LAST MINUTE LECTURE NOTES IN COMMERCIAL LAW

INTELLECTUAL PROPERTY

Essential elements of unfair competition.

The essential elements of an action for unfair competition are: (1) confusing similarity in the general appearance of
the goods and (2) intent to deceive the public and de- fraud a competitor.

The confusing similarity may or may not result from similarity in the marks, but may result from other external
factors in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the
similarity of the appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be
shown. (In-N-Out Burger, Inc. v. Sehwani, Inc., G.R. No. 179127, December 24, 2008, 575 SCRA 535)

Passing off or palming off in unfair competition.

Passing off (or palming off) takes place where the defendant, by imitative devices on the general appearance of the
goods, misleads prospective purchasers into buying his merchandise under the impression that they are buying that
of his competitors. (Shang Properties Realty Corp. v. St. Francis Development Corp., G.R. No. 190706, July 21, 2014)

Elements of infringement of trademark.

The elements of the offense of trademark infringement under the Intellectual Property Code are: 1. The trademark
being infringed is registered in the Intellectual Property Office; 2. The trademark is reproduced, counterfeited,
copied, or colorably imitated by the infringer; 3. The infringing mark is used in connection with the sale, offering for
sale, or advertising of any goods, business or services; or the infringing mark is applied to labels, signs, prints,
packages, wrappers, receptacles or advertisements intended to be used upon or in connection with such goods,
business or services; 4. The use or application of the infringing mark is likely to cause confusion or mistake or to
deceive purchasers or others as to the goods or services themselves or as to the source or origin of such goods or
services or the identity of such business; and 5. The use or application of the infringing mark is without the consent
of the trademark owner or the assignee thereof. Diaz vs. People, 691 SCRA 139, G.R. No. 180677 February 18, 2013

LS Jeans not infringing upon Levi Strauss trademark.

Diaz used the trademark “LS JEANS TAILORING” for the jeans he produced and sold in his tailoring shops. His
trademark was visually and aurally different from the trademark “LEVI STRAUSS & CO” appearing on the patch of
original jeans under the trademark LEVI’S 501. The word “LS” could not be confused as a derivative from “LEVI
STRAUSS” by virtue of the “LS” being connected to the word “TAILORING,” thereby openly suggesting that the jeans
bearing the trademark “LS JEANS TAILORING” came or were bought from the tailoring shops of Diaz, not from the
malls or boutiques selling original LEVI’S 501 jeans to the consuming public. Diaz vs. People, 691 SCRA 139, G.R. No.
180677 February 18, 2013

Who is an ordinary purchaser?

“Ordinary purchaser” is defined as one “accustomed to buy, and therefore to some extent familiar with, the goods
in question. (Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600, G.R. No. 100098
December 29, 1995)

Video footage.

News, as expressed in a video footage, is entitled to copyright protection. Broadcasting organizations have not only
copyright on but also neighboring rights over their broadcasts. Copyrightability of a work is different from fair use
of a work for purposes of news reporting (ABS- CBN Co. v. Gozon, G.R. No. 195956, March 11, 2015).

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 LAST MINUTE LECTURE NOTES IN COMMERCIAL LAW

Surname as trademark.

It has been held that a personal name or surname may not be monopolized as a trademark or tradename as against
others of the same name or surname. For in the absence of contract, fraud, or estoppel, any man may use his name
or surname in all legitimate ways. Thus, “Wellington” is a surname, and its first user has no cause of action against
the junior user of “Wellington” as it is incapable of exclusive appropriation. (Emerald Garment Manufacturing
Corporation vs. Court of Appeals, 251 SCRA 600, G.R. No. 100098 December 29, 1995)

AMLA

Freeze Order.

As the law now stands, it is solely the CA which has the authority to issue a freeze order as well as to extend its
effectivity. It also has the exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC vis-à-
vis accounts and deposits related to money-laundering activities. (Republic vs. Cabrini, Green & Ross, Inc., 489 SCRA
644, G.R. No. 154522, G.R. No. 154694, G.R. No. 155554, G.R. No. 155711 May 5, 2006)

BANKING

Degree of care.

A banking institution is obliged to exercise the highest degree of diligence as well as high standards of integrity and
performance in all its transactions because its business is imbued with public interest. (Comsaving Banks (now GSIS
Family Bank) vs. Capistrano, 704 SCRA 72, G.R. No. 170942 August 28, 2013) The bank’s act of requesting the
respondents to pre-sign the certificate of acceptance/completion even the house to be financed was not yet
constructed is irregular and fraudulent. (ibid)

When a co-depositor inquires into the deposit, does he need the written consent of the other depositor?

A co-payee in a check deposited in a bank is likewise a co-depositor. No written consent therefore of the other co-
payee is needed in an inquiry of the deposits by the said co-depositor. (China Banking Corporation vs. Court Of
Appeals, G.R. No. 140687, 18 December 2006)

To satisfy their obligation to Daryl, Inc., a manager’s check was obtained by the spouses Nico and Jewel. The check
was obtained from AUF Bank. However, the check remained in the possession of the spouses but Daryl Company
was advised that is it available for withdrawal. More than 10 years passed without the amount of the check being
withdrawn, AUF Bank reported it to the Bureau of Treasury as among its “unclaimed balances”. Decide if the
amount of check automatically passed to the payee, Daryl, Inc. since the check is a manager’s check.

The mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account
of the payee. In case the procurer of the manager’s or cashier’s check retains custody of the instrument, does not
tender it to the intended payee, or fails to make an effective delivery, it cannot be said that delivery of the check has
taken place.

Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the
account of the spouses was never made. As a result, the assigned fund is deemed to remain part of the account of
the spouses who procured the manager’s check. The doctrine that the deposit represented by a manager’s check
automatically passes to the payee is inapplicable, because the instrument although accepted in advance remained
undelivered. (Rizal Commercial Banking Corporation v. Hi-Tri Development Corporation, G.R. No. 192413, June 13,
2012)

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Exclusions from PDIC Insurance Coverage.

1. Investment products such as bonds and securities, trust accounts, and other similar instruments which do not fall under the
definition of a Deposit.
2. Deposit accounts or transactions which are unfunded, or are fictitious or fraudulent.
3. Deposit accounts or transactions constituting, and/or emanating from, Unsafe and/or Unsound Banking Practice/s, as
determined by the PDIC, in consultation with the BSP, after due notice and hearing, and Publication of the DCD issued by the
PDIC against such deposit accounts or transactions, in accordance with Sec. 4 of this Regulatory Issuance.
4. Deposits that are determined to be the proceeds of an Unlawful Activity as defined under R.A. 9160 (Regulatory Issuance 2011-
02, Sec. 6).

Splitting of deposit.

Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the statutory
maximum amount of insured deposit maintained under the name of natural or juridical persons is broken down and
transferred into two (2) or more accounts in the name/s of natural or juridical persons or entities who have no
beneficial ownership on transferred deposits in their names within one hundred twenty (120) days immediately
preceding or during a bank declared bank holiday, or immediately preceding a closure order issued by the Monetary
Board of the Bangko Sentral ng Pilipinas for the purpose of availing of the maximum deposit insurance coverage
(R.A. 9576).

LETTERS OF CREDIT

Nature of Letters of Credit.

Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the
presentation of documents and is thus a commitment by the issuer that the party in whose favor it is issued and who
can collect upon it will have his credit against the applicant of the letter, duly paid in the amount specified in the
letter. They are in effect absolute undertakings to pay the money advanced or the amount for which credit is given
on the faith of the instrument. They are primary obligations and not accessory contracts and while they are security
arrangements, they are not converted thereby into contracts of guaranty. (Metropolitan Waterworks and Sewerage
System vs. Daway, 432 SCRA 559, G.R. No. 160732 June 21, 2004)

Independence Principle.

The so-called “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. vs. Luzon Hydro Corporation, 443 SCRA 307, G.R. No. 146717
November 22, 2004)

Bank’s obligation under a letter of credit.

The obligation of the banks issuing letters of credit are solidary with that of the person or entity requesting for its
issuance, the same being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the
presentation of the set of documents required therein. (Metropolitan Waterworks and Sewerage System vs. Daway,
432 SCRA 559, G.R. No. 160732 June 21, 2004)

Stay Order in rehabilitation does not apply to letter of credit obligation.

Stay order does not apply to herein petitioner as the prohibition is on the enforcement of claims against guarantors
or sureties of the debtors whose obligations are not solidary with the debtor. The participating banks’ obligation are
solidary in that it is a primary, direct, definite and an absolute undertaking to pay and is not conditioned on the prior

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 LAST MINUTE LECTURE NOTES IN COMMERCIAL LAW

exhaustion of the debtor’s assets. These are the same characteristics of a surety or solidary obligor. Being solidary,
the claims against them can be pursued separately from and independently of the rehabilitation case. (Metropolitan
Waterworks and Sewerage System vs. Daway, 432 SCRA 559, G.R. No. 160732 June 21, 2004)

TRUST RECEIPTS

Not a trust receipt where goods are sold by person to buyer on credit.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments
for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods,
documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security
for the payment of the purchase price, does not constitute a trust receipt transaction. (Dela Cruz vs. Planters
Products, Inc., 691 SCRA 28, G.R. No. 158649 February 18, 2013)

Liability of officers under a trust receipt.

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law. (Ching vs. Secretary of Justice, 481 SCRA 609[2006] citing U.S. v. Park, 421 U.S.
658, 95, S. Ct. 1903)

TRANSPORTATION

Release of goods without return of the bill of lading.

The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to the carrier and their
respective obligations are considered canceled. The law, however, provides two exceptions where the goods may
be released without the surrender of the bill of lading because the consignee can no longer return it. These
exceptions are when the bill of lading gets lost or for other cause. In either case, the consignee must issue a receipt
to the carrier upon the release of the goods. Such receipt shall produce the same effect as the surrender of the bill
of lading.(Designer Baskets, Inc. vs. Air Sea Transport, Inc., 787 SCRA 138, G.R. No. 184513 March 9, 2016)

Explain “Shipper’s Load and Count” arrangement and its implications.

This means that the shipper was solely responsible for the loading of the container, while the carrier was oblivious
to the contents of the shipment. Protection against pilferage of the shipment was the consignee’s lookout. (Marina
Port Services, Inc. vs. American Home Assurance Corporation, 766 SCRA 408, G.R. No. 201822 August 12, 2015)

The arrastre operator was, like any ordinary depositary, duty-bound to take good care of the goods received from
the vessel and to turn the same over to the party entitled to their possession, subject to such qualifications as may
have validly been imposed in the contract between the parties. The arrastre operator was not required to verify the
contents of the container received and to compare them with those declared by the shipper because, as earlier
stated, the cargo was at the shipper’s load and count. The arrastre operator was expected to deliver to the consignee
only the container received from the carrier. (Marina Port Services, Inc. vs. American Home Assurance Corporation,
766 SCRA 408, G.R. No. 201822 August 12, 2015)

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Arrastre operators; degree of care.

In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman. Being the custodian of the goods discharged from a vessel, an
arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their
possession. With such a responsibility, the arrastre operator must prove that the losses were not due to its
negligence or to that of its employees. (Asian Terminals, Inc. vs. Allied Guarantee Insurance, Co., Inc., 772 SCRA 362,
G.R. No. 182208 October 14, 2015)

Package Liability under the COGSA.

Under Sec. 4(5) of the COGSA, when the shipper fails to declare the value of the goods in the bill of lading, neither
the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the
transportation of goods in an amount exceeding US$500 per package. (Philam Insurance Company, Inc. v. Heung-A
Shipping Corporation, et al., G.R. No. 187701, July 23, 2014)

However, when nature and value of goods were declared in the invoice which was incorporated in the bill of lading,
the same will constitute substantial compliance for the exception to apply.

It is unjust for the carrier to invoke the limitation when it is informed that the shipper paid the freight charges
corresponding to the value of the goods. (Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corporation and Mitsui
Sumitomo Insurance Co., Ltd., January 12, 2015)

Notice of Claim under the COGSA.

Under Sec. 3(6) of COGSA, failure to comply with the notice requirement shall not affect or prejudice the right of
the shipper to bring suit within one year after the delivery of the goods. (Philam Insurance Company, Inc. v. Heung-
A Shipping Corporation, et al., G.R. No. 187701, July 23, 2014)

PRIVATE CORPORATION

Eleemosynary Corporation

An eleemosynary is a corporation created for or devoted to charitable purposes or one supported by charity.

Nell Doctrine.

In the 1965 case of Nell v. Pacific Farms, Inc., the Court first pronounced the rule regarding the transfer of all the
assets of one corporation to another (hereafter referred to as the Nell Doctrine) as follows:

Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is
not liable for the debts and liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability for such debts.

The Nell Doctrine thus states the general rule that the transfer of all the assets of a corporation to another shall not
render the latter liable to the liabilities of the transferor. (Y-I Leisure Philippines, Inc. vs. Yu, 770 SCRA 56, G.R. No.
207161 September 8, 2015 citing 15 SCRA 415).

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In a Business-Enterprise Transfer, buyer is liable for the debts of the seller.

In such transfer, the transferee corporation’s interest goes beyond the assets of the transferor’s assets and its desires
to acquire the latter’s business enterprise, including its goodwill. Here, the transferee purchases not only the assets
of the transferor, but also its business. As a result of the sale, the transferor is merely left with its juridical existence,
devoid of its industry and earning capacity. (Y-I Leisure Philippines, Inc. vs. Yu, 770 SCRA 56, G.R. No. 207161
September 8, 2015) Thus, the transferee is liable for the debts and liabilities of his transferor arising from the business
enterprise conveyed and does not require the existence of fraud against the creditors before it takes full force and
effect. (ibid)

Section 40 (Corporation Code) suitably reflects the business-enterprise transfer under the exception of the Nell
Doctrine because the purchasing or transferee corporation necessarily continued the business of the selling or
transferor corporation. Given that the transferee corporation acquired not only the assets but also the business of
the transferor corporation, then the liabilities of the latter are inevitably assigned to the former. (ibid)

It must be clarified, however, that not every transfer of the entire corporate assets would qualify under Section 40.
It does not apply (1) if the sale of the entire property and assets is necessary in the usual and regular course of
business of corporation, or (2) if the proceeds of the sale or other disposition of such property and assets will be
appropriated for the conduct of its remaining business. Thus, the litmus test to determine the applicability of Section
40 would be the capacity of the corporation to continue its business after the sale of all or substantially all its assets.
(ibid)

Effects of merger or consolidation

1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation
designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;

2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be
subject to all the duties and liabilities of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and
franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account,
including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each
constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further
act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the
constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities
or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be
prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by such merger or consolidation. (Section 80, Corporation Code)

The Oversight Committee of the corporation called a special stockholders’ meeting. In the meeting, the board
members were removed and new directors elected. Rule on the validity of the removal of the board members.

As the Special Stockholders' Meeting was called neither by the President nor by the Board of Directors (as required
in the By-laws) but by the Oversight Committee, the meeting cannot have any legal effect. Accordingly, the removal
of board members and their replacement is invalid. (Jose A. Bernas v. Jovencio F. Cinco, G.R. Nos. 163356-57/163368-
69; July 10, 2015)

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Service of notice prior to meeting.

The law only requires the sending/mailing of the notice of a stockholders’ meeting to the stockholders of the
corporation. Sending/mailing is different from filing or service under the Rules of Court. Had the lawmakers intended
to include the stockholder’s receipt of the notice, they would have clearly reflected such requirement in the law.
(Guy vs. Guy, 790 SCRA 288, G.R. No. 184068 April 19, 2016)

Requisites to hold a corporate officer personally liable.

To hold a director or officer personally liable for corporate obligations, two requisites must concur, to wit: (1) the
complaint must allege that the director or officer assented to the patently unlawful acts of the corporation, or that
the director or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the director or
officer acted in bad faith. (Lozada vs. Mendoza, 805 SCRA 673, G.R. No. 196134 October 12, 2016) Thus, absent
showing that the officer had acted deliberately, maliciously or in bad faith in handling the affairs of the corporation,
and such acts had eventually resulted in the closure of its business, he could not be validly held to be jointly and
solidarily liable with the corporation. (ibid)

Also, mere allegations that Morning Star Management Ventures Corporation and Pic ‘N Pac Mart, Inc. “were doing
relatively well during the time that Morning Star was incurring huge losses” do not establish bad faith or fraud by
respondents (who are interlocking directors of the companies). Such allegations alone do not prove that the
individual respondents were transferring respondent Morning Star’s properties in fraud of its creditors. (Pioneer
Insurance vs. Morning Star Travel, 762 SCRA 283, G.R. No. 198436 July 8, 2015) Neither does the allegation that
Morning Star Management Ventures Corporation has title over the land and building where the offices can be found
establish bad faith or fraud. (ibid)

However, where the evidence shows that the officer being held liable is the person responsible in the actual running
of the company and for the malicious and illegal dismissal of the complainant; he, likewise, was shown to have a role
in dissolving the original obligor company in an obvious "scheme to avoid liability" which jurisprudence has always
looked upon with a suspicious eye in order to protect the rights of labor. (Jose Emmanuel P. Guillermo v. Crisanto P.
Uson
G.R. No. 198967; March 7, 2016)

Rodriguez filed a Complaint-in-Intervention alleging that in a Memorandum of Agreement (MOA) dated May 2,
2012, Basalo (a stockholder of the GDITI) authorized him to take over, manage, and control the operations of GDITI
in the Luzon area. Decide if this is in order.

Being a stock corporation, its powers are vested in its duly elected Board of Directors, the body that: (1) exercises all
powers provided for under the Corporation Code; (2) conducts all business of the corporation; and (3) controls and
holds all property of the corporation. Therefore, Rodriguez, being a non-stockholder, may not exercise corporate
power through a MOA. (Tom vs. Rodriguez, 761 SCRA 679, G.R. No. 215764 July 6, 2015)

Control Test.

Under the “control test,” shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality. It is only when based on the attendant
facts and circumstances of the case, there is, in the mind of the Court, doubt in the 60-40 Filipino-equity ownership
in the corporation, that it may apply the “grandfather rule.” (Querubin vs. Commission on Elections En Banc, 776
SCRA 715, G.R. No. 218787 December 8, 2015)

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The corporation claims that due to “insignificant holding” of only .001% of its stockholder, the latter cannot be
allowed to inspect the records and books of the corporation. Decide.

The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in
so doing has not required any specific amount of interest for the exercise of the right to inspect. (Terelay Investment
and Development Corporation vs. Yulo, 765 SCRA 1, G.R. No. 160924 August 5, 2015)

When does the action to enforce the right to have the transfer of shares registered accrue?

The right to have the transfer registered exists from the time of the transfers and it is to the transferee’s benefit that
the right be exercised early. However, since the law does not prescribe any period within which the registration
should be effected the action to be enforced the right does not accrue until there has been a demand and a refusal
to record the transfer. (11 Campus, p. 310, 1990 ed., citing Won v. Wack Wack Golf, 104 Phil. 466, Emphasis supplied,
cited in Interport Resources Corporation vs. Securities Specialist, Inc., 792 SCRA 155, G.R. No. 154069 June 6, 2016)

Term of office of trustees of an educational corporation.

The second paragraph of Section 108 of the Corporation Code, although setting the term of the members of the
Board of Trustees at five years, contains a proviso expressly subjecting the duration to what is otherwise provided
in the articles of incorporation or by-laws of the educational corporation – that contrary provision controls on the
term of office. (Barayuga vs. Adventist University of the Philippines, 655 SCRA 640, G.R. No. 168008 August 17,
2011)

What are the requirements before one can qualify as a de facto corporation?

The requirements are:

(a) the existence of a valid law under which it may be incorporated;
(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the
existence of a de facto corporation. (Seventh Day Adventist Conference Church of Southern Philippines, Inc. vs.
Northeastern Mindanao Mission of Seventh Day Adventist, Inc., 496 SCRA 215, G.R. No. 150416 July 21, 2006)

Right of Appraisal

A stockholder who dissents from certain corporate actions has the right to demand payment of the fair value of his
or her shares. This right, known as the right of appraisal, is expressly recognized in Section 81 of the Corporation
Code. (Turner vs. Lorenzo Shipping Corporation, 636 SCRA 13, G.R. No. 157479 November 24, 2010)

Tests to determine an intra-corporate dispute

The relationship test determines whether the relationship is: "[a] between the corporation, partnership or
association and the public; [b] between the corporation, partnership or association and its stockholders, partners,
members, or officers; [c] between the corporation, partnership or association and the State [insofar] as its franchise,
permit or license to operate is concerned; and [d] among the stockholders, partners or associates themselves.

Under the controversy test, the dispute must be rooted in the existence of an intra-corporate relationship, and must
refer to the enforcement of the parties' correlative rights and obligations under the Corporation Code, as well as the
internal and intra-corporate regulatory rules of the corporation, in order to be an intra-corporate dispute. Thus, if
the complaint does not question the status of the petitioners as members of the association, the complaint cannot
be considered an intra-corporate dispute. (Edito Gulfo, et. al. v. Jose Ancheta, G.R. No. 175301, August 15, 2012)

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SECURITIES REGULATION CODE

Jurisdiction on validation of proxies.

Validation of proxies relating to the determination of the existence of a quorum for the election of the directors is
outside the SEC’s jurisdiction as this case pertains to RTC’s jurisdiction. (SEC vs. CA, G.R. No. 187702, October 22,
2014) However, the power of the SEC to regulate proxies remains in place in instances when stockholders vote on
matters other than the election of directors. (ibid)

Jurisdiction over intra-corporate controversy where the company is sequestered.

It is the RTC (and not the Sandiganbayan) that has jurisdiction over an intra-corporate controversy involving a
sequestered company.

Thus, when what are sought to be determined are the propriety of the election of a party as a Director, and his
authority to act in that capacity, it is still the RTC that has the proper jurisdiction. (Roberto Abad v. Philippine
Communications Satellite Corporation; G.R. No. 200620, March 18, 2015)

Tender Offer; Applicability.

A tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares
therein on the terms specified in the offer. Tender offer is in place to protect minority shareholders against any
scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to exit the
company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the
majority shareholders.

Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing provision was
increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is still applicable
even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total
outstanding equity securities of the public company. (Cemco Holding Inc. vs. National Life Insurance Company, G.R.
No. 171815, August 7, 2007)

Investment contract.

An investment contract is a contract, transaction, or scheme where a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others. The United States Supreme Court held in
Securities and Exchange Commission v. W.J. Howey Co. that, for an investment contract to exist, the following
elements, referred to as the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of
money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily
from the efforts of others.

Sale of internet website does not fall under investment contract as the buyers do not invest money in the company
that it could use for running some business that would generate profits for the investors. (Securities and Exchange
Commission v. Prosperity.Com Inc., G.R. No. 164197, January 25, 2012)

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FRIA
Liquidation vs. Rehabilitation.

Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same time. In rehabilitation,
corporations have to maintain their assets to continue business operations. In liquidation, on the other hand,
corporations preserve their assets in order to sell them. (Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc.,
784 SCRA 173, G.R. No. 177382 February 17, 2016)

Cram-down clause.

A rehabilitation plan may be approved by the court even over the opposition of the creditors holding a majority of
the corporation’s total liabilities if there is a showing that rehabilitation is feasible and the opposition of the creditors
is manifestly unreasonable. (Bank of the Philippine Islands vs. Sarabia Manor Hotel Corporation, 702 SCRA 432, G.R.
No. 175844 July 29, 2013)

Financial need for medical expenses/support is not a ground for receivership.

Financial need and like reasons will not justify granting of receivership. (Mila Caboverde Tantano & Roseller Tantano
vs Dominalda Espina-Caboverde, et al, G.R. No. 203585; July 29, 2013)

Exceptions to the Stay or Suspension Order. –

The Stay or Suspension Order shall not apply:

(a) to cases already pending appeal in the Supreme Court as of commencement date;
(b) cases pending or filed at a specialized court or quasi-judicial agency which, upon determination by the court is capable of
resolving the claim more quickly, fairly and efficiently than the court;
(c) sureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers
of letters of credit;
(d) to any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and
securities entrusted to the latter in the ordinary course of the latter's business as well as any action of such securities market
participant or the appropriate regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin
agreement for the settlement of securities transactions in accordance with the provisions of the Securities Regulation Code and
its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly
authorized, registered and/or recognized by the appropriate regulatory agency like the BSP and the SEC as well as any form of
actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any
proceeding commend under this Act. (Sec. 18, FRIA)

Requirement to implead creditors.

An appeal to a corporate rehabilitation case may deprive creditor-stakeholders of property. Due process dictates
that these creditors be impleaded to give them an opportunity to protect the property owed to them. Creditors are
indispensable parties to a rehabilitation case, even if a rehabilitation case is non-adversarial. (Viva Shipping Lines,
Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, G.R. No. 177382 February 17, 2016) Thus, the failure of
petitioner to implead its creditors as respondents cannot be cured by serving copies of the Petition on its creditors.
(ibid)

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NEGOTIABLE INSTRUMENTS

Explain the “fictitious payee” rule.

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered
as a bearer instrument. (Philippine National Bank vs. Rodriguez, 566 SCRA 513[2008])

A check, payable to the order of Yang and Chow was deposited to a bank (collecting bank) with the lone
indorsement of Yang. Yang, subsequently withdrew the entire proceeds thereof. State the implications.

Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must
indorse unless the one indorsing has authority to indorse for the others. The payment of an instrument over a missing
indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the
case of joint payees. (Metrobank vs. BA Finance Corporation, G.R. No. 179952, 4 December 2009)

Inland vs. Foreign Bill of Exchange

An inland bill of exchange is a bill which is or on its face purports to be, both drawn and payable within the Philippines
(Sec. 129, NIL). Thus, a foreign bill of exchange may be drawn outside the Philippines, payable outside the Philippines,
or both drawn and payable outside of the Philippines (Bank of Philippine Islands vs. CIR, G.R. No. 137002, 27 July
2006). Further, a foreign bill of exchange must be protested in case of dishonor to charge the drawer and the
indorsers while an inland bill of exchange need not be protested.

Liability of the drawee in case of forgery of drawer’s signature.

Under Section 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose
signature is forged.

Even if the bank performed with utmost diligence, the drawer whose signature was forged may still recover from
the bank as long as he or she is not precluded from setting up the defense of forgery. (Samsung Construction
Company Philippines, Inc. vs. Far East Bank and Trust Company, 436 SCRA 402, G.R. No. 129015 August 13, 2004)

INSURANCE

Life insurance payable on the death of the insured; Period to contest and implications.

Under Section 48 of the Insurance Code, the insurer is given two years — from the effectivity of a life insurance
contract and while the insured is alive — to discover or prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period
lapses, OR when the insured dies within the period, the insurer must make good on the policy, even though the
policy was obtained by fraud, concealment, or misrepresentation. (Sun Life of Canada (Philippines), Inc. vs. Sibya,
793 SCRA 45, G.R. No. 211212 June 8, 2016)

Materiality.

The insured need not die of the disease he had failed to disclose to the insurer, as it is sufficient that his non-
disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making
inquiries. (Sunlife Assurance Company of Canada vs. Court of Appeals, 245 SCRA 268, G.R. No. 105135 June 22,
1995)

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Defenses not barred by incontestability

The following defenses may still be interposed by the insurer notwithstanding incontestable status of the policy:
1. The person taking the insurance lacked insurable interest as required by law
2. The cause of the death of the insured is an excepted risk
3. The premiums have not been paid
4. The conditions of the policy relating to military or naval service have been violated
5. The fraud is of a particularly vicious type
6. The beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy
after the loss has happened
7. The action was not brought within the time specified.

Why is a contract of insurance synallagmatic?

Both the insured and the insurer have reciprocal obligations to each other.

Determine the existence of insurable interest of a person on:

(a) His bank deposit – Yes. He has insurable interest as loss of it will make him suffer pecuniary loss.
(b) A property he bought pending its delivery – Yes, as the sale has been perfected.
(c) A residential house that he expects to inherit – No. An heir has no insurable interest over a property that
he is yet to inherit.

Standard or union mortgage clause.

In a standard or union mortgage clause, the acts of the mortgagor do not affect the mortgagee. There is a separate
and distinct contract of insurance on the interest of the mortgagee.

Open or loss payable clause.

Acts of the mortgagor affects the mortgagee. The insurer pays the loss, if any, to the mortgagee as his interest may
appear.

Payment of premium thru postdated check.

A postdated check bearing date prior to the loss which remains unencashed at the time of loss constitutes valid
payment of premium. (American Home Insurance vs. Chua, 28 June 1999) But payment of premium by a postdated
check with a date subsequent to the loss is insufficient to put the insurance into effect.

Other insurance clause.

Where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is
violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known
as the “other insurance clause.” The purpose for the inclusion of this clause is to prevent an increase in the moral
hazard. (American Home Assurance Company vs. Chua, 309 SCRA 250, G.R. No. 130421 June 28, 1999)

Liability of insurer in case of suicide

The insurer in a life insurance contract shall be liable in case of suicide only when it is committed after the policy has
been in force for a period of two (2) years from the date of its issue or of its last reinstatement, unless the policy
provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable
regardless of the date of commission. (Sec. 183, IC)

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No Fault Indemnity Claim.

The no-fault indemnity clause of the CMVLI allows the victim of a vehicular incident to recover indemnity from the insurer of the
relevant insurer without the necessity of showing fault.
Any claim for death or injury to any passenger or third party shall be paid without the necessity of proving fault or negligence of
any kind; Provided, That for purposes of this section:
a. The total indemnity in respect of any person shall not be less than Fifteen thousand pesos
(₱15,000.00);
b. The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate
the claim:
(1) Police report of accident; and
(2) Death certificate and evidence sufficient to establish the proper payee; or
(3) Medical report and evidence of medical or hospital disbursement in respect of which refund
is claimed;
c. Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim,
shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting
from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases,
the right of the party paying the claim to recover against the owner of the vehicle responsible for the
accident shall be maintained. (Sec. 391, IC)

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