1, 2. Jo pre-signed seve COMMERCIAL LAW NEGOTIABLE INSTRUMENTS LAW REQUISITES OF NEGOTIABILITY A hired B to deliver P16.4 Billion worth of methamphetamine hydrochloride to C. As payment, A sued a bill of exchange in the amount of P1 Million payable to B or order with his A Bank as drawee. A was not aware of the illegal transaction between A and B. B negotiated the instrument to his business partner D who paid it for value and was a stranger to A. a, Can it be considered a negotiable instrument? Yes. The check issued for an immoral or illegal cause would stil be a negotiable instrument. in ascertaining the character of the instrument, the primordial and only consideration is its compliance with Sec. 1 of the NIL. Sec. 24 provides that every negotiable instrument is deemed prima facie to have been issued for a valuable consideration. In this case, there is no indication th of NIL. The validity of the, re es of a negotiable instrument; it merely doqstitutes a defect ms indication that the bill was issued in conse of an illegal 0 sued by A is prespmed'to be valid Can the payed ave a cause of Bolles ayainstthe Urawer in case of ishionor by the drawee bank? rs NS The payee, onal alnil ileghhcMS4 is PUbjBctt0 contractual or real defenses, as well\gS persopal.o The drawermay, accordinaly, raise against said the cause. Sec. 58 of the ‘Nib holder other thay i older in due course, a negotiable instru e asif it were non-negotiable. ge with Sec~S2 ofthe NIL since he took the an raise, ty selonse that the check was by said new hol: Yes, the drawer c: expenses of hi : is business partner, Pau, with the specific instru ill thet ication to and approval by Jo, Pau however went to Ma ded the money for the construction of his house. Marti believed the request ave, Pau P2,000,000.00. In exchange, Pau simultaneously delivered to Marti one of the blank cliécks Jo pre-signed with the blank portions filled out with the words “Cash”, “Two Million Pesos Only and dated “23 May 2014”. When Marti deposited the check, it was dishonored for the reason “Account Closed”. When Marti demanded payment from Jo, the latter denied authorizing the loan or the check’s negotiation and asserted that he was not a privy to the loan agreement. Decide whether Jo is liable to Marti No, Jo is not liable. Under Sec. 14 of the Negotiable Instruments Law, if the maker or drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that Person is deemed to have prima facie authority to fill it up. In order, however, that,any such instrument when completed may be enforced against any person who became a party to its completion, two requisites must exist: (1) that the blank must be filled strictly in a }e authority given: and (2) it must be filled up within a reasonable time. Ifitwas proven that jad not been filled up strictly in accordance with the authority given and within a reason: can set this up as a personal defense and avold liabilityCOMMERCIAL LAW. In this case, Pau exceeded his authority to fill up,the blanks and use the check which was limited to the use of the checks for the operation of their business and on the condition that Jo's prior approvable be first secured. While Pau had a prima facie authority to complete the check, such prima facie authority does not extend to its use, ie., subsequent transfer or negotiation, once the check is completed. Thus, only the authority to complete the check is presumed. There is no evidence that Pau ever secured prior approval from Jo to fil up the blank or to use the check in addition, Marts knowledge that Jo is not a party or a privy to the contract of loan and correspondingly had no obligation or liability to him renders him dishonest, hence, in bad faith and therefore not a holder in due course. Accordingly, the defense of incomplete but delivered instrument under Sec. 14 of the Negotiable Instruments law will ie against him (Patrimonio v. Gutierrez, G.R. No. 187769, June 4, 2014) MATERIAL ALTERATION Mat issued a check for P300,000 drawn against Pat Bank (drawee bank) and made payable to JJ Marketing, Inc. or order. The check was deposited. with payee's account at Yats Bank (collecting bank) which then sent the c gto the draweelbank. Pat Bank refused to honor the check on ground that the serial reof had been : |. JJ Marketing, Inc. sued the drawee bank: fanaa: ee Q a. When is the instrument materially altered? 3 ‘The instrumenkis materially alteres-\whian|tyerelis, any [alteration which changes fh a. Date; x a ye re b, Sum payable, either tdcpandialloriniéresk= OF LAVV . Time or place of payment, 4. Number or relations of the parties. 5 . Medium or cutretiey in which payrhent is to be made: f. That which adds'@place of paymenkw.bere 90 place of payment is specified and g. Any other change or addition which liters the effeat of the instrumani-in any respect (NIL, Sec. 725). ie eee. ¢ reason that it had been altered? tered there:is the serial number of the Teauisite-for negofability under Sec. 1 of the NIL. The ite "teria alferation)within the contemplation of the jiondid- gt changes the relations between the parties ESI Spnignber >, 2006). aS payee could not sue the ized that there was no basis ny b. Is it proper for the drawee hank to dishon No, drawee bank cannot validjysdishonor check, an item which i$ not af ess alterations on the Seria! numbers ¢ Negotiable Instruments Law. (International Corporate Bank v x In the instant suit, Pat Bank ct drawee bank as there was ro pri to make it liable for the check: od orrect? Yes, the drawee bank's contention is co! is not liable under the check because there is no privity-ofeantret arpet ic. as payee, and Pat Bank as the drawee bank. However ion n-abuse of right which causes damage not only to the issuer of the check sot jee>-thé payee has a cause of action against the drawee bank under quasi-delic. S What is “No Erasure Rule”? Under Clearing House Operating Memorandum No. 15-460 (effective January 4, 2016), any check with erasure, alteration, and/or deficiency — even if countersigned, except for post-dated checks bearing the required bank stamp, shall no longer be eligible or acceptable for clearing. ACCOMMODATION PARTY . A and B are the president and vice-president of Rubber, Inc., respe their top clienticustomer, C, they issued a check payable to D. Sin account of Rubber, Inc., the same was signed by A and Dino Guan. WI was dishonored for insufficiency of funds. Hence, D filed an pointed out that the accommodation party in this case is Rubber, a. Who is an accommodation party? What is his liability to th San Bepa Coutece or Law 2017 Cewreauzen Bar Operations ee.COMMERCIAL LAW. ‘An accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor ‘and (3) he must sign for the purpose of lending his name or credit to some other person. An Sccommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other partyies thereto. The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an ‘aocommodation party, as if the contract was not for accommodation (Eusebio Gonzales v. Philippine ‘Commercial & Intemational Bank, et al., G.R. No. 180257, February 23, 2011), Can Rubber, Inc. be held liable as accommodation party? No_D cannot hold Rubber, Inc. as accommodation party. While its true that an accommodation party iS fiable on the instrument to a holder for value, although such holder at the time of taking the instrument knew him to be only an accommodation party (NIL, Sec. 29), such rule does not include nor apply to corporations which are accommodation parties. This is because the issue or indorsement tion and for the accommodation of another is. of a negotiable paper by a corporali an ultra vires act. Conseq raised is a real defense which may be G.R. No. 80599, September 15, or his order. C, the ify that he recorded ie purchased materials. nt from C. C refused 6. As payment of his personal account such payment. The. When the check we payment arguing that a. IsCcorrect? | No, C’s argument instrument other indicates by appropri No. L-26767, Febria liable as a generat Can C claim that he, a that he must first proceed against A? Z, gfn sud GlfSee. 66, par.2 of the NIL states Kish 1d necessary proceedings on dishonor be duly taken who may be compelled:to they become principal debté | to that of the original obligor. The holder of the negotiable instru against the drawer before suing the 7. Leah made a promissory note payable to bearer and delivered it to Clark. In turn, Clark negotiated it by mere delivery to Jack, who endorsed it especially to Sol. Sol negotiated it by special indorsement to Tiff, who negotiated it to Simon by mere delivery. Leah did not pay. T Clark, Jack, Sol, and Tiff liable? s ame ca negotiated the instrument by mere delivery, hence he is not secondarily liable at all. He is only liable ior breach of warranty to his immediate transferee — Jack — but no such breach appear vi problem (NIL, Sec. 65). —_ Jack is secondarily iable to Sol and Tiff. A person who indorses a bearer instrument is li ‘is liable on) persons who acquire title through his indorsement (NIL, Sec, 40). In this problem, only So ana Ti acquired their titles through the special indorsement of Jack. Simon cannot trace indorsement of Jack, hence the latter is not liable to him. es oa eele was derived from the indorsement of es ly to Tiff because Tiff's tit onsequently, Sol is secondarily liable only to Tif ee eer re iarithe ocean Sol. Sol is not secondarily liable to Simon because the latter canno! Sol. Lastly, Tiff is liable to Simon because she is an immediate party. According to Sec. 40 of the NIL, where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make tile through his indorsement, Tiff is also liable to Simon if there is breach of warranty (WIL, Sec. 65) HOLDER IN DUE COURSE 8. Aissued a negotiable promissory note to B and authorized the latter to fill up the amount in blank the sum of P500. However, B put P5,000 in violation of the instruction. B negotiated the note to C who had knowledge of the infirmity. C indorsed the note to D who is an innocent purchaser in good faith and for value, who in turn, indorses said note to E for value, but who has knowledge of the infirmity. Can E enforce the note again or Yes, E can enforce the note aga holder in due.course, and who iS all the rights of'Such former hold In this case, E iS tot & holder in due Gauss Pebausd frhEADHAtook the instrumeryheriad knowledge of the breach of trust Committed, by Ba fod Banc eS all the sights of,@-holder in due course because he took the {hstrument' ton Dl ga bldér.ih!duelcolrse, Rurther, did not participate in the breach of trust committed by B against A,.and is no instrument (Fossum,v. Fernandez, GR. [Yo. L-194 Sele LIABILITIES OF 1r RUIBJiayholder who derives his title through a 9 any {raud or iliedality affecting the instrument, has sties prior to the later (NIL, Seo. 58), rly to any fraudfor‘llegality affecting the motor vehicles. Chow and King esented the check to the drawee amount of check was credited by ut the check was materially Ink as depository/collecting 9. Chow and King received a check from Machi deposited the check tothe Pigue Bank. Pigu bank, Porki Bank, where the check was hono! Pigue Bank to the savings accounto altered from P4,000,00 to P200,000 bank in this case?" ~ A collecting bank is any ba A. depositary/collecting™~bat presentment with the draws endorser warrants “that {hie' good title to it; that all prioc endorsement valid and subsisting generally suffers the loss becai Considering that the act of pre’e making the presentment has dor warranties made by the depositar recover from it up to the amount of the cf September 17, 2014). endorses the same upon otiable Instruments Law, an filed fe-dfawee is an assertion that the party fuinéhess of the endorsements. If any of the to be false, then the drawee bank may xpress Savings Bank Inc, G.R. No. 176697, sts |. A draws in favor of 8 a check against his current account Although A does not have sufficient funds, the bank hon Payment. It turns out that X has conspired with the would show that he still has sufficient funds. The bi Paid to B because the check presented has no suffici No, the bank cannot recover the amount paid to B for instrument, engages that he will pay it according to the teno Of the drawer, the genuineness of his signe, and his capacity and (NIL, Sec. 62)12. COMMERCIAL LAW In this case, when X bank honored the check, it became an acceptor. As acceptor, the bank became primarily and directly liable to the payeefholder B. The recourse of the bank should be against A and its bookkeeper who conspired to make A's ledger show that he has sufficient funds, FORGERY Bruce, who is usually out of the country for business, entrusted his credit cards, checkbooks, " blank checks, passbook, and other personal documents to his secretary, Sally. Sally was also in charge of verifying and reconciling the statements of Bruce's checking account. Sally was able to Gneash and deposit to her personal account checks drawn against Bruce's account with an aggregate amount of P500,000. Consequently, Bruce fired and ited a criminal case of estafa against Sally. Gotham Bank (drawee bank) also filed a complaint of estafa against Pebbles. Is Gotham Bank liable for failing to detect a forged check? No, Gotham Bank is not liable for failing to detect the forgery. Under Sec. 23 of the NIL, when a signature.is,forged.or.made without the authority of the person whose signature it purports to be, iti ‘inoperative, and no Aghiyio,fetain the instrument, or to give a discharge therefor, of to enfor thereof against any party thereto, can be acquired through or under such sighitwre, unless t gainet whom it 's'sought to enforce such rightis’precluded from setting up thé forgery pr want of aN EDA 4 The general rule Stiremains thatthe drawee who has paid upon the forged signalire bears the loss. The exception to this Aone fc yende-eart bé raced lanthe\patt of the/drawer whose signature ght the comparative negligence between the drawer and the '¢ burden of loss (Samsung Constri¢tior’ Company Philippines, GR. No, 129018, August 12, 2004), ‘up the forgery due to his|own negligence in entrusting luding the verifcatidn-6f fis statements of account was forged, and the\peed ar drawee to determine: Inc. v. Far East Bank. to his secretary his creditcard: (llusorio v. CA, G.R. No.4739130) November 27, 2 |the noté to B. Thereafter, B indorses -and indorsed the same to D by forging C's Sito F, a holder in due course, without Amade a promissory. the note to C. X found signature. D indorses- indorsement. a. CanF hold A, B, and r of the jpStriment. In a bearer instrument, use it hay bé negotiated by mere delivery, jhe begause of the cut-off rule Q fe F. An indorser of a bearer instrument an indorser of a bearer instrument thus , on the other hand breached his warranty tiling with by delivery warrants that the b. Can F hold X, D, and E liab X is liable to F as the forger: incurs all the liability of an ind6 warrants that the instrument is genui under Sec. 65 of the NIL, stating instrument is genuine in all respects it purports it to be. CHECKS Reyes, University Treasurer of ABC University, was loss of trust after it discovered that the Treasury Department encashed vari jable to the University’s personnel and that several checks and a crossed che University Treasurer had been negotiated for encashment dire inagement's intention to merely have these checks transfer ints to another and the restriction indicated on the face of the a. What are the effects of crossing a The following are the effects of crossing a. The check may not be encashed but of OperationsCOMMERCIAL LAW. b. The check may be negotiated only once — to one who has an account with a bank: © The act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose, so that he must inquire if he has received the check pursuant to that purpose: otherwise, he is not a holder in due course (State Investment House v. IAC. GR. No. 72764, July 13, 1989). b. Determine whether the encashment of the crossed checks was proper. No, the encashment of the crossed checks was not proper. The crossing of a check means that the same may not be encashed, but only deposited in the bank. By encashing the crossed checks, Reyes put the funds covered thereby under the risk of being lost, stolen, co-mingled with other funds or a for other purposes (Wesleyan University of the Philippines v. Reyes, G.R. No, 208321, July 30, 14. X is the administrator of the estate of Y. In 2005, X sold a po 6 |. ABC. Inc. was the di Brokerage Inc. Z gave X P5,000 plus a check worth P400,000. However, X was not able to deliver ears after, X argued that the sale between him and Z was never consu the P400,000 check and that the 5,000 cast.was merely an fh the check for more than 10 years discharge the instrume! Yes, the checkisipresumed to 1 : BEDA, ol 40 years undoubtedly Granting that Xf 0 fc 16d, pursuant to Article juidiced by the creditor's ‘an undertaking of due resulted in the imal that the delivery of. 1249 of the Civil Cod (X's) unreasonable: diligence in presenti diligence, it will be held fo epera v, AU. Valencia and Col.inc., Gi rey filed by private respondent, X. ‘execution worth P50,000 fore the date of the auction Ex-Officio Sheriff P50,000 ed for the auction sale to obligation? a well-known and accepted Upon failure of the was issued, levying:o sale, petitioner depo: in Cashier's Check. practice in the business, been certified by the dra drawee bank and the funds-wa therefore, is certified by the is sufficiently funded in the for payment. Where a check, valent to acceptance. The br shall be equivalent to a delivery to the Builed to his account. The Cashier's Check and the cash are valid payment of the obligation f the peti 1e private respondent has no valid reason to atase the acceptance of the check and cash as full payment of the obligation (New Pacific Timber & ‘Supply Company, Inc. v. Senenss, G.R. No. L-41764, December 19, 1980) Bento bought a manager's check payable to the order of cash from Pork Bank. Orient Bank ‘Gverlooked that the account which Bento asked the bank to debit to pay for the manager's check ine siready closed. Bento used the check immediately to buy a watch. When the seller presented the manager's check for payment, it refused to pay him because Bento had no money any more with the bank. Is this correct? No. A manager's check is primary, absolute, and unconditional obligation of the bank which issued it. It cannot revoke for want of Consideration as a defense for refusing to pay for it (Security Bank and Trust Company v. Rizal Commercial Banking Corporation, G.R. 170987, January, San Bepa Couece oF Law 2017 Cewreauizen Bax OreRaTionsCOMMERCIAL LAW, INSURANCE LAW INSURABLE INTEREST 17, Explain the two general classes of life policies in rel The two general classes of life policies are: 4, Insurance upon one’s life — an insurance taken out by the insured upon his own life (INSURANCE CODE, Sec. 10(a)) for the benefit of himself, or of his estate or for the benefit of a third person 2. Insurance upon life of another ~ an insurance taken out by the insured upon the life of another }erson Inthe fst class, itis not necessary thatthe beneficiary designated inthe policy should have an insurable interest in the life of the insured. In the second class, the person applying for insurance on the life of another for the former's benefit must have an insurable interest in the life of that person. jion to insurable interest. On July 25, 2012, Rosa took a life insurance policy worth P250,000 from XYZ Insurance Corporation. She named Alberto, her friend since elementary and her neighbor for 18 years, as the beneficiary. Rosa also took insurance'oh the life Of Albettoywith herself (Rosa) as the beneficiary. Determine the liability of XYZ Insurance, Corporation under theltwo insurance policies taken by Rosa wt Ee Under the first ihgurance, XYZeInsurance Corporation will be Table-sipce it is validySec. 10 (a) of the Insurance Code-proyides that every person has|arrinsurable interest in the life,andyhealth of himself. It is not required thatthé beneficiary designated in the policy Shodldhave an interest\ig the life of the insured. In this case, Rosa.cag pame(AMerd af te Herdiciagy Inthe Mefhsyeigee takep by her even though the latter has no insurabl interest in the Tife of the former. A person may take out a policy of insurance in his own life and make itayable tg WHOMEVET He" pleases|linrespEetivelS! the begeficiary’s lack of insurable interest, provided hea faith (and without intent to make the transaction merely a cover for a forbidden wagering PN e, PRYZ Insutance Corporation is not liable. It is necessary that if a the |ffe of anther person, the fermer has an insurable interest in the \d insurdnes is void since Rosa:has nd insurable interest on the ci Ssh Sia . Explain insurable interest it insurance. 7 In property insurance N-insufable ‘hferest. im) thé property. Sec. 18 of the pot inpuraycg on proterty shall be onforceable except terest in the property insured.” Thus, an insurance rable interes} iS void. Moreover, Sec. 19 of the t must exi8t wheh ‘the insurance takes effect and when ith thé policy providing that the loss shall IS-security for the loan of P1,000,000. Later, a insure the same property? ‘The mortgagor of property, as the owner, has an insufable interest therein to the extent of i On the other hand, the mortgagee has an insurable interest in the mortgaged property to the ao the debt secured since the property is relied upon as secunty thereof. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged. This interest is separate and Gistinet from the other. Hence, insurance taken by one in his own name only and in his favor alone does not inure to the benefit of the other. In case both of th ut separate insurance policies on the same property, it is not to the obje i NSE pena 4 Tee Pete ea isurance (Geagonia v. CA, G.R. Determine who can recover the Insurance Jen, the mortgagee, can recovee the morigaged property to the & proceeds to the extent of her cred Jen shall hold itn trust for Pen, the me has an insurable interest in is entitled to the insurance to the excess of P500,000,4 ~~ COMMERCIAL LAW 21 jose entared into a contract of sale with Pepe whereby the former sold the latter office equipment, goods were inno that Pepe shall pay the price upon receipt of the goods. While in transit, the Yes. In the caraured by Jose. Does Jose have an insurable interest over the goods? already boon tapes, an unpaid seller retains insurable interest over the goods even if ownership had Wil be, dammifand 1724 to the vendee upon delivery. An unpaid seller has vendor's lien and therefore he - y the loss of the goods even after delivery (Gaisano Cagayan Inc. v. Insurance ‘ompany of North America, G.R. No. 147839, June 8, 2006) DESIGNATION OF BENEFICIARY 22. Can the insured change the beneficiary designated in the policy? pelos sal hare the right to change the beneficiary he designated in the policy, unless he has change the becchen rf aht in Said policy. Notwithstanding the foregoing, inthe event the insured does not ad iciary during his lifetime, the designation shall be deemed irrevocable (R.A. 10607, Sec. 88 such, the beneficiary acquires an absolute and vested interest to all benefits accruing to the Policy from the date of its issuance and delivery 11 cian iary has thus a property right in the policy of Which could not be deprived witnoutilsloss soot ae a Canada, BR. No. 23703, September 28, 192! o ee 4 a NY 4 ind. 3 Re 23. What is an Endowment Policy i, (We An endowment policy is one where th®ingbréhbinds mel Jlpay a fixed sum.tovfite insured if the latter survives for a SPs Period. of. if he dies. within such period, to some other person indicated (Lalican v. Insular Life Assurande Company Lit,.6.R-No-1 83526, Algukt 2652008). \ / xy 24, Jess procured a life’ the beneficiary. After. Corporation but the la confined at Heart Ce weeks before appli Yes, denial is proper intentional or unintentional 27). Each party to a col knowledge which are has no means of ascerta sd the! Philip in a plane crash. Stella filed.a ctaim with XYZ Insurance jn on the ground that Jess did riot disclose that he was 1es where he was diagnosed fo have a heart disease two ‘Was the denial by XYZ Insurarice Corporation proper? Ss to disclose conditions affecting the risk, whether idable at.the insuer's option (INSURANCE CODE, Sec. mmunicaté to the other,)in good faith, all facts within his. ihich he miakes no warranty, and which the other 28), / SteFlal and relevant tothe approval and issuance of he disegse he had failed to disclose to the insurer. Itis ing his eétimates of the risks of the proposed fact that Jess was diagnosed to have heart prial‘to-the issuance of the policy (Sun Life the insurance policy. The sufficient that his non-disoio insurance policy or in making disease should have been di damage caused by the Insured, any mémber of his family, or by a person in the Insured’s service. It turned out that the Insurer instructed her driver to bring the said vehicle to a nearby auto shop for tune up. However, her driver never returned and despite diligent efforts of finding the vehicle, the same could not be found. Is the Insurer liable? Yes, the Insurer is liable. Sec. 3 refers to the liability of the Insurer for loss of or damage to the vehicle in the enumerated cases which includes theft. The exception only pertains to any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service, The words “loss” and “damage” mean different things. The word “loss” refers to act or fact of losing,’while the word “damage” means deterioration or injury to property. The exception clearly refers tolmMalicious damage and does not contemplate loss of property. Theft perpetrated by the driver is policy (Alpha Insurance v. Castor, September 2, 2013). g SAK BeDA Coutece oF Law 2017 Centeauize Bar OPERATIONSCOMMERCIAL LAW. INCONTESTABILITY 26. What are the requisites of incontestability? 4, The policy isa life insurance policy; 2. Itis payable on the death of the insured; and 3. Ithas been in force during the lifetime of the insured for at least two years from its date of issue or of its last reinstatement. ber 5, 2013, Jane procured a life insurance policy from BBB Life Insurance Corporation _ denigrating Mateo. her nephew, as her beneficiary. On November 16, 2015, Jane died because of heart attack. Mateo filed a claim for the insurance proceeds but BBB Life Insurance Corporation Tefused to pay on the ground that Jane did not personally apply for the insurance coverage as she ‘was literate and that it was Mateo who filed the insurance application and designated himself as, the beneficiary. On the other hand, Mateo claimed that the insurer’s cause of action was barred by prescription pursuant to Sec. 48 of the Insurance Code. Decide. Mateo's claim is correct. An insurer is given two,years,from the effectivity of a life insurance contract and ‘while the insured is alive to provelitial 'pé policy is void @5itio,or is rescindable by reason of the fraudulent cogcealment or misr@presentat on of the insurer (fpsuranoe|Code, Art. 48). After the two-year period or whenifhesinsured dies)wathin the period: thé insuretmust make good on the-polioy even though it is obtained by-frgud,or conceslment (Manila Bankers Life Insuranee Corporation}, Aban, G.R. No, 175666, July 29, 2013) SAN BEDA In this case, for tw Years afd fad thon: BBELLite“inbbranbe Corporation| ojécted the premiums and devoted it to its own-benéfit. Thus, it cannot deny, the claim of Mateo, PREMIUM led to the payment of the premium? -Code, which embodies the “Cash and Canty Rule provides that: “An insurer is f)the premium as soon as the thing insured:is @xposed to the peril insured wy agfeement to the contrary, no policy or contigct of insurance issued by an and uuniess,and until'the premium thereof has been paid, except in the i never the graoe.period provision applies.” 28, When is an insurer Sec. 77 of the Insuraney entitled to the payrig against. Notwithstangin insurance company is case of alife or an ind 29. In what instances is t a. Ifo part of is interes . Where the insurancd) termination thereof, c. Ifa perl insured against insured is not entitled po 4. When the contract is Voitabia misrepresentation of the inSurdig the insured was ignorant of witho fraud, the insurer never incurred dry ab ip «. In.case of an over insurance (R.A. 10807) a return/of premium? be expdsedits any of the petiis insured against; [petiod of,fime “anid the ngUredsurrenders his policy before xoxisted, insurer has/been liable/for Any period, however short, the far agifiat particular risk is concerned; quently aninyléd~i) on account of the fraud or is agent; or (i)|9.abéount of facts, or the existence of which Gi) or when-by‘any'default of the insured other than actual EL the policy; and 30. The insurer gave notice that it was rescinding the policy due to concealment and simultaneous thereto, tendered refund of premium. Should compensatory interest be paid also? No, compensatory interest should not be paid. As a form of damages, compensatory interest is due only if the obligor is proven to have failed to comply with his obligation, Compensatory interest has no basis where simultaneous to its giving of notice to the insured that it was rescinding the policy due to concealment, the Insurer tendered the refund of premium by attaching to the said notice a check representing the amount of refund but which offer the insured refused to accept since they were seeking for the release of the proceeds of the policy, compensatory interest has no basis. There is no delay here r unjustified denial of the claim (Sun Life of Canada (Philippines), Inc. v. Si it 183272, October 15, 2014). § oe ve es a Bepa Coutzce oF Law 2ED Bar OPERATIONSae | COMMERCIAL | 31. AB Insurance Corp. issued a fire insurance policy in favor of Spouses Santos on their three-story residential building. The policy provides that the premium must be paid in full. Out of the total Premium of P50,000, only P15,000 was paid. After 3 months, the insured building was destroyed by fire. Two days later, Spouses Santos paid the balance of P35,000. On the same day, they filed a claim on the policy. Are the spouses entitled to the insurance proceeds? No, Spouses Santos are not entitled to recover the insurance proceeds. Where the premium has only been partially paid and the balance was only paid after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy (Spouses Tibay vs. CA, G.R. No. 119655, May 24, 2005). DOUBLE INSURANCE What are the requisites of double insurance? The person insured is the same; Two or more insurers insuring separately There is identity of subject matter; There is identity of interest i ‘There isidentity of risk or pl inst (Malayan Insuranéely. Philippine First insurance, G.R. No. 184300, July 11, 2012), , 32. eaege What is the “Pringiple of Contribs BEDA | states that where the-insured js over insured by. double inspira ach insuref is-bound, as between himself and the othefiinsurefs,-ta. cobtribute fatably dupe! ced inkioh mn fo the amount for which he is liable under his contract (Jd.). t 33. 34. Anna is the owner of a House which she insur the house to John to’secure a loan-of £4.59,00 . Corporation. Is there double insurance? No, double insurance’is.absent in this casa—The) insurable interest of theimortgagor and. the mo insurable interest of the fhortaador is orf the val | with Sun Insurance Corporation. She mortgaged isite of identity of interest insured is wanting. The are separate and distinct from each other. The property insured whife the insurable interest of A, G.R.No. 114427,February 6, 1995) the mortgagee is on the ainount ‘he said Shipment was insured by Cris ig the rice seeds sank before reaching but the latter refused to pay on the with XYZ Insurance Corporation. Manila. Cris filed a claim with XYZ ‘ground that partial damage was\not ct i@ subject matter is not essential to ind “Specie of the thing is destroyed go by the process of decomposition or other chemical agency no long J as before (Pan Malayan Insurance Corporation, G.R. 95070, SeptembeF §;4994}. 36. What is a co-insurance clause? s \ Co-insurance means the insured shall be paid only in the proportion that the amount of insurance purchased bears to the minimum amount of insurance that the contract requires the insured to carry. A co-insurance clause is always part of marine insurance. However, a co-insurance clause may likewise be inserted in a fire insurance policy. There will be no co-insurance without such express stipulation. 37. What is an All-Risk Policy? An All-Risk Policy insures against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy covers all losses during the voyage whether or not arising from a marine perl (New World International Development (Phils, inc. v. Nyk-Fiapan Shipping .Gorp., et al, GR. Nos. 171468/174241, August 24, 2011), 49 SAN BeDa Couzece oF Law 2017 Cewreauizzn Bar Oresations ~~COMMERCIAL LAW. CASUALTY INSURANCE 38. Define Casualty Insurance It refers to an insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance Such as fire or marine. It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance (R.A. 10607, Sec. 176). LIABILITY INSURANCE ). Explain the right of the injured person to sue the insurer of the party at fault Where the contract provides for third party liability, the third person to whom the insured is liable can sue directly the insurer upon the occurrence of the injury. The liability of the insurer attaches when the liability of the insured to the third party attaches (Shafer v. Judge, RTC, Olongapo City, G.R. No. L-78848, November 14, 1988). ped Cesar. The incident caused insurer for damages andior ce, ismiss the complaint, contending that the h coke May the insurer be held iable with Ruel? 2 Hy ly Yablowwi ha liability of the, insuger is based on contract Mile that of Rushie Based dtd bbe setter arly table’ with Ruel it-could be made to pay ‘more than the amout bich.wo gaia the ores undertying insurance Rue! and) is made to pay only up to lying Solidary obligations would be violated a } 1988). } ura t Itis a financial produ sithe os indpooe where a. 6 e¢,.0N daily basis, does not exceed workers in Metro Manila; and b. ‘of the current daily minimum . Explain the concept and. ‘Subrogation is the substit Tight, so that he who is substi Subrogation is designed to promote ant compel the ultimate payment of a debt , equity, and good conscience ought to pay The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies which the insured may have against the third party whose negligence of wronaful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or ‘upon payment by the insurance company of the insurance claim. It accrues. y | insurance company of the insurance claim (Asian Terminals, Inc. Corporation, G.R. No. 185964, June 16, 2014), s Is non-presentation of the insurance contract fatal to the claim of thei st proceeds of insurance? ‘AS a general rule, the marine insurance policy needs to be presented recover the value of the losdamaged cargo in the exercise of b basis of the insurer's right to subrogation. Nevertheless, evidence in reimbursement claims instituted by the insuret been executed between the insured and the insurer.a COMMERCIAL LAW. Thus, where the Certificate of Insurance and the Release of Claim presented as evidence sutfcieny, established the insurer's right to collect reimbursement as the subrogee of the consignee. To g ‘equire the presentation of the insurance contract will run counter to the principle of equity Upon which tg doctrine of subrogation is premised (ld). ' What is the no-fault clause and how does it operate? The injured third party or passenger or heirs of the deceased can file a claim for death or injury without the Necessity of proving fault or negligence of any kind, The following are the rules under the “no-fault indemnity” provision where proof of fault or negligence ig not necessary for payment of any claim for death or injury to a passenger or a third party: (1) A claim may be made against one motor vehicle only; (2) Ifthe victim is an occupant of a vehicle, the claim shall jig against the insurer of the vehicle in which he is riding, mounting, or dismounting from: (3) In any other case (\.. ifthe victim is not an occupant of a vehicle), the claim shall ie against the insurer of the directly offending vehicle; (4) In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shal be.mainiained (Perla Compania De Seguro, Inc. v. Ancheta, GR. No. L-49699, August 8, 1 PA YO the CAR Policies provides that if a claim is’in any respect F laration is made or used in support thereof; of if any fraudulent means or devices are used by theSibsured or anyone acting on his behalf to obtain any benefit under the policy; Of if-a claim is made and rejected and no action or suit is,¢ommenced within 12 months after such fejectian ocolh- dase of atitration taking place as provided herein, within 2 months after the arbitrators have made their award, all benefits under the policy shall be forfeited, When does the 12:month period commence? The prescriptive period for the ifsured's| ction for indemnity should be reckoged from the “final rejection” of the claim. “Final fejeetion” simply>mee nial by the insurer of the claims of the insured and not the tejection or denial by tho sur pf tne nstres's pation oF request for r@¢onsideration. The rejection referred to should be-ednstrued asthe fejéation in the first instance (H.H. Hollero Construction Ine. v. Government Service insurance System, |G.R. No. 152334, September 24; 2014), 45, ¢ 8 e 2 ‘s 9 S . Differentiate Carriage 4. Common carrier 2. Shipper |3. Consignee Delay in delivery, loss, destruction, or deterioration | Death or injury to the passengers | of the goods CMa From the time the goods are unconditionally placed | The duty of a common cartier to provide | in the possession of, and received by the carrier for | safety to its passengers so obligates it not | transportation until the same are delivered actualy | only during the course of the trip, but for so or constructively by the carrier to the consignee or |iong as the passengers are within its to the person who has the right to receive them | premises and where they ought to be in| (Art. 1736) Pursuance to the of carriage (LRTA v. Navidad, 2003) Saw Bepa Counce or Law 122017 Cewteauzeo Bar OrexamionsCOMMERCIAL LAW. Ce once ee ao Cee Cod Art.1735 Civil Code | Art.1755 Civil Code 1. Exercise of extraordinary diligence (Art 1756) 2. Caso fortuito 1. Ordinary circumstance: Exercise of extraordinary diligence (Art. 1735) 2. Special circumstances: a. Flood, storm, earthquake, lighting, or other natural disaster or calamity (plus force majeure) b. Act of the public enemy in war, whether international or civil Act or omission of the shippema f goods diligence, proviea a. Inwrting, ig b. Supported bya v | other than Sie servi | carriers; and c. Reasonable circumstances antl agreed upon. (Art. 7756) 3. Limited liability for delay agre the common carriet’s~We account of strikes or rit 4. Stipulation limiting liabil goods appearing in the bill 6 shipper or owner deciares a gi 1749) En “1. That the goods are transported at the risk of the ‘owner or shipper; 2. That carrier will not be liable for any loss, destruction, or deterioration of the goods; 3. That the carrier need not observe any diligence in the custody of the goods; 4. That the carrier shall exercise a degree of diligence less than that of a good father of a family over the movable transported; 5. That the carrier shall not be responsible for the acts or omissions of his or its employees; Pus jations ‘Stipulation lin is carried itously, put-not for willful acts 4758) Dispensing with or lessening — the | extraordinary responsibility of a common | carrier for the safely of passengers imposed by law by stipulation, by posting of notices, by | statements on tickets or otnerwise. (Art, 1757),a ee daca ae cay 6. That the carriers liability for acts committed by thieves or robbers who do not act with grave or | irresistible threat, violence, or force is dispensed with or diminished; 7. That the carrier is not responsible for the loss, | | destruction, or deterioration of the goods on account of the defective condition of the car, vehicle, ship, or other equipment used in the | | contract of carriage (Art. 1745). (OMMON CARRIERS 47. Distinguish a common carrier from a private carrier. Common carriers are engaged jn.theybust “Canryiig:Oritransporting passengers, goods, or both by land, water,.or air, for compensé No. 186312, Jupe 29, 2010) ir services to the public. (Cruz v. Sun Holidays, inc., G.R. A private carrierisioné which, wihoutpy jaged in: Shepainess of carrying as, public employment, undertakes to Geliver_goods or pi AN ‘compensation (Home Insurance Co. v. American Steamship Agenoy.-@/R. No{L:25399, Appr 3968). | AVY id'a “private oF special garrier’ lies in the character le transaction, not’part of a general business or for a fee, the person or corporation offering the The distinction betweeh-a,"comifisit OF PUBIC Cath of the business, such that if tHe underfaking is occupation, although inyolving the gatriage of t service is a private carrier (Planters Prods dnc. 48. Rex operates a beach resort. Iq connection with this business, he has boats which ferry resort guests and crew members. Is Rex a common carrier? Yes, Rex is a commotveartier. The deflation o no distinction between. one whose [pringipal Bu and one who does sich Carrying only as at services are so intertwinad With it constancy of Rex's ferry the tour packages it offe to pay the same. These fee or fare for its ferry sé services at a loss. The Co iy is the carrying of persons or goods or both, ivity (ia local idiom; as “a sideline’). Its ferry erly considered ancillary thereto. The scored by its having its own boats. And be availed of by anyone who can afford hat Rex does not charge a separate dent to’ suppose that it provides said perators offering tour packages to frat guests who opt not to avail of ear ential. These guests may only be deemed to have overpaid (Spouses Ewan No. 186312, June 29, 2012). 49. Moshi is a junk dealer. He buys scraj athbrings those that he gathers to Bulacan for resale using 2 six-wheeler trucks. O! Tarlac, he would load his vehicles with ‘cargos which various merchants wanted delivered, charging fee lower than the commercial rates. Chuchi contracted with Moshi for the delivery of 300 cans of Mishi Sardines. Only 150 cans were delivered as the vehicle was hijacked. Chuchi then sued Moshi for the value of the lost merchandise, contending that Moshi was bound to exercise extraordinary diligence being a ‘common carrier. Moshi denied being a common carrier. ls Moshi a common carrie! Yes, Moshi-Moshi is a common carrier. Article 1732 makes no distinction ‘one whose principal business activity is the carrying of persons or goods or both, and one who d carrying only as an ancillary activity. Article 1732 also avoids making any distinction b yr enterprise offering transportation service on a regular or scheduled basis and one ‘on an occasional, episodic, or unscheduled basis. Neither does Article 1732 dis cartier offering its services to the "general public,” ie., the general community offers services of solicits business only from a narrow segment of the ger CA. GR. No. L- 47822, December 22, 1988). 14 SAN Bea Coutece oF Law 2017 Cenrrauizen Bar OperationsCOMMERCIAL LAW. 50, Momshie is a school bus operator who only offers her services to students of a particular school. Is she a common carrier? Yes, Momshie is a common carrier. Operators of a school bus service are: (a) engaged in transporting passengers generally as a business, not just as a casual occupation; (b) undertaking to carry passengers over established roads by the method by which the business was conducted; and (c) transporting students for a fee. Despite catering to a limited clientéle, Momshie operated as a common carrier because she held himself out as a ready transportation indiscriminately to the students of a particular schoo! living within or near where they operated the service and for a fee (Perefia vs. Zarate, G.R. No. 157917 August 29, 2012) 51. Discuss the two types of Charter Party. a. Contract of Affreightment which involves the use of shipping space leased by the owner in part or as @ whole, to carry goods for others: Time charter — leased for a fixed period of time; and Voyage ~‘for a single voyage. b. Charter by Demise or Bareboat ~ by the terms of which the whole vessel is let to the charterer which transfers to him its entire command. andspossession.2nd consequent control over its navigation, including the master and cr ra his servants. The 4 is treated as owner pro hac vice of the vessel. Ip such case, a catfier becomes 2 1 (Planters Products, Inc. v. CA, GR. Nof0 7593, Septemb| a lO Y 4 — A\y . Would a voyage-dharter convert théofiinion cdreiérifitd Alprivate carrier? No, a voyage-charta wil not conved the common.carfigr into a private,carrier.\is-only when the charter includes both the vessel anduts ittdbarehoat or \femisa/thata\eomigy carrier becomes private, at least insofar as the\paifticular yoyage covering the charter-party is concesned--Indubitably, a shipowner ina time or voyage charter refBins possession and controll of the ship, altfigugi her hold may, for the moment, be the properly-6f the bharterer (Loadstar Shipping v. Pioneer Asiayiasurance, G.R. No, 157481, January 24, 2006). 5 ree j ’ ¥ However, if despite thie e Charter by the parties, théiragigement reflected that their intention was to entétigto A bal iarter agreement, then the common carrier becomes private. In determining the natute dfa\contfact, cobs are riot bound by the file of ngme’ given by the parties. The decisive factor is the jnnat necessarily by the terminology used in the contract but by their ¢ deedsyprior to, during and-immediately after executing j ¥ 4ounet off motor vehicle is directly and n segardle’sOf-Wwho the actual vehicle owner might be. Well-settied is the vehigl# 1s Rable for quasi-delicts resulting from its use. Thus, even ifthe Ve Bld, \easadyor transferred to another person at the time the vehicle figured i ile S¥inet would stil be liable for damages caused by the accident (FEI fb yeSps- Baylon, G.R. No.181398, June 29, 2011) |. Jose was driving his car. Upon reach n, Jose stopped his car. When the signal light turned green, he proceeded to ion. He was already in the middle of the intersection when another car suddenly hit and bumped his car. As a result of the impact, Jose's car turned clockwise. The other car escaped from the scene of the incident, but Jose was able to note its plate number. After verifying with the Land Transportation Office, Jose learned that the owner of the other car is Filcar Transport Services. Filcar argued that while it is the registered owner of the car that hit and bumped Jose's car, the car was assigned to its Corporate Secretary. r further stated that when the incident happened, the car was being driven by its Corporate Secretary's personal driver. a. Is Filcar liable? Yes, Filcaris liable. It is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in relation to Article 2180, of the Civil Code. In ‘contemplation of law, the owner/operator of record is the employer of er, the actual operator and employer being considered as merely its agent. Whether ‘employer-employee ‘Gousce oF Law Bar Oreranions 1°oo | ie | relationship between the registered owner and the driver is immaterial in determining ti Fabiity of the registered owner who the law holds primarily and directly responsible for any accident, injury, o- death caused by the operation of the vehicle in the streets and highways, b. What is the recourse of Filcar? Under the civil law principle of unjust enrichment, the registered owner of the motor vehicle has a right to be indemnified by the actual employer of the driver of the amount that he may be required to pay as damages for the injury caused to another (Filcar Transport Services v. Espinas, G.R. No. 174155 June 20, 2012) 55. Explain the Kabit System? {tis an arrangement whereby a person who has been granted a certifcate of convenience allows another Person who owns motor vehicles to operate under such franchise for a fee. Although not out rightly Penalized as a criminal offense, the "kabit system is invariably recognized as being contrary to public Policy and, therefore, void and inexistent under Article 1409 of the Civil Code. Its a fundamental principle that the court wil not aid either party to enforce an illegal contract, but will leave them both where it finds them (Lita Enterprises, inc. v. Second Ciy Casas Division, [AC G.R. No.L-64699, April 27, 1984). 56, Jam purchased. a passenger {om Jot, holder, ofa earificate of public convenience for the operation of public utility ‘plying the Monumento-Bulacan route. While-Jam continued offering the jeepney. for public transport services, he did not have the registration of the vehicle fransferred in his name nor did hé-gecyre for himself a certificate of pyblicreonvenience for its operation. Thus, Jen remained on, record. as its registered owner and operator. The jeepney collided with the-car owned by Jubis, Cal and Jem negate liability with respect to damages arising from the uselof the jeepney? No, Jam and Jem cannot negate liability in this Gase. For the safety of passengers and the public who may have been wronged and Yeceived through the baneful kabit system, the registered owner of the vehicle is not allowed to’ prove thabanbthespersin has become the owner So that he may be thereby relieved of responsibility. Both parties in the kabit system are held liable!unless: First, neither of the Parties to the pernicious kabit system is being h negligence of another vehicle injusing the public, a8 regards the ownership and Qperation of the representation, or misce 0 Was. ne inconvenienced at the 2002) : liable for damages. Seopnid, the case arose from the d, the icing public was neither bothered nor t (Limyv. CAG-R. No. 125817, January 16, aerated Crees ees Cod akaamnea eo eC) (Culpa Criminan) ean Only the carrier is liable and not the Who es fein ble as joint liable. The cartier is because there is no pfivity Subsidiarly liable only if) between the driver and the |the ‘driver is convicted | passenger. | and declared insolvent. ‘Art.1759, NCC Art. 2180, NCC Art. 100, RPC. | No defense of due diligence in | Defense of due diligence | the selection and supervision of| in the selection” and employees. supervision of emp is available, Exception: resulting ji Cone Tey econ (Fabre v. Court of Appeals, G.R. No. 111727, Jul ee San Bepa Coutece oF Law 16. 2017 Cenrrauzeo Ban OrexationsCOMMERCIAL LAW. 458. What are the liabilities of common carriers for acts of its employees and of other passengers or strangers? on ei Pre de OMe rue ued | Extraordinary diligence Ordinary diligence Tort; however, the employee must be on | Not absolute; limited by Art. 1763 duty at the time of the act (Maranan v.|Note: The carrier is liable when its personnel Perez, G.R. No. L-22272, June 26, 1967). allowed a passenger to drive the vehicle causing it | to collide with another vehicle resulting to the injuries suffered by the other passengers (MRR v. BallesterosnG,B, No. L-19161, Apri 29, 1966) (LRTAv. Navidad, GR. No. c= 206) >, Gh 59, Mamerta, on board Momay rensport's bus, was hit above her eye by a stone hurled by an unidentified bystander. Momay's personnel lost-no>time in bringing, heryto.’a hospital, but eventually Mamerta partially lost her left eye's vision and sustained a permanent scar. Thus, Mamerta lodged-aniaction fot eevee of damages againgt Momiay Transport: Is Momay Transport liable or the injuries sustained by Mamerta? ¥ No, Momay Transportlis not ligBfe for Mamnerta’s injuries!’ WHil6"thiéllaw requires the highest degree of diligence from common carrier§ in the safe transport of their passengers: anid creates a presumption of negligence against them it dods nat, however, make the carrier an insurer{of the absolute safety of its passengers. The negligerice fowhich a common carrier is held responsible/for is the negligent omission by the carrier's employges t the tort from being commitied wheq the same could have been foreseen and prevented fapily. CA, G.R. No. 62159, rrr 1989). 60. What is the implicat to the defense of exercise Pursuant to Article 2185. extraordinary diligence, incumbent upon the ci diligence? there drisés'a presumption that'a carrier failed to exercise ap; he was violaling any/fraffic regulation. It is therefore 4 the contrary (Markie Adto Line Transport Corp. v. ted violation of traffic rules see with respect } 61. Define transshipment? Transshipment, in maritime k another,” or "the transfer of go vessel before the place of destinatior(naine taking:Cargo out of one ship and loading it in ated i re normally treated as distinct from the tion is adjudged liable, these persons, id Olbes v. BF Corporation, G.R. No, When corporate veil is pierced, the corporation and persons who at ‘corporation are treated as one person, such that when the corporat too, become liable as if they were the corporation (Lanuza, Jr. ant 174938, October 1, 2014). igations to the CIR but this was rejected by 70. Ola, Inc. offered a compromise agreement on its tax obli oi Olo, Inc. on the ground that Ola, Inc. and the latter. A demand to pay was made to Ola, Inc. and lo, Inc. had interlocking directors and Ola, inc. was manifested to be 100% owned by Olo, Inc. The demand remain unheeded, hence, a final demand was made, with a warning that the Bureau of Customs would not issue any clearance to Olo, Inc. from the National Power Corporation unless lo, Inc.'s tax liability be first paid and a performance bond be posted by Ola, Inc. or Olo, Inc. to secure the payment of any adjustments of the liabilities. This thus shifted the imposition of the liability from Ola, Inc. to Olo, Inc. prompting the latter to formally protest the assessment on the ground that it was not the party liable for the assessed deficiency taxes. Will the doctrine of Piercing the veil of corporate entity apply here? No, the doctrine of piercing the veil is not that Olo, iné had Bash set up to avoid the payment of publ convenience, justify wrong, protect fraud, defend ‘crime, confuSe-legiimate legal 6F judicial issues, perpetrate deception or otherwise,tcumvent the law. The Commissiopehof Customs sous the Uefidenoytaxes and duties from Ola, Inc. and it was only'when Ola, Inic-"offered a.compromise whed the CIR sent the demand lettertorboth Ola, Inc. and Olo, Inc, The failure of tie CIR fp n heltehanles agaist Olo/tcsffam the oliset manifested tht its belated pursuit of Oi8,1c. was. only an_afterthought (Commissioner of Custgms v. Oilink Intemational Corporation GR. NAEHSD Sv? 2079, ‘The Commissioner of Customs| taxes or duties.or for purposes veil based on the alter ego theory? 71. What are the eleménts,for piefeing-the corpora It requires the concurrelice of thfpe elements) a a. Control of finances/ipdlcy, gnd-business)or corporate entity 4$ b. Such control must violation of statu plainti's legal rights ©. Such control and b (WPM International September 17, ORY “in respect to the traasaction attacked so that the jtime no separate mind, will.or existence of its own; ve bet gadant to commit fraud! or wrong to perpetuate the duly of-dishonest and unjust act in contravention of ‘Gaused the injdry of unjust loss complained of la Ne Fe Corazon Labayen, G.R. No. 182770, 4,45) Aig C ns jah of the country under whose laws it 5123), 73. What is the control test? e ae Under the liberal rule or the control test, sfarés belongid@fo corporations or partnerships at least 60% of the capital of which is owned by Filipino Cfizens shall be bénsidered as of Philippine nationality, but if the percentage of Flipino ownership in the corporation or partnership is less than 60%, only the number of Shares corresponding to such percentage shall be counted as of Philippine nationality (Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines Corporation, G.R. No. 195580, April 21, 2014). 74, Narra Nickel had a Mineral Production Sharing Agreement with the DENR. Redmont Consolidated filed a petition of the cancellation of the agreement. Alleging that 60% of Narra Nickel is owned by MBIMI, a 100% Canadian Corporation and therefore disqualified from engaging in activities in the agreement. Narra Nickel claims that 60% of their capital is owned by the citizens of the Philippines under the control test. a. What is the Grandfather Rule and when does it apply? Under the strict rule or grandfather rule proper, if the percentage of the Filipino ownership in the ‘corporation or partnership is less than 60%, only the ssponding to such San Bena Coutece oF Law 20 2017 CenmeauizeD Bax OperationsCOMMERCIAL LAW. Percentage shall be counted as Philippine nationality. Thus, the combined totals in the investing corporation and the investee corporation must be traced, ie., “grandfathered”, to determine the total percentage of Filipino ownership. The ultimate Filipino ownership of the shares must first be traced to the level of the investing corporation and added to the shares directly owned in the investee corporation. ‘The Grandfather Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt, ¢.9., in cases where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino stockholdings invests in other joint venture corporation which is either 60-40% Filipino-alien or the 58% less Filipino. Thus, where the 60-40 Filipino-foreign equity ownership is not in doubt, the Grandfather Rule will not apply (i). b. When is there doubt in the 60-40 equity ownership for the Grandfather Rule to apply? ‘a. That the foreign investors provide practically all the funds for the joint investment undertaken by these Filipino businessmen and their foreign partner, b. That the foreign investors unde, provid venture; and ¢.Thakthe foreign invest sally all the technological support for the joint fianage the company and prepare all e ic viability st AZ < ‘ 1 = yz c. Is Narra Nickéla foreign corporatioh féhinvestinent purposes? 7 Yes, Nerane se RRSPTEGE OF LAW pfs in-the.case.alsbat,60%insthe,equity.ohNarra Nickel is owned by ‘orporation. Hence, Narra Nickel is 4 foreig joration for investment shares is considered foreign owned (/.) ea) of the DENR have jurisdiction t@ rule on the nationality of tion Sharing Agreement (MPSA)? original jurisdiction over any and al dispiites involving rights to mining SA application fo which an adverse clair, protest, or opposition is filed purposes because’ 75, Does the Panel applications for Minera} Prod Yes. The POA has éxcitisive ar areas. One such disputeis’an by another interested t and unlawiul-détainer =) is applicable here. The jurisdiction of lication regardirig ownership of the:eal-property involved is allowed, jetetminative issue of Matgrial possession (.) ‘The same approach used in ejectt the MTCs to make a pfetiminary a but only for purposes of rling¢n th 5) CORPORATE POWER: Ay) Ff / Wy uthofity, b> fits oFTCBFS or any olheaXient, to act within the scope of an ublic as possessing.ttle-power to do those acts; and thus, the failh,dsalt-withrif through such agent, be estopped from tion.Io. v°CA, G.R. No 126006, January 29, 2004) 76. Explain the Doctrine of App: If a corporation knowingly per apparent authority, it holds hin corporation will, as against anyon denying the agent's authority (Lapu-fapa F 77. Tin was a former President of ATC, wile Tuy is an incumbent Treasurer of ATC. They represented ATC when dealing with XP for about 14 years. Upon their representation, ATC obtained three loans from XP and issued checks as payment. However, these checks were dishonored, Thus, XP filed a complaint for collection of sum of money ATC. However, ATC contended: a) that these were the personal obligations of Tin and Tuy to XP; and b) that the loan transactions were ultra vires because the board of directors of ATC did not issue a board resolution authorizing Tin and Tuy to obtain the loans from XP. Is ATC liable for the loans obtained by Tin and Tuy? Yes, ATC is liable for the loans obtained by Tin and Tuy. The doctrine of apparent authority provides that a corporation will be estopped from denying the agent's authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him out to the public as possessing the power to do those acts. San Brpa Course oF Law 2017 Cenrrauizen Bar Oreearions | (22COMMERCIAL LAW, ATC bestowed upon Tin and Tuy broad powers by allowing them to transact with thie persone witout the necessary written authonty from its non-performing board of directors. ATC falled to take precautions to prevent ils own corporate officers from abusing ther powers. Hence, due to its own faxily in te business dealings, ATC is now estopped from denying Tin and Tuy's authority to obtain loan from XP. ATC is therefore liable for the loans (Advance Paper Corporation v. Arma Traders Corporation, G.R. No. 176897, December 11, 2013) 78. What is required before a corporation can acquire its own shares? A corporation can purchase its own shares, provided payment is ‘made out of surplus profits and the acquisition is for a legitimate corporate purpose. In the Philippines, this new rule is embodied in Section 41 of the Corporation Code (Turer vs. Lorenzo Shipping Corporation, 636 SCRA 13, G.R. No. 157479, November 24, 2010). 79. What are the requirements for the corporation to declare dividends? a. Unrestricted retained earings; b. Resolution of the board; and . ©. Concurrence of 2/3 of the ng capita if Sloc@vidends are declared) or majority of the members of the board of dit dividends are-cieclated) (CORPORATION CODE, Sec. 43), ‘80. What can be included in unrestricted retained earnings? Unrestricted retained earnings shall ofly jig\Jte aboumulated Profits and gains realized out of the normal and continuous operations of the company after deducting ther Vaca ‘of stockholders and transfers to capital StQck or othet. aéGounts—and whichis? A a. Not appropriated-by ils Board of Directors for corporate expansion projects OF programs; b. Not covered by.a restriction for dividgnd declaration under a loan agreement, and c. Not required to befetained|under special circumstances obtaining in the, corporation such as when there is a need for'e special regen for probable contingencies (SEG Memorandum Circular No. 11, Series of 2008). 1) | / ULTRA VIRES ACTS i 81, What are the types of ultra vire a. Acts done beyond thd powers b. Acts or contracts éntered into ion as provided infhe law r ifs articles of incorporation; rporation by pefsons vile bave no corporate authority; jing contrary tlaw. and i c. Acts or contracts which ara per 82. Distinguish illegal acts from dltra vi ' illegal acts contemplate thase contrary Jrals, or public policy oF piblic duty, and are void. They cannot serve as basis of a.couttaction no validity by performance, ratification, or estoppel. While ultra vires acts, on the other Ranghlaténgt me in the scope of the articles of incorporation, and are merely voidable and may becomesbinding and enforceable when ratified by the stockholders (Bernas v. Cinco, G.R. No. 163356-57, July 83. Discuss the Trust Fund Doctrine. The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors, who fare preferred in the distribution of corporate assets. The creditors of a corporation have the right to assume that the board of directors will not use the assets of the corporation to purchase its own stock for as long as the corporation has outstanding debts and liabilities. There can be no distribution of assets ‘among the stockholders without first paying corporate debts. Thus, any disposition of corporate funds and assets to the prejudice of creditors is null and void (Tumer vs. Lorenzo Shipping Corporation, G.R. No. 157479, November 24, 2010). ‘San Broa Course oF Law 22 2017 Cewreauize Bax OpErations> 7 COMMERCIAL LAW ag 84, In 2006, Happy Life was incorporated. One of its incorporators, Yap, subscribed to 300 shares for a total value of P30,000.00, with a par value of P100 per share. In 2011, Happy Life became insolvent. As assignee in bankruptcy of Happy Life, MT Co. commenced an action against Yap to recover one-half of its unpaid stock subscription in Happy Life. For his part, Yap contended that on one of the stockholders’ meeting of Happy Life, a resolution was adopted to the effect that the stockholders’ capital should be reduced by 50%, and that the subscribers were released from the obligation to pay any unpaid balance of their subscription in excess of 50% of the same. Is Yap liable for the unpaid balance of his subscription? Yes, Yap is liable for the unpaid balance of his subscription. It is an established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. A corporation has no power to release an original subscriber to its capital stock from the obligation of paying his shares, in whole or in part, without a valuable consideration for such release, or fraudulently, to the prejudice of creditors. A reduction of the,capital,stock can take place only in the manner and under the conditions prescribed by thesstatf or ihe charter or the @ifieles,of incorporation (Philippine Trust Co. v. Rivera, eR. No. 19761, January 29, 1923). “The ereditoy Ys allowed to maintain an action upon any unpaid subscrigtions and ther ps into the shoes ofthe corporation for the satisfaction of its debt (Halley v. Prinfwell, Igc., G.R. No. 157549, May 30, 2011). The prevailing rule j8 Naf a stockholder is personal libleday he fnncialobigetis the Giratina the extent of hs ube subseiption \. C Ceodnb oF bineéTors /TRistées 7 85. Discuss the Doctrine} Centiplized Managemeltil ll Under the Doctrine of Genitralized Management, al Businesses of the corporalionyshall be conducted and Controlled and.held-by the Board of Directors or Trustees. A corporation can act c 3 (Tan v, Sycip, GR. No, 153468, August 17, 2006). 86, Poy, the President ofA January 27, 2003 due 1 is removal from his 5-year term asy amended By-Laws pro Was Poy validly rem: that-he,was,felieved as President without valid grounds despite Board of Trustees of AUP, fiowever, contend that AUP's smbers of the-Board of-Tyustees shall hold office for two years. President of AUP? j as President of AUP: Secl 106 6 the Gérporation Code provides in part that unless otherwise BOvided in the articles of incatparatiog or the\by-laws, the board of trustees of proviso expressly subjecting to whatts"6therwise \plovided’in the articles of incorporation or by-laws of the educational cor fiat contrary proyision.ephtrolS on the term of office. President of AUP on January 23, 2001, could serve for only two years, or until January 22, 2003. Bythetime of hig removal for cause as President on January 27, 2003, he was already occupying the o a hold-over'capacity, and could be removed at any time, without cause, upon the election or appointment of his successor. His insistence on holding on to the office was untenable, therefore, and with more reason when one considers that his removal was due to the loss of confidence on the part of the Board of Trustee (Barayuga vs. Adventist University of the Philippines, 655 SCRA 640, G.R. No. 168008 August 17, 2011). BUSINESS JUDGMENT RULE 87. Discuss the Business Judgment Rule. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the corporation, and so long as it acts in good faith ts orders are not reviewable by the courts (Cua Jr. v. Tan, G.R. No. 181455-56, December 4, 2009). Ineluctably, the petitioner, having asa San Broa Couuece.oF Law) 2017 Gewtrauszen Bar Oreranions 79.oe | 88. A Pre-Subscription Agreement (PSA) was entered into between Ong and Tiu for an equal shareholding in FLADC. A few years thereafter, Tiu rescinded the PSA due to refusal of FLADC to comply with an undertaking. The SEC confirmed the rescission of the PSA. Tiu now claims that rescission of the agreement will not result in an unauthorized liquidation of the corporation because the case is actually a petition to decrease capital stock. Hence, it does not violate the liquidation procedures under our laws. All that needs to be done, according to him, is for the Court to order (1) FLADC to file with the SEC a petition to issue a certificate of decrease of capital stock and (2) the SEC to approve said decrease. Can the Court compel FLADC to file before the SEC a petition for the issuance of a certificate of decrease of stock? No, the Court cannot compel FLADC to file before the SEC a petition for the issuance of a certificate of decrease of stock. A judicial order to decrease capital stock without the assent of FLADC’s directors and stockholders is a violation of the "business judgment rule” which states that contracts intra vires entered into by the board of directors are binding upon the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to \wanton destruction to the rights of the minority Decreasing @.corporation's aut tal stock is an arefidment ofthe Articles of Incorporation. Its, a decision thatianly the stock the directors canemake, Tiu is actually not just asking for a review of thé-tedality,and fairness of a corporate decision. He ants the Court to-tfiake a corporate decision for FLADE, It is an impropefugibial intrusion into) tha, internal affairsyof the corporation. Hence the court should~decline to_order the decrease of capital, stock not voluntarily agreed upon by its stockholders and directors (Ong! Yong V._Tiu, G.R-No! 144976, Apri 8, 2603) DEALINGS OF DIRECTORS, TRUSTEES, OR OFFICERS WITH THE CORPORATION 89. What are the fiduciary duties Of diregfogs-or trustees? a. Duty of Obedience,|as embodied in| Seo, 25, states that the directors. of trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation: b. Duty of Diligence, ag-embodied in Sec. 31, states that directors or tcustees who are guilty of gross negligence or bad faith in directing the affairs of the corporation shall be iable jointly and severally for all damages resuliing therefromesufleredsby the corporation, its stockholders or members, and other persons; and ae ©. Duty of Loyalty, ‘as embodied | (interlocking directors), and 34 the director owes Yoyalty,and Development Corporation v. Rad (conflict ‘of interest), 32. elf-dealing directors), 33. ‘corporate business opportunity), essentially states that the corporation, a loyalty’ that is undivided (Alliance es Limited, 607 SCRA'413;December 4, 2009). 90. State the instances involviniy Solidar a. The director or trustee wilihilly and kr f directorsitrustees and officers of the corporation. voted-for or assented to a patently unlawful corporate act; SY) b. The director or trustee was gd 8S negligence or bad faith in directing corporate affairs c. The director or trustee acquired petSonalsofsp yp Interest in conflict with his or her duties as director or trustee (CORPORATION CODE, RSE d. The director or officer has consent ‘the issuance.of watered stocks or who, having knowledge thereof, did not forthwith file with the his written objection thereto; e. The director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; and {. The director. trustee, or officer is made, by specific provision of law, personally liable for his corporate action (Lanuza v. BF Corporation, G.R. No. 174938, October 1, 2014). 91. T and X Corp. thru its President, Z, entered into a dealership agreement whereby T was obligated to act as the exclusive dealer andior distributor of X Corp. of its cement products in the entire Mindanao area for a term of 5 years. T shall pay X Corp. P9.70 per bag of white cement. T was a member of the Board of Directors and Auditor of X Corp. The Board wanted to amend the agreement which includes the increase of the selling price per bag to P13.30 and the decrease of the total amount of cement bags from 20,000 to 8,000 only plus the contract shalll only be effective for a period of three months and not 6 years. T refused the counter-offer. X Corp.then awarded the contract to someone else. Is the dealership agreement with T valid? San Bepa Coutece oF Law 2017 Cenrrauizep Bar OPErarions j 2492. 93. 94. COMMERCIAL LAW No, the dealership agreement is invalid. According to Sec. 32 of the Corporation Code, a director's contract with his corporation is not in all instances void of voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. However, in the case at bar, the dealership agreement entered into by T was neither fair nor reasonable. T must have known of at least must be presumed to know that at that time, prices of commodities in general, and white cement in particular, were not stable and were expected to rise. Despite this, no provision was made to allow for an increase in price mutually acceptable to the partis. Instead, the price twas pegged at P9.70 per bag for the whole five years of the contract. Faimess on his part as a director of the corporation, from whom he was to buy the cement, would require such a provision (Prime White ‘Cement v. JAC, G.R. No, L-68555, March 19, 1993). APPRAISAL RIGHT Explain the right of appraisal and when itm ‘A stockholder who dissents fr oon value of his ec her shares. This mas the CorporationiCode. 5 a 4 ‘The right of appraisal, may be eXercised when there is a fundamentaffehange in the,hérer or articles of incorporation substantially prejudicing fights of|the|sigckhdlders. It does notyest-uniess ‘objectionable corporate action is taken. IL.s 2, purpose of enabling the dissenting. Sfockholder to have his interests purchased and ‘ogi 1 Corporation) (Tummer/ve. \Lorenzd Stiioping Corporation, 636 SORA 13, GR. No- 487479 Novembes 24,2010), SC | | PRE-EMPTIVE RIGHT ; | What are the exceptions to the exercise of the stockholder’s pre-emptive right? i ar{¢les of ineorporation or an amendment thereto; tive rights to|the issuance: of shares ffom, the capital stock of the i to demand payment of the fair ‘éxpressly recognized in Sec. 81 of i. Issued in cofng sequiring stock offerings or minimum stock ownership by the public; e Be | ji, Issued: in. go oval Of the ‘stockholders reprasénting 2/3 of the outstanding capital stock, ro needed for corporate putpases: or iii, Issued in goodYel jal of the-stackholders reptesenting 2/3 of the outstanding capital stock, it fiously contdoted debt (CORRQRATION CODE, Sec. 39). k (ACS) of P200,000/divided into 20,000 shares. The ibscribéd and fully paid for. The ACS was increased yP110,980 worth-of shares was issued by the on of the authorized capital stock of P200,000. T, a P110,980-edpital stock was made in violation of his The corporation had an 200,000 ACS was offere from P200,000 to P1,00 pre-emptive right. Decide. The issuance of P110,980 capital stock wéStot a violation of T's pre-emptive right. ‘The general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later re-offered, he cannot therefore claim a dilution of interest. In the case at bar, the P110,980 worth of shares were issued by the corporation from the unissued portion of the authorized capital stock of P200,000.00. The subject shares were already offered but were left unsubscribed. The subsequent offer and sale of the same is not covered by the rule on pre-emptive rights (Benito v. SEC, G.R. No, L-56655, July 25, 1983). Saw Bepa Couece oF Law O17 Cenreauizen Bar Orerarions 25BF conmencin. ila DERIVATIVE SUIT A derivative suit is one filed by the stockholder on behalf of a corporation when the acts complained of Constitute @ wrong to the corporation itself committed by the directors or trustees themselves, g stockholder, or member. Thus, an individual stockholder is permitted to institute @ derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation, 'n such actions, the suing stockholder is regarded as the nominal party, with the corporation as the party in interest (Ching v, Subic Bay Golf and Country Club, Inc., G.R. No, 174353, September 10, 2014). 96. In 2010 stockholders meeting of GV Corp., 8 directors were elected and assumed their posts, ince no stockholders’ meeting was held in 2011, the 8 directors served in a holdover capacity. In 2012, Director A and B resigned from the board. Relying on Sec. 29 of the Corporation Code, the femaining 6 directors elected 2 new directors to fill in the vacancy. Stockholder X questioned the election, initially, through a letter-complaint addressed to the board (but went unheeded), and later through a deri filing Of derivative suit proper? Yes, the derivative suit is propel Jwith the requisites for a/derivative suit, viz time the acts ortransactions subject of the-actions occurred and at the ti the action was file b. He exerted allteasonable ‘store Saf Aubbés thd Eamedwith particulanty ir the'Corhplaint, to exhaust, all remedies avaiable ridersthe arilesof-incorppretipn, ayyiawg, law8>)t fules governing the Corporation of pattriership-tovobtainthe-reliet he desites, —/-- VV ©. No appraisal rightare avaijable-ortheaat.or acis complained of, and d. The suit is not a:ndjisénce of harassment suit (Rule 8, Seo. 1 of the Interim)Rules). Voie SHARES OF STOCK 97. Discuss the doctrine-of indivisibility of thé Subscription contract. The doctrine of indivisibity ofthe subscription contract is implicitly <8t forth under Sec. 64 of the Corporation Code, thal i§, a sub§cription is one, entire, and indivisible contract. It cannot be divided into portions, so that the stcickholder thal. led to a certificate until he has reritted the full payment Of his subscription together with any inlerest or expenses, if any is due (SEC Opinion, March 31, 2076) s 98. What are the requisites for vali In case of shares represented bi conditions, ¥ a. There must be delivary Of the cer b. The share must be iridorsed by the c. To be valid to the corporalign and th the. transfer must strictly comply with the following a is agent ns, th i transfer muist be duly recorded in the books of 24535, September 28, 2001). 99. Rogers subscribed to 80 share: paid P2,000 and no cer hare or a total par value of P8,000. Rogers m. In 2011, Rogers sold 20 of her 80 shares to Naval. In the deed of sale, Rogers he was “the absolute and registered owner of the 20 shares” of GMC. Naval thefy requested the officers of GMC to register the sale in the books of the corporation. It was denied since Rogers has not paid his subscription fully. Naval was informed that Rogers was delinquent in the payment of the balance and that GMC had a claim on the entire subscription of 80 shares. Thus, Naval filed a mandamus in the RTC of Makati City to compel the corporation and its officers to register the said 20 shares in Naval's name in GMC’s transfer book. Will mandamus lie to compel the corporation andlor its officers to transfer the shares that were sold to Naval? No, mandamus will not lie. Sec. 63 of the Corporation Code provides in part that no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation ‘As a general rule, the shares which may be alienated are those which are covered by certificates of stock In this case, the 20 shares in question are not covered by any certificate of stock in Rogers’ name. Since no stock certificate is issued to the original subsoriber, Rogers, representing that portion of his subscription which he paid for, transfer of his shares is effective only between the Rogers and Naval. I Cannot be demanded from the corporation the issuance of certificates of stock representing the paid 26 SAN Beva Coucs oF Law 2017 Centaauzen Bar Orzramions PCOMMERCIAL LAW. subsoribed shares. Furthermore, the corporation has a claim on said shares for the unpaid balance of Rogers’ subscription. A stock subscription is a subsisting liability from the time subscription is made (Nava v. Peers Marketing, G.R. No, L-28120, November 25, 1976). 400. Is refusing to allow inspection of the stock and transfer book, as opposed to refusing examination of other corporate records, not punishable as an offense under the Corporation Code? It is punishable. Sec, 74 of the Corporation Code deals with the books a corporation is required to keep Sec. 144 of the Corporation Code is the general penal provision of the Corporation Code. While Sec. 74 expressly mentions the application of Sec. 144 only in relation to the act of "refusing to allow any director, trustees, stockholder or member of the corporation fo examine and copy excerpls from the corporation's records or minutes’, the same does not mean that the latter section no longer applies to any other possible violations of the former section, Sec. 144 already purports to penalize “violations” of "any provision" of the Corporation Code “not otherwise specifically penalized therein’. Thus, while Sec. 74 ‘expressly mentions the application of Sec. 144 only to a specific act but not with respect to the other possible violations of the former section, there is an unequivocal intent of the legislature to penalize ‘or member to examine the other records and minutes of a corporation under Secsi7A(2 when done ip violation of Sec. 744), prope! an offense (Yujuice v. Quiamba9, @. RNP : SA iuauipation A. r Gof cbrpérate liquidation? OF LAVV 3 a. Liquidation by thelootporation itself (CORPORATION CODE, Seo, 122, paryt) b. Liquidation by a.duly- appointed receiver (CORPORATION CODE, Sec. 19, Ja8t par.) c. Liquidation by Sa-tfusteg to whom the corporation had conYeyedthe corporate assets (CORPORATION.GODE, Séc. 22, pa. 2) Sy] 101. What are the metho 402. When should a mane mittee/receiver be appointed? © vers are appointed when the corporation is in imminent danger of (a) ruction of assets or other properties; and {B}-paralysation of its business the-interest-of the minority, stockholders, parties-ltigants, or the », GR. No, 172843). September 22, 2074). A corporation may be dissipation, loss, wastag@, er des operations that may be\p placed under receivershi) of, ment committees nay be-crgated tolpreserve properties involved in a suit and to protect the rights ies under the control and/Supetvision of the court. wy, I _ 103. Does the Court of Apia No. The Regional Trial controversies, including In appointment of receivers committee are considered ol required to report to the court’ ‘every 3 months after (Id) ave the power to appointa récdiver dig management committee? as original and excilsive jugSdiction ta/hear and decide intra-corporate fig of such controversies, These\ingidents include applications for the ement committees,.The receiveiZand members of the management gf the court andshall be-undetAts-Control and supervision. They are aus of the corporation withinr60 days from their appointment and =~ ate the aspefvot a dissolved corpors 104, What is the period to liqi after its dissolution? The time during which the corporation, through its own officers, may conduct the liquidation of its assets ‘and sue and be sued as a corporation is limited to 3 years from the time the period of dissolution ‘commences; but there is no time limit within which the trustees must complete a liquidation placed in their hands. It is provided only that the conveyance to the trustees must be made within the 3 year period (Alabang Devt Corp. v. Alabang Hills Village Association, G.R. No. 187456, June 2, 2014). FOREIGN CORPORATION 105. What are the tests of “Doing Business in the Philippines?” a. Twin Characterization Test i, Substance Test - Whether the foreign corporation is maintaining or continuing in the Philippines the body or substance of the business for which it was organized or whether it has substantially retired from it and turned it over to another; and still sue and be sued Sax Bepa Couce oF Law 2017 Cevreauizep Bar Overations) 27COMMERCIAL LAW. commercial dealings. and arrangements, Continuity Test - Whether there is conte el aon, SP works or the exercise of some functions perfor ‘ose and object of its organization contemplating to some extent the normally incident to and in progressive prosecution of, the eur O80 ata, 14 Ap 2004) {Agilent Technologies Singapore, Lid. v. Integrated Siicon, 4 b. Contract Contract Test ered ino by the foreign corporation, of by an agen aad Tas oat and direction of the foreign corporation, ‘are consummated in the Philippi tion Code, the pM or “transacting business in the Philippines” for purposes of Sec. 133 of the Coe Se rein corporation must actually transact business in the Philippines, that is, per ae Esai poeta oo aiein Ehiippine terfiry on a continuing basis in its own nate Se TO unt, Actual transaction of business within the Philippine territory is an essential requisite for the Philippines te aque jurisdiction over a foreign corporation and thus require the Tere corporation to secure a Philippine business license (B. Van Zuiden Bros., Ltd. v GTVL Manufacturing Industries, Inc., G.R. No. 147905, May 28, 2007) he Philippines entered into a 106. BMI, a domestic corporati wnized under the laws’ of i “Representative Agreement” a eorporation duly 0! .d and existing under the laws of America. ‘Under the Agro ‘ch termis 2-years, BMI is to act as, CGC's “exclusive in consideration of which BMI representative" in the Philippines for the sale of CGC's products, was paid a stipulated commissiofin By, virtue| of the eontract, BMI sole the products of CGC. 2s Pal a era year, CGC. wanted, to.terminate the agreement, since BMV/allegedly violated is Co ei tral commitments, Cansbquénty,itfiled a.suit against BMU BMI filed a motion to dismiss fhe complaint forlagk of capacity of CGC. to sue as its. foreign corpogation doing business in the Philippines without license. Wil the sult ied by CGC prosper? Yee the suit fled by SGC will prospet. AS a rule, under Sec. 133 of the Corporation Code, before @ it must first obtain alicense to transact business foreign corporation Gan transact/pusinegs in-this country, in the Philippines, and alcerificate ffom the appropriate government agency. it ransacts business in the Philippines without sucija licenge, itshall not be permitted to maintain of infervene in any action, sult, or proceeding in any cours@r administrative agency of the Philippines, but itmay be sued on any valid cause of action recognized under Philippines laws. nications Materials and Design; Jnc_v. CA (G.R. No. 102223, doing business in the Philippines-may sue in Philippine Courts had contracted with and benefited by said corporation, although 1@ss here. Otherwise stated, a pafty is estopped to challenge the nowledged the same by entefing into a contract with it However, as held in the cage of ‘August 22, 1996), a foreign corp against a Philippine citizen,or enti the former is not authorized to, do personality of a corporation gfter hay has therefore acknowledged the personality of CGC. BMI BMI has entered into‘a conifdet with C SGC; hence, the suit filed by CGC will prosper. is estopped from challenging the petsonal x MERGERS ideration of the latter's assumption of liabi 407. Wasabi Bank sold assets to Katstf Bank jt :s of Wasabi Bank. |s this a case of merge! Oa No, it is not a case of merger. Merger is & re-organization ‘of two or more corporations that results in their consolidating into a single corporation, which is one of the constituent corporations, one disappearing or dissolving and the other surviving, Merger is the absorption of one or more corporations by another texisting corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues its existence while the life or lives of the other corporation(s) is or are terminated. Under Sec. 79 of the Corporation Code, the merger shall be effective only upon the issuance by the SEC of a certificate of merger. In this case, there is no merger. Wasabi and Katsu remained separate corporations with distinct corporate personalities. What happened is that Wasabi ‘sold and Katsu purchased identified recorded assets of Wasabi in consideration of Katsu’s assumption of identified recorded liabilities of Wasabi (Bank of Commerce v. Radio Philippines Network, Inc., G.R. No. 195615, April 23, 2014). ag Sax Bepa Couece oF Law 2017 Cenreauizep Bax OPERarions> COMMERCIAL LAW, 408. In what cases is the buyer of the assets liable for the debts of the selling company? ‘Asa tule, a Corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present ‘a. Where the purchaser expressly or impliedly agrees to assume the debis; b. Where the transaction amounts to a consolidation or merger of the corporations; ‘c. Where the purchasing corporation is merely a continuation of the selling corporation: and d. Where the selling corporation fraudulently enters into the transaction to escape liability for those debts (¥-1 Leisure Corporation vs. James Yu, G.R. No. 207161, September 8, 2015). SECURITIES REGULATION CODE (SRC) 409. What are the cases that were transferred from the jurisdiction of the SEC to the RTC? a. Devices or schemes employed by, or any act of, the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest ofthe public andior of the stockholdersppaitners, oF members of associations registered with the Commission; . te b. Controversies arising out_of intra-corporale ‘or parthership Welations, between and among stockholdeis/ members or between @ny Opalof them and the corporation, partnership or association-agd the State inSOfar as it concerns their individual franehise or right aS-such entity; c. Controversigs\in the election or @ppaintinent-f jdiedofS, trustees, offigeysyor_ managers of such corporations patinership.or associations; f . Petitioners of cofporatiohs, fai ips or assodiatidns to be Wadlated inthe state of suspension of payment in cases\where the corporation, partnership, or association possesses sufficient property to cover all its debis bit foresges the impossibiity of meeting them when they fal due or in cases where the corporation, ‘paftnership| or assdcjation has no sufficient assets to (Coyer its liabilities but is under the management af’a rehabi \receiver or management committe created pursuant to this Decree (Yujuico y~Quiambap, 6.R. No. 168639, January 29, 2007). vio 140. Which body has jurisdiction aver ra of proxies involving the existence of quorum for the election of directors? The RTC has original and excl election of directors are-ptoperly ction, All matters affecting the manner and conduct of the je by the regularcourts. / jlate proxies remains jf plate jn instances when stockholders directors, The.test is whether the controversy relates to such brought before the SEC for gésoiytion based on the regulatory Partnerships and “associations: Thus, it is indubitable that ‘shares, or the,validity.of yatés tast in favor of a candidate for nizable-and adjudicable,by the regular courts exercising eS (Securities and-Exchange Commission v. Court of In contrast, the powercof the) SEC vote on matters other thatthe ele election. Otherwise, these ters powers it exercises over \eorporati controversies as to the qualifigation of election to the board of directts ara prope original and exclusive jurisdic Appeals, G.R. No. 187702, Oct er sequestered corporations of the PCGG involving No, the Sandiganbayan has no j Itis the RTC wihich has jurisdiction over cases which do not involve a sequestration-related incident but an intra-corporate controversy. Sec. 2 of E.0. 14 has no application simply because the subject matter involved is an intra-corporate controversy, not any incidents arising from, incidental to, or related to any case involving assets whose nature as ill-gotten wealth was yet to be determined. (Abad v. Philippine Communications Satellite Corporation, G.R. No. 200620, March 18, 2018). 112, Can the SEC issue a C the company? Yes, the SEC may do so. Under Sec. 64 of the SRC, a cease and desist order may be issued by the SEC ‘motu propio, it being unnecessary that it results from a verified complaint from an aggrieved party and even without a prior hearing whenever the Commission finds it appropriate to issue a cease and desist order that aims to curtail fraud or grave or irreparable injury to investors. There is good reason for this provision as any delay in the restraint of acts that yield such results can only generate further injury to the and De st Order even without prior notice or formal charge against San Bepa Cousce Orlaw 99 17 Cravreauizep BAR OPERATIONSCOMMERCIAL LAW, individuals and corporations from baseless th defined limits. A cease and desist order ion and upon showing that the wublic (Prmanila Plans, Inc. v public that the SEC is obliged to protect. To equally protect i and improvident issuances, the authority of the SEC is also wit Se may only be issued by the Commission after proper investigation or vert acts sought to be restrained could result in injury or fraud to the investing P Securities and Exchange Commission, G.R. No. 193791, August 6, 2014). It was sufficient that the company was amply apprised of the results of the Seo investigation an be given the reasonable opportunity to present its defense. A formal trial or heartig te! TT comply with the requirements of due process. Its essence is simply the opportunity position (Id). 413. What are Pre-Need Plans? Pre-Need Plans are contracts which provide for the performance of future services of the pea of future monetary considerations atthe time of actual need, for which planholders pay in cash or instalment at stated prices, with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission maypfton.time to time approve (SRC, Sec. 3.9) 114, What are the rules on Pre-Ne The SRC, pattidularly Sec. 16 r Bee tone public any pre-need plan except in accogalapee with ruleg-and regulations which the Commission shall presctjbe. Such rules shall regulate the saleOf pre-need plans typ aftionig thet things, faquinng the registration of ge plans licensing persons inholved inthe sae of Pe-need pans, reading lsclogyres td.prospective plan holders, prescribing advertising quidélinés, Jaronding for uniform accounting sysfem, reports and record keeping with respect to suehrplans, im al, bonding and other financial responsibilty and establishing trust funds for the pergen of bénefits under such plans. Further, the New Ruiesi¢h) the Re and Sale of Pre-Need Plans, specifically Rule Nos. 3 and 15 thereof, provides: No; tio stiall issue, offer for sale, or sell Pre-NeedPlans unless such plans shall have been registered under Rul ran) issuer selling its own Pre-Need Ptans Shall be deemed a dealer in securities and shall tone sd to bg registered as such and comply with all the provisions hereof; provided that the iss, ling itoranf tree of Pre-Need Plans shall be required to be registered as ar dealer only ofce for theron 115, Who are “insiders”? “> ~ Insider means: < a. The issuer; b. Adirector or officer on cc. A person whose relaflonshif or fo" information about the d. Agovernment employee, organization who has ac: available to the public; or Jar functions)Of, or'a'person controlling the issuer; ship to thefssuer gives-or gave him access to material tis not generally availabié to the public; of an exchange, clearing agency andior self-regulatory n about an issuer or a security that is not generally ication from any of the foregoing insiders (SRC, 116. Explain In It shall be unlawful for an insider to sell or buy a security of the issuer, while if possession of material information with respect to the issuer or the security that is not generally available to the public (SRC, Sec. 27.1). 117. What are the elements of an Investment Contract under the Howey Test? Acontract, transaction, or scheme; An investment of money: Investment is made in a common enterprise; Expectation of profits; and Profits arising primarily from the efforts of others (SEC v. Prosperity Com. Inc., G.R. No. 164197, January 25, 2012). . San Bepa Cotece oF Law 2 2017 Cenrrauizeo Bar OreRaTions.118. 119. 120. 124 122, COMMERCIAL LAW BANKING LAWS FIDUCIARY NATURE OF BANKS. When is one considered engaged in banking? The basic banking function is the mobilization of savings (through deposit) and allocating resources (through lending). A financial institution obtaining deposits from the public, which lent to persons deemed suitable by it, is engaged in banking (Republic v. Security Credit & Acceptance Corporation, G.R_ No. G.R. No. L-20563, January 23, 1967) HSBS Bank granted a credit line to Arthur. In 2010, Mar and Arthur obtained a loan from FL Bank in the amount of P500,000. In 2013, Mar defaulted in the payment of the periodic interest dues. As a result, HSBS terminated and froze the account of Arthur. Meanwhile, Arthur issued a check but the check was dishonored, Art demanded from the bank that the check he issued be fully funded including damages for the unjust dishonor of the check. He contended that HSBS knew well that the actual borrower was Mar and he never benefited from the proceeds of the loan. Should the bank be liable for the dishonorediehi@&k? Yes, HSBS,Bank should be held liable, Under Se, 2 of, "e Genelal Banking Law (GBL), the State recognizes the fiduciary nature afibanking:that requires high,standatds of integrity and performance. It is the bank that-shguld compute Hese periodic interests and such dues must be puliinto writing and be formally served-fa the accommodation /bafty| if fhe [ware asked to pay themWithout a clear and determinate demand through a formal written notice for the exact periqdic interestdues for the loans, the accommodation party/cannol beleaHected to pay:for them(Ganzdles\V \PCIB, G/R. No. 180257, February 23, 2011) f BANK DEPOSITS What is the liability of the bank tolffs depositors in case of negligence of-its’employees? A bank's liability as dbligoris nol metely vicarious but primary. The defense af exercise of due diligence in the selection and supendsion of ts employees is of no moment. Banks handle daily transactions involving millions of pesos. By the very nature oftheir work the degree of responsiblity’ care and trustworthiness expected of their emiplayegs and officials is far greater than those offorginary clerks and employees. Banks are expected {o-exescise elhighest degfee of diligence in’the selection and supervision of their employees (PCIB v. CA,6.R. No. 413, January 29,2001). ‘STIPULATION OPINTEREST. AA \ 3m Maple Bank amounting to 1,500,000, with interest at the rate of J The rate of interest shall he subject to review andlor adjustment ithe validity of the unilateral changes in the interest. On the wiesced to theiimposition of the modified interest rates; leofiifiutuality of contracts. Was the stipulation of Aguila Corp. obtained a [dai 17% per annum. It also incl every 90 days.” Aguila Corp¢ other hand, Maple Bank cont thus, there was no violation of tie. interest valid? o No, the stipulation of interest is invalid. The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Art, 1308 of the Civil Code. The confirmation signed by Aguila Corp. does not pertain to the modification of the interest rates, but rather only to the amendment of the interest rate review period from 90 days to 30 days. The conformity of respondents with respect to the shortening of the interest rate review period from 90 days to 30 days is separate and distinct from and cannot substitute for the required conformity of respondents with respect to the modification of the interest rate itself (Philippine Savings Bank v. Spouses Castillo, G.R. No. 193178, May 30, 2071) TRUST OPERATIONS OF BANKS Define Prudent-Man Rul A trust entity shall administer the funds and property under its custody with the diligence that a prudent ‘man would exercise in the conduct of an enterprise of like character and similar aims (GBL, Sec. 60) San Bev Couce or Law 2017 Cenreauizen Bar OrERarions : -*_ 31SINGLE BORROWER'S LIMIT 123. What is Single Borrower's Limit? The total amount of loans, credit accommodations and guarantees that may be extended by a bank tg Freon Pattnership, association, corporation or other entity shall at no time exceed 25% of the net of such bank (GBL, Sec. 34(1)) However, it ma additional liabili other similar di which 'y be increased by an additional 10% of the net worth of such bank: Provided, ties of adequately secured by trust receipts, shipping documents, warehouse re “cuments transferring or securing title covering readily marketable, non-perishabl ‘must be fully covered by Insurance (BSP Circular 425 Series of 2004), 124. What are the exemptions to Single Borrower's ® ppas and other credit accommodations secured by oblgaions of the Bangko Sentral oF of the : Philippine Government; Loans and other credit accommodat principal and interest; © Loans apg other credit aco that the pts '®, Goods mM leed by the government as to the payment of S fully pruareniced by Y a of seouted by US: ‘otes and other securities issueg 8 of foreg eounires with the highest credit aualty given by é A\e fed raling agencies ie d. redit accomm« to) the-exterff tolered by the naires assignment of, edn the Jending bank and held in the Philippines; \ Loans, credit‘ ade it planes snder lettre @hiéredi\ 19 the extent covered by margin deposite- ¥ f. Other loans or jkvaccommodatigns which the Monetary Board may. frdm time to time specify as irculat No. 424 il Series of 2004), } 125. Ze \y /Bankiquasi-bank \) /tetains juridical “personality; | > Perfected. transactions cannot be repudiated (First Philippine International Bank v, CA, GR. No. 115849, January 24, 1996), 1, Bank is unable to pay its labilites The Monetary Board may as they become due in the ordinary | summarily — and without course of business; need for prior hearing forbid | Bank has insufficient realizable the from ~ doing assets to meet its liabilities; | business and designate Bank cannot continue ’ without | PDIC as receiver | involving probable losses to its depositors or creditors —— seat | | Saw Bepa Counce or Law 322017 Genmmatizeo Bax Orerasioxs 2ABank has willfully violated a cease and desist order from the Monetary | Board that has become final, | involving acts or transactions which | | amount to fraud or dissipation of the assets of the institution; Bank notifies the Bangko Sentral or publicly announces a bank holiday, | or in any manner suspends the payment of its deposit liabilities continuously for more than 30 | days. i Inder the NCBA: "suspend the authority of Inability to pay liabilities as they | the bank and of its directors | ‘ sourse and officers over its property and effects illanueva v. CA, G.R, No. 3. Inability to. continue without dayolving! probable, to its depositors or creditors; Willful. violation “of ‘a? ¢8as desist order.under, Se NCBA that has become Under the GBL: 1. Notificationyto the announcement of @ (GBL, Seo.53); Suspension of payment liabilities continuously in -epenductit ala he Ean spd ifthe latter | feasible, to | ey The condition of thejbank is /Retention of juridical insolvency oF that its” ould involve probable ositors and creditors’ A mination BY the MB that -annot be rehabilitated /*personality; “Auspension of > operation of business; }3. Assets are deemed in | custodia legis, Stay of execution of judgment, CONSERVATORSHIP. 426. Uno Bank was placed under conservatorship by the BSP. Uno Bank Union, the recognized union representative of Uno Bank, sought to implement the retirement plan and uniform allowance agreed in the Collective Bargaining Agreement, which the acting conservator objected to. He contended that bank is under the rule of a conservator to protect its assets therefore the latter is under no compulsion to implement the resolutions issued by Uno Bank. Is the conservator correct? - ‘ ‘No, the conservator is incorrect. A conservator merely has the power revoke contracts that are deemed to be defective - void, voidable, unenforoeable of rescissible and takes the place of a bank's board of directors. His power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to such contracts - as he has already done so in the instant case (Producers Bank v. NLRC, G.R. No. 118069, November 16, 1998). ‘Saw Bepa Cource or Law 2017 Centrauizep Bar Orerations 99COMMERCIAL LAW. RECEIVERSHIP 127. Define Close Now, Hear Later Scheme. Close Now, Hear Later Scheme refers to an arrangement where no prior notice and hearing before a bank may be directed to stop operations and be placed under receivership. It is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police Power {0 protect the depositors, creditors, stockholders, and the general public. The writ of preliminary ‘Glaction cannot, thus, prevent the MB from taking action (Bangko Sentral ng Pilipinas v. Valenzuela, GR. No. 184778, October 2, 2009). 128. Is the Monetary Board (MB) empowered to forbid a bank from doing business and place it under Fecelvership without prior notice and hearing? Is its power limited only to supervision and Tanagement take-over of banks and as such, the same does not cover receivership? {The MB may forbid a bank from doing business and place it under receivership without prior notice and hearing as itis not necessary inasmuch as under Sec. 30 of RA. 7653, the MB was entrusted with the appreciation and determination of whether any or all of the statutory grounds for the closure and receivership of the erring bank are " This “close Nowy hear later" d fbsen justiied as alfheasure forthe protection of the Public interes>*P(aGing a bank ship would effeetVely pul @ stop to the'further draining of its assets (Vivas V-Monetary Board of th iipinas, G.R: No. 191424: August 7, 2013). ( ry eho Pentel ng Bl ipinas, No. gt 128. Boss Bank ceased tie construction of its commercial building, when it encountered financial difficulties. Unable to’ pay'its \iabilitles-as they become due in the ordinary course of business, BSP ordered its cfosure and placad.ituunder receivership. To save the bank's investment, Dan, the President of the bank entered into a contract of lease with MM Industries with an exclusive option fo purchase the building for P1,000]000. When MM Industries wanted to ‘exercise its exclusive option, Boss Bank réfuised to honor the-same. Can MM Industries compel Boss Bank to comply with the contract? A {] No, MM Industries carinet sh oe Banicto comply with the exclusive option to buy. Under Sec. 30 of the GBL, the receivehimnmiediately gatheys and takes charge of all the assels of the bank for the benefit of its creditors. The bank's offigers’ including in connection with the bagks ass Estate Development Center, inc. the order of its closure ang! being exclusive option to pufchagé) The the bank. + the president, does not have the authority to transact business a'bank is placed under feceivership (Abacus Real Corporation, G,R. No. 462270, Apri 06, 2005). Upon stip, Dan no longet héd the authority to grant an Dhupizse granted by Dan is unenforceable against 130. Adam obtained a loan. fro} prompting Paybank to insti pendency of the civil case, P: civil case arguing that in cases. bank should be filed in the liquid: 3 No, the civil case should not be dismissed/-Fre excldsije\jurisdiction ofthe liquidation court pertains only to the adjudication of claims against the tyénk. It does ndNobver the reverse situation where it is the bank which files a claim against another person or legal entity (Manalo v. Court of Appeals, G.R. No. 141297, October 8, 2001) din paying, 5 consecutive installments, lection of money against Adam. During the (ion. Adam prayed for the dismissal of the an insolvent bank, all claims ag ld the civil case be dismissed? ‘TRUTH IN LENDING ACT (TLA) 191, Renz borrowed 3,000,000 from Cappy Land Bank (CLB) secured by a real estate mortgage as collateral. Unable to pay the loan, CLB foreclosed the mortgaged properties. The balance unpaid was 2,355,000 pesos, broken down 500,000 as principal debt and 857,000 as interest. In the foreclosure sale, the mortgaged property was sold for 3.5 million pesos. The sheriff turned over this amount to CLB. CLB remitted 560,000 to Renz. Renz demands that the full difference of 1,145,000 be remitted to him. CLB refused and contended that the bid amount increased becaus. it now included litigation expenses and attorney's fees as well as interests and penalties as recomputed. Was the deduction of other charges proper? San Bepa Couuecr oF Law “4 2017 Cenrrauizen Bar Operations132. 133, COMMERCIAL LAW. No, the deduction of the other charges was improper. Sec. 4 of the Truth in Lending Act states that any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: x 6. The finance charge expressed in terms of pesos and centavos xxx Penalty charge is liquidated damages resulting from a breach which falls under item (6) or finance charge AA finance charge represents the amount to be paid by the debtor incident to the extension of credit. A penalty clause may be stipulated in the agreement provided that the amount or rate of the charge and the conditions under which it is to be paid are clearly and unequivocally stated before the contract is perfected. CLB failed to state in the disclosure statement the penalty charges, which vitiates the consent of Renz as regards the penalty charges (BPI v. Spouses Yu, G.R. No. 184122, January 20, 2010). SECRECY OF BANK DEPOSITS LAW xplain the Rule on Secrec; ag generahsule4s that all depobli ot wh f baking institutions in the Philippines including invéstinents in bonds I Bpines, its political-subdivisions and , af@ hereby Considered as absolutely confidential whature and'rhay-not be examined, by any person{gavayrimentfotiibrel, Bufégu or office (LSB, Spe.2), , COLLEGE OF LAW pf” porrigsion fine depasas pinueson (4S, Soc. 2) SB, Sec. 2) re ‘competent cout in ca$es of impeact of theJPresident, Vice President ie Courtemembers of the Constitutional Comission and the Ombudsman for the Constitution, treason, bribery, graftand coription, other high crimes or (LSB, Sec. 2); : i ¥ :npetent courtin cases where the money deposiiad or invested is the subject of ; of unexpiained wealth Under the Anti-Graft ‘Corrupt Practices Act (R.A. 3019); j {incase of inquity SA BIR ol ola accounts ota Wegedont se rea icon purposes or in case of f * a tax compromise (MIRC, Sec. 6 ff) ar Py J 9. Upon order of a competent court in cases of Viotation Uftie AMLA (RIA~10167, Sec. 2) h. Incidental disclosurbs of unclaimed balanoes undghthe Undiaimed Balances Law (RA. 3696, Sec. 2); i i The exceptions af a. When there is b. Impeachment c. Upon the order’ members of the’ culpable violati betrayal of public d. Upon the order litigation (LSB, S DOSRI loans and pefiodic examinations by the BSP(R.4/7653/SaG-25): ‘Account of a foreign transient who raped a minor, escaped and Was made liable for damages to the victim (Salvacion v. CentrahBank of the Philippines, ,@°R. No, 97423 August 21, 1997); k. Upon order of the CA aut ew enforcement office tS. toyeXarrine and gather information on the deposits, placements, trust ecoounts,) assets and recordsiv’ financial institution in connection with anti-terrorism case under thé'Hurrian Seourity Actua NO-9372), |. Examination of deposits of persons charged wilfthe-crine of plunder (Ejercito v. Sandiganbayan, GR. No. 157294-95, November 30, 2006) The creditors of Soba, Inc., a corporation which was declared ins. agreement which contains a waiver of confidentiality of Soba’s bank No, itis vol. The existence of a waiver must be positively demonstrated since a waiver by implication is not normally countenanced. The norm is that a waiver must not only be voluntary, but must have been made knowingly, inteligenty, and with sufficient awareness of the relevant circumstances and likely consequences, ‘olvent signed a compromise accounts. Is the waiver valid? There was no writen consent given by Soba or its representative that Soba is waiving the confidentiality Of its bank deposits. Soba is not bound by the said provision since it was without the express consent of Soba who was not a party and signatory to the said agreement (Doria Adela Export Intemational, inc. v. Trade and Investment Development Corporation, G.R. No. 201931, February 11, 2015), Smx Brox Cousce oP Law 45 2017 Cenreauize Bar Operationsjing to garnish th 134, Lorena won the case against ABC Co. for a collection of sum of mone! mee a male bank deposit of ABC Co., the RTC of Manila issued a notice of garnishment © "rt about the existence of ABC Co.'s account in their Bank. The Bank Managel © ite any information invoking the Secrecy of Bank Deposits Law. Was the Bank mana No, the bank manager was incorrect. The prohibition against examination of Or INANE TA Ot under the Bank Secrecy Law does not preclude its being garnished to insure salSNC et The inquiry was merely whether or not the bank account existed for the purpose o! us incidental to the account for satisfaction of judgment. The inquiry of the existence of the deposit is Pury execution process (China Banking Corporation v. Ortega, G.R. No. L-34964, January 31, 135. Lia received an Order from the Ombudsman to produce several bank documents for Paes a inspection in camera relative to various accounts maintained at LSS Bank where Lia is the Wan manager. The accounts to be inspected are involved in a case pending with the Ombudsman. May the bank manager refuse to comply with the order of the Ombudsman? Yes, the bank manager may refuse to comply with the order of the Ombudsman. Before an in camera inspection cSunts may be allSviédythere must be a pending case before a court of competent jurisdiction. '@ account must he clearly identified, and the inspection limited to the subject natter of the per fore the courtiokoompetent jurisdiction».The/bank personnel and the account holder must UE notified to be present during the Inspection, and guch inspection may cover only the accaunt identified in thé-pefidifig case, investigation by the office of the Ombudsman is not a pending litigation before any, court, oF competent authority, which, would, warrant\the opening of the bank account for inspection (Marquez\v.1 1 G:RoNo.\136882) June 27,2001). 136. What is the relationship betwen credit card issuer and credit card holder? | The relationship betwapn the gedit cafd issuer and the credit card holder. iS a contractual one that is governed by the tétmg’and pn found in the card membership agréament. Such terms and Conditions constitute the law Between! the parties. In case of their breath, moral damages may be recovered where the deferidant is shows to have acted fraudulently or in bad faith (BP/ Express Card Co. v. Armovi, G.R. No. 183654, Oclpber 8,\2014), E CORPORATION (PDIC. 250,000 in joint savings aceount with JKL Bank. A has a 137. DEX Corp. and A, a natural pers F savings account with the same bank solely in his savings account worth 250,00 name. Supposing JKL-Bank clo: Insurance Corporation (RDIO)? DEF Corporation can claim fromthe more natural persons holdsaf /accout entirely to the juridical entity 5(g)). unt of P250,000. (fa juridical person jointly with one or yximum jnSured. deposit Shall be presumed to belong tion cah claim for,P250,000 from PDIC (PDIC Act, Sec 138. BA has a time deposit with PB- placing PB Bank under receiverstiip: Aft 1999, the Monetary Board issued a resolution ance of such Resolution but before the receipt thereof by PB Bank on May 26, 1987,/84 went to PB Bank pre-terminating his time deposits and re-depositing the funds into 28 new time deposits under the names of several co-depositors. Of the new time deposits, BA pre-terminated 8 and withdrew the value thereof. When a claim was made on the remaining 20 time deposits, the PDIC rejected the claim on the ground that they were not deposits made in the usual course of business. Did PDIC validly reject the claim? No, PDIC did not validly reject the claim, PB Bank and its client should be given the benefit of the doubt that they were not aware that the Monetary Board resolution had been passed. Mere conjectures that PB Bank had actual knowledge of its impending closure do not suffice. The resolution could not thus have nullified the transactions that were entered into prior to the receipt of the Resolution by PB Bank (Philippines Deposit Insurance Corp. v. CA, et. al., G.R. No. 126911, April 30, 2003). San Beps Couecr or Law 36 2017 Censeauze0 Bar OrexarionsCOMMERCIAL LAW, LAWS ON INTELLECTUAL PROPERTY 439. Distinguish Patents, Trademarks and Copyrights. cy peur ry Cu ec eer ely ‘Any technical solution of a problem | 1. Doctrine of Secondary |a. Books, pamphlets, in any field of human activity which | Meaning, provided that articles and other writings; is new, involves an inventive step ‘a, The common term |b. Periodicals and and is industrially applicable shall be | has been in use for many | newspapers: | Patentable. It may be, or may relate years; and c. Lectures, sermons, | fo, 2 product, of process, or an |b. The public has addresses, dissertations improvement of any of the foregoing associated the products of | prepared for oral delivery | (RA. 8293, Sec. 21). | Spplicant with the common whether or not reduced in | 1. A product, such as a machi | writing or other material device, an article of manu form d. Letters; tin of mat ‘e, Dramatic or gramatico- ~26966 October musical compositions, ‘as a method of: rages lution, chore) sf manufacturing 5 ARES ing | entertai precess,) | 2) i/\ hows: ToS) [21 BEE OF ECU of drawing, architecture, engraving, hy or other works, models or designs | | “Qyiginal ornamental | fos or models for les of manufacture, ether or not registerable a industrial design, {pther works of applied | lustrations, maps, pfans, sketches, charts three dimensional | relative to| 35a |geography, topography, (Or valid | architecture or science; registration of. trademark |j. Drawings or plastic (Un-N-Out Burgéy, Inc v. |works of a scientific or ‘Sehwani, Inc, G.R. No. | technical character; 479127, December 24, |k. Photographic works | 2008). | including works produced | by a process analogous to | photography: lantern | | slides; |. Audiovisual works and cinematographic works | and works produced by @ | process analogous to [cinematography or any rocess for making [audiovisual recordings; | Saw Bepa Coutece oF LAW” 97, 2017 Cenrrauizeo BaR OPERATIONS> COMMERCIAL LAW. Goan ea 1. Economic interest Test When the process-discoverer's economic interests are compromised, ie., when others can import the products that result from the process, an act is said to be. prohibited 2. Literal Infringement Test There is Jnkingement of Under this testifiona makes, uses or Sells an item ‘knowledge of | ‘infringing activity, Nduces, causes or Materially contributes fo the infringing yeonduct of another (RA. 8293, Sec. 216, ){'as amended by RA. )yi_10372, Sec. 22) | [939 PATENTS 140. Dr. Nobel discovered a new method of treating Alzheimer’s involving a special method of 38 diagnosing the disease, treating it with a new medicine that has been discovered after long experimentation and field testing, and novel mental isometric exercises. Can he legally protect his new method of diagnosis, the new medicine, and the new method of treatment? Dr. Nobel can be protected by a patent for the new medicine as it falls within the scope of Sec. 21 of the Intellectual Property Code (R.A, No. 8293, as amended). However, no protection can be legally extended to him for the method of diagnosis and method of treatment which are expressly non-patentable (PC, Sec.22), ‘San Bepa Cource oF Law 2017 Cenrrauizen Bar OPERATIONSCOMMERCIAL LAW invented a device which can recharge a cellphone battery through the use of noise. She applied for and was granted a patent on her device, effective within the Philippines. As it turn outa year before the grant of A’s patent, B, invented a similar device which she used in her cellphone business in Manila. Thus, A filed an injunctive suit against B to stop from using the device on the ground of patent infringement. Will the suit prosper? No, the suit will not prosper since B is using the same invention in good faith prior to A's grant of patent. Pursuant to the concept of Use by Prior User, a person other than the applicant, who started using in {good faith the invention in the Philippines, or undertaken serious preparations to use the same, before the fling date oF priority date of the application, shall have the right to continue the use thereof (IPC, Sec. 73.) 41. 442, Rod works in a car shop. With the materials and parts of the car, Rod was able to invent a gas- saving device that will enable cars to consume less gas. Ruel, a co-worker, saw how Rod created the device and likewise, came up with a similar gadget, also using scrap materials and spare parts of the company. Thereafter, Ruel filed an application for registration of her device with the Bureau of Patents, Eighteen months later, Rod filed.his application for the registration of his device with the Bureau of Patents. > A a, Whoisentitied to the patent? Rod is enii¥chto the paterjt beeauseshe real inventor ‘his Welrs, or assigns IPC, Sec. 28). An inventor must febedence to be ent Biproteetion |") /\, eniphe "Fit 16 File ful6™ RPI: arplicBlion wyibjd,figée topa%aiven priority. If two or more persons fia¥e made thé invention separately and independently of each-Bther, the right to the patent shall belong to. the SerSOr WHO"NIE® "SiappGAHIORNORBECN invention, or where two or more applications aré\fled for the same ifivention, #@ the applicant Who has.ihe earliest filing date, or the earliest priority date (IPC, Sec. 29), b. What, if any, is the remedy of the losing party? Rod, however, has. within 3 inonths from the @ecision, to have it cancelled ‘as the rightful inventor; or within one year from publication, to fle an action to prove her priority thé invention, which has been taken from him af (auidulertly registered by Ruel (IPC, Sec. 67) Tight to a patent belongs to the ss essential diéments of novelty, 143. A was issued Letters Patent that covers a utility det for a/hand'tfactor or power tiller. A then manufactured and sold the patented power tillers with the patent Imprinted on them. In 1980, A suffered a decline of more than 50% in sales and it was discovered that power tillers similar to those patented by A wore manufactured and sold:by B.’A notified B about the existing patent and demanded the latter to'stop selling and manufactdring’Singllar powertillers. B argued that he is not liable for infringement'since there are minor modificatidns in the power tillers that he is selling. The trial court, used the doctrine of equivalents in de¢laring B yiablé for infringement. Is the trial court correct? . Yes, the trial court correctly uséd\the) Doctrine of Equivalgnts it-resolving this case. Tests have been established to determine infringemient-one of which being ttie-dottrine of equivalents which recognizes that minor modifications in a patented jnvehtionane’@Ufficlent,{6 put the item beyond the scope of literal infringement. An infringement also occurs when a devive appropriates a prior invention by incorporating its innovative concept and, albeit with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result Here, B is selling power tiller substantially similar with the invention of A, with minor modification, Hence, he is liable for infringement (Godines v. Court of Appeals, G.R. No. 97343, September 13, 1993). 144, What is the term of registration of an industrial design? Is registration renewable? The registration of an industrial design shall be for a period of 5 years from the filing date of the application (IPC, Sec. 118). The registration of an industrial design may be renewed for not more than 2 consecutive periods of 5 years each, by paying the renewal fee (IPC, Sec. 118.2) 145. What are the mandatory provisions to be included in voluntary license contracts involving patents? «a. That the laws of the Philippines shall govern the interpretation of the same and in the event of litigation, the venue shall be the proper court in the place where the licensee has its principal office: San Bepa Coutece oF Law 2017 Crwrrauizep Bax Operations 39ws COMMERCIAL LAW. the technolo, ®. Contrued access to improvements in techniques and processes related 10 the MCI) made available during the period of the technology transfer arrange! Rake plraion tie Procedure of © In the event the technology transfer arrangement shall oe fone Arbitration of the Arbitration Law of the Philippines or the Ar Ter Conaiskenand Aruna ofthe Commission on International Trade Law (UNCITRAL) or the Rules of Seat areere {nternational Chamber of Commerce (ICC) shall apply and the venuk 2 Philippines or any neutral country: and aH! 4. The Philippine taxes on all payments relating to the technology transfer arrangement shall be borne by the licensor IPC, Sec. 88). 146. When may the Director of Legal Affairs grant a license to exploit a patented eee Without the agreement of the patent owner, in favor of any person who has shown his capability tq exploit the invention? a. National emergency or other circumstances of extreme urgency; or Where the public inlerest, in particular, national secunty, nutrition, health or the development of other lal sectors ofthe national economy as deletmined,by the appropriate agency of the Government, so requires; or c. Where a judicial or administr body has determined that the manfier of exploitation by the owner of the patent ok his licensee is mpetitive oF . & in case of Bublé nop-commeltal use ofthe patent by the patentee, without satistA ery reason; or ©. If the patented invention is not being ‘works®\in the’Philippinés on a commercial seele; although capable Sfbelng worked Witout satisfactory reason: Provided) tat the, ER HR ofthe patented article shall Constitute workinglor using the pateat (IPC. Sac. 93). L_ZA A compulsory license thay not|be applied for on the ‘ground that sch patented invention is not being Rorked in the Phiipbivgs'on a Fommercial scale, although capable of bemgiworked, without satisfactory Trane Ore the expitlion of § period of 4 years from the date of fling of the application or 3 years foe, the date of the patent whichevell périod expires last Moreover, a compulsory license which is applied for Soe gy Me Sound Slated in the IPC may be applied for at any time afte the grant ofthe patent (IPC, Sec 94) 147. What is the proper pariod for filing a petition for eompulséry license? ¥ RADEMARK 148. Is registration of a trademark a mode of acquiring ‘ownership thereof? Registration of a trademnatf, ay itself, is not a mode of acquiridg ownelship. If the applicant is not the ‘owner of the trademark), he a4 No right to apply for its.registration. ReQjstration merely creates a prima facie presumption of the val diiV}of oot on of the registrant's OWmership of the trademark, and of the exclusive right to the eof Manly Sportwear Mig. Ine. v.Dadodette Enterprises, GR. No, 165306, September 20, 2605} 149, What is the protection granted, ‘marks under the Paris Convention? Under the Paris Convention, the obligated.to assure hationals of the signatory-countries that jainst violation of their intellectual property rights in the 150. Ong applied for the registration of the trade name 20TH CENTRURY NYLON SHIRTS FACTORY to be used in his general merchandising business dealing principally with textile The application 25. opposed on the ground that the word “NYLON” is a generic term for a fabric material'and it ig descriptive of petitioner's goods. The Director ruled that the application must be disapproved unless the word “NYLON” is disclaimed. Can the word “NYLON” being generic or descriptive acquire a secondary meaning to be registrable? No. The use of a generic term in a trade name is always conditional i.e. subject to the imitation thatthe Traletrant does not acquire the exclusive right to the descriptive or generic term or word. A combination ot marks or words may constitute a valid trademark or a trade name even though some of the eonatinere ‘Sa Broa Cource oF Law 40 2017 Centeauzen Bar Orzexnions151 152. 153. COMMERCIAL LAW Ject, Separately, to the exclusive appropriation as such. Although a word Cl to exclusive use as a trademark, it may properly become the subject of th another word or term which is non-descriptve, although no exclusive termis created. may be descriptive and not subje fa trademark by combination wit right to then descriptive word or When do geographical terms ac Mer otaa ‘quire secondary meaning so as to allow the proponent exclusive In cases were’ the geographic term is in a descriptive sense, secondary meaning is required for protection. In order to determine whether or not the geographic term in question is descriptively used, the following question is relevant: Is the mark the name of the place or region from which the goods actually ‘come? If the answer is yes, then the geographic term is in a descriptive sense and secondary meaning is required for protection, Under Sec. 123.2 of the IP Code, specific requirements have to be met in order to conclude that a geographically-descriptive mark has acquired secondary meaning, to wit: (a) the secondary meaning must have arisen as a result of substantial commercial use of a mark in the Philippines; (b) such use must result inthe distinctiveness of tieymankpSSfar as a Brthespjoducts are concerned; and (c) proof of substantilly exclusive and contin 8 aN es for 5 years before the date on which the Cla) ef distinctiveness is made. Unless seo pning has peeny established, a geographicalfye priptive markedue to its general public domain cation, is petceptibly disqualified from trademark Igration (Shang Properties PE ae and Shang Properties, Inc. v. St ‘Corporation, G.R- No. 49076 1H dre E ses GY tHE” SIfiTarty one sé Gpnfusion), | mistakey not Recessary, neither Is | Given lore eonsideration. FLAW »; in mingnt features of the competing 'e ming_of the purchasing public. jal the maFksought to be registered [apd visual iniressions created by the es, qually, sales outlets, and market The Dominancy Te trademarks that mi Duplication or imi suggest an effort toi ‘marks on the buyers segments. ist necessitates a consideration of the ‘entirety, F fhe marks as applied to the products, including t els and packaging, in determining confusing sifriafity. The discerning eye of the observer must foc t only On the predominant Words, but also artfe-other features appearing on both labels so that the observer may draw: nore whether one iS Corifusingly similar to the other (Skechers, U.S.A. Inc Inter Pact Industrial Trading Ca. 6.8. No. 194827, March 23, 2011). ‘The Holistic or Total S jjeOunterfeit LEW'S’ 501 jeans in his tailoring rant, NBI agents searcHed the\talloring shop of Vic and seized 5. Le that each of this Seized jeans were imitations of the registered. trademarks, \iké thé arcuate design, the tab, and «d jeans could be mistakehfos original LEVI'S 501 jeans due to the placement of the arcuate tab,-and two-horse| leather-patch. Diaz stated that he did not manufacture Levi's jeans, and that be usédythallabet “LS Jeans Tailoring” in the jeans that he made and sold. Is Vic liable for trademark infringement? No, Vic is not liable for trademark infringement. Levi's received an information that Vie was selling) shop. Armed with a several fake LEVI'S 507 genuine LEVI's 501 jean’ the leather patch; and that Applying the holistic test, the jeans trademarks of Levi's and Vic must be considered as a whole in ddtermining the likelihood of confusion between them. The jeans made and sold by Levi's, which included LEVI'S 501, were very popular in the Philippines. The consuming public knew that the original LEVI'S 501 jeans were under a foreign brand and quite expensive. As such, the casual buyer is predisposed to be more cautious and discriminating in and would prefer to mull over his purchase. In terms of classes of ‘customers and channels of trade, the jeans products of Levis and Vic cater to different classes of ‘customers and flow through the different channels of trade. The customers of Levi's are mall goers belonging to class A and B market group = while that of Vic are those who belong to class D and E market ‘who can only afford P300 for a pair or made-to-order pants. Under the circumstances, the consuming public could easily discem if the jeans were original or fake LEVI'S 501, or were manufactured by other brands of jeans. Thus, confusion and deception were remote (Diaz v. People, G.R. No. 180677, February 18, 2013, Bersamin, J) San Bena Counce or Law. 2017 Crwreauzen Ban OPERATIONS 41st COMMERCIAL LAW. 154. Explain the Related Goods Doctrine. What are the factors to be considered in saying that Goods are related? {Provides that there is infingement of trademark involving two goods easing the seme mark or even if the said goods are ‘non-competing, if and only if they are so related thal re Pe ay be, Dynal deceived that they originate fom the one maker or manufacturer (Societe Des Produits Neg Py. de. G.R. No. 172276, August 8, 2010). label, orig le The following The bu The ol 9 factors may be considered in resolving whether goods are related: siness (and its location) to which the goods belong; lass of product to which the goods belong; “The braducts gusty, quanity, or ig, inaucing tha naluns ofthe package, wrapper oc cae The nature and ost of the articles; The descriptive Properties, physical attributes or essential characteristics with reference to their form, Composition, texture or quality, The purpose of the good; Whether the article is bought for immediate consumption, that is, day-to-day household items; The fields of manufacture thecandilisne under which the Bifitleis usually purchased; and The chapels of trade through whieh the ‘goods flow, how they are distributed, marketed, displayed and sold YMighty Corporatidg v, & ®t ‘Gallo Winery. G:ReNo, 154342, July 14, 2004). 155. On February 25 1996, Taiwan Kolitt Corporation (Taiwan, Kolin) filed withthe Intellectual Property ck (PO) a trademark application forthe use of “KOLW" on te tle DVD players which are a combination aRttose falling under Class 9 of the Nice Classification (NCL), On July 13, 2006, Kolin Electronics C (Kolin Electronics) opposed the application alleging that the mark Taiwan Kolin ‘Seeks |tOyregigter is lentical, if not confusingly similar, with its “KOLIN" mark Previously registeredion November 23, 2003 covering products e.g. automatic voltage regulator, the Hacder;and the likewhich are aiso under Class 9 of the NCL. ts Taiwan Kolin entines to register the trademark “KOLINY?, Yes. Taiwan Kolin is énitiied to. "Roister the trademark ‘KOLIN'. ee Sole and decisive factor in deterfining a possible violation of Doctrine statés that emphasis should be on the similarity of the Glassficaton, or Yeferal description of their properties or n Ras adopted and used a trademark on his, goods would not, 1of the Same trademark by others on unrelated articles of a istration not GAly covers. unyélated good, but is also incapable fslwan Kolin Cogforatign, 1di-v-*Kolin Electronics Co. GR No intellectual property right Products involved and-n6 Characteristics. The mete without more, prevent tte different kind. Taiwan Kali of deceiving the ordinary ial 209843, March 25, 2015). —\\ 156. May a foreign corporation my to do business and*hot doing business in the Philippines, intain a suit for cancellationafadtademark registered:théroin? Tee. A foreign corporation which ae” neyer done’ Business in the Philippine Islands and which is unlicensed and unregistered to do busingsgnéfe, buts widely and favorably Known inthe Islands through the use therein ofits products bearing i ‘The purpose of such a sui 157. Define Unfair Competition and differentiate it with Trademark Infringement. Unfair competition is the passing of (or palming off or attempting to pa San Bea Couce oF Law 2017 Cenreatizep Bas OresaTtons i‘ 42COMMERCIAL LAW tates. ies ceria Jo brove the existence of fraud, oF the intent to deceive, actual o probable (Shang Prog ‘eally Corporation and Shang Properties, |; Fi lopment Corporation, GR No. 190706, Juy 24, sora 19 Properties, Inc. v. St. Francis Development Corp 168, Petron owns the trademark GASUL cylinders used for its LPG products. It is the sole entity authorized to allow resillers and distributers to refil, use, sell and distribute GASUL LPG coaraeee) Products and its trademarks. Petron received reports that Republic Gas Corp. (REGASCO) has been engaging in the unauthorized refilling, sale and distribution of Lee cylinders, Bearing their respective LPG. oy istradenames. Is REGASCO liable for trademark infringement? 1 > Yes, REGAGCO abe for tradama infingemer Toe meh re une fed use of a container bearing a registered tradlémnark in connection with the-salesdstribulionor adver letising of goods, or services which is likely to cause if 'G containers pearing the registered marks of the respofdents wil inevitably confuse the consuming pul blig, who maylalso be led to believe that the petitioners Were authorized te-fildrs and dstoutdrs of cobpdhdeht's LPG producte (Republic Gas Corp. v Petron Cong: 'G:R. No. 194062, June 17, 2013), z : COPYRIGHT 159. A filed against B a complaint for co with the two-dragon design, and lentical wrapper in his bi has no right over the Use of the copyrighted ‘wrapper, Since such ‘dasign was first adopted and used and have been duly registered by.Ceroilfood Shandong not only im China but in nearly 20 copled the deere ons worldwide, A allegedly was not.the original creator of the label, but merely Copied the design of Cervilfood Shandong, } a. Is A entitled to copyright protection? A snot entiled t0:eopyright prolegion. A Berson, tb ahtived WWtocyright must be the original Grea oF the work. He: must have Gisatad t bythis on/skil, labby-and judgment wither t directly NO 13960, aoe yeaa the Wonk af anetner{OFig hing Kiaw/riian v. Coun of Appeais GR No. 130360, August 16, 2001), x J b. How is copyright protection acquired? Works are protected by the sole'fact of their cr. as well as of their content creation (IPC, Sec. 172.2) ‘ation, Ttrespsetive Of their made or form of expression, YiRRSecTHiUs copyright protection is acquired through 160. What are the rights of broadcasting organizations on their broadcasts? Broadcasting of ganizations shall enjoy the exclusive right to camy out, authorize or Prevent any of the following acts: The rebroadcasting of their broadcasts: 5. The recording in any manner, including the making of fms or the use of video tape, of their Broadcasts forthe purpose of communication tothe public of television brosdcaste the same; and & The use of such records fo fresh transmissions or for fresh recording (IPC, Sec. 211) 161. What is the rule on assignment of copyright? The copyright is distinct from the Shall a transfer or assignment of the Sole copy or of one or several Copies of the work imply transfer, @ssignment or licensing of the copyright (Sec. 187, IPC, as amended). San Bupa Coueor or Law 45 2017 Centrauize Bar Operations~ PF commerciat awa Kk. While she was read 162. Ana is an authoripublisher and a distributoriseller of an Enal ch yn the book authored an “in the English Textbooks Section of a local bookstore, she cl areal ee peas publshed by Manny, and noticed that it has stkingly similar contents, Scher etantain, Mustaions and even examples trom one of Ana's published books a such Manny fr copyright infringement. However, Manny countered that there wai was justified by of the “Doctrine of Fair Use". 2. What is the Doctrine of Fair Use? comment, The docne of fa use provides that he use ofa copyighed work fr cis, com Sai Teporting, teaching including multiple copies for classroom use, sct Purposes is not an infringement of copyright the factors 'n determining whether the use made of a work in any particular case is fair use, the factors to be Considered shall include The purpose and character ofthe use, including whether such use is of a commercial nature or ig for non-profit educational purposes; b. The nature of the copyrighted work: ©. The amount and subst of tne portion used intrélation to the copyrighted work as a whole; andy d. The efector the use E. potential market for or-value of the copyrighted work (Sec. 185.1, PCS sAN BEDA Decompitation done to the extent A LEDS Of obtaining the information necessary to achieve interopetability a lprdgraitito thier programs iow falls under fair use subject also to the criteria above (IPC, Sec, 185, as amended by Sec. 12 of RA. 10372)) b. Is Manny's contention tenable? Manny's contentionyis/untehable-ppiying the factors to be considered in the doctrine of fair use, pubstantial portigns ofithe Giscussions and examples, and failure to-agknowledge Ana in Manny'¢ book constitute copyright inftingement. Substantial reproduction does not nécessariy require that the entre copyrighted werk or a large parton thereof was copied. If so muciis taken that the value ofthe Ceainal work is substantially diminished, there is an inftingement of copyright and to an injurious extent, the work is.appropriatéd, na v. Robles, GR No. 131522, July 19, 1999) LY ae 163. Jen is an engineer in ABC Di ‘materials. During her lunch break Tun on saltwater. She uses the rego her design. After 3 yéars,/Jen wa about the design, wanted to register refused to do so. Jojo nowseeks yout k 2, Who is the rightful ownerof the cop Jen is the rightful owner of Property Code (IPC) provi Of his employment, the cofyri Copyright is not a part of his regdlar Gut Of the employer (Sec. 1782, IPC). pany tasked to develop designs for drums and piping orks on a three-dimensional plan that would make a car ‘of the company in researching and printing sketches of complete the design. Jojo, Jen's boss, upon learning company's original copyrighted work. However, Jen advice regarding the matter. ht? Popyright’ The rules on copyright ‘ownership under the Intellectual if Whe case of work created by an author during and in the course 119 10 the employee, if the creation of the object of n ifthe employee uses the time, facilities and materials consists of developin; new innovations for car engines? . No, the answer would differ. The IPC provides that the emplo result of the performance of the employee's regularly-assign express or implied, to the contrary (Sec. 178.2, IPC), yer owns the copyright, if the work is the ed duties, unless there is an agreement, 164. Andi is a world-renowned painter. Bing, a millionaire, of the latter. Andi agreed to the proposi nude painting. After a year, Bing lost Commissioned Andi to make a nude painting 8 months of working, was able to finish the due to gambling, and thus wants to sell the g ches yo needs the consent of Andrea in order in a public auction. a. What would you advise Bing? ‘GE OF Law uieeo Bar OprRarions “Goanremennanmonsecnwerneliosnanns Nesransuenmeaiy, waiieg Sax Bev “4 2017 Ce165. 466. Does the us 167. 168. COMMERCIAL LAW Bing can validly sell the painting even without Andrea's consent. In cases of works commissioned by ‘person other than an employer of the author, and who pays for it and the work is made in pursuance of the commission, the person who so commissioned the work shall have ownership of the work, but the copyright thereto shall remain with the creator, unless there is a writen stipulation to the contrary. Thus, in this case, Bing owns the actual or physical painting, b. Who owns the copyright of the painting? In terms of copyright of the painting, Andrea still owns. such copyright, absent stipulation to the contrary. Pursuant to Sec, 178.4 of the IPC, in cases of commissioned work, the person who so commissioned the work shall have ownership of the work, but the copyright thereto shall remain with the creator, unless there is a written stipulation to the contrary. What are the rights conferred to a copyright owner? ‘a. Economic rights (IPC, Sec. 177); b. Moral rights (IPC, Sec. 193); c. Right to participate in the gross: (IPC, Sec. 200). @oplease of the original work or Droit de suite ee jaired- persons, provided that the following requisites are id distribution shall be-wiade of Beoas use eS No, the use ota distribution of a. That such coy A etter of credit is an engagement by a bank or otheriperson matle at the request of a customer that the issuer will honor drafts Orather| demands for paymefit upon.compliance With tHe conditions specified in the ediate Appellate Court) GR Nay 74886 December 18, 1992) soe / developed by merchants as a cofivéniént and relatively safe mode of the seemingly irreodncilable interests of a seller, who refuses to part with his goods before he is p & buyer, who'Wants to haye-€ontrol of the goods before paying. To break the impasse, the buyer ited to contra¢t a,bahK to‘issue a letter of credit in favor of the seller so that, by virtue of the latter-oPtreditstheiissuing'tank can authorize the seller to draw drafts and engage to pay them upon their preserifment simultaneously with the tender of documents required by the letter of credit. The buyer and the selleraree on whatdocuments are to be presented for payment, but ordinarily they are documents of tile evidencing or attesting to the shipment of the goods to the buyer (Bank Of America, NT & SA v. Court Of Appeals, G.R. No. 105395, December 10, 1993). What are the basic principles governing Letters of Credit? a. Independence Principle; The Independence Principle assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not (Transfield Philippines, Inc. v. Luzon Hydro Co., G.R. No. 146717, November 22, 2004), b. Fraud Exception Principle; Fraud Exception Principle exists when the beneficiary. for the purpose of drawing on the credit, fraudulently presents to the confirming bank, documents that contain, expressly or by implication, ‘material representations of fact that to his knowledge are untrue (I). San Broa Coueor oP Law 2017 Cenrraiszen Bar OPERATIONS7 commencing ©. Rule of Strict Compliance Documents tndered by the sole! benefisary must strict conform with te terms of he Ltr of Credit i. they must include all the documents required by the Letter of Credit (Fea rok No. 94209, Apni 30, 1991) 169. X opened a letter of credit with ABC Bank for the importation of dyestuff. When the shipment arrived, the goods turned out to be mere colored chalks instead of dyestuff. X refused to iburse ABC Bank on the ground that he did not receive the goods as ordered from the seller. ts X's refusal to reimburse ABC Bank tenable? Explain briefly. No, Xs refusal to reimburse ABC Bank is not tenable. Under a letter of credit, the bank deals only with the Necessary documents. It has nothing to do with any discrepancy or defect in the goods (BPI v. De Reny Fabric Industries, inc., G.R. No, L-24821 October 16, 1970). In this case, the fact that X received colored chalks instead of dyestuff has no implication to his liability to ABC Bank. Thus, X may not refuse to reimburse ABC Bank under the letter of credit GUARANTEE V. IRREVOCABLE LETTER OF CREDIT What is themnature of an irrevdcable letterof credit? An irrevocableiletter of credit Gannot, during its"Hfétime.beccancelled or modified, without the express Permission of the\beneficiary (Philippine Virginia Tobacco Administration v. Judge Delos Santos, G.R. No. L-27829, August19, 1988). SAN BEDA Contrast Guararitee vis-a-vis-dn Irtevocable Letter‘of Credit, A, \/\V The concept of guaraqte® vis-a-vis the concept of an irrevocable etter of cred is inconsistent with each other. The guarantee theory destroys the independence of the bank's responsibilty from the contract upon which it was opghed and the nalure of bath contracts is mutually in conflict with each other. In Contracts of guarantee; the quafentor’s,obligation is merely collateral and it arises only upon the default of the person primarily Jiable, On the other hand, in an jerevocable letter of-cfedit, the bank undertakes a primary obligation. We fiave also defined a letter of credit as an engagement by a bank or other person made at the request'ofh.a customer that jhe issuer shall honor drafis or otligr demands of payment upon Compliance with the conditigns specified in the credit (Metropolitan Waterworks and Sewerage System v. Hon. Reynaldo B. Dawayi G.R. No, 160732.dune 21, 2004). 170. 471. PLICATION OF PRINCIPLES 172, ABC Co. entered into-a contrat truckloads of papaya’ toybe us commercial letter of credit from M Rural bank to forward tovABG Co. documents that ABC Co- papayas, ABC Co. demands documents were submitted, that half of the papayas are actual XYZ Ent. whereby ABC Co. will deliver to XYZ Ent. 10 the latter's papaya whitening soaps. XYZ Ent. obtained a in favor of ABC Co. M Bank tapped the services of Uno @ letter of credit including the information of requisite {9 present for the payment of the papayas. Upon delivery of the int from Uno Rural Bank. Confirming that all the requisite Bank paid ABC Co. However, it was later found by XYZ Ent jans. XYZ Ent. sent a letter to M Bank enjoining the latter from paying ABC Co. for its failuré-to’comply with their contract. a. Is XYZ Ent. correct in enjoining M Bank from paying ABC Co.? No, MXYZ Ent’'s action is incorrect“It is settled in law that contracts involved in letters of credit arrangement are in perpetual separation. This Independence Principle assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not (Transfield Philippines, Inc. v. Luzon Hydro Co., G.R. No. 146717, November 22, 2004) In this case, ABC Co. has presented all the requisite documents and the bank need only confirm that such documents strictly complied with the requirements of the letter of credit in order for it to be justified in paying ABC Co. b. Supposing Uno Rural Bank refused to pay ABC Co., may the latter demand the former to honor the letter of credit? No, ABC Co. may not compel Uno Rural Bank to honor the letter of credit San Broa Counc or Law 46 2017 Conteauzen Bax Oreramions -EE ae COMMERCIAL LAW . ‘guaranteed that it had delivered 10 truckloads of Papaya, can XYZ Ent. enjoin M Bank from paying ABC Co? In this case, ABC Co. falsely indicateg of it actually contained durjanaitiis, op enjoinment ofthe letter of credit Ne ract with KI Cont i-htered into 2 contract with KI Construction 6 months. Théy-agrebd|thatit-c5s9 gI fay of delay. To ensure payment of dy delivered 10 truckloads of papaya when half Araaciemwouid alow XYZ Ent. to ask for the Leo. Gee Ofp. for the lattek-fo construct and delay, KI Construgfion will pay N Corp, the agreed amount of damages, Ki and irfevoeable)etfer of credit which was in due. time, One, week, before. the expiration, ofthe” 6-month Period, KI d-for an extension of time to deliy ‘Claiming thatjthe’delay was due to the Raut OEN Corp. A controversy as to the cause ofthe delay, lay, which involved the workmanship of the Puilging, ensued. The conttoversy. tomained unresolved. Despite the’ cont roversy, N Corp. presented a claim against Atlantic Bank by executing a draftagainst tha letter of credit, a. Can Atlantic Bank tefuse payment dué-to the unresolved ear Heat refuse payment tothe unresolved cont oversybetncen the two companies. The Bank is Soler liable to pay based on the terms and cond) Bank and Trust Ca¥,.CA (G\feANon.040209,.Apdl 30,1994), the of credit is independent of the contract between. the buyer-apr o > we b. Can N Corp. claimpdirectly from Kl Construction? Expl j Yes, N Corp. can Saif ciectiy from Kl Conéirictiol, Thefrrevocablé éter of credit was merely a security arrangemeh Aid notte ‘malbyconttagt betWeeh ihe two companies, Opening a letter of credit does jahipvoive ee P mopepifrtdvor of the beneficiary. I ony Tay craw AUN up to thedesignatpf Sunt. It does not mean they 2 ‘been specifically resepréd of pela Aryst (Feati Bank and Trust Co. y, 04), ae RS ‘ x ‘TRUST RECEIPTS LAW” CONCEPT OF TRUSTRECEIPT Construction seouryd from Atlantic Bank aiconfitmen accepted by N Saw Bepa Cowece oF Law 2017 Cewreauaen Bax OPERATIONSPBZ commenciat av aaa yy the bank the amount spent transaction becomes a mere loan, where the borrower is obligated t0 PAY TE TA seeee4 une 13, for the purchase of the goods (Land Bank of the Philippines v. Perez, 2012) b. Supposing that Himalaya Co. is instead engaged in the si 0 goods purchased were destroyed, Himalaya Corp. contends that it sh the contention correct? No, Himalaya Co. should bear the loss. The entruster (Ultra Bank) is not the owner of the goods and the trust receipt was merely signed as a security for the loan, Loss of the property that served as a security does not extinguish the obligation. The entrustee will then bear the loss of the goods or property (Rosario Textile Mils Co. v. Home Bankers Savings and Trust Co., G.R. No, 137232, June 29, 2008). ale of construction materials and the ould not bear the loss. Is 175. Is the transaction covered by the Trust Receipts Law where the lender knew all along that the construction materials subject matter of the trust receipt were not intended for resale but for the personal use of the obligor? The transaction will not be considered a. tnustsrepeipttransaction but one of simple loan. When both partes enter into an agreement nowing fully well that the retUmjofitie goods subject of the trust receipt is ot possible.even without any fault on the part of the trustee, ‘tis not a trust receipt transaction penalized under Sec. 1336f RD 115 in relation to-Ate315."pafl4(b)"ohRPC, as the only obligation’actually agreed upon by the paftits would be the return of the proceeds of the sale transaction. This ftansaction becomes a mere loan, wijefe/the borrower is dbligéte®t6 py, the|bankithe amount spent forthe purchase of the goods. In such a'siflatign, the Trust Receipts Law and coptesponding liability for. estafa will not apply (Hur Tin Yang v. People. ofitie Pillippines, 14 August 2013). i~ LAAVV A RIGHTS OF. Writs of execution Weré teleased.by, the.Labor Arbiter against GRPC. Corporation alongside with inal decision in a.labor case awarding Separation pay and other benefits to the complainants at the same time former @mployees of the said corporation. The Sheriff levied on execution personal properties located Ttnthé factory of GRPC Corp. Mega Bank filed a Third-Party Claim asserting ownership over th d properties on the strength of trust receipts executed by GRPC Corp which were not yet jettled...in.its,favor, The claim being denied, Mega Bank filed an appeal before NLRC ho\ same was dismissed on the ground that trust receipts are mere security transaction: st vest upon petitioner any fitle of ownership, and that although the Trust Receipt eme ribed petitioner as owner of the goods, there was no showing that it cancelled the trv i took possession of the goods: Is NLRC’s decision valid? id. The ‘warrants thelvalidity of the entfuster’s security interest in goods, documents, or instrument pursuant to the written terms of a/trust receipts as against all creditors of the ist receipt agreement. Moreover, inyPridéntial Bank v. NLRC (G.R. No. pourt stated that the entruster’s interest becomes a lien on the goods {ithnave {6 be*séltied first before the entrustee can consolidate his SX 176. because the entruster's adv: ownership over the goods. In this case, the ownership of the ‘continues {6 be vested! in Mega Bank until trust receipts are fully paid which in this case, were not In effect, Mega Bank has the primary right to the subject properties until its advances are fully paid: LIGATIONS AND LIABILITIES OF THE ENTRUSTEE 177. What are the obligations of an entrustee in a Trust Receipt Agreement? P.D. 115 or The Trust Receipts Law states the two obligation of an entrustee in a Trust Receipt transaction. The first is covered by the 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 this obligation to return it (devolvera) to the owner. In all trust receipts transactions, both obligations on the part of the trustee exist in the altemnative-the return of the proceeds of the sale or the retum of the recovery of the goods, whether raw or processed (Land Bank of the Philippines v. Perez, G.R. No. 166884, June 13, 2012) Saw BeDa Gouce of 48 2017 G1 BaCOMMERCIAL LAW 178, What is the liability of the entrustee forthe loss of goods. trust receipt? " The risk of loss shall be bome by the entrustee. Lo subject of a trust receipt, pending their disposition, i negligence of the entrustee, shall not extinguish hi Sec. 10). documents or instruments covered by a SS Of goods, documents or instruments which are the Irrespective of whether oF not it was due to the fault or 's obligation to the entruster for the value thereof (TRL, 179, What is the protection of the purchaser of goods from the entrustee as against the entruster's security interest where such purchaser is in good faith and for value? The Trust Receipts Law states: Any purchaser of goods from an entrustee with right to sell, or of documents or instruments through their customary form of transfer, who buys the goods, documents, or instruments for value and in good faith from the entrustee, acquires said goods, documents or instruments free from the entruster's security interest (TRL, Sec. 11) REMEDIES AVAILABLE 180. Sy buys goods from a foreign supplienusi arrival of the goods at the piefy'the bank'req sbreceipt before she is allowed to eu guage. Sy disposes the goods and receives Payment but dogs not pay the bank. The bal 4 Criminal action against Angelica Sy for violation ef the Trust Receipts Law, Sy asserts.that the trust it receipt is-Only to secure her debt and that q-eriminal action cannot. fié against her /because th constitutional ri No, Sy is incorrect“ the proceeds of th€a\é the amount owing to: instruments if they constitute the crime the entruster the reifi the trust receipt. T of commerce as it h provision is the failu and not the failure to “I ; 181. Ed, representing MHh-feceived in trust from

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