force
and fear, or other unlawful means,
or for an illegal consideration, or
when he negotiates it in breach of
faith, or under such circumstances
as amount to a fraud.
Infirmity in the instrument means
that something is wrong with the
instrument itself like a forgery or
material alteration.
How
does
the
prima
facie
presumption that one is a holder in
due course apply?
Every holder of a negotiable
instrument is deemed prima facie
a holder in due course.
The presumption that every holder
is deemed prima facie to be a
holder in due course, arises only in
favor of a person who is a holder
in the sense defined in Section
191 of the NIL, that is, a payee or
indorsee who is in possession of
the instrument, or the bearer
thereof.
There is no presumption that a
person through whose hands an
instrument has passed was a
holder in due course.
What are the rights of a holder in
due course?
A holder in due course holds the
instrument free from any defect of
title of prior parties, and free from
defenses available to prior parties
among themselves, and may
enforce payment of the instrument
for the full amount thereof against
all parties liable thereon.
Specifically: (a) He may sue in his
own name (b) He may receive
payment, and payment to him in
due
course
discharges
the
instrument (c) He holds the
instrument free from any defect of
title of prior parties and free from
defenses available to prior parties
among themselves (d) He may
enforce payment of the instrument
for the full amount thereof against
all parties liable thereon.
When is an instrument is subject to
original defenses?
In the hands of any holder other
than a holder in due course, a
negotiable instrument is subject to
the same defenses as if it were
non-negotiable.
However,
a
holder who derives his title
through a holder in due course,
and who is not himself a party to
any fraud or illegality affecting the
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instrument, has all the rights of

such former holder in respect of all
parties prior to the latter.
A holder who is not a holder in due
course, holds the instrument
subject to the defenses that may
be raised against the person who
transferred the instrument to him.
Hence, it is as if the instrument is
non-negotiable
because
the
transferee cannot acquire rights
better than those of the transferor.
In this case, the transferee is a
mere assignee of the rights of the
transferor.
What are the warranties of the

maker?
His warranties are: (a)He will pay
the promissory note according to
its tenor (b)He admits the
existence of the payee; and (c) He
admits that the payee has the
capacity to indorse.
The maker is the one who
executed the promissory note. He
is the person primarily liable
thereon. His liability is absolute
and unconditional in accordance
with the terms of the promissory
note that he made. He cannot
vary its terms.
The maker cannot deny the
existence of the payee. He cannot
allege that the payee is fictitious
person.
The maker is estopped from
contesting the capacity of the
payee to indorse. For instance, he
cannot allege that the payee is a
minor, or insane. If the payee is a
corporation, he cannot allege that
its indorsement is ultra vires.
drawer?
His warranties are: (a) He admits
the existence of the payee and his
then capacity to indorse. Note that
this is the same as the maker (b)
He
engages
that,
on
due
presentment, the bill will be
accepted or paid, or both,
according to its tenor (c) That if it
is dishonored by non-acceptance
or non-payment, he will pay to
the holder of the bill or to any
subsequent indorser who was
compelled to pay it, provided the
necessary
proceedings
on
dishonor were duly taken.
To fix the liability of the drawer,
the following steps must be taken:
(a)Due presentment of the bill of
exchange to the drawee, the
person to whom the bill is
addressed.
It
may
be
presentment for acceptance, or
presentment
for
payment;
whichever is necessary under the
premises, (b)If dishonored, the
necessary
proceedings
on
dishonor must be taken. Both
steps must concur; otherwise, the
drawer will be discharged from
liability.
The drawer may negative or limit
his liability to the holder by
inserting a provision to that effect
in the instrument; e.g., In case of
dishonor, I am not liable for the
amount of this instrument

acceptor?
The warranties of the acceptor
are: (a)
He will pay the bill
according to the tenor of his
acceptance; (b)He admits the
existence of the drawer; (c)He
admits that the signature of the
drawer is genuine; (d) He admits
the capacity of the drawer; (e) He
admits that the drawer has the
authority to draw the instrument;
and (f)He admits the existence of
the payee and his then capacity to
indorse.
The acceptor need not accept
according to the tenor of the
instrument.
He can vary the
terms of the instrument such that
he can become liable only
according to his own terms.
However, he is absolutely required
to pay according to the tenor of
his acceptance.
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What are the warranties of person

negotiating by delivery or qualfied
indorsement?
Every person negotiating an
instrument by delivery or by a
qualified indorsement warrants:
(a) That the instrument is genuine
and in all respects what it purports
to be (b) That he has a good title
to it (c) That all prior parties had
capacity to contract (d) That he
has no knowledge of any fact
which would impair the validity of
the instrument or render it
valueless.
When the negotiation is by
delivery
only,
the
warranty
extends in favor of no holder other
than the immediate transferee.
When it is by qualfied indorsement
the liability extends to all parties
who derive title through his
indorsement.
What are the warranties of a

general indorser?
A general indorser has the same
warranties as a qualified indorser
except that he warrants that the
instrument is, at the time of his
indorsement, valid and subsisting.
In addition, he engages that, on
due presentment, it shall be
accepted or paid, or both, as the
case may be, according to its
tenor, and that if it be dishonored
and the necessary proceedings on
dishonor be duly taken, he will pay
the amount thereof to the holder,
or to any subsequent indorser who
may be compelled to pay it.
A qualified indorser warrants that
he is not aware of any fact which
will impair the validity of the
instrument or render it valueless;
whereas, a general indorsers
warrants that the instrument is
valid and subsisting, meaning that
there is no fact which will impair
the validity of the instrument or
render it valueless, regardless of
whether he is aware of it or not.
If the instrument is dishonored,
the qualified indorser is not liable
if he did not violate his warranties.

In the case of a general indorser, if
the instrument is dishonored, he
engages to pay the amount of the
instrument to the holder or to
whomsoever may be compelled to
pay it, provided there is due
presentment and the necessary
proceedings on dishonor are duly
taken; otherwise, the general
indorser will be discharged from
liability.
When is presentment for acceptance

required?
Presentment for acceptance must
be made by the holder where: (a)
bill is payable after sight or where
presentment is necessary to fix
maturity (b) it is expressly
stipulated, or (c) the bill is drawn
payable elsewhere other than the
residence or place of business of
the drawee so that the drawee can
make arrangements for payment.
In no other case is presentment
for acceptance necessary in order
to render a party to the bill liable.
Hence,
presentment
for
acceptance is not necessary for
bills: (a) payable on demand (b)
payable at sight (c) payable on a
fixed date (d) payable several
days after date (e) payable upon
occurrence of an event, or (f)
payable
several
days
after
occurrence of an event. What is
required is simply presentment for
payment.
When is presentment for payment
required?
There is need for presentment for
payment upon the proper person
as it is necessary to charge
persons secondarily liable on the
instrument. Failure to present the
instrument for payment to the
person primarily liable thereon will
discharge
the
drawer
and
indorsers from any liability, unless
presentment
is
excused
or
dispensed with pursuant to the
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provisions of Sections 79, 80, 81

or 82 of the NIL.
When is presentment for payment

dispensed with or excused?
Presentment is dispensed with
when: (a)Presentment for payment
is not required in order to charge
the drawer where he has no right
to expect or require that the
drawee or acceptor will pay the
instrument,(b) Presentment is not
required in order to charge an
indorser where the instrument was
made
or
accepted
for
his
accommodation and he has no
reason
to
expect
that
the
instrument
will
be
paid
if
presented, (c)Delay in making
presentment
for
payment
is
excused when the delay is caused
by circumstances beyond the
control of the holder and not
imputable
to
his
default,
misconduct, or negligence. When
the cause of delay cases to
operate, presentment must be
made with reasonable diligence.
Presentment
for
payment
is
excused when: (a) after the
exercise of reasonable diligence,
presentment, as required by the
NIL cannot be made (b) Where the
drawee is a fictitious person (3)
By waiver of presentment,
express or implied.
When is notice of dishonor given?

When a negotiable instrument has
been
dishonored
by
nonacceptance
or
non-payment,
notice of dishonor must be given
to the drawer and to each
indorser, and any drawer or
indorser to whom such notice is
not given is discharged.
A notice of dishonor is necessary
in order to fix the liabilities of
parties secondarily liable on the
instrument. The drawer and the
indorser must be given a notice of
dishonor once the instrument is
dishonored
pursuant
to
the
warranties they made when they
affixed their signatures on the
instrument.
The parties primarily liable on the
instrument need not be given a
notice of dishonor because they
were the ones who dishonored the
instrument.
The drawee need not be given a
notice of dishonor because he is
not party to the instrument until
he accepts.
What are the exceptions to the rule

on failure to give notice of dishonor?
Where there is a waiver of notice
of dishonor which may occur
either before the time of giving
notice has arrived or after the
omission to give due notice, and
the waiver may be expressed or
implied.
Where it is dispensed with, after
the
exercise
of
reasonable
diligence, it cannot be given to or
does not reach the parties sought
to be charged.
When is notice of dishonor not
required to be given the drawer?
Notice of dishonor is not required
to be given to the drawer in either
of the following cases: (a)Where
the drawer and drawee are the
same person (b)When the drawee
is a fictitious person or a person
not having capacity to contract (c)
When the drawer is the
person to whom the instrument is
presented for payment (d)Where
the drawer has no right to expect
or require that the drawee or
acceptor will honor the instrument
(e)Where
the
drawer
has
countermanded payment.
As a general rule, notice of
dishonor need not be given to the
drawer in instances where he
knows or ought to know that the
bill
of
exchange
has
been
dishonored or will be dishonored.
To put it simply, the drawer is not
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entitled to be notified about

something he already knows.
Further, if the drawee is a fictitious
person or one without capacity to
contract, the holder can treat it as
a promissory note. Thus, the
drawer is treated as a maker, who
as such, is primarily liable.
When is notice of dishonor

not
required to be given to an indorser?
Notice of dishonor is not required
to be given to an indorser in the
following cases: (a) When the
drawee is a fictitious person or not
having capacity to contract, and
the indorser was aware of that fact
at the time he indorsed the
instrument (b) Where the indorser
is the person to whom the
instrument
is
presented
for
payment (c) Where the instrument
was made or accepted for his
accommodation.
The indorser need not be notified
where he knows or ought to know
that the instrument will be
dishonored.
What
is
the
effect
of
NonAcceptance?
Where due notice of dishonor by
non-acceptance has been given,
notice of a subsequent dishonor
by non-payment is not necessary
unless in the meantime the
instrument has been accepted.
This is so because there is no
reason to expect that the same bill
will be paid upon its maturity;
hence, there is no need to notify
the drawer and indorsers again
about the dishonor of the bill by
non-payment.
However, if before its maturity,
the bill is accepted but later
dishonored by non-payment upon
its maturity, the drawer and the
indorsers must be given due
notice of dishonor by nonpayment; otherwise, they will be
discharged from liability. This is so
because the earlier notice of
dishonor by non-acceptance given
the drawer and indorsers was

rendered
ineffectual
by
the
subsequent acceptance of the bill.
Hence, the necessity of the notice
of dishonor by non-payment that
must be given to fix the liability of
the drawer and the indorsers.
How is a foreign bill distinguished

from an inland bill?
A bill of exchange may be a
foreign bill of exchange where the
drawer and the drawee are
residents of countries foreign to
each other or an inland bill of
exchange where the drawer and
drawee are residents of the same
country as on its face it purports
to be, both drawn and payable
within the Philippines and unless
the contrary appears on the face
of the bill, the holder may treat it
as an inland bill. The distinction is
material insofar as determining
whether protest is to be given in
the case of non-acceptance or
dishonour by non-payment as only
foreign bills of exchange is subject
to protest.
What
is
the
effect
of
the
certification of a check?
A check will operate as an
assignment of funds when the
bank accepts or certifies the
check.
Certification of the check is
equivalent to acceptance and
when the holder procures it to be
certified, the drawer and all
indorsers are discharged from
liability thereon.
When a bank certifies a check it
agrees in advance to (a) accept
the check when it is presented for
payment (b) pay the check out of
the funds set aside for the
customers account.
What is meant by the discharge of
the negotiable instrument and how
does it occur?
It is the release of all parties,
whether primary or secondary,
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from their obligation on the

instrument.
It occurs: (a) By payment in due
course by or on behalf of the
principal debtor, (b) By payment in
due
course
by
the
party
accommodated,
where
the
instrument is made or accepted
for his accommodation, (c) By the
intentional cancellation thereof by
the holder, (d) By any other act
which will discharge a simple
contract for the payment of
money, and (e) When the principal
debtor becomes the holder of the
instrument at or after maturity in
his own right.
How are those secondarily liable on

the instrument discharged?
Those secondarily liable will be
discharged: (a) By any act which
discharges the instrument, (b) By
the intentional cancellation of his
signature by the holder, (c) By the
discharge of a prior party, (d)
By a valid tender or payment
made by a prior party, (e) By a
release of the principal debtor
unless the holder's right of
recourse
against
the
party
secondarily liable is expressly
reserved, and (f)
By any
agreement binding upon the
holder to extend the time of
payment or to postpone the
holder's right to enforce the
instrument unless made with the
assent of the party secondarily
liable or unless the right of
recourse against such party is
expressly reserved.
TRANSPORTATION
What
are
the
Constitutional
provisions affecting transportation?
Section 11, Article XII- National
Economy and Patrimony provides
that the grant of any franchise or
any form of authorization to
operate a public utility is limited to
Filipinos or Filipino corporations

owned at least 60% by Filipinos.
The mere formation of a public
utility corporation does not ipso
facto characterize it as one that is
operating a public utility. The
moment of determination of
Filipino nationality is when it
applies for a franchise to operate
a public utility.
What
is
the
basis
of
state
regulation?
Since the business and operation
of a public utility is imbued with
public interest, it must submit to
government
regulation
and
surrender
certain
business
prerogatives,
including
determining the amount of rates
that they can charge as the State
must protect the public whenever
too much profits become the
priority of public utilities.
What are the rate determination
factors?
The three major factors are: (a)
rate of return , (b) rate base, and
(c) return itself or the computed
revenue to be earned using the (a)
and (b).
Jurisprudence has consistently
adopted a 12% rate of return.
The rate base is an evaluation of
the property devoted to the public
service or value of invested
property which is entitled to a
return.
What is the degree of diligence
required of common carriers?
Regardless of whether the object
are goods or passengers, a
common carrier must observe
extra ordinary diligence.
The is required because of the
nature of the business and by
reason of public policy.
If loss, destruction or deterioration
of the goods occurs or death or
physical injuries is suffered by a
passenger, there is a presumption
of negligence that arises.
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If the damage does not fall within

the instances stated, it does not
mean that there is no recovery
against the common carrier. The
grounds for recovery will have to
be proven as there is no
presumption of negligence that
arises. An example would be
damages due to a delay in
delivery.
What are the effects of the acts of

the employees of the common
carrier?
The common carrier is also liable if
the death or injury arises from the
negligence or willful acts of its
employees,
although
the
employees
may
have
acted
beyond
the
scope
of
their
authority or in violation of orders.
If the act is not in the line of duty,
the
rule
on
strangers
or
passengers will apply.
This liability extends only to acts
which the carrier could foresee or
avoid through the exercise of the
degree of diligence required and
neither can it be eliminated or
limited by stipulation, by the
posting of notices, by statements
on the ticket or otherwise.
However, in a like manner the
passenger must observe the
diligence of a good father of a
family to avoid injury to himself
What are the effects of the acts of
strangers or passengers on the
common carrier?
The rule on strangers or other
passengers
holds
that
the
common carrier is liable for
injuries suffered by a passenger
on account of the wilful acts of
other passengers or strangers, if
the common carriers employees
through the
exercise of the
family, could have prevented or
stopped the act or omission.
How is the earning capacity of a
student determined?
In the case of Spouses Teodoro

and Nannette Perena v. Spouses
Nicolas and Teresita L. Zarate,
Philippine National Railways, and
the Court of Appeals, G.R. No.
157917, August 29, 2012 it was
held that loss of earning capacity
may be granted even if the
deceased passenger may only be
an
unemployed
high
school
student at the time of the
accident.
The basis of the computation of
the earning capacity of the
deceased was the minimum wage
in effect at the time of his death,
not reckoned from his age of 15
years at the time of death, but on
21 years, his age when he would
have graduated from college.
When does a contract of carriage for

goods start and end?
It commences from the time the
goods are unconditionally placed
in the possession of, and received
by the carrier for transportation
until the same shall have been
delivered
actually
or
constructively by the carrier to the
consignee who has the right to
receive them.
It remains in full force and effect
even if they are temporarily offloaded or stored in transit unless
the shipper or owner has made
use of the right of stoppage in
transit.
It continues even during the time
they goods are stored in a
warehouse of the carrier at the
place of destination until the
consignee has been advised of the
arrival and has had a reasonable
opportunity thereafter to remove
or otherwise dispose of them.
When does a contract of carriage for
passengers start and end?
It commences the moment the
person who purchases the ticket
from the carrier presents himself
at the proper place and in a proper
manner to be transported. This is
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when the contract of carriage is

perfected. The relationship will not
terminate until the passenger has,
after reaching his destination,
safely alighted from the carriers
conveyance
or
has
had
a
reasonable opportunity to leave
the carriers premises.
Such person must have a bona
fide intention to use the facilities
of the carrier, possess sufficient
fare with which to pay for his
passage, and present himself to
the carrier for transportation in the
place and manner provided. If he
does not do so, he will not be
considered a passenger and the
carrier
does
not
owe
him
extraordinary diligence.
How
are
passenger
baggages
treated?
Passengers Baggage is deemed to
include
whatever
articles
a
passenger usually takes with him
for his own personal use, comfort
and convenience according to the
habits or wants of the particular
class to which he belongs, either
with reference to his immediate
necessities
or
the
ultimate
purpose of his journey. Baggage
may be hand-carried or checked-in
or is delivered to the carrier.
Check-in baggage is treated as
cargo, while hand-carried baggage
is treated as necessary deposit.
What is a bill of lading?
A bill of lading may be defined as
a written acknowledgment of the
receipt
of
goods
and
an
agreement to transport and to
deliver them at a specified place
to a person named or on his order.
It comprehends all methods of
transportation.
Its three-fold character: (a) it is a
contract in itself and the parties
are bound by its terms (b) it is a
receipt (c) it is a symbol of the
goods covered by it
When does the responsibility of the

carrier commence?
Commencement
of
the
responsibility of the carrier is upon
receipt of the merchandise from
the shipper, either personally or
through a person charged for that
purpose, at the place indicated for
their reception.
This responsibility shall endure
and continue after the arrival of
the goods at their destination until
they are ready to be delivered at
the usual place of delivery, and
the owner or consignee has a
reasonable
opportunity,
upon
delivery, of examining them
sufficiently to judge from their
outward
appearance
their
identity, whether they are in a
proper condition, and to take them
away.
What is the period for delivery?
Where a period is fixed for
delivery: the carrier must deliver
the goods within the time fixed. If
not, it shall pay the indemnity
stipulated in the bill, neither the
shipper nor the consignee being
entitled to anything else. If not
stipulated, it shall be liable for the
damages that the delay may have
caused.
Where no period was fixed: the
carrier shall be bound to forward
them in the first shipment of the
same or similar goods which he
makes to the point where he must
deliver them. Should he not do so,
the damages caused by the delay
shall be for his account.
When does conversion occur?
Where property in the hands of a
carrier is not delivered within a
reasonable time after it has
reached its destination, the carrier
in the absence of any legal
exemption and after demand has
been made and delivery refused,
is liable for a conversion of the
property.
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The consignee may waive title to

the
property
and
sue
for
conversion He is entitled to the
value of the goods at the time
they should have been delivered
to him. Subsequent tender of the
goods by the carrier is not
available as a defense.
If there has been demand and the
carrier tenders the goods, the
consignee cannot refuse the
delivery. His sole remedy is an
action for damages on account of
the delay. There can only be
conversion if there has been
demand and the carrier refuses
delivery.
What are the options of the
consignee
in
case
of
partial
delivery?
If only part of the goods
transported should be delivered,
the consignee may refuse to
receive them, when he proves that
he cannot make use thereof
without the others that were not
delivered.
The
determination
of
the
usefulness
of
the
goods
individually depends upon the
consignee, but he cannot be
arbitrary and must justify his
determination.
When can there be refusal to

take delivery when goods are
damaged?
If, on account of the damage, the
goods are rendered useless for
sale or consumption for the use
for which they are properly
destined, the consignee shall not
be bound to receive them, and
may leave them in the hands of
the carrier, demanding payment of
their value at the current market
price that day.
If among the goods damaged
there should be some in good
condition and without any defect
whatsoever,
the
foregoing
provision shall be applicable with
regard to the damaged ones, and
the consignee shall receive those

which are sound, this separation
being made by distinct and
separate articles, no object being
divided for the purpose, unless the
consignee proves the impossibility
of
conveniently
making
use
thereof in this form.
When can there be abandonment?

A right to abandon exists in cases
of delay on account of the fault of
the carrier as the consignee may
leave the goods transported in the
hands of the carrier, informing him
thereof in writing before the
arrival of the same at the point of
the destination.
When this abandonment occurs,
the carrier shall satisfy the total
value of the goods, as if they had
been lost or mislaid
Should the abandonment not
occur, the indemnity for loss and
damages on account of the delays
cannot exceed the current price of
the goods transported on the day
and at the place where the
delivery was to have been made.
What is the period for claims?
The periods prescribed shall
commence to run only from the
time the consignee is in actual
possession.
The 24-hour rule is counted from
the receipt of goods except if: (a)
the defect is due to the packing of
the goods or may be seen from
outside
the
goods,
or
(b)
owner/shipper never received the
goods as there can be no question
as to the right to bring a claim.
When the period lapses or after
the transportation charges have
been paid, no claim whatsoever
shall be admitted against the
carrier with regard to the condition
in which the goods transported
were delivered.
What is the limited liability rule in
maritime law?
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The rule as based on the real and

hypothecary nature of maritime
law and its
effect is that the
vessel serves as the guarantee for
the settlement for obligations
under maritime contracts. Subject
to certain exceptions, if the vessel
is lost or is abandoned in favor of
creditors, the obligations of the
ship captain and the ship agent
will be extinguished as their
liability is limited to the res or the
vessel.
What liabilities are extinguished?

The primary liabilities of the ship
owner and ship agent which are
extinguished are those which arise
from: (a) acts of the captain (b)
contracts entered into by the
captain to repair, equip and
provision the vessel, provided that
the amount claimed was invested
for the benefit of the vessel (c)
indemnities in favor of third
persons which arise from the
conduct of the captain in the care
of the goods or well as safety of
the passengers, (d) damages to
third persons for torts or quasidelict committed by the captain,
except in a collision with another
vessel (e) in case of collision due
to the fault, negligence or want of
skill of the captain, sailing mate or
any member of the complement.
What are the kinds of charter
parties?
There are 2 kinds of charter
parties:
(a)
contract
of
affreightment involves the use of
shipping space or vessels leased
by the owner in part or as a whole,
to carry goods for others. Here the
vessel is still a common carrier
(b)charter by demise or bareboat
charter the whole vessel is let to
the charterer with a transfer to
him of its entire command and
possession
and
consequent
control
over
its
navigation,
including the master and the crew,

who are his servants. The vessel in
this case becomes a private
carrier.
What is fortuitous collision?

The collision is fortuitous when the
vessels collide with each other
though fortuitous event or force
majeure .
Each vessel and each cargo shall
bear its own damages or a vessel
which is properly anchored and
moored may collide with those
nearby by reason of a storm or
other cause of force majeure , the
vessel run into suffers its own
damages
What is a culpable collision?
The collision is culpable when the
collision is due to the fault,
negligence or lack of skill of the
captain or the complement of the
vessel, the owner of the vessel at
fault shall be liable for the losses
and damages or due to fault of
both vessels, each vessel then
suffers its own losses regardless of
degree of fault, hence rules on
contributory negligence does not
apply, with regard to the owners
of the cargo, both vessels shall be
jointly and severally liable even if
their cause of actions may be
different or 2 vessels may collide
with each other without their fault
but by reason of the fault of a 3rd
vessel, the owner of the 3 rd vessel
will be liable.
What is an inscrutable collision?
The
collision
is
inscrutable
where
it
cannot
be
determined which of the 2 vessels
is at fault, each vessel then suffers
its own losses and damages; both
will be solidarily liable for losses
and damages caused to their
cargoes.
When does COGSA apply?
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It applies to all contracts for the

carriage of goods by sea to and
from Philippine in foreign trade.
Note that the transhipment of the
cargo in the Philippines via a
domestic inter-island vessel will
not remove it from the application
of COGSA
A paramount clause will the allow
the application of COGSA even if
the transportation is domestic.
Will COGSA apply to an arrastre

operator?
In the case of Insurance Company
of
North
America
v.
Asian
Terminals, Inc., G.R. No. 180784,
February 15, 2012 it was noted
that the term carriage of goods
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.
Thus, only the carrier and the ship
may put up the defense of
prescription if the action for
damages is not brought within one
year after the delivery of the
goods or the date when the goods
should have been delivered. On
the other hand, it has also been
held that not only the shipper, but
also the consignee or legal holder
of the bill may invoke the
prescriptive period. However, the
COGSA does not mention that an
arrastre operator may invoke the
prescriptive period of one year;
Hence, it does not cover the
arrastre operator.
When must notice of damage be
given under COGSA?
When damage is apparent, the
notice of damage must be given
immediately upon receipt of the
goods.
When damage is not apparent, the

notice must be given within 3 days
from delivery.
The prescriptive period of one
year starts after the delivery of
the goods or the date the goods
should have been delivered.
What is the limit of liability under

COGSA?
The maximum liability of the
carrier is $500 per package or per
customary freight unit, or its
equivalent in other currency,
unless the shipper or owner
declares a greater value. The
parties, however, may stipulate a
lesser amount in the bill of lading
and in no event will the carrier be
liable for an amount more than
the damage actually sustained.
Neither will the carrier nor the
ship be liable in any event for loss
or damage to or in connection
with the transportation of the
goods if the nature or value
thereof has been knowingly and
fraudulently misstated by the
shipper in the bill of lading.
What is the Warsaw Convention?
It applies to international air
carriage or transportation.
The applicable categories: (a) That
where the place of departure and
place of destination are situated
within the territories of two High
Contracting Parties regardless of
whether or not there be a break in
transportation or transhipment,
and (b) That where the place of
departure and the place of
destination are within the territory
of a single High Contracting Party
if there is an agreed stopping
place within the territory subject
to the sovereignty, mandate or
authority of another power, even
though the power is not party to
the Convention.
Where can an action be brought?
An action for a violation of a
contract
of
international
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transportation by air must be

brought, at the option of the
plaintiff, in the territory of one of
the High Contracting Parties,
either before the court of domicile
of the carrier or of his principal
place of business or where he has
a place of business through which
the contract has been made, or
before the court at the place of
destination.
What are the limits of liability?

The carrier shall be liable for
damages sustained in the event of
death or bodily injury suffered by
a passenger on board the aircraft
or in the course of embarkation or
disembarkation thereof, and of
damage or loss of any checked
baggage or any goods during the
transportation by air.
The following are the limited
liability of the carrier under the
convention:(a) For each passenger
US $ 100,000.00; (b) For
checked baggage and of goods
US $ 20.00 per kilogram; (c) For
objects that the passenger takes
charge himself US $ 400.00 per
passenger. The limitations may be
increased by agreement, but any
provision tending to relieve the
carrier of its liability or to fix a
lower limit shall be null and void.
Provided, that the limitations shall
not apply if the damage is caused
by the willful misconduct of the
carrier or his agents.
LETTERS OF CREDIT
What are letters of credit?
A letter of credit is basically an
open letter of request whereby
one person requests another to
advance money or give credit to a
third person for a certain amount
and promises to repay the person
advancing the money.
They are intended generally to
facilitate the purchase and sale of
goods by providing assurance to
the seller of prompt payment upon

compliance
with
specified
conditions or presentation of
stipulated documents without the
seller having to rely upon the
solvency and good faith of the
buyer.
Who are the parties to a letter of

credit?
The basic parties to a letter of
credit are: (a) The Buyer- he is the
one who procures the letter of
credit and obliges himself to
reimburse the issuing bank upon
receipt of the documents of title
(b) The Issuing Bank- is the bank
from whom the letter of credit is
procured and which undertakes to
pay the seller upon receipt of the
draft and proper documents of
titles which are surrendered the
buyer upon reimbursement, and
(c) The seller- who in compliance
with the contract of sale ships the
goods to the buyer and deliver the
documents of title and draft to the
issuing bank to recover payment.
The three contracts
The contract of sale
The application and agreement to
issue the letter of credit
The letter of credit
These
contracts
must
be
maintained in a state of perpetual
separation
What is the participation of a
confirming and advising bank?
The Advising Bank is the bank in
the country of the beneficiary
which
communicates
to
the
beneficiary the notice of the credit
issued by the issuing bank
The Confirming Bank- is the bank
that undertakes that the letter of
credit will be fully paid.
Usually the confirming bank is also
the advising bank, otherwise it is
utilized to lend credence to the
letter of credit issued by a lesser
known issuing bank and is directly
liable to the beneficiary.
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What is the independence principle?

The independence principle in a
letter of credit transaction means
that a bank, in determining
compliance with the terms of a
letter of credit is required to
examine
only
the
shipping
documents presented by the seller
and is precluded from determining
whether the main contract is
actually accomplished or not. This
arrangement assures the seller of
prompt payment, independent of
any breach of the main sales
contract
What is the strict compliance rule?

The strict compliance rule in a
letter of credit transaction means
that the documents tendered by
the seller or beneficiary must
strictly conform to the terms of
the letter of credit, i.e., they must
include all documents required by
the letter of credit.
letter of credit even if the obligor

is under a corporate rehabilitation
stay order because the prohibition
under the rules is on the
enforcement of claims against the
debtor, guarantors or sureties of
the debtor whose obligations are
not solidary with the debtor.
What is the effect of payment on an

expired letter of credit?
In the case of Rodzssen Company
Inc. v. Far East Bank and Trust
Company, 357 SCRA 618 it was
held that an issuing bank which
paid the beneficiary of an expired
letter of credit can recover
payment from the applicant who
obtained the goods from the
beneficiary to prevent unjust
enrichment.
TRUST RECEIPTS
What is the fraud exception?
The fraud exception maintains
that
despite
the
banks
unconditional obligation to pay the
seller upon presentation of the
required documents, the issuing
bank is not bound to pay when
there has been fraud by the seller.
The test is whether, standing in
the shoes of the paying bank at
the time of payment, the fraud
was clear and obvious. If [the]
fraud was clear and obvious, the
bank pays the beneficiary at its
own peril and it is not entitled to
reimbursement. But if [the] fraud
is not clear and obvious, then it is
not for a bank to question why
the parties involved had chosen to
conduct their business in any
particular way.
What is the effect of a stay order on
beneficiary?
In the case of MWSS v. Hon.
Daway, 432 SCRA 599, it was held
that the beneficiary of a stand-by
letter of credit can draw on the
What is a trust receipt transaction?

A trust receipt transaction is a
transaction
between
parties
known as an entruster and an
entrustee whereby the entruster,
who owns or hold absolute title or
security interests over certain
specified goods, documents or
instruments, releases the same to
the possession of the entrustee
upon the latters execution and
delivery to the entruster of a trust
receipt wherein the entrustee
binds himself to hold the specified
goods, documents or instruments
in trust for the entruster and to
sell or otherwise dispose of the
goods, documents or instruments
with the obligation to turn over to
the entruster the proceeds thereof
to the extent of the amount owing
to the entruster, or the goods,
documents
or
instruments
themselves if they are unsold or
not otherwise disposed of.
What are the two basic obligations?
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There are two basic obligations

that define a trust receipt
transaction. The first is covered by
a provision that refers to money
under the obligation to deliver it
(entregarla) to the owner of the
merchandise sold. The second is
covered by the provision referring
to the merchandise received
under the obligation to return it
(devolvera) to the owner.
Thus, under the Trust Receipts
Law, intent to defraud is presumed
when (1) the entrustee fails to
turn over the proceeds of the sale
of the goods covered by the trust
receipt; or (2) when the entrustee
fails to return the goods under
trust, if they are not disposed of in
accordance with the terms of the
trust receipt.
What is the effect of the absence of
an obligation?
In the case of Land Bank of the
Philippines v. Lamberto C. Perez,
et.al., G.R. No. 166884, 672 SCRA
117, June 13, 2012, in all trust
receipt
transactions,
both
obligations on the part of the
(en)trustee
exist
in
the
alternative- the return of the
proceeds of the sale or the return
or recovery of the goods, whether
raw or processed. When both
parties enter into an agreement
knowing that the return of the
goods subject of the trust receipt
is not possible even without any
fault on the part of the trustee, it
is not a trust receipt transaction;
the only obligation actually agreed
upon by the parties would be 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.
What are the loan and security
features of a trust receipt?
The loan feature of a trust receipt
transaction lies in the manner it
facilitates the importation or

purchase of merchandise by the
extension of credit.
The security feature of a trust
receipt lies in the fact that the
imported
or
purchased
merchandise
will
serve
as
collateral for the credit extended
and that the obligation of the
entrustee is to deliver the
proceeds of their sale or return
them if not sold.
What
is
meant
by
security
interest?
A Security Interest means a
property
interest
in
goods,
documents or instruments to
secure performance of some
obligations of the entrustee or of
some third persons to the
entruster
and
includes
title,
whether or not expressed to be
absolute, whenever such title is in
substance taken or retained for
security only.
What are some of the principal
obligations of the entrustee ?
To hold the goods in trust for the
entruster and to dispose of them
strictly in accordance with the
terms of the trust receipt;
To receive the proceeds of the sale
of the goods in trust for the
entruster and to turn over the
same to the entruster to the
extent of the amount owing to the
entruster;
To insure the goods for their total
value against loss from fire, theft,
pilferage or other casualties;
To return the goods to the
entruster in case they could not be
sold or upon demand of the
entruster.
AMLA
What is money laundering?
Money Laundering is the process
by which a person conceals the
existence of unlawfully obtained
money and makes it appear to
have
originated
from
lawful
sources.
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There are
offenses.
now
34
predicate
Can
there
be
simultaneous
prosecutions for laundering and the
predicate offense?
It is now provided that any person
may
be
charged
with
and
convicted of both the offense of
money
laundering
and
the
unlawful activity and that the
prosecution for money laundering
shall proceed independently of the
proceeding
relating
to
the
unlawful activity.
How
is
money
laundering
committed?
The offense of money laundering
may be committed by any person
knowing
that
any
monetary
instrument or property represents,
involves, or relates to, the
proceeds of any unlawful activity:
(a)
Transacts said monetary
instrument
or
property.,
(b)
Converts, transfers, disposes of,
moves, acquires, possesses or
uses said monetary instrument or
property, (c) Conceals or disguises
the true nature, source, location,
disposition,
movement
or
ownership of or rights with respect
to said monetary instrument or
property, (d) Attempting to or
conspiring to commit money
laundering offenses. (e)Aiding,
abetting, assisting in or counsels
the
commission
of
money
laundering, and (f) Performs or
fails to perform any act as a result
of which he facilitates the offense
of money laundering.
It is also committed by any person
knowing
that
any
monetary
instrument or property is required
under this Act to be disclosed and
filed
with
the
Anti-Money
Laundering Council (AMLC) fails to
do so.
Who is a covered person?
A Covered Person, natural or juridical,
refers to:
Banks, Non-Banks, Quasi-Banks,

Trust Entities, and all other
institutions and their subsidiaries
and affiliates supervised by the
BSP
Insurance Companies, Pre-Need
Companies
and
all
other
institutions supervised by the
Insurance Commission
Security
Dealers,
brokers,
salesmen, investment houses and
other similar entities managing
securities or rendering services as
an investment agent, advisor, or
consultant, Mutual funds, closed
end
investment
companies,
common trust funds, and other
similar persons, and ) other
entities administering or otherwise
dealing in currency, commodities,
or financial derivatives based
thereon, valuable objects, cash
substitutes and other similar
monetary instruments or property
supervised or regulated by the
SEC
Who are other covered persons?

Jewelry dealers in precious stones,
who, as a business, trade in
precious metals, for transactions
in excess of One Million Pesos
(PHP 1,000,000.00)
Company service providers which,
as a business, provide any of the
following services to third parties:
(a) acting as a formation agent of
juridical persons, (b) acting or
arranging for another person to
act as a director, corporate
secretary of a company, a partner
of a partnership or similar position
in relation to other juridical
persons, (c) providing a registered
office,
business
address
or
accommodation, correspondence
or administrative address for a
company, partnership or other
legal person or arrangement, and
(d) acting as or arranging for
another person to act as nominee
shareholder for another person
Persons who provide the following
services: (a) managing client
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money, securities or other assets,

(b) management of bank, savings
and
securities
accounts,
(c)
organization of contributions for
the
creation,
operation
and
management of companies, and
(d)
creation,
operation
or
management of juridical persons
or arrangements, and buying and
selling business entities.
Who are excluded from covered

persons?
The term covered person shall
exclude lawyers and accountants
acting
as
independent
professionals
in
relation
to
information
concerning
their
clients or where disclosure of
information would compromise
client confidences or the attorneyclient relationship: Provided that
these lawyers and accountants are
authorized to practice in the
Philippines and shall be subject to
their respective codes of conduct
and/or professional responsibility.
How is the law implemented?
Establish and record, and maintain
a system of verifying, the true
identifies of clients, including the
legal existence and organizational
structure of a corporate client, and
their representatives, based on
official documents.
Keeping the records for five (5)

years.
Requiring the report covered
transactions
and
suspicious
transactions to AMLC, within five
(5) working days from occurrence.
What is a covered transaction?
A covered transaction is a
transaction in cash or other
equivalent monetary instrument
involving a total amount in excess
of Five Hundred Thousand Pesos
(PHP500,000.00) within one (1)
banking day.
What is a suspicious transaction?
It is a transaction with a covered

institution, regardless of the
amounts involved, where any of
the following circumstances exist:
(a)There is no underlying legal or
trade
obligation,
purpose
or
economic
justification;
(b)The
client is not properly identified; (c)
The amount involved is not
commensurate with the business
or financial capacity of the client;
(d)Taking into account all known
circumstances,
it
may
be
perceived
that
the
clients
transaction is structured in order
to avoid being the subject of
reporting requirements under the
Act; (e)Any circumstance relating
to the transaction which is
observed to deviate from the
profile of the client and/or the
clients past transactions with the
covered
institution;
(f)The
transaction is in any way related
to an unlawful activity or offense
under this Act that is about to be,
is being or has been committed; or
(g) Any similar or analogous
transaction.
What rules apply to the freezing of

accounts?
The freezing of a monetary
instrument or property is upon a
verified petition by the AMLC to
the CA after a determination that
probable cause exists that it is
related to an unlawful activity.
This issues immediately and will
be valid for a period not exceeding
6 months depending on the
circumstances
of
the
case.
Provided that if there is no case
filed against a person whose
account has been frozen, the
freeze order shall be deemed ipso
facto lifted.
The remedy is a motion to lift a
freeze order which should be
resolved before the freeze order
expires. No TRO or injunction shall
issue against a freeze order unless
issued by the Supreme Court
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INTELLECTUAL PROPERTY
Is IP protection interchangeable?
In the case of Pearl & Dean Phils.
Inc. v. Shoemart, Inc., 409 SCRA
231 it was held that copyrights,
trademarks
and
patents
are
completely distinct and separate
from one another and the
protection afforded by one cannot
be used interchangeably to cover
items or works that exclusively
pertain to the others.
What is entitled to IP protection, the
idea or the expression?
Ideas are not entitled to copyright
protection, what is entitled to
protection is the expression of the
idea.
This means that the copyright
does not preclude others: (a) from
using information revealed in the
authors work, like following the
instructions in a recipe book, or (b)
creating works based on the same
underlying idea, like a comic book
with a talking mouse as the
central character.
What is the No Formality Rule?
While the Intellectual Property
Code does not explicitly provide
for the rule, we follow the
mandate of Article 5 (2) of the
Berne Convention which provides
that: The enjoyment and the
exercise of these rights shall not
be subject to any formality.
A formality is any condition on
which the existence or exercise of
the
right
depends.
While
registration, fees and deposit of
copies are formalities, they will be
considered as such only when the
existence of the copyright or
exercise
of
attendant
rights
depends on compliance.
What is the effect of an internet

posting of material?
When literary or artistic material is
posted on the internet, it is
considered publicly disseminated.
Regardless of whether it has been
accessed or not, it must be
registered within 3 weeks from
posting to establish the exclusive
right of the creator.
The use of the phrase all rights
reserved would not be sufficient
to establish the copyright as this
per se emanates from the
certification issued by the National
Library.
What
is
the
effect
of
the
photocopying of books?
The photocopying of books and
similar materials by students for
their use would not constitute fair
use as it deprives the author of his
exclusive right to reproduce copies
of his work. This also deprives him
of the royalty or any other
compensation legally due.
What is Conceptual Separability?
The
issue
of
conceptual
separability arises when an article
of applied art with a utilitarian
aspect can be given copyright
protection.
It is resolved by determining
whether the artistic element is
separable from its utilitarian
function.
The Denicola Test has been
adopted in this jurisdiction. It
provides: If the design elements
reflect a merger of aesthetic and
functional
considerations,
the
artistic aspects cannot be said to
be conceptually separable from its
utilitarian aspects. Conversely,
where the design elements can be
identified
as
reflecting
the
designers
artistic
judgment
exercised
independently
of
functional influence, there is
conceptual separability.
What is Fair Use?
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Is a privilege granted enjoyed by

one other than the owner of the
copyright to use the copyrighted
material in a reasonable manner
without
his
consent,
notwithstanding the monopoly of
the owner of the copyright.
It may include criticism, comment,
news reporting and teaching,
including making of copies for
classroom use, scholarship and
research.
Acknowledgment would not make
an otherwise infringement into fair
use.
When is an invention patentable?
Patentable inventions refer to any
technical solution of a problem in
any field of human activity which
is novel or new, involves an
inventive step and is industrially
applicable.
Thus the elements of patentability
are: (a) novelty; (b) an inventive
step;
and
(c)
industrial
applicability.
The patent duration is 20 years
from the date of the filing of the
application without renewal.
What is an Industrial Design?

An industrial design is any
composition of lines or colors or
any
three-dimensional
form,
whether or not associated with
lines or colors provided that such
composition or forms gives a
special appearance to and can
serve as pattern for an industrial
product or handicraft. This is
purely ornamental or aesthetic in
nature as opposed to useful or
functional.
If it is an industrial design, the
patent duration is 5 years from the
filing date of the application,
renewable for not more than 2
consecutive periods of 5 years
each.
What is a Utility Model?
A utility model is a technical
solution to a problem in any field
of human activity which is new

and industrially applicable. It may
be or may relate to, a product, of
process, or an improvement.
Essentially, a utility model refers
to an invention in the mechanical
field that has some type of
usefulness.
If it is utility model, the patent
duration is 7 years from date of
the filing of the application without
renewal.
Who owns the patent?

The right to a patent belongs to
the inventor, his heirs, or assigns.
When two or more persons have
jointly made an invention, the
right to a patent shall belong to
them jointly.
Where the invention is made
pursuant to a commission, the
person who commissions it shall
be the owner of the patent, unless
there is an agreement to the
contrary.
When the invention is made by an
employee in the course of his
employment, it shall belong to
the: The employee, if the inventive
activity is not part of his regular
duties even if he utilizes the time,
facilities and resources of the
employer.The employer, if the
invention is a result of the
performance of regularly assigned
duties,
unless
there
is
an
agreement, express or implied, to
the contrary.
What is the First to File Rule?
The first to file rule mandates that
if two or more persons have made
the invention separately and
independently of each other the
right to the patent shall belong to
the person who first filed an
application for such invention.
The law provides for safeguards to
protect the inventor prejudiced by
the first to file rule. These are: (a)
a person deprived of a patent
without his consent or through
fraud may be declared by a court
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to be the true and actual inventor,

and (b) a prior user in good faith
shall have the right to continue
using the invention in the territory
where the patent produces its
effects.
What is the effect of prior user on a

patent?
A prior user, who in good faith,
was using the invention or has
undertaken serious preparations
to use the invention in his
enterprise or business before the
filing or priority date of the
application for which a patent was
granted, shall have the right to
continue use thereof within the
territory
where
the
patent
produces effect.
As a protection for the patent
holder, a prior user cannot
transfer or assign this right unless
in connection with the transfer or
assignment of his entire enterprise
or business.
What is the Doctrine of Equivalents?
The
doctrine
of
equivalents
provides that an infringement also
takes place when a device
appropriates a prior invention by
incorporating
its
innovative
concept and, although with some
modification and change, performs
substantially the same function in
substantially the same way to
achieve substantially the same
result.
In other words, the
principle or mode of operation
must be the same or substantially
the same.
The doctrine of equivalents thus
requires
satisfaction
of
the
function-means-and-result
test,
the patentee having the burden to
show that all three components of
such equivalency test are met.
What is a well known mark?
A mark or a trade name cannot be
registered if it is identical with, or
confusingly
similar
to,
or
constitutes a translation of a mark
which is considered by competent

authority to be well known
internationally
and
in
the
Philippines, whether registered or
not, as being already the mark of
a person other than the applicant,
and used for identical or similar
goods or services.
If registered in the Philippines,
protection will extend to goods or
services which are not similar to
those with respect to which
registration is applied for, if it
would indicate a connection
between them and the interest of
the owner of the mark is likely to
be damaged.
What distinguishes an infringement

from unfair competition?
Infringement is unauthorized use
of a trademark, whereas unfair
competition is the passing off of
ones goods as those of another.
In infringement, fraudulent intent
is unnecessary, whereas in unfair
competition, fraudulent intent is
essential.
In infringement, prior registration
is a prerequisite to an action,
whereas in unfair competition,
registration is not necessary.
What are the Dominancy
and
Holistic tests?
The dominancy test focuses on the
similarity of the prevalent features
of the competing marks. If the
competing marks contain the main
or essential or dominant features
of the other and confusion is likely
to result, an infringement takes
place. This test relies on a visual
comparison
between
the
competing marks.
The Holistic test is based not only
on a visual comparison, but also
aural, connotative and overall
impressions engendered by the
trademarks in the marketplace to
determine confusing similarity.
What is the distinction between
related and non-related goods?
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Where the trademarks involved

are identical or closely similar and
the goods on which they are
affixed are identical, there can be
no question that an infringement
exists in favor of the owner of the
registered mark against the junior
user.
If
non-related,
the
following
criteria must be utilized: (a) prior
mark is well known internationally
and
in
the
Philippines;
(b)
registration would suggest a
connection between the nonrelated goods; and (c) the interest
of the owner of the well-known
mark is likely to be damaged or
precluded from expanding into the
area
of
goods
for
which
registration is sought.
WAREHOUSE RECEIPTS
When are the goods deliverable?
In the absence of any lawful
excuse, he is bound to deliver the
goods upon a demand by: (a)
holder of a receipt for the goods,
or (b) by the depositor, provided
that the demand be accompanied
by an (a) an offer to satisfy the
warehousemans lien (b) an offer
to surrender the receipt if it is
negotiable, and (c) a readiness
and
willingness
to
sign
acknowledgment of delivery of the
goods
if
requested
by
the
warehouseman
To whom is delivery made?
A warehouseman is obliged to
deliver goods to: (a) person
lawfully entitled to it such as:
person determined by the court to
be entitled to it in an interpleader
case, or a person who purchases
the goods at an auction to satisfy
a warehousemans lien or because
the goods are hazardous or of a
perishable nature (b) the person
who is himself entitled to delivery
by the terms of the receipt. If
receipt is non-negotiable, delivery
will be to the person entitled to it

under its terms or by written
authority clearly indicated therein
or another document. If receipt is
negotiable, to the person named
or the last indorsee.
When can delivery be refused?

A warehouseman may thus legally
refuse to deliver goods covered by
a warehouse receipt under the
following instances: (a) When
the demand is not accompanied
by
the
three
requirements
provided in Section 8 (b)When he
has a lien valid against the person
demanding the goods, he can
refuse to deliver the goods until
the lien is satisfied and, (c) In
cases when there are several
adverse claimants to the title or
possession of the goods.
What is a misdelivery?
A misdelivery or conversion occurs
when (a) delivery is made to one
not lawfully entitled to it, or (b)
even if delivery is made to a
person holding a non-negotiable
or negotiable receipt, if prior to
delivery, he had either been
requested not to make delivery by
the person lawfully entitled to a
right of property or possession in
the goods or had information that
delivery about to be made was to
one not lawfully entitled to
possession of the goods.
What is the warehousemans lien?
The warehousemans lien refers to
the lien of that a warehouseman
has on the goods deposited with
him or on the proceeds thereof in
his hands for all lawful charges for
storage and preservation of the
goods, money advanced by him in
relation to such goods such as the
expenses of transportation or
labor, or other related expenses.
The lien may be enforced against
all goods belonging to the person
liable for the charges, as well as
against all goods belonging to the
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Commercial
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others deposited by the person

liable for the charges who has
been
entrusted
with
the
possession of the goods and could
have validly pledged the same.
The lien can be lost if a
warehouseman
surrenders
possession of the goods, or by
refusing to deliver the goods when
a demand is made with which he
is bound to comply under the
provisions of the Act
BANKING LAWS
What is an open market operation?
In the case of Bank of Commerce
v. Planters Development Bank,
681 SCRA 521, open market
operations has been defined as
the act of the Bangko Sentral ng
Pilipinas in publicly buying or
selling government securities from
(or to) banks and financial
institutions.
The purpose is to regulate the
supply of money in the economy
to influence the timing, cost and
availability of money and credit.
When does conservatorship occur?
Conservatorship
takes
place
whenever a bank or quasi-bank is
in a state of continuing inability or
unwillingness
to
maintain
a
condition of liquidity deemed
adequate to protect the interest of
depositors and creditors.
It is an attempt to save the bank
from bankruptcy and ultimate
liquidation. It is helping the bank
by
introducing
effective
management reforms and/or the
infusion of capital.
A conservator may take over a
bank or quasi-bank without the
need of first declaring the bank
insolvent nor is the designation of
a conservator a precondition to
the designation of a receiver.
The period is 1 year.
When does receivership occur?
Receivership is defined as the

summary closure of a bank
without prior notice and hearing
after
a
finding
that
the
continuance
in
business
will
involve probable loss to its
depositors and creditors.
Prior notice and hearing is not
required before placement of a
bank under receivership.
The bank as a corporation is not
deemed
dissolved
by
a
receivership nor does it interfere
with the exercise of corporate
rights. It retains its corporate
personality and can sue and be
sued, but in any case suit is to be
initiated and prosecuted through
the liquidator.
How are banks distinguished from

quasi-banks?
Quasi-banks are entities engaged
in the borrowing of funds through
the issuance, endorsement or
assignment with recourse or
acceptance of deposit substitutes
for purposes of relending or
purchasing of receivables and
other obligations.
Deposit
substitutes
is
an
alternative form of obtaining funds
from the public, other than
deposits, through the issuance,
endorsement, or acceptance of
debt
instruments
from
the
borrowers own account, for the
purpose of relending or purchasing
receivables, and other obligations.
The distinction is that they do not
accept deposits.
What is the nature of deposits?
As to nature, all kinds of deposits
whether fixed or current are to be
treated as loans and are to be
covered by the law on loan.
They are also considered in the
nature of irregular deposits as
they are really loans because they
earn
interest.
Considering
a
deposit involves the delivery of a
thing for safekeeping with the
obligation to return the very same
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thing upon demand and a loan is a

contract whereby one of the
parties delivers to another money
or other consumable thing upon
the condition that the same
amount of the same kind and
quality shall be paid.
What degree of diligence is required

of a bank?
A bank should exercise its
functions and treat the accounts
of their clients not only with the
family but it should do so with the
highest degree of care considering
the fiduciary nature of their
relationships with their depositors.
The depositor expects the bank to
treat his account with utmost
fidelity, whether such account
consists only of a few hundred
pesos or millions.
This is
especially true since the bank is
engaged in business impressed
with public interest and it is its
duty to protect in return many
clients,
and
depositors
who
transact business with it.
The bank is under obligation to
treat the accounts of its depositors
with meticulous care always
having in mind the fiduciary
nature of their relationship.
What is the Ratio of Net Worth to
Total Risk Assets?
Is the minimum ratio prescribed
by the Monetary Board which the
net worth of a bank must bear to
its total risk assets which can
include contingent accounts.
This measures capital adequacy as
operations
require
that
an
increase in liability should be
accompanied by an increase in
retained earnings.
Non compliance with the ratio may
compel the Monetary Board to: (a)
prohibit or limit
distribution of
profits (b) require all or part of net
profits be used to increase capital,
or (c) restrict the acquisition and
making of new investments.
What is the Single Borrower Limit

Rule?
Single
Borrower
Limit
Rule
regulates the total amount of
loans, credit accommodations and
guarantees that may be extended
by a bank to any person,
partnership,
association,
corporation or other entity.
The rule seeks to protect a bank
from making excessive loans to a
single borrower by prohibiting it
from lending beyond a specified
ceiling. The current limit is 25% of
the net worth of the bank
concerned.
The ceiling is subject to possible
increase by an additional 10%
provided the additional liabilities
of any borrower are adequately
secured by trust receipts, shipping
documents, warehouse receipts or
other
similar
documents
transferring or securing title
covering readily marketable, nonperishable goods which must be
fully covered by insurance.
What is the DOSRI Rule?
DOSRI
Rules
are
rules
promulgated by the BSP which
regulate the amount of credit
accommodations that a bank may
extend to its directors, officers,
stockholders and their related
interests, thus the term, DOSRI.
Generally,
a
banks
credit
accommodations to its DOSRI
must be in the regular course of
business and on terms not less
favorable to the bank than those
offered to non-DOSRI borrowers.
This is the arms-length rule.
What are the DOSRI Transaction
Rules?
A bank may allow a DOSRI to: (a)
borrow from the bank; (b) become
a guarantor, indorser or surety for
loans from such bank to others; (c)
be an obligor; or (d) incur any
contractual
liability
with
the
written approval of the majority of
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all the directors of the bank,

excluding the director concerned.
The DOSRI borrower is required to
waive the secrecy of his/her
deposits of whatever nature in all
banks in the Philippines and the
ceiling/limitation as to loans are
followed.
The amount of the borrowing is
limited to the amount equivalent
to their unencumbered deposits
and book value of their paid in
capital contribution, unless they
are: (a) secured by assets
considered by the Monetary Board
as non risk (b) under a fringe
benefit plan approved by the BSP,
or is (c) extended by a cooperative
bank
to
its
cooperative
stockholders.
SECRECY OF BANK DEPOSITS

What are the prohibited acts?
The examination or inquiry or
looking into all deposits of
whatever nature with banks or
banking
institutions
in
the
Philippines, including investment
in
bonds
issued
by
the
government
or
its
political
subdivisions and instrumentalities
by
any
person,
government
official, bureau or office.
The disclosure by any official or
employee
of
any
banking
institution to any unauthorized
person
of
any
information
concerning said deposit.
What are the covered deposits?
All deposits of whatever nature
with banks or banking institutions
found in the Philippines; or
Investments in bonds issued by
the Philippine government, its
political
subdivisions
and
instrumentalities.
While the term deposit ordinarily
pertains to an account which gives
rise
to
a
creditor-debtor
relationship, the law is intended to
cover money deposited which may

be used by a bank for authorized
loans to third persons regardless
of whether it creates a creditordebtor relationship such as trust
funds.
What
are
the
FCDU
equity
exceptions?
In the case of Salvacion v. Central
Bank, GR No. 94723, August 18,
1997
the
Supreme
Court
recognized that the demands of
justice correct a wrong committed
to a girl of tender years were
above the need for the foreign
offender's dollars, allowing the
looking into, and in fact garnishing
the foreign currency deposit of the
transient foreigner, to enforce
payment of the indemnity due.
In the case of China Banking Corp.
v. Court of Appeals, GR No.
140487, December 18, 2006 the
Supreme Court allowed an inquiry
into a foreign currency deposit to
settle the real ownership of the
funds. Though pro hac vice or this
one particular reason, the ruling
was clear that the "allowance of
the inquiry would be in accord
with the rudiments of fair play and
the upholding of fairness in our
judicial system."
PHILIPPINE
DEPOSIT
CORPORATION
INSURANCE
What is an insured deposit?

Refers to the net amount due to
any
bonafide
depositor
for
legitimate deposits in an insured
bank net of any obligation of the
depositor to the insured bank as of
the date of the closure and
includes
foreign
currency
denominated deposits, but not to
exceed PHP 500,000.00.
An amount in excess of the
insured deposit can be claimed
upon final liquidation of the
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remaining assets of the closed

bank but payment will depend on
available assets to settle preferred
claims and approval of the
liquidation court.
What is splitting of deposits?
Occurs
whenever
a
deposit
account with an outstanding
balance of more than the statutory
maximum amount of insured
deposit maintained under the
name of a natural or juridical
entity is broken down and
transferred into 2 or more
accounts under different names
within 120 days immediately
preceding a closure order for
purposes of availing of maximum
deposit insurance coverage.
Philippines and duly registered

with the Central Bank which shall
assess and appraise the value of
such assets other than foreign
exchange.
It can be put in: (a) An
export
enterprise which is an enterprise
wherein a manufacturer, processor
or service (including tourism)
enterprise exports sixty percent
(60%) or more of its output, or
wherein
a
trader
purchase
products domestically and exports
sixty percent (60%) or more of
such purchases, or (b)
A
domestic market enterprise which
is an enterprise which produces
goods for sale, or renders services
to the domestic market entirely or
if exporting a portion of its output
fails to consistency export at least
60% thereof.
TRUTH IN LENDING ACT

What are the purposes of the law?
Protect
a
debtor
from
misrepresentation or concealment.
Permit
the
debtor
to
fully
appreciate and evaluate the real
cost of his borrowings.
Avoid the circumvention of usury
laws.
What transactions are not covered?
Those which do not involve the
payment of any finance charge by
the debtor.
Those which the debtor is the one
specifying a definite and fixed set
of credit terms.
FOREIGN INVESTMENTS ACT

What is a foreign investment?
A foreign investment is an equity
investment
made
by
nonPhilippine national in the form of
foreign exchange and/or other
assets actually transferred to the
What are the general investment

rules?
Any non-Philippine national or
entity may do business in the
Philippines up to 100% of its
capital provided: (a)
It
is
doing business as a domestic
market enterprise outside the
Negative List (b) It is doing
business as an export enterprise
whose products or services do not
fall within Negative Lists A and B,
except
for
defense-related
activities, which may be approved
or authorized, and (c) Provided
further that, as required by
existing laws, the country or state
of the applicant must allow Filipino
citizens and corporations to do
business therein.
What qualifies the investment?
If the activity is in the Negative
Lists, foreign ownership in the
enterprise is generally limited to a
maximum
40%
unless
the
Constitution or other laws provide
a lower limit.
The domestic market enterprise
can later change its status to an
export enterprise if over a 3 year
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period it has consistently exported

60% or more of its output.
This ownership limitation for
activities in the Negative List can
be waived should the foreign
investor decide to invest in an
enterprise that exports at least
60% or more of its output. In this
case, foreign ownership may reach
100%. However, the waiver on
limitation of foreign ownership will
not apply where the economic
activity is one for which the
Constitution or other laws provide
for an absolute and definite limit

on foreign ownership.
If it decides to enter an Export
Enterprise: As a general rule,
there are no restrictions on the
extent of foreign ownership (up to
100%) in export enterprises,
unless the products and services
fall within Negative Lists A and B
or utilize raw materials from
depleting natural resources.
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