1

Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Introduction Table of Contents Taxation 180

e Syllabus-based eReviewers of eCodal+Pro is now on its Corporation 2

4th edition. is passion project started in 2021 while the Corporation
I
author, Atty. RGL, reviewed for the 2020_21 #BestBarEver. Partnership 51 R.A. No. 11232, Revised Corporation Code
e review materials are painstakingly curated to address
General Principles
the topics of the current bar syllabi. Know that the aim here Insurance 67
is to be as concise and direct as possible, while making sure Kinds of Corporation
all topics are covered. e materials are not envisioned to be Transportation 90 Incorporation and Organization
a primary review material as we give deference to the
scholarly works of legal luminaries. It is highly advised that Banking 101 Directors and Trustees
the materials are to be treated as supplements to reviewers
Powers of Corporations; Incidental
as prescribed by law school professors.
Intellectual Property 116 Powers; Ultra Vires Doctrine
Please note as well that the author has no crystal ball and is
Stockholders and Members
not in the business of predicting what topics will come out Data Privacy Act 155
in the Bar. What the author would like to impart to the Mergers and Consolidations
reader is the sense of security and confidence that a ter
Securities Regulation Code 160 Corporate Dissolution and Liquidation
finishing the materials, all topics have been covered.
Foreign Corporations
Lastly, the author wishes to request the reader to be Electronic Commerce Act 167
vanguards of the law. If you happen to grab a copy of this
A General Principles
material without having subscribed to eCodal+Pro, please Access Devices Registration 168
contact the author at b.com/ecodalplus, or email him at
Nature and Attributes
[email protected].
Philippine Competition Act 170
Nationality of Corporations
May you have the strength and peace of mind as you take
one more step into becoming members of the noblest of all Public Service Act 177 Doctrine of Separate Judicial Personality
professions.
Doctrine of Piercing the Corporate Veil;
Padayon! Liability of Directors and O cers

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 2 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

over the "specific stock", i.e., he can dispose

Trust Fund Doctrine 2. Both the Voting Control Test and the Beneficial
Ownership Test must be applied to determine of the stock or direct another to dispose of it
for him, or
1 Nature and Attributes whether a corporation is a “Philippine national.”
e 60-40 ownership requirement in favor of c. both, i.e., he can vote and dispose of that
§2. Corporation Defined. – A corporation is an
Filipino citizens must apply separately to each class "specific stock" or direct another to vote or
artificial being created by operation of law, having
of shares, whether common, preferred non-voting, dispose it for him,
the right of succession and the powers, attributes,
and properties expressly authorized by law or preferred voting or any other class of shares. (Heirs then such Filipino is the "beneficial owner" of that
incidental to its existence. of Gamboa v. Teves 2012 En Banc Resolution) "specific stock." (Roy III v. Herbosa 2017 En Banc
3. e SEC suggested applying the Grandfather Rule Resolution)
A corporation is
on
1. an artificial being a. Control Test
a. two (2) levels of corporate relations for
Control Test finds initial application and "must govern
2. created by operation of law,
i. publicly-held corporations or in reckoning foreign equity ownership in corporations
3. having the right of succession and engaged in nationalized economic activities."
ii. where the shares are traded in the
4. the powers, attributes, and properties expressly stock exchanges, and to Where a corporation and its non-Filipino stockholders
authorized by law or incidental to its existence. own stocks in a SEC registered enterprise,
b. three (3) levels for
2 Nationality of Corporations i. closely held corporations or a. at least 60% of the capital stock outstanding and
entitled to vote of each of both corporations
1. e term "capital" in Section 11, Article XII of the ii. the shares of which are not traded in must be owned and held by citizens of the
Constitution refers only to shares of stock entitled the stock exchanges. (Narra Nickel Philippines; AND
to vote in the election of directors, and thus, refers Mining v. Redmont Consolidated Mines
2015 Resolution) b. at least 60% of the members of the Board of
ONLY TO COMMON SHARES, and NOT to the total
Directors of each of both corporations must be
outstanding capital stock comprising both common 4. If the Filipino has citizens of the Philippines,
and non-voting preferred shares.
a. Political Rights — the voting power of the in order that the corporation shall be considered a
Full beneficial ownership of 60% of the outstanding "specific stock", i.e., he can vote the stock or Philippine national.
capital stock, coupled with 60% of the voting rights, direct another to vote for him, or
is required. (Gamboa v. Teves 2011 En Banc)
b. Economic Rights — the investment power

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 3 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

b. Grandfather Rule Doctrine of Separate Judicial EXC: A juridical person can validly claim for libel or any
3
e Grandfather Rule may be used as a supplement to Personality other form of defamation and claim moral damages.
the Control Test, that is, as a further check to ensure
A corporation has a personality separate and distinct Article 2219(7) of the Civil Code expressly authorizes
that control and beneficial ownership of a corporation is
from that of its stockholders or members composing it, the recovery of moral damages in cases of libel,
in fact lodged in Filipinos.
as well as from the directors, trustees and o ficers who slander or any other form of defamation. Article
e Grandfather Rule is the method by which the act on its behalf. 2219(7) does not qualify whether the plainti f is a natural
percentage of Filipino equity in a corporation engaged or juridical person.
Consequences
in nationalized and/or partly nationalized areas of
activities is computed. A resort to the Grandfather Rule 1. e property of the corporation is not the property Silverio Jr. v. Filipino Business Consultants Inc.
is necessary if doubt exists as to the locus of the of its stockholders or members.
WON FBCI's acquisition of the "substantial and controlling
“beneficial ownership” and “control.” 2. A corporation can incur obligations which should shares of stocks" of Esses and Tri-Star entitles it to the possession
“Doubt” refers to various indicia that the “beneficial not be attributed to its stockholders, directors and of the property owned by the latter.
ownership” and “control” of the corporation do not in o ficers.
NO. Esses and Tri-Star, just like FBCI, are corporations. A
fact reside in Filipino shareholders but in foreign 3. Limited Liability Rule — A stockholder is personally corporation has a personality distinct from that of its
stakeholders. ese indicators are: liable for the financial obligations of the corporation stockholders. us, FBCI's alleged controlling
a. at the foreign investors provide practically all to the extent of his unpaid subscription. shareholdings in Esses and Tri-Star merely represent a
the funds for the joint investment undertaken by Liability for tort and crimes proportionate or aliquot interest in the properties of the
these Filipino businessmen and their foreign two corporations. Such controlling shareholdings do not
e corporation should alone be liable for its own
partner; vest FBCI with any legal right or title to any of Esses and
corporate acts and liabilities entered into by its
b. at the foreign investors undertake to provide Tri-Star's corporate properties.
authorized o ficers.
practically all the technological support for the
Recovery of damages
joint venture;
GR: A corporation is not entitled to moral damages Doctrine of Piercing the Corporate
c. at the foreign investors, while being minority 4
because, not being a natural person, it cannot Veil; Liability of Directors and O cers
stockholders, manage the company and prepare
experience physical su fering or sentiments like Under the doctrine of "piercing the veil of corporate
all economic viability studies. (Narra Nickel
wounded feelings, serious anxiety, mental anguish fiction," the court looks at the corporation as a mere
Mining v. Redmont Consolidated Mines 2015
and moral shock. collection of individuals or an aggregation of persons
Resolution)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 4 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

undertaking business as a group, disregarding the since it is a mere alter ego or business conduit of a PH was organized for the purpose of defeating
separate juridical personality of the corporation person, or where the corporation is so organized public convenience or evading an existing
unifying the group. and controlled and its a fairs are so conducted as to obligation;
e procedure for the doctrine to be properly applied: make it merely an instrumentality, agency, conduit
or adjunct of another corporation. b. petitioners failed to allege any fraudulent acts
1) e court must first acquire jurisdiction over the committed by CyberOne PH in order to justify a
corporation or corporations involved before its or Case law lays down a three-pronged test to determine the wrong, protect a fraud, or defend a crime;
their separate personalities are disregarded; and application of the alter ego theory, which is also known as
the instrumentality theory, namely: c. the mere fact that CyberOne PH's major
2) e doctrine can only be raised during a full-blown stockholders are CyberOne AU and respondent
trial over a cause of action duly commenced 1) Instrumentality or Control Test — Control, not mere Mikrut does not prove that CyberOne PH was
involving parties duly brought under the authority majority or complete stock control, but complete organized and controlled and its a fairs conducted
of the court by way of service of summons or what domination, not only of finances but of policy and in a manner that made it merely an
passes as such service. (Kukan International v. Reyes business practice in respect to the transaction instrumentality, agency, conduit or adjunct of
2010) attacked so that the corporate entity as to this CyberOne AU.
transaction had at the time no separate mind, will or
Stockholders of a corporation are liable for the debts of the existence of its own;
corporation up to the extent of their unpaid subscriptions. ey
2) Fraud Test — Such control must have been used by Parayday v. Shogun Shipping Co. 2020
cannot invoke the veil of corporate identity as a shield from
liability, because the veil may be li ted to avoid defrauding the defendant to commit fraud or wrong; and
Other than their bare allegations, petitioners could have
corporate creditors. (Halley v. Printwell 2011) 3) Harm Test — e aforesaid control and breach of presented before the labor tribunals Oceanview's
e doctrine of piercing the corporate veil applies only in duty must have proximately caused the injury or amended Articles of Incorporation indicating that it
three (3) basic areas, namely: unjust loss complained of. (DBP v. Hydro Resources changed its name to Shogun Ships.
Contractors 2013)
1) Defeat of public convenience as when the corporate e doctrine of piercing the veil of corporate entity can
fiction is used as a vehicle for the evasion of an only be raised during a full-blown trial over a cause of
Gesolgon v. CyberOne PH 2020
existing obligation; action duly commenced involving parties duly brought
Here, the application of the doctrine of piercing the under the authority of the court by way of service of
2) Fraud cases or when the corporate entity is used to corporate veil is unwarranted. summons or what passes as such service.
justify a wrong, protect fraud, or defend a crime; or
a. no evidence was presented to prove that CyberOne Here, Oceanview was never impleaded as a party
3) Alter ego cases, where a corporation is merely a farce

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 5 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

respondent and was never validly served with summons. Case Circumstance Apply Case Circumstance Apply

Reverse Piercing of the Corporate Veil e prevailing rule is that a v. Labayen corporation is not by itself a
Halley v. stockholder is personally liable 2014 su ficient ground to disregard
International Academy of Management & Economics v. Litton
2017
Printwell, Inc. for the financial obligations of ✔ the separate corporate
2011 the corporation to the extent of personality. e wrongdoing
e plainti f seeks to reach the assets of a corporation to his unpaid subscription. must be clearly and convincingly
satisfy claims against a corporate insider. It has two (2) established.
types: Goldkey was merely an adjunct of
Heirs of Tan Hammer and, as such, the legal Rosales v. New e sale of the assets of New
Outsider reverse piercing occurs when a party with a
Uy v. fiction that it has a separate A.N.J.H. ANJH to NH Oil was a
claim against an individual or corporation attempts to ✔
International personality from that of ✔ Enterprises circumvention of the employees'
be repaid with assets of a corporation owned or
Exchange Hammer should be brushed 2015 security of tenure.
substantially controlled by the defendant.
Bank 2013 aside as they are, undeniably,
In contrast, in insider reverse piercing, the controlling one and the same. International Santos used I/AME as a means
members will attempt to ignore the corporate fiction Academy of to defeat judicial processes and
in order to take advantage of a benefit available to the While ownership by one Management to evade his obligation to Litton. ✔
corporation, such as an interest in a lawsuit or corporation of all or a great & Economics v. Outsider reverse veil-piercing is
protection of personal assets. majority of stocks of another Litton 2017 applicable in the instant case.
DBP v. Hydro
corporation and their
Resources G Holdings-being the majority
Survey of Cases. — Apply Piercing? interlocking directorates may
Contractors
serve as indicia of control, by
✘ Maricalum and controlling stockholder-had
Case Circumstance Apply Corporation Mining Corp. been exercising significant
themselves and without more, ✘
2013 v. Florentino control over Maricalum Mining.
A corporation not impleaded in a however, these circumstances
Kukan 2018 However, the fraud and harm
suit cannot be subject to the are insu ficient to establish an
International
court's process of piercing the
✘ alter ego relationship. tests were not satisfied.
v. Reyes 2010
veil of its corporate fiction.
WPM e mere ownership by a single
International stockholder of even all or nearly ✘ 5 Trust Fund Doctrine
Trading, Inc. all of the capital stocks of a

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 6 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Under the doctrine, the capital stock, property, and Close Corporation 1) charitable, 6) fraternal, or similar purposes,
other assets of a corporation are regarded as equity in like
trust for the payment of corporate creditors, who are Educational Corporations 2) religious, 7) literary,
preferred in the distribution of corporate assets. us, 3) educational, 8) scientific, 11) trade,
Religious Corporation
any disposition of corporate funds and assets to the 4) professional, 9) social, 12) industry,
prejudice of creditors is null and void. (Turner v. Lorenzo One Person Corporation
5) cultural, 10) civic service, 13) agricultural and
Shipping 2010) like chambers,
1 Stock Corporation
e Trust Fund Doctrine provides that subscriptions to or any combination
the capital stock of a corporation constitute a fund to §3. Stock corporations are those
thereof.
which the creditors have a right to look for the a. which have capital stock
satisfaction of their claims. Non-Diversion Rule
b. divided into shares and
is doctrine is the underlying principle in the Any profit which a nonstock corporation may obtain
c. are authorized to distribute to the holders of
procedure for the distribution of capital assets, embodied incidental to its operations shall, whenever necessary or
such shares, dividends, or allotments of the
in the Corporation Code, which allows the distribution proper, be used for the furtherance of the purpose or
surplus profits on the basis of the shares held.
of corporate capital only in three instances: purposes for which the corporation was organized. e
law strictly implements the non-diversion rule by:
1) amendment of the AOI to reduce the ACS, 2 Non-Stock Corporation
2) purchase of redeemable shares by the a) Forbidding distribution of profits;
§86. Definition. – xxx a nonstock corporation is one
corporation, regardless of the existence of b) Requiring immediate utilization of
where no part of its income is distributable as
unrestricted retained earnings, and dividends to its members, trustees, or o ficers: contributions for intended purposes; and
3) dissolution and eventual liquidation of the Provided, at any profit which a nonstock c) Limiting administrative expenses of certain
corporation. (Ong Yong v. Tiu) corporation may obtain incidental to its operations eleemosynary corporations. (of, relating to, or
shall, whenever necessary or proper, be used for the supported by charity)
B Kinds of Corporation furtherance of the purpose or purposes for which the
corporation was organized, subject to the provisions 3 Close Corporation
Stock Corporation of this Title.
§86. A close corporation is one whose AOI provide
Non-Stock Corporation §87. Purposes. – May be formed or organized for that:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 7 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) All of the corporation’s issued stock of all classes, 7) corporations declared to be vested with public 2. e most the restrictions may do is to give the
exclusive of treasury shares, shall be held of record interest. remaining stockholders the right of first
by not more than a specified number of persons, not refusal—that is, to match the o fer of a third party
exceeding twenty (20); Bustos v. Millians Shoe, Inc 2017 meeting the prescribed qualifications.
2) All of the issued stock of all classes shall be subject to WON the CA correctly considered the properties of Spouses Cruz Preemptive Right
one or more specified restrictions on transfer; and answerable for the obligations of MSI.
Extends to ALL stock to be issued, including reissuance
3) e corporation shall not list in any stock exchange NO. Section 97 of the Corporation Code only specifies that of treasury shares, whether for money, property or
or make any public o fering of any of its stock of any "the stockholders of the corporation shall be subject to all personal services, or in payment of corporate debts,
class. liabilities of directors." Nowhere in that provision do we unless the AOI provides otherwise.
A corporation shall be deemed NOT a close corporation find any inference that stockholders of a close corporation
are automatically liable for corporate debts and
Amendment of Articles of Incorporation
when at least two-thirds (2/3) of its voting stock or voting
obligations. Shall require the a firmative vote of at least two-thirds
rights is owned or controlled by another corporation which
(2/3) of the OCS, whether with or without voting rights,
is not a close corporation. (San Juan Structural and Steel Given that the true owner of the subject property is not the
or of such greater proportion of shares as may be
Fabricators, Inc. v. CA) corporation, petitioner cannot be considered a creditor of
specifically provided in the AOI.
GR: ANY corporation may be incorporated as a close MSI but a holder of a claim against respondent spouses.
corporation; 4 Educational Corporations
Validity of Restrictions on Transfer of Shares
EXC: §106. e number of trustees of educational
MUST APPEAR in the AOI, in the bylaws, as well as in
1) mining or oil companies, the certificate of stock; otherwise, the same shall not be institutions organized as nonstock corporations shall
binding on any purchaser in good faith. be between 5 and 15.
2) stock exchanges,
Said restrictions shall not be more onerous than e number of trustees shall be in multiples of five
3) banks,
granting the existing stockholders or the corporation (5).
4) insurance companies,
the option to purchase the shares. Unless otherwise provided in the AOI or bylaws, the
5) public utilities, BOT shall, as soon as organized, so classify
1. e law only permits restrictions based on
6) educational institutions and qualifications and conditions, and NOT on the themselves that the term of o fice of one-fi th (1/5) of
personality of shareholders. their number shall expire every year.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 8 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Trustees therea ter elected to fill vacancies, occurring E fectivity — From and a ter filing with the SEC of the 4) Insurance,
before the expiration of a particular term, shall hold AOI, verified by a fidavit or a firmation, and 5) Public and publicly-listed companies, and
o fice only for the unexpired period. Trustees elected accompanied by the required documents.
therea ter to fill vacancies caused by expiration of 6) Non-chartered GOCCs
DOES NOT require approval of the SEC in consonance
term shall hold o fice for five (5) years. with the separation of church and state doctrine. may not incorporate as an OPC
A majority of the trustees shall constitute a quorum 7) A natural person who is licensed to exercise a
for the transaction of business.
Religious Societies
profession may not organize as an OPC for the
Any religious society, religious order, diocese, synod, or purpose of exercising such profession except as
5 Religious Corporation district organization of any religious denomination, otherwise provided under special laws.
sect or church, may, upon written consent and/or by an
Corporation Sole a firmative vote at a meeting called for the purpose of at Capital Stock Requirement
A corporation sole may be formed by the chief least two-thirds (2/3) of its membership, incorporate for Shall not be required to have a minimum ACS except as
archbishop, bishop, priest, minister, rabbi, or other the administration of its temporalities or for the otherwise provided by special law.
presiding elder of such religious denomination, sect, or management of its a fairs, properties, and estate by
filing with the SEC, AOI verified by the a fidavit of the Articles of Incorporation and By-Laws
church, for the purpose of administering and
presiding elder, secretary, or clerk or other member of Aside from the requirements set forth in Sec 14, the AOI
managing, as trustee, the a fairs, property and
such religious society. of the OPC shall likewise substantially contain the
temporalities of such religious denomination, sect or
following:
church.
6 One Person Corporation a) If the single stockholder is a trust or an estate,
A corporation aggregate formed for the same purpose,
§116. A One Person Corporation is a corporation the name, nationality, and residence of the
on the other hand, consists of two or more persons. A
with a single stockholder. Only a natural person, trustee, administrator, executor, guardian,
corporation sole may be converted into a corporation
trust, or an estate may form an OPC. conservator, custodian, or other person
aggregate by mere amendment of its AOI. e one
exercising fiduciary duties together with the
member, with the concurrence of two-thirds of the
Excepted Corporations proof of such authority to act on behalf of the
membership of the organization for whom he acts as
1) Banks and quasi-banks, trust or estate; and
trustee, can self-will the amendment. (Iglesia Evangélica
Metodista en las Islas Filipinas v. Lazaro) 2) Pre-need, b) Name, nationality, residence of the nominee and
alternate nominee, and the extent, coverage and
3) Trust,
limitation of the authority.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 9 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Bylaws are NOT required to be submitted. Liability Within sixty (60) days from the transfer of the
shares, the legal heirs shall notify the SEC of their
Corporate Name A sole shareholder claiming limited liability has the
decision to either
e letters “OPC” shall be indicated either below or at burden of a firmatively showing that the corporation
was adequately financed. a) wind up and dissolve the OPC or
the end of its corporate name.
e principles of piercing the corporate veil applies b) convert it into an ordinary stock corporation.
Corporate Structure and O cers with equal force to OPCs as with other corporations.
e single stockholder shall be Holding/Parent and Subsidiary
Conversion of Corporation to One Person 7
1) e sole director and president of the OPC;
Corporation
Corporations and Vice-Versa
2) May NOT be appointed as the corporate 1. From Ordinary to OPC
secretary; Maricalum Mining Corp. v. Florentino
When a single stockholder acquires all the stocks of an
2018
3) May likewise be the self-appointed treasurer. ordinary stock corporation, the latter may apply for
Here, the single stockholder shall give a bond to the SEC conversion into an OPC. A parent or holding company is a corporation which
in such a sum as may be required, to be renewed every owns or is organized to own a substantial portion of
2. From OPC to Ordinary Stock
two (2) years or as o ten as may be required. another company's voting shares of stock enough to
A notice shall be filed with the SEC within sixty (60) control or in luence the latter's management, policies or
Nominee days from the occurrence of the circumstances a fairs thru election of the latter's board of directors or
In the event of the single stockholder’s death or leading to the conversion into an ordinary stock otherwise. However, the term "holding company" is
incapacity, the nominee shall take the place of the single corporation. customarily used interchangeably with the term
stockholder as director and shall manage the In case of death of the single stockholder, the "investment company" which, in turn, is defined by
corporation’s a fairs. nominee or alternate nominee shall Section 4 (a) of Republic Act (R.A.) No. 2629 as any issuer
(corporation) which is or holds itself out as being engaged
e written consent of the nominee and alternate a) transfer the shares to the duly designated
primarily, or proposes to engage primarily, in the business of
nominee shall be attached to the application for legal heir or estate within seven (7) days
investing, reinvesting, or trading in securities.
incorporation. Such consent may be withdrawn in from receipt of either an a fidavit of heirship
writing any time before the death or incapacity of the or self-adjudication executed by a sole heir, In other words, a "holding company" is organized and is
single stockholder. and basically conducting its business by investing substantially
in the equity securities of another company for the
b) notify the SEC of the transfer.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 10 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

purposes of controlling their policies (as opposed to common circumstances that may also render a subsidiary act independently in the interest of the subsidiary
directly engaging in operating activities) and "holding" an instrumentality, to wit: but take their orders from the parent corporation;
them in a conglomerate or umbrella structure along with 1) e parent corporation owns all or most of the and
other subsidiaries. Significantly, the holding company capital stock of the subsidiary; 11) e formal legal requirements of the subsidiary are
itself-being a separate entity-does not own the assets of not observed.
and does not answer for the liabilities of the subsidiary or 2) e parent and subsidiary corporations have
a filiate. e management of the subsidiary or a filiate still common directors or o ficers;
rests in the hands of its own board of directors and 3) e parent corporation finances the subsidiary;
C Incorporation and Organization
corporate o ficers. It is in keeping with the basic rule a
4) e parent corporation subscribes to all the capital
corporation is a juridical entity which is vested with a legal
stock of the subsidiary or otherwise causes its Number and Qualification of Incorporators
personality separate and distinct from those acting for
incorporation;
and in its behalf and, in general, from the people Corporate Name
comprising it. e corporate form was created to allow 5) e subsidiary has grossly inadequate capital;
Capitalization
shareholders to invest without incurring personal liability 6) e parent corporation pays the salaries and other
for the acts of the corporation. expenses or losses of the subsidiary; Corporate Term
While the veil of corporate fiction may be pierced under 7) e subsidiary has substantially no business except Classification of Shares
certain instances, mere ownership of a subsidiary does with the parent corporation or no assets except
Articles of Incorporation
not justify the imposition of liability on the parent those conveyed to or by the parent corporation;
company. It must further appear that to recognize a By-Laws
8) In the papers of the parent corporation or in the
parent and a subsidiary as separate entities would aid in
statements of its o ficers, the subsidiary is Corporate O cers
the consummation of a wrong. us, a holding
described as a department or division of the parent
corporation has a separate corporate existence and is to De Facto Corporation
corporation, or its business or financial
be treated as a separate entity; unless the facts show that
responsibility is referred to as the parent Corporation by Estoppel
such separate corporate existence is a mere sham, or has
corporation's own;
been used as an instrument for concealing the truth. Number and Qualification of
9) e parent corporation uses the property of the 1
In Philippine National Bank v. Ritratto Group Inc., et al., the Incorporators
subsidiary as its own;
Court enumerated a combination of any of the following
10) e directors or executives of the subsidiary do not

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 11 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

b) Punctuations, articles, conjunctions,

§10. Number and Qualifications of Incorporators. – 4. Incorporators who are natural persons must be of
Any person, partnership, association or legal age; contractions, prepositions, abbreviations,
di ferent tenses, spacing, or number of the
corporation, singly or jointly with others but not 5. Each incorporator of a stock corporation must own same word or phrase.
more than fi teen (15) in number, may organize a or be a subscriber to at least one (1) share of the
corporation for any lawful purpose or purposes: capital stock. e Commission, upon determination that the
corporate name is:
Provided, at natural persons who are Changes from BP 68
1. not distinguishable from a name already
1. licensed to practice a profession, and 6. No more prescribed minimum number of reserved or registered for the use of another
2. partnerships or associations organized for the incorporators; corporation;
purpose of practicing a profession, 7. Majority need not be PH residents. 2. already protected by law; or
shall not be allowed to organize as a corporation
2 Corporate Name 3. contrary to law, rules and regulations,
unless otherwise provided under special laws.
may summarily order the corporation to immediately
Incorporators who are natural persons must be of §17. Corporate Name. – No corporate name shall be
cease and desist from using such name and require
legal age. allowed by the Commission
the corporation to register a new one. xxx
Each incorporator of a stock corporation must own 1. if it is not distinguishable from that already
If the corporation fails to comply with the
or be a subscriber to at least one (1) share of the reserved or registered for the use of another
Commission’s order, the Commission may
capital stock. corporation, or
1. hold the corporation and its responsible
A corporation with a single stockholder is considered 2. if such name is already protected by law, or
directors or o ficers in contempt and/or
a One Person Corporation. 3. when its use is contrary to existing law, rules
2. hold them administratively, civilly and/or
Incorporators are those stockholders or members and regulations.
criminally liable under this Code and other
mentioned in the AOI as originally forming and composing A name is not distinguishable even if it contains one applicable laws and/or
the corporation and who are signatories thereof. or more of the following:
3. revoke the registration of the corporation.
1. Any person, partnership, association or corporation, a) e word “corporation”, “company”,
§18. Registration, Incorporation and Commencement of
2. Singly or jointly with others; “incorporated”, “limited”, “limited liability”,
Corporate Existence. – xxx
or an abbreviation of one of such words; and
3. Not more than fi teen (15) in number;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 12 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

required to have a minimum capital stock, except as

A private corporation organized under this Code 2. hold them administratively, civilly and/or criminally
commences its corporate existence and juridical liable and/or revoke the registration of the otherwise specifically provided by special law.
personality from the date the Commission issues the corporation. Type What It Is Practical Purpose
certificate of incorporation xxx.
Registration, Incorporation, and Information about the
Corporate Name and Limitations on its Use Commencement of Corporate Existence
e minimum ACS permits
No corporate name shall be allowed by the SEC 1. A person or group of persons desiring to incorporate amount of capital government regulators
shall submit the intended corporate name to the Authorized which the and major corporate
1. if it is not distinguishable from that already
SEC for verification. Capital corporation will creditors to assess the
reserved or registered for the use of another
corporation, or 2. If the Commission finds that the name is Stock receive when it ability of the
distinguishable, not protected by law and is not issues all its corporation to raise
2. if such name is already protected by law, or
contrary to law, rules and regulations, the name (ACS) shares. their prescribed capital
3. when its use is contrary to existing law, rules and shall be reserved in favor of the incorporators. ACS = No. of without further
regulations. Shares x Par Value approval from the SEC
3. e incorporators shall then submit their AOI and
e SEC and its stockholders.
bylaws to the SEC.
1. may summarily order the corporation to 4. If the SEC finds that the submitted documents and e amount of SCS
immediately cease and desist from using such information are fully compliant, the SEC shall issue e committed represents the value of
name; the certificate of incorporation. Subscribed amount of capital assets that are
2. may require the corporation to register a new one; Capital which the considered as corporate
A private corporation organized under the RCC
Stock corporation will trust fund. Prospective
3. shall cause the removal of all visible signages, commences its corporate existence and juridical
receive from its creditors may rely on
marks, advertisements, labels, prints and other personality from the date the SEC issues the certificate of
(SCS) existing this amount as their
e fects bearing such corporate name. incorporation.
subscribers. bu fer fund against
If the corporation fails to comply with the SEC’s order, the corporate losses.
3 Capitalization
SEC may
§17. Minimum Capital Stock Not Required of Stock Paid-up e amount of e PUC is the
1. hold the corporation and its responsible directors or Capital capital which the reference point of the
o ficers in contempt and/or Corporations. – Stock corporations shall not be
corporation extent of corporate

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 13 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Type What It Is Practical Purpose 4 Corporate Term Provided, further, at such extension of the corporate
term shall take e fect only on the day following the
(PUC) already received earnings that the board §11. Corporate Term. — A corporation shall have
original or subsequent expiry date(s). Xxxx
from its may retain for use of perpetual existence unless its articles of
subscribers the corporation. incorporation provide otherwise. GR: Perpetual existence, including those already
(represents the Whenever a existing during the e fectivity of the RCC.
Corporations with certificates of incorporation
paid portion of the corporation proposes to
issued prior to the e fectivity of this Code, and which EXC: Unless the AOI of newly established corporations
SCS) and the value increase its ACS, it provide otherwise.
continue to exist, shall have perpetual existence,
of assets that are must establish that it
unless the corporation, upon a vote of its stockholders e existing corporation, upon a vote of its
available to the has received additional
representing a majority of its outstanding capital stockholders representing a MAJORITY of its
corporation for its PUC of at least 6.25% of
stock, notifies the Commission that it elects to retain outstanding capital stock, notifies the SEC that it
use. the proposed increase.
its specific corporate term pursuant to its articles of elects to retain its specific corporate term pursuant
e aggregate incorporation: to its AOI.
amount of Provided, at any change in the corporate term Corporations with a limited term may extend or shorten its
premium arising e APIC also forms under this section is without prejudice to the term by amending its AOI within 3 years prior to the
from capital stock part of the corporate appraisal right of dissenting stockholders in expiration of the term.
subscriptions, trust fund; thus, it may accordance with the provisions of this Code. 1. An extension may be made earlier than the three (3)
Additional donations not be declared as
A corporate term for a specific period may be year period only for justifiable reasons.
Paid-in received, and dividend not be
extended or shortened by amending the articles of 2. Such extension of the corporate term shall take
Capital shareholders’ reclassified to absorb
incorporation: e fect only on the day following the original or
additional capital deficiency except
(APIC) infusion without through an Provided, at no extension may be made earlier than subsequent expiry date.
corresponding organizational three (3) years prior to the original or subsequent 3. In case of extension of corporate term, a dissenting
shares of stock to restructuring approved expiry date(s) unless there are justifiable reasons for stockholder may exercise the right of appraisal.
wipe out the by the SEC. an earlier extension as may be determined by the
Commission: Corporations with expired terms may apply for a revival of its
corporation
corporate existence. e GR and EXC apply.
deficit.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 14 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Action Taken Voting Required guaranty, however, that the share will receive any
c) Sale, lease, exchange, mortgage, pledge, or other
disposition of all or substantially all of the corporate dividends.
Opting out from the default Stockholders representing property;
regime of Perpetual Existence MAJORITY of OCS Republic Planters Bank v. Agana, Sr.
d) Incurring, creating, or increasing bonded
Majority of Board + WON petitioner can be compelled to redeem the preferred shares
indebtedness;
Extending or Shortening the issued to the private respondent.
Stockholders representing
Corporate Term e) Increase or decrease of ACS;
2/3 of OCS NO. Preferences granted to preferred stockholders do not
f) Merger or consolidation of the corporation with give them a lien upon the property of the corporation nor
another corporation or other corporations; make them creditors of the corporation, the right of the
Classification of Shares g) Investment of corporate funds in another former being always subordinate to the latter. Dividends
5
§6-9 corporation or business; and are thus payable only when there are profits earned by the
Scope of voting rights subject to classification h) Dissolution of the corporation. corporation and as a general rule, even if there are existing
profits, the BOD has the discretion to determine whether
Common shareholders, as residual owners, have full Preferred or not dividends are to be declared.
voting rights. Holders of other shares have similar
One which entitles the holder thereof to certain In this case, while the stock certificate does allow
rights, except when denied by the corporation’s charter
preferences over the holders of common stock. e redemption, the option to do so was clearly vested in the
or in compliance with the provisions of the constitution
preferences are designed to induce persons to subscribe petitioner bank. e redemption therefore is clearly the
or the law.
for shares of a corporation. Preferred shares take a type known as "optional". us, except as otherwise
Non-voting shares are merely prevented from electing multiplicity of forms. e most common forms may be provided in the stock certificate, the redemption rests
directors and other matters presented to the classified into two: entirely with the corporation and the stockholder is
shareholders in general for approval. without right to either compel or refuse the redemption
1. preferred shares as to assets. — gives the holder
Holders of nonvoting shares shall nevertheless be entitled to thereof preference in the distribution of the assets of of its stock.
vote on the following matters: the corporation in case of liquidation.
Common
a) Amendment of the AOI; 2. preferred shares as to dividends. — the holder of
which is entitled to receive dividends on said share Shares with no preferences. Holders of these shares are
b) Adoption and amendment of bylaws;
to the extent agreed upon before any dividends at all regarded as residual owners, who assume all the risks
are paid to the holders of common stock. ere is no but reap all the benefits in the a fairs of the corporation.
ey may only receive dividends and/or assets upon

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 15 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

liquidation following the satisfaction of the stipulated corporation. It in e fect qualifies the general rule that other lawful means. Such shares may again be disposed
returns to other funders of the corporation, such as the corporation cannot purchase its own shares except of for a reasonable price fixed by the board of directors.
creditors or preferred shareholders. out of current retained earnings. e common shares a ter conversion and release from
Founder's However, while redeemable shares may be redeemed sequestration become treasury stocks.
regardless of the existence of unrestricted retained A treasury share or stock, which may be common or
Where the exclusive right to vote and be voted for in the
earnings, this is subject to the condition that the preferred, may be used for a variety of corporate
election of directors is granted, it must be for a limited
corporation has, a ter such redemption, assets in its books to purposes, such as for a stock bonus plan for
period not to exceed five (5) years from the date of
cover debts and liabilities inclusive of capital stock. management and employees or for acquiring another
incorporation.
Redemption, therefore, may not be made where company. It may be held indefinitely, resold or retired.
Such exclusive right shall not be allowed if its exercise
1. the corporation is insolvent or While held in the company's treasury, the stock earns
will violate
2. if such redemption will cause insolvency or no dividends and has no vote in company a fairs.
1. the “Anti-Dummy Law”;
inability of the corporation to meet its debts as Instances giving rise to Treasury Shares
2. the “Foreign Investments Act of 1991”; and they mature. 1) When the corporation redeems its shares pursuant
3. other pertinent laws. ese may be issued by the corporation when expressly to its contract with shareholders;
provided in the AOI. 2) When permitted or required by law, as when:
Redeemable
Shares usually preferred, which by their terms are Mandatory Redemption a) e corporation eliminates fractional shares
redeemable Corporations which have issued mandatory redeemable arising out of stock dividends;
shares with mandatory redemption features are
1. at a fixed date, or b) e corporation collects or compromises on
required to set up and maintain a sinking fund to be
2. at the option of either issuing corporation, or delinquency subscription; or
deposited in a trustee bank, and which shall not be
the stockholder, or both invested in risky or speculative ventures. c) e corporation pays a dissenting
at a certain redemption price. A redemption by the stockholder.
Treasury
corporation of its stock is, in a sense, a repurchase of it 3) In close corporations, in case of:
for cancellation. Shares of stock which have been issued and fully paid for,
but subsequently reacquired by the issuing corporation a) Deadlock (§ 103); or
Redemption of shares is allowed even if there are no
through purchase, redemption, donation, or some b) Withdrawal by a shareholder (§ 104).
unrestricted retained earnings on the books of the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 16 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Articles of Incorporation h) If it be a stock corporation, 5) the place and date of execution.

6
§13-15
1) the amount of its authorized capital stock,
By-Laws
Contents 2) number of shares into which it is divided, 7
§45-47
a) e name of the corporation; 3) the par value of each, names,
Contents of By-Laws
b) e specific purpose or purposes for which the 4) nationalities, and residence addresses of the
a) e time, place and manner of calling and
corporation is being formed. Where a corporation original subscribers,
conducting regular or special meetings of the
has more than one stated purpose, the AOI shall
5) amount subscribed and paid by each on the directors or trustees;
indicate the primary purpose and the secondary
subscription, and
purpose or purposes. b) e time and manner of calling and conducting
6) a statement that some or all of the shares are regular or special meetings and mode of notifying
A nonstock corporation may not include a purpose
without par value, if applicable; the stockholders or members thereof;
which would change or contradict its nature as such;
i) If it be a nonstock corporation, c) e required quorum in meetings of stockholders or
c) e place where the principal o fice of the
1) the amount of its capital, members and the manner of voting therein;
corporation is to be located, which must be within
the Philippines; 2) the names, nationalities, and residence d) e modes by which a stockholder, member,
addresses of the contributors, and director, or trustee may attend meetings and cast
d) e term for which the corporation is to exist, if the
their votes;
corporation has not elected perpetual existence; 3) amount contributed by each.
e) e form for proxies of stockholders and members
e) e names, nationalities, and residence addresses of j) An arbitration agreement may be provided in the
and the manner of voting them;
the incorporators; AOI pursuant to Section 181.
f) e directors’ or trustees’
f) e number of directors, which shall not be more
Non-Amendable Items
than fi teen (15) or the number of trustees which i) qualifications, duties and responsibilities,
may be more than fi teen (15); 1) names of the incorporators,
ii) the guidelines for setting the compensation
g) e names, nationalities, and residence addresses of 2) the first set of directors and subscribers, of directors or trustees and o ficers, and
persons who shall act as directors or trustees until 3) the initial treasurer, iii) the maximum number of other board
the first regular directors or trustees are duly elected 4) their original subscription and representations that an independent director
and qualified; or trustee may have which shall, in no case,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 17 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

be more than the number prescribed by the OCS, or of at least a majority of the members in case of
§24. Corporate O ficers. — Immediately a ter their
SEC; nonstock corporations, shall be necessary. election, the directors of a corporation must formally
g) e time for holding the annual election of directors Amendments organize and elect:
or trustees and the mode or manner of giving notice a) a president, who must be a director;
A majority of the board of directors or trustees, and the
thereof;
owners of at least a majority of the OCS, or at least a b) a treasurer, who must be a resident;
h) e manner of election or appointment and the term majority of the members of a nonstock corporation, at a
of o fice of all o ficers other than directors or c) a secretary, who must be a citizen and
regular or special meeting duly called for the purpose,
trustees; resident of the Philippines; and
may amend or repeal the bylaws or adopt new bylaws.
i) e penalties for violation of the bylaws; d) such other o ficers as may be provided in the
Delegation to the Board — e owners of two-thirds (2/3)
bylaws.
j) In the case of stock corporations, the manner of of the OCS or two-thirds (2/3) of the members in a
issuing stock certificates; and nonstock corporation may delegate to the board of If the corporation is vested with public interest, the
directors or trustees the power to amend or repeal the board shall also elect a compliance o ficer. e same
k) Such other matters as may be necessary person may hold two (2) or more positions
bylaws or adopt new bylaws.
i) for the proper or convenient transaction of concurrently, except that no one shall act
Revocation of the Delegation — Any power delegated to
its corporate a fairs 1. as president and secretary or
the board to amend, repeal, or adopt new bylaws shall
ii) for the promotion of good governance and be considered as revoked whenever stockholders 2. as president and treasurer
anti-gra t and corruption measures. owning or representing a majority of the OCS or
at the same time, unless otherwise allowed in this
l) An arbitration agreement may be provided in the majority of the members shall so vote at a regular or
Code.
bylaws. special meeting.

Binding E ects
e amended or new bylaws shall only be e fective upon 9 De Facto Corporation
the issuance by the SEC of a certification that the same
Bylaws shall be e fective only upon the issuance by the is in accordance with this Code and other relevant laws. §19. De facto Corporations. — e due incorporation
SEC of a certification that the bylaws are in accordance of any corporation claiming in good faith to be a
with the Code. 8 Corporate O cers corporation, and its right to exercise corporate
For the adoption of bylaws, the a firmative vote of the powers, shall not be inquired into collaterally in any
stockholders representing at least a majority of the private suit to which such corporation may be a

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 18 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

party. Such inquiry may be made by the Solicitor e alleged donation to petitioners was void. e donation as a corporation or on any tort committed by it as
General in a quo warranto proceeding. could not have been made in favor of an entity yet such, it shall not be allowed to use its lack of
ere are stringent requirements before one can qualify as a inexistent at the time it was made. Nor could it have been corporate personality as a defense. Anyone who
de facto corporation: accepted as there was yet no one to accept it. assumes an obligation to an ostensible corporation as
such cannot resist performance thereof on the
a. the existence of a valid law under which it may be ere are stringent requirements before one can qualify as ground that there was in fact no corporation.
incorporated; a de facto corporation. e filing of articles of
incorporation and the issuance of the certificate of Lozano v. De los Santos
b. an attempt in good faith to incorporate; and
incorporation are essential for the existence of a de facto
c. assumption of corporate powers. corporation. e doctrine of corporation by estoppel advanced by Anda
cannot override jurisdictional requirements. Jurisdiction
Sawadjaan v. CA Corporate existence begins only from the moment a is fixed by law and is not subject to the agreement of the
certificate of incorporation is issued. No such certificate parties. It cannot be acquired through or waived, enlarged
WON AIIBP had NO legal personality to dismiss Sawadjaan was ever issued to petitioners or their supposed or diminished by any act or omission of the parties,
since it failed to file its by-laws within the designated 60 days predecessor-in-interest at the time of the donation. neither can it be conferred by the acquiescence of the
from the e fectivity of Rep. Act No. 6848. Petitioners obviously could not have claimed succession to court.
NO. At the very least, by its failure to submit its by-laws on an entity that never came to exist. Neither could the
principle of separate juridical personality apply since Corporation by estoppel is founded on principles of equity
time, the AIIBP may be considered a de facto corporation
there was never any corporation to speak of. and is designed to prevent injustice and unfairness. It
whose right to exercise corporate powers may not be
applies when persons assume to form a corporation and
inquired into collaterally in any private suit to which such
exercise corporate functions and enter into business
corporations may be a party.
relations with third persons. Where there is no third person
Moreover, a corporation which has failed to file its by-laws 10 Corporation by Estoppel
involved and the con lict arises only among those assuming the
within the prescribed period does not ipso facto lose its §20. Corporation by Estoppel — All persons who form of a corporation, who therefore know that it has not been
powers as such. assume to act as a corporation knowing it to be registered, there is no corporation by estoppel.
without authority to do so shall be liable as general
partners for all debts, liabilities and damages
Seventh Day Adventist Conference Church of Southern Phil. incurred or arising as a result thereof: Macasaet v. Co, Jr. 2013
Inc. v. Northeastern Mindanao Mission of Seventh Day
Adventist, Inc. Provided, however, at when any such ostensible Abante Tonite is a corporation by estoppel as the result of its
corporation is sued on any transaction entered by it

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 19 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

having represented itself to the reading public as a Jurisprudence dictates that the doctrine of corporation by Duties and Liabilities
corporation despite its not being incorporated. estoppel applies for as long as there is no fraud and when
Doctrine of Centralized Management
e non-incorporation of Abante Tonite with the SEC was the existence of the association is attacked for causes
of no consequence, for, otherwise, whoever of the public attendant at the time the contract or dealing sought to be Business Judgment Rule
who would su fer any damage from the publication of enforced was entered into, and not therea ter.
Doctrine of Apparent Authority
articles in the pages of its tabloids would be le t without Here, Purificacion dealt with the petitioner as if it were a
recourse. Doctrine of Ratification or Estoppel
corporation. is is evident from the fact that Purificacion
executed two (2) documents conveying her properties in
Qualifications and Disqualifications
favor of the petitioner. 1
§ 22-26
Missionary Sisters of Our Lady of Fatima v. Alzona 2018
Further, the subsequent act by Purificacion of
WON petitioner has the legal capacity to accept the donation of re-conveying the property in favor of the petitioner is a Repository of Corporate Powers
Purificacion. ratification by conduct of the otherwise defective e board of directors or trustees shall
YES, not in the capacity as a de facto corporation but as a donation. 1. exercise the corporate powers,
corporation by estoppel. It is the act of registration with
2. conduct all business, and
SEC through the issuance of a certificate of incorporation
that marks the beginning of an entity's corporate D Directors and Trustees 3. control all properties of the corporation.
existence.
Tenure, Qualifications, and Disqualifications of
Qualifications and Disqualifications
Petitioner filed its AOI and by-laws on August 28. Directors
However, the SEC issued the corresponding Certificate of Elections 1. Directors shall be elected for a term of one (1) year
Incorporation only on August 31, two (2) days a ter from among the holders of stocks registered in the
Independent Directors
Purificacion executed a Deed of Donation on August 29. corporation’s books,
Clearly, at the time the donation was made, the Petitioner Term, Holdover, and Removal
2. While trustees shall be elected for a term not
cannot be considered a corporation de facto.
Compensation exceeding three (3) years from among the members
Rather, a review of the attendant circumstances reveals of the corporation.
that it calls for the application of the doctrine of Vacancy
3. Each director and trustee shall hold o fice until the
corporation by estoppel. Voting Requirements
successor is elected and qualified.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 20 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

stockholders or members may also vote through

4. A director who ceases to own at least one (1) share of the Commission may,
stock or a trustee who ceases to be a member of the remote communication or in absentia:
1) upon the application of a stockholder,
corporation shall cease to be such. Provided, at the right to vote through such modes member, director or trustee, and
A person shall be disqualified from being a director, trustee may be exercised in corporations vested with public
interest, notwithstanding the absence of a provision in 2) a ter verification of the unjustified
or o ficer of any corporation if, within five (5) years prior to non-holding of the election,
the election or appointment as such, the person was: the bylaws of such corporations. xxxx
§91. Election and Term of Trustees. — e number of summarily order that an election be held. xxxx
a) Convicted by final judgment:
trustees shall be fixed in the articles of incorporation Cessation from O fice. — Should a director, trustee or
1) Of an o fense punishable by imprisonment or bylaws which may or may not be more than fi teen o ficer die, resign or in any manner cease to hold
for a period exceeding six (6) years; (15). ey shall hold o fice for not more than three (3) o fice, the secretary, or the director, trustee or o ficer
2) For violating this Code; and years until their successors are elected and qualified. of the corporation, shall, within seven (7) days from
Trustees elected to fill vacancies occurring before the knowledge thereof, report in writing such fact to the
3) For violating the SRC;
expiration of a particular term shall hold o fice only Commission.
b) Found administratively liable for any o fense for the unexpired period.
involving fraudulent acts; and Independent Directors
Except with respect to independent trustees of 3
c) By a foreign court or equivalent foreign regulatory §22
nonstock corporations vested with public interest,
authority for acts, violations or misconduct similar only a member of the corporation shall be elected as An independent director is a person who, apart from
to those enumerated in paragraphs (a) and (b) above. trustee. shareholdings and fees received from the corporation, is
§25. Non-holding of Election. — e non-holding of independent of management and free from any
2 Elections
elections and the reasons therefor shall be reported business or other relationship.
§23. Election of Directors or Trustees. — xxx there to the Commission within thirty (30) days from the e board of the following corporations vested with
must be present, either in person or through a date of the scheduled election. e report shall public interest shall have independent directors
representative authorized to act by written proxy, the specify a new date for the election, which shall not be constituting at least 20% of such board:
owners of majority of the outstanding capital stock, later than sixty (60) days from the scheduled date.
or if there be no capital stock, a majority of the a) Corporations covered by Section 17.2 of the SRC,
1) If no new date has been designated, or namely those
members entitled to vote. When so authorized in the
bylaws or by a majority of the board of directors, the 2) if the rescheduled election is likewise not i) whose securities are registered with the SEC,
held,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 21 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

ii) corporations listed with an exchange or with 3. A special meeting of the stockholders or members e removal of a disqualified director shall be
assets of at least P50M AND having 200 or for the purpose of removing any director or trustee without prejudice to other sanctions that the SEC
more holders of shares, each holding at least must be called may impose on the board of directors or trustees
100 shares of a class of its equity shares; a. by the secretary on order of the president, or who, with knowledge of the disqualification, failed to
b) Banks and quasi-banks, NSSLAs, pawnshops, remove such director or trustee.
b. upon written demand of the stockholders
corporations engaged in money service business, representing or holding at least a majority of
pre-need, trust and insurance companies, and other
5 Compensation
the OCS, or a majority of the members
financial intermediaries; and entitled to vote. §29. Compensation of Directors or Trustees. — In the
c) Other corporations engaged in business vested with absence of any provision in the bylaws fixing their
If there is no secretary, or if the secretary, despite
public interest. compensation, the directors or trustees shall not
demand, fails or refuses to call the special meeting
receive any compensation in their capacity as such,
or to give notice thereof, the stockholder or member
Term, Holdover, and Removal except for reasonable per diems:
4 of the corporation signing the demand may call for
§22 and 27 Provided however, at the stockholders representing
the meeting by directly addressing the stockholders
1. Any director or trustee of a corporation may be or members. at least a majority of the outstanding capital stock or
removed from o fice by a vote of the stockholders majority of the members may grant directors or
4. Removal may be WITH or WITHOUT cause.
holding or representing at least two-thirds (2/3) of trustees with compensation and approve the amount
the OCS, or in a nonstock corporation, by a vote of at Removal without cause may NOT be used to deprive thereof at a regular or special meeting.
least two-thirds (2/3) of the members entitled to minority stockholders or members of the right of
In no case shall the total yearly compensation of
vote. representation to which they may be entitled under
directors exceed ten (10%) percent of the net income
Section 23.
2. Such removal shall take place either at a regular before income tax of the corporation during the
meeting of the corporation or at a special meeting 5. e SEC shall, motu proprio or upon verified preceding year.
called for the purpose, and in either case, a ter complaint, and a ter due notice and hearing, order
the removal of a director or trustee GR: In the absence of any provision in the bylaws fixing
previous notice to stockholders or members of the
their compensation, the directors or trustees shall
corporation of the intention to propose such a. elected despite the disqualification, or not receive any compensation in their capacity as
removal at the meeting.
b. whose disqualification arose or is discovered such, except for reasonable per diems.
subsequent to an election.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 22 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

EXC: e stockholders representing at least a majority of Reason Manner of Filling Period to Fill Up 2. upon election of the replacement director or trustee,
the OCS or majority of the members may grant whichever comes earlier.
directors or trustees with compensation and if so stated in the notice of
approve the amount thereof at a regular or special the meeting. Notice to SEC — e corporation must notify the SEC within
meeting. three (3) days from the creation of the emergency board,
If still constituting
stating therein the reason for its creation.
In no case shall the total yearly compensation of a quorum, by the
directors exceed ten (10%) percent of the net income vote of at least a No later than forty-five
All other 7 Voting Requirements
before income tax of the corporation during the majority of the (45) days from the time
causes
preceding year. remaining; the vacancy arose §23. Election of Directors or Trustees. — xxx
otherwise, same as In stock corporations, stockholders entitled to vote
Vacancy above shall have the right to vote the number of shares of
6
§28 and 25
stock standing in their own names in the stock books
Emergency Board: Matling Doctrine of the corporation at the time fixed in the bylaws or
Reason Manner of Filling Period to Fill Up When applicable where the bylaws are silent, at the time of the
On the same day of the 1. When the vacancy prevents the remaining directors election. e said stockholder may:
Removal meeting authorizing the from constituting a quorum and a) vote such number of shares for as many
removal 2. Emergency action is required to prevent grave, persons as there are directors to be elected;
substantial, and irreparable loss or damage to the b) cumulate said shares and give one (1)
By the No later than the day of
corporation, candidate as many votes as the number of
Expiration stockholders or such expiration at a
of Term members in a meeting called for that e vacancy may be temporarily filled from among the directors to be elected multiplied by the
regular or special purpose o ficers of the corporation by unanimous vote of the number of the shares owned; or
meeting called for remaining directors or trustees. c) distribute them on the same principle among
the purpose At a regular or at a
Scope — e action by the designated director or trustee as many candidates as may be seen fit
special meeting duly
Increase in shall be limited to the emergency action necessary, and the Unless otherwise provided in the articles of
called for the purpose, or
number term shall cease within a reasonable time incorporation or in the bylaws, members of nonstock
in the same meeting
authorizing the increase 1. from the termination of the emergency or corporations may cast as many votes as there are
trustees to be elected but may not cast more than one

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 23 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

(1) vote for one (1) candidate. Nominees for directors transaction, the shareholders or members cannot
Where a director, by virtue of such o fice, acquires a
or trustees receiving the highest number of votes business opportunity which should belong to the override such decision of the board, consistent with
shall be declared elected. corporation, thereby obtaining profits to the prejudice of the principle of board supremacy.

such corporation, the director must account for and Doctrine of Corporate Opportunity
8 Duties and Liabilities
refund to the latter all such profits. Corporate o ficers "are not permitted to use their
ree-Fold Duty position of trust and confidence to further their private
Unless the act has been ratified by a vote of the
1. DUTY OF OBEDIENCE — shall direct the a fairs of stockholders owning or representing at least 2/3 of the interests."
the corporation only in accordance with the OCS. e doctrine of "corporate opportunity" is precisely a
purposes for which it was organized. recognition by the courts that the fiduciary standards
Material Related Party Transactions
2. DUTY OF DILIGENCE — shall not willfully and could not be upheld where the fiduciary was acting for
1. “Material”. A transaction is material if its value is at two entities with competing interests.
knowingly vote for or assent to patently unlawful
least 10% of the corporation’s total assets, as
acts of the corporation or act in bad faith or with If there is presented to a corporate o ficer or director a
provided in its latest AFS.
gross negligence in directing the a fairs of the business opportunity
corporation. 2. “Related Party”. A party is regarded as related party
if such person is 1. which the corporation is financially able to
3. DUTY OF LOYALTY — shall not acquire any undertake,
personal or pecuniary interest in con lict with their a. a director, trustee, o ficer, or a substantial
shareholder (one who is directly or indirectly 2. is from its nature, in the line of the corporation's
duty as such directors or trustees. (Strategic Alliance
a beneficial owner of at least 10% of any class business and is of practical advantage to it,
Development Corp. v. Radstock Securities)
of equity security), and 3. is one in which the corporation has an interest or
Disloyalty a reasonable expectancy, and
b. his spouse or relative within the 4th CDCA.
Observance of the duty of loyalty is relevant when
3. Rule if no disinterested board. e law only requires 4. by embracing the opportunity, the self-interest
directors or trustees enter in to a
the approval of the shareholders or members if there of the o ficer or director will be brought into
1) contract with the corporation (self-dealing con lict with that of his corporation, the law will
is no disinterested board that may approve the
contracts), not permit him to seize the opportunity for
transaction.
2) negotiate on their compensation, and himself.
4. Rule if disinterested board disapproves. Where the
3) personally acquire a corporate opportunity. disinterested board disapproves the self-dealing And, if, in such circumstances, the interests of the
corporation are betrayed, the corporation may elect to

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 24 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

claim all of the benefits of the transaction for itself. solidarily liable with the corporation; or
1. willfully and knowingly vote for or assent to patently
(Gokongwei, Jr. v. SEC) unlawful acts of the corporation or 4. When a director, trustee or o ficer is made, by
2. are guilty of gross negligence or bad faith in specific provision of law, personally liable for his
TOPROS, Inc. v. Chang, Jr. 2021 En Banc
directing the a fairs of the corporation or corporate action. (Heirs of Tan Uy v. International
e Court laid down the following elements to determine Exchange Bank 2013)
when a prohibited corporate opportunity exists, giving 3. acquire any personal or pecuniary interest in
rise to a claim of damages: con lict with their duty as such directors or trustees Atienza v. Golden Ram Engineering Supplies and Equipment
shall be liable jointly and severally for all damages. 2021
1. e corporation is financially able to exploit the
opportunity; Solidary liability will only attach to the directors, o ficers or Settled is the rule that a director or o ficer shall only be
employees of the corporation in certain circumstances, such personally liable for the obligations of the corporation, if
2. e opportunity is within the corporation’s line of
as: the following conditions concur
business;
1. When directors and trustees or, in appropriate 1. the complainant alleged in the complaint that the
3. e corporation has an interest or expectancy in
cases, the o ficers of a corporation: director or o ficer assented to patently unlawful
the opportunity; and
acts of the corporation, or that the o ficer was
4. By taking the opportunity for his own, the a) vote for or assent to patently unlawful acts of
guilty of gross negligence or bad faith; and
corporate director, trustee, or o ficer will the corporation;
2. the complainant clearly and convincingly proved
consequently be placed in a position inimical to his b) act in bad faith or with gross negligence in
such unlawful acts, negligence or bad faith.
duties to the corporation. directing the corporate a fairs; and
Here, Atienza established su ficient and specific evidence
In determining if the opportunity is within the c) are guilty of con lict of interest to the
to show that Bartolome had acted in bad faith or gross
corporation’s line of business, the involved corporations prejudice of the corporation, its stockholders
negligence in the sale of the defective vessel engine.
must be shown to be in competition with one another, or members, and other persons;
such that they are both engaged in related areas of
2. When a director or o ficer has consented to the Personal Liabilities
businesses, producing the same products with
issuance of watered stocks or who, having A director, trustee, or o ficer shall not attempt to acquire, or
overlapping markets.
knowledge thereof, did not forthwith file with the acquire any interest adverse to the corporation
corporate secretary his written objection thereto;
Solidary Liabilities for Damages 1. in respect of any matter which has been reposed in
3. When a director, trustee or o ficer has contractually them in confidence, and
Directors or trustees who
agreed or stipulated to hold himself personally and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 25 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2. upon which, equity imposes a disability upon 7. Payment of balance of subscription (§66); and 1. e business judgment rule does not apply in process
themselves to deal in their own behalf; 8. Books to be kept (§73). due care (oversight cases).
Otherwise he shall be liable as a trustee for the corporation 2. ere is gross negligence if there is sustained or
and must account for the profits which otherwise would 9 Doctrine of Centralized Management systematic failure of the board to exercise oversight.
have accrued to the corporation. e following requisites 3. e business judgment rule applies in the observance of
Principle of Board Supremacy — e board of directors or
must concur: substantive due care (hindsight cases). e substantive
trustees shall
1) e complainant must allege in the complaint that due care standard depends on the actual abilities of the
1. exercise the corporate powers,
the director or o ficer assented to patently unlawful concerned director or trustee.
acts of the corporation, or that the o ficer was guilty 2. conduct all business, and
4. Under the substantive due care standard, there must be
of gross negligence or bad faith; AND 3. control all properties of the corporation. no obvious corporate waste and the action must have a
2) e complainant must clearly and convincingly rational business purpose or actuated by legitimate
prove such unlawful acts, negligence or bad faith. 10 Business Judgment Rule business reasons.
(Heirs of Tan Uy v. International Exchange Bank 2013) As a Defense
Contracts intra vires entered into by the board of
Responsibility for Crimes directors are binding upon the corporation and courts e law upholds board supremacy. us, the business
will not interfere unless such contracts are so judgment rule is a defense when:
e following provisions of the RCC provide specific
unconscionable and oppressive as to amount to wanton
penalties, which render the non-application of the “other a) the act is intra vires;
destruction to the rights of the minority. (Ong Yong v.
violations” provision under Section 170:
Tiu) b) the members of the board observed process due
1. Corporation by estoppel (§20); care; and
e duty of diligence requires the members of the board to
2. E fects of non-use of corporate charter and c) the action has a rational business purpose, with no
a) take steps to su ficiently inform themselves of
continuous inoperation of a corporation (§21); obvious corporate waste.
relevant information before making a decision
3. Liability of directors, trustees or o ficers (§30); (process due care) and Legal E fects
4. Disloyalty of a director (§33); b) act in good faith and in the honest belief that their 1. First Branch. e resolutions, contracts and
5. Liability of directors for watered stocks (§64); action is in the best interest of the corporation transactions of the board cannot be overturned by
(substantive due care). the stockholders or members, and not even by the
6. Interest on unpaid subscriptions (§65);
courts.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 26 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2. Second Branch. Directors and authorized o ficers institution, it is limited to developing human capital considered knowledge of the corporation.
cannot be held personally liable for acts or contracts through formal instruction. It is not a corporation However, even though the Sps Torres were o ficers of both
done with the exercises of their business judgment, engaged in the business of securing loans of others. the thri t banks and petitioner, their knowledge of the
except: Securing FISLAI's loans by mortgaging petitioner's mortgage contracts cannot be considered as knowledge of
properties does not appear to have even the remotest the corporation.
a) When otherwise provided by law;
connection to the operations of petitioner as an
b) When the directors or o ficers acted with educational institution. Securing loans is not an adjunct e rule that knowledge of an o ficer is considered
fraud, gross negligence or in bad faith; and of the educational institution's conduct of business. It knowledge of the corporation applies only when the o ficer
does not appear that securing third-party loans was is acting within the authority given to him or her by the
c) When directors or o ficers act against the
necessary to maintain petitioner's business of providing corporation. us, knowledge should be actually
corporation in con lict of interest situation.
instruction to individuals. communicated to the corporation through its authorized
representatives.
11 Doctrine of Apparent Authority e relationship between a corporation and its
representatives is governed by the general principles of e doctrine of apparent authority does not go into the
agency. question of the corporation's competence or power to do a
University of Mindanao, Inc. v. BSP 2016 particular act. It involves the question of whether the
as to Sec 41 Unauthorized acts that are merely beyond the powers of o ficer has the power or is clothed with the appearance of
the corporation under its articles of incorporation are having the power to act for the corporation. A finding that
Acts of an o ficer that are not authorized by the board of
NOT void ab initio. ey may be ratified. there is apparent authority is not the same as a finding
directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the o ficer out as a Here, it was not shown that petitioner issued a resolution that the corporate act in question is within the
person with authority to transact on its behalf. ratifying the execution of the mortgage contracts. It was corporation's limited powers.
not shown that it received proceeds of the loans secured by
WON UM is bound by the real estate mortgage contracts executed
the mortgage contracts. ere was also no showing that it
by Petalcorin.
received any consideration for the execution of the 12 Doctrine of Ratification or Estoppel
NO. e mortgage contracts executed in favor of mortgage contracts. It even appears that petitioner was
respondent do not bind petitioner. ey were executed unaware of the mortgage contracts until respondent
without authority from petitioner. notified it of its desire to foreclose the mortgaged University of Mindanao, Inc. v. BSP 2016
UM does not have the power to mortgage its properties in properties.
Ratification is a voluntary and deliberate confirmation or
order to secure loans of other persons. As an educational e general rule is that knowledge of an o ficer is adoption of a previous unauthorized act.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 27 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1. It converts the unauthorized act of an agent into is an intention to adopt the act as his or her own. e) To adopt bylaws, not contrary to law, morals or
an act of the principal. Here, no act by petitioner can be interpreted as anything public policy, and to amend or repeal the same;

2. It cures the lack of consent at the time of the close to ratification. It was not shown that it issued a f) In case of stock corporations, to issue or sell stocks
execution of the contract entered into by the resolution ratifying the execution of the mortgage to subscribers and to sell treasury stocks; and to
representative, making the contract valid and contracts. It was not shown that it received proceeds of admit members to the corporation if it be a
enforceable. the loans secured by the mortgage contracts. ere was nonstock corporation;
also no showing that it received any consideration for the
3. It is, in essence, consent belatedly given through g) To purchase, receive, take or grant, hold, convey,
execution of the mortgage contracts. It even appears that
express or implied acts that are deemed a sell, lease, pledge, mortgage, and otherwise deal
petitioner was unaware of the mortgage contracts until
confirmation or waiver of the right to impugn the with such real and personal property, including
respondent notified it of its desire to foreclose the
unauthorized act. securities and bonds of other corporations, as the
mortgaged properties.
transaction of the lawful business of the corporation
Ratification has the e fect of placing the principal in a Ratification must be knowingly and voluntarily done. may reasonably and necessarily require, subject to
position as if he or she signed the original contract. Petitioner's lack of knowledge about the mortgage the limitations prescribed by law and the
Ratification by a corporation of an unauthorized act or executed in its name precludes an interpretation that Constitution;
contract by its o ficers or others relates back to the time of there was any ratification on its part.
h) To enter into a partnership, joint venture, merger,
the act or contract ratified, and is equivalent to original consolidation, or any other commercial agreement with
authority. e adoption or ratification of a contract by a natural and juridical persons;
corporation is nothing more nor less than the making of Powers of Corporations; Incidental
i) To make reasonable donations, including those for
an original contract. e theory of corporate ratification E Powers; Ultra Vires Doctrine
is predicated on the right of a corporation to contract, and the public welfare or for hospital, charitable,
§35-44
any ratification or adoption is equivalent to a grant of cultural, scientific, civic, or similar purposes:
prior authority. General Powers Provided, at no foreign corporation shall give
Implied ratification may take the form of silence, a) To sue and be sued in its corporate name; donations in aid of any political party or candidate
acquiescence, acts consistent with approval of the act,, or or for purposes of partisan political activity;
b) To have perpetual existence unless the certificate of
acceptance or retention of benefits. For an act to incorporation provides otherwise; j) To establish pension, retirement, and other plans for
constitute an implied ratification, there must be no the benefit of its directors, trustees, o ficers, and
c) To adopt and use a corporate seal;
acceptable explanation for the act—other than that there employees; and
d) To amend its articles of incorporation;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 28 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

capital stock at a stockholders’ meeting duly called for

k) To exercise such other powers as may be essential or No decrease in capital stock shall be approved by the
necessary to carry out its purpose or purposes as the purpose. SEC if its e fect shall prejudice the rights of corporate creditors.
stated in the articles of incorporation. A certificate must be signed by a majority of the
directors of the corporation and countersigned by the Metroplex Berhad and Paxell Investment Ltd v. Sinophil Corp
Specific Powers chairperson and secretary of the stockholders’ meeting. 2021
eory of specific capacity — No corporation shall possess A corporation can only decrease its capital stock if the
Prior approval of the SEC shall be required, and where
or exercise any corporate powers except following are present:
appropriate, of the PCC. e application with the SEC
1. those conferred by law, its AOI, shall be made within six (6) months from the date of a. Approval by a majority vote of the board of
2. those implied from express powers and approval of the BOD and stockholders, which period directors;
may be extended for justifiable reasons.
3. those as are necessary or incidental to the b. Written notice of the proposed diminution of the
exercise of the powers so conferred. E fectivity is upon approval by the SEC and the issuance capital stock, and of the time and place of a
by the SEC of its certificate of filing. stockholders' meeting duly called for the purpose,
e corporation’s capacity is limited to such express,
SEC shall not accept for filing any certificate of increase addressed to each stockholder at his place of
implied and incidental powers.
of capital stock unless accompanied by a sworn residence;
Power to Extend or Shorten Corporate Term statement of the treasurer of the corporation lawfully c. 2/3 of the outstanding capital stock voting
When approved by a majority vote of the board of holding o fice at the time of the filing of the certificate, favorably at the said stockholders' meeting duly;
directors or trustees, and ratified at a meeting by the showing that
d. Certificate in duplicate, signed by majority of the
stockholders or members representing at least 1. at least 25% of the increase in capital stock has directors and countersigned by the chairman and
two-thirds (2/3) of the OCS or of its members. been subscribed and secretary of the stockholders' meeting stating that
In case of extension of corporate term, a dissenting 2. that at least 25% of the amount subscribed has legal requirements have been complied with;
stockholder may exercise the right of appraisal. been paid in actual cash to the corporation or e. Prior approval of the SEC; and
Power to Increase or Decrease Capital Stock or 3. that property, the valuation of which is equal to f. E fects do not prejudice the rights of corporate
Incur, Create, Increase Bonded Indebtedness 25% of the subscription, has been transferred to creditors.
Needs to be approved by a majority vote of the board of the corporation.
SEC only has the ministerial duty to approve the decrease
directors and by two-thirds (2/3) of the outstanding
of a corporation's authorized capital stock.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 29 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

A ter a corporation faithfully complies with the 1) Increase in the ACS; b. If it involves the sale of all or substantially all of the
requirements laid down in Section 38, the SEC has 2) Opening for subscription of the unissued portion of corporation’s properties and assets, including its
nothing more to do other than approve the same. existing capital stock; and goodwill = must be authorized by the vote of the
stockholders representing at least 2/3 of the OCS, or
Ong Yang v. Tiu teaches that decreasing a corporation's 3) Disposition of treasury shares. at least 2/3 of the members, in a stockholders’ or
authorized capital stock, which is an amendment of the members’ meeting duly called for the purpose.
When NOT Available
corporation's AOI, is a decision that only the stockholders
and the directors can make. 1) When denied by the AOI; When is the sale deemed a substantial disposition?

Furthermore, the SEC is not vested by law with any power 2) Shares issued to comply with the prescribed stock If the corporation would be rendered incapable of
to interpret contracts and interfere in the determination o ferings or minimum stock ownership by the 1. continuing the business or
of the rights between and among a corporation's public;
2. accomplishing the purpose for which it was
stockholders. Neither can the SEC adjudicate on the 3) To acquire needed investment through incorporated.
contractual relations among these same stockholders. property-for-share exchange; and
Here, any dissenting stockholder may exercise the right
4) To restructure the finances of the corporation of appraisal.
Power to Deny Pre-Emptive Rights
through a debt to equity conversion.
Pre-emptive right under Sec 38 of the RCC refers to Power to Acquire Own Shares
the right of a stockholder of a stock corporation to Power to Sell or Dispose Corporate Assets
Provided that the corporation has unrestricted retained
subscribe to all issues or disposition of shares of any A corporation may, by a majority vote of its board of earnings in its books to cover the shares to be purchased
class, in proportion to their respective shareholdings. directors or trustees, sell, lease, exchange, mortgage, or acquired, a stock corporation shall have the power to
e right may be restricted or denied under the articles pledge, or otherwise dispose of its property and assets, purchase or acquire its own shares for a legitimate
of incorporation, and subject to certain exceptions and upon such terms and conditions and for such corporate purpose, including the following cases:
limitations. consideration, which may be money, stocks, bonds, or
other instruments for the payment of money or other a) To eliminate fractional shares arising out of stock
e stockholder must be given a reasonable time within property or consideration, as its board of directors or dividends;
which to exercise their preemptive rights. Upon the trustees may deem expedient. b) To collect or compromise an indebtedness to the
expiration of said period, any stockholder who has not corporation,
exercised such right will be deemed to have waived it. a. If ordinary disposition = No need for authorization
from stockholders; 1) arising out of unpaid subscription,
Stock Transactions Covered
2) in a delinquency sale, and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 30 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

whether local or foreign, from declaring dividends

3) to purchase delinquent shares sold during Power to Declare Dividends
said sale; and without their consent, and such consent has not yet
e board of directors of a stock corporation may been secured; or
c) To pay dissenting or withdrawing stockholders declare dividends out of the unrestricted retained
entitled to payment for their shares under the c) when it can be clearly shown that such retention is
earnings which shall be payable in
provisions of this Code. necessary under special circumstances obtaining in
1) cash, the corporation, such as when there is need for
Power to Invest Corporate Funds in Another 2) property, or special reserve for probable contingencies.
Corporation or Business
3) in stock Power to Enter into Management Contract
Investment Voting Required to ALL stockholders on the basis of outstanding stock Voting Required
held by them:
is reasonably necessary to accomplish Majority of Board +
its primary purpose as stated in the Majority of Board Any cash dividends due on delinquent stock shall first In interlocking
ownership or Stockholders representing 2/3 of OCS or
AOI be applied to the unpaid balance on the subscription +
management 2/3 of members of MANAGED
costs and expenses, while stock dividends shall be
Majority of Board + corporation.
in any other corporation, business, or withheld from the delinquent stockholders until their
Stockholders unpaid subscription is fully paid.
for any purpose other than the Majority of Board +
representing 2/3 of
primary purpose for which it was No stock dividend shall be issued without the approval otherwise Stockholders representing majority of
OCS or 2/3 of
organized of stockholders representing at least 2/3 of the OCS at a
members. OCS or majority of members.
regular or special meeting duly called for the purpose.
e board must evaluate whether the investment has a a) Interlocking ownership — where a stockholder or
GR: Stock corporations are prohibited from retaining
logical relation to or is in direct and immediate furtherance stockholders representing the same interest of both
surplus profits in excess of 100% of their paid-in
of the corporation’s main business. the managing and the managed corporations own or
capital stock.
control more than one-third (1/3) of the total OCS
Ratification by stockholders or members must be in a EXC: entitled to vote of the managing corporation; or
meeting duly called for the purpose.
a) when justified by definite corporate expansion b) Interlocking management — where a majority of the
Here, any dissenting stockholder may exercise the right projects or programs approved by the board; or members of the board of directors of the managing
of appraisal.
b) when the corporation is prohibited under any loan corporation also constitute a majority of the
agreement with financial institutions or creditors,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 31 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

members of the board of directors of the managed Ultra Vires Act Consequences
1. An illegal act contemplates the doing of an act
corporation, which is contrary to law, morals, or public order,
Management Contract — contract whereby a corporation or contravene some rules of public policy or e rule on in pari delicto applies.
undertakes to manage or operate all or substantially all public duty, and are, like similar transactions e act is unenforceable.
of the business of another corporation, whether such between individuals, VOID. ey cannot serve as
contracts are called service contracts, operating basis of a court action, nor acquire validity by e act shall not prejudice third parties
agreements or otherwise. performance, ratification, or estoppel. Acts performed who acted in good faith.
outside the scope
GR: No management contract shall be entered into for a 2. Mere ultra vires acts, on the other hand, or those Shareholders may ratify the action,
of the powers
period longer than five (5) years for any one (1) term. which are not illegal and void ab initio, but are prevent its enforcement and, if proper,
granted to the
EXC: Such service contracts or operating agreements not merely within the scope of the articles of institute a derivative suit.
corporation by
which relate to the exploration, development, incorporation, are merely VOIDABLE and may
its articles of
become binding and enforceable when ratified If the action has been implemented, the
exploitation or utilization of natural resources may incorporation
by the stockholders. (Bernas v. Cinco 2015) members of the board shall be liable
be entered into for such periods as may be provided
jointly and severally for all damages
by the pertinent laws or regulations. e test to be applied is whether the act in question is in
resulting from the ultra vires act.
A management contract amounts to a de facto merger direct and immediate furtherance of the corporation's business,
when the management relates to all or substantially all fairly incidental to the express powers and reasonably
of the business of the corporation. is does NOT necessary to their exercise. If so, the corporation has the
power to do it; otherwise, not. (Magallanes Watercra t F Stockholders and Members
trigger the exercise of appraisal right.
Association v. Auguis 2016)
Doctrine of Equality of Shares
Ultra Vires Doctrine
No corporation shall possess or exercise corporate Ultra Vires Act Consequences Participation in Management; Voting
powers other than those conferred by this Code or by its Requirements
e resulting contract is void.
AOI and except as necessary or incidental to the Proprietary Rights
exercise of the powers conferred. e contract is not subject to ratification.
Acts contrary to Derivative Suit/Intra-Corporate Suit
A distinction should be made between corporate acts or law, morals or e action or defense for the
contracts which are illegal and those which are merely Delinquency
public policy declaration of its nullity does not
ultra vires. prescribe.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 32 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

may be for a period exceeding five (5) years but shall

Certificate of Stock Proxy
automatically expire upon full payment of the loan.
A proxy is a form of agency created in instances when a
1 Doctrine of Equality of Shares A voting trust agreement must be in writing and
person is unable to personally cast his or her vote;
notarized, and shall specify the terms and conditions
Each share shall be equal in all respects to every other hence, the act of voting is delegated to another person.
ere is NO requirement that the same be notarized. thereof. A certified copy of such agreement shall be filed
share, except as otherwise provided in the AOI and in the
with the corporation and with the SEC; otherwise, the
certificate of stock. Proxies shall be agreement is ine fective and unenforceable.
A common stock represents the residual ownership 1. in writing, e certificate or certificates of stock covered by the VTA
interest in the corporation. It is a basic class of stock
2. signed and filed, by the stockholder or member, shall be cancelled and new ones shall be issued in the name
ordinarily and usually issued without extraordinary
of the trustee or trustees, stating that they are issued
rights or privileges and entitles the shareholder to a pro 3. in any form authorized in the bylaws and
pursuant to said agreement. e books of the corporation
rata division of profits. 4. received by the corporate secretary within a shall state that the transfer in the name of the trustee or
Preferred stocks are those which entitle the shareholder reasonable time before the scheduled meeting. trustees is made pursuant to the VTA.
to some priority on dividends and asset distribution. Unless otherwise provided in the proxy form, it shall be e trustee or trustees shall execute and deliver to the
Both shares are part of the corporation's capital stock. valid only for the meeting for which it is intended. No transferors, voting trust certificates, which shall be
Both stockholders are no di ferent from ordinary proxy shall be valid and e fective for a period longer than transferable in the same manner and with the same e fect
investors who take on the same investment risks. five (5) years at any one time. as certificates of stock.
Preferred and common shareholders participate in the Voting trust e VTA filed with the corporation shall be subject to
same venture, willing to share in the profits and losses
One or more stockholders of a stock corporation may examination by any stockholder of the corporation in the
of the enterprise.
create a voting trust for the purpose of conferring same manner as any other corporate book or record. Both
Moreover, under the doctrine of equality of shares — all the trustor and the trustee or trustees may exercise the
upon a trustee or trustees the right to vote and other
stocks issued by the corporation are presumed equal right of inspection of all corporate books and records.
rights pertaining to the shares.
with the same privileges and liabilities, provided that the
GR: For a period not exceeding five (5) years at any time. Any other stockholder may transfer the shares to the same
AOI is silent on such di ferences. (CIR v. CA)
trustee or trustees upon the terms and conditions stated in
EXC: In the case of a voting trust specifically required as a
the VTA, and thereupon shall be bound by all the provisions
Participation in Management; Voting condition in a loan agreement, said voting trust
2 of said agreement.
Requirements

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 33 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

No VTA shall be entered into for purposes of circumventing Proxy Voting Trust Agreement 9) Voluntary dissolution where no creditors are
the laws against a fected (§134).
Can vote and exercise all
1. anti-competitive agreements, Votes only in the absence of By a 2/3 vote
rights of the transferor even
the owner of the stock
2. abuse of dominant position, when the latter is present. 1) Amendment of the AOI;

3. anti-competitive mergers and acquisitions, 2) Extending or shortening corporate term;

Need NOT be notarized or a Must be notarized and filed
4. violation of nationality and capital requirements, or copy be filed with SEC with SEC 3) Increasing or decreasing capital stock or incurring,
creating or increasing bonded indebtedness;
5. for the perpetuation of fraud. NO right of inspection HAS the right of inspection
4) Sale of all or substantially all of the corporation’s
Unless expressly renewed, all rights granted in a VTA shall
Cases when stockholders' action is required properties and assets, including its goodwill;
automatically expire at the end of the agreed period. e
voting trust certificates as well as the certificates of stock in By a majority vote 5) Approval of the plan of merger or consolidation (and
the name of the trustee or trustees shall thereby be deemed 1) Electing to retain specific corporate term indicated any amendment thereto) (§76);
cancelled and new certificates of stock shall be reissued in in the AOI (§11); 6) Removal of director or trustees;
the name of the trustors.
2) Calling a special meeting of the stockholders or 7) Ratifying an act which amounts to disloyalty of a
e voting trustee or trustees may vote by proxy or in any members for the purpose of removing any director director (corporate business opportunity rule);
manner authorized under the bylaws unless the agreement or trustee (§27);
8) Approving property-for-share exchange and debt to
provides otherwise.
3) Granting compensation to directors or trustees equity conversion (§38);
(including the amount thereof) (§);
Proxy Voting Trust Agreement 9) Investing funds in any other corporation, business,
4) Concluding a management contract with another or for any purpose other than the primary purpose
Legal title is NOT Legal title to the shares corporation (§43); for which the corporation was organized (§41);
transferred transferred to transferee
5) Adoption of the by laws (§45); 10) Issuing stock dividends (§42);
Revocable at any time, Irrevocable for a definite 6) Amendment, repeal, or adoption of a new bylaws 11) Approving the conclusion of a management contract
unless coupled with interest and limited period of time (§47); where there is interlocking ownership or
Can only act at the specified NOT limited to any 7) Quorum in meetings (§51); interlocking management (§43);
meeting particular meeting 8) Fixing the issue price of no-par value shares (§61);

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 34 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

distributed among the stockholders in proportion to their

12) Delegating to the board of directors or trustees the Any stockholder who shall abuse such right shall be
shares or interest in the corporation, in the form of cash, penalized under Section 158, without prejudice to the
power to amend or repeal the bylaws or adopt new
property or stocks. provisions of the IPC and DPA.
bylaws (§47);
Who may declare dividends?
13) Approving a plan for the distribution of assets in
Insigne v. Abra Valley Colleges, Inc. 2015
non-stock corporations (§94); 1. BOD alone — for cash, property dividends;
2. BOD + stockholders representing not less than 2/3 of WON petitioners were entitled to demand the production of the
14) Voluntary dissolution (§135).
the OCS in a meeting called for the purpose — for STB of Abra Valley
Manner of voting stock dividends.
YES. A person becomes a stockholder of a corporation by
Stockholders and members may vote in person or by b. Right to Inspection acquiring a share through either purchase or
proxy in all meetings of stockholders or members. Corporate records, regardless of the form in which they are subscription. Considering that Abra Valley’s STB was not
When so authorized in the bylaws or by a majority of the stored, shall be open to inspection by any director, trustee, in the possession of the petitioners, or at their disposal,
board of directors, the stockholders or members of stockholder or member of the corporation in person or by a they could not be reasonably expected or justly compelled
corporations may also vote through remote representative at reasonable hours on business days, and a to prove that their stock subscriptions and purchases were
communication or in absentia: Provided, at the votes demand in writing may be made by such director, trustee or recorded therein. is was precisely why they filed their
are received before the corporation finishes the tally of stockholder at their expense, for copies of such records or Motion for Production/Inspection of Documents.
votes. excerpts from said records. e inspecting or reproducing
party shall remain bound by confidentiality rules under e only time when the demand to examine and copy the
Proprietary Rights prevailing laws and the Rules of Court. corporation's records and minutes could be refused is when the
A requesting party who is corporation puts up as a defense to any action that:
Right to Dividends
1. not a stockholder or member of record, or 1. the person demanding had improperly used any
3 Right to Inspection information;
2. a competitor, director, o ficer, controlling
Pre-Emptive Right stockholder or otherwise represents the interests of 2. secured through any prior examination of the
a competitor records or minutes of such corporation or of any
Appraisal Right other corporation, or
shall have no right to inspect or demand reproduction of
a. Right to Dividends corporate records. 3. was not acting in good faith or for a legitimate
purpose in making his demand.
Dividends is the unrestricted retained earnings set apart
from the general mass of the funds of the corporation and Among the purposes held to justify a demand for

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 35 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

inspection are the following: rendering an examination proper. (Terelay Investment and
1. First. A director, trustee, stockholder or member has
1) To ascertain the financial condition of the company Development v. Yulo 2015) made a prior demand in writing;
or the propriety of dividends; A criminal action based on the violation of a 2. Second. e demand was refused;
2) the value of the shares of stock for sale or stockholder's right to examine or inspect the corporate
records and the stock and transfer book of a corporation 3. ird. If such refusal is made pursuant to a
investment;
under the second and fourth paragraphs of Section 73 resolution or order of the board, the liability shall be
3) whether there has been mismanagement; imposed upon the directors or trustees who voted
can only be maintained against corporate o ficers or
4) in anticipation of shareholders' meetings to obtain a any other persons acting on behalf of such corporation. for such refusal; and,
mailing list of shareholders to solicit proxies or us, the provision can only be violated by a corporation. 4. Fourth. Where the defense that the person
in luence voting; (Yujuico v. Quiambao 2014) demanding has improperly used any information
5) to obtain information in aid of litigation with the Among the actions that may be filed is secured through any prior examination, or was not
corporation or its o ficers as to corporate acting in good faith or for a legitimate purpose, the
transactions. 1. an action for specific performance, contrary must be shown or proved. (Ang-Abaya v.
2. damages, Ang)
Among the improper purposes which may justify denial of
the right of inspection are: 3. petition for mandamus, or Corporations may raise their objections to the right
1) Obtaining of information as to business secrets or to 4. for violation of Section 73, in relation to Section 158 of inspection through a firmative defense in an
aid a competitor; of the RCC. ordinary civil action for specific performance or
damages, or through a comment in a petition for
2) to secure business "prospects" or investment or e corporation carries the burden of proving
mandamus.
advertising lists;
a) that the stockholder has improperly used
NB: us, a corporation cannot preempt a stockholder
3) to find technical defects in corporate transactions in information before;
order to bring "strike suits" for purposes of from exercising his right to inspect corporate books
blackmail or extortion. b) lack of good faith; or by filing an action for injunction as the exception to
c) lack of legitimate purpose. (Philippine Associated the right may only be raised as a defense.
e right of the shareholder to inspect the books and
records of the petitioner should not be made subject to Smelting and Refining Corp v. Lim 2016)
Philippine Associated Smelting and Refining v. Lim 2016
the condition of a showing of any particular dispute or In order therefore for the penal provision to apply, the
of proving any mismanagement or other occasion following elements must be present:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 36 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

WON a petition for injunction with prayer for writ of preliminary dissent and demand payment of the fair value of the within the period is deemed a waiver of the appraisal
injunction is proper to prevent stockholders from inspecting shares in the following instances: right.
corporate books. a) In case an amendment to the AOI has the e fect of 2. Appraisal Committee — If the withdrawing
i) changing or restricting the rights of any stockholder and the corporation cannot agree on
NO. When the corporation, through its o ficers, denies the
stockholder or class of shares, or the fair value of the shares within a period of 60
stockholders of such right, the latter could then go to
days from the date the stockholders approved the
court and enforce their rights. It is then that the ii) authorizing preferences in any respect
corporate action, the fair value shall be determined
corporation could set up its defenses and the reasons for superior to those of outstanding shares of
and appraised by three disinterested persons, one of
the denial of such right. any class, or of
whom shall be named by the stockholder, another by
us, the proper remedy is the writ of mandamus to be iii) extending or shortening the term of the corporation, and the third by the two thus
filed by the stockholders and not a petition for injunction corporate existence; chosen.
filed by the corporation. b) In case of sale, lease, exchange, transfer, mortgage, e findings and award of the majority of the
pledge or other disposition of all or substantially all appraisers shall be final, and the corporation shall
c. Pre-Emptive Right of the corporate property and assets; pay their award within 30 days a ter the award is
Pre-emptive right refers to the right of a stockholder c) In case of merger or consolidation; and made. Upon payment by the corporation of the
of a stock corporation to subscribe to all issues or agreed or awarded price, the stockholder shall
d) In case of investment of corporate funds for any
disposition of shares of any class, in proportion to their forthwith transfer his or her shares to the
purpose other than the primary purpose of the
respective shareholdings. (Lu Ym v. Lu 2018) corporation.
corporation.
e preemptive right of stockholders in close 3. Suspension of Rights — All rights accruing to the
e Corporation Code defines how the right of appraisal is
corporations shall extend to ALL stock to be issued, withdrawing stockholder's shares, including voting
exercised, as well as the implications of the right of
including reissuance of treasury shares, whether for appraisal, as follows: and dividend rights, shall be suspended from the
money, property or personal services, or in payment of time of demand for the payment of the fair value of
1. Written Demand — e appraisal right is exercised by
corporate debts, unless the AOI provides otherwise. the shares until either
any stockholder who has voted against the proposed
d. Appraisal Right corporate action by making a written demand on a. the abandonment of the corporate action
the corporation within 30 days a ter the date on involved or
§80-85
which the vote was taken for the payment of the fair b. the purchase of the shares by the
§80. When the Right of Appraisal May Be Exercised. — value of his shares. e failure to make the demand corporation,
Any stockholder of a corporation shall have the right to

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 37 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

stockholder unless the corporation has unrestricted

except the right of such stockholder to receive 3) Derivative suit — when the object of the wrong
payment of the fair value of the shares. retained earnings in its books to cover the payment.
In case the corporation has no available unrestricted done is the corporation itself or the whole body of
4. Surrender Certificate of Stocks for Notation — Within retained earnings in its books, Section 82 of the RCC its stock and property without any severance or
10 days a ter demanding payment for his or her provides that if the dissenting stockholder is not distribution among individual holders.
shares, a dissenting stockholder shall submit to the paid the value of his shares within 30 days a ter the
corporation the certificates of stock representing his award, his voting and dividend rights shall Individual suit
shares for notation thereon that such shares are immediately be restored. (Turner v. Lorenzo Shipping) Where a stockholder or member is denied the right of
dissenting shares. inspection, his suit would be individual because the
e right is regarded as su ficient to redress a perceived
A failure to do so shall, at the option of the wrong committed to the corporation; thus, its availability wrong is done to him personally and not to the other
corporation, terminate his appraisal rights. precludes a shareholder from instituting a derivative action stockholders or the corporation.
5. Rights of Transferee — If shares represented by the against corporate controllers.
Representative suit
certificates bearing such notation are transferred,
and the certificates are consequently canceled, the 4 Derivative Suit/Intra-Corporate Suit Where the wrong is done to a group of stockholders, as
appraisal rights of the transferor as a dissenting where preferred stockholders’ rights are violated, a class
Suits by stockholders or members of a corporation or representative suit will be proper for the protection
stockholder shall cease and the transferee shall have
based on wrongful or fraudulent acts of directors or of all stockholders belonging to the same group.
all the rights of a regular stockholder; and all
dividend distributions that would have accrued on other persons may be classified into individual suits,
class suits, and derivative suits. Derivative suit
such shares shall be paid to the transferee.
A suit by a shareholder to enforce a corporate cause of
6. Payment of Fair Value — If the proposed corporate Florete, Jr v. Florete 2016 action. It is the corporation that is properly regarded as
action is implemented or e fected, the corporation
e determination of the stockholder's appropriate remedy hinges the REAL PARTY IN INTEREST, while the
shall pay to such stockholder, upon the surrender of
on the object of the wrong done. relator-stockholder is merely a NOMINAL party. (Ang v.
the certificates of stock representing his shares, the
Sps Ang 2013)
fair value thereof as of the day prior to the date on 1) Individual suit — when the object is a specific
which the vote was taken, excluding any stockholder and the remedy is specific to him. Since the derivative suit is a remedy of last resort, it
appreciation or depreciation in anticipation of such must be shown that the board, to the detriment of the
2) Representative or class suit — when the object is a
corporate action. corporation and without a valid business consideration,
definite class of stockholder and the remedy is
7. Unrestricted Retained Earnings Required — No refuses to remedy a corporate wrong. A derivative suit
specific to them.
payment shall be made to any dissenting

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 38 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

may only be instituted a ter such an omission. (Ago

With regard, however, to the second requisite, the Court Notice of sale — with a copy of the resolution, shall be
Realty & Development Corp. v. Ago 2019) sent to every delinquent stockholder either personally,
finds that petitioners failed to state with particularity in
e requisites are enumerated in the Interim Rules of the Complaint that they had exerted all reasonable e forts by registered mail, or through other means provided in
Procedure for Intra-Corporate Controversies: to exhaust all remedies available. Such failure allows the the bylaws.
1. He was a stockholder or member at the time the RTC to dismiss the Complaint, even motu proprio, in e same shall be published once a week for two (2)
acts or transactions subject of the action accordance with the Interim Rules. consecutive weeks in a newspaper of general circulation
occurred and the time the action was filed; in the province or city where the principal o fice of the
2. He exerted all reasonable e forts, and alleges corporation is located.
Delinquency
the same, to exhaust all remedies available to 5 Auction sale
§67-70
obtain the relief he desires;
A delinquent stock shall be sold at a public auction to
3. No appraisal rights are available for the acts or E ect of Delinquency such bidder who shall o fer to pay
acts complained of; and Delinquency suspends the political and economic rights 1. the full amount of the balance on the
4. e suit is not a nuisance or harassment suit; of the subscriber, except the right to receive dividends. e subscription
dividends corresponding to such shares, however, shall
5. e action brought by the stockholder or be applied against the unpaid amount. 2. together with accrued interest,
member must be in the name of the corporation or
3. costs of advertisement and
association. Call by Resolution of the Board of Directors
4. expenses of sale, for the smallest number of shares
order the sale of delinquent stock and shall specifically
Ching v. Subic Bay Golf and Country Club, Inc. 2014 or fraction of a share.
state
WON the complaint filed by petitioners is a derivative suit and e remaining shares, if any, shall be credited in favor
1. the amount due on each subscription plus all
such is NOT properly filed. of the delinquent stockholder who shall likewise be
accrued interest, and
entitled to the issuance of a certificate of stock covering
YES. Although the shareholdings of petitioners are 2. the date, time and place of the sale which shall such shares.
indeed only two out of the 409 alleged outstanding shares not be less than thirty (30) days nor more than
What happens when there’s no bidder who can fully pay?
or 0.24%, the Court has held that it is enough that a sixty (60) days from the date the stocks become
member or a minority of stockholders file a derivative delinquent. e corporation may bid for the same, and the total
suit for and on behalf of a corporation. amount due shall be credited as fully paid in the books

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 39 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

of the corporation. Title shall be vested in the securities or shares of stocks in uncertificated or
Insigne v. Abra Valley Colleges, Inc. 2015
corporation as treasury shares. scripless form.
Is the presentation of a stock certificate a condition sine qua non
for proving one’s shareholding in a corporation? Negotiability; Requirements for Valid Transfer
Certificate of Stock
6 of Stocks
§62 and 63 NO. To establish their stock ownership, the petitioners
1) It is NOT a negotiable instrument.
adduced competent proof showing that the respondents
Nature of the Certificate 2) Certificates of stock may be issued only to registered
had allowed the petitioners to become members of the
A certificate of stock is a written instrument signed by Board of Directors. Considering that Section 23 of the owners of stock. e issuance of "bearer" stock
the proper o ficer of a corporation stating or certificates is not allowed under the law.
Corporation Code requires every director to be the holder
acknowledging that the person named in the document of at least one share of capital stock of the corporation, the
is the owner of a designated number of shares of its respondents would not have then allowed any of the F & S Velasco Co., Inc. v. Madrid 2015
stock. petitioners to be elected to sit in the Board unless they WON the November 18, 2009 Meeting organized by Madrid is
It is prima facie evidence that the holder is a shareholder believed that the petitioners so elected were not legal and valid;
of a corporation. A certificate, however, is merely a disqualified for lack of stock ownership. Conformably
NO. Madrid's inheritance of Angela's shares of stock does
tangible evidence of ownership of shares of stock. (Teng with the doctrine of estoppel, the respondents could no
v. SEC 2016) longer deny the petitioners’ status as stockholders of Abra not ipso facto a ford him the rights accorded to such
Valley. majority ownership of FSVCI's shares of stock. Section 63
No transfer, shall be valid, except as between the parties, of the Corporation Code governs the rule on transfers of
until the transfer is recorded in the books of the shares of stock.
corporation showing the
Uncertificated Shares
Uncertificated shares are shares that are tracked and All transfers of shares of stock must be registered in the
1. names of the parties to the transaction, corporate books in order to be binding on the
represented in the books of a company. ese shares are
2. the date of the transfer, recorded in the company as a “book entry” and are not corporation. Specifically, this refers to the Stock and
represented with a paper certificate. Transfer Book, which is described in Section 74.
3. the number of the certificate or certificates, and
e SEC may require corporations whose securities are Jurisprudence in Lao v. Lao is instructive on this matter,
4. the number of shares transferred.
traded in trading markets and which can reasonably that the mere inclusion as shareholder in the General
No shares of stock against which the corporation holds Information Sheet is insu ficient proof that one is a
demonstrate their capability to do so to issue their
any unpaid claim shall be transferable in the books of shareholder of the company.
the corporation.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 40 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

certificate is a transferee from a stockholder.

Guy v. Guy 2016 A stock transfer agent or one engaged principally in the
e surrender of the original certificate of stock is necessary business of registering transfers of stocks in behalf of a
Cheu was not a stockholder of record of GCI and was
before the issuance of a new one so that the old certificate may be stock corporation shall be allowed to operate in the
therefore not entitled to any notice of meeting.
canceled. (Teng v. SEC 2016) Philippines upon
e corporation shall not consider any transfer e fective
Stock and Transfer Book 1. securing a license from the SEC and
until the indorsed certificate is submitted for cancellation
and a new one issued in the name of the transferee. a) Contents 2. the payment of a fee to be fixed by the SEC,
which shall be renewable annually.
Shall contain a record of
Issuance A stock corporation is not precluded from performing
1. all stocks in the names of the stockholders
No certificate of stock shall be issued to a subscriber or making transfers of its own stocks. e SEC may
alphabetically arranged;
until the full amount of the subscription together with require stock corporations which transfer and/or trade
interest and expenses, in case of delinquent shares, if 2. the installments paid and unpaid on all stocks for stocks in secondary markets to have an independent
any is due, has been paid. which subscription has been made, and the date of transfer agent.
payment of any installment;
In Bitong v. CA, the Court outlined the procedure for the Situs of the Shares of Stock
issuance of NEW certificates of stock in the name of a 3. a statement of every alienation, sale or transfer of
stock made, the date thereof, by and to whom made; e place where the corporation is domiciled. (Wells
transferee:
and Fargo v. CIR)
1. First, the certificates must be signed by the
president or vice-president, countersigned by the 4. such other entries as the bylaws may prescribe.
secretary or assistant secretary, and sealed with the G Mergers and Consolidations
e stock and transfer book shall be kept in the principal R.A. No. 11232, §75-79
seal of the corporation, o fice of the corporation or in the o fice of its stock
transfer agent and shall be open for inspection by any Asset Only Transfer
2. Second, delivery of the certificate is an essential
element of its issuance, director or stockholder of the corporation at reasonable Business Enterprise Transfer
hours on business days.
3. ird, the par value, as to par value shares, or the full
b) Who is authorized to make entries? Concept
subscription as to no par value shares, must first be
fully paid. — Indivisibility of Subscription Only the corporate secretary. Entries made by the 1) In a merger, a corporation absorbs another
Chairman or President are INVALID. (Torres, Jr. v. CA) corporation and remains in existence while the
4. Fourth, the original certificate must be surrendered
other is dissolved. It signifies the absorption of one
where the person requesting the issuance of a c) Stock transfer agent

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 41 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

corporation by another which retains its name and acquiring all or substantially all of the properties of of consolidation, all the statements required to be
corporate identity with the added capital, franchises another corporation in exchange of shares of stock of set forth in the AOI; and
and powers of a merged corporation. the acquiring corporation. d) Such other provisions with respect to the proposed
2) In consolidation, a NEW corporation is created, Constituent Corporation vs. Consolidated merger or consolidation as are deemed necessary or
and the consolidating corporations are extinguished Corporation desirable.
(Aquino, e Philippine Corporate Law Compendium,
ere is merger when two or more corporations are Articles of Merger or Consolidation
2014 Ed.)
folded into one of the constituent corporations or a Shall be executed by each of the constituent corporations, to
Statutory Merger “surviving” corporation.
be signed by the president or vice president and certified by
is refers to pooling with automatic dissolution, A + B = A or B the secretary or assistant secretary of each corporation
which requires setting forth:
ere is consolidation when two or more corporations
1. the execution of a plan, are folded into a new corporation or a “consolidated” a) e plan of the merger or the plan of consolidation;
2. the approval of the concerned shareholders, corporation. b) As to stock corporations, the number of shares
3. the execution of the articles of merger or A+B=C outstanding, or in the case of nonstock
consolidation, and corporations, the number of members;
Plan of Merger or Consolidation c) As to each corporation, the number of shares or
4. the issuance of a certificate or merger of
e board of directors or trustees of each corporation, party members voting for or against such plan,
consolidation.
to the merger or consolidation, shall approve a plan of respectively;
De Facto Merger merger or consolidation setting forth the following:
d) e carrying amounts and fair values of the assets
Pooling of resources and business without automatic a) e names of the corporations proposing to merge and liabilities of the respective companies as of the
dissolution is called de facto merger. It may involve or consolidate, hereina ter referred to as the agreed cut-o f date;
a) transfer of all or substantially all assets of one or constituent corporations;
e) e method to be used in the merger or
more corporations to the other corporation, OR b) e terms of the merger or consolidation and the consolidation of accounts of the companies;
b) the management of one or more corporations by mode of carrying the same into e fect;
f) e provisional or pro forma values, as merged or
the other corporation. c) A statement of the changes, if any, in the AOI of the consolidated, using the accounting method; and
A de facto merger can be pursued by one corporation surviving corporation in case of merger; and, in case

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 42 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

g) Such other information as may be prescribed by the a. all the liabilities and obligations of each of the 7. E fects on constituent employees. e merger of a
SEC. constituent corporations in the same manner as corporation with another does not operate to
if such surviving or consolidated corporation dismiss the employees of the corporation absorbed
E ects had itself incurred such liabilities or obligations; by the surviving corporation. Although the absorbed
A merger of two corporations produces, among others, the and employees are retained as employees of the merged
following e fects: b. any pending claim, action or proceeding brought corporation, the employer retains the right to
1. e constituent corporations shall become a single by or against any of such constituent terminate their employment for a just or authorized
corporation; corporations may be prosecuted by or against cause. Likewise, the employees are not precluded
the surviving or consolidated corporation. from severing their employment through
2. e separate existence of the constituent resignation or retirement. (Philippine Geothermal, Inc.
corporation shall cease, except that of the surviving e rights of creditors or liens upon the property of Employees Union v. Unocal Philippines 2016)
or the consolidated corporation; any of such constituent corporations shall not be
3. e surviving or the consolidated corporation shall impaired by such merger or consolidation. (BPI v. 1 Asset Only Transfer
thereupon and therea ter Lee 2012)
5. Pending cases. e surviving corporation in a merger Type of Acquisition or
a. possess all the rights, privileges, immunities and Liability Rule
e fectively becomes a “virtual party” to the civil case Transfer
franchises of each of the constituent
corporations; and involving the dissolved constituent corporations. As
such, it became bound by the orders and processes Assets-Only Level
b. all property, real or personal, and all receivables issued by the trial court despite not having been e transferee shall NOT be
due on whatever account, including properly impleaded therein. (ibid.) e purchaser is only
liable for the liabilities of
subscriptions to shares and other choses in interested in the “raw
6. Surviving entity’s right to foreclosure. Pursuant to the transferor, except
action, and all and every other interest of, or assets” and properties of the
such merger and consolidation, BPI’s right to 1. where the transferee
belonging to, or due to each constituent business. e purchaser is
foreclose the mortgage on petitioner's property expressly or impliedly
corporation, shall be deemed transferred to and NOT interested in the
depends on the status of the contract and the agrees to assume such
vested in such surviving or consolidated goodwill or the juridical
corresponding obligations of the parties originally debts or
corporation without further act or deed; and entity of the corporate
involved, that is, the agreement between its 2. when it is e fected in
4. e surviving or consolidated corporation shall be owner of the assets.
predecessor BSA and petitioner. (Spouses Ong v. BPI fraud of creditors.
responsible and liable for Family Savings Bank 2018)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 43 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Type of Acquisition or Type of Acquisition or order for the transferee to assume the liabilities of the transferor.
Liability Rule Liability Rule
Transfer Transfer
NO. e Nell Doctrine pronounced the rule regarding
Equity Level its primary interest is to continues the business the transfer of all the assets of one corporation to another
obtain the “earning enterprise of the transferor, as follows:
is transfer looks at the capability” of the venture. the transferee shall be held GENERALLY, where one corporation sells or otherwise
entirety of the business e purchaser is also NOT liable for the liabilities of transfers all of its assets to another corporation, the latter
enterprise as it is owned interested in obtaining the the transferor arising from is not liable for the debts and liabilities of the transferor,
and operated by the juridical entity that owns the business enterprise EXCEPT:
corporation. e purchaser the business enterprise. transferred.
takes control and ownership 1. Where the purchaser expressly or impliedly agrees
e transferee shall NOT be to assume such debts;
of the business by
liable for the liabilities of
purchasing the controlling 2. Where the transaction amounts to a consolidation
the transferor, 2 Business Enterprise Transfer
shareholdings of the or merger of the corporations;
except where the transferee
corporate owner. If the Free and Harmless Clause
expressly or impliedly 3. Where the purchasing corporation is merely a
acquisition does not have as
agrees to assume such In a business-enterprise transfer, the transferor and continuation of the selling corporation; and
its primary motivation the
debts. the transferee may enter into a contractual stipulation
acquisition of control, then 4. Where the transaction is entered into fraudulently
stating that the transferee shall not be liable for any or
it is not an equity level in order to escape liability for such debts.
all debts arising from the business which were
acquisition; it is merely a Section 40 suitably re lects the business-enterprise
contracted prior to the time of transfer. Such stipulations
purchase of shares that falls transfer under the exception of the Nell Doctrine. It does
are valid, but only as to the transferor and the transferee.
within the assets-only level not apply
ese stipulations are not binding on the creditors of
of acquisition.
the business enterprise who can still go a ter the 1) if the sale of the entire property and assets is
Business-Enterprise Level transferee for the enforcement of the liabilities. (Y-I necessary in the usual and regular course of
Leisure Phils., Inc. v. Yu 2015 En Banc) business of corporation, or
e purchaser’s interest In a transfer of the business
2) if the proceeds of the sale or other disposition of
goes beyond the assets used enterprise, where the Y-I Leisure Phils., Inc. v. Yu 2015
such property and assets will be appropriated for
in the company’s business; transferee essentially
WON fraud must exist in the transfer of all the corporate assets in the conduct of its remaining business.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 44 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Without Creditors With Creditors

us, the litmus test to determine the applicability of Modes of Dissolution
Section 40 would be the capacity of the corporation to weeks in 3 public
1) Voluntary Dissolution
continue its business a ter the sale of all or substantially places
all its assets. Without Creditors With Creditors

An evaluation of the relevant jurisprudence reveals that 1. copy of the resolution authorizing
Request for
What to file Verified petition dissolution, certified by a majority of the
fraud is not an essential element for the application of dissolution
the business-enterprise transfer. board of directors or trustees and
Petition signed by countersigned by the secretary of the
WON petitioners became a continuation of MADCI's business. Majority vote of the
majority vote of the corporation;
board + by a
YES. e business-enterprise transfer rule applies when Vote board + petition is
resolution adopted 2. proof of
two requisites concur: required resolved upon by Documents
by at least a publication; and
a firmative vote of at to submit to 3. favorable
a) the transferor corporation sells all or substantially majority of the OCS
least 2/3 of the OCS SEC
all of its assets to another entity; and recommendatio
b) the transferee corporation continues the business 1. Notice to the n from the 2. list of all its
of the transferor corporation. stockholders; appropriate creditors.
2. the order of the regulatory
Both requisites are present in this case.
SEC reciting the agency, when
At least 20 days
purpose of the necessary
prior to the
Notice, petition and fixing
Corporate Dissolution and publication
meeting; published
the deadline for
H Liquidation once in a newspaper Hearing on the
and posting filing objections
R.A. No. 11232, §133-138 in the corporation’s petition and trial on
shall be published
principal o fice Hearing ✘ any issued raised in
once a week for 3
the objections filed, if
consecutive weeks;
any
3. order to be posted
for 3 consecutive What is
Certificate of dissolution
issued

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 45 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

By shortening of corporate term of Request of Petition 2) Committed or aided in the commission of

1. Upon the expiration of the shortened term, as stated securities violations, smuggling, tax evasion,
objections to the money laundering, or gra t and corrupt
in the approved amended AOI, the corporation shall petition
be deemed dissolved without any further practices, and its stockholders knew; and
proceedings; 2) Involuntary Dissolution 3) Repeatedly and knowingly tolerated the
2. In the case of expiration of corporate term, commission of gra t and corrupt practices or
A corporation may be dissolved by the SEC motu proprio
dissolution shall automatically take e fect on the other fraudulent or illegal acts by its
or upon filing of a verified complaint by any interested
day following the last day of the corporate term directors, trustees, o ficers, or employees.
party. e following may be grounds for dissolution of
stated in the AOI, without the need for the issuance the corporation: Methods of Liquidation
by the SEC of a certificate of dissolution.
a) Non-use of corporate charter as provided under
1) By the Corporation Itself
Withdrawal Section 21;
Every corporation shall nevertheless remain as a body
of Request of Petition b) Continuous inoperation of a corporation as corporate for three (3) years a ter the e fective date of
provided under Section 21; dissolution, for the purpose of
In writing and In the form a verified
Form
verified motion c) Upon receipt of a lawful court order dissolving 1. prosecuting and defending suits by or against it
the corporation; and enabling it to settle and close its a fairs,
Petition signed by
Majority vote of the d) Upon finding by final judgment that the
majority vote of the 2. dispose of and convey its property, and
board + by a corporation procured its incorporation through
Vote board + petition is 3. distribute its assets,
resolution adopted by fraud;
required resolved upon by
at least a majority of 4. BUT NOT for the purpose of continuing the
a firmative vote of at e) Upon finding by final judgment that the
the OCS business for which it was established.
least 2/3 of the OCS corporation:
1) Was created for the purpose of committing, 2) Conveyance to a Trustee Within a
no later than fi teen
filed prior to concealing or aiding the commission of Three-Year Period
(15) days from receipt
Period to publication of the securities violations, smuggling, tax evasion, e corporation is authorized and empowered to convey
by the SEC of the
withdraw order setting the money laundering, or gra t and corrupt all of its property to trustees for the benefit of
request for
deadline for filing practices; stockholders, members, creditors and other persons in
dissolution.
interest. A ter any such conveyance, all interest which

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 46 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the corporation had in the property terminates, the

4) Liquidation after Three Years A foreign corporation is one formed, organized or
legal interest vests in the trustees, and the beneficial existing under laws other than those of the Philippines’
interest in the stockholders, members, creditors or 1) If full liquidation can only be e fected a ter the
and whose laws allow Filipino citizens and
other persons-in-interest. three-year period and there is no trustee, the
corporations to do business in its own country or State.
directors may be permitted to complete the
3) By Management Committee or It shall have the right to transact business in the
liquidation by continuing as trustees by legal
Rehabilitation Receiver Philippines a ter obtaining
implication.
Distribution of Assets 1. a license for that purpose; and
2) e trustee of a corporation may continue to
Upon the winding up of corporate a fairs, any asset prosecute a case commenced by the corporation 2. a certificate of authority from the appropriate
distributable to any creditor or stockholder or member until rendition of the final judgment, even if such government agency.
who is unknown or cannot be found shall be judgment is rendered beyond the three-year period.
Personality to Sue
escheated in favor of the national government. However, an already defunct corporation is not
allowed to initiate a suit a ter the lapse of the said No foreign corporation transacting business in the
Winding up the a fairs of the corporation means the
three-year period. (Alabang Development Corp. v. Philippines without a license, or its successors or assigns,
collection of all assets, the payment of all its creditors,
Alabang Hills Village Association 2014) shall be permitted to maintain or intervene in any
and the distribution of the remaining assets, if any
action, suit or proceeding in any court or administrative
among the stockholders thereof in accordance with 3) ere is a view to the e fect that the trustee or agency of the Philippines.
their contracts, or if there be no special contract, on the receiver CAN maintain an action for the corporation
basis of their respective interests. (Rich v. Paloma III even a ter the three-year period. (Reyes v. Bancom Llorente v. Star City Pty Limited 2020
2018) Development 2018)
Compliance with the requirement of license, or the fact
Intra-corporate disputes remain even that the suing corporation is exempt therefrom, as the
when the corporation is dissolved.
I Foreign Corporations case may be, cannot be inferred from the mere fact that
A corporation’s board of directors is not rendered functus R.A. No. 11232, §140-153
the party suing is a foreign corporation. e qualifying
o ficio by its dissolution. us, a cause of action circumstance being an essential part of the plainti f’s
involving an intra-corporate controversy remains and Personality to Sue and Suability
capacity to sue must be a firmatively pleaded. Hence, the
must be filed as an intra-corporate dispute despite the Foreign Investments Act ultimate fact that a foreign corporation is not doing
subsequent dissolution of the corporation. (Aguirre II v. business in the Philippines must first be disclosed for it to
FQB+7, Inc. 2013) 1 Personality to Sue and Suability be allowed to sue in Philippine courts under the isolated

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 47 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

transaction rule. Failing in his requirement, the complaint before Philippine courts on any transaction.
6) Consignment by a foreign entity of equipment with
filed by plainti f with the trial court, it must be said, fails (Agilent Technologies Singapore v. Integrated Silicon a local company to be used in the processing of
to show its legal capacity to sue. Technology Phil. Corp) products for export;
Having pleaded these averments in the complaint Isolated Transactions 7) Collecting information in the Philippines; and
su ficiently clothed SCPL the necessary legal capacity to Instances When Unlicensed Foreign Corporations May be 8) Performing services auxiliary to an existing isolated
sue before Philippine courts. Allowed to Sue contract of sale which are not on a continuing basis,
Section 1 of the IRR of the FIA (as amended by RA 8179) such as installing in the Philippines machinery it has
Suability of Foreign Corporations
provides that the following shall NOT be deemed “doing manufactured or exported to the Philippines,
e principles regarding the right of a foreign corporation business”: servicing the same, training domestic workers to
to bring suit in PH courts may be condensed in four operate it, and similar incidental services.
statements: 1) Mere investment as a shareholder by a foreign entity
in domestic corporations duly registered to do
1) if a foreign corporation does business in the Magna Ready Mix Concrete Corporation v. Andersen
business, and/or the exercise of rights as such Bjornstad Kane Jacobs, Inc. 2021
Philippines without a license, it cannot sue investor;
before the Philippine courts; ANDERSEN has no legal capacity to sue for doing
2) Having a nominee director or o ficer to represent its
2) if a foreign corporation is not doing business in interest in such corporation; business in the Philippines without procuring the
the Philippines, it needs no license to sue before necessary license.
Philippine courts on an isolated transaction or 3) Appointing a
representative or distributor
domiciled in the Philippines which transacts a. It is not suing on an isolated transaction on the
on a cause of action entirely independent of any basis of the contract it entered into with MAGNA.
business transaction; business in the representative’s or distributor’s own
name and account; b. However, MAGNA is already estopped from
3) if a foreign corporation does business in the challenging ANDERSEN's legal capacity when it
Philippines without a license, a Philippine 4) e publication of a general advertisement through
entered into a contract with it.
citizen or entity which has contracted with said any print or broadcast media;
corporation may be estopped from challenging A foreign corporation that conducts business in the
5) Maintaining a stock of goods in the Philippines
the foreign corporation’s corporate personality Philippines must first secure a license for it to be allowed
solely for the purpose of having the same processed
in a suit brought before Philippine courts; and to initiate or intervene in any action in any court or
by another entity in the Philippines;
administrative agency in the Philippines. As an exception, a
4) if a foreign corporation does business in the foreign corporation may sue without a license on the basis
Philippines with the required license, it can sue

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 48 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

of an isolated transaction. challenging the foreign corporation's personality works or the exercise of some of the functions normally
or legal capacity to sue when the former already incident to, and in the progressive prosecution of, the
Eriks Pte. Ltd. v. CA describes the concept of isolated purpose and object of its organization.
transaction as a transaction or series of transactions set acknowledged the same by entering into a contract
apart from the common business of a foreign enterprise in with the latter and deriving benefits therefrom. e Contract Test of doing business, on the other hand
the sense that there is no intention to engage in a a) An essential condition to be considered as doing
progressive pursuit of the purpose and object of the business in the Philippines is actual performance of
business organization. Whether a foreign corporation is Foreign Investments Act specific commercial acts within the PH territory for
R.A. No. 7042, as amended by R.A. No. 11647
"doing business" does not necessarily depend upon the the plain reason that the PH has no jurisdiction over
frequency of its transactions, but more upon the nature “Doing Business in the Philippines” commercial acts performed elsewhere;
and character of the transactions. 2
Registration Requirement b) Activities within PH jurisdiction that do not create
Here, ANDERSEN's act of entering into a contract with earnings or profits to the foreign corporation do
MAGNA does not fall into the category of isolated Nationalized Activities and the Negative NOT constitute doing business in PH.
List
transactions.
c) A foreign company that merely imports goods from
a. It was performing acts that were in progressive a. “Doing Business in the Philippines” a PH exporter without opening an o fice or
pursuit of its business purpose, which involved Mentholatum v. Mangaliman discussed the two general appointing an agent in PH is NOT doing business in
consultation and design services. tests to determine whether or not a foreign corporation PH.
b. In doing business without a license, ANDERSEN can be considered as “doing business” in the d) A foreign corporation that exports products to PH,
had no legal capacity to sue in the Philippines. Philippines. without doing any specific commercial act is NOT
However, MAGNA is already estopped from challenging First, the substance test, whether the foreign doing business in PH.
ANDERSEN's legal capacity to sue. corporation is continuing the body of the business or e) e appointment of a distributor in the PH is not
a. e doctrine of estoppel states that the other enterprise for which it was organized or whether it has su ficient to constitute “doing business” unless it is
contracting party may no longer challenge the substantially retired from it and turned it over to under the full control of the foreign corporation.
foreign corporation's personality a ter another.
On the other hand, if the distributor is an
acknowledging the same by entering into a Second, the continuity test, implies a continuity of independent entity which buys and distributes
contract with it. commercial dealings and arrangements, and products, other than those of the foreign
b. A party cannot take undue advantage by contemplates, to that extent, the performance of acts or corporation, for its own name and its own account,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 49 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the latter cannot be considered to be doing business in 100% of its capital, unless participation of
2) having a nominee director or o ficer to represent its
the PH. (Steel Case v. Design International Selections interests in such corporation; nor non-Philippine nationals in the enterprise is
2012) prohibited or limited to a smaller percentage by
3) appointing a representative or distributor domiciled existing law and/or under the provisions of this Act.
Shall include in the Philippines which transacts business
2) e SEC or the DTI, as the case may be, shall not
1) soliciting orders, service contracts, opening o fices, a) in its own name and impose any limitations on the extent of foreign
whether called liaison o fices or branches;
b) for its own account. ownership in an enterprise additional to those
2) appointing representatives or distributors provided in this Act.
domiciled in the Philippines or who in any calendar Necessity of a License to Do Business
3) Any enterprise seeking to avail of incentives under
year stay in the country for a period or periods A foreign corporation applying for a license to transact
the Omnibus Investment Code of 1987 must apply
totalling one hundred eighty (180) days or more; business in the Philippines shall submit to the SEC a
for registration with the BOI, which shall process
copy of its AOI and bylaws, certified in accordance with
3) participating in the management, supervision or such application for registration in accordance with
law, and their translation to an o ficial language of the
control of any domestic business, firm, entity or the criteria for evaluation prescribed in said Code.
Philippines, if necessary.
corporation in the Philippines; and
4) A non-Philippine national intending to engage in
e application shall be under oath and, unless already
4) any other act or acts that imply a continuity of the same line of business as an existing joint
stated in its AOI.
commercial dealings or arrangements, and venture, in which he or his majority shareholder is a
contemplate to that extent the performance of acts A resident agent may be either substantial partner, must disclose the fact and the
or works, or the exercise of some of the functions 1. an individual residing in the Philippines or names and addresses of the partners in the existing
normally incident to, and in progressive prosecution joint venture in his application for registration with
2. a domestic corporation lawfully transacting
of, commercial gain or of the purpose and object of SEC.
business in the Philippines.
the business organization.
c. Nationalized Activities and the Negative
Shall NOT be deemed to include b. Registration Requirement
List
1) mere investment as a shareholder by a foreign entity Section 5, RA 7042, as amended
1) Foreign investment in export enterprises whose
in domestic corporations duly registered to do 1) Without need of prior approval, a non-Philippine products and services do NOT fall within Lists A and
business, and/or the exercise of rights as such national may, upon registration with the SEC, or the B of the Foreign Investment Negative List is allowed
investor; nor DTI in the case of single proprietorships, do up to one hundred percent (100%) ownership.
business or invest in a domestic enterprise up to

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 50 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

manufacture, repair, storage and/or distribution

2) Export enterprises which are non-Philippine Registered foreign enterprises employing foreign nationals
nationals shall register with BOI and submit the of firearms, ammunition, lethal weapons, and enjoying fiscal incentive shall implement an
reports that may be required to ensure continuing military ordinance, explosives, pyrotechnics and understudy or skills development program to ensure the
compliance of the export enterprise with its export similar materials, unless such manufacturing or transfer of technology or skills to Filipinos.
requirement. BOI shall advise SEC or STI, as the repair activity is specifically authorized by the
Secretary of National Defense; or (as amended
case may be, of any export enterprise that fails to II Partnership
meet the export ration requirement. e SEC or DTI by RA No 11647)
shall thereupon order the non-complying export b) which have implications on public health and General Provisions
enterprise to reduce its sales to the domestic market morals, such as the manufacture and
Obligations of Partners Among
to not more than forty percent (40%) of its total distribution of dangerous drugs, all forms of
Themselves
production. gambling, nightclubs, bars, beer houses, dance
halls, sauna and steam bathhouses and massage Property Rights of Partners
3) Failure to comply with such SEC or DTI order,
clinics.
without justifiable reason, shall subject the Obligations of Partnership/Partners to
enterprise to cancellation of SEC or DTI Micro and small domestic market enterprises with paid-in Third Persons
registration, and/or the penalties provided in equity capital less than the equivalent of US 200K are
Dissolution and Winding Up
Section 14 hereof. reserved to Philippine nationals.
Limited Partnership
e Foreign Investment Negative List shall have two (2) A minimum paid-in capital of US 100K shall be allowed to
component lists: A and B: non-Philippine nationals, if:
A General Provisions
1) List A shall enumerate the areas of activities 1) they involve advanced technology as determined by
reserved to Philippine nationals by mandate of the the DOST, or Definition
Constitution and specific laws. 2) they are endorsed as startup or startup enablers by Rules to Determine Existence
2) List B shall contain the areas of activities and the lead host agencies pursuant to RA No. 11337,
Separate Personality
enterprises regulated pursuant to law: otherwise known as the Innovative Startup Act; or
a) which are defense-related activities, requiring 3) a majority of their direct employees are Filipinos, Partnership by Estoppel
prior clearance and authorization from but in no case shall the number of Filipino Kinds of Partnership
Department of National Defense (DND) to employees be less than fi teen (15).
engage in such activity, such as the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 51 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Definition Essential Features 4) e receipt by a person of a share of the profits of a

1
Civil Code, Article 1767 business is prima facie evidence that he is a partner in
1) ere must be a valid contract;
the business, except if such profits were received in
ART 1767. By the contract of partnership
2) e parties have legal capacity to enter into the payment as:
1. two or more persons bind themselves contract;
a) Debt by installments or otherwise;
2. to contribute money, property, or industry 3) ere must be a mutual contribution of money,
b) Wages of an employee or rent to a landlord;
3. to a common fund, property or industry to a common fund;
c) Annuity to a widow or representative of a
4. with the intention of dividing the profits 4) e object must be lawful; and
deceased partner;
among themselves. 5) e primary purpose is to carry on a business for
d) Interest on a loan, though the amount of
Two or more persons may also form a partnership for profits and to divide the same among the parties.
payment vary with the profits of the
the exercise of a profession. business;
Rules to Determine Existence
2
Characteristic Elements Civil Code, Articles 1769 e) Consideration for the sale of a goodwill of a
1) Consensual — perfected by mere consent; business or other property by installments or
1) Persons who are not partners as to each other are
otherwise.
2) Nominate — has a special name in law; not partners as to third persons except as provided
by Article 1825 on partnership by estoppel; Incidents of a partnership
3) Bilateral — entered into by 2 or more persons with
reciprocal rights and obligations; 2) Co-ownership or co-possession does not of itself 1) Partners share in profits and losses. ere is
establish a partnership, whether such co-owners or community of interest; (1767, 1797, 1798)
4) Onerous — parties aspire to gain some benefit;
co-possessors do or do not share any profits made by 2) ey have equal rights in the management and
5) Commutative — the undertaking of each of the the use of the property; conduct of the business; (1803)
partners is considered as the equivalent of that of
3) e sharing of gross returns does not of itself 3) Every partner is an agent of the partnership who
the others;
establish a partnership, whether or not the persons binds the others for his acts for the purpose of its
6) Principal — does not depend upon some other sharing them have a joint or common right or business; (1818)
contracts; interest in any property from which the returns are
4) All partners are personally liable for the debts of the
7) Preparatory — a means to an end. derived;
partnership with their separate property (1816,
1822-1824) exc limited partners; (1843)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 52 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

5) e books shall be kept at the principal place of Undoubtedly, the best evidence to prove the existence of a profits as partners. e absence of this intention is
business; (1805) partnership is the contract or articles of partnership. exemplified by the lack of sharing of profits.
6) A fiduciary relation exists between partners; (1807) Nevertheless, in its absence, its existence can be Emmarck palpably failed to substantiate that Pedro and
established by circumstantial evidence. Maricel were his industrial partners.
7) A capitalist partner cannot carry on a competing
business unless expressly allowed (1808), while an Here, there is no proof that a partnership existed
industrial partner is absolutely prohibited from between Pedro or Maricel, and Emmarck in relation to the
engaging in any other business; (1789) beach resort. No documentary evidence was submitted by Santiago v. Spouses Garcia 2020
Emmarck to even suggest a partnership. Emmarck relied Partnership is essentially a result of an agreement or a
8) e partnership is not terminated upon dissolution,
solely on his own statements that Pedro and Maricel did contract, either express or implied, oral or in writing,
but continues until the winding up is completed.
not receive wages, but merely allowances and commission between two or more persons. Here, there was neither
(1828)
from the profits of their partnership. However, it is allegation nor proof that Merian and Edna agreed to enter
Dusol v. Lazo 2021 Lopez, M., J. beyond dispute that receipt by a person of share in the into a partnership for purposes of carrying out the lending
profits of a business does not by itself establish the business.
e existence of a partnership is established when it is existence of a partnership, if the amounts are received as
shown that: ere was likewise no agreement for the sharing of
wages of an employee. Neither does the sharing of gross
profits, only that Merian expects to receive remittance of
1) two or more persons bind themselves to contribute returns establish partnership.
monthly interest from the amount she invested. At any
money, property, or industry to a common fund; Santiago v. Spouses Garcia ruled that no partnership existed rate, the receipt by a person of a share of the profits, or of
and because there was no "unmistakable intention to form a a payment of a contingent amount in case of profits
2) they intend to divide the profits among partnership." As in this case, there is no clear indication earned, is not a conclusive evidence of partnership. ere
themselves. that the parties agreed to contribute money, property or must be an unmistakable intention to form a partnership
industry to engage in particular business. Aside from which is lacking in this case. Most importantly, the facts
Generally, it is not required that the agreement be in
Emmarck's self-serving statements, no other piece of do not disclose that there is mutual agency between
writing or in a public instrument. However, when
evidence was presented to prove their intent to form a Merian and Edna, that is, neither party alleged that she
immovable properties or real rights are contributed to the
partnership. Neither did Emmarck bother to specify his can bind by her acts the other, and can be bound by the
partnership, it is required that an inventory of the real
supposed contributions to the partnership. In addition, acts of the other in the ordinary course of business.
properties or rights contributed be prepared and signed
there is no proof that there was an intention to divide the
by the parties, and attached to the public instrument,
otherwise, the agreement is void.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 53 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

so consenting to the contract or

Separate Personality Partnership by Estoppel
3 4 representation as to incur liability, otherwise
Civil Code, Articles 1768 Civil Code, Article 1825
separately.
ART 1768. e partnership has a juridical ART 1825. When a person,
When a person has been thus represented to be a
personality separate and distinct from that of each of 1. by words spoken or written or by conduct, partner in an existing partnership, or with one or
the partners, even in case of failure to comply with
2. represents himself, or consents to another more persons not actual partners, he is an agent of
the requirements of article 1772, first paragraph.
representing him to anyone, the persons consenting to such representation to
ART 1772. Every contract of partnership having a bind them to the same extent and in the same
capital of three thousand pesos or more, in money or 3. as a partner in an existing partnership or with
manner as though he were a partner in fact, with
property, one or more persons not actual partners,
respect to persons who rely upon the representation.
1. shall appear in a public instrument, he is liable to any such persons to whom such When all the members of the existing partnership
representation has been made, consent to the representation, a partnership act or
2. which must be recorded in the O fice of the
4. who has, on the faith of such representation, obligation results; but in all other cases it is the joint
Securities and Exchange Commission.
given credit to the actual or apparent act or obligation of the person acting and the persons
Failure to comply with the requirements of the partnership, and consenting to the representation.
preceding paragraph shall not a fect the liability of
if he has made such representation or consented to When does partnership liability result?
the partnership and the members thereof to third
persons. its being made in a public manner he is liable to such Partnership by estoppel results if ALL the actual
person, whether the representation has or has not partners consented to the representation.
Saludo, Jr. v. PNB 2018 been made or communicated to such person so
When is liability pro rata?
giving credit by or with the knowledge of the
A partnership for the practice of law, constituted in apparent partner making the representation or a) When there is NO existing partnership, and all those
accordance with the Civil Code provisions on partnership, consenting to its being made: represented as partners consented; or
acquires juridical personality by operation of law. Having a
1) When a partnership liability results, he is b) When there is an existing partnership, and not all of
juridical personality distinct and separate from its
liable as though he were an actual member of the partners consented.
partners, such partnership is the real party-in-interest in
a suit brought in connection with a contract entered into the partnership; When is liability separate?
in its name and by a person authorized to act on its behalf. 2) When no partnership liability results, he is a) When there is NO existing partnership, and only
liable pro rata with the other persons, if any, some of those represented consented; or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 54 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

by their industry or work during the

b) When there is an existing partnership, and none of ii) one for a fixed term or particular
the partners consented. existence of the partnership. undertaking that is continued a ter the
Elements to establish liability as a partner on ground of is is presumed if the nature of articles of termination of such term or particular
estoppel universal partnership is not specified. undertaking without any express agreement

1) Proof by plainti f that he was individually aware of b) Particular — has for its object determinate b) With a fixed term — one in which the term is
the defendant’s representations; things, their use or fruits, or a specific fixed or agreed upon or formed for a particular
undertaking, or the exercise of a profession or undertaking, and upon expiration of the term or
2) Reliance on such representation by the plainti f; and completion of the undertaking, the partnership
vocation.
3) Lack of any denial or refutation of the statements by is dissolved, unless continued by the partners.
2) As to liability of partners
the defendant.
4) As to the legality of its existence — as to compliance
a) General — one consisting of general partners
with all legal requirements for establishment:
Kinds of Partnership who are liable pro rata and subsidiarily, and
5 a) De jure — complied;
Civil Code, Articles 1776- 1785 sometimes solidarily with their separate
property for partnership debts; b) De facto — failed;
1) As to extent of its subject matter
b) Limited — one formed by 2 or more persons 5) As to representation to others
a) Universal which refers to all the present having as members one or more general
property or to all the profits. partners and one or more limited partners, the a) Ordinary or real — exists among partners as also
latter not being personally liable for the as to third persons;
i) Universal partnership of all present property
— that in which the partners contribute all obligation of the partnership. b) Ostensible or by estoppel — in reality is not a
the property which actually belongs to them partnership, but is considered one only in
3) As to duration
to a common fund, with the intention of relation to those who, by their conduct or
dividing the same among themselves, as well a) At will — admission, are precluded to deny or disprove its
as all the profits which they may acquire i) no time is specified and is not formed for a existence.
therewith. particular undertaking and which may be 6) As to publicity
terminated anytime by mutual agreement of
ii) ✔ Universal partnership of profits — a) Secret — the existence of certain persons as
the partners or by the will of one of them; OR
comprises all that the partners may acquire partners is not made known to the public;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 55 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

should have been contributed up to the time of

b) Open or notorious — whose existence is made 2) e majority of the capitalist partners are of the
known to the public by the members. actual delivery. opinion that an additional contribution to the
Prohibition against engaging in business common fund would save the business;
7) As to purpose
1) Industrial partner — Absolutely prohibited, 3) e capitalist partner refuses deliberately to
a) Commercial or trading — formed for the
regardless of the nature of the business whether of contribute an additional share to the capital; and
transaction of business;
the same kind or not. 4) ere is no agreement that even in case of an
b) Professional or non-trading — formed for the
Unless expressly allowed, not merely by toleration. imminent loss of the business, the partners are not
exercise of a profession.
e remedies of the other partners would be obliged to contribute.

Obligations of Partners Among a) To exclude the erring industrial partner from Here, an industrial partner is exempt from contributing an
B Themselves the firm; or additional share. He has already contributed his entire
Civil Code, Articles 1784-1809 industry.
b) To avail themselves of the benefits which he
When does a partnership commence? may have obtained; Obligation of managing
GR: From the moment of the execution of the c) Plus right to damages in either case. partner who collects debt
contract. Where
2) Capitalist partner — Relative prohibition, only to any
EXC: Unless otherwise stipulated. business of the same kind, unless there is a 1) ere exists at least 2 debts, one where the collecting
stipulation to the contrary. Sanctions for violating partner is creditor, and the other, the partnership is
With respect to the prohibition include: the creditor;
contribution of property
a) Bringing to the common funds any profits 2) Both debts are demandable; and
1) To contribute at the beginning of the partnership or
from the other business; and 3) e collecting partner is authorized to manage and
at the stipulated time the money, property, or
industry which he may have promised to contribute; b) Personally bearing the losses. actually manages the partnership, the RULE is as
follows:
2) To answer for eviction in case the partnership is When is a capitalist partner obliged to sell his interest to others?
deprived of the determinate property contributed; GR: e sum received is to be applied to the 2 credits in
1) ere is an imminent loss of the partnership
proportion to their amounts.
3) To answer for the fruits of the property the business;
contribution of which he delayed, from the date they EXC: If received, for the account of the partnership, shall
be applied to the partnership credit only.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 56 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

EXC to EXC: Risk of loss of things contributed a) According to agreement;

If credit to the collecting partner is more onerous, Who bears loss? b) If no agreement
the debtor is given the right to prefer payment to the i) e share of the capitalist partner is in
former. Specific and determinate things, which
proportion to his capital contribution.
are not fungible where only use is Partner
Obligation of partner who contributed ii) e industrial partner shall receive such
receives share of share as may be just and equitable, which
partnership credit Specific and determinate things the must be satisfied first before the capitalist
A partner shall be obliged to bring to the partnership capital ownership of which is transferred to the Partnership partners shall divide the profits.
what he received even though he may have given receipt for partnership
is means the least amount that a capitalist
his share only, IF Fungibles or things which cannot be partner gets.
1) He has received, in whole or in part, his share of a kept without deteriorating even if Partnership 3) Losses
partnership credit; contributed only for use
a) According to agreement;
2) e other partners have not collected theirs; AND ings contributed to be sold Partnership b) If no agreement, but the contract provides for a
3) e partnership debtor has become insolvent. profit-sharing scheme, the losses shall be in
ings brought and appraised in the
Partnership accordance with that scheme.
Obligations of partner for inventory
damages to partnership c) If there is also no profit-sharing stipulated, then
GR: e damages caused by a partner to the partnership Rules for distribution of profits and losses losses shall be borne in proportion to capital
CANNOT be o fset by the profits or benefits which 1) Capital contribution.
he may have earned for the partnership by his In any case, the purely industrial partner shall
a) According to agreement;
industry. not be liable for the losses.
b) If no agreement, the share shall be equal;
EXC: If through the partner's extraordinary e forts in Can a third person be designated to determine share in profits or
other activities of the partnership, unusual profits c) In case of imminent loss of the business,
losses?
have been realized, the courts may equitably lessen additional shares may be determined by the
majority. YES. If the partners have agreed to intrust to a third
this responsibility.
person.
2) Profits

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 57 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Such designation may be impugned only when it is 1) If he is wrongfully excluded from the partnership c) NOT subject to attachment or execution
manifestly inequitable. In no case may a partner business or possession of its property by his except on a claim against the partnership;
complain of such decision if he co-partners; When partnership property is attached for a
1. Has begun to execute the decision of the third 2) If the right exists under the terms of any agreement; partnership debt the partners, or any of
person, or 3) As provided by Article 1807 — Every partner must them, or the representatives of a deceased
2. Has not impugned the same within a period of account to the partnership for any benefit, and hold partner, cannot claim any right under the
three months from the time he had knowledge as trustee for it any profits derived by him without homestead or exemption laws.
thereof, the consent of the other partners from any d) NOT subject to legal support.
transaction connected with the formation, conduct,
e designation of losses and profits cannot be 2) His interest in the partnership;
intrusted to one of the partners. or liquidation of the partnership or from any use by
him of its property. Refers to his share of the profits and surplus. ese
A stipulation which excludes one or more partners from may be assigned.
any share in the profits or losses is VOID. 4) Whenever other circumstances render it just and
reasonable. e.g. a partner has been assigned abroad A partner shall NOT be deprived of his right, if any,
Subpartnership for a long time. under the exemption laws, as regards his interest in
Every partner may associate another person with him in the partnership.
his share, but the associate shall NOT be admitted into the
C Property Rights of Partners 3) His right to participate in the management.
partnership without the consent of ALL the other partners, Civil Code, Articles 1810-1814
Partnership Property Partnership Capital
even if the partner having an associate should be a
1) His rights in specific partnership property;
manager. Changes
A partner is co-owner with his partners. VARIES CONSTANT
Right of partner to a formal account in value
a) Equal right to possess for partnership
GR: During the existence of the partnership, a partner is purposes, but not for any other purpose Aggregate of the
Original capital
NOT entitled to a formal account of partnership without the consent of the other partners; individual
contribution + All
a fairs since his right to know are amply protected Assets contributions made in
b) NOT assignable except in connection with property
with regard to access to partnership books. included establishing or
the assignment of rights of all the partners in subsequently
EXC: Action for accounting. Any partner shall have the right continuing the
the same property; acquired +
to a formal account as to partnership a fairs: partnership

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 58 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Partnership Property Partnership Capital b) Sale of interest. Industrial partners, although not liable for losses,
are personally liable for liabilities of the partnership
Partnership name + e interest charged may be redeemed.
to third persons.
Goodwill
Obligations of Partnership/Partners Losses = settlement of partnership a fairs among
Assignment of partner’s whole interest D to Third Persons partners;
is is permitted without causing dissolution. However, Civil Code, Articles 1815-1827 Liabilities = to third persons.
such assignment does NOT grant the assignee the right to:
Liability for inclusion of name in firm name Stipulation against liability
a) Interfere in the management;
Partners by estoppel. Persons who, being not partners, A stipulation among partners contrary to the pro rata
b) Require any information or account; or include their names in the firm name and subsidiary liability expressly imposed is VOID and
c) Inspect partnership books. 1. DO NOT acquire the rights of a partner, of no e fect as to third persons.

e only rights of the assignee are: 2. but they shall be SUBJECT to the liability of a Such stipulation however is VALID and enforceable
partner insofar as third persons without notice among the partners.
1) To receive the profits accruing to the assigning
are concerned.
partner; Liability of partnership for acts of partners
2) To avail of usual remedies in the event of fraud in Liability for contractual obligations of the partnership 1) Acts for apparently carrying out the usual way of
the management; e general rule is that a partner, who had actual or business of the partnership a.k.a. Acts of
3) To receive assignor’s interest in case of dissolution; apparent authority, has the right to make all partners administration
liable for the contracts he makes for the partnership in GR: Every partner is an agent and may execute
4) To require an account of partnership a fairs, but only
the name and for the account of the partnership. such acts with binding e fect.
in case of dissolution.
e individual liability of partners to creditors is pro EXC: If the partner so acting
Remedies of separate judgment creditor of a partner
rata and subsidiary.
a) Has in fact no authority; AND
1) Application for a charging order a ter securing
1) Pro rata — based on the number of partners, and not
judgment on his credit. However, claims of on the amount of contribution. b) e third person KNOWS.
partnership creditors must be satisfied first. 2) Acts of strict dominion or ownership
2) Subsidiary or secondary — only a ter all the
2) Other remedies may include partnership assets have been exhausted. GR: NOT binding;
a) Receivership;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 59 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

partner is co-extensive with the business

EXC: Unless authorized by the other partners. Title Conveyance
transacted by his firm. EFFECT
in name of in name of
Except when authorized by the other partners
or unless they have abandoned the business, Conveyance of real property Partner/s in
one or more but less than all the partners have owned by partnership One or more whose name
no authority to: Title Conveyance Passes title, same as (1)
EFFECT partners the title
1) Assign the partnership property in trust in name of in name of stands
for creditors or on the assignee's promise
Passes title, but One or more
to pay the debts of the partnership;
partnership can recover if or all
2) Dispose of the goodwill of the business; Buyer gets equitable
a) Conveyance was not partners or a Partnership
interest of the partnership,
3) Do any other act which would make it in usual way of third person or partner
same as (2)
impossible to carry on the ordinary Partnership Partnership business; or in trust for
business of a partnership; b) Buyer had partnership
knowledge that the
4) Confess a judgment; All partners All partners Passes title.
partner-seller had
5) Enter into a compromise concerning a no authority.
Admission by a partner
partnership claim or liability;
Buyer gets equitable An admission or representation made by any partner
6) Submit a partnership claim or liability to
interest of the partnership concerning partnership a fairs within the scope of his
arbitration;
except if authority is evidence against the partnership.
7) Renounce a claim of the partnership. a) Partnership is not
Notice to, or knowledge of, a partner
3) Acts in contravention of a restriction on authority engaged in buying
Partner’s GR: Notice to any partner of any matter relating to
Partnership and selling of lands;
GR: Partnership is NOT liable to third persons name partnership a fairs, and the knowledge of the
or
having actual or presumptive knowledge of b) Buyer had partner acting in the particular matter,
the restrictions. knowledge that the 1. acquired while a partner or
EXC: Such persons not having such notice have a partner-seller had
2. then present to his mind, and
right to assume that the authority of a no authority.
the knowledge of any other partner

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 60 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3. who reasonably could and should have 2) Loss where one partner acting within the scope of 2) Winding up — is the actual process of settling the
communicated it to the acting partner, his apparent authority receives money or property of business or partnership a fairs a ter dissolution,
operate as notice to or knowledge of the a third person and misapplies it; involving
partnership. 3) Loss where the partnership in the course of its a) e collection and distribution of
EXC: in the case of fraud on the partnership, committed business receives money or property of a third partnership assets,
by or with the consent of that partner. person and the money or property so received is b) Payment of debts, and
misapplied by any partner while it is in the custody
NB: Notice to any partner, under certain circumstances, of the partnership. c) Determination of the value of each partner’s
operates as notice to or knowledge to the interest in the partnership.
partnership only. Evidently, it does not provide for the Liability of incoming partner 3) Termination — point in time when all partnership
reverse situation, or that notice to the partnership is for partnership obligations a fairs are completely wound up and finally settled.
notice to the partners. (Guy v. Gacott 2016) 1) Limited to his share in the partnership property for It signifies the end of the partnership life.
existing obligations.
Liability arising from partner’s Causes of Dissolution
wrongful act, omission, or GR: Not personally liable for existing partnership
1) Act of parties NOT in violation of their agreement —
breach of trust obligations.
e partners and partnership are SOLIDARILY liable for: EXC: Unless there is a stipulation to the contrary. a) Termination of the definite term or particular
undertaking specified in the agreement;
1) Loss or injury caused to third persons — Requisites 2) Extends to his separate property for subsequent
for liability obligations. b) Express will of any partner, who must act in
good faith, when no definite term or particular
a) Partner must be guilty of a wrongful act or
is specified;
omission; AND E Dissolution and Winding Up
Civil Code, Articles 1827-1842 c) Express will of ALL the partners who have not
b) He must be acting in the ordinary course of
assigned their interests or su fered them to be charged
business, or with the authority of his ree stages of ending a partnership:
for their separate debts, either before or a ter the
co-partners even if the act is unconnected 1) Dissolution — is the change in the relation of the termination of any specified term or particular
with the business. partners caused by any partner ceasing to be undertaking;
associated in the carrying on of the business.
d) Expulsion of any partner from the business
bona fide in accordance with such a power

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 61 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

conferred by the agreement between the any partner to bind the partnership by a new
i) Abandonment of the business;
partners; contract is IMMEDIATELY terminated.
ii) Fraud in the management of the business;
2) Act of parties in violation of their agreement; ii) Otherwise, termination of authority depends
iii) Refusal without justifiable cause to render upon WON the partner had knowledge or notice
3) Operation of law — accounting of partnership a fairs, etc. of the dissolution —
a) Any event which makes it unlawful for the On the application of the purchaser of a partner's GR: Each partner is liable to his co-partners
business of the partnership to be carried on or interest: for his share of any liability created by
for the members to carry it on in partnership;
a) A ter the termination of the specified term any partner acting for the partnership as
b) Loss of specific thing — When a specific thing or particular undertaking; if the partnership had not been dissolved
which a partner had promised to contribute to
b) At any time if the partnership was a EXC: Unless the partner acting for the
the partnership, perishes before the delivery;
partnership at will when the interest was partnership had
c) Death of any partner; assigned or when the charging order was a) knowledge of the dissolution caused by
d) Insolvency of any partner or of the partnership; issued. act of any partner; OR
e) Civil interdiction of any partner; E ect of dissolution on authority of partner b) knowledge or notice of the death or
4) Court decree — On application by or for a partner GR: Upon dissolution, a partnership ceases to be a going insolvency.
the court shall decree a dissolution due to: concern and the partner’s power of representation is b) With respect to third persons —
a) Insanity; confined only to
i) As to prior or former dealers — persons who
b) Incapacity; 1. acts incident to winding up or extended credit to partnership prior to
2. completing transactions begun but not dissolution — must have knowledge or actual
c) Misconduct;
finished. notice of the dissolution to relieve partnership
d) Persistent breach of partnership agreement; from liability;
is rule is subject to qualifications.
e) e business of the partnership can only be ii) As to persons who had known of partnership’s
carried on at a loss; a) With respect to partners themselves —
existence — publication;
f) Other circumstances render a dissolution i) If the dissolution is NOT caused by the act,
In both instances, the liability of a partner shall
equitable. insolvency or death of a partner, the authority of
be satisfied out of partnership assets alone
when such partner had been prior to dissolution:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 62 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) Unknown as a partner to the person with 2) In the absence of such agreement, by all partners 2) If dissolution in contravention of agreement — e
whom the contract is made; and who have not wrongfully dissolved the partnership; rights of a partner vary depending on his innocence.
2) So far unknown and inactive in partnership OR a) If innocent —
a fairs that the business reputation of the 3) e legal representative of the last surviving partner, i) To have partnership property applied for the
partnership could not be said to have been to not insolvent; OR payment of its liabilities and to receive in
any degree due to his connection with it. 4) A court-appointed receiver. cash his share of the surplus;
iii) e partnership is in NO case bound by any act Right of partner to application of partnership property on ii) To be indemnified for damages caused by the
of a partner a ter dissolution:
dissolution guilty partner;
1) Unlawful to carry on the business, unless the
“Partner’s lien” is the right of every partner, on a iii) To continue the business in the same name
act is appropriate for winding up during the agreed term, by themselves or
dissolution, against the other partners and persons
partnership a fairs; jointly with others; and
claiming through them in respect of their interests as
2) Insolvency of partner; partners, to have the partnership property applied to iv) To possess partnership property should they
3) Partner has no authority to wind up discharge partnership liabilities and the surplus assets, decide to continue the business.
partnership a fairs; except by a transaction if any, distributed in cash to the respective partners,
b) If guilty of wrongfully causing the dissolution —
with one who — a ter deducting what may be due to the firm from them
as partners. i) If the business is NOT continued — To have
a) Is a former dealer and had no knowledge partnership property applied for the
or notice of his want of authority; or 1) If dissolution NOT in contravention of agreement —
payment of its liabilities and to receive in
Partners have the right to have
b) Is not a former dealer, and, having no cash his share of the surplus less damages.
knowledge or notice of his want of a) e partnership property applied to discharge
ii) If the business is continued
authority, the fact of his want of the liabilities of the partnership; AND
authority has not been duly published. 1) To have the value of his interest in the
b) e surplus, if any, applied to pay in cash the net
partnership at the time of dissolution,
amount owing to respective partners.
Winding up; manner, less damages ascertained and paid in
persons authorized NO partner is liable for any loss sustained as a result cash or secured by bond approved by the
of dissolution. court; and
Winding up may be done judicially or extrajudicially by
1) e partners designated by the agreement;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 63 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2) To be released from all existing and b) ose owing to partners other than for capital is is otherwise known as the doctrine of the
future liabilities of the partnership. and profits, such as loans given by partners or marshalling of assets.
In ascertaining the value of the partner's advances for business expenses;
6) Distribution of property of insolvent partner. — his
interest the value of the goodwill of the c) Return of capital contribution of partners; individual property shall be distributed as follows:
business shall NOT be considered. d) Profits. a) To those owing separate creditors;
Rights of injured partner where partnership contract rescinded 3) Right of a partner where assets insu ficient. — e b) To those owing to partnership creditors; and
1) Right of a lien on, or retention of, the surplus of following shall have the right to enforce the
c) To those owing to partners by way of
partnership property a ter satisfying partnership contributions
contribution.
liabilities for any sum of money paid or contributed a) Any partner or his legal representative, to the
by him; Rights of creditors of dissolved partnership which is continued
extent of the amount which he has paid in excess
2) Right to subrogation in place of partnership of his share of the liability; 1) Equal rights of dissolved and new partnership
creditors a ter payment of partnership liabilities; creditors.
b) An assignee for the benefit of creditors; or
and 2) Liability of persons continuing the business. —
c) Any person appointed by the court
shall be satisfied out of the partnership property
3) Right of indemnification by the guilty partner
4) Liability of deceased partner’s individual property. only, unless there is a stipulation to the contrary.
against all debts and liabilities of the partnership.
— shall be liable for his share of the contributions
3) Prior right of dissolved partnership creditors as
Rules in settling accounts between partners necessary to satisfy the liabilities incurred while he
against purchaser. — When a retiring or deceased
1) Assets of the partnership. — was a partner.
partner has sold his interest without a final
a) Partnership property + Goodwill; AND 5) Priority to payment of partnership creditors/ settlement with partnership creditors, such
partners’ creditors. — When partnership property creditors have an equitable lien on the
b) Contributions of the partners necessary for the
and the individual properties of the partners are in consideration paid to the retiring or deceased
payment of all liabilities.
possession of a court for distribution partner by the purchaser.
2) Order of application of the assets. —
a) partnership creditors shall have priority on e lien comes ahead of the separate creditors of
a) ose owing to partnership creditors; partnership property; and said partner.
b) separate creditors on individual property. Rights of retiring, or of estate of deceased,
partner when business is continued

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 64 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) To have the value of the interest of the retiring or As to General Limited 2) File for record the certificate in the O fice of the
deceased partner in the partnership ascertained as SEC.
of the date of retirement or death; AND Management ✔ ✘
A limited partnership is formed if there has been
2) To receive therea ter, as an ordinary creditor, an Money, property or At least money or substantial compliance in good faith with the foregoing
Contribution
amount industry property requirements.
a) equal to the value of his share in the NO unless also a If there is no substantial compliance, the partnership
dissolved partnership general partner, or becomes a general partnership as far as third persons
To proceedings by or
b) with interest, where the object is to are concerned, in which ALL members are liable as
Proper Party against the
enforce his right general partners.
c) or, at his option, in lieu of interest, the partnership
against, or liability When does a limited partner become liable as a general partner?
profits attributable to the use of his right.
to, the partnership.
1. If his surname appears in firm name;
F Limited Partnership Does not make 2. If he takes part in the control of the business.
Civil Code, Articles 1843-1867 Assignment assignee new
Freely assignable
of interest partner without Limited partner; specific rights
Definition and Requirements consent of others. 1) To require that the partnership books be kept at the
A limited partnership is one formed by two or more principal place of business;
persons, having as members Name in firm ✔ ✘
2) To inspect and copy at a reasonable hour
1. one or more general partners AND Other Absolutely or partnership books or any of them;
No prohibition
2. one or more limited partners. business relatively prohibited
3) To demand true and full information of all things
e limited partners as such shall not be bound by the Retirement, death, a fecting the partnership;
obligations of the partnership. Dissolution ✔ insanity, insolvency 4) To demand a formal account of partnership a fairs
As to General Limited DOES NOT dissolve whenever circumstances render it just and
Statutory requirements reasonable;
Extends only to
Liability Personally liable 5) To ask for dissolution and winding up by decree of
capital contribution 1) Sign and swear to a certificate;
court;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 65 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

6) To receive a share of the profits or other c) Receiving a pro rata share of the partnership Upon petition with the court:
compensation by way of income; assets with general creditors if he is not also a a) When his demand for the return of his contribution
7) To receive the return of his contribution provided general partner. is denied although he has a right to such return; or
there is a surplus. 2) Prohibited transactions. — b) When his contribution is not paid because the other
GR: Unless he is a general partner, a limited partner is a) Receive or hold as collateral security any liabilities of the partnership have not been paid or
NOT a proper party to proceedings by or against a partnership property; or the partnership property is insu ficient for their
partnership b) Receive payment, conveyance or release from payment.
EXC: Where the object is to enforce a limited partner's liability if it will prejudice the right of third Before seeking judicial redress, he may first ask the other
right against or liability to the partnership. persons. partners to have the partnership dissolved.
Status of person erroneously believing IF at the time the assets of the partnership are Limited partner; liabilities
himself to be a limited partner not su ficient to discharge partnership liabilities
1) To the partnership —
A person who has contributed to a partnership erroneously to persons not claiming as general or limited
believing that he has become a limited partner, is NOT partners. a) For the di ference between his contribution as
personally liable as a general partner, provided: actually made and that stated in the certificate as
Any violation of the prohibition will give rise to
having been made, and
a) On ascertaining the mistake he promptly renounces the presumption that it has been made to defraud
his interest in the profits of the business, or other partnership creditors. b) For any unpaid contribution which he agreed in
compensation by way of income; the certificate to make in the future at the time
Return of contribution
and on the conditions stated in the certificate.
b) His surname does NOT appear in the partnership GR: A limited partner only has the right to demand and
name; and 2) To partnership creditors and other partners —
receive CASH for his contribution, whether he
becomes liable for partnership obligations when
c) He does NOT participate in the management of the contributed money or property.
business. a) He contributes services, instead of only money
EXC: When there is stipulation to the contrary in the
or property;
Transactions of limited partner with the partnership certificate; or
b) He allows his surname to appear in the firm
1) Allowable transactions.— Where ALL partners consent to the return other
name;
a) Grant loans to the partnership; than in form of cash.

b) Transacting other business with it; and When may a limited partner have the partnership dissolved?

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 66 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) He fails to have a false statement in the 1. NO right to Limited Partnership; Dissolution

certificate corrected, knowing it to be false; a. require any information or e partnership liabilities shall be settled in the following
d) He takes part in the control of the business; b. account of the partnership transactions or order:
e) He receive partnership property as collateral c. to inspect the partnership books; 1) ose due to creditors, including limited partners,
security, payment, conveyance, or release in
2. He is only entitled to except those on account of their contributions, in the
fraud of partnership creditors; and
order of priority as provided by law;
f) ere is failure to substantially comply with the a. receive the share of the profits or other
compensation by way of income, or 2) ose to limited partners
legal requirements governing the formation of
limited partnerships. b. the return of his contribution, to which his a) in respect to their share of the profits and other
assignor would otherwise be entitled. compensation by way of income on their
3) To separate creditors — Charging order — e
contributions;
interest may be redeemed with the separate What are the requisites for an assignee to
property of any general partner, but may NOT be become a substituted limited partner? b) in respect to the capital of their contributions;
redeemed with partnership property. 1) Unanimous consent of all members; or if the limited 3) ose to general partners
e liabilities may be waived or compromised, partner is empowered by the certificate, must give
a) other than for capital and profits;
provided the waiver or compromise: the assignee the right to become a limited partner;
b) in respect to profits;
1) Is made with unanimous consent; and 2) e certificate must be amended; and
c) in respect to capital. (NB: in general partnership,
2) Does not prejudice partnership creditors who 3) e amended certificate must be registered in the
capital enjoys preference over profits)
extended credit or whose claims arose before the SEC.
cancellation or amendment of the certificate.
GR: A substituted limited partner is liable for all the
Insurance
Limited partner; assignee to substituted liabilities of his assignor; III
P.D. No. 612, as amended by R.A. No. 10607
A substituted limited partner is a person admitted to all EXC: ose of which he was ignorant at the time he
the rights of a limited partner who has died or has became a limited partner and which could not be Concept of Insurance
assigned his interest in a partnership. ascertained from the certificate.
Insurable Interest
An assignee, who does NOT become a substituted limited
partner, has Concealment

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 67 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Representation a. One party called the insurer undertakes for a Additionally, they provide three types of coverage,
consideration namely, protection and indemnity, war risks, and
Policy defense costs.
b. To pay another party called the insured, or his
Warranties beneficiary, 8. Mutual Insurance Companies like P&I Clubs are
considered insurers. A protection and indemnity club,
Premium c. Upon the happening of the peril insured against,
is an association composed of shipowners generally
Loss d. Whereby the insured or his beneficiary su fers formed for the specific purpose of providing
loss or damage or is exposed to liability. insurance cover against third-party liabilities of its
Notice and Proof of Loss
4. e TEST to determine whether a contract is one of members. (Steamship Mutual Underwriting Association
Double Insurance; Overinsurance insurance is whenever the assumption of risk and the (Bermuda) Ltd. v. Sulpicio Lines 2017)
Reinsurance indemnification of loss is the principal object and 9. Profit not material — Absence of PROFIT does NOT
purpose of the contract. negate the existence of an insurance contract.
Classes of Insurance
5. Applying the "principal object and purpose test," a
Elements of an Insurance Contract
A Concept of Insurance
corporation, such as an HMO, whether or not
R.A. No. 10607, §2-9 organized for profit, whose main object is to provide
a) e insured has an insurable interest;
the members of a group with health services, is NOT
1. Definition. — A contract of insurance is an engaged in the insurance business. (Philippine Health b) e insured is subject to a risk of loss by the
agreement whereby Care Providers v. CIR) happening of the designated peril;
a. one undertakes for a consideration 6. However, it does not follow that the contract that is c) e insurer assumes the risk;
b. to indemnify another entered into is not insurance; the nature of the d) Such assumption of risk is part of a general scheme
contract will be examined on a case-to-case basis. to distribute actual losses among a large group of
c. against loss, damage or liability
us, a health care agreement may be construed as a persons bearing a similar risk; and
d. arising from an unknown or contingent event. non-life insurance if it is primarily a contract of
e) In consideration of the insurer’s promise, the
2. For regulatory purposes, a contract of suretyship indemnity. (Fortune Medicare v. Amorin 2014)
insured pays a premium.
shall be deemed to be an insurance contract ONLY if 7. Mutual Insurance Companies. A mutual insurance
made by a surety who is doing an insurance business. company is a cooperative enterprise where the
3. Insurance is a contract whereby members are both the insurer and insured.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 68 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

O er and acceptance; consensuality Delivery of policy. — not necessary for perfection since an Parties
insurance contract is consensual.
Cognition eory — An insurance contract is perfected the e insurer is the party who promises to pay in case of
moment the o feror learns of the acceptance of his o fer by Risk loss.
the other party. 1. Any contingent or unknown event, whether past or No insurance company shall transact any insurance
1. e contract, to be binding from the date of future, business in the Philippines until a ter it shall have
application, must have been a completed contract. Uncertainty is a feature in insurance contracts. obtained a certificate of authority from the
ere can be no contract of insurance unless the Commissioner.
minds of the parties have met in agreement. Past events that may be insured is peculiar to marine
insurance. It shall expire on the last day of December, three (3)
(Steamship Mutual Underwriting Association (Bermuda)
years following its date of issuance, and shall be
Ltd. v. Sulpicio Lines 2017) 2. Which may damnify a person having an insurable renewable every three (3) years therea ter, subject to the
2. An insurance contract can be entered into through interest, or create a liability against him. company's continuing compliance.
an agent. For example, a bank is an agent of the Further, the risk must be INSURABLE, wherein:
e insured is either
insurer if it o fers a special type of savings and
1. ere must be a large number of homogenous
insurance account whereby the depositor has 1. e owner of the policy whose life or property is
exposure units;
automatic insurance coverage for disability or insured;
death. (BPI v. Laingo 2016) 2. e loss must be accidental and unintentional;
Here, the insured and the owner of the policy is one
3. However, there are cases when the insurer assumed 3. e loss must be determinable and measurable; and the same.
the risk of loss without approving the application. 4. e loss should NOT be catastrophic; 2. One who took out the insurance over the life of
is includes cases when the buyer of a memorial lot persons in whom he has insurable interest.
Nevertheless, trivial losses are NOT insurable. De
is deemed insured the moment it enters into a
minimis non curat lex. Here, the owner of the policy is called the assured,
contract with the seller. (Eternal Gardens Memorial
5. e chance of loss must be calculable; and while the person whose life is insured is the insured.
Park v. Phil. American Life Insurance Corp.)
6. e premium must be economically feasible. If the owner dies, the policy automatically vests in the
Delay in acceptance. — Mere delay in acceptance of the
insured, unless otherwise provided for in the policy.
insurance application will not result in a binding contract. Assumption of Risk — e insurer promises to pay the
However, in proper cases, the insurer may be liable for insured if the risk insured against occurs. A third person is the beneficiary whose favor the insurance
TORT. was taken by the insured and who will receive the proceeds
of the insurance.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 69 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

GR: Designation of beneficiary is REVOCABLE. 3) Aleatory — the obligation of the insurer to pay Its presence has the following purposes:
EXC: Unless, expressly designated as IRREVOCABLE. arises only upon the happening of an event, which is 1) To reduce moral hazard — dishonesty or character
uncertain, or is to occur at an indeterminate time. defects in the individual that increases the chance of
us, an irrevocable beneficiary has VESTED rights
over the policy. 4) Unilateral — upon payment of the premium, there loss; and
is only one party who has the obligation, the 2) Helps in measuring the loss of the insured.
If a beneficiary is disqualified:
insurer’s obligation to pay the proceeds of insurance
1. Forfeited share shall pass on to other beneficiaries; E fect of lack of insurable interest. — If the insured has no
in case of loss.
insurable interest over the life or property he insures, the
2. If there are no other beneficiaries, or that they are 5) Personal — Each party enters into the contract in insurance contract is UNENFORCEABLE.
also DQed, look at the policy contract; view of the character, credit, and conduct of the
If the contract is really a wager, then it is VOID for being
3. If the contract is silent, proceeds go to the estate of other.
against public policy.
the insured. 6) Consensual — perfected by mere consent.
Grounds for DQ
In Life Insurance
7) Uberrimae Fidae — one of perfect good faith.
§10. Every person has an insurable interest in the life and
1) ose made between persons who were guilty of Parties must avoid material concealment or
health:
adultery or concubinage at the time of donation; misrepresentations.
Conviction, not necessary. a) Of himself, of his spouse and of his children;
8) Executory and Conditional — executory to the
2) ose made between persons found guilty of the insurer and subject to conditions, principal of which b) Of any person on whom he depends wholly or in
same criminal o fense, in consideration thereof; is the happening of the event insured against. part for education or support, or in whom he has a
pecuniary interest;
3) ose made to a public o ficer or his wife,
descendants and ascendants, by reason of his o fice. B Insurable Interest c) Of any person under a legal obligation to him for
R.A. No. 10607, §10-25 the payment of money, or respecting property or
Characteristics/Nature of Insurance Such an interest, arising from the relation of the party
services, of which death or illness might delay or
Contracts obtaining the insurance, either as creditor of or surety
prevent the performance;

Insurance contracts are: for the assured, or from ties of blood or marriage to A creditor has an insurable interest over the life of
him, as will justify a reasonable expectation of advantage or his debtor, but not the other way around.
1) Contracts of Adhesion;
benefit from the continuance of his life.
2) Risk-Distributing Device;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 70 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

d) Of any person upon whose life any estate or interest §17. e measure of an insurable interest in e) Borrower in commodatum;
vested in him depends. property is the extent to which the insured might be f) Possessor holding the property without
For (b) - (d), the basis of insurable interest is NOT blood damnified by loss or injury thereof. consideration with the consent of owner;
relationship but PECUNIARY INTEREST. §19. g) An unpaid seller, even if ownership had
In Property Insurance 1. An interest in property insured must exist already been transferred upon delivery;
when the insurance takes e fect, AND when h) Vendee, even while the goods are still in
§18. No contract or policy of insurance on property
the loss occurs, but need not exist in the transit.
shall be enforceable except for the benefit of some
meantime; and
person having an insurable interest in the property 2) Inchoate, founded on an existing interest —
insured. 2. interest in the life or health of a person
insured must exist when the insurance takes a) A shareholder over the properties of the
§13. Every interest in property, whether real or corporation;
e fect, but need not exist therea ter or when the loss
personal, or any relation thereto, or liability in
occurs. b) Purchaser of a property in a judicial sale
respect thereof, of such nature that a contemplated
e TEST is whether one will subject to redemption.
peril might directly damnify the insured, is an
insurable interest. 1. Derive pecuniary benefit or advantage from its An heir has NO insurable interest over properties
preservation; OR that he will inherit.
§14. An insurable interest in property may consist
in: 2. Su fer pecuniary loss or damage from its 3) Expectancy, coupled with one existing out of which the
destruction, termination, injury by the happening of expectancy arises —
a) An existing interest;
the event insured against. a) Interest over the profits that are to be earned
b) An inchoate interest founded on an existing
Kinds of Insurable Interest by a business;
interest; or
1) Existing — b) Future crops of farmers;
c) An expectancy, coupled with an existing
interest in that out of which the expectancy a) Owner; c) Expected commission of agents;
arises. d) Owner of a ship in expected freightage.
b) Lessee;
§16. A mere contingent or expectant interest in any Insurable Interest in Property vs. Life Insurance
c) Depositary;
thing, not founded on an actual right to the thing,
nor upon any valid contract for it, is NOT insurable. d) Usufructuary;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 71 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

As to Property Life GR: A change of interest in any part of a thing insured

unaccompanied by a corresponding change of Devices to Ascertain and Control Risks
Limited up to Unlimited, except if interest in the insurance, SUSPENDS the insurance
Extent 1) Concealment;
value secured by creditor to an equivalent extent, until the interest in the
thing and the interest in the insurance are vested in 2) Representation;
Perfection of
contract AND at the same person. 3) Warranties;
Time when Perfection of insurance
the time of loss; EXC: Will NOT suspend in the following cases: 4) Conditions;
it must exist contract
Need not exist in
1) In life, health, and accident insurance; 5) Exception, Exclusion, or Exemption.
between
2) If there is a change in interest in the thing insured

Expectation of
Need not have legal a ter the occurrence of the loss; C Concealment
Need for basis or be based on R.A. No. 10607, §26-35, 51
benefit must have 3) If there is a change in interest in one or more of
legal basis legally enforceable §26. A neglect to communicate that which a party
legal basis several things that are separately insured;
obligation knows and ought to communicate, xxx.
4) Change of interest through succession;
If insured took out the §27. xxx whether intentional or unintentional entitles
5) Transfer of interest from one partner to another
policy on his own life the injured party to rescind a contract of insurance.
partner of interest over a property jointly insured;
Beneficiary MUST and designated us, good faith is NOT a defense.
and
HAVE insurable another — NOT
Beneficiary’s necessary 6) Transfer of interest from one joint or co-owner to §28. Each party to a contract of insurance must
interest; otherwise, communicate to the other, in good faith, all facts
interest another of the jointly or co-owned property insured.
considered a If one took out an
wagering contract insurance on the life of 7) When a policy is so framed that it will inure to the 1. within his knowledge
benefit of whomsoever, during the continuance of 2. which are material to the contract and
another — MUST
the risk, may become the owner of the interest
HAVE 3. as to which he makes no warranty, and
insured. (Sec 57 IC)
Assignee’s 4. which the other has not the means of
MUST HAVE NOT necessary NB: e policy is AVOIDED, and not merely suspended,
interest ascertaining.
if there is an express prohibition to alienate but the
insured breached the prohibition.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 72 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e test of materiality is the e fect which the knowledge 5) When matters are those which relate to a risk 2. §37. A representation may be made at the time of,
of the fact in question would have on the making of the excepted from the policy and which are not or before, issuance of the policy.
contract. e fact need not increase the risk or contribute otherwise material; 3. §39. A representation as to the future is to be
to any loss or damage. It is su ficient if the knowledge of it 6) When the matter involves general causes that are deemed a promise, unless it appears that it was
would in luence the parties in making the contract. open to inquiry; merely a statement of belief or expectation.
e matter concealed NEED NOT be the cause of the 7) When the matter is included in general usages of 4. §40. A representation cannot qualify an express
loss. trade; provision in a contract of insurance, but it may
Requisites to rescind on ground of concealment 8) Information of the nature or amount of the insured qualify an implied warranty.

1) e party involved must know, or ought to property, is not disclosed unless in answer to an 5. §41. A representation may be altered or withdrawn
know, the fact concealed; inquiry; and before the insurance is e fected, but not a terwards.

2) e fact concealed must be material; 9) When what is involved is information of the party’s 6. §42. A representation must be presumed to refer to
own judgment upon the matters in question. the date on which the contract goes into e fect.
3) No warranty is extended by the party regarding
the fact concealed; and 7. §43. When a person insured has no personal

4) e other party does not have the means of D Representation knowledge of a fact,
R.A. No. 10607, §36-48, 51
ascertaining. a. he may nevertheless repeat information
Statements made to give information to the insurer to which he has upon the subject, and which he
When there is NO material concealment induce him to enter into the insurance contract. believes to be true, with the explanation that
1) When matters are known to the other party; 1. It is a collateral communication he does so on the information of others; or
2) When, in the exercise of ordinary care, one party 2. Made at the time of, or before, issuance of the b. he may submit the information, in its whole
ought to know, and of which the other party has no policy, oral or written. extent, to the insurer; and
reason to suppose him ignorant;
EXC: It may also be one that induces the party to c. in neither case is he responsible for its truth,
3) When there is waiver of communication; modify the contract. unless it proceeds from an agent of the
4) When matters are those which prove or tend to insured, whose duty it is to give the
Rules
prove the existence of a risk excluded by a warranty, information.
and which are not otherwise material; 1. §36. A representation may be oral or written.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 73 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

8. §44. A representation is to be deemed false when

When Rescission UNAVAILABLE e insurer CANNOT prove that the policy is void ab initio or
the facts fail to correspond with its assertions or is rescindable by reason of the fraudulent concealment or
stipulations. 1) When there is waiver;
misrepresentation of the insured or his agent:
9. §45. If a representation is false in a material point, 2) When an action has already been commenced on
A ter a policy of life insurance made payable on the
whether a firmative or promissory, the injured party the contract; and
death of the insured shall have been in force during the
is entitled to rescind the contract from the time 3) When the incontestability clause applies. lifetime of the insured for a period of two (2) years from the
when the representation becomes false. date of its issue or of its last reinstatement,
Incontestability Clause
10. §46. e materiality of a representation is e incontestability clause applies if the following
§48(2). A ter a policy of life insurance made payable
determined by the same rules as the materiality of a requisites are present:
on the death of the insured shall have been in force
concealment.
during the lifetime of the insured for a period of two 1) e policy must be a Life Insurance policy;

Concealment Representation (2) years from the date of its issue or of its last 2) e policy is in force for 2 years from issue or last
reinstatement, the insurer cannot prove that the reinstatement. (Manila Bankers Life Insurance Corp. v.
Involves an omission — Involves a positive policy is void ab initio or is rescindable by reason of Aban 2013)
non-disclosure assertion or a firmation the fraudulent concealment or misrepresentation of What if the insured dies during the two-year period? e death
the insured or his agent. of the insured within the two-year period will render the
Can pertain to the future,
Cannot refer to future acts right of the insurer to rescind nugatory. (Sun Life v. Sibya
if promissory Notes
2016)
If the insured dies within the two-year contestability
Same test of materiality for both NB: is rule is quite controversial as the prevailing rule had
period, the insurer is bound to make good its obligation
under the policy, regardless of the presence or lack of been to allow the lapse of the 2-year period first before the
Ground for rescission
concealment or misrepresentation. incontestability clause can be invoked.
e Insurance Code dispenses with proof of fraudulent e clause CANNOT be invoked in the following cases:
A ter the two-year period lapses, OR when the insured
intent in cases of rescission due to concealment, but not
dies within the period, the insurer must make good on 1) Non-payment of premium;
so in cases of rescission due to false representations. the policy, even though the policy was obtained by
( e Insular Life v. Heirs of Alvarez 2018) 2) Violation of the conditions of the policy relating to
fraud, concealment, or misrepresentation. (Sun Life of military or naval service in times of war;
IOW: Fraudulent intent is required to rescind an Canada v. Sibya 2016)
3) Property insurance;
insurance contract due to false representations;
but NOT if the ground is concealment. 4) Absence of insurable interest;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 74 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

5) When VICIOUS fraud was employed in obtaining e) e interest of the insured in property insured, if NB: is is dispensed with upon the certification
the policy, i.e. fraudulent impersonation, scheme to he is not the absolute owner thereof; of the president, VP or general manager of
murder insured; the insurer that the risk involved, the values
f) e risks insured against;
6) e cause of the loss is an excepted risk; of such risks and premium therefor have not
Named peril policy — the risks insured against are as yet been determined or established, and
7) e beneficiary feloniously kills the insured; specified; the extension or renewal is not contrary to or
8) Beneficiary failed to comply with conditions not for the purpose of violating the IC.
All risk policy — all risks of accidental nature are
subsequent, i.e. failure to submit notice of loss; and
covered. Riders are modifications in life insurance; while
9) e claim is barred by extinctive prescription.
g) e period during which the insurance is to Endorsements are for property and liability insurance. If
continue. they are not part of the original printed form, they are still
E Policy binding provided that:
R.A. No. 10607, §49-66 §52. Cover notes may be issued to bind insurance
temporarily pending the issuance of the policy for a period of 1) It is attached to the policy;
§51. A policy of insurance must specify:
60 days which may be extended or renewed with the 2) Its descriptive title or name is mentioned and
a) e parties between whom the contract is made; written approval of the Commissioner. Requisites are: written on the blank spaces provided in the policy.
b) e amount to be insured except in the cases of 1) It shall be issued or renewed only upon prior 3) If not applied for by the insured or owner, it is
open or running policies; approval of the Commissioner; countersigned by the insured.
May stipulate an Automatic Increase Clause, wherein 2) It shall be valid and binding not more than 60 days Reasonable Expectation Doctrine dictates that the language
the coverage is automatically increased to a higher from date of its issuance; of the policy is interpreted to give e fect to the reasonable
amount if the insured reaches a certain age. expectation of the insured.
3) It may be cancelled by either party upon prior notice
c) e premium, or if the insurance is of a character to the other of at least 7 days; Kinds of Property Insurance Policy
where the exact premium is only determinable upon 4) e policy should be issued within 60 days a ter the §60. An open policy is one in which the value of the
the termination of the contract, a statement of the issuance of the cover note; and thing insured is not agreed upon, and the amount of
basis and rates upon which the final premium is to
5) e 60-day period may be extended upon written the insurance merely represents the insurer's
be determined;
approval of the Commissioner. maximum liability. e value of such thing insured
d) e property or life insured; shall be ascertained at the time of the loss.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 75 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

non-fulfillment, renders the policy voidable by the

§61. A valued policy is one which expresses on its e) Physical changes in the property insured which
result in the property becoming uninsurable; insurer.
face an agreement that the thing insured shall be
valued at a specific sum. f) Discovery of other insurance coverage that 3. It is either expressed or implied.

§62. A running policy is one which contemplates makes the total insurance in excess of the value 4. A statement of a matter relating to the person or
successive insurances, and which provides that the of the property insured; or thing insured, or to the risk, as fact, is an express
object of the policy may be from time to time defined, g) A determination by the Commissioner that the warranty.
especially as to the subjects of insurance, by continuation of the policy would violate or would a. It must be contained in the policy; or
additional statements or indorsements. place the insurer in violation of the IC. b. Expressed in another instrument provided
Void Stipulation 3) Notice must be in writing, mailed or delivered to that such is signed by the insured and
§63. A condition, stipulation, or agreement in any insured or his authorized broker; referred to in the policy.
policy of insurance, limiting the time for 4) Notice must state the grounds relied upon and upon 5. It may relate to the past, the present, the future, or
commencing an action thereunder to a period of less request of insured, to furnish facts on which the to any or all of these.
than one (1) year from the time when the cause of cancellation is based. 6. Promissory warranty is a statement which imparts
action accrues, is VOID.
Transfer of Policy that it is intended to do or not to do a thing which
Requisites for Cancellation materially a fects the risk.
1) Life insurance — may be transferred WITHOUT
1) Prior notice to insured; consent of insurer; GR: Rescission is available only if the breach is on a
2) §64. Based on the occurrence AFTER e fective date 2) Property insurance — needs consent of insurer; material warranty.
of the policy of one or more of these grounds: otherwise, the policy is suspended, but not avoided. EXC: Even if the provision is immaterial, a policy may
a) Nonpayment of premium; declare that a violation of such avoids the policy,

F Warranties
thereby converting the provision into a material
b) Conviction of a crime arising out of acts R.A. No. 10607, §67-76 one.
increasing the hazard insured against;
1. An a firmation of fact or a promise that forms part §76. A breach of warranty without fraud merely
c) Discovery of fraud or material
of the terms and conditions of the policy. exonerates an insurer from the time that it occurs, or
misrepresentation;
where it is broken in its inception, prevents the policy
2. It is a statement or promise set forth in the policy, or
d) Discovery of willful or reckless acts or omissions from attaching to the risk.
by reference incorporated therein, the untruth or
increasing the hazard insured against;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 76 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Warranty Representation insurance coverage of the same property. Otherwise, the

4) When there is an agreement that the premium shall
policy is null and void. be payable on installment; (Makati Tuscany Condo
Not part of the contract but Corp v. CA) and
Part of the contract Exception, Exclusion, or Exemption
a collateral inducement
ese should be expressed in the policy in clear and 5) When the equitable doctrine of estoppel applies.
Written on a policy or its unmistakable language.
May be oral or written E fect of Non-payment
rider
1. e obligation of the insurer will NOT become valid

Presumed to be material
Must be established to be G Premium and binding if the first premium has not been paid.
R.A. No. 10607, §77-84
material
2. If the subsequent premiums have not been paid, the
§77. An insurer is entitled to payment of the premium as policies issued will be deemed to have been lapsed.
ere must be strict
Must be substantially true soon as the thing insured is exposed to the peril insured against. us, the insurer has NO liability to indemnify.
compliance
GR: Cash and carry principle. No policy or contract of 3. It does NOT give the insurer the right to sue or
Conditions insurance issued by an insurance company is valid demand payment from the insured.
and binding unless and until the premium thereof
Are in the nature of collateral terms. ey include: 4. Will not create the vinculum juris between the
has been paid, notwithstanding any agreement to the
1) Promises or obligations regarding claims contrary. parties.
procedure that are not fundamental to the Devices to Prevent Lapse of Life Insurance Policy
EXC: in the case of
validity of the contract; and
1) A life or an industrial life policy whenever the grace 1) Grace Period;
2) Conditions conferring more rights to the insurer
period provision applies; 2) Automatic Policy Loan — Cash surrender value is the
enlarging or repeating the minimum rights
Applies only when the policy had already been in amount of money the company agrees to pay to the
provided by law.
force. policyholder if he surrenders it and releases his
May be either condition precedent like payment of claims upon it.
premium or condition subsequent like giving notice of 2) Whenever under the broker and agency agreements
with duly licensed intermediaries, a ninety (90)-day If at the end of the grace period the premium has
loss.
credit extension is given, which is non-extendible; not been paid, a policy loan will automatically be
An example is an “Other Insurance Clause” wherein it made from the policy’s cash value to pay the
may be expressly provided as a condition that the 3) When there is an acknowledgment in the policy or premium. is is to prevent unintentional lapse of
insured must give notice of the existence of another receipt that the premium has been paid; the policy.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 77 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

other indebtedness to the insurer. A ter the death of the

3) Application of Dividend — in case of participating 4) e insurance contract is voidable due to the fraud
insurance policy, the insured is entitled to dividends insured the insurance Company cannot be compelled to or misrepresentation of insurer or of his agent.
that may be available. e dividend shall be applied entertain an application for reinstatement of the policy
because the conditions precedent to reinstatement can 5) When the contract is annulled on account of
to the premiums that are due or payable.
no longer be determined and satisfied. (Lalican v. e a) fraud or misrepresentation of the insurer or his
4) Reinstatement Clause — at any time within 3 years Insular Life Assurance) agent, or
from date of default subject to conditions:
e policyholder shall be entitled to have the policy b) facts, or the existence of which the insured was
a) Insured must prove insurability; and reinstated at any time within three (3) years from the date ignorant of without his fault.
b) Pay overdue premium. of default of premium payment unless the cash surrender
6) When by any default of the insured other than actual
value has been duly paid, or the extension period has
Non-default options in life insurance fraud, the insurer never incurred liability under the
expired. ere must be:
policy; and
1) To prevent the lapse of life insurance policy, the
a) upon production of evidence of insurability
insured may avail of: 7) When there is overinsurance.
satisfactory to the company and
a) Grace period; 8) When rescission is granted due to the insurer’s
b) payment of all overdue premiums and any
breach of contract.
b) Automatic policy loan from the policy’s cash indebtedness to the company upon said policy. (Sec
surrender value; 233[j] IC) When NOT recoverable

c) Application of dividend; and 1) e risk has already attached, is entire and

Refund of premiums indivisible;
d) Reinstatement clause. Return of Premium
2) In life insurance;
Reinstatement of a lapsed policy of life insurance 1) When the thing was not exposed to the peril insured
3) e contract is rescindable or rendered void ab initio
e stipulation in a life insurance policy giving the against;
due to the fraud of insured.
insured the privilege to reinstate it upon written 2) Time policy. When the policy is surrendered before
application does not give the insured absolute right to the expiration of the stipulated time. Refund is pro Philam Insurance v. Parc Chateau Condominium 2019
such reinstatement by the mere filing of an application. rata;
WON Philam has NO right to recover the unpaid premium based
e insurer has the right to deny the reinstatement if it
3) When the contract is voidable and subsequently on void and ine fective insurance policies.
is not satisfied as to the insurability of the insured and if
annulled;
the latter does not pay all overdue premium and all YES. e Jumbo Risk Provision clearly indicates that

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 78 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

failure to pay in full any of the scheduled installments on Immediate Cause suggests proximity in time of the 8) Liable if the loss was caused through ordinary
or before the due date shall render the insurance policy loss. is contemplates at least two causes are involved. negligence.
void and ine fective as of 4 p.m. of such date. Parc
Rules If negligence is gross, amounting to misconduct or a
Association's failure to pay on the first due date, resulted
1) Liable if the peril insured against is the proximate wrongful act, it may exonerate the insurer from
in a void and ine fective policy as of 4 p.m. of November
cause of the loss; liability.
30, 2003. Hence, there is no credit extension to consider
as the Jumbo Risk Provision itself expressly cuts o f the Regardless of whether accompanied by a remote or Notice and Proof of Loss
inception of the insurance policy in case of default. immediate cause, and whether such causes are 1
§90-94
excepted perils.
§90. In case of loss upon an insurance against fire,
2) Not liable if the peril insured against is the remote an insurer is exonerated, if written notice thereof be
H Loss cause; not given to him by an insured, or some person
R.A. No. 10607, §85-89
3) Liable if the thing insured is damaged because it entitled to the benefit of the insurance, without
Loss in insurance means the injury or damage was being rescued from the peril insured against; unnecessary delay. For other non-life insurance, the
sustained by the insured in consequence of the Commissioner may specify the period for the
4) Liable for damages caused by a peril not insured
happening of one or more of the accidents or submission of the notice of loss.
against to which the thing was exposed while the
misfortune against which the insurer, in consideration
same was being rescued from a peril insured Delay of Notice of Loss to Insurer; When Excused
of the premium, has undertaken to indemnify the
against; 1) When delay is attributable to the insurer;
insured.
5) Liable if the peril insured against is the immediate 2) When there was no prompt objection; and
Proximate Cause is that cause which, in natural and
cause of the loss if the proximate cause is not an excepted
continuous sequence, unbroken by any e ficient 3) ere was an objection but not specifically on the
peril;
intervening cause, produces the injury, and without ground that there was delay of notice or proof of
which the result would not have occurred. 6) Not liable if the peril insured against is the loss.
immediate cause but the proximate cause is an excepted
Remote Cause is that cause which some independent Under Section 92 of the Insurance Code all defects in the
cause;
force merely took advantage of to accomplish something proof of loss, which the insured might remedy, are waived
which is not the natural e fect thereof. 7) Not liable for losses caused by intentional acts of as grounds for objection when the insurer omits to specify
insured; to him such defects without unnecessary delay. It is the
E ficient Cause. In Insurance Law, the proximate cause
of the loss, not necessarily in time, but in e ficiency. duty of the insurer to indicate the defects on the proofs of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 79 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

loss given, so that the deficiencies may be supplied by the

1) e same person is insured;
insured. When the insurer recognizes his liability to pay the 3. Sun Insurance O fice, Ltd. v. Court of Appeals, et al.,
claim, there is waiver by the insurer of any defect in the clarified that once there is a refusal conveyed by 2) ere are two or more insurers that insured the
proof of loss (Industrial Personnel and Management Services, the insurer to the claimant, expressly or impliedly, person separately;
Inc. v. Country Bankers Insurance 2018) the 12-month prescriptive period should 3) Over the same subject;
commence to run, without awaiting any
reconsideration. 4) Involving the same interest; and
Integrated Micro Electronics v. Standard Insurance
2020 Lopez, M., J. 4. H.H. Hollero Construction, Inc. v. GSIS, et al. 5) e same peril is insured against.

In insurance contracts, once there is a refusal conveyed by the maintained that the rejection referred to should GR: NOT PROHIBITED;
insurer to the claimant, expressly or impliedly, the 12-month be construed as the rejection in the FIRST EXC: Other Insurance Clause.
prescriptive period should commence to run, without awaiting instance.
any reconsideration. 5. us, the CA did not err in ruling that Integrated Overinsurance
Micro's cause of action had prescribed. If the insured takes out an insurance over the property
I. WON the claim of Integrated Micro has prescribed.
insured in an amount which is in excess of the value of the
II. WON the service of summons to Standard Insurance was
1. YES, the 12-month period for claims has lapsed. insurable interest.
invalid.
2. It is explicit that if a claim is made and rejected, Collateral Source Rule
1. YES. e CA is correct in finding that the service of
an action or suit should be commenced within a
summons upon the legal assistant of Standard Here, the defendant is prevented from benefiting from
period of 12 months. ere is no qualification nor
Insurance's in-house counsel is improper. the plainti f’s receipt of money from other sources.
distinction whether it is the insurer's initial or
final rejection. e parties did not agree that the Under this rule, if an injured person receives
insurer should first deny any request for compensation for his injuries from a source wholly
reconsideration before a suit for indemnity may I Double Insurance; Overinsurance independent of the tortfeasor, the payment should NOT
be filed. us, based on the plain and ordinary R.A. No. 10607, §95-96 be deducted from the damages which he would
context of the agreement, the parties otherwise collect from the tortfeasor.
Double Insurance
contemplated that the cause of action for loss or AQUINO: Applies in Life Insurance, but NOT in Property
damages arising from the insurance contract shall A double insurance exists where the same person is
Insurance.
accrue from rejection of the claim at the first insured by several insurers separately in respect to the
same subject and interest. us: Rules in case of Overinsurance by Double Insurance
instance.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 80 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

a) e insured, unless the policy otherwise provides,

J Reinsurance Co-Insurance Reinsurance
may claim payment from the insurers in such order R.A. No. 10607, §97-100
as he may select, up to the amount for which the Obligation on the part of Liability is fixed in a
An insurer procures a third person to insure him against insured is fixed by law or in separate contract between
insurers are severally liable under their respective
loss or liability by reason of such original insurance. a stipulated clause di ferent parties
contracts;
A reinsurance is presumed to be a contract of indemnity
b) Where the policy under which the insured claims is Insured will share in the Insured will NOT shoulder
against liability, and not merely against damage.
a valued policy, any sum received by him under any loss part of the loss
other policy shall be deducted from the value of the e original insured has NO interest in a contract of
reinsurance. Provided by law in marine Not mandated by law in
policy without regard to the actual value of the
insurance marine insurance
subject matter insured; Double Insurance Reinsurance
c) Where the policy under which the insured claims is Kinds of Reinsurance
Insurer remains in such Insurer becomes the
an unvalued policy, any sum received by him under 1) Facultative — optional, case-by-case method.
capacity only insured
any policy shall be deducted against the full
2) Automatic Treaty — involves a prior agreement
insurable value, for any sum received by him under Only one insured Two separate insured
between the insurer and reinsurer that the latter is
any policy;
Subject matter is the Subject matter is the compelled to accept what is being ceded by the
d) Where the insured receives any sum in excess of the insurer.
property insured liability of insured
valuation in the case of valued policies, or of the
a) Quota-share Treaty — sharing of losses and
insurable value in the case of unvalued policies, he Same interest is insured Involves separate interests
premiums is based on some proportion;
must hold such sum in trust for the insurers,
according to their right of contribution among Same peril is insured Di ferent perils are insured b) Surplus-share Treaty — reinsurer accepts in
themselves; against in separate policies against in separate policies excess of the ceding company’s retention
limit up to a maximum amount;
e) Each insurer is bound, as between himself and the Co-Insurance Reinsurance
other insurers, to contribute ratably to the loss in c) Excess-of-Loss Treaty — losses in excess of
proportion to the amount for which he is liable Two separate contracts are retention limit are paid by reinsurer up to
One contract
under his contract. involved some maximum limit. O ten used in
catastrophic loss.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 81 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

shall be void and of no e fect insofar as it may a fect

d) Reinsurance Pool — organization of insurers NB: Insurer is liable only if there is hostile fire and NOT
that underwrites reinsurance on a joint friendly fire. other creditors of the insured.
basis. 1. Hostile fire is one that is uncontrolled, or initially Multi-Ware Manufacturing v. Cibeles Insurance
Bordereau. Policy form that shows loss history and friendly but passed outside the limits assigned to it. 2021
premium history with respect to specific risks. e 2. Friendly fire is one contained in its proper
information herein is used by the reinsurer to establish the 1. Petitioner obtained fire insurance policies from
receptacle.
reinsurance premium. Cibeles Insurance simultaneously with Western
Alteration Guaranty and Prudential Guarantee covering the
same matter and the same risk, i.e., the policies
K Classes of Insurance Will prevent recovery on the policy if the following
requisites are present: uniformly cover fire losses of petitioner's
Fire Insurance machinery and equipment.
1) e alteration is on the use or condition of the thing
insured; 2. American Home Assurance Company v. Chua held that
Casualty
where the insurance policy specifies as a condition
Suretyship 2) e use or condition is limited in the policy;
the disclosure of existing co insurers,
3) It is without consent of the insurer; non-disclosure thereof is a violation that entitles
Life Insurance
4) Within the control of the insured; AND the insurer to avoid the policy.
Compulsory Motor Vehicle Liability
3. It is apparent that Policy Condition No. 3, or the
Insurance 5) It increases the risk.
"other insurance clause", was violated since
Marine Insurance Option to Rebuild Clause — insurer may cause the repair, petitioner failed to notify the insurers of the fire
rebuilding, or replacement of the buildings or structures insurance policies it procured from the di ferent
Fire Insurance wholly or partially destroyed or damaged.
1 insurers covering the same subject and interest.
R.A. No. 10607, §169-175
Prohibitions
Shall include insurance against loss by fire, lightning, §175. No policy of fire insurance shall be pledged,
windstorm, tornado or earthquake and other allied hypothecated, or transferred to any person, firm or Casualty
2
risks, when such risks are covered by extension to fire R.A. No. 10607, §176
company who acts as agent for or otherwise
insurance policies or under separate policies. represents the issuing company, and any such §176. Casualty insurance is insurance covering loss
pledge, hypothecation, or transfer herea ter made or liability arising from accident or mishap, excluding

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 82 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

certain types of loss which by law or custom are

2. Motor vehicle liability insurance — third party 1. Duly licensed, need not prove if insured is the
considered as falling exclusively within the scope of victim may proceed directly against the insurer for driver; and
other types of insurance such as fire or marine. It indemnity.
includes, but is not limited to, 2. Authorized by the owner of vehicle to drive.
If direct liability to third party is provided for, a no e t Clause — makes the t a risk insured against. e t is
1. employer's liability insurance, action clause is NOT allowed. NOT covered by the Malicious Damage Clause.
2. motor vehicle liability insurance, A no action clause disallows suit against insurer
3. plate glass insurance, unless final judgment is obtained by a third party Suretyship
3
against the insured. R.A. No. 10607, §177-180
4. burglary and the t insurance,
5. personal accident and health insurance as 3. Plate glass insurance, §177. A contract of suretyship is an agreement
written by non-life insurance companies, and 4. Burglary and the t insurance, whereby a party called the surety guarantees the
performance by another party called the principal or
6. other substantially similar kinds of insurance. Excluded are those in the insured’s service and
obligor of an obligation or undertaking in favor of a
Insurance covering loss or liability arising from accident or employment
third party called the obligee. It includes o ficial
mishap, excluding those covered in fire or marine insurance. 5. Personal accident and health insurance as written recognizances, stipulations, bonds or undertakings
It includes, but is not limited to, by non-life insurance companies — normally issued by any company by virtue of and under the
1. Employer's liability insurance — usual exclusions: includes provisions of Act No. 536, as amended by Act No.
a. Income coverage; 2206.
a. When there is serious or willful misconduct on
the part of insured; b. Coverage for loss of life, sight or limb; or Suretyship Insurance
b. When the employee was hired in violation of law; c. Medical expenses coverage. ree parties: Principal, Two parties: Insurer and
c. When insured failed to comply with health and 6. Other substantially similar kinds of insurance. Obligee, Surety Insured
safety regulations; and 7. Criminal negligence is insurable, so long as it is not Surety, in theory, expects
d. When the employer discharges, coerces, or gross amounting to willful misconduct. Loss is expected to occur
no loss to occur
discriminates against an employee. Authorized Driver Clause — Insurer will be liable only if the
driver is an “authorized driver” at the time of accident.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 83 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Suretyship Insurance sums under a retirement program where a life

5) Variable Life or Variable Unit-Linked (VUL)
insurance company manages or acts as a trustee for Insurance Contractor Policy — see §238(a) on
Surety has right of such retirement program shall be considered a life Variable Contract.
Insurer has NO such right
reimbursement against insurance contract.
from the insured Accidental Death Benefit Clause
defaulting principal GR: Not a contract of indemnity. e measure of
indemnity is the sum fixed in the policy. It is Gives beneficiaries additional benefits if the death of the
Surety guarantees the
therefore a valued policy. insured is through accidental means.
qualities of the principal as Covers losses beyond the
to Character, Capacity, and control of insured EXC: Unless the interest of a person insured is susceptible Compulsory Motor Vehicle Liability
Capital (3C’s) of exact pecuniary measurement, i.e. a creditor 5 Insurance
insures the life of his debtor based on the value of R.A. No. 10607, §386-402
Kinds of Bonds
indebtedness.
1) Fidelity Bond — answers for the loss of an employer It shall be unlawful for any land transportation operator or
Kinds of Life Insurance owner of a motor vehicle to operate the same in the public
who is the obligee, for the dishonesty of the
employee; 1) Whole Life — o fers permanent protection. Further highways unless there is in force
classified as to mode of payment of premium: 1. a policy of insurance or
2) Surety Bond.
a) Single Premium; 2. guaranty
Fidelity Guaranty Insurance — a contract whereby one, for a
consideration, agrees to indemnify the assured against loss b) Continuous Premium or Ordinary Life; a. in cash bond or
arising from the want of integrity, fidelity, or honesty of c) Limited Payment Period. b. surety bond
employees or other persons holding positions of trusts.
2) Term — Insurer pays proceeds if insured dies within to indemnify the death, bodily injury, and/or damage to
Continuing Surety — In the case of a continuing bond, the a specified period; insured gets nothing if he property of a third-party or passenger.
obligor shall pay the subsequent annual premium as it falls survives the period.
due until the contract of suretyship is cancelled. Coverage, Extent and Limit of Liability
3) Endowment Policy — proceeds shall be payable to
the assured if he lives to a certain date; to the 1) Coverage — P100K (+ P100K if vehicle is for public
Life Insurance utility);
4 beneficiary if the assured dies before said date.
R.A. No. 10607, §181-186
4) Industrial Life — premiums are payable either 2) Death Indemnity — P70K + P30K funeral expenses;
Every contract or undertaking for the payment of
monthly or o tener. 3) Limit — P100K or P200K per person/injury.
annuities including contracts for the payment of lump

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 84 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

No Fault Indemnity Clause — Proof of fault or negligence is and the requisites for the kind of damages claimed are i) Running Down Clause — insures liability
NOT necessary for payment of any claim if the following are present. against collision;
established: e limit of liability with regard to the items listed in the ii) Marine Protection and Indemnity Insurance;
1) A claim may be made against ONE motor vehicle Schedule of Indemnities is the amount provided therein;
iii) Excess Protection and Indemnity Insurance —
only; the limit of liability with regard to other kinds of damages
covers damage or liability in excess of the
not listed in the same Schedule of Indemnities is the total
2) Total indemnity shall not exceed P15K; value of the ship. It is an exception to the
amount of insurance coverage.
limited liability rule in maritime law. Includes
3) Proofs of loss submitted under oath.
us, the amounts in excess of the limits of liability in the cases when shipowner was negligent.
Transfer of ownership DOES NOT suspend the policy. (§395) schedule for items listed therein are not covered by the
iv) Water Pollution Liability.
Claims Settlement total coverage. Such excess is already for the personal
account of the insured or an excess coverage provider. c) Over the cargo
1) File within 6 months from date of accident,
i) Trip or Single Risk Cargo Policy;
otherwise, deemed waived;
ii) Open Cargo Policy.
2) File in court or with the Commissioner within 1 year Marine Insurance
from denial of claim, otherwise, claimant’s right of 6 d) Over freightage and income — cover loss of
§115-122
action shall have prescribed. freightage for failure to complete voyage or
Includes policies that cover risks connected with delivery of goods.
Malayan Insurance v. Stronghold Insurance 2021 navigation, to which a ship, cargo, freightage, profits, or
other insurable interest in movable property, may be e) Compulsory Passenger and Cargo Liability
e purpose of CMVLI is to provide compensation for the exposed during a certain voyage or a fixed period of Insurance — mandated by RA 9295. P200K for
death or bodily injuries su fered by innocent third parties time. each passenger imposed on shipowners. P50K
or passengers as a result of the negligent operation and each for survivors of a maritime accident.
use of motor vehicles. Di ferent Types
2) Inland Marine — do not relate to navigation.
Western Guaranty v. CA clarifies the applicability of the 1) Ocean Marine — connected with navigation; they Includes insurance over cargoes, infrastructure and
limits provided in the Schedule of Indemnities to injuries are insurance loaters.
listed therein and allows claims for other kinds of a) Over the vessel;
3) Aviation — over aircra ts.
damages not otherwise indicated in the schedule against
b) Against liability
CMVLI policy providers, as long as liability is established Risks Insured Against

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 85 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) All Risk Policy — against ALL conceivable causes d) Jettison — goods are thrown overboard to save 4) Sue and Labor (S&L) Clause — requires the insured
except other cargoes and/or the ship; and his representative to take all reasonable steps
a) As otherwise excepted, such as e) Barratry — act committed by the master or crew that are necessary to limit or reduce an imminent
for some unlawful or fraudulent purpose loss.
i) Free capture and seizure (FC&S) clause;
contrary to their duty; 5) Protection and Indemnity (P&I) Clause — insures
ii) Strikes, riots and civil commotion (SR&CC) the shipowner from liability for damages caused by
clause; or f) Assailing ieves — the t of cargo committed by
force; the ship to wharves, piers and other harbor
b) One due to fraud or intentional misconduct of installations;
g) All Other like Perils — to be interpreted as
insured. 6) Institute War Clause (IWC) — covers risks covered
covering risks which are of like kind with
2) Named Perils Policy particular risks which are enumerated in the by FC&S + capture, seizure, arrest, restraint or
preceding part of the same clause, following detainment, including by civil authorities.
a) Perils of the sea or navigation — include only
such losses as are of extraordinary nature or ejusdem generis. 7) Memorandum Clause — provides for the list of
arise from some overwhelming power which goods for which the insurer will be liable unless
Clauses that Modify Coverage
cannot be guarded against by the ordinary damage exceeds a stated percentage of total value.
exertion of human skill or prudence. 1) Inchmaree Clause — included in a hull policy to
Who has Insurable Interest
cover loss or damage
b) Perils of the ship — a loss which in the ordinary 1) Over the ship
a) through the bursting of the boiler, breaking
course of events, results:
of sha ts or a) Shipowner - up to the full value of the ship;
i) From the ordinary, natural, and inevitable
action of the sea; b) through the latent defects of the machinery and If ship also insured by charterer, the shipowner
equipment, hull or its appurtenances and can only recover the portion that he cannot
ii) From ordinary wear and tear of the ship; and recover from the charterer.
c) faults or errors in the navigation or
iii) From the negligent failure of the ship’s management of the vessel. b) Charterer - to the extent that he is liable to be
owner to provide the vessel with the proper damnified by its loss;
equipment to convey the cargo. 2) Running Down Clause — insures liability against
collision; c) Lender on Bottomry - up to the extent of the
c) Fire and Related Perils; loan;
3) Delay Clause — exempts insurer from liability if
there was delay in the voyage; d) Mortgagee.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 86 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2) Over cargo GR: Insurer may rescind contract even if the risk 1) Seaworthiness — a ship is seaworthy if it is able to
a) Both the shipowner and shipper. concealed is NOT the cause of the loss. withstand the rigors of the voyage and it has been

b) In Respondentia. EXC: In marine insurance, insurer is exonerated ONLY if a) properly laden,

the risk concealed is the cause of the loss and relates
3) Over freightage and income b) provided with competent crew and
to the:
a) Shipowner and charterer - over the expected c) equipped with the appropriate appurtenances
1) national character of the insured;
freightage, which arises: and equipment.
2) liability of the thing insured to capture and
i) If there is a charter party — when the ship GR: It is only at the commencement of the voyage
detention;
has broken ground on the chartered that the ship be seaworthy. ere is no
voyage; 3) liability to seizure from breach of foreign laws of breach of warranty if the ship becomes
trade; unseaworthy a terwards.
ii) In carriage of goods — when the goods are
actually on board or there is some 4) want of necessary documents; OR EXC: If there is unreasonable delay in repairing the
contract for putting them on board, and 5) use of false and simulated papers. defect when the ship becomes unseaworthy
both ship and goods are ready for the during the voyage. e insurer is exonerated.
Representation
specified voyage. (§120)
1. If intentionally false in any material respect, or in
b) One who has an interest in the thing from which As to cargo owners, it is their responsibility to make
respect of any fact on which the character and nature
profits are expected to proceed has an insurable sure the carrier they choose to ship their goods is
of the risk depends, the insurer may rescind the
interest in the profits. (§107) seaworthy.
entire contract.
Concealment 2) at the ship has the documents of neutrality or
2. Expectations of insured are not material unless it will
nationality —
GR: In ordinary insurance, belief or expectation of third amount to promissory representation.
persons are NOT material and need not be a) Vessel has the requisite documents of nationality
3. e contract will be avoided only if there is fraud in
disclosed. or neutrality; and
representing an expectation that turns out to be
EXC: In marine insurance, where information of the false (§114). b) Vessel will not carry documents that will cast
belief or expectation of a third person, in reference to a reasonable suspicion on its nationality or
Implied Warranties
material fact, is material. neutrality if nationality or neutrality is expressly
warranted. (§122)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 87 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3) Against improper deviation — Instances of Loss EXC: ere is presumed actual total loss if the
deviation: 1) TOTAL following requisites concur:
a) Departure from the course of sailing fixed by a) Actual — caused by: a) Continued absence of the ship for a
mercantile usage; considerable length of time; and
i) Total destruction of the thing insured;
b) Departure from the most natural, direct and b) e vessel has not been heard of. (§134)
advantageous route if not fixed by mercantile ii) e irretrievable loss of the thing by sinking,
or by being broken up; 2) PARTIAL — not total.
usage;
iii) Any damage to the thing which renders it Reshipment
c) Unreasonable delay in pursuing the voyage; or
valueless to the owner for the purpose for Whenever the ship is prevented from completing its voyage
d) Commencement of an entirely di ferent voyage. which he held it; or because of a peril insured against, the rules are as follows:
A deviation is PROPER: iv) Any other event which e fectively deprives 1) If the goods are reshipped, the insurance over the
a) When caused by circumstances over which the owner of the possession, at the port of goods continue when they are thus reshipped;
neither the master nor the owner of the ship has destination, of the thing insured. 2) e insurer may require the additional premium if
any control; b) Constructive, commercial, or conventional — gives the hazard is increased by this extension of liability;
b) When necessary to comply with a warranty, or to a person insured a right to abandon, under 3) e marine insurer is bound to pay for damages,
to avoid a peril, whether or not the peril is §141. expenses, extra freightage, etc. incurred in saving
insured against;
i) Actual loss of more than ¾ of its value; cargo reshipped, up to the amount insured; and
c) When made in good faith, and upon reasonable 4) e marine insurer shall NOT be liable for any
grounds of belief in its necessity to avoid a peril; ii) Damage reducing the value of the vessel and
amount in excess of the insured value or, if there be
or cargo by more than ¾;
none, of the insurable value.
d) When made in good faith, for the purpose of iii) Expense of transshipment exceeds ¾ of the Abandonment
saving human life or relieving another vessel in
value of cargo. e act of the insured by which, a ter a constructive
distress.
GR: Fact of actual loss must be established by total loss, he declares the relinquishment to the insurer
Every other deviation, IMPROPER.
su ficient evidence. of his interest in the thing insured.
4) Legality of voyage.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 88 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Marine 1) ere must be PARTIAL loss; and b) For the common safety, part of the vessel or
Abandonment in Maritime Law
Insurance of the cargo or both is sacrificed
2) ere is UNDER insurance, or that the insurance
coverage is LESS than the value of the property deliberately;
Need for
constructive loss
✘ ✔ insured. c) From the expenses or damages caused
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 follows the successful saving of the vessel
𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑟 = 𝑥 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐷𝑎𝑚𝑎𝑔𝑒
Persons whom 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦
and cargo; and
Made in favor of the carrier is Insured Averages d) e expenses and damages should have been
liable
All extraordinary or accidental expenses which may be incurred or in licted a ter taking proper
Abandonment shall be e fective if the following requisites incurred during the voyage in order to preserve the vessel legal steps and authority.
are present: and/or cargo and any damage or deterioration which the e formula for the determination of the general
vessel may su fer. average contribution of the insurer is:
1) ere must be an actual relinquishment by the
person insured of his interest in the thing insured; 1) Simple or Particular — may be covered by the 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝐴𝑚𝑜𝑢𝑛𝑡 = 𝑥 𝐺𝐴 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
insurance policy. ey are all expenses and damages 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
2) ere must be constructive total loss; caused to the vessel or to her cargo which have NOT GR: e insured may either hold the insurer directly
3) Be neither partial nor conditional; inured to the benefit and profit of ALL the persons liable for the whole of the insured value of the
4) Made within a reasonable time a ter receipt of interested. If not general, then it is particular. property sacrificed for the general benefit,
reliable information of the loss; e owner of the goods which gave rise to the subrogating him to his own right of contribution
expense or su fered the damage shall bear the from the other interested parties as soon as the
5) Must be factual;
simple averages. vessel arrives at her destination.
6) Made by giving notice thereof to the insurer orally or
Free from Particular Average (FPA) Clause — free EXC: e insured cannot claim in the following instances:
in writing; AND
from PA only, and not GA. 1) ere is already separation of interest liable to the
7) e notice of abandonment must be explicit and
2) General or Gross — all damages and expenses which contribution;
must specify the particular cause.
are DELIBERATELY caused in order to save the 2) e insured neglects to claim contribution although
Co-insurance vessel and/or its cargo at the same time, from real he has the opportunity to enforce the same; and
ere is ALWAYS co-insurance in marine insurance. e and known risk. e requisites are:
3) Insured waives his right to claim contribution.
requisites for its application are as follows: a) ere must be a common danger;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 89 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

IV Transportation A common carrier is one that holds itself out as ready to us, a pipeline operator is considered a common
engage in the transportation of goods for hire as a public carrier.
General Principles of Common Carriers employment and not as a casual occupation. 7) No need to have a fixed and publicly known route,
The Montreal Convention e TRUE TEST for a common carrier is NOT the quantity nor maintain terminals and issue tickets.
or extent of business actually transacted, or the number and 8) Need not be engaged in the business of public
General Principles of Common character of the conveyances used in the activity, but transportation.
A Carriers whether the undertaking is a part of the activity engaged in by
the carrier that he has held out to the general public as his 9) Need not own the vehicle or vessel that he or she
Civil Code, Article 1732
business or occupation. operates.
Common Carrier vs. Private Carriers NB: Under Sec 7 of RA 10668, foreign vessels engaging in
us, the CHARACTERISTICS of a common carrier are
Diligence Required determined following these principles: carriage conducted in accordance with the said law
shall not be considered common carriers and are
Vigilance over Goods 1) Art 1732 makes no distinction between one whose not o fering to the public.
principal business activity is the carrying of persons
Safety of Passengers or goods or both, and one who does such carrying C.V. Gaspar Salvage & Lighterage v. LG Insurance Company
Sources of Liability only as an ancillary activity, or “sideline”. 2021
2) Art 1732 makes no distinction as to the regularity of AYNA-1 is a common carrier within the definition under
1 Common Carrier vs. Private Carriers
the o fer of such service. Article 1732 of the Civil Code because it is one of the four
Common carriers are 3) Art 1732 does not distinguish between a carrier barges commissioned to transport 23,842 bags of
o fering its services to the “general public”, and one fishmeal from the Port of Manila to Great Harvest's
1. persons, corporations, firms or associations
to a narrow segment of the general population. warehouse in Valenzuela, Bulacan. As a common carrier,
2. engaged in the business of carrying or transporting it is bound to observe extraordinary diligence in the
passengers or goods or both, 4) No need to secure a Certificate of Public
vigilance over the goods transported by it. It bears to be
Convenience.
3. by land, water, or air, reminded that common carriers are presumed to have
5) Transportation may be by land, water or air. been at fault or to have acted negligently if the goods are
4. for compensation,
6) Transportation need not be by motor vehicle. lost, destroyed, or deteriorated. To overcome this
5. o fering their services to the public. presumption, common carriers must prove that it
exercised extraordinary diligence in the transportation of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 90 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the goods. LTFRB v. Valenzuela and DBDOYC 2019 As to Common Carrier Private Carrier
e CA did not err in holding Fortune Brokerage jointly e business of holding one's self out as a transportation of the NCC + Public of the NCC
and severally liable with C.V. Gaspar. A customs broker service provider, whether done through online platforms Services Act +
may also be regarded as a common carrier as the or not, appears to be one which is imbued with public Special Transpo
transportation of goods is an integral part of its business. interest and thus, deserves appropriate regulations. With Laws
Fortune Brokerage cannot escape from its liability under the safety of the public further in mind, and given that, at
the service contract it executed with C.V. Gaspar. any rate, the above-said administrative issuances are Exemption
presumed to be valid until and unless they are set aside. from CANNOT stipulate MAY stipulate
Classification of TNVS and TNCs Liability
1. Transportation Network Vehicle Services. — e
Materiality of ownership of vessel vis-à-vis liability
accountability of the TNVS, as a common carrier, As to Common Carrier Private Carrier
attaches from the time the TNVS is online and o fers e registered owner of a vehicle is directly and
its service to the riding public. Undertaking At least occasional Single transaction primarily responsible to the public and to third persons
while the vehicle is being operated. (Filcar Transport
2. Transportation Network Companies. — A TNC is an Part of general
NOT part of general Services v. Espinas)
organization whether a corporation, partnership, or Part of business or
business or
sole proprietor, that provides pre-arranged business occupation; may also e registered owner of a motor vehicle whose
occupation
transportation services for compensation using an be ANCILLARY operation causes injury to another is legally liable to the
internet-based technology application or digital latter. But it is an error not to allow the registered owner
Gratuitous or for a Gratuitous or for a to recover reimbursement from the actual and present
platform technology to connect passengers with Fee
fee fee owner by way of its cross-claim. (Metro Manila Transit
drivers using their personal vehicles. A TNC is thus
treated as a transport provider. Corp. v. Cuevas, et al.)
Diligence at of a good father
Extraordinary
e TNC shall exercise due diligence of a good required of the family Cases where vessel is a Private Carrier
father of a family in accrediting and supervising its a) e stipulation in the charter party absolving the
Presumption
drivers. e TNC shall be held liable for acts or
of negligence
✔ ✘ owner from liability for loss due to the negligence of
omissions committed by its TNVS while online, its agent would be void only if the strict public policy
except if the same is beyond the TNC’s control. Governing Provisions on Provisions on governing common carriers is applied. Such policy
law Common Carriage ordinary contracts has no force where the public at large is not

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 91 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

involved, as in the case of a ship totally chartered

c) Customs brokers have been regarded as COMMON ose engaged in tramp services may also be
for the use of a single party. (Home Insurance Co. v. carriers because transportation of goods is an considered common carriers depending on the
American Steamship Agencies) integral part of their business. circumstances.
b) VSI did not o fer its services to the general public. It d) Towage is the bringing of one vessel from a port to
carried passengers or goods only for those it chose Diligence Required
another. Here, there is NO transportation to speak 2
under a “special contract of charter party.” us, the Civil Code, Article 1733
of.
MV Vlasons I was not a common but a private ART 1733. Common carriers, from the nature of
carrier. (National Steel Corp. v. CA) e) Arrastre undertakes to transport goods from the
ship's side to the warehouse of the consignee. Such their business and for reasons of public policy, are
c) In a contract of private carriage, the parties may is NOT a common carrier but the diligence required bound to observe extraordinary diligence
validly stipulate that responsibility for the cargo is still extraordinary. 1. in the vigilance over the goods and
rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to the f) Stevedoring is the carriage of goods within the holds 2. for the safety of the passengers
cargo caused even by the negligence of the ship of the vessel or from the ship’s tackle to the cargo
transported by them, according to all the
captain. (Valenzuela Hardwood and Industrial Supply, hold. Also NOT a common carrier.
circumstances of each case.
Inc v. CA) g) Tramp service. — the operation of a contract carrier
d) GPS, being an exclusive contractor and hauler of which KLM v. Tiongco 2021
Concepcion Industries, Inc., rendering or o fering i) has no regular and fixed routes and e nature of the business which involves the
its services to no other individual or entity, cannot schedules transportation of persons or goods makes a contract of
be considered a common carrier. (FGU Insurance carriage imbued with public interest. It is therefore
ii) but accepts cargo wherever and whenever
Corp. v. GP Sarmiento Trucking) bound to observe not just the due diligence of a good
the shipper desires,
Travel agent, pipeline operator, customs broker, etc. father of a family but that of "extraordinary" care in the
iii) Is hired on a contractual basis, vigilance over the goods as required under Article 1733 of
a) Travel agent. Not an entity engaged in the business
iv) Or chartered by any one or few shippers the Civil Code.
of transporting either passengers or goods and is
under mutually agreed terms
therefore, neither a private nor a common carrier.
(Crisostomo v. CA) v) And usually carries bulk or break bulk
cargoes. Designer Baskets v. Air Sea Transport 2016
b) Pipeline operators are common carriers because
Articles 1733, 1734, and 1735 speak of the common carrier's
transportation need not be by motor vehicle.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 92 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

responsibility over the goods. ey refer to the general 2. He may also be a third person who is not a party to Under Art 1745 (6), a common carrier is held responsible
liability of common carriers in case of loss, destruction or the contract of carriage. — and will not be allowed to divest or to diminish such
deterioration of goods and the presumption of responsibility — even for acts of strangers like thieves or
negligence against them. is responsibility or duty of Exempting Causes robbers, except where such thieves or robbers in fact
the common carrier lasts from the time the goods are acted "with grave or irresistible threat, violence or
Common carriers are responsible for the loss,
unconditionally placed in the possession of, and received force."
destruction, or deterioration of the goods, unless the
by the carrier for transportation, until the same are
same is due to any of the following causes only: e loss here was not attended by grave or irresistible
delivered, actually or constructively, by the carrier to the
threat, violence, or force. Instead, it was brought about
consignee, or to the person who has a right to receive 1) Flood, storm, earthquake, lightning, or other
by petitioner's failure to exercise extraordinary diligence
them. natural disaster or calamity;
when she neglected vetting her driver or providing
Here, the goods were timely delivered to the proper 2) Act of the public enemy in war, whether security for the cargo and failing to take out insurance
consignee or to the one who was authorized to receive international or civil; on the shipment's value. (Tan v. Great Harvest Enterprises
them. DBFs only cause of action against ASTI and ACCLI 3) Act or omission of the shipper or owner of the 2019)
is the release of the goods to Ambiente without the goods;
surrender of the bill of lading, purportedly in violation of Contributory Negligence
4) e character of the goods or defects in the
the terms of the bill of lading. Without any prohibition,
packing or in the containers; 1) Contributory negligence is conduct on the part of
therefore, the carrier had no obligation to withhold
the plainti f which falls below the standard to which
release of the goods. Articles 1733, 1734, and 1735 do not 5) Order or act of competent public authority.
he should conform for his own protection and which
give ASTI any such obligation. Absence of delay. If the common carrier negligently is legally contributing cause, cooperating with the
incurs in delay in transporting the goods, a natural negligence of the defendant in bringing about the
disaster shall not free such carrier from responsibility. plainti f's harm.
Vigilance over Goods (Art 1740)
3 2) Contributory negligence on the part of the shipper
Civil Code, Articles 1744-1754
Due diligence to prevent or lessen the loss. In order that the is NOT a defense that will excuse the carrier from
e consignee is the person to whom the goods are to be common carrier may be exempted from responsibility, liability. It will only MITIGATE such liability.
delivered. the natural disaster must have been the proximate and
3) For a common carrier to be absolved from liability in
1. He may be the shipper himself. only cause of the loss.
case of force majeure, it is not enough that the
accident was caused by a fortuitous event. e

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 93 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

common carrier must still prove that it did not destruction, or deterioration of the goods to a degree less
1. from the time the goods are unconditionally placed
contribute to the occurrence of the incident due to in the possession of, and received by the carrier for than extraordinary diligence shall be VALID, provided it be:
its own or its employees' negligence. (Sulpicio Lines v. transportation 1) In writing, signed by the shipper or owner;
Sesante 2016)
2. until the same are delivered, actually or constructively, 2) Supported by a valuable consideration OTHER than
4) When there is NO contributory negligence. e by the carrier to the consignee, or to the person who the service rendered by the common carrier; and
responsibility to avoid the collision with the front has a right to receive them. (Art 1736)
vehicle lies with the driver of the rear vehicle. 3) Reasonable, just and not contrary to public policy.
Consequently, no other person was to blame but the b) Temporary Unloading or Storage a) Void Stipulations
victim himself since he was the one who bumped his 1. e common carrier's duty to observe extraordinary
Any of the following or similar stipulations shall be
motorcycle into the rear of the Isuzu truck. He had diligence over the goods remains in full force and considered unreasonable, unjust and contrary to public
the last clear chance of avoiding the accident. e fect even when they are temporarily unloaded or policy:
(Raynera v. Hiceta) stored in transit,
1) at the goods are transported at the risk of the
5) When there is contributory negligence. e proximate unless the shipper or owner has made use of the owner or shipper;
cause of the death of the victim is the negligence of right of stoppage in transitu. (Art 1737)
petitioner's bus driver, with the contributory 2) at the common carrier will not be liable for any
2. e extraordinary liability of the common carrier loss, destruction, or deterioration of the goods;
negligence of the driver and owner of the jeepney. continues to be operative even during the time the
(Travel & Tours Advisers v. Cruz, Sr., et al 2016) goods are stored in a warehouse of the carrier at the 3) at the common carrier need not observe any
6) e operator of a school bus service is a common place of destination, until the consignee diligence in the custody of the goods;
carrier in the eyes of the law. (Sps Perena v. Sps Zarate a) has been advised of the arrival of the goods 4) at the common carrier shall not be responsible for
2012) and the acts or omission of his or its employees;

b) has had reasonable opportunity therea ter to 5) at the common carrier's liability for acts
Duration of Liability
remove them or otherwise dispose of them. committed by thieves, or of robbers who do not act
a) Actual or Constructive Liability (Art 1738) with grave or irresistible threat, violence or force, is
e extraordinary responsibility of the common carrier dispensed with or diminished;
lasts Stipulation for Limitation of Liability 6) at the common carrier is not responsible for the
loss, destruction, or deterioration of goods on
A stipulation between the common carrier and the shipper
account of the defective condition of the car, vehicle,
or owner limiting the liability of the former for the loss,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 94 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

ship, airplane or other equipment used in the carrier as an incident of a contract of carriage of
1. e keepers of hotels or inns shall be responsible for
contract of carriage. them as depositaries, provided that notice was passenger.

b) Limitation of Liability to Fixed Amount given to them and that the guests take the b) Hand-Carried Baggage
A stipulation that the common carrier's liability is precautions relative to the care and vigilance of their e rules on necessary deposit applies. us, the
limited to the value of the goods appearing in the bill of e fects. passenger is duty bound to:
lading, unless the shipper or owner declares a greater 2. e responsibility shall include the loss of, or injury 1) Give notice to the common carrier or its
value, is binding. to the personal property of the guests caused by the employees, of the e fects brought by the
A contract fixing the sum that may be recovered by the servants or employees of the keepers of hotels or passenger; AND
owner or shipper for the loss, destruction, or inns as well as strangers; but not that which may proceed
from any force majeure. 2) To take the precautions which the common
deterioration of the goods is VALID, if it carrier or their substitutes advised relative to the
1. is reasonable and just under the circumstances, 3. e act of a thief or robber, who has entered the care and vigilance of their e fects.
and hotel is not deemed force majeure, unless it is done
with the use of arms or through an irresistible e law requires the common carrier to observe the
2. has been fairly and freely agreed upon. force. same diligence as the hotel keepers in case the baggage
remains with the passenger; otherwise, extraordinary
c) Limitation of Liability in Absence of 4. e hotel-keeper is NOT liable for compensation if
Declaration of Greater Value diligence must be exercised. (Sulpicio Lines v. Sesante
the loss 2016)
A stipulation that the common carrier's liability is
a. is due to the acts of the guest, his family, However, common carriers are still duty-bound to
limited to the value of the goods appearing in the bill of
servants or visitors, or observe extraordinary diligence even for hand carried
lading, unless the shipper or owner declares a greater
value, is binding. (Art 1749) b. arises from the character of the things luggage.
brought into the hotel.
Liability for Baggage of Passengers Safety of Passengers
5. e hotel-keeper cannot free himself from 4
Civil Code, Articles 1755-1763
e provisions of Articles 1733 to 1753 shall apply to the responsibility by posting notices to the e fect that
passenger's baggage which is not in his personal custody or he is not liable for the articles brought by the guest. Under Article 1758 of the NCC, when a passenger is
in that of his employee. As to other baggage, the rules on carried gratuitously, a stipulation limiting the common
a) Checked-In Baggage
deposit concerning the responsibility of hotel-keepers shall carrier’s liability is VALID.
e rules applicable to goods that are being shipped are
be applicable.
applicable to baggage delivered to the custody of the Void Stipulations

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 95 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1. A stipulation limiting the liability of the carrier for a) Employees such as when the injury arises wholly from causes
the injuries to paying passengers is VOID. Generally, when an injury is caused by the negligence of created by strangers which the carrier had no control of
2. e common carrier's responsibility pertaining to a servant or employee, there instantly arises a or prior knowledge to prevent — there would be no
acts of its employees as well as to the safety of its presumption of law that there was negligence on the issue regarding the common carrier's negligence in its
passengers in general cannot be eliminated or part of the master or employer either in the selection of duty to provide safe and suitable care, as well as
limited by stipulation, by the posting of notices, by the servant or employee or in the supervision over him competent employees in relation to its transport
statements on the tickets or otherwise. a ter the selection, or both. (Mendoza v. Sps Gomez 2014) business; as such, the presumption of fault/negligence
foisted under Article 1756 of the Civil Code should not
e registered owner is deemed the employer of the
Duration of Liability apply. (G.V. Florida v. Heirs of Battung 2015)
driver and is thus vicariously liable under Article 2176 in
Such duty of a common carrier to provide safety to its relation with 2180 of the Civil Code. (Filcar Transport Extent of Liability for Damages
passengers so obligates it not only during the course of Services v. Espinas 2012)
the trip but for so long as the passengers are within its Recoverable damages
b) Other Passengers and Strangers
premises and where they ought to be in pursuance to the 1) Actual and Consequential Damages
A common carrier is responsible for injuries su fered by
contract of carriage. e statutory provisions render a e passenger or his heirs can recover not only
a passenger on account of the wilful acts or negligence
common carrier liable for death of or injury to actual damages, but also consequential or
of other passengers or of strangers, if the common
passengers compensatory damages:
carrier's employees through the exercise of the diligence
a) through the negligence or wilful acts of its of a good father of a family could have prevented or stopped a) Loss of earning capacity — 2/3 x (80 – age at
employees or the act or omission. time of death) x Net Earnings;
b) on account of wilful acts or negligence of other In Pilapil v. CA, the Court clarified that where the injury b) Straight death indemnity of P50K under Art
passengers or of strangers if the common sustained by the passenger was in no way due 2206;
carrier’s employees through the exercise of due
1) to any defect in the means of transport or in the c) Moral damages + Attorney’s fees.
diligence could have prevented or stopped the
method of transporting, or
act or omission. (LRTA v. Navidad) 2) Moral Damages
2) to the negligent or willful acts of the common
Recoverable if the cases under Art 2219 of the NCC
Liability for Acts of Others carrier's employees with respect to the foregoing
are the proximate result of the breach of contract of
—
carriage. Recoverable only when

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 96 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

a) Death of passenger results; or aggrieved party does not need to prove that the common KLM's liability for temperate damages may not be limited
carrier was at fault or was negligent. He or she is only to that prescribed in Article 22(2) of the Warsaw
b) e carrier was guilty of fraud and bad faith
required to prove the existence of the contract and its Convention, as amended by the Hague Protocol, in the
even if death does not result.
non-performance by the carrier. presence of bad faith. As aptly held in Northwest Airlines,
Without the award of moral damages, award of
Here, KLM breached its contract with Dr. Tiongco when it Inc. v. CA, citing Alitalia: e Convention's provisions do
exemplary damages and attorney’s fees is improper.
failed to deliver his checked-in suitcase at the designated not "regulate or exclude liability for other breaches of
3) Exemplary Damages place and time. KLM's liability for the lost suitcase was contract by the carrier" or misconduct of its o ficers and
May be awarded only if the defendant had acted in a su ficiently established as it failed to overcome the employees, or for some particular or exceptional type of
wanton, fraudulent, reckless, oppressive or presumption of negligence. damage.
malevolent manner. KLM also acted in bad faith. Nobody from KLM's
4) Attorney’s Fees and Interest. personnel updated him on what happened to the search.
e bad faith on the part of KLM as found by the RTC and 5 Sources of Liability
KLM v. Tiongco 2021 the CA thus renders the same liable for moral and GR: Common carriers cannot lawfully decline to accept a
exemplary damages. particular class of goods.
Liability for temperate damages may NOT be limited to that
prescribed in Article 22(2) of the Warsaw Convention, as Kierulf v. CA pronounced that "the social and financial EXC:
amended by the Hague Protocol, in the presence of bad faith. standing of a claimant of moral damages may be
considered in awarding moral damages only if he or she 1) Goods are dangerous objects, or substances
KLM is liable for breach of contract of carriage. including explosives;
was subjected to contemptuous conduct despite the
A contract of carriage is one whereby a certain person or o fender's knowledge of his or her social and financial 2) Goods are unfit for transportation;
association of persons obligates themselves to transport standing." 3) Acceptance would result in overloading;
persons, things, or goods from one place to another for a
KLM is liable for temperate, NOT nominal, damages. 4) Contrabands or illegal goods;
fixed price. Considering that a contract of carriage is
Temperate damages or moderate damages, which are
vested with public interest, a common carrier is 5) Goods are injurious to health;
more than nominal but less than compensatory damages,
presumed to have been at fault or to have acted
may be recovered when the court finds that some 6) Goods will be exposed to untoward danger like
negligently in case of lost or damaged goods unless they
pecuniary loss has been su fered but its amount cannot, lood, capture by enemies, and the like;
prove that they observed extraordinary diligence.
from the nature of the case, be provided with certainty.
In an action based on a breach of contract of carriage, the 7) Goods like livestock will be exposed to diseases;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 97 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

8) Strike; AND ere is no need to rely on the presumption of the law a) within the territories of two States Parties, or
9) Failure to tender goods on time. that a common carrier is presumed to have been at fault b) within the territory of a single State Party if
or have acted negligently in case of damaged goods. is there is an agreed stopping place within the
2100 Customs Brokers, Inc. v. Philam Insurance Company is because the delay in the release of the goods was territory of another State, even if that State
2020 through no fault of 2100 CBI. e damage was caused by is not a State Party.
WON a Marine Cargo Certificate may include goods transported the late payment of the funds needed for the release of
4) Carriage between two points within the territory of
by air. the goods from the custody of BOC which was originally
a single State Party without an agreed stopping
TSPIC's responsibility.
YES. Simply because the word "marine" was used in place within the territory of another State is NOT
Marine Cargo Certificate does not mean that TSPIC international carriage.
availed the wrong insurance policy for its cargo 5) Carriage to be performed by several successive
transported through airplane.
B The Montreal Convention
carriers is deemed to be one undivided carriage if it
Section 101(a)(2) of RA 10607 provides that the scope of Applicability has been regarded by the parties as a single
marine insurance includes inland marine insurance and operation, whether it had been agreed upon under
Extent of Liability of Air Carrier the form of a single contract or of a series of
covers over the land transportation perils of property
shipped by airplanes. Liability for Delay contracts, and it does not lose its international
character merely because one contract or a series of
WON the insurance policy must be presented to establish the
1 Applicability contracts is to be performed entirely within the
liability of the common carrier to Philam.
territory of the same State.
YES. e original copy of the insurance policy is the best 1) To ALL international carriage of persons, baggage or
cargo performed by aircra t for reward. 6) Carriage by Air Performed by a Person other than the
proof of its contents. e contract of insurance must be Contracting Carrier. —
presented in evidence to indicate the extent of its 2) It applies equally to gratuitous carriage by aircra t
coverage. performed by an air transport undertaking. a) A person (“the contracting carrier”) as a
principal makes a contract of carriage with a
WON 2100 CBI was negligent in handling the shipment of 3) International carriage means any carriage in which, passenger or consignor or with a person
TSPIC, thus making it liable for damages. according to the agreement between the parties, the acting on behalf of the passenger or
place of departure and the place of destination,
NO. 2100 CBI was not negligent in handling the consignor, and
whether or not there be a break in the carriage or a
shipment of TSPIC.
transhipment, are situated either

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 98 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

b) Another person (“the actual carrier”) b. Baggage b. defective packing of that cargo performed by
performs, by virtue of authority from the a person other than the carrier or its servants
1. In case of destruction or loss of, or of damage to,
contracting carrier, the whole or part of the or agents;
checked baggage — the event that caused the
carriage, but is NOT with respect to such c. an act of war or an armed con lict;
destruction, loss or damage took place
part a successive carrier.
a. on board the aircra t or d. an act of public authority carried out in
2 Extent of Liability of Air Carrier connection with the entry, exit or transit of
b. during any period within which the checked
the cargo.
baggage was in the charge of the carrier.
a. Passenger e liability of the carrier is limited to a sum of 17
However, the carrier is NOT liable if and to the extent
In case of death or bodily injury of a passenger — Special Drawing Rights per kg, unless the consignor
that the damage resulted from the inherent defect,
the accident which caused the death or injury took has made, at the time when the package was handed
quality or vice of the baggage.
place over to the carrier, a special declaration of interest
e liability of the carrier is limited to 1,000 Special in delivery at destination and has paid a
a. on board the aircra t or
Drawing Rights for each passenger unless the supplementary sum.
b. in the course of any of the operations of passenger has made, at the time when the checked
embarking or disembarking. 4. e Special Drawing Right (SDR) is an
baggage was handed over to the carrier, a special
interest-bearing international reserve asset created
For damages not exceeding 100,000 Special declaration of interest in delivery at destination and
by the IMF. It is based on a basket of international
Drawing Rights for each passenger, the carrier shall has paid a supplementary sum
currencies comprising the U.S. dollar, Japanese yen,
not be able to exclude or limit its liability. 2. In the case of unchecked baggage — the carrier is euro, pound sterling and Chinese Renminbi. It is
e carrier shall NOT be liable for damages to the liable if the damage resulted from its fault or that of not a currency, nor a claim on the IMF, but is
extent that they exceed for each passenger 100,000 its servants or agents. potentially a claim on freely usable currencies of
Special Drawing Rights if the carrier proves that: 3. In the event of the destruction or loss of, or damage IMF members. e value of the SDR is set daily by
a. such damage was not due to the negligence to, cargo — the event which caused the damage so the IMF on the basis of fixed currency amounts of
or other wrongful act or omission of the sustained took place during the carriage by air. the currencies included in the SDR basket and the
carrier or its servants or agents; or However, the carrier is NOT liable if such event daily market exchange rates between the currencies
resulted from one or more of the following: included in the SDR basket.
b. such damage was solely due to the
negligence or other wrongful act or omission a. inherent defect, quality or vice of that cargo; 5. A carrier may stipulate that the contract of carriage
of a third party. shall be subject to higher limits of liability than

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 99 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

those provided for in this Convention or to no limits liability is limited shall be only the total weight of
c. has paid a supplementary sum if the case so
of liability whatsoever. requires. the package or packages concerned.
6. Any provision tending to relieve the carrier of In that case the carrier will be liable to pay a Nevertheless, when the destruction, loss, damage or
liability or to fix a lower limit than that which is laid sum not exceeding the declared sum, unless delay of a part of the cargo, or of an object contained
down in this Convention shall be NULL and VOID. it proves that the sum is greater than the therein, a fects the value of other packages covered
7. Prescription. — e right to damages shall be passenger’s actual interest in delivery at by the same air waybill, or the same receipt or, if
extinguished if an action is not brought within a destination. they were not issued, by the same record preserved
by the other means referred to in paragraph 2 of
period of two (2) years, reckoned from the date of 3. In the carriage of cargo, the liability of the carrier in Article 4, the total weight of such package or
arrival at the destination, or from the date on which the case of destruction, loss, damage or delay is packages shall also be taken into consideration in
the aircra t ought to have arrived, or from the date limited to a sum of 17 Special Drawing Rights per determining the limit of liability.
on which the carriage stopped. kilogramme, unless
5. e foregoing provisions of paragraphs 1 and 2 shall
c. Limitations to Liability a. the consignor has made, at the time when not apply if it is proved that
1. In the case of damage caused by delay as specified in the package was handed over to the carrier,
a. the damage resulted from an act or omission
Article 19 in the carriage of persons, the liability of b. a special declaration of interest in delivery of the carrier, its servants or agents,
the carrier for each passenger is limited to 4 150 at destination and
Special Drawing Rights. b. done with intent to cause damage or
c. has paid a supplementary sum if the case so recklessly and
2. In the carriage of baggage, the liability of the carrier requires.
in the case of destruction, loss, damage or delay is c. with knowledge that damage would probably
In that case the carrier will be liable to pay a result;
limited to 1 000 Special Drawing Rights for each
sum not exceeding the declared sum, unless
passenger unless provided that, in the case of such act or omission of a
it proves that the sum is greater than the
a. the passenger has made, at the time when consignor’s actual interest in delivery at servant or agent, it is also proved that such servant
the checked baggage was handed over to the destination. or agent was acting within the scope of its
carrier, employment.
4. In the case of destruction, loss, damage or delay of
b. a special declaration of interest in delivery part of the cargo, or of any object contained 6. e limits prescribed shall not prevent the court
at destination and therein, the weight to be taken into consideration in from awarding, in accordance with its own law, in
determining the amount to which the carrier’s addition, the whole or part of the court costs and of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 100 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the other expenses of the litigation incurred by the

General Banking Law 1. when it is satisfied that the institution can
plainti f, including interest. continue to operate on its own and the
e foregoing provision shall not apply if the Anti-Money Laundering Act conservatorship is no longer necessary.
amount of the damages awarded, excluding court 2. if, on the basis of the report of the conservator or
costs and other expenses of the litigation, does not A The New Central Bank Act
of its own findings, determine that the
exceed the sum which the carrier has o fered in continuance in business of the institution would
Banks in Distress
writing to the plainti f within a period of six months involve probable loss to its depositors or
from the date of the occurrence causing the damage, Remedy of Closed Banks creditors, in which case receivership or
or before the commencement of the action, if that is liquidation shall apply.
later. Banks in Distress
1
R.A. No. 7653, as amended, Sections 29-30 ere are three requisites in placing an institution
3 Liability for Delay under conservatorship
Conservatorship
1) ere must be a report submitted by the
1. e carrier is liable for damage occasioned by delay Conservatorship is a tool in restoring the viability of
appropriate supervising or examining
in the carriage by air of passengers, baggage or banks and quasi-banks.
department of the BSP;
cargo.
Whenever, on the basis of a report submitted by the
2) A finding by the Monetary Board that a bank or
2. Nevertheless, the carrier shall NOT be liable for appropriate supervising or examining department, the
quasi-bank is in a state of continuing inability or
damage occasioned by delay if it proves Monetary Board finds that a bank or a quasi-bank is in a
unwillingness to maintain a condition of liquidity
a. that it and its servants and agents took all state of continuing inability or unwillingness to maintain a
deemed adequate to protect the interest of
measures that could reasonably be required condition of liquidity deemed adequate to protect the
depositors and creditors; and
to avoid the damage OR interest of depositors and creditors, the Monetary
Board may appoint a conservator who shall have the 3) e BOD must be informed in writing of the
b. that it was impossible for it or them to take order of the Monetary Board directing
power to overrule or revoke the actions of the previous
such measures. conservatorship.
management and board of directors of the bank or
quasi-bank; Liquidity is the ability to pay o f obligations when they
V Banking
e conservatorship shall NOT exceed one (1) year. fall due. It refers to that condition wherein a high
The New Central Bank Act percentage of the assets can be quickly converted into
e Monetary Board shall terminate the
Secrecy of Bank Deposits conservatorship

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 101 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

cash without involving any considerable loss by with arbitrariness, or that the regulatory body has acted
accepting sacrifice prices. without jurisdiction. (Sps Poon v. Prime Savings Bank 2016)
Liquidation
A liquidation proceeding is a special proceeding
e conservator merely takes the place of the BOD. Only stockholders representing the majority of capital
involving the administration and disposition, with
What the said board cannot do, the conservator cannot stock of a bank have the personality to file action for
judicial intervention, of an insolvent's assets for the
do either. His power is not unilateral and he cannot annulment of the MB resolution placing the bank under
benefit of its creditors. is proceeding is cognizable by
simply repudiate valid obligations of the bank. (First receivership. e closed bank may sue and be sued only
the RTC. (Consolidated Bank v. CA 2015)
Philippine International Bank v. CA) through its receiver. e receiver does so as a
representative party. Any action filed by the closed bank It is basically a two-phased proceeding.
A conservator may be appointed without the need of
first declaring the bank insolvent. Nonetheless, the without its receiver may be dismissed. (Banco Filipino v. BSP e first phase is concerned with the approval and
designation of a conservator is NOT a precondition to the 2018) disapproval of claims. e claim shall be classified
designation of a receiver. e execution and enforcement of a final decision of a whether it is ordinary or preferred, and therea ter
court other than the liquidation court against the assets included liquidated. In either case, the order allowing or
Receivership of a closed bank shall be stayed. e prevailing party disallowing a particular claim is a final order, and may
e appointment of a receiver operates to suspend the shall file the final decision as a CLAIM with the be appealed by the party aggrieved thereby.
authority of the bank over its property and e fects, such liquidation court and settled in accordance with the e second phase involves the approval by the Court of
authority being reposed in the receiver, and in this Rules on Concurrence and Preference of Credits under the distribution plan prepared by the duly appointed
respect, the receivership is equivalent to an injunction the Civil Code or other laws. (Cu v. Small Business liquidator. (Vda de Ballesteros v. Rural Bank of Canaman
to restrain the bank o ficers from intermeddling with Guarantee and Finance 2017) 2010)
the property of the bank in any way. (Abacus Real Estate
e prescriptive period to institute foreclosure e insolvent bank's legal personality is not dissolved. A
Development v. Manila Banking)
proceeding was legally interrupted when the bank retains its juridical personality. (Balayan Bay Rural
However, the receiver of the bank is in fact obliged to collect mortgagee-bank was placed under receivership with Bank v. National Livelihood Development 2015)
debts owing to the bank, which debts form part of the express prohibition from transacting business, a
assets of the bank. (Sps Aguilar v. Manila Banking) As a general rule, if there is a judicial liquidation of an
circumstance considered as force majeure. (Provident
insolvent bank, all claims against the bank should be
e period during which the bank cannot do business Savings v. CA)
filed in the liquidation proceeding. is, however,
due to insolvency is NOT a fortuitous event, unless it is e dissolution of a corporation by the SEC is a totally should NOT be applied if it would be "an exercise in
shown that the government's action to place a bank di ferent proceeding from the receivership and futility." In one case, the claimants were poor and the
under receivership or liquidation proceedings is tainted liquidation of a bank by the BSP. (PDIC v. BIR) disputed parcel of land was their only property, and the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 102 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

parties' claims and defenses were properly ventilated in

1. Firstly, an examination shall be conducted by the A deposit in a distressed bank already forbidden by the
and considered by the judicial court. (Cudiamat v. head of the appropriate supervising or examining BSP to do business does NOT become a preferred credit
Batangas Savings and Loan Bank 2010) department; simply because judgments were secured against the
Section 52(C) of the NIRC is NOT applicable to banks 2. Secondly, it shall be disclosed in the examination bank. (Central Bank v. Morfe, Vda de Ballesteros v. Rural
ordered placed under liquidation by the Monetary Bank of Canaman 2010)
Board, and a tax clearance is NOT a prerequisite to the a. that the condition of the bank is one of
insolvency, OR
B Secrecy of Bank Deposits
approval of the project of distribution of the assets of a
bank under liquidation by the PDIC. (PDIC v. BIR 2013) b. that its continuance in business would involve R.A. No. 1405, and R.A. No. 6426, as amended
probable loss to its depositors or creditors;
Remedy of Closed Banks Prohibited Acts
2 3. irdly, the department head concerned shall inform
R.A. No. 7653, as amended, Section 30
the Monetary Board in writing, of the facts; and Exceptions from Coverage
Under the law, the sanction of closure could be imposed
4. Lastly, the Monetary Board shall find the statements Garnishment of Deposits
upon a bank by the BSP even without notice and
of the department head to be true.
hearing. 1 Prohibited Acts
e test of insolvency is measured by determining
Judicial review enters the picture only a ter the MB has
whether the realizable assets of a bank are less than its All deposits of whatever nature with banks or banking
taken action; it cannot prevent such action by the MB.
liabilities. institutions IN the Philippines including investments in
e threat of the imposition of sanctions, even that of
Hence, a bank is solvent if the fair cash value of all its bonds issued by the Government, are considered as of
closure, does not violate their right to due process, and
assets, realizable within a reasonable time by a an absolutely confidential nature and may not be
cannot be the basis for a WPI. (BSP v. Antonio-Valenzuela)
reasonably prudent person, would equal or exceed its examined, inquired or looked into by any person,
e actions of the Monetary Board shall be final and government o ficial, bureau or o fice.
total liabilities exclusive of stock liability; but if such fair
executory and may not be restrained or set aside by the
cash value so realizable is not su ficient to pay such Trust accounts are covered by the term ‘deposits’. e
court except on petition for certiorari. (Apex v. BSP 2017)
liabilities within a reasonable time, the bank is use of the term ‘deposits’ is to be understood broadly
Under Section 30 of the NCBA, the following are the insolvent. (Banco Filipino v. Monetary Board) and not limited only to accounts which give rise to
mandatory requirements to be complied with before a e obligation to pay interest on a deposit ceases from creditor-debtor relationship between the depositor and
bank found to be insolvent is ordered closed and forbidden the bank. (Ejercito v. SB)
the moment the operation of the bank is completely
to do business in the Philippines: suspended by the Central Bank. (General Bank and Trust
v. Central Bank)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 103 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) Bank deposits may not be examined, inquired or action as declared by the Monetary Board due to
g) Upon the order of a competent court, by the AMLC
looked into by any person, government o ficial, where there is probable cause of money laundering; capital deficiency;
bureau or o fice; o) When there is a waiver in case of DOSRI loans;
A court order is NOT necessary in the following
2) Any o ficial or employee of a bank may not disclose cases: p) Disclosure to the BSP in the course of examination
any information concerning said deposits to any to ensure compliance with the AMLA and testing of
person other than those mentioned in Section Two i) Kidnapping for ransom;
numbered accounts;
hereof, or ii) RA 9165;
q) Plunder (Ejercito v. SB)
3) For an independent auditor hired by a bank to iii) Hijacking; destructive arson and murder.
conduct its regular audit to disclose to any person For FOREIGN currency deposits, the following are the
h) Examination by the AMLC even without court order exceptions:
other than a bank director, o ficial or employee
under Sec 11 of AMLA;
authorized by the bank any information concerning a) When there is written consent of the depositor;
said deposits. i) Disclosure to the Treasurer of the Philippines for
dormant deposits for at least 10 years under the b) Under Sec 11 of AMLA;

2 Exceptions from Coverage Unclaimed Balances Act; c) Upon order of the CA, examination by law
j) Report of banks to AMLC of covered and/or enforcement o ficers in terrorism cases under the
A PESO bank deposit may be inquired into in the following Human Security Act;
suspicious transactions;
cases:
k) Upon order of the CA, examination by law d) Investigation where AMLC is authorized to examine
a) upon written permission of the depositor, deposits and investments with any banking or NBFI
enforcement o ficers in terrorism cases under the
b) in cases of impeachment, Human Security Act; and their subsidiaries and a filiates without a court
order;
c) upon order of a competent court in the case of l) Investigation where AMLC is authorized to examine
bribery or dereliction of duty of public o ficials or, deposits and investments with any banking or NBFI e) Examination and disclosure to the CIR under Sec
and their subsidiaries and a filiates without a court 6(F) of the NIRC;
d) when the money deposited or invested is the subject
matter of the litigation; order; f) Disclosure to the BSP in the course of examination
m) Inquiry and examination by the PDIC in case there to ensure compliance with the AMLA and testing of
e) In cases involving unexplained wealth, even if
is a finding of unsafe or unsound banking practice; numbered accounts; and
placed in another person’s name;
f) Upon inquiry of the CIR to determine the net estate n) Examination and inquiry into deposit records by the
of a deceased depositor; PDIC when there is failure of prompt corrective

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 104 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

g) Inquiry and examination by the PDIC in case there ere is NO VIOLATION if the accounts are garnished. 1. e bank can make use as its own the money
is a finding of unsafe or unsound banking practice. e amount of deposit is not disclosed and the deposited.
legislature did not intend to cover garnishment. 2. ird persons who may have a right to the
e Real Bank, Inc. v. Maningas 16 Mar 2022
However, foreign currency deposits are exempt from money deposited cannot hold the bank
1. Real Bank contends that the RTC's action attachment, garnishment, or any other order or process responsible unless there is a court order or
directing it to produce the bank records of the of any court, legislative body, government agency or any garnishment.
impostor violates the law on secrecy of bank administrative body whatsoever. (RA 6426) See the case 3. Bank o ficers cannot be held liable for estafa if
deposits. of Salvacion v. Central Bank, where the Court made an they authorized the use of the money deposited
1.1. e Court agrees. exception against a transient foreigner charged with by the depositor.
raping a minor.
2. Union Bank of the Philippines v. CA noted that 4. e bank has the right of compensation. It can
inquiry will be allowed if the money deposited in set o f the deposits with the indebtedness of the
the account is itself the subject matter of C General Banking Law depositor that are due and demandable.
R.A. No. 8791
litigation.
5. Deposits are common preferred credits under
2.1. BSB Group, Inc. v. Go elaborated that the Nature of Bank Funds and Bank Deposits Art 2244(9) of the NCC.
subject matter of the action should be Required Diligence of Banks A bank is statutorily required to conduct a credit check
deduced from the indictment and not
Prohibited Transactions by Bank Directors on all of its borrowers, even though it be made under a
from the evidence sought to be admitted.
and O cers loan accommodation scheme. RA 8791 only intended to
3. Here, Maningas' action was directed against the cover loans by third persons and those extended to
banks, and not against the impostor. Nature of Bank Funds and Bank DOSRI and does not automatically apply to loans to
1
3.1. e exception provided in the law is not Deposits bank employees. (HBILU v. HSBC 2018)
present in this case, thus, the inquiry Bank deposits are in the nature of irregular deposits Kinds of Deposits
ordered by the RTC is improper. (Serrano v. Central Bank). ey are not true deposits but e deposit operations of a bank consist of the following:
are simple loans. Banks where monies are deposited are
1. Demand Deposits — are deposits, subject to
considered the owners (People v. Puig). Hence, the
3 Garnishment of Deposits withdrawal either by check or thru the ATMs which
relationship between a depositor and a bank is that of
are otherwise known as current or checking
creditor and debtor. us:
accounts.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 105 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2. Savings Deposits — are interest-bearing deposits. Savings Time agreement between the bank and the depositor is the
SSDA
Account Deposit contract that determines the rights and obligations of the
3. Negotiable Order of Withdrawal Accounts — are
maintained, parties as in a simple loan.
interest- bearing savings deposit which are
withdrawable by means of Negotiable Orders of otherwise, the Allied Bank cannot repudiate the resulting banking
Withdrawal. Savings + Checking. regular savings relationship with the Sps Mario Macam and the fiduciary
interest rate will nature thereof when it accepted the spouses' initial
4. Time Deposits — are interest-bearing deposits with
apply. deposit of P1.59M, the very same funds it now claims as
specific maturity dates and evidenced by certificates
its own.
issued by the bank. A document to be deemed a certificate of deposit
requires no specific form as long as there is some A certificate of deposit is defined as a written
Savings Time written memorandum that the bank accepted a deposit acknowledgment by a bank or banker of the receipt of a
SSDA
Account Deposit of a sum of money from a depositor. (Philippine Banking sum of money on deposit which the bank or banker
Regular v. CIR) promises to pay to the depositor, to the order of the
Higher depositor, or to some other person or his order, whereby
Interest rate savings Higher interest rate ird parties with unverified claims against the deposit
interest rate the relation of debtor and creditor between the bank and
interest of another do not have a better right over the deposit.
the depositor is created. With its acceptance of the Sps
Period ✘ Fixed Term Fixed Term e bank’s contractual relations are with its depositor,
Mario Macam's deposit and their opening of an account
not with the third party. (Sps Serfino v. FEBTC 2012)
Certificate of with the bank's Pasong Tamo Branch, Allied Bank
Evidenced by Passbook Passbook
Time Deposit Allied Banking v. Sps Macam 2021 explicitly recognized the spouses' ownership and title
over the P1.59M.
Pre-
✘ With penalty With penalty RA 8791 enshrines the fiduciary nature of banking that
termination
requires high standards of integrity and performance. All
Holding banks are charged with extraordinary diligence in the 2 Required Diligence of Banks
✘ ✓ ✓
Period handling and care of its deposits as well as the highest
degree of diligence in the selection and supervision of its e General Banking Act of 2000 demands of banks the
Withdrawal Allowed provided the
employees. highest standards of integrity and performance. As such,
amounts to minimum amount to
Withdrawal Allowed the banks are under obligation to treat the accounts of
pre-terminat earn the higher Here, there is a deposit agreement between Allied Bank
their depositors with meticulous care. (Sps Carbonell v.
ion interest rate is and the Sps Mario Macam. e savings deposit
MBTC 2017)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 106 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

and advances granted to o ficers under a fringe

Banks are also expected to exercise the highest degree of
YES. BPI had ample opportunity to prepare the dollar benefit plan approved by the BSP.
diligence in the selection and supervision of their employees.
bills. BPI could have listed down the serial numbers of the
(PNB v. Raymundo 2016) Dealings of a bank with any of its Directors, O ficers,
dollar bills and erased any doubt as to whether the
e bank is expected to ensure that the depositor's Stockholders and Related Interests (DOSRI) shall be upon
counterfeit bills came from it. Banks are required to
funds shall only be given to him or his authorized terms not less favorable to the bank than those o fered to others.
exercise the highest degree of diligence in its banking
representative. Indeed, the bank should be solidarily transactions. In releasing the dollar bills without listing A ter due notice to the board of directors of the bank, the
liable with its employee for the damages committed to down their serial numbers, BPI failed to exercise the o fice of any bank director or o ficer who violates the
its depositor. (Oliver v. Philippine Savings 2016) highest degree of care and diligence required of it. provisions of this Section may be declared vacant and the
A bank that wrongly advertises the area of a property director or o ficer shall be subject to the penal provisions of
acquired through foreclosure because it failed to the NCBA.
dutifully ascertain the property's specifications is Prohibited Transactions by Bank
3 Apolinario, Jr. v. People 2021
grossly negligent as to practically be in bad faith in Directors and O cers
o fering that property to prospective buyers. Any sale No director or o ficer of any bank To sustain a conviction for violation of the DOSRI
made on this account is voidable for causal fraud. restriction, the prosecution must prove the existence of
As-is-where-is stipulations can only encompass 1. shall, directly or indirectly, for himself or as the the following elements beyond reasonable doubt:
physical features that are readily perceptible by an representative or agent of others, borrow from such
bank nor 1) the o fender is a director or o ficer of any banking
ordinary person possessing no specialized skills. institution;
(Poole-Blunden v. Union Bank 2017 Leonen, J) 2. shall he become a guarantor, indorser or surety for
loans from such bank to others, or 2) the o fender, either directly or indirectly, for
In loan transactions, banks have the particular himself or as a representative or agent of another,
obligation of ensuring that clients comply with all the 3. in any manner be an obligor or incur any contractual performs any of the following acts:
documentary requirements pertaining to the approval liability to the bank
of their loan applications and the subsequent release of a) he borrows any of the deposits or funds of
except with the written approval of the majority of such bank; or
their proceeds. (Prudential Bank v. Rapanot 2017) all the directors of the bank, excluding the director
concerned: b) he becomes a guarantor, indorser, or
BPI and Gonzales v. Sps Quiaoit 2019 surety for loans from such bank to others:
Provided, at such written approval shall not be or
WON BPI failed to exercise due diligence in the transaction and
required for loans, other credit accommodations
is therefore liable for damages to Sps Quiaoit.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 107 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) he becomes in any manner an obligor for Soriano v. People 2020 loan, and therea ter converted the same to his own
money borrowed from bank or loaned by personal use and benefit.
e essence of the crime is becoming an obligor of the
it; and bank without securing the necessary written approval of Related interests shall refer to any of the following:
3) the o fender has performed any of such acts the majority of the bank's directors.
1) Spouse or relative within the first degree of
without the written approval of the majority of the As held in Soriano v. People, the prohibition under the
consanguinity or a finity, or relative by legal
directors of the bank, excluding the o fender, as DOSRI law is broad enough to cover various modes of
adoption, of a director, o ficer or stockholder of the
the director concerned. borrowing, viz.:
BSP-supervised financial institution (BSFI);
Under the General Banking Law, for a DOSRI loan to be It covers loans by a bank director or o ficer (like herein
2) Partnership of which a director, o ficer, or
valid, it is necessary that the written approval of the petitioner) which are made either:
stockholder of a BSFI or his spouse or relative within
majority of the bank's directors be entered into the bank's
1) directly, the first degree of consanguinity or a finity, or
records. In addition, a copy of the entry must be
2) indirectly, relative by legal adoption, is a general partner;
transmitted to the appropriate supervising and
examining department of the Bangko Sentral ng 3) for himself, 3) Co-owner with the director, o ficer, stockholder or
Pilipinas. his spouse or relative within the first degree of
4) or as the representative or agent of others.
consanguinity or a finity, or relative by legal
Here, petitioner does not deny that the loans were not
It applies even if the director or o ficer is a mere adoption, of the property or interest or right
reported to the BSP. However, he claims that they could
guarantor, indorser or surety for someone else's loan or is mortgaged, pledged or assigned to secure the loans
not have met this requirement because of BSP and PDIC's
in any manner an obligor for money borrowed from the or other credit accommodations,
subsequent takeover of Unitrust. He argues that the
bank or loaned by it.
takeover e fectively dissolved Unitrust's operations, except when the mortgage, pledge or assignment
making it impossible for them to report the loans to BSP. Here, the prosecution evidence proved beyond reasonable covers only said co-owner’s undivided interest;
doubt that petitioner, as president of RBSM, indirectly
It must be stressed that the responsibility of entering 4) Corporation, association or firm of which any or a
borrowed or secured a loan with RBSM without the
upon its records the required written approval and of group of directors, o ficers, stockholders of the BSFI
written consent and approval of the majority of the board
transmitting a copy of the entry to the Bangko Sentral ng and/or their spouses or relatives within the first
of directors, which consent and approval petitioner
Pilipinas is on the subject bank, which in this case is degree of consanguinity or a finity, or relative by
deliberately failed to obtain, by using the name of one
Unitrust. legal adoption, hold or own at least twenty percent
depositor Malang, the latter having no knowledge of said
(20%) of the subscribed capital of such corporation,
or of the equity of such association or firm;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 108 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

5) Corporation, association or firm wholly or 3) ere is a written approval of the majority of ALL 3. Ceiling Requirements — Unless for these benefits,
majority-owned or controlled by any related entity the directors of the bank, excluding the director the loan which a bank may extend shall be limited to
or a group of related entities mentioned in Items concerned; an amount equivalent to the unencumbered deposit
“(2)” and “(4)” above; is is NOT required where a fringe benefit plan is and book value of the borrower’s paid-in capital
6) Corporation, association or firm which owns or granted to o ficers as approved by the BSP. contribution in the bank, unless the loan is secured
controls directly or indirectly whether singly or as by non-risk assets. (§36 RA 8791)
4) e required approval
part of a group of related interest at least twenty Except with the prior approval of the MB the total
percent (20%) of the subscribed capital of a a) shall be entered upon the record of the bank outstanding loans, other credit accommodations
substantial stockholder of the BSFI or which and and guarantees to DOSRI shall not exceed fi teen
controls majority interest of the BSFI pursuant to b) a copy of such entry shall be transmitted percent (15%) of the total loan portfolio of the bank
Item “g” of Sec. 362; forthwith to the appropriate supervising and or 100% of net worth whichever is lower:
7) Corporation, association or firm which has an examining department of the BSP; and Provided, at in no case shall the total unsecured
existing management contract or any similar 5) Limited to an amount equivalent to the DOSRI loans, other credit accommodations and guarantees
arrangement with the parent of the BSFI; and borrower’s unencumbered deposits and book value of to said DOSRI exceed thirty percent (30%) of the
8) NGOs/foundations that are engaged in retail his paid-in capital contribution in the bank. aggregate ceiling or the outstanding loans, other
microfinance operations which are incorporated by credit accommodations and guarantees, whichever
In other words, three restrictions are imposed by law on
any of the stockholders and/or directors and/or is lower. (§X331, MORB)
DOSRI transactions, to wit:
o ficers or related BSFIs. (MORB, 2018)
1. Approval Requirements — e transactions, which Anti-Money Laundering Act
e limit on loans, credit accommodations and guarantees must be upon terms not less favorable to the bank D R.A. No. 9160, as amended by R.A. No. 9194, 10167,
shall not apply to loans, credit accommodations and than those o fered to others, must be with the
10365, 10927, and 11521
guarantees extended by a cooperative bank to its written approval of the MAJORITY of ALL directors
cooperative shareholders. of the bank excluding the director concerned; Policy
Requirements for Valid Insider Lending 2. Reportorial Requirements — e required approval Covered Institutions and their Obligations
1) In the regular course of business; shall be entered upon the records of the bank and
copy of such entry shall be submitted to the BSP; Covered Transactions
2) Upon terms not less favorable to the bank than and
those o fered to third parties;
Suspicious Transactions

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 109 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

o fenses through freezing and forfeiture of property

Safe Harbor Provision i) a director or corporate secretary of a
or funds while protecting human rights. company,
Money Laundering
Covered Institutions and their ii) a partner of a partnership, or
Authority to Inquire; Freezing and Forfeiture 2 Obligations iii) a similar position in relation to other
R.A. No. 9160, as amended, Section 3 juridical persons;
Policy
1
R.A. No. 9160, as amended, Section 2 e following are the covered persons under the AMLA: c) providing a registered o fice; business address or
a) e following financial institutions: accommodation, correspondence or
a) To protect and preserve the integrity of the
administrative address for a company, a
Philippine financial system, including the 1) Persons supervised and/or regulated by BSP, partnership or any other juridical person or legal
confidentiality of bank accounts. including their subsidiaries and a filiates, which are arrangement; and
b) To ensure that the Philippines shall not be used as a also covered persons, supervised and/or regulated
by the BSP. d) acting as (or arranging for another person to act
money laundering site for the proceeds of any
as) a nominee shareholder for another person.
unlawful activity. 2) Persons supervised or regulated by IC.
4) Persons, including lawyers, accountants and other
c) To extend cooperation, consistent with Philippines' 3) Persons supervised or regulated by the SEC. professionals, who provide any of the following
foreign policy, in transnational investigations and
b) e following Designated Non-Financial Businesses services:
prosecutions of persons involved in money
laundering activities wherever committed. and Professions or DNFBPs: a) Managing of client money, securities or other
1) Jewelry dealers. assets;
d) To protect life, liberty and property from acts of
terrorism and to condemn terrorism and those who 2) Dealers in precious metals, and dealers in precious b) Management of bank, savings, securities or
support and finance it; and to make the financing of stones. other assets;
terrorism a crime against the Filipino people, c) Organization of contributions for the creation,
3) Company service providers, which, as a business,
against humanity and against the law of nations. operation or management of companies; and
provide any of the following services to third parties:
e) To recognize and to adhere to international d) Creation, operation or management of juridical
a) acting as a formation agent of juridical persons;
commitments to combat the financing of terrorism. persons or arrangements, and buying and
b) acting as (or arranging for another person to act
f) To reinforce the fight against terrorism by selling business entities.
as)
preventing and suppressing the commission of said

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 110 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

5) Casinos, including internet-based casinos and b) Record Keeping. — All records of all transactions of 4) A single cash transaction by real estate developers
ship-based casinos, with respect to their casino cash covered institutions shall be maintained and safely and brokers involving an amount in excess of P7.5M
transactions related to their gaming operations. stored for five (5) years from the dates of or its equivalent in any other currency.

6) Real estate developers and brokers; transactions.

Suspicious Transactions
7) O fshore gaming operation, as well as their service With respect to closed accounts, for at least five (5) 4
R.A. No. 9160, as amended, Section 3
providers, supervised, accredited or regulated by the years from the dates when they were closed.
Refers to a transaction, regardless of amount, where any of the
PAGCOR or any government agency; c) Reporting of Covered and Suspicious Transactions. —
suspicious circumstances is determined, based on
e term 'covered persons' shall EXCLUDE lawyers and Covered persons shall report to the AMLC all covered
suspicion or, if available, reasonable grounds, to be existing.
accountants acting as independent legal professionals transactions and suspicious transactions within five
(5) working days from occurrence thereof, 1) ere is no underlying legal or trade obligation,
1. in relation to information concerning their clients or purpose or economic justification;
unless the AMLC prescribes a di ferent period not
2. where disclosure of information would compromise exceeding fi teen (15) working days. 2) e client is not properly identified;
client confidences or the attorney-client
3) e amount involved is not commensurate with the
relationship: Covered Transactions
3 business or financial capacity of the client;
Provided, at these lawyers and accountants R.A. No. 9160, as amended, Section 3
4) It may be perceived that the client’s transaction is
1. are authorized to practice in the Philippines and 1) A transaction in cash or other equivalent monetary structured in order to avoid being the subject of
2. shall continue to be subject to the provisions of their instrument exceeding P500K within one (1) banking reporting requirements;
respective codes of conduct and/or professional day;
5) Any circumstance relating to the transaction which
responsibility. 2) A transaction with or involving jewelry dealers, is observed to deviate from the profile of the client
dealers in precious metals and dealers in precious and/or the client’s past transactions with the
Obligations
stones in cash or other equivalent monetary covered institution;
a) Customer Identification. — Covered institutions shall instrument exceeding P1M.
establish and record the true identity of its clients 6) e transaction is in a way related to an unlawful
based on o ficial documents. ey shall maintain a 3) A casino cash transaction exceeding P5M or its activity or o fense that is about to be, is being, or
system of verifying the true identity of their clients. equivalent in other currency. has been committed;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 111 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

7) Any analogous or similar transactions to the 2) converts, transfers, disposes of, moves, acquires, Same Conduct Approach. — In determining whether or
foregoing. possesses or uses said monetary instrument or not a felony or o fense punishable under the penal laws
property; of other countries is "of a similar nature" so as to
Safe Harbor Provision constitute an unlawful activity under the AMLA, it is
5 3) conceals or disguises the true nature, source,
R.A. No. 9160, as amended, Section 9 su ficient that both the Philippines and the other
location, disposition, movement or ownership of
NO administrative, criminal or civil proceedings shall lie or rights with respect to said monetary jurisdiction criminalize the conduct or activity
against any person instrument or property; underlying the o fense, regardless of whether both
countries place the o fense within the same category, or
1. for having made a CTR or an STR 4) attempts or conspires to commit ML o fenses denominate the o fense under the same nomenclature.
2. in the regular performance of his duties and referred to in (1), (2), or (3) above;
5) aids, abets, assists in, or counsels the Authority to Inquire; Freezing and
3. in good faith,
commission of the ML o fenses referred to in (1), 7 Forfeiture
4. whether or not such reporting results in any (2), or (3) above; and R.A. No. 9160, as amended, Sections 10-12
criminal prosecution under the AMLA or any other
Philippine law. 6) performs or fails to perform any act as a result of Bank Inquiry Order by the Court
which he facilitates the o fense of ML referred to
1. Application for Issuance of Bank Inquiry Order. — By
6 Money Laundering in items (1), (2), or (3) above.
authority of the Council, the AMLC Secretariat shall
b) Any covered person who, knowing that a covered or file before the CA, through the OSG, an Ex Parte
a. How Committed suspicious transaction is required under the AMLA Application for the Issuance of Bank Inquiry Order to
R.A. No. 9160, as amended, Section 4 to be reported to the AMLC, fails to do so. examine or inquire into any particular deposit or
Money laundering is committed by: investment account that is related to an unlawful
b. Predicate Crimes
activity or ML o fense.
a) Any person who, knowing that any monetary R.A. No. 9160, as amended, Section 3
instrument or property represents, involves, or 2. Inquiry into or Examination of Related Accounts. — A
Unlawful activities refer to any act or omission, or court order ex parte must be obtained before the
relates to the proceeds of any unlawful activity:
series or combination thereof, involving or having direct AMLC can inquire into the related accounts.
1) transacts said monetary instrument or property; relation, to the following: (deleted for brevity; See Sec.
3. No Prior Criminal Charge, Pendency of a Case, or
3[b-1])
Conviction Necessary.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 112 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

4. Compliance with Article III, Sections 2 and 3 of the d) Felonies or o fenses of a nature similar to those Court-Issued Freeze Order
Constitution. mentioned in Rule 11, Section 2.1 (a), (b) and (c),
1. Ex Parte Petition for Issuance of Freeze Order. — By
5. Period to Resolve Application. — 24 HOURS; which are punishable under the penal laws of
authority of the Council, the AMLC Secretariat shall
other countries;
6. Bank Inquiry Order. — e AMLC may inquire into or file before the Court of Appeals, through the OSG.
examine any particular deposit or investment e) Terrorism and conspiracy to commit terrorism;
2. Related Accounts. — e AMLC may include in its
account, including related accounts, with any and
petition the freezing of related and
banking institution or non-bank financial f) Financing of terrorism under Section 4 and materially-linked accounts.
institution, upon order by the Court of Appeals o fenses punishable under Sections 5, 6, 7 and 8
based on an ex parte application in cases of violation of the TFPSA. 3. Period to Resolve Petition. — e CA shall resolve
of the AMLA when probable cause exists. within 24 hours from filing thereof.
2. e relevant requirements for Bank Inquiry Order
by the Court shall apply to Bank Inquiry Order by 4. Issuance. — Upon verified ex parte petition by the
Bank Inquiry Order by the AMLC
the AMLC, including the procedure for inquiry into AMLC and a ter determination that probable cause
1. e AMLC shall issue an ex parte order authorizing exists, the CA may issue a freeze order, which shall
related accounts.
the AMLC Secretariat to inquire into or examine any be e fective immediately, for a period of 20 days.
particular deposit or investment account, including e following requirements shall be observed in the
related accounts, with any banking institution or 5. Coverage. — e freeze order shall be limited only to
issuance of freeze orders:
non-bank financial institution and their the amount of cash or monetary instrument, or
subsidiaries and a filiates when it has been a) NO prior criminal charge, pendency of a case, or value of property that the CA finds there is probable
established that probable cause exists that the conviction for an unlawful activity or ML o fense is cause.
deposits or investments involved, including related necessary for the commencement or the resolution
6. Summary Hearing and Extension. — Before the
accounts, are in any way related to any of the of a petition for freeze order.
expiration of the 20-day freeze order, the CA shall
following unlawful activities: b) No asset shall be frozen to the prejudice of a conduct a summary hearing, with notice to the
a) Kidnapping for ransom; candidate for an electoral o fice during an election parties, to determine whether or not to modify or
period. li t the freeze order, or to extend its e fectivity.
b) RA 9165; Pending resolution by the CA, the freeze order shall
c) No court shall issue a TRO or a writ of injunction
c) Hijacking and other violations under RA 6235; against any freeze order, except the Supreme Court. remain e fective.
destructive arson and murder;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 113 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

case the freeze order shall remain e fective until of the freeze order may be extended up to a period not
7. E fectivity of Freeze Order. — Immediately and shall
the ML case is terminated or an asset exceeding six (6) months upon order of the Court of
remain e fective for a total period not exceeding 6
preservation order is issued, respectively. Appeals:
months.
b) Before the expiration of the freeze order, the Provided, at the twenty-day period shall be tolled upon
8. Motion to Li t. — If a freeze order is imposed on an
covered person shall secure a written filing of a petition to extend the e fectivity of the freeze
account, including bank account, of a covered
confirmation from the AMLC to ascertain if a order.
person that it uses for payment of
petition for civil forfeiture or an ML complaint Period of validity of a freeze order: may it be extended? YES
a) salary, has been filed. for a total period not exceeding six (6) months.
b) rent,
AMLC-Issued Freeze Order e following rules shall be observed in asset forfeiture
c) suppliers, and/or Freeze orders issued by the AMLC shall be governed by proceedings:
d) taxes the TFPSA and its IRR. a) No prior criminal charge, pendency of a case, or
in the ordinary course of a legitimate business, the e AMLC, either upon its own initiative or at the conviction for an unlawful activity or ML o fense
covered person may apply with the court which request of the ATC, is hereby authorized to issue, ex is necessary for the commencement or the
issued the freeze order to li t the same by parte, an order to freeze without delay: resolution of a petition for civil forfeiture.
submitting a bond or other acceptable securities of a) property or funds that are in any way related to b) No asset shall be attached or forfeited to the
equal value to the amount or value subject of the financing of terrorism or terrorist acts; or prejudice of a candidate for an electoral o fice
freeze order. during an election period.
b) property or funds of any person, terrorist
e court must resolve the motion before the organization, association or group of persons in Petition for Civil Forfeiture — Upon determination that
expiration of the freeze order. relation to whom there is probable cause to probable cause exists that any monetary instrument or
9. Li ting the E fects of the Freeze Order. believe that they are committing or attempting property is in any way related to an unlawful activity or
or conspiring to commit, or participating in or ML o fense, the AMLC shall file with the RTC, through
a) e freeze order shall be deemed ipso facto li ted
facilitating the commission of financing of the OSG, a verified petition for civil forfeiture.
a ter its expiration, unless an ML complaint
terrorism or terrorist acts. Equal Value Assets — Other monetary instrument or
against the person whose monetary instrument
or property was frozen, or a Petition for Civil e freeze order shall be e fective for a period not property of equal value may be included in the Petition
Forfeiture against the frozen monetary exceeding twenty (20) days. Upon a petition filed by the where the monetary instrument or property that should
instrument or property, has been filed, in which AMLC before the expiration of the period, the e fectivity be subject of forfeiture:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 114 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

a) cannot be located despite due diligence; 1. salary, bank impliedly agrees to pay upon demand and only upon
the depositor’s order.
b) has been substantially altered, destroyed, 2. rent,
diminished in value or otherwise rendered 3. suppliers, and/or
worthless by any act or omission;
4. taxes Tan v. Rodriguez 2018
c) has been concealed, removed, converted, or
otherwise transferred; in the ordinary course of a legitimate business, the covered Here, there exists no survivorship agreement between
person may apply with the court which issued the APO Anita and Reynaldo. Hence, it is rightful to determine
d) is located outside the Philippines or has been
to discharge the same by submitting a bond or other their respective shares based on evidence presented
placed or brought outside the jurisdiction of the during trial.
acceptable securities of equal value to the amount or
court; or
value subject of the asset preservation order.
e) has been commingled with other monetary
instruments or property belonging to either the Relevant Banking Law Jurisprudence Apique v. Fahnenstich 2015
o fender himself or a third person or entity,
Goyanko, Jr v. UCPB 2013 e common banking practice is that regardless of who
thereby rendering the same di ficult to identify
puts the money into the account, each of the named
or be segregated for purposes of forfeiture. UCPB did not become a trustee by the mere opening of
account holder has an undivided right to the entire
the ACCOUNT. While this may seem to be the case, by
Asset Preservation Order. — Upon verified petition by the balance, and any of them may deposit and/or withdraw,
reason of the fiduciary nature of the bank’s relationship
AMLC, with prayer for issuance of asset preservation partially or wholly, the funds without the need or consent of
with its depositors, this fiduciary relationship does not
order, and a ter determination that probable cause the other, during their lifetime. Here, while Dominador is
“convert the contract between the bank and its depositors
exists that any monetary instrument or property is in a co-owner of the subject account as far as the bank is
from a simple loan to a trust agreement, whether express
any way related to an unlawful activity, the RTC may concerned, Evangeline — as between him and
or implied.” It simply means that the bank is obliged to
issue an asset preservation order which shall be Evangeline, his authority to withdraw, as well as the
observe “high standards of integrity and performance” in
e fective immediately, forbidding any transaction, amount to be withdrawn, is circumscribed by the purpose
complying with its obligations under the contract of
withdrawal, deposit, transfer, removal, conversion, for which the subject account was opened.
simple loan. Per Article 1980 of the Civil Code, a
concealment or other disposition of the subject
creditor-debtor relationship exists between the bank and
monetary instrument or property.
its depositor. e savings deposit agreement is between
Motion to Discharge. — If an APO is imposed on an Cabanting v. BPI Family Savings Bank 2016
the bank and the depositor; by receiving the deposit, the
account of a covered person that it uses for payment of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 115 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Here, there is no proof that petitioners were credit card issuer, governed by the terms and conditions
disadvantaged, uneducated or utterly inexperienced in found in the card membership agreement. Servo v. PDIC 2019
dealing with financial institutions; thus, there is no e submission of statements of account is not enough
reason for the court to step in and protect the interest of Section 5(g) of RA 3591, as amended by RA 10846, provides
to establish that the cardholder incurred the obligation
the supposed weaker party. Verily, petitioners are bound that the actions of PDIC on matters relating to insured
to pay the purchases appearing therein.
by the aforementioned stipulation in the Promissory deposits and deposit liabilities may only be assailed
Note with Chattel Mortgage waiving the necessity of before the Court of Appeals via a Petition for Certiorari
notice and demand to make the obligation due and under Rule 65.
Fil-Agro Rural Bank v. Villaseñor, Jr 2020
payable.
Disputed claims covers all claims whether they be against
the assets of the insolvent bank, for specific performance, Intellectual Property
breach of contract, damages or whatever. e term is
Sps Yulo v. BPI 2019 VI Intellectual Property Code of the Philippines
defined in an all-encompassing and broad manner so as
When issuing a pre-screened or pre-approved credit (R.A. No. 8293)
to include any cause of action against the insolvent bank,
card, the credit card provider must prove that its client regardless of its nature or character, irrespective of e term "intellectual property rights" consists of:
read and consented to the terms and conditions whether the relief sought would directly a fect the
governing the credit card's use. Failure to prove consent a) Copyright and Related Rights;
property of the bank under liquidation. In fact, Section
means that the client cannot be bound by the provisions 30(2) of R.A. 7653 authorizes the receiver to defend any b) Trademarks and Service Marks;
of the terms and conditions, despite admitted use of the action against the insolvent bank. c) Geographic Indications;
credit card.
Here, when Antonio filed the complaint for annulment of d) Industrial Designs;
the mortgages, he is essentially assailing Fil-Agro's right
e) Patents;
BPI v. Sps Sarda 2019 to foreclose the mortgages constituted to secure the
principal obligation, including the closed bank's right to f) Layout-Designs (Topographies) of Integrated
In a situation where a pre-approved client was issued a sell the property and apply the proceeds of the sale to the Circuits; and
credit card, we have held that such client accepted the satisfaction of the unpaid loan. Indubitably, the claim g) Protection of Undisclosed Information
credit card by signing a receipt and using the card to lodged by Antonio is a disputed claim over which the RTC
purchase goods and services. A contractual relationship Copyright Patent Trademark
of Malolos City sitting as liquidation court has
was thereby created between the cardholder and the jurisdiction. Scope Literary and Any technical Any visible

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 116 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Copyright Patent Trademark Ching v. Salinas, et. al. the goods (trademark) or services (service mark) of an
enterprise and shall include a stamped or marked
WON the Utility Model, described as “Leaf Spring Eye Bushing
artistic works solution of a sign capable container of goods. In relation thereto, a trade name
for Automobile” is copyrightable.
which are problem in of means the name or designation identifying or
original any field of distinguishin NO. Ownership of copyrighted material is shown by distinguishing an enterprise.
intellectual human g the goods or proof of originality and copyrightability. A “work of
Meanwhile, the scope of a copyright is confined to
creations in activity which services of an applied art” is an artistic creation with utilitarian
literary and artistic works which are original intellectual
the literary is new, enterprise functions or incorporated in a useful article, whether
creations in the literary and artistic domain protected
and artistic involves an and shall made by hand or produced on an industrial scale.
from the moment of their creation.
domains inventive include a
It bears stressing that the focus of copyright is the
protected step, and is stamped or Patentable inventions, on the other hand, refer to any
usefulness of the artistic design, and not its marketability.
from the industrially marked technical solution of a problem in any field of human
e central inquiry is whether the article is a work of art.
moment of applicable. container of activity which is new, involves an inventive step and is
Indeed, while works of applied art, original intellectual,
their creation. goods. industrially applicable.
literary and artistic works are copyrightable, useful
Optional; articles and works of industrial design are not. A useful
Where to article may be copyrightable only if and only to the
Patents
National IPO IPO
register extent that such design incorporates pictorial, graphic,
Library or IPO Trademarks
or sculptural features that can be identified separately
Generally up Copyrights
from, and are capable of existing independently of the
to 50 years 20 years from utilitarian aspects of the article.
Duration a ter the filing or 10 years
In this case, the petitioner’s models are not works of applied
A Patents
R.A. No. 8293, Section 21
death of the priority date
art, nor artistic works. ey are utility models, useful
author. Patentable vs. Non-patentable Inventions
articles, albeit with no artistic design or value.
Exclusive Yes, Trademark, copyright and patents are di ferent Ownership of a Patent
No, National No, National
Right to International intellectual property rights that cannot be interchanged
Exhaustion Exhaustion Rights and Limitations of Patent Owner
Import Exhaustion with one another.
Patent Infringement
A trademark is any visible sign capable of distinguishing

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 117 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Remedies for Infringement Someone who is aware or presumed to have knowledge in a) Novelty
the specific industry where the invention is engaged in. Not
Cancellation — it must NOT form part of a prior art;
necessarily an expert.
Prior Art
Compulsory Licensing 3) Industrial Applicability — can be produced and
used in any industry. 1) Everything which has been made available to the
Voluntary Licensing
public anywhere in the world, before the filing date or
Patentable vs. Non-patentable the priority date of the application claiming the
Basic Patent Principles
1 Inventions invention; and
1. Territoriality — patents are only valid in the country R.A. No. 8293, Section 22 2) e whole contents of an application for a patent,
or region in which they have been granted; utility model, or industrial design registration,
Patent refers to the right granted by statute in favor of
2. First-to-File — applicant who files first gets the the inventor of a product or process referring to any published in accordance with this Act, filed or
patent; technical solution of a problem in any field of human e fective in the Philippines, with a filing or priority
activity which date that is earlier than the filing or priority date of
3. Disclosure — applicant shall disclose the invention
the application.
in a manner su ficiently clear and complete; 1. Is new,
Non-Prejudicial Disclosure
Quid pro quo – protection in exchange for disclosure;
2. involves an inventive step and
e disclosure of information contained in the
4. Conditional — patents are granted only upon
3. is industrially applicable. application during the twelve (12) months preceding the
compliance with the criteria of patentability;
A patentable invention may be, or may relate to, a filing date or the priority date of the application shall
5. Limited Rights. NOT prejudice the applicant on the ground of lack of
product, or process, or an improvement of any of the
Elements of Patentability foregoing. (§21) novelty if such disclosure was made by:

1) Novelty — it must NOT form part of a prior art; e patent law has a three-fold purpose: a) e inventor;

2) Inventive Step — if, having regard to prior art, it is 1. first, it seeks to foster and reward invention; also means any person who, at the filing date of
not obvious to a person skilled in the art at the time application, had the right to the patent.
2. second, it promotes disclosures of inventions;
of the filing date or priority date of the application b) A patent o fice and the information was contained
claiming the invention. 3. third, seeks to ensure that ideas in the public
domain remain therefor the free use of the i) in another application filed by the inventor,
public. or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 118 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

ii) in an application filed without the Someone who is aware or presumed to have knowledge in 4. Plant varieties or animal breeds or essentially
knowledge or consent of the inventor by a the specific industry where the invention is engaged in. Not biological process for the production of plants or
third party which obtained the information necessarily an expert. animals.
directly or indirectly from the inventor; or is provision shall not apply to micro-organisms and
c) Industrial Applicability
c) A third party which obtained the information non-biological and microbiological processes.
— can be produced and used in any industry.
directly or indirectly from the inventor. 5. Aesthetic creations; and
e following shall be excluded from patent protection:
Filing Date 6. Anything which is contrary to public order or
1. Discoveries, scientific theories and mathematical
e filing date of a patent application shall be the date morality.
methods, and
of receipt by the O fice of at least the following
elements: In the case of drugs and medicines, Ownership of a Patent
2
a. the mere discovery of a new form or new R.A. No. 8293, Sections 28-30
a) An express or implicit indication that a
Philippine patent is sought; property of a known substance which does not
Right to a Patent
result in the enhancement of the known e ficacy of
b) Information identifying the applicant; and e right to a patent belongs to
that substance, or
c) Description of the invention and one (1) or more 1. e inventor, his heirs, or assigns;
b. the mere discovery of any new property or new
claims in Filipino or English.
use for a known substance, or 2. When two (2) or more persons have jointly made an
If any of these elements is not submitted within the invention, the right to a patent shall belong to them
c. the mere use of a known process unless such
period set by the Regulations, the application shall be jointly.
known process results in a new product that
considered withdrawn.
employs at least one new reactant. 3. If two (2) or more persons have made the invention
b) Inventive Step 2. Schemes, rules and methods of performing mental separately and independently of each other, the
— if, having regard to prior art, it is not obvious to a acts, playing games or doing business, and right to the patent shall belong to the person who
person skilled in the art at the time of the filing date programs for computers; filed an application for such invention;
or priority date of the application claiming the 3. Methods for treatment of the human or animal body 4. Where two or more applications are filed for the
invention. by surgery or therapy and diagnostic methods same invention, to the applicant who has the earliest
practiced on the human or animal body. filing date or, the earliest priority date. (§28-29)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 119 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

First-to-File Rule Right of Priority months from abandonment within which to file for
revival.
If two (2) or more persons have made the invention An application for patent filed by any person who has
separately and independently of each other, the right to the previously applied for the same invention in another Petitioner's patent application, therefore, should NOT
patent shall belong to country which by treaty, convention, or law a fords similar be revived since it was filed beyond the allowable period.

1. the person who filed an application for such privileges to Filipino citizens, shall be considered as filed as WON filing of a patent application vests petitioner the right to be
invention, OR of the date of filing the foreign application: Provided, at: protected from becoming part of the public domain because of
a) the local application expressly claims priority; convention priority under the Paris Convention for the Protection
2. where two or more applications are filed for the
of Industrial Property.
same invention, b) it is filed within twelve (12) months from the date
the earliest foreign application was filed; and NO. e right of priority given to a patent applicant is
a. to the applicant who has the earliest filing
only relevant when there are two or more con licting patent
date OR, c) a certified copy of the foreign application together
applications on the same invention. Because a right of
b. the earliest priority date. (§29) with an English translation is filed within six (6)
priority does not automatically grant letters patent to an
months from the date of filing in the Philippines.
applicant, possession of a right of priority does not
Invention Created Pursuant to a Commission (§31)
confer any property rights on the applicant in the
e person who commissions the work shall own the
E.I. Dupont de Nemours and Co. v. Francisco 2016 absence of an actual patent.
patent, unless otherwise provided in the contract.
A right of priority is not equivalent to a patent. A ter the
In case the employee made the invention in the course of his WON the CA erred in allowing the intervention of respondent
lapse of 20 years, the invention becomes part of the public
employment contract, the patent shall belong to: erapharma, Inc. in petitioner's appeal.
domain and is free for the public to use. In addition, a
a) e employee, if the inventive activity is NOT a part NO. e mandatory disclosure requirement in the TRIPS patent holder of inventions relating to food or medicine
of his regular duties even if the employee uses the Agreement precipitated the shi t from a first-to-invent does not enjoy absolute monopoly over the patent. Both
time, facilities and materials of the employer. system to a first-to-file system in the new IPC. e RA No. 165 and the IPC provide for compulsory
patent application is only confidential BEFORE its licensing. e patent holder's proprietary right over the
b) e employer, if the invention is the result of the
publication. patent only lasts for three (3) years from the grant of the
performance of his regularly-assigned duties, unless
there is an agreement, express or implied, to the WON the abandoned patent application of petitioner may be patent, a ter which any person may be allowed to
contrary. (§30) revived a ter 13 years. manufacture, use, or sell the invention subject to the
payment of royalties.
NO. e IPC provides for a shorter period of three (3)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 120 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

product, or with his express consent, insofar as such

6. Where the invention is used in any ship, vessel,
use is performed a ter that product has been so put aircra t, or land vehicle of any other country entering the
Rights and Limitations of Patent on the said market.
3 territory of the Philippines temporarily or
Owner
R.A. No. 8293, Sections 71-77 2. Where the act is done privately and on a accidentally. (§72)
non-commercial scale or for a non-commercial
A patent shall confer on its owner the following exclusive purpose:
Prior User
rights: Any prior user, who, in good faith was using the
Provided, at it does not significantly prejudice the
a) Where the subject matter of a patent is a product, invention or has undertaken serious preparations to use
economic interests of the owner of the patent;
to restrain, prohibit and prevent any unauthorized the invention in his enterprise or business, before the
3. Where the act consists of making or using filing date or priority date of the application on which a
person or entity from making, using, o fering for sale,
exclusively for experimental use of the invention for patent is granted, shall have the right to continue the
selling or importing that product;
scientific purposes or educational purposes and use thereof as envisaged in such preparations within the
b) Where the subject matter of a patent is a process, to such other activities directly related to such territory where the patent produces its e fect.
restrain, prevent or prohibit any unauthorized scientific or educational experimental use;
e right of the prior user may only be transferred or
person or entity from using the process, and from
4. In the case of drugs and medicines, where the act assigned together
manufacturing, dealing in, using, selling or o fering
includes testing, using, making or selling the
for sale, or importing any product obtained directly 1. with his enterprise or business, or
invention including any data related thereto, solely
or indirectly from such process. 2. with that part of his enterprise or business in
for purposes reasonably related to the development
Patent owners shall also have the right and submission of information and issuance of which the use or preparations for use have been
approvals by government regulatory agencies made. (§73)
c) to assign, or transfer by succession the patent, and
required under any law of the Philippines or of
d) to conclude licensing contracts for the same. (§71) Use by Government
another country that regulates the manufacture,
e owner of a patent has no right to prevent third parties construction, use or sale of any product. A Government agency or third person authorized by the
from performing, without his authorization, the acts Government may exploit the invention even without
5. Where the act consists of the preparation for agreement of the patent owner where:
referred to in Section 71 hereof in the following
individual cases, in a pharmacy or by a medical
circumstances: a) e public interest, in particular, national
professional, of a medicine in accordance with a
1. Using a patented product which has been put on the medical prescription or acts concerning the security, nutrition, health or the development of
market in the Philippines by the owner of the medicine so prepared; and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 121 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

other sectors, as determined by the appropriate must be had, in the first instance, to the words of the e language of the claims limits the scope of protection granted
agency of the government, so requires; or claim. e Court must juxtapose the claims of the patent by the patent. e patentees, in enforcing their rights, and the
b) A judicial or administrative body has determined and the accused product within the overall context of the courts in interpreting the claims, cannot go beyond what is stated
that the manner or exploitation, by the owner of claims and specifications, to determine whether there is in the claims, especially when the language is clear and distinct.
the patent or his licensee, is anti-competitive; or exact identity of all material elements.
In examining the di ferences between two processes or devices, the
In the case of drugs and medicines, e trial court found that in appearance and form, both deciding authorities should bear in mind that the changes
the loating power tillers of the defendant and the turtle introduced in the patented process or device have to be substantial
c) there is a national emergency or other
power tiller of the plainti f are virtually the same. e to remove the allegedly-infringing process or device from the
circumstance of extreme urgency requiring the
parts or components thereof are virtually the same. In scope of patent protection.
use of the invention; or
operation, the loating power tiller of the defendant
d) there is public non-commercial use of the patent operates also in similar manner as the turtle power tiller WON Phillips' process infringes Patent I-31138.
by the patentee, without satisfactory reason; or of plainti f. 1. NO. e CA correctly interpreted the phrase "to
e) the demand for the patented article in the remove mainly tar therefrom," but this
Next, courts have adopted the doctrine of equivalents
Philippines is not being met to an adequate interpretation is insu ficient to support TPI's patent
which recognizes that minor modifications in a patented
extent and on reasonable terms, as determined infringement claim.
invention are su ficient to put the item beyond the scope
by the Secretary of the DOH. (§74) of literal infringement. 2. A patentable invention includes any technical
solution to a problem in any field of human activity
Patent Infringement According to this doctrine, an infringement also occurs
4 when a device appropriates a prior invention by
which is new, involves an inventive step, and is
R.A. No. 8293, Sections 76-84
industrially applicable. It may be a product, process,
incorporating its innovative concept and, albeit with some
or an improvement of an existing product or
Tests in Patent Infringement modification and change, performs substantially the same
process.
Literal Infringement function in substantially the same way to achieve
substantially the same result. 3. In the Philippines, a patent application must
Godines v. CA contain
Doctrine of Equivalents
Did petitioner's product infringe upon the patent of private 3.1. a duly accomplished request for the grant of
respondent? Phillips Seafood Philippines v. Tuna Processors, Inc. patent,
2023 Lopez, M., J.
YES. In using literal infringement as a test, resort 3.2. a description of the invention,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 122 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3.3. a drawing(s) necessary for the process. It particularly points out and actually used.
understanding of the invention, distinctly claims the part, improvement, or 10. erefore, the burden of proving that the process to
combination of the invention. obtain the identical product is di ferent from the
3.4. one or more claims, and
6.2. Second, claims inform the public and the patented process rests on the defendant. Such is not
3.5. an abstract. courts of the extent of protection conferred the case here. For one, smoked tuna fish is not a new
4. e patent confers on its owner the exclusive right by the patent. product. For another, there is no substantial
to restrain, prohibit and prevent any unauthorized 7. e language of the claims limits the scope of likelihood that Phillips' smoked tuna fish was made
person or entity from making, using, o fering for protection granted by the patent. e patentees, in using the patented process because the use of
sale, selling, or importing the patented product or enforcing their rights, and the courts in filtered smoke cooled to between 0º and 5ºC is not
product obtained directly or indirectly from a interpreting the claims, cannot go beyond what is the only way to produce smoked tuna fish. As
patented process or the unauthorized use of a stated in the claims, especially when the language is previously discussed, conventional smoking can be
patented process. A violation of this right clear and distinct. done in three temperature zones not covered by
constitutes patent infringement under Section 76.1 Patent I-31138.
of the Intellectual Property (IP) Code. 8. In patent infringement, the evidence required
before the IPO is substantial evidence or that 11. Ergo, the burden of proof rests on TPI and its
5. Determining the existence of infringement requires amount of relevant evidence that a reasonable mind predecessors-in-interest.
a two-step analysis. might accept as adequate to justify a conclusion. 12. Under the literal infringement test, courts consider
5.1. First, the court interprets the claims to e burden of proving patent infringement rests on the elements of the invention as expressed in the
determine the patent's scope and meaning. the plainti f. claim(s). If the allegedly-infringing product or
9. But for process patents, the IP Code creates a process falls within the literal meaning of the
5.2. Second, the court measures the
presumption that an identical product was obtained claim(s), there is patent infringement.
allegedly-infringing product or process
against the standard of the properly from the patented process if 13. Under the doctrine of equivalents test, the courts
interpreted claims. 9.1. the product is new or consider whether the elements in the
alleged-infringing product or process are equivalent
6. Claims perform two functions, namely: definitional 9.2. there is a substantial likelihood that the to the elements expressed in the patent's claim(s).
and public notice. identical product was made by the process, ere is patent infringement if the
6.1. First, the claims define the scope of and the patentee was unable, despite allegedly-infringing product or process
protection granted to a patented product or reasonable e forts, to determine the process appropriates the innovative concept of the patent,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 123 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

and despite the modifications introduced in the the scope of a patent when applied too in relation to the other portions thereof, no mention is
infringing product or process, it still performs broadly to the invention as a whole as to made of the compound Albendazole. When the language
substantially the same functions, in the same way, eliminate an element in its entirety. of its claims is clear and distinct, the patentee is bound
to produce the same result. thereby and may not claim anything beyond them.
15. Here, as to literal infringement, the inventive step
14. Our laws and jurisprudence recognize the of Patent I-31138 is the use of filtered smoke cooled e doctrine of equivalents provides that an
insubstantial di ference test, triple identity test, and to between 0º and 5ºC in smoking tuna meat. A infringement also takes place when a device appropriates
all elements test in determining equivalence under comparison between the elements of Claim 1 and a prior invention by incorporating its innovative concept
the doctrine of equivalents. Phillips process shows that this inventive step is and, although with some modification and change,
absent. Verily, Phillips' process does not fall within performs substantially the same function in substantially
14.1. Under the insubstantial di ference test,
the literal meaning of Patent I-31138's Claim 1. the same way to achieve substantially the same result.
there is patent infringement when the
infringer appropriates the patent but adopts 16. Also, TPI failed to establish that the simultaneous While both compounds have the e fect of neutralizing
insubstantial changes. e change is cooling of the filtered smoke and tuna meat will parasites in animals, identity of result does not amount
insubstantial if a person skilled in the art is cure tuna meat in substantially the same way as the to infringement of patent unless Albendazole operates in
aware that the change is a mere substitute pre-cooled filtered smoke. substantially the same way or by substantially the same
for the replaced element. means as the patented compound, even though it
17. In all, TPI and its predecessors-in-interest failed to
performs the same function and achieves the same result.
14.2. Under the triple identity test, there is patent discharge their burden of proving that Phillips
In other words, the principle or mode of operation must
infringement if the allegedly-infringing appropriated the innovative concept of Patent
be the same or substantially the same.
device or process performs substantially the I-31138. e evidence on record is insu ficient to
same function and accomplishes establish that Phillips' process cures the tuna meat e doctrine of equivalents thus requires satisfaction of
substantially the same result by using in substantially the same way as Patent I-31138. the function-means-and-result test.
substantially the same means.
As for the concept of divisional applications pro fered
14.3. Under the all elements test, courts consider by petitioner, it comes into play when two or more
the individual elements in a patent claim to Smith Kline Beckman v. CA
inventions are claimed in a single application but are of
define the scope of the patented invention, WON Tryco committed patent infringement to the prejudice of such a nature that a single patent may not be issued for
rather than considering the invention as a Smith Kline. them. e applicant thus is required "to divide," that is, to
whole. e all elements test was developed to limit the claims to whichever invention he may elect,
NO. From a reading of the 9 claims of the Letters Patent
avoid the possibility that courts will enlarge whereas those inventions not elected may be made the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 124 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

subject of separate applications which are called award by way of damages a sum equivalent to injunction against petitioner insofar as the disputed
"divisional applications." What this only means is that reasonable royalty. patent is concerned.
petitioner's methyl 5 propylthio-2-benzimidazole 4. e court may award damages in a sum above the What tribunal has jurisdiction to review the decisions of the
carbamate is an invention distinct from the other amount found as actual damages sustained: Director of Legal A fairs of the Intellectual Property O fice?
inventions claimed in the original application divided Provided, at the award does not exceed three (3)
out, Albendazole being one of those other inventions. times the amount of such actual damages. In this case, the CA. It is true that under Section 7(b) of
Otherwise, methyl 5 propylthio-2- benzimidazole RA 8293, the Director General of the IPO exercises
5. e court may, in its discretion, order that the
carbamate would not have been the subject of a divisional exclusive appellate jurisdiction over all decisions
infringing goods be disposed of outside the
application if a single patent could have been issued for it rendered by the Director of the BLA-IPO. However, what
channels of commerce or destroyed, without
as well as Albendazole. is being questioned before the CA is not a decision, but
compensation.
an interlocutory order of the BLA-IPO denying
Civil and criminal action 6. Anyone who actively induces the infringement of a respondents' motion to extend the life of the preliminary
patent or provides the infringer with a component injunction issued in their favor.
1. e making, using, o fering for sale, selling, or
of a patented product shall be liable as a
importing a patented product or a product obtained
contributory infringer and shall be jointly and Prescriptive period
directly or indirectly from a patented process, or the
severally liable with the infringer. (§76) No damages can be recovered for acts of infringement
use of a patented process without the authorization
of the patentee constitutes patent infringement. If infringement is repeated a ter finality of the committed more than four (4) years before the
judgment of the court against the infringer, the institution of the action for infringement. (§79)
2. Any patentee whose rights have been infringed, may
bring a civil action before a court of competent o fenders shall be criminally liable. e criminal action herein provided shall prescribe in
jurisdiction, three (3) years from date of the commission of the
Phil. Pharmawealth, Inc. v. Pfizer, Inc. 2010
a. to recover from the infringer damages crime. (§84)
Can an injunctive relief be issued based on an action of patent
sustained, Defenses in Action for Infringement
infringement when the patent allegedly infringed has already
b. plus attorney's fees and other expenses, and lapsed? In an action for infringement, the defendant, in
c. to secure an injunction. addition to other defenses available to him, may show
NO. Pfizer no longer possess any right of monopoly a ter
the invalidity of the patent, or any claim thereof, on any
3. If the damages are inadequate or cannot be readily the patent expired on July 2004 and, as such, there is no
of the grounds on which a petition of cancellation can be
ascertained with reasonable certainty, the court may more basis for the issuance of a restraining order or
brought. (§82)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 125 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Remedies for Infringement E ect of Cancellation of Patent or Claim 3. Anti-Competitive Exploitation. Where a judicial or
5
R.A. No. 8293, Sections 79-80 e rights conferred by the patent or any specified claim or administrative body has determined that the
claims cancelled shall terminate. manner of exploitation by the owner of the
Damages; Requirement of Notice patent or his licensee is anti-competitive; or
Notice of the cancellation shall be published in the IPO
Damages cannot be recovered for acts of infringement Gazette. 4. Public Non-Commercial Use. In case of public
committed before the infringer had known, or had
Unless restrained by the Director General, the decision or non-commercial use of the patent by the
reasonable grounds to know of the patent.
order to cancel by the Director of Legal A fairs shall be patentee, without satisfactory reason;
It is presumed that the infringer had known of the immediately executory even pending appeal. (§66) 5. Non-Commercial Use. If the patented invention is
patent if on the patented product, or on the container or
not being worked in the Philippines on a
package in which the article is supplied to the public, or Compulsory Licensing
7 commercial scale, although capable of being
on the advertising material relating to the patented R.A. No. 8293, Sections 93-102 worked, without satisfactory reason:
product or process, are placed the words "Philippine
Patent" with the number of the patent. (§80) §93. Grounds for Compulsory Licensing. — e Director Provided, at the importation of the patented article
General of the IPO may grant a license to exploit a shall constitute working or using the patent; and
Cancellation patented invention, even without the agreement of the 6. Unmet Demand. Where the demand for patented
6 patent owner, in favor of any person who has shown his
R.A. No. 8293, Sections 61-66 drugs and medicines is not being met to an
capability to exploit the invention, under any of the adequate extent and on reasonable terms, as
Grounds
following circumstances: determined by the Secretary of the DOH.
a) at what is claimed as the invention is not new or
1. Urgency. National emergency or other §94. Period for Filing a Petition for a Compulsory License.
patentable;
circumstances of extreme urgency; — 94.1. A compulsory license may not be applied for on
b) at the patent does not disclose the invention in a
2. Vital Sector. Where the public interest, in the ground stated in Subsection 93.5 before the
manner su ficiently clear and complete for it to be
particular, national security, nutrition, health or expiration of a period of four (4) years from the date of
carried out by any person skilled in the art; or
the development of other vital sectors of the filing of the application or three (3) years from the date
c) at the patent is contrary to public order or national economy as determined by the of the patent whichever period expires last.
morality. (§61) appropriate agency of the Government, so §102. Licensee's Exemption from Liability. — Any person
requires; or who works a patented product, substance and/or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 126 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

process under a license granted under this Chapter, arrangement is approved and registered under the
shall be free from any liability for infringement. provisions of Section 91 on Exceptional Cases.
Cancellation

Prohibited Clauses are those deemed prima facie to have an Marks vs. Collective Marks vs. Trade
Voluntary Licensing 1
8 adverse e fect on competition and trade. Names
R.A. No. 8293, Sections 85-92
R.A. No. 8293, Section 121
Exceptional or meritorious cases are those where substantial
Technology transfer arrangements — Refer to contracts or benefits will accrue to the economy, such as "Mark" is any visible sign capable of distinguishing the
agreements involving
a) high technology content, goods (trademark) or services (service mark) of an
a) the transfer of systematic knowledge for the enterprise.
manufacture of a product, the application of a b) increase in foreign exchange earnings,
"Collective Mark" is any visible sign designated as such
process, or rendering of a service including c) employment generation,
in the application for registration and capable of
management contracts; and
d) regional dispersal of industries and/or substitution distinguishing the origin or any other common
b) the transfer, assignment or licensing of all forms of with or use of local raw materials, or characteristic, including the quality of goods or services
intellectual property rights, including licensing of of di ferent enterprises.
e) in the case of Board of Investments, registered
computer so tware except computer so tware
companies with pioneer status. Trademark is any distinctive word, name, symbol,
developed for mass market.
emblem, sign, or device, or any combination thereof,
B Trademarks
e Requirement for Registration adopted and used by a manufacturer or merchant on his
Technology transfer arrangements that R.A. No. 8293, Section 121 goods to identify and distinguish them from those
a) Conform with the provisions of Sec 87 on Prohibited manufactured, sold, or dealt by others.
Marks vs. Collective Marks vs. Trade Names
Clauses and Sec 88 on Mandatory Provisions need Trade Name means the name or designation
Non-Registrable Marks
not be registered with the Documentation, identifying or distinguishing an enterprise.
Information and Technology Transfer Bureau. Ownership and Registration In Philippine jurisprudence, the function of a trademark is
b) Non-conformance with any of the provisions of Rights and Limitations of Trademark Owner 1) to point out distinctly the origin or ownership of the
Sections 87 and 88, however, shall automatically goods;
Trademark Infringement
render the technology transfer arrangement
2) to secure to him the fruit of his industry and skill;
unenforceable, unless said technology transfer Unfair Competition

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 127 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3) to assure the public that they are procuring the DESCRIPTIVE TERMS convey the characteristics, 1. Geographically-descriptive; AND
genuine article; functions, qualities or ingredients of a product to one who 2. at the public would make a goods/place
4) to protect the manufacturer against substitution has never seen or does not know that it exists. association, believing that the goods originate in
and sale of an inferior and di ferent article as his SUGGESTIVE TERMS are those which require that place.
product. (Mirpuri v. CA) “imagination, thought and perception to reach a conclusion
as to the nature of the goods" and are eligible for protection Ginebra San Miguel v. Director of the Bureau of Trademarks
Trademarks perform three (3) distinct functions: 2022 En Banc
in the absence of secondary meaning.
1) they indicate origin or ownership of the articles to
SECONDARY MEANING is established when a descriptive WON the term "GINEBRA" is a generic mark, or a distinctive
which they are attached;
mark no longer causes the public to associate the goods mark that may be registered by Ginebra San Miguel, Inc.
2) they guarantee that those articles come up to a with a particular place, but to associate the goods with a (GSMI).
certain standard of quality; and particular source. "GINEBRA" is NOT a generic mark.
3) they advertise the articles they symbolize. (W Land What are the requirements to conclude that a e US Case of Abercrombie & Fitch Co. v. Hunting World, Inc.
Holding, Inc. v. Starwood Hotels and Resorts Worldwide, geographically-descriptive mark has acquired secondary introduced the spectrum of distinctiveness for
Inc. 2017) meaning? purposes of trademark protection was introduced. It was
ere is also an underlying economic justification for the a) the secondary meaning must have arisen as a result explained therein that there are four (4) di ferent
protection of trademarks: an e fective trademark of substantial commercial use of a mark in the categories of marks and the strength of trademark
system helps bridge the information gap between Philippines; protection accorded to each category varies, to wit:
producers and consumers, and thus, lowers the costs
b) such use must result in the distinctiveness of the 1. Fanciful or arbitrary. — strongest trademarks,
incurred by consumers in searching for and deciding
mark insofar as the goods or the products are and those that enjoy the broadest protection.
what products to purchase. (Citigroup, Inc. v. Citystate
Savings Bank, Inc. 2018) concerned; and a. Fanciful marks are coined letter and/or
c) proof of substantially exclusive and continuous number combinations whose sole function
GENERIC TERMS are commonly used as the name or
commercial use in the Philippines for five (5) years is to serve as a mark, not as a word in the
description of a kind of goods.
before the date on which the claim of distinctiveness English language;
What is prohibited is not having a generic mark, but is made. (Shang Properties Realty v. St. Francis b. Arbitrary marks are terms that have
having such generic mark being identifiable to the good Development 2014) ordinary meaning apart from their
or service. (Kensonic, Inc. v. Uni-Line Multi-Resources, Inc.
IOW, for a mark to be denied registration, it must both be: connection to the goods and services at
2018)

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 128 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

issue, but are unrelated to the goods and phrase—by reason of the latter's long and categorically adopted as the test therefor—"the primary
services on which they are applied exclusive use thereof with reference to its significance of the registered mark to the relevant public.
2. Suggestive. — ese terms merely imply or article—has "come to mean that such article was e doctrine of foreign equivalents is a legal principle that
suggest, but do not explicitly describe the its product." advocates resort to dictionary translations in order to
qualities or functions of a particular product or 4. Generic. — the name by which a class of products ascertain whether a foreign word is generic or not. It
service. ey require imagination, thought, or or services is commonly known. e registration stipulates that a foreign word ought to be considered
perception to link the trademark with the goods. and use of generic words as trademarks are generic with respect to a certain product if the English
ey are presumed to be valid and may be expressly proscribed under Sec. 123.1(h) of RA No. translation thereof likewise concedes a generic meaning
registered without the necessity of presenting 8293. in relation to such product.
proof of secondary meaning. e ultimate factor in determining whether a particular As a general rule, when there is a foreign term, the
GSIS Family Bank- ri t Bank v. BPI Family Bank word is generic, is public perception. Under the primary English translation evidence is a considerable factor for
stated that suggestive marks are marks which significance test, a term is not generic when the primary the courts in determining whether to apply the doctrine
merely suggest some quality or ingredient of significance of the term in the minds of the consuming of foreign equivalents. If the translation evidence shows
goods. e strength of the suggestive mark lies on public is not the product but the producer. e critical that the English translation is unambiguously literal and
how the public perceives the word in relation to issue in genericness cases is whether members of the direct, with no other relevant connotations or variations
the product or service; relevant public primarily understand the term sought to be in meaning, the doctrine has generally been applied.
3. Descriptive. — Entails a weaker trademark protected to refer to the genus of goods or services in question. Nevertheless, there are limitations to the applicability of
protection. Words which are merely descriptive of Accordingly, based on public perception, if the the doctrine of foreign equivalents when a foreign word is
character, qualities, or composition of an article, consuming public primarily associates or signifies a not translated to its English or dictionary definition.
or of place where it is manufactured or produced, particular term to a specific producer with its goods or
1. e doctrine should be applied only when it is
cannot be monopolized as a trademark. services, then such term cannot be considered as
likely that the ordinary purchaser would stop and
generic.
However, a descriptive mark may become translate the word into its English equivalent.
registrable as a trademark based on the doctrine Under Sec. 151.1(b) of R.A. No. 8293, a registered
2. If evidence shows that the language at issue is
of secondary meaning. Under this doctrine, a trademark is made susceptible to cancellation if it
highly obscure or a dead language, the doctrine
word or a phrase that is "originally incapable of subsequently becomes a generic name for the product or
will not be applied.
exclusive appropriation" may nonetheless be used service it represents. In determining whether a registered
as a trademark of an enterprise if such word or trademark has become generic, the provision 3. Where the foreign word has developed an

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 129 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

alternate meaning in the relevant marketplace to its English equivalent; rather, when the term the name, signature, or portrait of a deceased
that is di ferent from the translated meaning in "GINEBRA" is mentioned, the ordinary consumer President of the Philippines, during the life of the
English, and the evidence shows that the alternate immediately associates it with the gin product of GSMI. surviving spouse, if any, except by the latter's written
meaning would be understood by the relevant Indeed, based on the primary significance test, the term consent;
purchasing public. "GINEBRA" has now become a descriptive term, which is
d. Is identical with a registered mark belonging to a
4. e doctrine also is inapplicable where it is registrable under the doctrine of secondary meaning.
di ferent proprietor or a mark with an earlier filing
unlikely purchasers would translate the mark or priority date, in respect of:
because of marketplace circumstances or the
i) e same goods or services, or
commercial setting in which the mark is used. Non-Registrable Marks
2
R.A. No. 8293, Section 123 ii) Closely related goods or services, or
Assuming even further that "GINEBRA" was originally
generic more than a century ago and does not have any A mark is susceptible to registration if it is cra ted iii) If it nearly resembles such a mark as to be
protection under the trademark law, it does not forestall fancifully or arbitrarily and is capable of identifying and likely to deceive or cause confusion;
the possibility that the such mark evolved in the spectrum distinguishing the goods of one manufacturer or seller e. Is identical with, or confusingly similar to, or
of distinctiveness, particularly, to a descriptive mark, from those of another. us, the mark must be distinctive. constitutes a translation of a mark which is
that may be registrable based on the doctrine of A mark cannot be registered if it: considered by the competent authority of the
secondary meaning under the primary significance test. Philippines to be WELL-KNOWN internationally
a. Consists of immoral, deceptive or scandalous
Only when a term evolves into a higher rank in the and in the Philippines, whether or not it is
matter, or matter which may disparage or falsely
spectrum of distinctiveness, such as a suggestive mark or registered here, as being already the mark of a
suggest a connection with persons, living or dead,
even a descriptive mark, under the doctrine of secondary person other than the applicant for registration, and
institutions, beliefs, or national symbols, or bring
meaning, shall such term become registrable. used for identical or similar goods or services:
them into contempt or disrepute;
Here, GSMI presented extensive evidence, consisting of Provided, at in determining whether a mark is
b. Consists of the lag or coat of arms or other insignia
empirical survey evidence, long periods of advertisement well-known, account shall be taken of the
of the Philippines or any of its political subdivisions,
materials, and other documentary and testimonial knowledge of the relevant sector of the public,
or of any foreign nation, or any simulation thereof;
evidence, and proved that "GINEBRA" has become a rather than of the public at large, including
distinctive mark based on public perception under the c. Consists of a name, portrait or signature identifying knowledge in the Philippines which has been
primary significance test. An ordinary Filipino purchaser a particular living individual except by the person's obtained as a result of the promotion of the mark;
will not stop and translate the Spanish term "GINEBRA" written consent; or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 130 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

origin, time of production of the goods or rendering

f. Is identical with, or confusingly similar to, or In determining likelihood of confusion — which can
constitutes a translation of a mark considered of the services, or other characteristics of the goods
or services; manifest in the form of "confusion of goods" and/or
well-known in accordance with the preceding "confusion of business" — several factors may be taken
paragraph, which is registered in the Philippines with k. Consists of shapes that may be necessitated by into account, such as:
respect to goods or services which are not similar to technical factors or by the nature of the goods
those with respect to which registration is applied themselves or factors that a fect their intrinsic value; a) the strength of plainti fs mark;
for: l. Consists of color alone, unless defined by a given b) the degree of similarity between the plainti fs and
Provided, at use of the mark in relation to those form; or the defendant's marks;
goods or services would indicate a connection m. Is contrary to public order or morality. c) the proximity of the products or services;
between those goods or services, and the owner of d) the likelihood that the plainti f will bridge the gap;
the registered mark: As regards signs or devices mentioned in paragraphs (j),
(k), and (l), nothing shall prevent the registration of any e) evidence of actual confusion;
Provided further, at the interests of the owner of the such sign or device which has become distinctive in
registered mark are likely to be damaged by such f) the defendant's good faith in adopting the mark;
relation to the goods and/or services for which
use; (DILUTION of well-known marks) registration is requested as a result of the use that has g) the quality of defendant's product or service;
g. Is likely to mislead the public, particularly as to the been made of it in commerce in the Philippines. and/or
nature, quality, characteristics or geographical e O fice may accept as prima facie evidence that the h) the sophistication of the buyers.
origin of the goods or services; mark has become distinctive, as used in connection ese criteria may be collectively referred to as the
h. Consists exclusively of signs that are generic for the with the applicant's goods and/or services in commerce, multifactor test. Out of these criteria, there are two
goods or services that they seek to identify; proof of substantially exclusive and continuous use which are uniformly deemed significant under the
i. Consists exclusively of signs or of indications that thereof by the applicant in commerce in the Philippines Trademark Law and the IP Code:
have become customary or usual to designate the for five (5) years before the date on which the claim of
1. the resemblance of marks (the degree of similarity
goods or services in everyday language or in bona distinctiveness is made.
between the plainti fs and the defendant's marks)
fide and established trade practice; and
Kolin Electronics v. Kolin Philippines International
j. Consists exclusively of signs or of indications that 2021 En Banc 2. the relatedness of goods or services (the proximity
may serve in trade to designate the kind, quality, of products or services).
KPII is not allowed to register its kolin mark for
quantity, intended purpose, value, geographical
"Televisions and DVD players." e marks involved in this dispute are KECI's KOLIN and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 131 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

KPII's kolin. 1. there is resemblance between KECI's KOLIN and does not change the fact that using the combination of
Applying the Dominancy Test here, KPII's kolin mark KPII's kolin marks; the words "agent" and "bond" in that particular order may
resembles KECI's KOLIN mark because the word "KOLIN" lead the purchaser to believe that the product is related to
2. the goods covered by KECI's KOLIN are related to JAMES BOND.
is the prevalent feature of both marks. Phonetically or the goods covered by KPII's kolin;
aurally, the marks are exactly the same. Surely, the Additionally, JAMES BOND is a well-known mark. e
manner of pronouncing the word "KOLIN" does not 3. there is evidence of actual confusion between the other elements of Section 123.1 (f) have also been
change just because KPII's mark is in lowercase and two marks; su ficiently established:
contains an italicized orange letter "i". In terms of 4. the goods covered by KPII's kolin fall within the 1. there is confusing similarity between the
connotation and overall impression, there seems to be no normal potential expansion of business of KECI; competing marks,
di ference between the two marks.
5. sophistication of buyers is not enough to 2. the use of AGENT BOND would indicate a
As to relatedness of goods, the goods covered by KOLIN eliminate confusion; connection between it and JAMES BOND, and
and kolin are related, and this legal relatedness
6. KPII's adoption of KECI's coined and fanciful 3. the use of AGENT BOND will likely damage
significantly impacts a finding of likelihood of confusion.
mark would greatly contribute to likelihood of Danjaq's interest over JAMES BOND.
e goods covered by KECI's KOLIN are complementary
confusion; and
to the goods covered by KPII's kolin and could thus be Damages under Section 123.1 (f) is present when there is
considered as related. is increases the likelihood that 7. KPII applied for kolin in bad faith. Trademark Dilution. All told, AGENT BOND is
consumers will at least think that the goods come from us, KPII's application for kolin should be denied non-registrable under Section 123.1, paragraphs (d) and
the same source. In other words, confusion of business because it would cause likelihood of confusion and (f).
will likely arise. KECI's rights would be damaged.
e factor on "strength of plainti fs mark" pertains to the
degree of distinctiveness of marks. KECI's KOLIN mark Taiwan Kolin v. Kolin Electronics 2015
is a fanciful or coined mark. Considering that it is highly Suyen Corporation v. Danjaq LLC 2021
WON petitioner is entitled to its trademark registration of
distinctive, confusion would be likely if someone else AGENT BOND is non-registrable because it nearly “KOLIN” over its specific goods of television sets and DVD
were to be allowed to concurrently use such mark in resembles the registered mark, JAMES BOND and is players.
commerce. likely to deceive or cause confusion.
YES. Identical marks may be registered for products
To summarize e fact that Suyen has marketed its products carrying from the same classification.
the AGENT BOND mark with the BENCH or FIX brand

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 132 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e parties admit that their respective sets of goods g) whether the article is bought for immediate "Papa" as the last name of the original owner of the brand.
belong to Class 9 of the NCL. But mere uniformity in consumption, that is, day-to-day household
categorization, by itself, does not automatically preclude items;
the registration of what appears to be an identical mark, Mang Inasal Philippines, Inc. v. IFP Manufacturing 2017
h) the fields of manufacture;
if that be the case. WON “INASAL” can be appropriated as a mark.
i) the conditions under which the article is usually
It is hornbook doctrine that emphasis should be on the purchased; and YES. e dominant element "INASAL," as stylized in the
similarity of the products involved and not on the Mang Inasal mark, is di ferent from the term "inasal' per
arbitrary classification or general description of their j) the channels of trade through which the goods
se. e term "inasal" per se is a descriptive term that
properties or characteristics. low, how they are distributed, marketed,
cannot be appropriated.
displayed and sold.
In resolving whether or not the products of the parties involved However, the dominant element "INASAL," as stylized in
are related, the doctrine in Mighty Corporation is the Mang Inasal mark, is not. Petitioner, as the registered
authoritative. ere, the Court held that the goods FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016 owner of the Mang Inasal mark, can claim exclusive use
should be tested against several factors before arriving at of such element.
a sound conclusion on the question of relatedness. WON Nutri-Asia cannot claim exclusive ownership and use of
Among these are: the "PAPA" mark for its sauce products because "PAPA" is
supposedly a common term of endearment for one's father.
a) the business (and its location) to which the goods Seri Somboonsakdikul v. Orlane S.A. 2017
belong; NO. e CA erred in finding that "PAPA," being a
WON there is confusing similarity between ORLANE and
common term of endearment for one's father, is a word
b) the class of product to which the goods belong; LOLANE which would bar the registration of LOLANE before
over which petitioner could not claim exclusive use and
the IPO.
c) the product’s quality, quantity, or size, including ownership.
the nature of the package, wrapper or container; NO. ere is no colorable imitation between the marks
A person's father has no logical connection with catsup
d) the nature and cost of the articles; LOLANE and ORLANE which would lead to any
products, and that precisely makes "PAPA" as an
likelihood of confusion to the ordinary purchasers. In
e) the descriptive properties, physical attributes or arbitrary mark capable of being registered, as it is
Mighty Corporation v. E. & J. Gallo Winery, the Court laid
essential characteristics with reference to their distinctive, coming from a family name that started the
down the requirements for a finding of likelihood of
form, composition, texture or quality; brand several decades ago. What was registered was not
confusion:
the word "Papa" as defined in the dictionary, but the word
f) the purpose of the goods; ere are two types of confusion in trademark

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 133 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

infringement. any finding of its existence, there can be no likelihood of Is the SAKURA mark capable of appropriation?
confusion. Colorable imitation has been defined as "such
e first is "confusion of goods" when an otherwise YES. To be noted is that the controversy revolves around
similarity in form, content, words, sound, meaning,
prudent purchaser is induced to purchase one the SAKURA mark which is NOT a copyright. e
special arrangement or general appearance of the
product in the belief that he is purchasing another, in SAKURA mark is not an artistic or literary work but a
trademark or trade name in their overall presentation or
which case defendant's goods are then bought as the sign used to distinguish the goods or services of one
in their essential and substantive and distinctive parts as
plainti fs and its poor quality re lects badly on the enterprise from those of another.
would likely mislead or confuse persons in the ordinary
plainti fs reputation. Section 123(h) of the IPC prohibits the registration of a
course of purchasing the genuine article."
e other is "confusion of business" wherein the trademark that consists exclusively of signs that are
Here, there is no confusing similarity between the two
goods of the parties are di ferent but the defendant's generic for the goods or services that they seek to
marks. e su fix LANE is not the dominant feature of
product can reasonably (though mistakenly) be identify. It is clear from the law itself, therefore, that
petitioner's mark. Neither can it be considered as the
assumed to originate from the plainti f, thus what is prohibited is not having a generic mark but
dominant feature of ORLANE which would make the two
deceiving the public into believing that there is some having such generic mark being identifiable to the good or
marks confusingly similar.
connection between the plainti f and defendant service.
which, in fact, does not exist. First, an examination of the appearance of the marks
Although SAKURA refers to the Japanese lowering cherry
would show that there are noticeable di ferences in the
In determining the likelihood of confusion, the Court and is, therefore, of a generic nature, such mark did not
way they are written or printed.
must consider: identify Kensonic's goods unlike the mark in Asia Brewery,
Second, as to the aural aspect of the marks, LOLANE and Inc., v. CA. Kensonic's DVD or VCD players and other
a) the resemblance between the trademarks;
ORLANE do not sound alike. Similar to Etepha, appeals to products could not be identified with cherry blossoms.
b) the similarity of the goods to which the the ear in pronouncing ORLANE and LOLANE are Hence, the mark can be appropriated. Kensonic's prior
trademarks are attached; dissimilar. Respondent failed to show proof that the use of the mark since 1994 made it the owner of the mark,
c) the likely e fect on the purchaser and su fix LANE has registered in the mind of consumers that and its ownership cannot anymore be challenged.
such su fix is exclusively or even predominantly
d) the registrant's express or implied consent and associated with ORLANE products.
other fair and equitable considerations.
us, the mark LOLANE is entitled to registration. Great White Shark v. Caralde, Jr 2012
e most essential requirement for the determination of
A trademark device is susceptible to registration if it is
likelihood of confusion is the existence of resemblance
cra ted fancifully or arbitrarily and is capable of
between the trademarks, i.e., colorable imitation. Absent Kensonic, Inc. v. Uni-Line Multi-Resources, Inc. 2018 identifying and distinguishing the goods of one

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 134 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

manufacturer or seller from those of another. Apart from 3) the mark itself becomes generic; obtained in bad faith under the Trademark Law, as
its commercial utility, the benchmark of trademark amended, still subsist even a ter the e fectivity of the IPC.
registrability is distinctiveness. us, a generic figure, as 4) the mark was registered contrary to the IP Code;
or us, while the Court has expressly abandoned its ruling
that of a shark in this case, if employed and designed in a in Shen Dar—holding that prior use no longer
distinctive manner, can be a registrable trademark 5) the registered mark is being used by, or with the determines ownership and no longer defeats the prima
device. permission of, the registrant so as to facie assumption of ownership conferred by
misrepresent the source of the goods or services registration—prior use may still be considered in
on or in connection with which the mark is used. determining the existence of bad faith and the
Ownership and Registration registrability of trademark applications. Where in the
3 Since Natrapharm was not shown to have been in bad
R.A. No. 8293, Section 152
faith, it is thus considered to have acquired all the rights course of a trademark application, it is found that:
e rights in a mark shall be acquired through of a trademark owner under the IP Code upon the 1. an entity has prior use, creation and/or
registration. registration of the "ZYNAPSE" mark. registration of a trademark; and
Consequently, Zuneca's counterclaims against 2. the applicant has knowledge of the said prior use,
Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
Natrapharm were correctly dismissed by the lower creation and/or registration
How is ownership over a trademark acquired? courts. To be sure, Zuneca did not have any right to
prevent third parties, including Natrapharm, from using —the trademark application is unregistrable due to the
REGISTRATION. Under the IP Code, ownership of a
marks confusingly similar to its unregistered "ZYNAPS" attendance of bad faith on the part of the applicant, and
mark is acquired through registration. e prima facie
mark because it is not an "owner of a registered mark" the same should be denied.
nature of the certificate of registration is meant to
recognize the instances when the certificate of contemplated in Section 147.1. Here, Zulueta's trademark application was made in bad
registration is not re lective of ownership of the holder However, Zuneca, as a prior user in good faith, is protected faith. As a partner, Zulueta, was without a doubt aware of
thereof, such as when: by Section 159.1 and cannot be prevented by Natrapharm the prior use of the trademark by the partnership, and
from using its ZYNAPS trademark. that it had been Raoul Goco who conceptualized the mark
1) the first registrant has acquired ownership of the
for the partnership while on vacation in Greece. It is clear
mark through registration but subsequently lost
from Zulueta's own narration that the mark had been
the same due to non-use or abandonment (e.g.,
Zulueta v. Cyma Greek Taverna 2023 conceived for the exclusive use of the partnership and its
failure to file the Declaration of Actual Use);
sister company, Cyma Greek Taverna Shangri-La
2) the registration was done in bad faith; Unlike the rule on acquisition of ownership, the Corporation. Only Cyma Partnership had used the Cyma
pronouncements of the Court relative to registrations

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 135 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

trademark in its commercial dealings, and Zulueta had evidence relating to the origin and history of FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016
never used the same in his individual capacity. Despite “BIRKENSTOCK” and its use in commerce long before
e ownership of a trademark is acquired by
the fact that Zulueta was the first to file a trademark respondent was able to register the same here in the
application, his knowledge of the prior use by Cyma Philippines. 1. its registration AND
Partnership of the trademark meant that Zulueta's 2. its actual use
trademark application was filed in bad faith. As a
Cymar International v. Farling Industrial 2022 by the manufacturer or distributor of the goods made
consequence, his trademark application cannot be
available to the purchasing public.
granted and he did not obtain any priority rights under e Supreme Court has already held that an exclusive
Section 123(d) of the IPC. distributor does not acquire any proprietary interest in A certificate of registration of a mark, once issued,
its principal's trademark. is rule applies even if the constitutes prima facie evidence of
principal is a foreign corporation. 1. the validity of the registration,
Birkenstock Orthopaedie Gmbh and Co. Kg v. Philippine Under both the IPC and RA No. 166, a trademark
Shoe Expo Marketing 2013 2. the registrant's ownership of the mark, and
registration may be cancelled if it is shown that the
registration was obtained fraudulently or contrary to the 3. the registrant's exclusive right to use the same in
WON the subject marks should be allowed registration in the
provisions of the prevailing trademark law. Bad faith connection with the goods or services and those
name of petitioner.
means that the applicant or registrant has knowledge of that are related thereto specified in the certificate.
YES. It must be emphasized that registration of a
prior creation, use and/or registration by another of an R.A. No. 8293, however, requires the applicant for
trademark, by itself, is not a mode of acquiring
identical or similar trademark. registration or the registrant to file a declaration of
ownership. If the applicant is not the owner of the
Here, given the timing and circumstances of Cymar's actual use (DAU) of the mark, with evidence to that
trademark, he has no right to apply for its registration.
applications, it is obvious that they were filed with full e fect, within three (3) years from the filing of the
Registration merely creates a prima facie presumption of the
knowledge of Farling's history of use of the FARLIN mark, application for registration; otherwise, the application
validity of the registration, of the registrant’s ownership of
and therefore, in bad faith. Moreover, by representing shall be refused or the mark shall be removed from the
the trademark, and of the exclusive right to the use
itself as the prior user of the FARLIN mark, even with full register.
thereof. Such presumption, just like the presumptive
regularity in the performance of o ficial functions, is knowledge of its distributorship relation with the actual
prior user, Cymar deliberately made a false claim in its
Actual Use
rebuttable and must give way to evidence to the contrary.
trademark applications, which amounts to fraud. Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
In the instant case, petitioner was able to establish that it
is the owner of the mark “BIRKENSTOCK.” It submitted e current rule under the IP Code is thus in stark

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 136 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

contrast to the rule on acquisition of ownership under the "Harvard." It must be emphasized, however, that the mere exhibition
Trademark Law, as amended. At present, as expressed in Second, the Philippines and the US are both signatories to of goods or services over the internet, without more, is not
the language of the provisions of the IP Code, prior use no the Paris Convention for the Protection of Industrial enough to constitute actual use. It must be shown that the
longer determines the acquisition of ownership of a mark in Property. us, under Philippine law, a trade name of a owner has actually transacted. A showing of an actual
light of the adoption of the rule that ownership of a mark national of a State that is a party to the Paris Convention, commercial link to the country is therefore imperative.
is acquired through registration made validly in whether or not the trade name forms part of a trademark,
accordance with the provisions of the IP Code. us, Starwood's use of its "W" mark through its
is protected "without the obligation of filing or interactive website is intended to produce a discernible
registration." commercial e fect or activity within the Philippines, or at
Fredco Manufacturing v. Harvard University 2011 Indeed, Section 123.1(e) of R.A. No. 8293 now the very least, seeks to establish commercial interaction
categorically states that "a mark which is considered by with local consumers. Accordingly, Starwood's use of the
WON Fredco can validly cancel the registration of Harvard the competent authority of the Philippines to be "W" mark in its reservation services through its website
University. NO. ere are two compelling reasons why well-known internationally and in the Philippines, constitutes use of the mark su ficient to keep its
Fredco's petition must fail. whether or not it is registered here," cannot be registered by registration in force.
First, Fredco's registration of the mark "Harvard" and its another in the Philippines.
identification of origin as "Cambridge, Massachusetts"
falsely suggest that Fredco or its goods are connected Kolin Electronics v. Taiwan Kolin 2021
with Harvard University. at should not have been W Land Holding v. Starwood Hotels 2017
e protection a forded to a trademark with regard to goods and
allowed because Section 4(a) of R.A. No. 166 prohibits the e "use" which the law requires to maintain the services in market areas that are the normal potential expansion
registration of a mark "which may disparage or falsely registration of a mark must be genuine, and not merely of the trademark owner's business must not infringe on the rights
suggest a connection with persons, living or dead, token. Genuine use may be characterized as a bona fide of another trademark owner with a registered mark in its favor.
institutions, beliefs x x x." is provision is intended to use which results or tends to result, in one way or another, into a KECI has the right to register and use the mark
protect the right of publicity of famous individuals and commercial interaction or transaction "in the ordinary course "www.kolin.ph". As reiterated in the 2021 Kolin case,
institutions from commercial exploitation of their of trade." KECI was already declared the first and prior user of the
goodwill by others. What Fredco has done is precisely to
e use of a registered mark representing the owner's "KOLIN" mark in the Philippines and thus the owner of
exploit commercially the goodwill of Harvard University
goods or services by means of an interactive website may the "KOLIN" mark.
without the latter's consent. Such violation is a ground
constitute proof of actual use that is su ficient to It is settled that a certificate of registration of a mark is
for cancellation of Fredco's registration of the mark
maintain the registration of the same.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 137 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

prima facie evidence of domain name containing KOLIN as the dominant blanket protection in product and market areas that are
1. the validity of the registration, feature. In W Land Holding, Inc. v. Starwood Hotels and the normal potential expansion of its business.
Resorts Worldwide, Inc., the Court held that the use of a e Court holds that the protection a forded to a
2. the registrant's ownership of the mark, and registered mark representing the owners goods or trademark with regard to goods and services in market
3. the registrant's exclusive right to use the same in services by means of an interactive website may areas that are the normal potential expansion of the
connection with the goods or services and those constitute proof of actual use that is su ficient to trademark owner's business must not infringe on the
that are related thereto specified in the certificate. maintain the registration of the same. rights of another trademark owner with a registered
e said presumption may be challenged and rebutted In fine, the owner of a registered trademark, absent any mark in its favor.
when an adverse party, in the appropriate action, can legal obstacle or compelling reason to the contrary,
show that the certificate of registration is not re lective of should be allowed to register, in its favor, a domain name
ownership of the holder, such as when: containing its registered trademark as a dominant Rights and Limitations of Trademark
1. the first registrant has acquired ownership of the
feature. 4 Owner
R.A. No. 8293, Section 147
mark through registration but subsequently lost While the protection a forded to a registered trademark
the same due to non-use or abandonment (e.g., extends to market areas that are the normal potential e owner of a registered mark shall have the exclusive
failure to file the Declaration of Actual Use); expansion of its business, such protection must not right to prevent all third parties not having the owner's
infringe on the rights of another trademark owner with a consent from using in the course of trade identical or
2. the registration was done in bad faith;
registered mark in its favor. KECI's rights from its similar signs or containers for goods or services which
3. the mark itself becomes generic; existing trademark registrations for "KOLIN" do extend are identical or similar where such use would result in a
4. the mark was registered contrary to the IP Code to product and market areas that are the normal potential likelihood of confusion, which is presumed.
(e.g., when a generic mark was successfully expansion of its business, and goods and services and
e exclusive right of the owner of a well-known mark
registered for some reason); or those in respect of which the trademark is registered
which is registered in the Philippines, shall extend to
where such use would result in a likelihood of confusion.
5. the registered mark is being used by, or with the goods and services which are not similar to those in
permission of, the registrant so as to e rulings in Dermaline and Big Mak remain to be good respect of which the mark is registered. (§147)
misrepresent the source of the goods or services law. However, they did not contemplate the exceptional
on or in connection with which the mark is used. situation where there may be existing marks owned by Trademark Infringement
5
another proprietor that could potentially be infringed R.A. No. 8293, Section 155
KECI's right to exclusively use the "KOLIN" mark under
should the registered trademark owner be a forded
Class 35 necessarily includes the right to register its

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 138 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e elements of trademark infringement under the IP Code 5) NO CONSENT — it is without the consent of the Here, based merely on the visuals of the labels, the
are the following: trademark or trade name owner or the assignee striking feature for "GINEBRA KAPITAN" seems to be the
1) REGISTRATION — the trademark being infringed thereof. name and the label; while the prevalent feature for
is registered in the IPO; A certificate of registration of a mark, once issued, "GINEBRA S. MIGUEL" is the drawing on the label. On
constitutes prima facie evidence of the other hand, the colors of the bottle caps are di ferent.
Registration is NOT required to protect the goodwill
e labels depict attacking or charging scenes – the
that identifies in the mind of the public the goods he 1. the validity of the registration,
archangel Michael wielding a sword against the fallen
manufactures or deals in.
2. the registrant's ownership of the mark, and devil for "GINEBRA S. MIGUEL" and a kapitan mounted
Registration is NOT necessary for purposes of filing a on a horse leading his troops and pointing his bolo for
3. the registrant's exclusive right to use the same in
case for unfair competition or false designation of "GINEBRA KAPITAN." Notably, in both marks, the central
connection with the goods or services and those that
origin. figure appears to be on the o fensive, using a bladed
are related thereto specified in the certificate.
2) COLORABLE IMITATION — the trademark or trade weapon. Nevertheless, to achieve a more objective and
name is reproduced, counterfeited, copied, or Ginebra San Miguel v. Director of the Bureau of Trademarks empirical examination, it must be determined ho an
colorably imitated by the infringer; 2022 En Banc ordinary purchaser would react to such marks and
WON TDI committed trademark infringement against GSMI whether there would be confusing similarity between the
3) USE — the infringing mark or trade name is used in
when it named its gin product "GINEBRA KAPITAN." two products in the light of public perception.
connection with the sale, o fering for sale, or
advertising of any goods, business or services; or the YES. TDI committed trademark infringement against Survey evidence is meaningful to establish the likelihood
infringing mark or trade name is applied to labels, GSMI. of confusion. As meaningfully discussed by Justice Mario
signs, prints, packages, wrappers, receptacles or Lopez, applying the Dominancy Test, the word
With respect to the requisite of likelihood of confusion in 'GINEBRA' is the dominant feature of these marks. is
advertisements intended to be used upon or in
trademark infringement, it is not su ficient that a court reveals TDI's intention to use 'GINEBRA' as a distinctive
connection with such goods, business or services;
applies a subjective analysis on whether there is term—not merely as a generic or descriptive term. is
4) CONFUSION CAUSED — the use or application of likelihood of confusion among competing goods. ere observation is consistent with the survey evidence
the infringing mark or trade name is likely to cause should be objective, scientific, and economic standards to showing that 90% of more than 6 million gin drinkers in
confusion or mistake or to deceive purchasers or determine whether goods or services o fered by two Greater Manila Area, North Luzon, and South Luzon
others as to the goods or services themselves or as to parties are so related that there is a likelihood of associated 'GINEBRA' with GINEBRA SAN MIGUEL, SAN
the source or origin of such goods or services or the confusion. MIGUEL, or LA TONDEÑA. us, 'GINEBRA' is a
identity of such business; and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 139 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

distinctive mark that distinguishes GSMI's gin products Neither did petitioners employ any means to induce the and the measure of the damages su fered shall be
from other manufacturers. public towards a false belief that it was o fering either
respondent’s goods/services. Nor did petitioners make a. the reasonable profit, or
any false statement or commit acts tending to discredit
b. a reasonable percentage based upon the
Republic Gas, et. al. v. Petron, et. al. 2013 the goods/services o fered by respondent. Accordingly,
amount of gross sales of the defendant or
the element of FRAUD which is the core of unfair
WON probable cause exists to hold petitioners liable for the the value of the services in connection with
competition had not been established.
crime of trademark infringement. which the mark or trade name was used in
the infringement of the rights of the
YES. Reading Sec 155 of the IPC, the Court in a very
complaining party.
similar case, made it categorically clear that the mere Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
unauthorized use of a container bearing a registered 2. On application of the complainant, the court may
Should Zuneca be held liable for trademark infringement? impound during the pendency of the action, sales
trademark in connection with the sale, distribution or
advertising of goods or services which is likely to cause NO. Even without Section 159.1 of the IP Code, a third invoices and other documents evidencing sales.
confusion, mistake or deception among the buyers or party's prior use of an unregistered mark, if said mark 3. In cases where actual intent to mislead the public or
consumers can be considered as trademark subsequently becomes registered by another, could not be to defraud the complainant is shown, in the
infringement. considered as trademark infringement because there was discretion of the court, the damages may be
no trademark registration - a requirement for a doubled.
trademark infringement action to prosper - when the
4. e complainant, upon proper showing, may also be
Shang Properties Realty v. St. Francis Development 2014 third party was using its mark.
granted injunction.
WON petitioners are guilty of unfair competition in using the Essentially, Section 159.1 is an exception to the rights of
marks “THE ST. FRANCIS TOWERS” and “THE ST. the trademark owner in Section 147.1. Requirement of notice
FRANCIS SHANGRI-LA PLACE.” e Court declares ZUNECA as the prior user in good In any suit for infringement, the owner of the registered
faith of the "ZYNAPS" mark and accordingly protected mark shall not be entitled to recover profits or damages
NO. It is essential to prove the existence of fraud, or the
under Section 159.1. unless the acts have been committed with knowledge
intent to deceive, actual or probable. Here, records are
that such imitation is likely to cause confusion, or to
bere t of any showing that petitioners gave their
Damages cause mistake, or to deceive.
goods/services the general appearance that it was
respondent which was o fering the same to the public. 1. e owner of a registered mark may recover Such knowledge is presumed if the registrant gives notice
damages from any person who infringes his rights, that his mark is registered by displaying with the mark

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 140 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the words '"Registered Mark" or ® or if the defendant that the petitioners are not barred by this Resolution Foodsphere switch from its old box packaging to the
had otherwise actual notice of the registration. (§158) from raising as a defense during the hearing of the case. same paper ham bag packaging as that used by SMPFCI,
it also used the same layout design printed on the same.
Penalties
Independent of the civil and administrative sanctions Unfair Competition
imposed by law, a criminal penalty of 6
R.A. No. 8293, Section 168 Ginebra San Miguel v. Director of the Bureau of Trademarks
2022 En Banc
a. imprisonment from two (2) years to five (5) years
and Here, the first element of unfair competition has been
San Miguel Pure Foods Co., Inc. v. Foodsphere, Inc. 2018
b. a fine ranging from P50K - P200K, established. ere is confusing similarity between the
WON Foodsphere is liable for unfair competition. "GINEBRA KAPITAN" of TDI and "GINEBRA SAN
shall be imposed on any person who is found guilty of MIGUEL" of GSMI because both of them bear the
committing YES. us, the essential elements of an action for unfair
distinctive mark "GINEBRA." An ordinary purchaser
competition are:
1. Trademark Infringement; would be confused when confronted with the products
1) confusing similarity in the general appearance of bearing the distinct mark of "GINEBRA," which has been
2. Unfair Competition;
the goods; and established to be associated with GSMI products by the
3. False Designations of Origin; False Description consuming public.
2) intent to deceive the public and defraud a
or Representation.
competitor. e second element of unfair competition was also
Uyco v. Lo 2013 e confusing similarity may or may not result from satisfied. As in all other cases of colorable imitations, the
re False Designations of Origin similarity in the marks, but may result from other unanswered riddle is why, of the millions of terms and
external factors in the packaging or presentation of the combinations of letters available, TDI had to choose those
e law on trademarks and trade names precisely
goods. e intent to deceive and defraud may be inferred so closely similar to another's trademark if there was no
precludes a person from profiting from the business
from the similarity of the appearance of the goods as intent to take advantage of the goodwill generated by the
reputation built by another and from deceiving the public
o fered for sale to the public. Actual fraudulent intent other mark.
as to the origins of products.
need not be shown. e owner of a registered mark may recover damages
e argument that the words “Made in Portugal” and
Foodsphere's intent to deceive the public, to defraud its from the infringer either:
“Original Portugal” refer to the origin of the design and
competitor, and to ride on the goodwill of SMPFCI's 1) the reasonable profit which the complaining party
not to the origin of the goods does not negate the finding
products is evidenced by the fact that not only did would have made, had the defendant not
of probable cause; at the same time, it is an argument

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 141 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

infringed his rights, or trademarks, the respondent has been consistently using between the products. Likewise, the uncanny
2) the profit which the defendant actually made out said marks since its incorporation in 1989. resemblance between the marks may even lead
of the infringement, or Respondent corporation is a creation of the spouses purchasers to believe that the petitioner and respondent
Lontoc themselves. In 1989, the spouses Lontoc wanted to are the same entity.
3) in the event such measure of damages cannot be
readily ascertained with reasonable certainty, the leave their legacy, and thus incorporated the respondent
court may award as damages a reasonable to ensure the continuation of their lechon and food
business. From that moment, the spouses Lontoc Republic Gas, et. al. v. Petron, et. al. 2013
percentage based upon the amount of gross sales
or the value of the services in connection with the transferred to the respondent the ownership of ELARS WON probable cause exists to hold petitioners liable for the
infringement. Lechon and the subject marks in connection with the sale crime of unfair competition.
of its roasted pigs and other products.
YES. From jurisprudence, unfair competition has been
Petitioner's use of the marks "ELARZ LECHON," "ELAR defined as the passing o f (or palming o f) or attempting
Emzee Foods v. Elarfoods 2021 LECHON," "PIG DEVICE," and "ON A BAMBOO TRAY," to pass o f upon the public of the goods or business of one
which are substantially identical to the respondents' person as the goods or business of another with the end
Here, parties are fighting over the right to exclusively use
marks, constitute unfair competition. and probable e fect of deceiving the public.
the marks "ELARS LECHON," "PIG DEVICE," and "ON A
BAMBOO TRAY" in their respective businesses. On the Applying the dominancy test to the case at bar, it is very Passing o f (or palming o f) takes place where the
one hand, respondent claims that it is the true and lawful obvious that the petitioner's marks "ELARZ LECHON" defendant, by imitative devices on the general
owner of the subject marks, while on the other hand, and "ELAR LECHON" bear an indubitable likeness with appearance of the goods, misleads prospective
petitioner avers that the rightful owner of the said marks respondent's "ELARS LECHON." As can easily be seen, purchasers into buying his merchandise under the
are the spouses Lontoc (currently, the Estate), who had both marks use the essential and dominant word "ELAR". impression that they are buying that of his competitors.
originally created the marks. e only di ference between the petitioner's mark from
that of respondent's are the last letters Z and S,
Respondent filed applications for the registration of the
respectively. However, the letters Z and S sound similar Asia Pacific Resources International v. Paperone 2018
subject trademarks "ON A BAMBOO TRAY," "ELARS
when pronounced. us, both marks are not only visually
LECHON" and "ROASTED PIG DEVICE." is gives rise WON Paperone is liable for unfair competition.
similar, but are phonetically and aurally similar as well.
to a presumption of the validity of registration, the
To top it all o f, both marks are used in selling lechon YES. Relative to the issue on confusion of marks and
registrant's ownership of the marks, and the right to its
products. Verily, there exists a high likelihood that the trade names, jurisprudence has noted two types of
exclusive use. Petitioner failed to overcome said
consumers may conclude an association or relation confusion, viz.:
presumption. Even prior to the registration of the subject

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 142 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

oval-shaped container which had the mark "Chin Chun

1) confusion of goods (product confusion), where
Kho v. Summerville General Merchandising 2021 Su," as that of respondent. e acts complained of against
the ordinarily prudent purchaser would be
petitioners constituted the o fense of Unfair Competition
induced to purchase one product in the belief that e essential elements of an action for unfair and probable cause exists to hold them for trial.
he was purchasing the other; and competition are:
2) confusion of business (source or origin 1. confusing similarity in the general appearance of
confusion), where, although the goods of the the goods, and Cancellation
parties are di ferent, the product, the mark of 7
R.A. No. 8293, Sections 151-15
2. intent to
which registration is applied for by one party, is
2.1. deceive the public and Upon application of the registrant, the IPO may permit
such as might reasonably be assumed to originate
any registration to be surrendered for cancellation, and
with the registrant of an earlier product; and the 2.2. defraud a competitor. upon cancellation the appropriate entry shall be made in
public would then be deceived either into that
Here, the acts complained of constituted probable cause the records of the O fice. (§140)
belief or into the belief that there is some
connection between the two parties, though to charge them with Unfair Competition. §151. Cancellation. — 151.1. A petition to cancel a
inexistent. 1. e confusing similarity may or may not result registration of a mark under this Act may be filed with
from similarity in the marks, but may result from the Bureau of Legal A fairs by any person who believes
us, while there is confusion of goods when the
other external factors in the packaging or that he is or will be damaged by the registration of a
products are competing, confusion of business exists
presentation of the goods. mark under this Act as follows:
when the products are non-competing but related enough to
produce confusion of a filiation. 2. Likelihood of confusion of goods or business is a a) Within five (5) years from the date of the
relative concept, to be determined only according registration of the mark under this Act.
is case falls under the second type of confusion. e
element of intent to deceive and to defraud may be to peculiar circumstances of each case. b) At any time, if the registered mark
inferred from the similarity of the appearance of the 3. e element of intent to deceive and to defraud i) becomes the generic name for the goods or
goods as o fered for sale to the public. Contrary to the may be inferred from the similarity of the services, or a portion thereof, for which it is
ruling of the CA, actual fraudulent intent need not be appearance of the goods as o fered for sale to the registered, or
shown. Factual circumstances were established showing public.
that respondent adopted PAPERONE in its trade name ii) has been abandoned, or
Here, petitioners' product which is a medicated facial
even with the prior knowledge of the existence of PAPER cream sold to the public is contained in the same pink iii) its registration was obtained fraudulently or
ONE as a trademark of petitioner. contrary to the provisions of this Act, or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 143 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

iv) if the registered mark is being used by, or However, this presumption may be rebutted by proof that trademark registrations as knowledge by the registrant of
with the permission of, the registrant so as the registration was obtained fraudulently or contrary to prior creation, use, and/or registration by another of an
to misrepresent the source of the goods or the provisions of the Intellectual Property Code. identical or similar trademark.
services on or in connection with which the In cancelling petitioner's certificate of registration, the Pagasa Industrial Corporation v. CA likewise supports the
mark is used. BLA-IPO concluded that petitioner copied respondent's definition of bad faith as prior knowledge. In said case,
If the registered mark becomes the generic name for mark. It compared the two and found that petitioner's the Court found that Pagasa registered the "YKK" mark in
less than all of the goods or services for which it is mark is identical with respondent's. It noted that the bad faith because it had previously known that there was
registered, a petition to cancel the registration for word "Mr. Gulaman" in both of their marks are exactly the another person using the mark. Hence, the Court
only those goods or services may be filed. A same in all aspects. is conclusion was bolstered by its a firmed the cancellation of the mark.
registered mark shall not be deemed to be the finding that in petitioner's Declaration of Actual Use, she
Birkenstock Orthopaedie GmbH and Co. KG v. Phil. Shoe Expo
generic name of goods or services solely because submitted photographs of a packaging showing
Marketing Corp. also involved a finding that a party was in
such mark is also used as a name of or to identify a respondent's "Mr. Gulaman" and its logo design.
bad faith because it had known of the existence and use
unique product or service. e primary significance
by another person of the mark before said party
of the registered mark to the relevant public rather
appropriated and registered the same.
than purchaser motivation shall be the test for Zuneca Pharmaceutical v. Natrapharm 2020 En Banc
determining whether the registered mark has While the Court in the Shangri-la Resolution declared the
What constitutes fraud or bad faith in trademark registration? trademark registration as void based on two grounds,
become the generic name of goods or services on or
Bad faith means that the applicant or registrant has i.e., the presence of bad faith and the fact that the mark
in connection with which it has been used.
knowledge of prior creation, use and/or registration by was registered contrary to provisions of the law, either
c) At any time, if the registered owner of the mark another of an identical or similar trademark. In other one of these grounds may be used as su ficient basis for
without legitimate reason fails to use the mark words, it is copying and using somebody else's the courts or the IPO to declare trademark registrations
within the Philippines, or to cause it to be used in trademark. Fraud, on the other hand, may be committed as void.
the Philippines by virtue of a license during an by making false claims in connection with the trademark
uninterrupted period of three (3) years or longer. application and registration, particularly, on the issues of Note that the definition of bad faith as knowledge of
origin, ownership, and use of the trademark in question, prior creation, use and/or registration by another of an
Medina v. Global Quest Ventures 2021 among other things. (citing Mustang-Bekleidungswerke identical or similar trademark is ALSO applicable in the
GmbH + Co. KG v. Hung Chiu Ming) use of trademarks without the benefit of registration.
A certificate of registration accords the registrant a prima
facie presumption of their ownership of the mark. Shangri-la supports the definition of bad faith in

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 144 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

assignment of the sole copy or of one or several

C Copyrights
a) a fect the force of any subsisting copyright upon
copies of the work imply transfer, assignment or the original works employed or any part thereof,
R.A. No. 8293, Section 172
licensing of the copyright. (§181) or
Copyrightable Work
Copyrightable Work b) be construed to imply any right to such use of
Non-Copyrightable Works 1 the original works, or
R.A. No. 8293, Sections 172-173
Rights Conferred by Copyright c) to secure or extend copyright in such original
a) Original Works
works.
Ownership of a Copyright §172. Literary and Artistic Works. — 172.1. Literary and
§174. Published Edition of Work. — In addition to the
Limitations on Copyright artistic works, hereina ter referred to as "works", are
right to publish granted by the author, his heirs, or
original intellectual creations in the literary and artistic
Copyright Infringement assigns, the publisher shall have a copyright consisting
domain protected from the moment of their creation
merely of the right of reproduction of the typographical
xxxx.
arrangement of the published edition of the work.
a. A copyright refers to "the right granted by a statute
to the proprietor of an intellectual production to its b) Derivative Works
ABS-CBN v. Gozon 2015
exclusive use and enjoyment to the extent specified §173. Derivative Works. — 173.1. e following
in the statute." derivative works shall also be protected by copyright: WON news footage is copyrightable under the law;

b. Rights over copyrights are conferred from the a) Dramatizations, translations, adaptations, YES. It is true that under Section 175 of the IPC, "news of
moment of creation. abridgments, arrangements, and other the day and other miscellaneous facts having the
alterations of literary or artistic works; and character of mere items of press information" are
c. Works are protected by the sole fact of their
creation, irrespective of their mode or form of b) Collections of literary, scholarly or artistic considered unprotected subject matter. However, the
expression, as well as of their content, quality and works, and compilations of data and other Code does not state that expression of the news of the day,
purpose. (§172.2) materials which are original by reason of the particularly when it underwent a creative process, is not
selection or coordination or arrangement of entitled to protection.
d. e copyright is distinct from the property in the
their contents. News or the event itself is NOT copyrightable. However,
material object subject to it.
173.2. Derivative works shall be protected as new works an event can be captured and presented in a specific
Consequently, the transfer, assignment or licensing medium. As recognized by this court in Joaquin v. Drilon,
if such new work shall not:
of the copyright shall not itself constitute a transfer television "involves a whole spectrum of visuals and
of the material object. Nor shall a transfer or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 145 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e fects, video and audio." News coverage in television article can function without the design element. In such format of its dating game show. Accordingly, by the very
involves framing shots, using images, graphics, and an instance, the design element is eligible for copyright nature of the subject of petitioner BJPI’s copyright, the
sound e fects. It involves creative process and originality. protection. investigating prosecutor should have the opportunity to
Television news footage is an expression of the news. compare the videotapes of the two shows.
News as expressed in a video footage is entitled to Mere description by words of the general format of the
copyright protection. Broadcasting organizations have Non-Copyrightable Works two dating game shows is insu ficient; the presentation
2
R.A. No. 8293, Section 175-176
not only copyright on but also neighboring rights over of the master videotape in evidence was indispensable to
their broadcasts. Copyrightability of a work is di ferent §175. Unprotected Subject Matter. — Notwithstanding the determination of the existence of probable cause.
from fair use of a work for purposes of news reporting. the provisions of Sections 172 and 173, no protection
§176. Works of the Government. — 176.1. No copyright
shall extend, under this law, to any
shall subsist in any work of the Government of the
a) idea, procedure, system, method or operation, Philippines.
Olaño v. Lim Eng Co 2016
concept, principle, discovery or mere data as
However, prior approval of the government agency or
WON the hatch doors of LEC fall within copyrightable works. such, even if they are expressed, explained,
o fice wherein the work is created shall be necessary for
illustrated or embodied in a work;
NO. It is clear that the hatch doors were NOT artistic exploitation of such work for profit. Such agency or o fice
works within the meaning of copyright laws. A b) news of the day and other miscellaneous facts may, among other things, impose as a condition the
copyrightable work refers to literary and artistic works defined as having the character of mere items of press payment of royalties. No prior approval or conditions
original intellectual creations in the literary and artistic domain. information; or shall be required for the use for any purpose of
A hatch door, by its nature, is an object of utility. A c) any o ficial text of a legislative, administrative or 1. statutes,
"useful article" defined as an article "having an intrinsic legal nature, as well as any o ficial translation
2. rules and regulations, and
utilitarian function that is not merely to portray the thereof.
appearance of the article or to convey information" is 3. speeches, lectures, sermons, addresses, and
excluded from copyright eligibility. Joaquin, Jr. v. Drilon, et. al. dissertations, pronounced, read or rendered in
courts of justice, before administrative agencies,
e only instance when a useful article may be the subject To begin with, the format of a show is not copyrightable.
in deliberative assemblies and in meetings of
of copyright protection is when it incorporates a design Petitioner BJPI’s copyright covers audio-visual
public character.
element that is physically or conceptually separable from the recordings of each episode of Rhoda and Me.
underlying product. is means that the utilitarian e copyright does NOT extend to the general concept or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 146 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

176.2. e author of speeches, lectures, sermons, §193. Scope of Moral Rights. — e author of a work Under Section 211 of the IPC broadcasting organizations
addresses, and dissertations shall have the exclusive shall have the right: are granted a more specific set of rights called related or
right of making a collection of his works. 1. of Attribution; neighboring rights.

2. to Alter or Withhold Publication; Broadcasting organizations shall enjoy the right to

Rights Conferred by Copyright
3 authorize or prohibit:
R.A. No. 8293, Section 177 3. to Object to Modification; and
a) the rebroadcasting of their broadcasts;
§177. Copyright or Economic Rights. — Subject to the 4. Against the Use of Name in a Distorted Version
provisions of Chapter VIII, copyright or economic of Work. b) the fixation of their broadcasts;
rights shall consist of the exclusive right to carry out, c) the reproduction:
§211. Scope of Right. — Subject to the provisions of
authorize or prevent the following acts:
Section 212, broadcasting organizations shall enjoy the i) of fixations, made without their consent, of
1. Reproduction of the work or substantial portion exclusive right to carry out, authorize or prevent any of their broadcasts;
of the work; the following acts:
ii) of fixations, made in accordance with the
2. Dramatization, translation, adaptation, 1. e rebroadcasting of their broadcasts; provisions of Article 15, of their broadcasts, if
abridgment, arrangement or other the reproduction is made for purposes
2. e recording in any manner, including the
transformation of the work; di ferent from those referred to in those
making of films or the use of video tape, of their
3. e first public distribution of the original and broadcasts for the purpose of communication to provisions;
each copy of the work by sale or other forms of the public of television broadcasts of the same; d) the communication to the public of their
transfer of ownership; and television broadcasts if such communication is
4. Rental of the original or a copy irrespective of its 3. e use of such records for fresh transmissions made in places accessible to the public against
ownership; or for fresh recording. payment of an entrance fee; it shall be a matter for
the domestic law of the State where protection of
5. Public display of the original or a copy of the §212. Limitations on Rights. — e provisions of
this right is claimed to determine the conditions
work; Chapter VIII shall apply mutatis mutandis to the rights of
under which it may be exercised.
6. Public performance of the work; and performers, producers of sound recordings and
broadcasting organizations. Rebroadcasting as defined in Article 3(g) of the 1961
7. Other communication to the public of the work. Rome Convention is "the simultaneous broadcasting by one
ABS-CBN v. Gozon 2015 broadcasting organization of the broadcast of another

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 147 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

broadcasting organization." Ownership of a Copyright contrary.

4
R.A. No. 8293, Section 178
Duration of Economic Rights Audiovisual Shall belong to the producer, the author
Work of the scenario, the composer of the
Literary and Artistic Life of author +50 years a ter his Original Author music, the film director, and the author
Works and Derivative death. Literary and of the work so adapted.
Works Artistic Works
However, subject to contrary or other
Works of Joint Life of the last surviving author +50 Works of Joint GR: Co-authors, subject to agreement; stipulations among the creators, the
Authorship years a ter his death Authorship or in the absence thereof, on rules producer shall exercise the copyright to
on co-ownership; an extent required for the exhibition of
Anonymous or 50 years from date it is first lawfully the work in any manner,
Pseudonymous published If before expiration of EXC: if a work of joint authorship
Works period, identity is revealed or no consists of parts that can be used except for the right to collect performing
longer in doubt, the rule on Literary separately and the author of each license fees for the performance of
and Joint Authorship applies part can be identified, the author musical compositions, with or without
of each part shall be the original words, which are incorporated into the
Work of Applied Art 25 years from date of making owner of the copyright in the part work.
that he has created.
Photographic works If published – 50 years from Letters a) Writer owns copyright;
Audiovisual works publication; Unpublished – 50 years Work in the a) EE — creation is NOT part of regular b) Recipient owns letter, but it cannot be
from making. Course of duty; published or disseminated without
Employment b) ER — result of the performance of his the consent of the writer or his heirs.
Performances not 50 years from end of the year in
incorporated in which performance took place regularly-assigned duties, unless there
Anonymous Publishers shall be deemed to represent
recordings is an agreement, express or implied,
and the authors of articles and other writings
to the contrary.
Sound recordings 50 years from end of the year in Pseudonymou published unless
and performances which recording took place Commissioned a) Commissioner owns the work; s Works 1. the contrary appears, or
incorporated therein Work b) Creator owns the copyright, unless 2. the pseudonyms or adopted name
there is a written stipulation to the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 148 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

leaves no doubt as to the author's e) e inclusion of a work in a publication, broadcast, k) Any use made of a work for the purpose of any
identity, or or other communication to the public, sound judicial proceedings or for the giving of professional
3. if the author of the anonymous recording or film, if such inclusion is made by way advice by a legal practitioner.
works discloses his identity. of illustration for teaching purposes and is l) e reproduction or distribution of published
compatible with fair use; articles or materials in a specialized format
f) e recording made in schools, universities, or exclusively for the use of the blind, visually- and
Limitations on Copyright educational institutions of a work included in a reading-impaired persons:
5
R.A. No. 8293, Sections 184-185 broadcast: Provided, at such copies and distribution shall
§184. Limitations on Copyright. — 184.1. e following Provided, at such recording must be deleted within 1. be made on a nonprofit basis and
acts shall NOT constitute infringement of copyright: a reasonable period a ter they were first broadcast;
2. indicate the copyright owner and the date of the
a) e recitation or performance of a work, g) e making of ephemeral recordings by a original publication. (as amended by RA No 10372)
broadcasting organization;
i) once it has been lawfully made accessible to §185. Fair Use of a Copyrighted Work. — 185.1. e fair
the public, h) e use of a work by or under the direction or
use of a copyrighted work for criticism, comment, news
control of the Government, by the National Library
ii) if done privately and reporting, teaching including limited number of copies
or by educational, scientific or professional
for classroom use, scholarship, research, and similar
iii) free of charge or if made strictly for a institutions where such use is in the public interest
purposes is not an infringement of copyright.
charitable or religious institution or society; and is compatible with fair use;
Decompilation, which is understood here to be the
b) e making of quotations from a published work if i) e public performance or the communication to
reproduction of the code and translation of the forms of
they are compatible with fair use; the public of a work, in a place where no admission
a computer program to achieve the interoperability of
c) e reproduction or communication to the public by fee is charged, by a club or institution for charitable
an independently created computer program with other
mass media of articles on current political, social, or educational purpose only, whose aim is not profit
programs may also constitute fair use under the criteria
economic, scientific or religious topic, lectures, making;
established by this section, to the extent that such
addresses and other works of the same nature; j) Public display of the original or a copy of the work decompilation is done for the purpose of obtaining the
d) e reproduction and communication to the public not made by means of a film, slide, television image information necessary to achieve such interoperability.
of literary, scientific or artistic works as part of or otherwise on screen or by means of any other
reports of current events; device or process; ABS-CBN v. Gozon 2015

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 149 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

FOUR-FACTOR TEST. In determining whether the use person benefiting has been given notice of the
infringing activity and has the right and ability e limitations on copyright specify the situations which,
made of a work in any particular case is FAIR USE, the although involving the use of copyrighted material, do
factors to be considered shall include: to control the activities of the other person;
not amount to infringement. In particular, paragraph (i)
a. e purpose and character of the use, including c) With knowledge of infringing activity, induces, of Section 184 of the IPC provides that for a performance
whether such use is of a commercial nature or is causes or materially contributes to the to be exempt, these requisites should be satisfied:
for non-profit educational purposes; infringing conduct of another.
1. e place where the performance is made does not
b. e nature of the copyrighted work; COSAC, Inc. v. Filipino Society of Composers, Authors and charge any admission fee in respect of such
c. e amount and substantiality of the portion Publishers 2023 En Banc performance or communication;
used in relation to the copyrighted work as a A musical composition is an intangible work of art 2. e performance is made by a club or institution:
whole; and composed of a combination of sounds perceptible to the a. for charitable or educational purpose only;
d. e e fect of the use upon the potential market for senses. It is separate and distinct from the tangible object AND
or value of the copyrighted work. that embodies it, such as a sheet music, as described by
b. whose aim is not profit making; and
Section 181 of the IPC. A distinction exists between a
GMA-7's rebroadcast of ABS-CBN's news footage without 3. Such other requirements that may be prescribed
musical composition which is protected by copyright and
the latter's consent is not an issue. e mere act of under the implementing rules and regulations
the performance or fixation of a musical composition.
rebroadcasting without authority from the owner of the promulgated by the Director General of the [IPO].
Such a distinction is relevant since not only the
broadcast gives rise to the probability that a crime was
composers, authors, and publishers, but also the For the first requisite, charging an admission fee for some
committed under the IPC.
performers and sound recording producers should be other purpose not in connection with the playing of the work
remunerated when the fixation or performance of their could still be exempt under this provision.
sound recording is being performed in public.
Copyright Infringement Here, the playing of music in O f the Grill was not done
6 Before declaring that copyright infringement was
R.A. No. 8293, Section 216 privately, and the establishment is not a charitable or
committed, the copyright owner must establish the religious institution or society. Additionally, the playing
§216. Infringement. — A person infringes a right musical works that were subject of the infringing activity of the creative copyrighted music in O f the Grill was
protected under this Act when one: as well as the existing valid copyright over the said works. commercial in nature, and will work against the
a) Directly commits an infringement; Here, the infringing activities were committed in two copyright owners' interests. us, COSAC's acts did not
ways: performance by a live band and playing of sound fall under the said limitations and the fair use doctrine.
b) Benefits from the infringing activity of another
recordings.
person who commits an infringement if the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 150 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

ere is a balancing of interests between the copyright materially contributes to the infringing act of As the assignee, FILSCAP has the right to demand
owners and the public who benefit from the use of another; compensation for the playing or performance in public of
copyrighted materials. e permitted "use" of c) vicarious infringement. — Here, knowledge or copyrighted musical works under its catalog in
copyrighted works has a non-profit aspect, such as for lack thereof of the infringement is immaterial. It establishments or other venues, when infringement is
educational, charitable, judicial, scientific, or other has two (2) elements: being committed due to the absence of a license and
recognized purposes under the law. e "use" in the said i) a defendant possesses the right and ability payment of fees.
fields will not significantly or unfavorably impact the to supervise the infringing act; and
copyright holders' exclusive economic rights, but will be
in consonance with the policy that copyright laws should ii) the defendant must have "an obvious and Philippine Home Cable Holdings v. Filipino Society of
promote creativity and knowledge for the good of the direct financial interest in the exploitation Composers, Authors and Publishers 2023 En Banc
public. of copyrighted material.".
When a cable television system operator transmits a
Sections 216 and 216.1 of the IPC, as amended by RA To hold a defendant or respondent liable, the evidence musical composition fixed in an audiovisual derivative
10372, contemplate two (2) di ferent kinds of copyright must show that he or she is either a direct infringer or a work over a channel they control and operate, the
infringers, specifically: secondary infringer, in relation to the exclusive economic operator is making that work accessible to members of
rights of a copyright owner (or assignee) which are not the public from a place or time individually chosen by
a) primary infringers or those who directly commit covered by the fair use doctrine or the limitations on them. is is the essence of the "communication to the
the infringing acts; and copyright under the IPC. public" right in the Intellectual Property Code.
b) secondary infringers or those who induce, All the elements of copyright infringement are present Videoke may appear to be an audiovisual work under
materially contribute to, or benefit from, an in this case. e songs that were played in O f the Grill are Subsection 172.1(l). Each of its components may be
infringing act of another. copyrighted works, and the copyright owners have a right separately protected by copyright: the moving images as a
US case law also provides for sub-classifications of to enforce their exclusive economic rights. COSAC cinematographic work in Subsection 172.1(l), the lyrics as
secondary liability, as follows: admitted that it allowed the playing of the copyrighted writing in Subsection 172.1(a), and the musical
a) inducement theory. — when a person induces the songs in the restaurant. Such performances were not composition in Subsection 172.1(f). e videoke itself is a
commission of an infringing act by another party, covered by the limitations on copyright or the fair use form of audiovisual derivative work, also protected by
or persuades another to commit infringement; doctrine. More importantly, these were carried out to copyright by virtue of Subsection 173.1(a).
realize profits for the establishment. Ergo, COSAC
b) contributory infringement. — when a person, Here, petitioner's act of cablecasting the karaoke
committed copyright infringement.
aware of the infringing activity, induces, causes or channels cannot be considered an exercise of the public

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 151 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

performance rights over the subject musical audible enough at a place or at places where persons communicate to the public, given the factual scenario of
compositions. outside the normal circle of a family, and that family's the case, this should be answered in the negative.
To emphasize, copyright over an original work is closest social acquaintance, are or can be present. e Prior to amendment of the IPC by RA 10372,
una fected even when that work is used in a derivative sound recording in this case, is the copyrighted music communication to the public is defined as the making of
work. And the grant of copyright protection to the broadcasted over the radio which Anrey played through a work available to the public by wire or wireless means in
derivative work does not by itself make the use of the speakers loud enough for most of its patrons to hear. e such a way that members of the public may access these
original work, or any part of it, lawful absent the act of playing radio broadcasts containing copyrighted works from a place and time individually chosen by them.
copyright holder's consent. Precision Audio may warrant music through the use of loudspeakers is in itself, a
performance. As to whether the case falls under any of the exceptions or
that it holds the copyrights to the videoke works fixed in limitations on copyright, the RTC considered Anrey
the laser discs purchased by petitioner, and it may license A radio reception creates a performance separate from exempt from copyright infringement under paragraph (i)
or assign any of the videoke's economic rights to the broadcast. is is otherwise known as the doctrine since it does not charge admission fees. is is a
petitioner as part of the sale, but that does not a fect the of multiple performances which provides that a radio misapplication considering that the exemption only
copyright over the underlying musical composition which (or television) transmission or broadcast can create applies to institutions for charitable and educational
is a component of the videoke. At most, Precision Audio multiple performances at once. us, on whether the purposes.
validly granted to petitioner the right to publicly perform reception of a broadcast may be publicly performed, it is
or communicate to the public the videoke, but not the Radio reception transmitted through loudspeakers to
immaterial if the broadcasting station has been licensed
composite original works which economic rights were enhance profit does not constitute, and is not analogous
by the copyright owner because the reception becomes a
held by others, such as the composers, authors, or to, fair use.
new public performance requiring separate protection.
publishers that respondent represents. Here, the reception was transmitted through
Also, the act of playing radio broadcasts containing sound
loudspeakers within Anrey's restaurants. Anrey's
recordings through the use of loudspeakers amounts to
restaurants are commercial establishments open to the
an unauthorized communication of such copyrighted
Filipino Society of Composers, Authors and Publishers v. public Anrey is engaged in the business of running
Anrey, Inc. 2022 En Banc music to the public, thus, violates the public
restaurants, whose end-goal is clearly profit making.
performance rights of FILSCAP.
WON the unlicensed playing of radio broadcasts as background While Anrey does not directly charge a fee for playing
Public performance rights includes broadcasting of the radio broadcasts over its speakers, such reception is
music in dining areas of a restaurant amount to copyright
work and specifically covers the use of loudspeakers. is clearly done to enhance profit by providing
infringement. YES.
is the very act Anrey is complained of infringing. As to entertainment to the public, particularly its customers,
A sound recording is publicly performed if it is made whether Anrey also infringed on FILSCAP's right to who pay for the dining experience in Anrey's restaurants.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 152 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Remedies d) Deliver under oath for destruction without any 2) infringement of the copyright by the
compensation all infringing copies or devices. respondent.
216.1 Remedies for Infringement. — Any person
infringing a right protected under this law shall be e) Such other terms and conditions, including the e respondent failed to substantiate the alleged
liable: payment of moral and exemplary damages. reproduction of the drawings/sketches of hatch doors
a) To an injunction restraining such Criminal penalties copyrighted under the First Certificate of Registration.
infringement. LEC's copyright protection thereunder covered only the
Any person infringing any right secured by provisions of
hatch door sketches/ drawings and not the actual hatch
b) To pay to the copyright proprietor or his assigns Part IV of this Act or aiding or abetting such
door they depict. To constitute infringement, the usurper
or heirs such actual damages: infringement shall be guilty.
must have copied or appropriated the original work of an
Provided, at the amount of damages to be awarded e respective maximum penalty shall be imposed when author or copyright proprietor; absent copying, there can
shall be doubled against any person who: the infringement is committed by: be no infringement of copyright.
i) Circumvents e fective technological a) e circumvention of e fective technological Unlike a patent, a copyright gives no exclusive right to the
measures; or measures; art disclosed; protection is given only to the expression
b) e removal or alteration of any electronic rights of the idea — not the idea itself.
ii) Remove or alter any electronic rights
management information from a copy of a management information; or Anent, LEC's Second Certificate of Registration, the
work, or distribute, import for distribution, c) e distribution of works or copies of works Court finds that the ownership thereof was not
broadcast, or communicate to the public knowing that electronic rights management established by the evidence on record because the
works or copies of works knowing that information has been removed or altered element of copyrightability is absent. Here, evidence
electronic rights management information without authority. negating originality and copyrightability as elements of
has been removed or altered without copyright ownership was satisfactorily pro fered against
authority. (aab RA No 10372) Olaño v. Lim Eng Co 2016 LEC's certificate of registration.

c) Deliver under oath, for impounding, sales For a claim of copyright infringement to prevail, the
invoices and other documents evidencing sales, evidence on record must demonstrate:
Habana v. Robles
all articles and their packaging alleged to
1) ownership of a validly copyrighted material by
infringe a copyright and implements. It does not necessarily require that the entire copyrighted
the complainant; and
work, or even a large portion of it, be copied. If so much

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 153 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

is taken that the value of the original work is infringement. Personal vs. Sensitive Personal
substantially diminished, there is an infringement of Only Dela Peña-Reyes and Manalastas should be Information
copyright and to an injurious extent, the work is implicated. Section 217 states that "any person" may be
appropriated. Scope
found guilty of infringement. e criminal liability of a
A copy of a piracy is an infringement of the original, and corporation's o ficers or employees stems from their Processing of Personal and Sensitive
it is no defense that the pirate, in such cases, did not active participation in the commission of the wrongful Personal Information; Lawful Basis
know whether or not he was infringing any copyright; he act. General Data Privacy Principles
at least knew that what he was copying was not his, and
he copied at his peril. Rights of Data Subject

In cases of infringement, copying alone is not what is Microso t v. Manansala 2015

Personal vs. Sensitive Personal
prohibited. e copying must produce an "injurious WON the printing or copying is essential in the commission of A Information
e fect". For another to represent a work as her own is the crime of copyright infringement. R.A. No. 10173, Section 3
injury enough.
NO. e "gravamen of copyright infringement," 1. Personal information refers to any information
according to NBI-Microso t Corporation v. Hwang is not
a. whether recorded in a material form or not,
merely the unauthorized manufacturing of intellectual
ABS-CBN v. Gozon 2015 b. from which the identity of an individual
works but rather the unauthorized performance of any
WON lack of knowledge that a material is copyrighted is a of the acts covered by Sec 5. i. is apparent or
defense against copyright infringement and that good faith is a e mere sale of the illicit copies of the so tware ii. can be reasonably and directly
defense in a criminal prosecution for violation of the IPC. programs was enough by itself to show the existence of ascertained by the entity holding the
NO. Infringement under the IPC is malum prohibitum. probable cause for copyright infringement. ere was no information, or
e IPC is a special law. e general rule is that acts need for the petitioner to still prove who copied,
iii. when put together with other
punished under a special law are malum prohibitum. e replicated or reproduced the so tware programs.
information would directly and
IPC requires strict liability for copyright infringement
certainly identify an individual.
whether for a civil action or a criminal prosecution; it
2. Sensitive personal information refers to personal
does not require mens rea or culpa. Data Privacy Act
VII information:
WON GMA-7's o ficers and employees cannot be held liable for R.A. No. 10173

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 154 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

a. About an individual’s race, ethnic origin, 1. e natural or juridical person involved in the c. Information relating to a benefit of a financial
marital status, age, color, and religious, processing of personal data is found or established in nature conferred on an individual upon the
philosophical or political a filiations; the Philippines; discretion of the government, such as the
b. About an individual’s health, education, 2. e act, practice or processing relates to personal granting of a license or permit, including the
genetic or sexual life of a person, or to any data about a Philippine citizen OR Philippine name of the individual and the exact nature
proceeding for any o fense committed or resident; of the benefit:
alleged to have been committed by such 3. e processing of personal data is being done in the Provided, that they do not include benefits
person, the disposal of such proceedings, or Philippines; or given in the course of an ordinary
the sentence of any court in such transaction or as a matter of right;
proceedings; 4. Extraterritorial application.
2. Personal information processed for journalistic,
c. Issued by government agencies peculiar to e Act and its Rules SHALL NOT APPLY to the following artistic or literary purpose, in order to uphold
an individual which includes, but not limited specified information, only to the minimum extent of collection, freedom of speech, of expression, or of the press,
to, social security numbers, previous or access, use, disclosure or other processing necessary to the purpose, subject to requirements of other applicable law or
current health records, licenses or its function, or activity concerned: regulations;
denials, suspension or revocation, and tax 1. Information processed for purpose of allowing 3. Personal information that will be processed for
returns; and public access to information that fall within matters research purpose, intended for a public benefit,
d. Specifically established by an executive order of public concern, pertaining to: subject to the requirements of applicable laws,
or an act of Congress to be kept classified. a. Information about any individual who is or regulations, or ethical standards;
was an o ficer or employee of government that 4. Information necessary in order to carry out the
B Scope
relates to his or her position or functions; functions of public authority;
R.A. No. 10173, Section 4
b. Information about an individual who is or 5. Information necessary for banks, other financial
e Act and its Rules apply to the processing of personal was performing a service under contract for a institutions under the jurisdiction of the
data by any natural and juridical person in the government government institution, but only in so far as independent, central monetary authority or BSP,
or private sector. ey apply to an act done or practice it relates to such service, including the the and other bodies authorized by law, to the extent
engaged in and outside of the Philippines if: name of the individual and the terms of his necessary to comply with CISA, AMLA, and other
or her contract; applicable laws;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 155 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

6. Personal information originally collected from e) e processing is necessary in order to respond to 3. e processing is necessary to protect the life and
residents of foreign jurisdictions in accordance national emergency, to comply with the health of the data subject or another person, AND
with the laws of those foreign jurisdictions, requirements of public order and safety, or to fulfill the data subject is not legally or physically able to express
including any applicable data privacy laws, which is functions of public authority which necessarily his or her consent prior to the processing;
being processed in the Philippines. e burden of includes the processing of personal data for the 4. e processing is necessary to achieve the lawful
proving the law of the foreign jurisdiction falls on fulfillment of its mandate; or and noncommercial objectives of public
the person or body seeking exemption. f) e processing is necessary for the purposes of the organizations and their associations provided that:
legitimate interests pursued by the PIC or by a third a. Processing is confined and related to the
Processing of Personal and Sensitive party or parties to whom the data is disclosed,
C Personal Information; Lawful Basis bona fide members of these organizations or
R.A. No. 10173, Sections 12-13 except where such interests are overridden by their associations;
fundamental rights and freedoms of the data subject. b. e sensitive personal information are not
Criteria for Lawful Processing of Personal Information. — e
GR: e processing of sensitive personal and privileged transferred to third parties; and
processing of personal information shall be permitted only
information is prohibited. c. Consent of the data subject was obtained
if not otherwise prohibited by law, and when at least one of
the following conditions exists: EXC: in any of the following cases: prior to processing;

a) e data subject has given his or her consent; 1. Consent is given by data subject, or by the parties to 5. e processing is necessary for the purpose of
the exchange of privileged information, prior to the medical treatment:
b) e processing of personal information is necessary
processing of the sensitive personal information or Provided, that it is carried out by a medical
and is related to the fulfillment of a contract with
privileged information, which shall be undertaken practitioner or a medical treatment institution,
the data subject or in order to take steps at the
pursuant to a declared, specified, and legitimate AND an adequate level of protection of personal
request of the data subject prior to entering into a
purpose; data is ensured; or
contract;
2. e processing is provided for by existing laws and 6. e processing concerns sensitive personal
c) e processing is necessary for compliance with a
regulations: information or privileged information necessary for
legal obligation to which the PIC is subject;
Provided, that said laws and regulations do not a. the protection of lawful rights and interests
d) e processing is necessary to protect vitally
require the consent of the data subject for the of natural or legal persons in court
important interests of the data subject, including
processing, and guarantee the protection of proceedings, or
life and health;
personal data;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 156 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

specified purpose which must not be contrary to law, defense of legal claims, or for legitimate business
b. the establishment, exercise, or defense of
legal claims, or morals, or public policy. purposes, or as provided by law; and

c. when provided to government or public c) Proportionality. e processing of information f) Kept in a form which permits identification of data
authority pursuant to a constitutional or shall be adequate, relevant, suitable, necessary, and subjects for no longer than is necessary for the
statutory mandate. not excessive in relation to a declared and specified purposes for which the data were collected and
purpose. Personal data shall be processed only if the processed.
purpose of the processing could not reasonably be
D General Data Privacy Principles
R.A. No. 10173, Section 11 fulfilled by other means.
E Rights of Data Subject
R.A. No. 10173, Section 16
Personal information must, be:
e processing of personal information shall be allowed,
subject to compliance with the requirements of this Act and a) Collected for specified and legitimate purposes e Data Subject is the individual whose personal
other laws allowing disclosure of information to the public determined and declared before, or as soon as information is processed. e data subject is entitled to the
and adherence to the principles of transparency, legitimate reasonably practicable a ter collection, and later following rights:
purpose and proportionality. processed in a way compatible with such declared, 1. To be Informed;
specified and legitimate purposes only;
a) Transparency. e data subject must be aware of 2. To be Furnished;
b) Processed fairly and lawfully;
i) the nature, purpose, and extent of the 3. To Object;
processing of his or her personal data, c) Accurate, relevant and, where necessary for
4. To Access;
purposes for which it is to be used the processing of
ii) including the risks and safeguards involved, 5. To Rectification;
personal information, kept up to date; inaccurate or
iii) the identity of the PIC, incomplete data must be rectified, supplemented, 6. To Erasure or Blocking;
iv) his or her rights as a data subject, and destroyed or their further processing restricted;
7. To Damages;
v) how these can be exercised. d) Adequate and not excessive in relation to the
8. To Data Portability.
purposes for which they are collected and processed;
Any information and communication relating to the
e) Retained only for as long as necessary for the
Right to be Informed
processing of personal data should be easy to access
and understand, using clear and plain language. fulfillment of the purposes for which the data was e data subject has a right to be informed whether
obtained or for the establishment, exercise or personal data pertaining to him or her shall be, are
b) Legitimate purpose. e processing of
information shall be compatible with a declared and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 157 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

being, or have been processed, including the existence

g) e identity and contact details of the personal 3. e information is being collected and processed as
of automated decision-making and profiling. data controller or its representative; a result of a legal obligation.
Right to be Furnished h) e period for which the information will be Right to Access
e data subject shall be notified and furnished with stored; and
e data subject has the right to reasonable access to, upon
information before the entry of his or her personal data i) e existence of their rights as data subjects, demand, the following:
into the processing system of the PIC, or at the next including the right to access, correction, and
practical opportunity: 1. Contents of his or her personal data that were
object to the processing, as well as the right to
processed;
a) Description of the personal data to be entered lodge a complaint before the NPC.
into the system; 2. Sources from which personal data were obtained;
Right to Object
b) Purposes for which they are being or will be 3. Names and addresses of recipients of the personal
e data subject shall have the right to object to the data;
processed, including processing for direct processing of his or her personal data, including
marketing, profiling or historical, statistical or processing for direct marketing, automated processing 4. Manner by which such data were processed;
scientific purpose; or profiling. e data subject shall also be notified and 5. Reasons for the disclosure of the personal data to
c) Basis of processing, when processing is not based given an opportunity to withhold consent to the recipients, if any;
on the consent of the data subject; processing in case of changes or any amendment to the
6. Information on automated processes where the
d) Scope and method of the personal data information supplied or declared to the data subject.
data will, or is likely to, be made as the sole basis for
processing; When a data subject objects or withholds consent, the PIC any decision that significantly a fects or will a fect
e) e recipients or classes of recipients to whom shall NO longer process the personal data, unless: the data subject;
the personal data are or may be disclosed; 1. e personal data is needed pursuant to a subpoena; 7. Date when his or her personal data concerning the
f) Methods utilized for automated access, if the 2. e collection and processing are for obvious data subject were last accessed and modified; and
same is allowed by the data subject, and the purposes, including, when it is necessary for the 8. e designation, name or identity, and address of
extent to which such access is authorized, performance of or in relation to a contract or service the PIC.
including meaningful information about the to which the data subject is a party, or when
Right to Rectification
logic involved, as well as the significance and the necessary or desirable in the context of an
envisaged consequences of such processing for employer-employee relationship between the e data subject has the right to dispute the inaccuracy
the data subject; collector and the data subject; or or error in the personal data and have the PIC correct it

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 158 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

immediately and accordingly, unless the request is

d) e data subject withdraws consent or objects to the Right to Data Portability
vexatious or otherwise unreasonable. If the personal processing, and there is no other legal ground or
data has been corrected, the PIC shall ensure the Where his or her personal data is processed by
overriding legitimate interest for the processing;
accessibility of both the new and the retracted electronic means and in a structured and commonly
information and the simultaneous receipt of the new e) e personal data concerns private information that used format, the data subject shall have the right to
and the retracted information by the intended is prejudicial to data subject, unless justified by obtain from the PIC a copy of such data in an electronic
recipients thereof: freedom of speech, of expression, or of the press or or structured format that is commonly used and allows
otherwise authorized; for further use by the data subject.
Provided, at recipients or third parties who have
previously received such processed personal data shall f) e processing is unlawful;
Limitation on Rights
be informed of its inaccuracy and its rectification, upon g) e PIC or personal information processor violated
e aforementioned shall not be applicable if the
reasonable request of the data subject. the rights of the data subject.
processed personal data are
Right to Erasure or Blocking e PIC may notify third parties who have previously
1. used only for the needs of scientific and
received such processed personal information.
e data subject shall have the right to suspend, statistical research and,
withdraw or order the blocking, removal or Right to Damages 2. on the basis of such, no activities are carried out
destruction of his or her personal data from the PIC’s and
e data subject shall be indemnified for any damages
filing system.
sustained due to such inaccurate, incomplete, outdated, 3. no decisions are taken regarding the data
is right may be exercised upon discovery and substantial false, unlawfully obtained or unauthorized use of subject:
proof of any of the following: personal data, taking into account any violation of his or
Provided that the personal data shall be held under strict
a) e personal data is incomplete, outdated, false, or her rights and freedoms as data subject.
confidentiality and shall be used only for the declared
unlawfully obtained; Transmissibility of Rights of the Data Subject — e lawful purpose.
b) e personal data is being used for purpose not heirs and assigns of the data subject may invoke the rights
e said rights are also not applicable to the processing
authorized by the data subject; of the data subject to which he or she is an heir or an
of personal data gathered for the purpose of
assignee,
c) e personal data is no longer necessary for the investigations in relation to any criminal, administrative
purposes for which they were collected; 1. at any time a ter the death of the data subject, or or tax liabilities of a data subject. Any limitations on the
2. when the data subject is incapacitated or incapable rights of the data subject shall only be to the minimum
of exercising his rights.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 159 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

extent necessary to achieve the purpose of said research

or investigation. Here, the collection of information pursuant to the In sum, the questioned regulations did not comply with
questioned regulations is not necessary for the BIR to the requirements provided by the Data Privacy Act.
e Philippine Stock Exchange v. Secretary of Finance carry out its functions. To reiterate, there was no showing Revenue Regulations No. 1-2014, Revenue Memorandum
2022 En Banc that there was a problem or ine ficacy with the system Circular No. 5-2014, and Securities and Exchange
prior to the issuance of the questioned regulations. Commission Memorandum Circular No. 10-14 are
Petitioners argue that their right to privacy over their
Respondents failed to show the aspects or operations STRUCK DOWN for being UNCONSTITUTIONAL.
personal information protected by RA No. 10173, or the
under the prior rule that will be improved by the collection
Data Privacy Act, is violated. ey insist that by requiring
of the information. us, the requirement of necessity
broker dealers to divulge personal information of their
under the provision is not met. As it stands, the prior rule
clients such as TIN, birthdate, and address, the Securities Regulation Code
questioned regulations would expose the1n to criminal
is e fective and does not require additional information VIII
for proper collection of taxes. R.A. No. 8799
penalties under the Data Privacy Act.
Also, respondents failed to take into account Section 13 of Framework for Regulating Securities
e Court finds that the questioned regulations violate
the Data Privacy Act on the processing of sensitive Trading
petitioners' right to privacy. Section 4 of the Data Privacy
personal information. e information, particularly the
Act exempts from its coverage information necessary to Concept of Securities; Howey Test
TINs of the investors, sought to be collected and provided
carry out public functions. Section 4(e), however, explicitly
to the listed companies and eventually the BIR, are Registration of Securities
uses the word "necessary" to describe the information to
sensitive personal information.
be used for the performance of functions of public
authority in order for the processing to be outside the us, in processing the TINs of investors, the provisions of Framework for Regulating
purview of the law. Section 13(b) should be observed. Section 13(b) requires A Securities Trading
that the regulatory enactments must guarantee the R.A. No. 8799, Sections 8-10
e Data Privacy Act can then be viewed as a mode of
protection of the sensitive personal information and the Requirement of Registration of Securities. — Securities
implementation of the second requirement of the strict
privileged information, and that consent is not required shall NOT be sold or o fered for sale or distribution
scrutiny test. With this, the State cannot just use the
by law or regulation. e questioned regulations failed to within the Philippines, without a registration
exception of performance of mandated functions under
include these guarantees.
the Data Privacy Act to carry out actions that abridge the statement duly filed with and approved by the SEC.
right to privacy; there must be a showing of necessity. e Data Privacy Act is clear that it must be the subject
Prior to such sale, information on the securities, in such
issuance itself—not the other laws or regulations—that
form and with such substance as the SEC may prescribe,
should provide the guarantee.
shall be made available to each prospective purchaser.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 160 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

or presentation of securities for sale through any of the

e prospectus shall be submitted to the SEC as part of b) Investment contracts, certificates of interest or
following modes shall be presumed to be a public o fering: participation in a profit sharing agreement,
the registration statement. It is the document made by
or on behalf of an issuer, underwriter or dealer to sell or 1) Publication in any newspaper, magazine or printed certificates of deposit for a future subscription;
o fer securities for sale to the public through a reading material which is distributed within the An investment contract means a contract,
registration statement filed with the SEC. Philippines; transaction or scheme whereby a person invests his
Upon filing of the registration statement, the SEC may take 2) Presentation in any public or commercial place; money in a common enterprise and is led to expect
the following actions: 3) Advertisement or announcement on radio, profits primarily from the e forts of others. An
television, telephone, electronic communications, investment contract is presumed to exist whenever a
1) It may conditionally approve the registration
information communication technology or any person seeks to use the money or property of others
statement under such terms as it may deem
other forms of communication; or on the promise of profits.
necessary.
4) Distribution and/or making available lyers, e requisites of an investment contract are:
2) It may specify the terms and conditions under
which any written communication, including any brochures or any o fering material in a public or 1) An investment of money;
summary prospectus, shall be deemed not to commercial place or to prospective purchasers 2) In a common enterprise;
constitute an o fer for sale. through the postal system, information
communication technology and other means of 3) With expectation of profits;
3) A record of the registration of securities shall be kept
information distribution. (Rule 3.1.17) 4) Primarily from the e forts of others.
in a Register of Securities in which shall be recorded
orders entered by the SEC with respect to such NB: is modifies the Howey Test. (Power Homes
securities. B Concept of Securities; Howey Test Unlimited v. SEC; SEC v. Prosperity.com 2012)
R.A. No. 8799, Section 3
4) It may audit the financial statements, assets and A common enterprise is deemed created when two
other information of a firm applying for registration Securities" are shares, participation or interests in a (2) or more investors "pool" their resources, creating
of its securities whenever it deems the same corporation or in a commercial enterprise or profit-making a common enterprise, even if the promoter receives
necessary to insure full disclosure or to protect the venture and evidenced by a certificate, contract, nothing more than a broker's commission. (Rule
interest of the investors and the public in general. instrument, whether written or electronic in character. It 26.3)
includes:
Public o fering is any o fering of securities to the public or c) Fractional undivided interests in oil, gas or other
to anyone, whether solicited or unsolicited. Any solicitation a) Shares of stock, bonds, debentures, notes, mineral rights;
evidences of indebtedness, asset-backed securities;
d) Derivatives like option and warrants;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 161 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

holder, however, shall not be entitled to Virata v. Ng Wee 2017

Derivative is a financial instrument whose value
changes in response to changes in a specified dividends from the corporation or to its
assets upon its liquidation. (Rule 3.1.13) e Howey Test is employed to determine whether or not
interest rate, security price, commodity price,
the security being o fered takes the form of an investment
foreign exchange rate, index of prices or rates, credit 2) Proprietary share or certificate is an evidence
contract.
rating or credit index, or similar variable or of interest, participation or privilege in a
underlying factor It is settled at a future date. is corporation which gives the holder of the 1) a contract, transaction, or scheme;
term shall include, but not limited, to the following: share or certificate the right to use the 2) an investment of money;
1) Options or contracts that give the buyer the facilities covered by such certificate and to
3) investment is made in a common enterprise;
right, but not the obligation, to buy or sell an receive dividends or earnings from the
corporation. Upon the liquidation of the 4) expectation of profits; and
underlying security at a predetermined price
called the exercise or strike price, on or before a corporation, the holder shall have 5) profits arising primarily from the e forts of others.
predetermined date, called the expiry date; proportionate ownership rights over its
Indubitably, all of the elements are present in the extant
and assets. (Rule 3.1.15)
case. e "sans recourse" transactions are, in actuality,
2) Warrants or rights to subscribe or purchase g) Other instruments as may in the future be investment contracts wherein investors pool their
new or existing shares in a company on or determined by the SEC. resources to meet the financial needs of a borrowing
before a predetermined date. (Rule 3.1.9) Kinds of Securities company.

e) Certificates of assignments, certificates of 1) Equity security. — Shares of stock in corporations. Wincorp virtually purchased and resold securities, and
participation, trust certificates, voting trust Gain is through dividends and asset appreciation. not just brokered a loan. e most telling circumstance
certificates or similar instruments; that negate Wincorp's claim of mere brokerage, as
2) Debt security. — Promissory notes, commercial mentioned earlier, is the fact that it paid for the interest
f) Proprietary or nonproprietary membership paper, bonds. Where there is a promise of payment payments due from the corporate borrowers that
certificates in corporations; of the principal and interest. Gain is through defaulted.
1) Non-proprietary share or certificate is an interest and asset appreciation.
Because Wincorp had been successful in its scheme of
evidence of interest, participation or 3) Derivatives. — Options and warrants. Financial passing o f the "sans recourse" transactions as mere
privilege over a specific property of a instruments whose value depends on an underlying brokering of loans, it managed to circumvent the
corporation that allows the holder of the security but which does not require any investment registration and disclosure requirements under the
share or certificate to use such property of principal in the underlying security. Revised Securities Act, and managed to commit fraud in a
under certain terms and conditions. e

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 162 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

massive scale against its investors to the latter's damage Here, PCI’s clients do not make investments. ey buy a amount received by the investor comes primarily from the
and prejudice, for which Wincorp ought to be held liable. product of some value to them: an Internet website of a e forts of his recruits.
15-MB capacity. e client can use this website to enable us, the business operation or the scheme of petitioner
people to have internet access to what he has to o fer to constitutes an investment contract that is a security under
Yupangco v. OJ Development and Trading 2021 them, say, some skin cream. e buyers of the website do R.A. No. 8799. us, it must be registered with SEC before
not invest money in PCI that it could use for running some its sale or o fer for sale or distribution to the public. As
An investment contract refers to a contract, transaction,
business that would generate profits for the investors. e petitioner failed to register the same, its o fering to the
or scheme whereby a person invests his/her money in a
price of US$234.00 is what the buyer pays for the use of public was rightfully enjoined by SEC.
common enterprise and is led to expect profits primarily
the website, a tangible asset that PCI creates, using its
from the e forts of others. It is presumed to exist
computer facilities and technical skills.
whenever a person seeks to use the money or property of
e commissions, interest in real estate, and insurance
C Registration of Securities
others on the promise of profits. In our jurisdiction, the
"Howey Test" is employed to determine whether an coverage worth P50,000.00 are incentives to down-line R.A. No. 8799, Section 8
agreement is an investment contract. sellers to bring in other customers. ese can hardly be
regarded as profits from investment of money under the e SEC may reject a registration statement and refuse
Here, the Second MOA is not an investment contract. e registration of the security thereunder, or revoke the
Howey test.
agreement, while referring to an investment in Grace e fectivity of a registration statement and the
Foreign Exchange, stated that the same was not registration of the security thereunder a ter due notice
consummated or did not materialize. Consequently, there and hearing by issuing an order to such e fect, setting
Power Homes Unlimited v. SEC
was no investment in a common enterprise to speak of. forth its findings in respect thereto, if it finds that:
Neither was there any mention of profit or the expectation Petitioner was engaged in the sale or distribution of an
a) e issuer:
to have profits primarily on the e forts of another person. investment contract.
On the contrary, the terms of the Second MOA are clear i) Has been judicially declared insolvent;
An investor enrolls in petitioner’s program by paying
that OJDTC and Oscar have an "outstanding obligation" to US$234. is entitles him to recruit two (2) investors who ii) Has violated any of the provisions of the
petitioners. e literal meaning of "outstanding pay US$234 each and out of which amount he receives SRC, the rules promulgated pursuant
obligation" is indebtedness. US$92. A minimum recruitment of four (4) investors by thereto, or any order of the SEC of which the
these two (2) recruits, who then recruit at least two (2) issuer has notice in connection with the
each, entitles the principal investor to US$184 and the o fering for which the registration statement
SEC v. Prosperity.com 2012 pyramid goes on. Under the scheme, the accumulated has been filed;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 163 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

for violations of securities, commodities,

iii) Has been or is engaged or is about to engage d) Any security or its derivatives the sale or transfer of
in fraudulent transactions; and other related laws. which, by law, is under the supervision and
iv) Has made any false or misleading e term "competent judicial or administrative regulation of the O fice of the IC, HLURB, or the
representation of material facts in any body" shall include a foreign court of competent BIR.
prospectus concerning the issuer or its jurisdiction as provided for under the Rules of e) Any security issued by a bank except its own shares
securities; Court. of stock. (§9.1)
v) Has failed to comply with any requirement Exempt Securities e registration requirements shall not likewise apply to
that the SEC may impose as a condition for 1 the following:
Section 9
registration of the security for which the a) Evidence of indebtedness issued to the BSP under
registration statement has been filed; or e requirement of registration shall not as a general rule
apply to any of the following classes of securities: its open market and/or rediscounting operations;
b) e registration statement is on its face incomplete b) Bills of exchange arising from a bona fide sale of
or inaccurate in any material respect or includes a) Any security issued or guaranteed by the
Government of the Philippines, or by any political goods and services that are distributed and/or
any untrue statement of a material fact or omits to traded by banks or investment houses duly licensed
state a material fact required to be stated therein or subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an by the SEC and BSP through an organized market
necessary to make the statements therein not that is operated under the rules approved by the
misleading; or instrumentality of said Government.
SEC;
c) e issuer, any o ficer, director or controlling person b) Any security issued or guaranteed by the
government of any country with which the c) Any security issued or guaranteed by multilateral
of the issuer, or person performing similar financial entities (MFEs) established through a
functions, or any underwriter Philippines maintains diplomatic relations, or by
any state, province or political subdivision thereof treaty or any other binding agreement to which the
i) has been convicted, by a competent judicial on the basis of reciprocity: Philippines is a party or subsequently becomes a
or administrative body, upon plea of guilty, member.
or otherwise, of an o fense involving moral Provided, at the SEC may require compliance with
the form and content of disclosures the SEC may d) e registration requirements shall not likewise
turpitude and/or fraud or apply to evidence of indebtedness, e.g., commercial
prescribe.
ii) is enjoined or restrained by the SEC or other papers, that meet the following conditions:
competent judicial or administrative body c) Certificates issued by a receiver or by a trustee in
bankruptcy duly approved by the proper i) Issued to not more than 19 non-institutional
adjudicatory body. lenders;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 164 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

incorporation, of securities to its stockholders or

ii) Payable to a specific person; h) Broker's transactions, executed upon customer's
other security holders as a stock dividend or other orders, on any registered Exchange or other trading
iii) Neither negotiable nor assignable and held
distribution out of surplus. market.
on to maturity; and
e) e sale of capital stock of a corporation to its own i) Subscriptions for shares of the capital stock of a
iv) In an amount not exceeding P150M or such
stockholders exclusively, where no commission or corporation
higher amount as the SEC may prescribe.
other remuneration is paid or given directly or
(Rule 9.1.2) 1. prior to the incorporation thereof or in
indirectly in connection with the sale of such capital
pursuance of an increase in its authorized
stock.
Exempt Transactions capital stock under the Corporation Code,
2 f) e issuance of bonds or notes secured by mortgage
Section 10
2. when no expense is incurred, or no
upon real estate or tangible personal property,
Automatic Exemptions. — e requirement of registration commission, compensation or remuneration
where the entire mortgage together with all the
shall not apply to the sale of any security in any of the is paid or given in connection with the sale or
bonds or notes secured thereby are sold to a single
following transactions: disposition of such securities, and
purchaser at a single sale.
a) At any judicial sale, or sale by an executor, g) e issue and delivery of any security in exchange
3. only when the purpose for soliciting, giving
administrator, guardian or receiver or trustee in or taking of such subscriptions is to comply
for any other security of the same issuer pursuant to
insolvency or bankruptcy. with the requirements of such law as to the
a right of conversion entitling the holder of the
percentage of the capital stock of a
b) By or for the account of a pledge holder, or security surrendered in exchange to make such
corporation which should be subscribed
mortgagee or any other similar lien holder selling conversion: Provided,
before it can be registered and duly
or o fering for sale or delivery in the ordinary course 1. that the security so surrendered has been incorporated, or its authorized capital
of business and not for the purpose of avoiding the registered or was, when sold, exempt, and increased.
provisions of this Code, to liquidate a bona fide
2. that the security issued and delivered in j) e exchange of securities by the issuer with its
debt, a security pledged in good faith as security for
exchange, if sold at the conversion price, existing security holders exclusively, where no
such debt.
would at the time of such conversion fall commission or other remuneration is paid or given
c) An isolated transaction not being made in the course of within the class of securities entitled to directly or indirectly for soliciting such exchange.
repeated and successive transactions. registration.
d) e distribution by a corporation, actively engaged
in the business authorized by its articles of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 165 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

k) Private placement. — e sale of securities by an 2. the limited character of the public o fering. a personal net worth of not less than Php30M; AND
issuer to fewer than twenty (20) persons in the For a public o fering to be considered of limited 2. Has been engaged in securities trading personally or
Philippines during any twelve-month period. character, the covered securities should be available through a fund manager for a minimum period of
l) e sale of securities to any number of the following only to the parties or persons named in the one (1) year, OR
qualified buyers: application for exemption for a specified period.
has held for at least two (2) years a position of
1) Bank; (Rule 10.2.2) An example would be Stock Option
responsibility in any professional business entity
Plans in favor of employees.
2) Registered investment house; that requires knowledge or expertise in securities
Any person applying for an exemption, shall file and pay trading.
3) Insurance company; with the SEC
If the buyer is a juridical person, it shall, at the time of
4) Pension fund or retirement plan maintained 1. a notice identifying the exemption relied and registration with an authorized registrar,
by the Government of the Philippines or any
political subdivision thereof or managed by a 2. with such notice, a fee equivalent to 0.1% of the 1. have gross assets of at least Php100M OR
bank or other persons authorized by the BSP maximum aggregate price or issued value of the
2. a total portfolio investment in securities registered
to engage in trust functions; securities.
with the SEC or financial instruments issued by the
5) Investment company; or Non-exempt transactions government of at least Php60M.

6) Such other person as the SEC may by rule Qualified Buyers

Virata v. Ng Wee 2017
determine as qualified buyers, on the basis of For purposes of Section 10 of the Code, a natural person
such factors as financial sophistication, net shall be considered a qualified individual buyer if he has Wincorp engaged in the sale of unregistered securities
worth, knowledge, and experience in registered as such with entities that are authorized by Wincorp was, in reality, selling to the public securities,
financial and business matters, or amount of the Commission to act as registrar of qualified buyers. i.e., shares in the Power Merge credit in the form of
assets under management. investment contracts.
A natural person must possess the following qualifications:
Exemptive Relief. — e SEC may exempt other transactions, Securities are shares, participation or interests in a
1. Has an annual gross income of at least Php10M at
if it finds that the requirements of registration are not corporation or in a commercial enterprise or
least two (2) years prior to registration, OR
necessary in the public interest or for the protection of the profit-making venture and evidenced by a certificate,
investors such as by reason of a total portfolio investment in securities registered contract, instruments, whether written or electronic in
1. the small amount involved or with the SEC of at least Php10M, OR character.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 166 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

As a general rule, securities are not to be sold or o fered for sale a) Where the law requires a document to be in i) ere exist a reliable assurance as to
or distribution without due registration, and provided that writing, that requirement is met by an the integrity of the document from
information on the securities shall be made available to electronic document if the said electronic the time when it was first generated
prospective purchasers. document maintains its integrity and in its final form; and
reliability and can be authenticated so as to ii) at document is capable of being
be usable for subsequent reference, in that — displayed to the person to whom it is
Electronic Commerce Act i) e electronic document has to be presented: Provided, at no
IX remained complete and unaltered, provision of this Act shall apply to
R.A. No. 8792
apart from the addition of any vary any and all requirements of
Legal Recognition of Electronic Data endorsement and any authorized existing laws on formalities required
Messages change, or any change which arises in in the execution of documents for
the normal course of communication, their validity.
Obligation of Confidentiality storage and display; and For evidentiary purposes, an electronic document
Legal Recognition of Electronic Data ii) e electronic document is reliable in shall be the functional equivalent of a written
A Messages the light of the purpose for which it document under existing laws.
R.A. No. 8792, Sections 8-11 was generated and in the light of all 3) is Act does not modify any statutory rule relating
relevant circumstances. to the admissibility of electronic data messages or
1) Information shall not be denied validity or
enforceability solely on the ground that it is in the b) Paragraph (a) applies whether the electronic documents, except the rules relating to
form of an electronic data message purporting to requirement therein is in the form of an authentication and best evidence.
obligation or whether the law simply
give rise to such legal e fect, or that it is merely 4) An electronic signature on the electronic
incorporated by reference in that electronic data provides consequences for the document not
document shall be equivalent to the signature of a
message. being presented or retained in its original
person on a written document if the signature is an
form.
2) Electronic documents shall have the legal e fect, electronic signature and proved by showing that a
c) Where the law requires that a document be prescribed procedure, not alterable by the parties
validity or enforceability as any other document or
presented or retained in its original form, interested in the electronic document, existed under
legal writing, and —
that requirement is met by an electronic which —
document if —

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 167 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Act, shall not convey to or share the same with any

a) A method is used to identify the party sought 2. Counterfeit Access Device. — means any access device
to be bound and to indicate said party's other person. that is counterfeit, fictitious, altered, or forged, or
access to the electronic document necessary an identifiable component of an access device or
Access Devices Registration
for his consent or approval through the X counterfeit device.
electronic signature; R.A. No. 8484
3. Unauthorized Access Device. — means any access
b) Said method is reliable and appropriate for Access Devices device that is stolen, lost, expired, revoked,
the purpose for which the electronic canceled, suspended, or obtained with intent to
document was generated or communicated, Prohibited Acts defraud.
in the light of all circumstances, including Frustrated and Attempted Access Device 4. Access Device Fraudulently Applied for. — means any
any relevant agreement; Fraud access device that was applied for or issued on
c) It is necessary for the party sought to be account of the use of falsified document, false
bound, in order to proceed further with the A Access Devices information, fictitious identities and addresses, or
R.A. No. 8484, Section 3
transaction, to have executed or provided the any form of false pretense or misrepresentation.
electronic signature; and 1. Access Device. — means
d) e other party is authorized and enabled to a. any card, plate, code, account number, B Prohibited Acts
R.A. No. 8484, Section 9
verify the electronic signature and to make electronic serial number, personal
the decision to proceed with the transaction identification number, or e following acts shall constitute access device fraud and
authenticated by the same. are hereby declared to be unlawful:
b. other telecommunications service,
equipment, or a. producing, using, tra ficking in one or more
B Obligation of Confidentiality c. instrumental identifier, or counterfeit access devices;
R.A. No. 8792, Section 32
d. other means of account access b. tra ficking in one or more unauthorized access
Except for the purposes authorized under this Act, any devices or access devices fraudulently applied for;
person who obtained access to any electronic key, that can be used to obtain money, good, services, or
electronic data message or electronic document, book, any other thing of value or to initiate a transfer of c. using, with intent to defraud, an unauthorized
register, correspondence, information, or other funds (other than a transfer originated solely by access device;
material pursuant to any powers conferred under this paper instrument). d. using an access device fraudulently applied for;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 168 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

number or name or address of the device holder,

e. possessing one or more counterfeit access devices or 2. selling information regarding or an
access devices fraudulently applied for; without the latter's authority or permission; application to obtain an access device; or
f. producing, tra ficking in, having control or custody j. obtaining money or anything of value through the p. without the authorization of the credit card system
of, or possessing device-making or altering use of an access device, with intent to defraud or member or its agent, causing or arranging for
equipment without being in the business or with intent to gain and leeing therea ter; another person to present to the member or its
employment, which lawfully deals with the k. having in one's possession, without authority from agent, for payment, one or more evidence or records
manufacture, issuance, or distribution of such the owner of the access device or the access device of transactions made by credit card.
equipment; company, an access device, or any material, such as
slips, carbon paper, or any other medium, on which De Silva Cruz v. People 2017
g. inducing, enticing, permitting or in any manner
allowing another, for consideration or otherwise to the access device is written, printed, embossed, or e possession and use of a counterfeit credit card is
produce, use, tra fic in counterfeit access devices, otherwise indicated; considered access device fraud and is punishable by law.
unauthorized access devices or access devices l. writing or causing to be written on sales slips, To successfully sustain a conviction for possession and use
fraudulently applied for; approval numbers from the issuer of the access of a counterfeit access device, the prosecution must
device of the fact of approval, where in fact no such present not only the access device but also any evidence
h. multiple imprinting on more than one transaction
approval was given, or where, if given, what is that proves that the access device is counterfeit.
record, sales slip or similar document, thereby
making it appear that the device holder has entered written is deliberately di ferent from the approval Here, petitioner was found in possession of Citibank Visa
into a transaction other than those which said actually given; credit card number 4539 7207 8677 7008, which bore the
device holder had lawfully contracted for, or m. making any alteration, without the access device name "Gerry Santos." He used the same credit card to
submitting without being an a filiated merchant, an holder's authority, of any amount or other purchase Ferragamo shoes worth US$363.00 at Duty Free
order to collect from the issuer of the access device, information written on the sales slip; Fiesta Mall. Citibank Visa credit card number 4539 7207
such extra sales slip through an a filiated merchant 8677 7008 was later proven to be a counterfeit access
n. e fecting transaction, with one or more access
who connives therewith, or, under false pretenses of device.
devices issued to another person or persons, to
being an a filiated merchant, present for collection receive payment or any other thing of value;
such sales slips, and similar documents;
o. without the authorization of the issuer of the access Soledad v. People 2011
i. disclosing any information imprinted on the access device, soliciting a person for the purpose of –
device, such as, but not limited to, the account Prior to the commission of the crime, petitioner
1. o fering an access device; or fraudulently obtained from private complainant various

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 169 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

documents showing the latter's identity. He, therea ter, produce any of the unlawful acts, but which recommendation, or concerted action, whether formal or
obtained cellular phones using private complainant's nevertheless does not produce it by reason of causes informal, explicit or tacit, written, or oral.
identity. Undaunted, he fraudulently applied for a credit independent of the will of said person, shall be a) Per Se Prohibition
card under the name and personal circumstances of punished with two-thirds (2/3) of the fine and
imprisonment provided for the consummated Mere existence of an agreement, once proven, is
private complainant. Upon the delivery of the credit card
o fenses listed in said section. punishable. All defenses are precluded.
applied for, the "messenger" (an NBI agent) required two
valid identification cards. Petitioner thus showed two 2. Attempted Access Device Fraud. — Any person who e following agreements, between or among
identification cards with his picture on them, but bearing commences the commission of any of the unlawful competitors, are per se prohibited:
the name and forged signature of private complainant. As acts directly by overt acts and does not perform all 1) Restricting competition as to price, or
evidence of the receipt of the envelope delivered, the acts of execution which would produce the said components thereof, or other terms of trade;
petitioner signed the acknowledgment receipt shown by acts by reason of some cause or accident other than — price fixing
the messenger, indicating therein that the content of the said person's own spontaneous desistance, shall be
2) Fixing the price at an auction or in any form
envelope was the Metrobank credit card. punished with one half (1/2) of the fine and
of bidding, including cover bidding, bid
Petitioner materially held the envelope containing the imprisonment provided for the consummated
suppression, bid rotation and market
credit card with the intent to possess. Contrary to o fenses listed in the said section.
allocation, and other analogous practices of
petitioner's contention that the credit card never came bid manipulation. — bid rigging
into his possession because it was only delivered to him, Philippine Competition Act
XI b) Object and E fect Prohibition (“SLC Test”)
the above narration shows that he, in fact, did an active R.A. No. 10667
part in acquiring possession by presenting the Not per se prohibited. e following agreements,
identification cards purportedly showing his identity as Anti-Competitive Agreements between or among competitors, which have the
Henry Yu. object or e fect of substantially preventing,
Abuse of Dominant Position
restricting, or lessening competition shall be
Mergers and Acquisitions prohibited:

Frustrated and Attempted Access 1) Output limitation or restriction — Setting,

C Device Fraud A Anti-Competitive Agreements limiting, or controlling production, markets,
R.A. No. 10667, Section 14
R.A. No. 8484, Section 12 technical development, or investment;
"Agreement" refers to any type or form of contract, 2) Market sharing or allocation — Dividing or
1. Frustrated Access Device Fraud. — Any person who
arrangement, understanding, collective sharing the market, whether by volume of
performs all the acts of execution which would

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 170 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

sales or purchases, territory, type of goods or Penalty following: competitors, customers, suppliers, or
services, buyers or sellers, or any other ACA Parties Agreement consumers.
means. Admin Crim
It shall be prohibited for one or more entities to abuse their
Mere existence of agreement NOT enough. It must Per se dominant position by engaging in conduct that would
also be shown that such an agreement substantially prohibited Competitors Horizontal ✔ ✔ substantially prevent, restrict, or lessen competition, including:
prevents, lessens or restricts competition. (a) 1) Predatory Pricing — Selling goods or services below
c) Agreements other than those specified above, which cost with the object of driving competition out of
have the object or e fect of substantially preventing, Not per se the relevant market.
restricting, or lessening competition shall also be prohibited Competitors Horizontal ✔ ✔ 2) Imposing barriers to entry — or committing acts that
prohibited. (b)
prevent competitors from growing within the
Provided, that those which contribute market in an anti-competitive manner,
Other
1. to improving the production or distribution Competitors Horizontal except those that develop in the market as a result of
agreements
or otherwise & Vertical
✔ ✘
of goods and services or (c) or arising from
2. to promoting technical or economic 1. a superior product or process,
Admin: Fine of up to P100M for 1st o fense;
progress, 2. business acumen, or
Fine of P100M - 250M for 2nd o fense.
while allowing consumers a fair share of the 3. legal rights or laws;
resulting benefits, may not necessarily be deemed a Criminal: Fine of P50M - 250M + 2-7 years
violation of the Act. imprisonment. 3) Commercial Tying — Making a transaction subject to
acceptance by the other parties of other obligations
d) Entities that control, are controlled by, or are under which, by their nature or according to commercial
common control with another entity or entities, B Abuse of Dominant Position usage, have no connection with the transaction;
R.A. No. 10667, Section 15
have common economic interests, and are not
4) Price Discrimination — Setting prices or other terms
otherwise able to decide or act independently of "Dominant position" refers to a position of economic
each other, shall not be considered competitors. or conditions that discriminate unreasonably
strength that an entity or entities hold which makes it
between customers or sellers of the same goods or
capable of controlling the relevant market
services, where such customers or sellers are
independently from any or a combination of the
contemporaneously trading on similar terms and

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 171 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

conditions, where the e fect may be to lessen micro-, small-, medium-scaled enterprises, and
b) giving preferential discounts or rebate upon
competition substantially; such price, or other marginalized service providers and producers;
Provided, that the following shall be considered c) imposing conditions not to deal with 8) Excessive Pricing — Directly or indirectly imposing
permissible price di ferentials: competing entities, unfair purchase or selling price on their
a) Socialized pricing for the less fortunate sector competitors, customers, suppliers, or consumers,
where the object or e fect of the restrictions is to
of the economy; prevent, restrict or lessen competition substantially: Provided that prices that develop in the market as a
b) Price di ferentials which reasonably or result of or due to a superior product or process,
Provided, that the following shall not be prohibited or business acumen or legal rights or laws shall not be
approximately re lect di ferences in the cost rendered unlawful:
of manufacture, sale, or delivery resulting considered unfair prices; and
from di fering methods, technical 1) Permissible franchising, licensing, exclusive 9) Output Restriction — Limiting production, markets,
conditions, or quantities in which the goods merchandising, or exclusive distributorship or technical development to the prejudice of
or services are sold or delivered to the buyers agreements, such as those which give each consumers,
or sellers; party the right to unilaterally terminate the
agreement, unless found by the Commission Provided, that limitations that develop in the market
c) Price di ferential or terms of sale o fered in to have substantial anti-competitive e fect; as a result of or due to a superior product or
response to the competitive price of process, business acumen, or legal rights or laws
payments, services, or changes in the 2) Agreements protecting intellectual property shall not be a violation.
facilities furnished by a competitor; and rights, confidential information, or trade
secrets; Any conduct which contributes to improving production
d) Price changes in response to changing or distribution of goods or services within the relevant
market conditions, marketability of goods or 6) Tying and Bundling — Making supply of particular market, or promoting technical and economic progress,
services, or volume. goods or services dependent upon the purchase of while allowing consumers a fair share of the resulting
other goods or services from the supplier which benefit may not necessarily be considered an abuse of
5) Exclusive Dealings — Imposing restrictions on the have no direct connection with the main goods or
lease or contract for sale or trade of goods or dominant position.
services to be supplied;
services concerning where, to whom, or in what "Conduct" refers to any type or form of undertaking,
forms goods or services may be sold or traded, such 7) Abuse of Monopsony Buying Power — Directly or collective recommendation, independent or concerted
as: indirectly imposing unfairly low purchase prices for action or practice, whether formal or informal.
the goods or services of, among others,
a) fixing prices, or marginalized agricultural producers, fisherfolk,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 172 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

C Mergers and Acquisitions Aggregate value Gross revenues b. Fi ty percent (50%), if the entity or entities
R.A. No. 10667, Sections 16-22 PH of the assets in generated [1] by assets already own more than the percentage set
PH of acquired [2] out above, as the case may be, before the
Thresholds for Compulsory Notification proposed acquisition; or
As per PCC Resolution No. 04-2023, e fective 01 March and and OUT collectively
B. of an interest in a non-corporate entity, the
2023, parties to a merger or acquisition are REQUIRED to OUT
entity or entities acquiring the interest, together
provide notification when: with their a filiates, would hold an aggregate
With respect to a proposed acquisition of
a) SIZE OF PARTY. e aggregate annual gross revenues in, interest in the non-corporate entity that entitles
1. voting shares of a corporation or of
into or from the Philippines, or value of the assets in the the entity or entities to receive more than the
Philippines of the ultimate parent entity of at least one of 2. an interest in a non-corporate entity following percentages of the profits of the
the acquiring or acquired entities, including that of all 1) If the aggregate value of the assets in PH that are non-corporate entity or assets of that
entities that the ultimate parent entity controls, directly owned by, OR non-corporate entity on its dissolution:
or indirectly, exceeds Php7B; AND a. irty-five percent (35%), or
2) the gross revenues from sales in, into, or from PH of
b) SIZE OF TRANSACTION. e value of the transaction
the corporation or non-corporate entity or by entities it b. Fi ty percent (50%), if the entity or entities
exceeds Php2.9B: acquiring the interest are already entitled to
controls, other than assets that are shares of any of
Aggregate value Gross revenues those corporations, exceed Php2.9B; AND receive more than the percentage set out
PH of the assets in generated [1] by assets immediately above before the proposed
3) If as a result of the proposed acquisition
PH of acquired [2] acquisition.
A. of the voting shares of a corporation, the entity
c) Where an entity has already exceeded the 35% threshold
or entities acquiring the shares, together with
One being for an acquisition of voting shares or of an interest in a
IN OR [1 and 2] IN PH their a filiates, would own voting shares of the
acquired non-corporate entity, another notification will be
corporation that, in the aggregate, carry more
required if the same entity will exceed 50% threshold
than the following percentages of the votes
[1] IN or INTO; [2] a ter making a further acquisition.
OUT Acquiring entity AND attached to all the corporation's outstanding
OUT d) In a notifiable joint venture transaction, an acquiring
voting shares:
entity shall be subject to the notification requirements if
IN Acquiring entity AND [1] IN or INTO; [2] IN a. irty-five percent (35%), or
either

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 173 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

entities shall provide notification on the basis of such educational institutions, and other special corporations
i) the aggregate value of the assets that will be, or
preliminary agreement. governed by special laws, a favorable or no-objection
ii) the gross revenues generated in PH by assets to ruling by the PCC shall not be construed as dispensing
be If there is NO binding preliminary agreement,
notification shall be made when the parties execute the with the requirement for a favorable recommendation
combined in PH or contributed into the proposed joint agreement relating to the last transaction which, when by the appropriate government agency.
venture exceed Php2.9B. taken together with the preceding transactions, satisfies i) A favorable recommendation by a governmental agency
In determining the assets of the joint venture, the the thresholds. with a competition mandate shall give rise to a disputable
following shall be included: f) For purposes of calculating notification thresholds: presumption that the proposed merger or acquisition is
not violative,
1. All assets which any entity contributing to the 1) e aggregate value of assets in the Philippines shall
formation of the joint venture has agreed to be as stated on Provided, that the recommendation must arise directly
transfer, or for which agreements have been from the exercise of the agency's mandate to determine
a) the last regularly prepared balance sheet or any anti-competitive e fect of the proposed merger or
secured for the joint venture to obtain at any
time, whether or not such entity is subject to the b) the most recent audited financial statements in acquisition.
requirements of the act; and which those assets are accounted for.
Notifying entity
2. Any amount of credit or any obligations of the 2) e gross revenues from sales of an entity shall be
a) Parties to a merger or acquisition that satisfy the
joint venture which any entity contributing to the amount stated on the last regularly prepared
thresholds are required to notify the PCC before the
the formation has agreed to extend or annual statement of income and expense of that entity.
execution of the definitive agreements relating to
guarantee, at any time. g) A transaction that meets the thresholds and does NOT the transaction.
e) A merger or acquisition consisting of successive comply with the notification requirements and waiting
"Merger" refers to the joining of two (2) or more
transactions, or acquisition of parts of one or more periods
entities into an existing entity or to form a new
entities, which shall take place within a one-year period i) shall be considered VOID and entity, including joint ventures.
between the same parties, or any entity they control or
ii) will subject the parties to an administrative fine "Acquisition" refers to the purchase or transfer of
are controlled by or are under common control with
of 1 - 5% of the value of the transaction. securities or assets, through contract or other
another entity or entities, shall be treated as one
transaction. h) In the case of a merger or acquisition of banks, banking means, for the purpose of obtaining control by:
institutions, building and loan associations, trust 1) One (1) entity of the whole or part of another;
If a binding preliminary agreement provides for such
companies, insurance companies, public utilities,
successive transactions or acquisition of parts, the 2) Two (2) or more entities over another; or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 174 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

connection therewith, with the intention to share

3) One (1) or more entities over one (1) or more Within thirty (30) days from commencing Phase I
entities both profits and risks and losses subject to
review, the Commission shall, if necessary, inform the
agreement by the entities.
"Control" refers to the ability to substantially parties of the need for a more comprehensive and
in luence or direct the actions or decisions of an Process Under Compulsory Notification detailed analysis of the merger or acquisition under a
entity, whether by contract, agency or otherwise. Phase II review, and request other information and/or
Parties to the merger or acquisition agreement that are
documents that are relevant to its review.
b) If notice to the PCC is required for a merger or required to notify are prohibited from consummating
acquisition, then all acquiring and acquired their agreement until thirty (30) days (waiting period) STEP 4 PHASE II Review
pre-acquisition ultimate parent entities or any a ter providing notification to the PCC. e issuance of the request under PHASE I has the
entity authorized by the ultimate parent entity to file STEP 1 Submission of the Notification Form e fect of extending the period within which the
notification on its behalf must each submit a agreement may not be consummated for an additional
Submit a notification form to the Merger and
Notification Form and comply with the procedure. sixty (60) days.
Acquisition O fice (MAO) supposedly within 30 days
e parties shall not consummate the transaction
a ter the signing of the agreement. e additional sixty (60) day period shall begin on the
before the expiration of the relevant periods
day a ter the request for information is received by the
provided in this Rule. STEP 2 Determination whether Notification has been
parties;
Completed
"Ultimate parent entity" is the juridical entity that,
Provided, that, in no case shall the total period for review
directly or indirectly, controls a party to the MAO shall determine within fi teen (15) days whether
by the PCC of the subject agreement exceed ninety (90)
transaction, and is not controlled by any other the Form and other relevant requirements have been
days from the time the initial notification by the parties
entity. completed in accordance with applicable rules or
is deemed complete.
c) In the formation of a joint venture, the contributing guidelines, and shall inform the parties of other
information and/or documents it may have failed to STEP 5 Decision
entities shall be deemed acquiring entities, and the
joint venture shall be deemed the acquired entity. supply, or issue a notice to the parties that the When the above periods have expired and no decision
notification is su ficient for purposes of commencing has been promulgated for whatever reason, the merger
"Joint venture" refers to a business arrangement Phase I review. or acquisition shall be deemed approved and the parties
whereby an entity or group of entities contribute
STEP 3 PHASE I Review may proceed to implement or consummate it.
capital, services, assets, or a combination of any or
all of the foregoing, to undertake an investment e waiting period shall commence only upon the Merger or acquisition agreements that have received a
activity or a specific project, where each entity shall MAO’s determination that the notification has been favorable ruling from the PCC, except when such ruling
have the right to direct and govern the policies in completed. was obtained on the basis of fraud or false material

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 175 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

information, may not be challenged under the Act or

b) Prohibit the implementation of the agreement 2. from acquiring or maintaining its market share in a
these Rules. unless and until it is modified by changes relevant market through such means without
Motu Proprio Review specified by the PCC. violating the provisions of the Act and these Rules;

e following are the grounds which may trigger motu c) Prohibit the implementation of the agreement Provided, further, that the acquisition of the stock or other
proprio review by the PCC: unless and until the pertinent party or parties share capital of one or more corporations
enter into legally enforceable agreements 1. solely for investment and
1. Preliminary considerations that the customers may
specified by the PCC.
be adversely a fected; 2. not used for voting or exercising control and
Exceptions
2. Possibilities for foreclosure such that certain 3. not to otherwise bring about, or attempt to bring
competitions may be hindered; When the parties establish either of the following: about the prevention, restriction or lessening of
3. Existence of high degree of market concentration; a) e concentration has brought about or is likely competition in the relevant market
to bring about gains in e ficiencies that are greater shall NOT be prohibited.
4. Merger happens in a critical industry;
than the e fects of any limitation on competition
5. ird party complaint. e burden of proof lies with the parties seeking the
that result or are likely to result from the merger
exemption.
or acquisition agreement; or
Prohibited mergers and acquisitions
b) A party to the merger or acquisition agreement The Relevant Market
Merger or acquisition agreements that substantially
is faced with actual or imminent financial failure, "Market" refers to
prevent, restrict, or lessen competition in the
and the agreement represents the least
Philippines in the relevant market or in the market for 1. the group of goods or services that are su ficiently
anti-competitive arrangement among the
goods or services, as may be determined by the PCC, interchangeable or substitutable and the object of
known alternative uses for the failing entity's
shall be prohibited. competition, and
assets.
If within the relevant periods, the PCC determines that 2. the geographic area where said goods or services are
Provided, that an entity shall NOT be prohibited
such agreement is prohibited and does not qualify for o fered.
exemption, the PCC may: 1. from continuing to own and hold the stock or other
"Relevant market" refers to the market in which a particular
share capital or assets of another corporation, which
a) Prohibit the implementation of the agreement; good or service is sold and which is a combination of the
it acquired prior to the approval of the Act, or
relevant product market and the relevant geographic
market, defined as follows:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 176 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

insurance, import duties, and non-tari f permanent, occasional or accidental, and done for
1) a relevant product market comprises all those goods
and/or services which are regarded as restrictions; the restrictions imposed by economic general business purposes,
interchangeable or substitutable by the consumer or agents or by their associations; and the time a) any common carrier, railroad, street railway,
the customer, by reason of the goods and/or required to supply the market from those areas; traction railway, subway motor vehicle,
services' characteristics, their prices, and their c) e cost and probability of users or consumers either for freight or passenger, or both with
intended use; and seeking other markets; and or without fixed route and whatever may be
2) the relevant geographic market comprises the area d) National, local or international restrictions which its classification,
in which the entity concerned is involved in the limit the access by users or consumers to alternate b) freight or carrier service of any class, express
supply and demand of goods and services, in which sources of supply or the access of suppliers to service, steamboat, or steamship line,
the conditions of competition are su ficiently alternate consumers. pontines, ferries, and watercra t, engaged in
homogenous and which can be distinguished from the transportation of passengers or freight
neighboring areas because the conditions of Public Service Act or both,
competition are di ferent in those area. XII
C.A. No. 146, as amended by R.A. No. 11659 c) shipyard, marine railway, marine repair
For purposes of determining the relevant market, the shop, wharf or dock,
following factors, among others, a fecting the Public Service as Public Utility
d) ice plant, ice-refrigeration plant,
substitutability among goods or services constituting such Critical Infrastructure
market, and the geographic area delineating the boundaries e) canal, irrigation system,
of the market shall be considered: Powers of the President f) gas, electric light, heat and power, water
a) e possibilities of substituting the goods or Reciprocity supply and power, petroleum,
services in question with others of domestic or g) sewerage system,
foreign origin, considering the technological A Public Service as Public Utility h) wire or wireless communications systems,
possibilities, the extent to which substitutes are C.A. No. 146, as amended, Section 13
available to consumers and the time required for i) wire or wireless broadcasting stations and
1) e term 'public service’ includes every person that
such substitution; now or herea ter may own, operate, manage, or j) other similar public services.
b) e cost of distribution of the good or service, its control in the Philippines, for hire or compensation, 2) Public Utility refers to a public service that operates,
raw materials, its supplements and substitutes from with general or limited clientele, whether manages or controls for public use any of the
other areas and abroad, considering freight, following:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 177 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

can be supplied by a single entity at a lower

C Powers of the President
a) Distribution of Electricity;
cost that by two or more entities;
b) Transmission of Electricity; R.A. No. 11659, Section 23
c) e commodity or service is necessary for the
c) Petroleum and Petroleum Products Pipeline In the interest of national security, the President, a ter
maintenance of life and occupation of the
Transmission Systems; review, evaluation and recommendation of the relevant
public; and
government department or Administrative Agency,
d) Water Pipeline Distribution Systems and d) e commodity or service is obligated to may, within sixty (60) days from the receipt of such
Wastewater Pipeline Systems, including provide adequate service to the public on recommendation, suspend or prohibit
sewerage pipeline systems; demand.
1) any proposed merger or acquisition transaction,
e) Seaports; and 5) A public service which is NOT classified as a public or
f) Public Utility Vehicles. utility under this Act shall be considered a business
2) any investment in a public service
3) All concessionaires, joint ventures and other similar a fected with public interest for purposes of
Sections 17 and 18 of Article XII of the Constitution. that e fectively results in the grant of control, whether
entities that wholly operate, manage or control for
direct or indirect, to a foreigner or a foreign
public use the sectors above are public utilities.
corporation.
4) Upon the recommendation of the NEDA, the B Critical Infrastructure
R.A. No. 11659, Section 2(e)
President may recommend to Congress the
classification of a public service as a public utility on Refers to any public service D Reciprocity
R.A. No. 11659, Section 25
the basis of the following criteria: 1) which owns, uses, or operates systems and
1) Foreign nationals shall not be allowed to own more
a) e person or juridical entity regularly assets, whether physical or virtual,
than fi ty percent (50%) of the capital of entities
supplies and transmits and distributes to the 2) so vital to the Republic of the Philippines engaged in the operation and management of
public through a network a commodity or critical infrastructure unless the country of such
3) that the incapacity or destruction of such
service of public consequence; foreign national accords reciprocity to Philippine
systems or assets would have a detrimental
b) e commodity or service is a natural impact on national security, Nationals as may be provided by foreign law, treaty
monopoly that needs to be regulated when or international agreement.
4) including telecommunications and other such
the common good so requires. For this Reciprocity may be satisfied by according rights of
vital services as may be declared by the President
purpose, natural monopoly exists when the similar value in other economic sectors.
of the Philippines.
market demand for a commodity or service

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 178 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2) A public service shall employ a foreign national Inherent and Constitutional Limitations 2. Except only in the case of poll taxes, nonpayment of
ONLY a ter the determination of non-availability of a tax may be the subject of criminal prosecution and
a Philippine National who is competent, able and Requisites of a Valid Tax punishment.
willing to perform the services for which the foreign Distinguished from Other Forms of 3. Taxes are the nation’s lifeblood through which
national is desired. Exactions government agencies continue to operate and with
3) Any foreign national seeking admission to the Doctrines in Taxation which the State discharges its functions for the
Philippines for employment purposes and any welfare of its constituents.
public service which desires to engage a foreign Income Taxation
4. Taxes = levied to raise revenues; Licenses = imposed
national for employment in the Philippines must Withholding Taxes for regulatory purpose.
obtain an employment permit.
Transfer Taxes 5. In Angeles University Foundation v. City of Angeles, SC
4) Public services employing foreign nationals issued held that the payment of building permit fee is a
employment permits in industries to be determined Value-Added Tax (VAT)
regulatory imposition, and not a charge on property,
by the DOLE shall implement an understudy/skills Tax Remedies and is therefore not an imposition from which
development program to ensure the transfer of petitioner is exempt.
technology/skills to Filipinos, whether next-in-rank Local Taxation
or otherwise, with the potential of succeeding the Purpose
Real Property Taxation
foreign national in the same establishment or its 1) Revenue — e purpose of taxation is to provide
subsidiary, within a specific period as may be Judicial Remedies funds or property with which the State promotes the
determined by the DOLE, upon consultation with general welfare and protection of its citizens.
Definition, Characteristics, and
relevant government agencies and industry experts. A Raising the revenues is the principal object of
Purpose taxation.
Taxation 1. Taxes are the enforced proportional contributions 2) Non-Revenue. —
XIV R.A. No. 8424, as amended by R.A. No. 10963; from persons and property, levied by the State by
a) Regulation;
R.A. 11534 virtue of its sovereignty, for the support of
government and for all public needs. Obligation to b) Promotion of General Welfare;
Definition, Characteristics, and Purpose pay taxes is not based on contract. c) Reduction of Social Inequality;
Distinguished from Police Power and d) Promote Economic Growth;
Eminent Domain

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 179 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e) Protectionism. Police Eminent a. Used for the support of the government,

As to TAXATION
Power Domain specifically on its governmental functions;
Characteristics
1) Inherent — the power to tax, an inherent Property b. For any of the recognized objects of the
Property Property government;
prerogative, has to be availed of to assure the Scope and Liberty
Rights Rights
performance of vital state functions. Rights c. Promotes the welfare of the community.
2) Legislative — taxing power is peculiarly and Altruistic d. Public purpose is determined at the time of
exclusively legislative in character and remains Enjoyment feeling of the enactment of the tax law and not at the
undiminished in the legislative in character. Just time of its implementation.
Benefits of govt contributing
compensation
Constitutionally limited — the power to tax is an attribute services to society‘s
Planters Products, Inc. v. Fertiphil
of sovereignty. It is the strongest of all the powers of the welfare
government. e Constitution sets forth such limits. Public purpose is the heart of a tax law. When a tax law is
Property Generally,
Any Any only a mask to exact funds from the public when its true
Taken money
Distinguished from Police Power intent is to give undue benefit and advantage to a private
B
and Eminent Domain State and enterprise, that law will not satisfy the requirement of
Who State and State and “public purpose.”
quasi-public
exercises LGU LGU
Police Eminent entities e purpose of a law is evident from its text or inferable
As to TAXATION
Power Domain from other secondary sources. Here, the levy imposed
under LOI No. 1465 was not for a public purpose.
Promote
Public Inherent and Constitutional
Purpose REVENUE General C Requisites of a Valid Taxpayer’s Suit
Welfare
convenience Limitations
1. e tax money is being extracted and spent in
Limited to Inherent Limitations violation of specific constitutional protection
Amount UNLIMITED cost of No exaction against abuses of legislative power;
regulation 1) Public Purpose. — has now evolved to include
2. Public money is being de lected to any improper
social justice.
Inferior to Superior to Superior to purpose;
Non- Determination that the tax is for public purpose
impairment NIC NIC NIC

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 180 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3. Petitioner seeks to restrain wastage of public Exempt from Income Tax exceptions:
funds through enforcement of an invalid law. 1. GSIS 1) Delegation of tari f powers to the President under
Important Concepts Regarding Taxpayer’s Suit Section 28 (2) of Article VI of the Constitution;
2. SSS
1. e public funds must be derived from taxation; 2) Delegation of emergency powers to the President
3. PHIC
under Section 23 (2) of Article VI of the
2. Does not apply to donations and contributions 4. PCSO Constitution;
made by public individuals or private entities;
5. PAGCOR (but not exempted from 3) Delegation to the people at large;
3. Taxpayer is not relieved from the obligation to business tax)
pay tax just because of his belief that it is being 4) Delegation to local governments; and
misappropriated; b. TAXABLE — GOCCs with special charter;
5) Delegation to administrative bodies.
personality distinct from the government;
4. A taxpayer has no legal standing to question acts incorporated e case before the Court is not a delegation of legislative
which do not involve the use of public funds. power. It is simply a delegation of ascertainment of facts
3) Non-delegation
2) Exemption from taxation of Government entities upon which enforcement and administration of the
Matters which cannot be delegated increase rate under the law is contingent.
Refers only to real property tax.
1. Nature of taxation; It is the ministerial duty of the President to immediately
GR: Agencies and instrumentalities of the
impose the 12% rate upon the existence of any of the
government performing governmental 2. Object and purpose;
conditions specified by Congress. is is a duty which
functions are tax exempt. If performing 3. Subject or coverage; cannot be evaded by the President. ere is no undue
proprietary functions, taxable.
4. Amount or rate of tax; delegation of legislative power but only of the discretion
EXC: Even if performing proprietary functions, if as to the execution of a law. is is constitutionally
the franchise or law creating them exempts 5. Manner, means and agencies of collection; permissible.
them — tax exempt. 6. Situs.
Delegation to LGU
If taxing authority is LGU
Abakada Guro Party List v. Ermita Only provinces and cities are allowed to impose a tax on
a. TAX EXEMPT — GOCCs with original
the transfer of ownership of real property.
charter; attached to the government; e general rule barring delegation of legislative powers
unincorporated; is subject to the following recognized limitations or
NPC v. City of Cabanatuan

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 181 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e power to tax is no longer vested exclusively on 3. Power to perform an innumerable details of 3. Usage among states — when a foreign sovereign
Congress; local legislative bodies are now given direct computation, appraisal and adjustment. enters the territorial jurisdiction of another,
authority to levy taxes, fees and other charges pursuant there is an implied understanding that the
to Art X Sec 5 of the 1987 Constitution. Southern Cross Cement Corporation v. CMAP former does not intend to degrade its dignity by
To determine whether the petitioner is covered by the e Court recognizes that the authority delegated to the placing itself under the jurisdiction of another.
franchise tax in question, the following requisites should President under Section 28(2), Article VI may be 5) Situs
concur: exercised, in accordance with legislative sanction, by the
GR: Taxation may be exercised only within the
1) that petitioner has a “franchise” in the sense of a alter egos of the President, such as department
territorial jurisdiction of the taxing
secondary or special franchise; and secretaries.
authority.
2) that it is exercising its rights or privileges under ere is only one viable ground for challenging the
EXC: Where privity of relationship exists.
this franchise within the territory of the legality of the limitations and restrictions imposed by
Congress under Section 28(2) Article VI, and that is such
respondent city government. Direct Constitutional Limitations
limitations and restrictions are themselves violative of
Fulfilling both requisites, petitioner is, and ought to be, the Constitution. us, no matter how distasteful or 1. Revenue bill must originate exclusively in the
subject of the franchise tax in question. To stress, a noxious these limitations and restrictions may seem, the House of Representatives but the Senate may
franchise tax is imposed based not on the ownership but Court has no choice but to uphold their validity unless propose amendments. (Sec 24(4) Art VI)
on the exercise by the corporation of a privilege to do business. their constitutional infirmity can be demonstrated. It is not the statute that must originate in the HREP
Delegation to the President but the bill.
4) International Comity
e authority of the President, upon the recommendation Abakada Guro Party List v. Ermita
1. Doctrine of sovereign equality among states —
of NEDA, to fix tari f rates, import and export quotas,
as between equals, there is no sovereign. One Article VI, Section 24 of the Constitution does not contain
tonnage and wharfage dues, and other duties or
state cannot exercise its sovereign powers over any prohibition or limitation on the extent of the
imposts. [Sec 28(2) Art VI, 1987 Constitution]
another. amendments that may be introduced by the Senate to the
Delegation to Administrative Bodies
2. Non-suability of States — under international House revenue bill.
1. Power to value property for purposes of taxation; law, a foreign government may not be sued Likewise, the Court finds the sections referring to other
2. Power to assess and collect taxes; without its consent. Hence, it is useless to percentage and excise taxes germane to the reforms to
impose a tax which could not be collected. the VAT system, as these sections would cushion the e fects

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 182 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

of VAT on consumers. Uniformity in taxation means that all taxable articles or b. e test is usage and not ownership. —
kinds of property of the same class shall be taxed at the Actual, direct, and exclusive use for
2. Concurrence of a majority of all the members of same rate. Di ferent articles may be taxed at di ferent religious, charitable and educational
Congress for the passage of a law granting tax amounts provided that the rate is uniform on the same purposes.
exemption (Sec 28(4) Art VI) class everywhere with all people at all times.
c. e exemption extends to facilities which are
Votes required In this case, the tax law is uniform as it provides a incidental to or reasonably necessary for the
a. For the GRANT of tax exemption — absolute standard rate of 0% or 10% (or 12%) on all goods and accomplishment of said purpose.
majority of the members of Congress (50+1 services. e rule of uniform taxation does not deprive
Scope of exemption. Real property taxes on facilities
of all the members voting separately) Congress of the power to classify subjects of taxation,
which are:
and only demands uniformity within the particular class.
b. For WITHDRAWAL of tax exemption —
a. Actual;
relative majority or majority of the quorum. Taxation is progressive when its rate goes up depending
on the resources of the person a fected. e VAT is an b. Incidental;
3. Rule of uniformity and equity in taxation
antithesis of progressive taxation. By its very nature, it is c. Reasonably necessary for the
Valid Classification regressive. accomplishment of said purpose.
a. It is based upon substantial distinctions Nevertheless, the Constitution does not really prohibit 6. Exemption of non-stock, non-profit educational
which make real di ferences; the imposition of indirect taxes, like the VAT. What it institutions from taxation
b. ese are germane to the purpose of the simply provides is that Congress shall "evolve a
Summary for Charitable, Religious and Educational Entities
legislation or ordinance; progressive system of taxation."
Non-Stock,
c. Applies, not only to present conditions, but, Charitable or
5. Exemption of religious, charitable and educational Non-Profit
also, to future conditions substantially Religious
entities, nonprofit cemeteries, and churches from Educational
identical to those of the present; property taxation (Sec 28(3) Art VI)
d. Applies equally to all those who belong to the Real Exempt from RPT If used ADE for intended
Important Principles
same class. Property purpose.
a. e tax exemption of religious, charitable
4. Progressive system of taxation and educational institutions covers real Income Exempt from Income Tax
property tax only. Income Income from Revenues from
Abakada Guro Party List v. Ermita

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 183 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Non-Stock, 9. Prohibition on the use of special fund (Sec 29(3) Art EXC where partial or item veto is allowed
Charitable or
Non-Profit VI)
Religious a. Appropriation bill;
Educational
All money collected on any tax levied for a special
b. Revenue bill;
from properties or properties or purpose shall be treated as a special fund and paid
out for such purpose only. If the purpose for which a c. Tari f bill.
Property activities conducted activities conducted
FOR profit are FOR profit that are special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred CIR v. CTA, Manila Golf & Country Club
taxable regardless of ADE for educational
disposition purposes are to the general funds of the Government. An “item” in a revenue bill does NOT refer to an entire
tax-exempt. section imposing a particular kind of tax, but rather to
PKSMMN, et al. v. Executive Secretary 2012 En Banc
the subject of the tax and the tax rate. In the portion of a
7. Non-imprisonment for non-payment of a poll tax Coco-levy funds are not only a fected with public revenue bill which actually imposes a tax, a section
(Sec 20 Art III) interest; they are, in fact, prima facie public funds. ey identifies the tax and enumerates the persons liable
Poll tax is a tax of a fixed amount fixed on persons were raised with the use of the police and taxing powers therefor with the corresponding tax rate.
residing within a specified territory, whether of the State for the benefit of the coconut industry and its
To construe the word “item” as referring to the whole
resident or not, without regard to their property or farmers in general.
section would tie the President’s hand in choosing either
the occupation of business in which they may be E.O. 313 runs counter to the constitutional provision to approve the whole section at the expense of also
engaged. which directs that all money collected on any tax levied approving a provision therein which he deems
8. Non-impairment of the jurisdiction of the SC in tax for a special purpose shall be treated as a special fund and unacceptable or veto the entire section at the expense of
cases (Sec 5(2) Art VIII) paid out for such purpose only. Assisting other foregoing the collection of the kind of tax altogether.
e Supreme Court shall have the following powers: agriculturally-related programs is way o f the coco-fund’s
(2) Review, revise, modify or a firm on appeal or objective of promoting the general interests of the coconut
certiorari, as the laws or the Rules of Court may industry and its farmers. Indirect Constitutional Limitations
provide, final judgments and orders of lower courts 10. Power of the President to veto any particular items 1) Due process of law. — e validity of a statute must
in xxx (b) all cases involving the legality of any tax, in a revenue or tari f bill be contested only by one who sustained or stands to
impost, assessment or toll or any penalty imposed sustain direct injury in consequence of its
in relation thereto. GR: e President has to approve or disapprove a
performance
bill in its entirety.
EXC: Transcendental importance, taxpayer‘s suit.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 184 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

cannot be revoked by passing another law. e

2) Equal protection of the laws With respect to Ordinance No. 3000, as amended, which
non-impairment clause applies.
a. All persons, businesses, and properties should be requires the obtention of the Mayor's permit before any
taxed at the same rate, so long as they belong to b. If the exemption is granted by virtue of a person can engage in any of the businesses, trades or
the same classification. Equality among equals. contract between a private corporation and the occupations enumerated therein, We do not find that it
government – it cannot be revoked unilaterally imposes any charge upon the enjoyment of a right
b. Does not require territorial uniformity of laws. by the government. e non-impairment clause granted by the Constitution, nor tax the exercise of
(Tiu v CA) applies. religious practices.
TESTS TO DETERMINE VALID CLASSIFICATION c. If the basis of the tax exemption is a mere
franchise granted by Congress – it can be 5) No appropriation for religious purposes
1. Compelling State Interest Test – State balances
the public interest against religious freedom. unilaterally revoked by the government. NIC GR: No appropriation is allowed in favor of any
e need to advance the constitution and does not apply. sect, church, or any priest, minister, etc.
public interest. In case there are less 4) Non-infringement of religious freedom EXC: When such priest is assigned to the armed
restrictive means to advance a right under forces, penal institution or government
the constitution. e free exercise of religion clause, however, does
not prohibit imposing a generally applicable sales orphanage or leprosarium.
2. Rational Basis Test – e classification is tax on the sale of religious materials by religious 6) Non-infringement of the freedom of the press
valid if it is rationally related to a organizations. e sale of religious articles can be
constitutionally permissible state interest. ere is curtailment of press freedom and freedom
subject to VAT, what cannot be taxed is the exercise of thought and expression if a tax is levied in order
e.g. Senior Citizens Act of religious worship or activity. e income of the to suppress this basic right and impose prior
3. Quasi-Suspect Case – Available if needed. priest from the exercise of a religious activity cannot restraint.
Based on gender/legitimacy. It points out a also be taxed. (Tolentino v. SOF)
specific constitutionally granted state CREBA v. Romulo 2010 En Banc
interest such as protection of women where American Bible Society v. City of Manila
Certainly, an income tax is arbitrary and confiscatory if
there is a valid classification between men We believe that the provisions of City of Manila it taxes capital because capital is not income. In other
and women. Ordinance No. 2529, as amended, cannot be applied to words, it is income, not capital, which is subject to
3) Non-impairment of the obligations of contracts appellant, for in doing so it would impair its free exercise income tax. However, the MCIT is not a tax on capital.
and enjoyment of its religious profession and worship as
a. If the exemption was granted for a valuable e MCIT is imposed on gross income which is arrived at
well as its rights of dissemination of religious beliefs.
consideration on the basis of a contract – it

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 185 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

by deducting the capital spent by a corporation in the sale 5) Levied by the State which has jurisdiction over the a. must relate to an occupation or activity that
of its goods, i.e., the cost of goods and other direct subject or object of taxation; so engages the public interest in health,
expenses from gross sales. Clearly, the capital is not morals, development and safety, as to
6) Levied by the lawmaking body of the State;
being taxed. require regulation for the protection and
7) For public purpose. promotion of such public interest.
No violation of Equal Protection
Requisites for a Valid Tax (PUJ-DL) b. must bear a reasonable relation to the
e taxing power has the authority to make reasonable
classifications for purposes of taxation. Inequalities 1) It must be for a Public purpose; probable expenses of regulation, taking into
which result from a singling out of one particular class account not only the costs of direct
2) e rule on taxation should be Uniform;
for taxation, or exemption, infringe no constitutional regulation but also its incidental
limitation. e real estate industry is, by itself, a class and 3) Subject taxed must be within the Jurisdiction of the consequences as well.
can be validly treated di ferently from other business taxing authority;
2) Toll is a sum of money for the use of something,
enterprises. 4) e assessment and collection must be in generally applied to the consideration which is paid
consonance with the Due process clause; for the use of a road, bridge or the like, of a public
5) e tax must not infringe the inherent and nature.

D Requisites of a Valid Tax constitutional Limitations of the power of taxation. 3) Compromise penalty is the amount collected by
1987 Constitution, art. VI, sec. 28
the BIR in lieu of criminal prosecution for violations
1) Enforced contribution - independent of the will of Distinguished from Other Forms of committed by taxpayers.
E
taxpayer; Exactions 4) Special assessment is a charge imposed on lands
2) Generally payable in money; If they are not considered taxes, the requirements for a especially benefited by public works or
EXC: valid tax (PUJ-DL) need not be complied with. improvements financed by the government. It is not
a personal liability of the person assessed. His
a. Tax credit certificate or back pay certificate; 1) License is in the nature of a special privilege, or liability is limited only to the land involved. It is
b. Tax liens. authority to do what is within its terms. It makes based wholly on benefits and not necessity.
lawful an act which would otherwise be unlawful. A
3) Proportionate in character — ability to pay. license granted by the State is always revocable. 5) Revenue refers to all funds or income derived by the
4) Levied on persons, property, exercise of a right or Primary purpose test (To be considered a license fee) government, whether from tax or from whatever
privilege, act or transactions; source and whatever manner.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 186 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

6) Customs Duties is a tax levied on imports (and, Taxes are the lifeblood of the government and their taxpayer.
sometimes, on exports) by the customs authorities prompt and certain availability is an imperious need. Here, respondent only proceeded with its petition a ter
of a country to raise state revenue, and/or to protect Without taxes, the government would be paralyzed for receiving tax assessments from the BIR and a ter various
domestic industries from more e ficient or lack of motive power to activate and operate it. requests for reconsideration, where it notably already
predatory competitors from abroad. Its collection should be made in accordance with law as raised the alleged unconstitutionality of Sections 108 and
7) Tari f is a tax imposed on imported goods and any arbitrariness will negate the very reason for 184 of the NIRC as a ground to contest the tax
services. Tari fs are used to restrict trade, as they government itself. assessment.
increase the price of imported goods and services,
making them more expensive to consumers. ey CIR v. Standard Insurance 2021
are one of several tools available to shape trade Construction and Interpretation of Tax
e RTC acted without jurisdiction in taking cognizance 2
policy. of the Petition for Declaratory Relief and issuing an
Laws, Rules, and Regulations
injunction against the collection of taxes. Internal revenue laws are not political in nature. Tax
F Doctrines in Taxation laws are civil and not penal in nature. Even if there is
CA 55 provides that petitions for declaratory relief do not
apply to cases where a taxpayer questions his liability for change in government control, it remains to be
Lifeblood Theory
the payment of any tax under any law administered by implemented.
Construction and Interpretation of Tax the BIR. us, the courts have no jurisdiction over GR: In case of doubt, tax laws are to be construed
Laws, Rules, and Regulations petitions for declaratory relief against the imposition of
strictly against the government and liberally in
Prospectivity of Tax Laws tax liability or validity of tax assessments.
favor of the taxpayer.
Taxes being the lifeblood of the government should be
Imprescriptibility of Taxes EXC:
collected promptly, without unnecessary hindrance or
Double Taxation delay. Section 218 of the NIRC expressly provides that no a. Where the language of the statute is plain and there
court shall have the authority to grant an injunction to is no doubt as to the legislative intent.
Escape from Taxation
restrain the collection of any national internal revenue b. Where the taxpayer claims exemption from
Prohibition on Compensation and Set-O tax, fee or charge imposed by the code. An exception to taxation.
Compromise and Tax Amnesty this rule, provided under Section 11 of RA 1125, obtains
As to Tax Exemptions
only when in the opinion of the CTA the collection thereof
1 Lifeblood Theory may jeopardize the interest of the government and/or the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 187 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

GR: In case of doubt, tax exemptions are to be construed are construed strictissimi juris against the taxpayer and approval of administrative interpretation by reenactment.
strictly against the taxpayer and liberally in favor liberally in favor of the government. Tax laws are
prospective in operation, unless the language of the Important Concepts on Jurisdiction
of the taxing authority.
statute clearly provides otherwise. 1. Follow the hierarchy of the courts;
EXC:
Revenue statutes are substantive laws and in no sense 2. If it is a question pertaining to the constitutionality
a. Statute provides for the liberal construction thereof;
must their application be equated with that of remedial of a ruling or IRR, raise it immediately before the
b. Special taxes relating to special cases and a fecting laws. As well said in a prior case, revenue laws are not regular courts;
only special cases; intended to be liberally construed. Considering that taxes are
3. But if it pertains to questions on the tax payable
c. Exemptions refer to public property; the lifeblood of the government, tax laws must be
computations, question it first with the BIR
faithfully and strictly implemented.
d. Exemptions granted to religious, charitable and (Administrative level) then appeal it to the CIR
educational institutions or their property; (depends on the amount), then a ter it can be
appealed later to the Sec of Finance or CTA, and
e. Exemptions in favor of the government, its political KEPCO v. CIR 2011
then a ter, that‘s the time you can go the SC.
subdivisions or instrumentalities.
WON Kepco's failure to imprint the words "zero-rated" on its 4. But in the SC, it should only be purely questions of
MCIAA v. Marcos o ficial receipts issued to NPC justifies an outright denial of its law.
claim for refund of unutilized input tax credits.
Since taxation is the rule and exemption therefrom the
3 Prospectivity of Tax Laws
exception, the exemption may thus be withdrawn at the YES. e imprinting of "zero-rated" is necessary to
pleasure of the taxing authority. e only exception to distinguish sales subject to 10% VAT, those that are APPLICATION OF TAX LAWS
this rule is where the exemption was granted to private subject to 0% VAT (zero-rated) and exempt sales. Said
GR: Tax laws are prospective in operation because the
parties based on material consideration of a mutual nature, revenue regulation is merely a precautionary measure to
nature and amount of the tax could not be foreseen
which then becomes contractual and is thus covered by the ensure the e fective implementation of the Tax Code. As a
and understood by the taxpayer at the time the
non-impairment clause of the Constitution. matter of fact, the provision of Section 4.108-1 of R.R.
transactions which the law seeks to tax were
7-95 was incorporated in Section 113 (B)(2)(c) of R.A. No.
completed.
9337. is, in e fect, and as correctly concluded by the
CIR v. Acosta CIR, confirms the validity of the imprinting requirement EXC: While it is not favored, a statute may nevertheless
on VAT invoices or o ficial receipts even prior to the operate retroactively provided it is expressly declared
Tax refunds are in the nature of tax exemptions which
enactment of R.A. 9337 under the principle of legislative or is clearly the legislative intent.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 188 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

EXC to the EXC: Requisites earned, and is paid a ter every calendar quarter in which
it is earned. On the other hand, the GRT is neither
A tax law should not be given retroactive application a. Same subject/object taxed twice;
deducted nor withheld, but is paid only a ter every
when it would be so harsh and oppressive, for in b. For the same purpose; taxable quarter in which it is earned.
such case, the constitutional limitation of due
process would be violated. c. By the same taxing authority; ird, these two taxes are of di ferent kinds or
d. Within the same jurisdiction; characters. e FWT is an income tax subject to
Non-retroactivity of repeal of regulations or rulings
withholding, while the GRT is a percentage tax not
GR: No retroactivity if the repeal, revocation, e. During the same period; AND
subject to withholding.
modification or reversal of regulations or rulings is f. Of the same kind or character.
prejudicial to the taxpayer. Domestic double taxation — arises when the taxes are
2. Broad Sense — INDIRECT
imposed by the local or the national government.
EXC:
if any of the elements for direct duplicate taxation is
International double taxation — imposition of comparable
1. Where the taxpayer deliberately misstates or omits absent. Not prohibited.
taxes in two or more states on the same taxpayer with
material facts from his return or in any document
CIR v. Solidbank respect to the same subject matter and for an identical
required of him by the BIR;
period.
2. Where the facts subsequently gathered by the BIR Double taxation means taxing the same property twice
HOW TO ELIMINATE?
are materially di ferent from the facts on which the when it should be taxed only once; that is, "taxing the
ruling is based; same person twice by the same jurisdiction for the same 1. Allowing reciprocal exemption either by law or by
thing." treaty
3. Where the taxpayer acted in bad faith.
First, the taxes herein are imposed on two di ferent 2. Allowance of tax credit for foreign taxes paid
4 Imprescriptibility of Taxes subject matters. e subject matter of the FWT is the Tax Credit – deduction from tax payable. It reduces
passive income generated in the form of interest on the amount payable directly. It is a full deduction of
As a rule, taxes are imprescriptible as they are the
deposits and yield on deposit substitutes, while the the amount paid abroad. is is the best option.
lifeblood of the government. However, tax laws may
subject matter of the GRT is the privilege of engaging in
provide for statute of limitations. 3. Allowance of deduction for foreign taxes paid
the business of banking.
5 Double Taxation Second, the taxing periods they a fect are di ferent. e Tax Credit – deduction from taxable income. e
FWT is deducted and withheld as soon as the income is amount of taxes paid abroad is used to reduce tax
1. Strict Sense — DIRECT payable in the Philippines. Here, the amount paid

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 189 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

abroad is multiplied by the tax rate in the help the taxpayer avoid simultaneous taxation in two
Philippines.
Shifting of Tax Burden
di ferent jurisdictions. More precisely, the tax
a. Tax burden is transferred from the statutory
4. Reduction of Philippine tax rate conventions are dra ted with a view towards the
taxpayer to another without violation of law.
elimination of international juridical double taxation,
MOST FAVORED NATION CLAUSE
which is defined as the imposition of comparable taxes in two b. Statutory taxpayer. the original taxpayer required
1. A method of establishing equality of trading or more states on the same taxpayer in respect of the same subject under the law to pay the tax.
opportunity among states by guaranteeing that if matter and for identical periods. c. Impact of taxation. e point on which a tax is
one country is given better trade terms by another,
ere are two methods of relief — the exemption method originally imposed.
then all other states must get the same terms.
and the credit method. d. Incidence of taxation. at point on which the tax
2. e filing of a tax treaty relief application is not a
In the exemption method, the income or capital burden finally rests or settles down.
condition precedent to the availment of a
preferential tax rate. e denial of the availment of which is taxable in the state of source or situs is Kinds:
tax relief for the failure of a taxpayer to apply within exempted in the state of residence, although in some
a. Forward shi ting – the transfer of the
the prescribed period under the administrative instances it may be taken into account in determining
burden of tax from the units of production to
issuance would impair the value of the tax treaty. At the rate of tax applicable to the taxpayer's remaining
the units of distribution to the consumer.
most, the application for a tax treaty relief from the income or capital.
E.g. VAT, percentage tax
BIR should merely operate to confirm the On the other hand, in the credit method, although
b. Backward shi ting – e transfer of the
entitlement of the taxpayer to the relief. (Deutsche the income or capital which is taxed in the state of
burden of tax from the consumer back to the
Bank) source is still taxable in the state of residence, the tax
units of distribution to the units of
Tax Treaties as Relief from Double Taxation paid in the former is credited against the tax levied in
production.
the latter.
CIR v. S.C. Johnson and Son c. Onward shi ting – When the tax is shi ted
e basic di ference between the two methods is that in
two or more times either forward or
e RP-US Tax Treaty is just one of a number of bilateral the exemption method, the focus is on the income or
backward. More than one shi t.
treaties which the Philippines has entered into for the capital itself, whereas the credit method focuses upon the
avoidance of double taxation. e purpose of these tax. Tax Avoidance
international agreements is to reconcile the national Exploitation by the taxpayer of legally permissible
fiscal legislations of the contracting parties in order to alternative tax rates or methods of assessing taxable
6 Escape from Taxation

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 190 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

property or income in order to avoid or reduce tax

Narrow Sense – Exemption of a particular class. An b. It may be based on some ground of public policy.
liability. e.g. estate planning. entire class of the same conditions are exempted from e exemption is provided in the law itself or the
Tax Evasion taxes supposedly imposed on a bigger class. constitution.

Elements of Tax Evasion (How to Establish Tax Evasion) Important principles TN: To encourage new industries or to foster
a. It is an immunity or privilege that is personal in charitable institutions. Here, the government need
a. e end to be achieved is to lessen payment of taxes
nature; not receive any consideration in return for the tax
Example: the payment of less than that known by the
exemption
taxpayer to be legally due, or in paying no tax when b. It is freedom from a financial charge or burden to
such is due. which others are subjected; c. It may be created in a treaty on grounds of
reciprocity or to lessen the rigors of international or
b. An accompanying state of mind described as being c. Allowed only when there is a clear provision of the multiple taxation.
“evil”, “in bad faith”, “willful” or “deliberate and not law;
accidental” TN: Recognition of international comity.
d. Strictly construed against the taxpayer;
c. A course of action (or failure of action) which is CONSTRUCTION OF TAX EXEMPTION STATUTES
e. It is not necessarily discriminatory as long as there
unlawful. (CIR v. Estate of Toda) GR: Tax exemption statutes are construed strictly
is a reasonable foundation or rational basis.
Indicia of Fraud against the taxpayer and liberally in favor of the
DOUBLE NEXUS RULE. Person claiming exemption must government.
a. Failure to declare true and actual income derived prove:
from business for 2 consecutive years; OR a. In the construction of tax statutes, in case of doubt,
1. e law granting the exemption; AND exemptions are not favored and are construed
b. Substantial under-declaration of ITR for 4
2. at he falls within the law or is qualified in the strictissimi juris against the taxpayer.
consecutive years coupled with intentional
exemption. b. e fundamental theory is that all taxable property
overstatement of deductions.
GROUNDS FOR TAX EXEMPTION should bear its share in the cost and expenses of the
Exemption from Taxation government.
a. It may be based on contract. When the charter
Broad Sense – Tax not applied on a particular property.
provides for such exemption. c. Taxation is the rule and exemption the exception,
Tax on particular property or object within the same
and therefore, he who claims exemption must be
jurisdiction but not taxed by the taxing authority. e.g. TN: In such a case, the public which is represented
able to justify his claim or right thereto, by a grant
Tax on property used by the Government when the other by the government is supposed to receive a full
expressed in terms ― too plain to be mistaken and
properties in the same area are subject to tax. equivalent therefor.
too categorical to be misinterpreted.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 191 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

d. Claims for an exemption must be able to point out a. Non-impairment clause – Applies in contractual tax against the government and in favor of the taxpayer.
some provision of law creating the right, and cannot exemptions or those agreed to by the taxing In this case, petitioner does not dispute that respondents
be allowed to exist upon a mere vague implication or authority in contracts, such as those contained in are in the insurance business. Petitioner merely alleges
inference. government bonds or debentures, lawfully entered that the definition of lending investors under CA 466 is
e. Refunds are in the nature of exemption, and must into by them under enabling laws in which the broad enough to encompass insurance companies. e
be construed strictly against the grantee/taxpayer. government, acting in its private capacity, sheds its question is whether the lending activities of insurance
cloak of authority and waives its governmental companies make them lending investors for purposes of
EXC: immunity. taxation. We agree with the CTA and Court of Appeals
a. When the law itself expressly provides for a liberal b. Adherence to form – If the exemption is granted by that it does not.
construction, that is, in case of doubt, it shall be the Constitution, it can only be revoked through a
resolved in favor of exemption. Constitutional amendment. It cannot be revoked by
b. When the exemption is in favor of the government mere passage of a law. PAGCOR v. BIR 2011 En Banc
itself or its agencies, or of religious, charitable, and c. Tax-exempting grant is in the form of a special law – WON PAGCOR is still exempt from corporate income tax and
educational institutions because the general rule is where the grant is given through a special law and VAT with the enactment of R.A. No. 9337. NO. Petitioner is
that they are exempt from tax. not by a general law, even if the terms of the general no longer exempt from corporate income tax as it has
c. When the exemption is granted under special act are broad enough to include the intent to repeal been e fectively omitted from the list of GOCCs that are
circumstances to special classes of persons. or alter the special law, there would still be no exempt from it.
revocation.
d. If there is an express mention or if the taxpayer falls In Manila Electric Company v. Province of Laguna, the
within the purview of the exemption by clear Court held that a franchise partakes the nature of a grant,
CIR v. e Phil-American Accident Insurance Company
legislative intent, the rule on strict construction which is beyond the purview of the non-impairment clause of
does not apply. e rule that tax exemptions should be construed strictly the Constitution.
against the taxpayer presupposes that the taxpayer is
e. If exemption refers to public property (in case of Anent the validity of RR No. 16-2005, the Court holds that
clearly subject to the tax being levied against him. Unless
public property, the general rule is exemption and the provision subjecting PAGCOR to 10% VAT is invalid
a statute imposes a tax clearly, expressly and
taxation is the exception) for being contrary to R.A. No. 9337. Nowhere in R.A. No.
unambiguously, what applies is the equally well-settled
f. Solutio indebiti 9337 is it provided that petitioner can be subjected to VAT.
rule that the imposition of a tax cannot be presumed.
RESTRICTIONS ON REVOCATION OF TAX EXEMPTION Where there is doubt, tax laws must be construed strictly

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 192 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Lung Center of the Philippines v. Quezon City be created at the time via presidential proclamation. Air Canada v. CIR 2016

Portions of the land leased to private entities as well as e issue of petitioner's claim for tax refund is
those parts of the hospital leased to private individuals intertwined with the issue of the proper taxes that are due
Smart Communications v. e City of Davao
are NOT exempt from such taxes. On the other hand, the from petitioner. A claim for tax refund carries the
portions of the land occupied by the hospital and portions WON Smart is liable to pay the franchise tax imposed by the assumption that the tax returns filed were correct. In
of the hospital used for its patients, whether paying or City of Davao. South African Airways v. CIR, South African Airways
non-paying, are exempt from real property taxes. claimed for refund of its erroneously paid 2 1/2% taxes on
YES. e uncertainty in the "in lieu of all taxes" clause in
In order to be entitled to the exemption, the petitioner is its gross Philippine billings. is court did not
R.A. No. 7294 on whether Smart is exempted from both
burdened to prove, by clear and unequivocal proof, that immediately grant South African's claim for refund. is
local and national franchise tax must be construed
is because although this court found that South African
a) it is a charitable institution; and strictly against Smart which claims the exemption.
Airways was not subject to the 2 1/2% tax on its gross
b) its real properties are ACTUALLY, DIRECTLY and In this case, the doubt must be resolved in favor of the Philippine billings, this court also found that it was
EXCLUSIVELY used for charitable purposes. City of Davao. e "in lieu of all taxes" clause applies only to subject to 32% tax on its taxable income.
national internal revenue taxes and NOT to local taxes.
What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and
SMI-ED Philippines Technology v. CIR 2014
immediate and actual application of the property itself
Prohibition on Compensation and
to the purposes for which the charitable institution is 7 In an action for the refund of taxes allegedly erroneously
Set-O
organized. It is not the use of the income from the real property paid, the Court of Tax Appeals may determine whether
that is determinative of whether the property is used for GR: Taxation is not subject to set-o f. there are taxes that should have been paid in lieu of the
tax-exempt purposes. EXC: When both debts are due and demandable and taxes paid. Determining the proper category of tax that
have been fully liquidated, and the amount due should have been paid is not an assessment. It is
the taxpayer has already been appropriated by incidental to determining whether there should be a
John Hay People’s Alternative Coalition, et al. v. Lim law, compensation follows by operation of law. refund.
Under Section 12 of R.A. No. 7227, it is only the Subic SEZ TN: ere can be no compensation as the A PEZA-registered corporation that has never
which was granted by Congress with tax exemption, Government and the people are not principal commenced operations may not avail the tax incentives
investment incentives and the like. ere is no express debtors and creditors of each other. and preferential rates given to PEZA-registered
extension of the aforesaid benefits to other SEZs still to enterprises. Such corporation is subject to ordinary tax

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 193 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

rates. taxpayer demonstrates a clear inability to pay the interfere with his exercise of discretionary
e amount of the taxpayer’s liability should be computed tax. functions, absent grave abuse of discretion. Here,
and deducted from the refundable amount. Any liability 3. e BIR issued RR No. 30-2002, as amended by RR no grave abuse of discretion exists. Kepco complied
in excess of the refundable amount, however, may not be No. 08-2004, which enumerates the bases for with the procedures prescribed under the BIR rules
collected in a case involving solely the issue of the acceptance of the compromise settlement on the on the application and approval of compromise
taxpayer’s entitlement to refund. ground of doubtful validity. settlement on the ground of doubtful validity.

4. Kepco's case falls under paragraph e — the 7. e minimum compromise amount under Section
assessment became final because Kepco failed to 204 (A) of the 1997 NIRC is 40% of the basic tax
8 Compromise and Tax Amnesty appeal the inaction or "deemed denial" of the CIR to assessed. Kepco complied with the requirement of
the CTA within 30 days a ter the expiration of the payment of the compromise o fer as a precondition
Kepco Philippines Corp. v. CIR 2020 Lopez, M., J. 180-day period and there is reason to believe that for the processing of the application.

A compromise agreement has the e fect of res judicata on the the assessment is lacking in legal and/or factual 8. Further, the TWG evaluated Kepco's application and
parties. Compromises are generally to be favored and those basis. recommended to the NEB its approval on the basis
entered into in good faith cannot be set aside, except when there is 5. Kepco filed its protest to the FLD on November 26, of doubtful validity. e application was approved
mistake, fraud, violence, intimidation, undue in luence, or falsity 2009, the CIR had 180 days or until May 25, 2010 to by a majority of all the members of the NEB in
of documents. act on the protest. erea ter, Kepco may elevate its compliance with Section 2 54 of RR No. 9-2013.
protest to the CTA within 30 days from the lapse of erea ter, the CIR issued Certificate of Availment
WON the compromise agreement between Kepco and CIR is in favor of Kepco.
proper. the 180-day period, or until June 24. Since Kepco
failed to appeal the inaction or deemed denial or 9. A compromise agreement has the e fect of res
1. YES. e compromise settlement between Kepco adverse decision of the CIR on June 24, the judicata on the parties. Compromises are generally
and the CIR is valid. assessment for deficiency VAT and FWT for TY 2006 to be favored and those entered into in good faith
2. e power of the CIR to enter into compromise became final, executory and demandable. cannot be set aside, except when there is mistake,
agreements for deficiency taxes is explicit in Section 6. As to whether the CIR properly accepted Kepco's fraud, violence, intimidation, undue in luence, or
204 (A) of the 1997 NIRC, as amended. e CIR may o fer for a compromise because "the assessment is falsity of documents. None of these exceptions
compromise an assessment when a reasonable lacking in legal and/or factual basis," the general obtain in the present case.
doubt as to the validity of the claim against the rule is that the authority of the CIR to compromise
taxpayer exists, or the financial position of the is purely discretionary and the courts cannot

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 194 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Amnesty Exemption itself of the Tax Amnesty Program because it is “deemed” self-assessed tax."
a withholding agent for the deficiency taxes. is In implementing tax amnesty laws, the CIR cannot now
Immunity from ALL Immunity from CIVIL argument is untenable.
liabilities liabilities only insert an exception where there is none under the law.
e CIR also argues that AIA, being an accredited Indeed, a tax amnesty must be construed strictly against
A general pardon to all A privilege, a freedom from investor/taxpayer situated at the Subic Special Economic the taxpayer and liberally in favor of the taxing authority.
taxpayers a charge or burden of Zone, should have availed of the tax amnesty granted However, the rule-making power of administrative
which others are subjected under RA 9399 and not under RA 9480. is is also agencies cannot be extended to amend or expand
untenable. statutory requirements or to embrace matters not
Of retroactive application Generally prospective originally encompassed by the law.
RA 9399 was passed prior to the passage of RA 9480. RA
9399 does not preclude taxpayers within its coverage from
Asia International Auctioneers, Inc. v. CIR 2012 availing of other tax amnesty programs available or
enacted in futuro like RA 9480. Moreso, RA 9480 does not BIR v. Cagang 2022
A tax amnesty is a general pardon or the intentional exclude from its coverage taxpayers operating within e tax amnesty under RA 9480 does NOT extend to
overlooking by the State of its authority to impose special economic zones. As long as it is within the bounds CEDCO with respect to its existing withholding tax
penalties on persons otherwise guilty of violating a tax of the law, a taxpayer has the liberty to choose which tax liabilities.
law. It partakes of an absolute waiver by the government amnesty program it wants to avail.
of its right to collect what is due it and to give tax evaders Tax amnesty refers to the absolute waiver by a sovereign
who wish to relent a chance to start with a clean slate. of its right to collect taxes and power to impose penalties
on persons or entities guilty of violating a tax law. It aims
A tax amnesty, much like a tax exemption, is never CIR v. Transfield Philippines, Inc. 2019 to grant a general reprieve to tax evaders who wish to
favored or presumed in law. e grant of a tax amnesty, come clean by giving them an opportunity to straighten
Here, respondent has successfully availed itself of the tax
similar to a tax exemption, must be construed strictly out their records.
amnesty benefits granted under R.A. No. 9480. e CIR,
against the taxpayer and liberally in favor of the taxing
however, insists that respondent is still liable for Sec 8 of RA 9480 provides that withholding taxes are not
authority.
deficiency taxes, contending that under RMC No. covered by the amnesty program. us, there is merit in
e Tax Amnesty Program under RA 9480 may be availed 19-2008, respondent is disqualified to avail of the tax the BIR's submission that CEDCO is not qualified to avail
of by any person except those who are disqualified under amnesty because it falls under the exception of of the tax amnesty with respect to its withholding tax
Section 8 thereof. e CIR contends that AIA is "delinquent accounts or accounts receivable considered as liabilities.
disqualified under Section 8(a) of RA 9480 from availing assets by the BIR or the Government, including

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 195 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

A tax amnesty, much like a tax exemption, is never La Flor's compliance with the requirements under RA Taxable Corporations
favored or presumed in law. It must be construed strictly 9480 as implemented by DOF DO No. 20-97 extinguished
against the taxpayer and liberally in favor of the taxing its tax liabilities, additions, and all appurtenant civil,
authority. However, with respect to the deficiency taxes criminal, or administrative penalties under the NIRC. Important Revenue Regulations
pertaining to CEDCO's income tax and VAT for taxable La Flor's immunity from paying taxes under RA 9480 is 1. RR 08-18. Revenue Regulation Implementing the
years for 2000 and 2001, CEDCO is entitled or qualified e fective despite the fact that the CIR already issued the Income Tax Provisions of TRAIN Act
to avail of the tax amnesty considering that it had FDDA prior to its application for tax amnesty and
submitted the necessary documents and complied with subsequent payment thereof. 2. RR 11-18. Revenue Regulation Implementing the
the requirements under RA 9480. Withholding of Income Tax Provisions of TRAIN Act
CIR v. Philippine Aluminum Wheels, Inc. ruled that only
persons with "tax cases subject of final and executory 3. RMC 50-18.
judgment by the courts" are disqualified to avail of the
People v. Tuyay 2021 4. RR 2-21.
Tax Amnesty Program under RA 9480, which means that
Here, Tuyay availed of the tax amnesty under RA 9480 there must be a final and executory judgment 5. RR 5-21. Implementing the New Income Tax
and complied with all the requirements thereof. promulgated by a court. e FDDA issued by the BIR is Rates on the Regular Income of Corporations
not a tax case subject of final and executory judgment by under CREATE Act, as modified by RR 14-21.
Tuyay was not disqualified to avail of the tax amnesty
the court.
because at the time she availed of it in February 2008,
there was no pending criminal case against her before At a Glance. Sec 24 NIRC. —
any court as it was only in October 2009 that the criminal (A) Other than income subject to tax under Subsections
cases were filed against her with the CTA. G Income Taxation
(B), (C), and (D)
In sum, having availed of the tax amnesty and having Kinds of Taxpayers (B) Passive Income;
fully complied with all its requirements and conditions,
Tuyay is indeed entitled to the immunities and privileges Income; Definition and Nature; When (C) Capital Gains from Sale of Shares of Stock not
conferred by RA 9480, which includes her immunity from Taxable Traded in the Stock Exchange;
criminal liability under the NIRC. Situs of Income Taxation (D) Capital Gains from Sale of Real Property.

Gross Income
La Flor Dela Isabela v. CIR 2021 Taxable Individuals

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 196 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Kinds of Income and Taxes excess of Taxes

Taxpayer Source P250K Taxpayer Type of Income
(A) (B) (C) (D) Income VAT %
Net Income
RC Any > 3M Compensation NIT ✘ ✘
Tax
NRC w/in 0-35% On Income NIT ✘ 3%
On Compensation Net Income
NIT or from T/B or
RA w/in FWT Income Tax
8% of EP not more
MIE 8% ✘ ✘
GR/GS1 not NIT or 8% than 3M
NRA - Mixed Income On Income
w/in more of Gross
ETB Earner from Trade On Income
or Business than 3M Income
NRA- from T/B or NIT 12% ✘
w/in 25% FT 2
FWT or Exercise of Net Income EP > 3M
NETB > 3M
Profession Tax
20 or INCOME TAX is a direct tax on all yearly profits arising
DC Any 25% FWT
2
except those who are employed in OBUs, MNCs, PSCs from property, professions, trades or o fices or a tax on a
NIT who are subject to NIT rates person's income, emoluments, profits, and the like. It is:
1. National;
25% Taxes
RFC w/in FWT Taxpayer Type of Income 2. Direct;
NIT N/A Income VAT %
3. Excise; and
NRFC w/in 25% FT FWT
CIE Compensation NIT ✘ ✘ 4. General.

1 Net Income With GS/GR NIT ✘ 3% Income Tax Systems

Compensation Income Earner Tax not more than a) Schedular — e items are classified based on kind
SEP/ 3M 8% ✘ ✘
or category of income and this is subject to di ferent
Self-Employed With Gross not NIT or 8% SEI
With GS/GR > tax rates based on the income classification.
Professional or Sales or more of Gross
NIT 12% ✘
Individual Receipts than 3M Income in 3M b) Global — lump all items of income and a single/
proportional/uniform income tax rate is imposed.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 197 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) Mixed (applicable in PH) — it is schedular in the Feature Individual Corporate 1. Citizenship or Nationality Principle — a citizen of the
sense that we lump di ferent items of income per Philippines is subject to Philippine income tax
type or category and it is global in the sense that we 2) Place — NRA, 2) Place — NRFC;
NRC; 3) Nationality — a. On his worldwide income, if he resides in the
subject all the items in this lump to one tax rate. Philippines, or
3) Citizenship — DC.
Features of the Philippine Income Tax Law RC. b. Only on his Philippine-source income, if he
qualifies as a non-resident citizen; hence, his
Feature Individual Corporate Common Features foreign-source income shall be exempt.
Schedular Global 1) Pay as you file system. — 2. Residence or Domicile Principle — an alien is subject
1) It classifies 1) Generally a) Individuals — upon filing of ITRs; to income tax because of his residence in the
income; provides for Philippines. us, a resident alien is liable to pay
b) Corporations — upon filing of quarterly
2) Provides for uniform rules; Philippine income tax only on his income from
corporate ITRs and final adjustment
Tax di ferent tax 2) Generally sources within the Philippines but is exempt from
corporate returns;
Treatment rules; imposes uniform tax on his income from sources outside the
3) Imposes tax rate; 2) Creditable Withholding Tax System Philippines.
di ferent tax 3) Does not a) Withholding agent — withholds tax and 3. Source of Income Principle — an alien is subject to
rates. generally classify remits to the BIR; Philippine income tax because he derives income
income.
b) Tax withheld — creditable against income from sources within the Philippines.
1) RC; 1) DC; tax due.
Types of Philippine Income Taxes
Net Income 2) NRC; 2) RFC. 3) Final Withholding Tax System
Taxation 3) RA; 1. Personal Income Tax on Individuals (Secs 24-25);
a) Withholding agent — withholds tax and
4) NRA-ETB. 2. Regular Corporate Income Tax (Sec 27[A]);
remits to the BIR;
Gross Income 3. Minimum Corporate Income Tax (Sec 27[E]);
NRA-NETB NRFC b) Tax withheld — final settlement of the tax
Taxation liability on the income covered. 4. Capital Gains Tax;

1) Residence — RA, 1) Residence — Criteria in Imposing Philippine Income Tax 5. Tax on passive investment income;
Situs
RC; RFC; 6. Fringe Benefits Tax (Sec 33);

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 198 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

7. Branch Profit Remittance Tax (Sec 27); d) An alien individual, whether a resident or not of the
8. Improperly Accumulated Earnings Tax (Sec 29); and Philippines, is taxable only on income derived from
sources within the Philippines;
9. Final Withholding Income Tax.
e) A domestic corporation is taxable on all income
Taxable Period derived from sources within and without the
1) 'Taxable year' means the calendar year, or the fiscal Philippines; and
year ending during such calendar year, upon the f) A foreign corporation, whether engaged or not in
basis of which the net income is computed. trade or business in the Philippines, is taxable only
2) For Corporations — In the case of corporations on income derived from sources within the
adopting the fiscal-year accounting period, the Within and Without Within Final Tax Rate of 25% within Philippines. (Sec 23)
taxable income shall be computed without regard to a) A citizen of the Philippines residing therein is In short… Only RESIDENT CITIZENS and DOMESTIC
the specific date when specific sales, purchases and taxable on all income derived from sources within CORPORATIONS are taxable on income derived from ALL
other transactions occur. eir income and expenses and without the Philippines; sources. All others are only taxable on income derived from
for the fiscal year shall be deemed to have been sources within PH.
b) A nonresident citizen is taxable only on income
earned and spent equally for each month of the
derived from sources within the Philippines;
period. Resident Citizen
c) An individual citizen of the Philippines who is
e corporate income tax rate shall be applied on the 1) ose who are citizens of the Philippines at the time
working and deriving income from abroad as an
amount computed by multiplying the number of of the adoption of this Constitution;
overseas contract worker is taxable only on income
months covered by the new rate within the fiscal
derived from sources within the Philippines: 2) ose whose fathers or mothers are citizens of the
year by the taxable income of the corporation for the
Philippines;
period, divided by twelve. Provided, at a seaman who is a citizen of the
Philippines and who receives compensation for 3) ose born before January 17, 1973, of Filipino
Kinds of Taxpayers services rendered abroad as a member of the mothers, who elect Philippine citizenship upon
1
R.A. No. 8424, as amended, sec. 23 complement of a vessel engaged exclusively in reaching the age of majority; and
international trade shall be treated as an overseas 4) ose who are naturalized in accordance with law.
contract worker;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 199 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

respect to his income derived from sources abroad

A Resident Citizen is a Filipino citizen who stayed NRA-NETB
permanently in the Philippines or stayed outside the until the date of his arrival in the Philippines.
a. 180 days or less
Philippines for less than 183 days during the taxable year. ➔ Hybrid
b. 25% final tax on gross income
5) Receives compensation for services rendered abroad
Non-Resident Citizen
as a seaman. Special Employees
1) A citizen of the Philippines who establishes to the
a. He is a member of the complement of a Special employees are alien individuals or Filipino citizens
satisfaction of the Commissioner the fact of his
vessel who are subject to 15% tax based on their gross
physical presence abroad with a definite intention
to reside therein. b. e vessel is engaged exclusively in compensation income when:
international trade. 1. ey are employed occupying managerial and/or
2) A citizen of the Philippines who leaves the
Philippines during the taxable year to reside abroad, technical positions with regional or area
Resident Alien
either as an immigrant or for employment on a headquarters of
permanent basis. A resident alien is one who has a residence in the a. multinational corporations,
Philippines although he is not a Filipino citizen. He has
3) A citizen of the Philippines who works and derives no definite period of stay in the Philippines. b. petroleum service contractors and
income from abroad and whose employment thereat subcontractors, or
requires him to be physically present abroad most He is not a mere transient or sojourner. His definite
purpose for staying requires an extended stay and to c. o fshore banking units.
of the time during the taxable year.
that end, he makes his home temporarily in the 2. If the special taxpayer is an alien, all of his gross
a. At least 183 days. Philippines. compensation income received is subject to 15% final
b. Temporary employment tax.
Non-Resident Alien
4) A citizen who has been previously considered as 3. If the taxpayer is a Filipino citizen, he has the
non-resident citizen and who arrives in the e test to classify NRA is the length of stay in the option to be taxed at 15% final tax based on his gross
Philippines at any time during the taxable year to Philippines, whether he stays for more than 180 days or, 180 compensation income received or at a regular
reside permanently in the Philippines shall likewise days or less. income tax rate (0%-35%) based on the net taxable
be treated as a non-resident citizen for the taxable NRA-ETB compensation income if his gross annual taxable
year in which he arrives in the Philippines with compensation is at least P975,000 (whether or not
a. More than 180 days
actually received).
b. 0-35% tax on net income

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 200 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

TN: 15% preferential tax rate vetoed 1. basic salary/wages, A TRUST is an obligation imposed or a right to
Present and future qualified employees of existing 2. annuities, administer over a property given to a person for the
ROHQ, RAHQ, OBU, and Petroleum service contractors benefit of another.
3. compensation,
and subcontractors as of December 31, 2017 shall enjoy 1. Where the income is accumulated or held for
preferential tax treatment. 4. remuneration and future distribution by the trustee;
It shall not apply for employees of ROHQ, RAHQ, OBU 5. other emoluments, such as honoraria and 2. Where it is up to the fiduciary whether there will
and Petroleum service contractors and subcontractors allowances, received from such service providers be distribution or not;
which registered with the SEC beginning January 1, or o fshore gaming licensees.
3. Where the income is collected by a guardian of
2018. an infant which is to be held or distributed as the
Estates and Trusts
Tests for Filipinos to avail of the option (prior to 1 Jan 2018) court may direct.
An ESTATE is composed of all properties, rights and
a. Position and function test – employees must be obligations including those properties, earnings or Corporations
occupying managerial or technical position. obligations that have accrued thereto since the opening
b. Compensation test – employees must be paid in their of the succession. e estate is to be transferred from e term 'corporation' shall include
contract (whether actual or not, as long as stipulated the decedent to his successors. Its status is the same as a) one person corporations,
in the contract) the amount of P975,000 per annum that of the decedent prior to his death.
b) partnerships, no matter how created or
which is the minimum amount. It will only be taxable when it is under administration or organized,
c. Exclusivity Test - one employer at a time. settlement.
c) joint-stock companies,
Alien Individuals Employed by an O fshore Gaming GR: An estate under judicial settlement is subject to
d) joint accounts (cuentas en participación),
Licensee and Service Providers income tax.
e) association, or
EXC: e distribution to the heirs during the taxable
Shall pay a final withholding tax of 25% on their gross
year of estate income is deductible from the f) insurance companies,
income.
taxable income of the estate. Such will form part but does not include
e minimum FWT due for any taxable month from of the taxable income of the heirs.
said persons shall not be lower than P12,500.00. a) general professional partnerships and

Gross income shall include, whether in cash or in kind, b) a joint venture or consortium formed for the
purpose of undertaking construction projects or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 201 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

engaging in petroleum, coal, geothermal and an activity which he is engaged in or for an investment
Realization Test
other energy operations pursuant to an which he has made including those that do not have
operating consortium agreement under a service specific owners but comes in the hands of a finder. Income is recognized when both conditions are met:
contract with the Government. CAPITAL denotes the original investment or fund used a) e earning is complete or virtually complete; AND
'General professional partnerships' are partnerships in order to generate earnings which is called income. It b) An exchange has taken place.
formed by persons for the sole purpose of exercising is the fund or property existing at one point in time.
Economic Benefit Test, Doctrine of Proprietary
their common profession, no part of the income of REVENUE refers to the amount received by the Interest
which is derived from engaging in any trade or business from selling main goods or services to its Anything that benefits a person materially or
business. customers during the period. economically. Note however that there must first be
Domestic corporations are those created or organized in actual realization, such as through sale or disposition.
HOW TO TELL IF INCOME IS TAXABLE
the Philippines or under its laws. Otherwise, foreign
Mere increase in the value of property is not income.
corporations. 1. ere is gain or profit;
2. Gain or profit is realized or received (actually or Severance Test
e term 'resident foreign corporation' applies to a foreign
corporation engaged in trade or business within the constructively) Income is recognized when there is separation of
Philippines. something which is of exchangeable value.
Constructive receipt:
e term 'nonresident foreign corporation' applies to a a. Matured interest coupons; Tax-Free Exchanges
foreign corporation not engaged in trade or business
b. Interest on savings bank deposit; GR: Upon the sale or exchange or property, the entire
within the Philippines.
c. Dividends applied to indebtedness of a amount of the gain or loss, as the case may be, shall
Income; Definition and Nature; When shareholder; be recognized.
2
Taxable d. Share in the profits of a partner in GPP. EXC: No gain or loss shall be recognized on a corporation
In the broad sense, INCOME refers to all wealth which or on its stock or securities if such corporation is a
3. Such gain or profit is NOT exempted by any treaty or
lows into the taxpayer other than those that are mere party to a reorganization and exchanges property
law.
return of capital. It is return on capital or return above in pursuance of a plan of reorganization solely for
the capital as opposed to return of capital. Tests in Determining Whether Income is stock or securities in another corporation that is a
Earned for Tax Purposes party to the reorganization.
In the strict sense, INCOME refers to the amount of
money coming to the taxpayer for services performed or A reorganization is defined as:

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 202 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

creditors to change and increase or decrease the the imposition of deficiency income taxes on the transfer
1. A corporation, which is a party to a merger or
consolidation, exchanges property solely for stock in capitalization of debts of the corporation or both; or FDC and FAI e fected in exchange for the shares of stock
a corporation, which is a party to the merger or 5. A reincorporation, which shall mean the formation of FLI.
consolidation; or of the same corporate business with the same assets e requisites for the non-recognition of gain or loss are
2. e acquisition by one corporation, in exchange and the same stockholders surviving under a new as follows:
solely for all or a part of its voting stock, or in charter.
a) the transferee is a corporation;
exchange solely for all or part of the voting stock of a No gain or loss shall also be recognized if property is
corporation which is in control of the acquiring transferred to a corporation by a person, alone or b) the transferee exchanges its shares of stock for
corporation, of stock of another corporation if, together with others, not exceeding four (4) property/ies of the transferor;
immediately a ter the acquisition, the acquiring persons, in exchange for stock or unit of c) the transfer is made by a person, acting alone or
corporation has control of such other corporation participation in such a corporation of which as a together with others, not exceeding four persons;
whether or not such acquiring corporation had result of such exchange the transferor or and,
control immediately before the acquisition; or transferors, collectively, gains or maintains control d) as a result of the exchange the transferor, alone or
3. e acquisition by one corporation, in exchange of said corporation. together with others, not exceeding four, gains
solely for all or a part of its voting stock or in control of the transferee.
CIR v. Filinvest 2011 En Banc
exchange solely for all or part of the voting stock of a re Tax-free Exchange e exchange of property for stocks between FDC, FAI
corporation which is in control of the acquiring
and FLI clearly qualifies as a tax-free transaction.
corporation, of substantially all of the properties of FDC and its a filiates come within the purview of Section
another corporation. In determining whether the 43 of the 1993 NIRC. Aside from owning significant Bearing in mind the meaning of "gross income", it cannot
exchange is solely for stock, the assumption by the portions of the shares of stock of FLI, FAI, DSCC and FCI, be gainsaid, even then, that a mere increase or
acquiring corporation of a liability of the others shall the fact that FDC extended substantial sums of money as appreciation in the value of said shares cannot be
be disregarded; or cash advances to its said a filiates for the purpose of considered income for taxation purposes. Since "a mere
providing them financial assistance for their operational advance in the value of the property of a person or
4. A recapitalization, which shall mean an
and capital expenditures seemingly indicate that the corporation in no sense constitute the ‘income’ specified
arrangement whereby the stock and bonds of a
situation sought to be addressed by the subject provision in the revenue law," it has been held in the early case of
corporation are readjusted as to amount, income, or
exists. Fisher v. Trinidad, that it "constitutes and can be treated
priority or an agreement of all stockholders and
We also find a dearth of merit in the CIR's insistence on merely as an increase of capital." Hence, the CIR has
no factual and legal basis in assessing income tax on the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 203 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

increase in the value of FDC's shareholdings in FAC until SEPARATELY computed as to shares o fered in primary and While the tax on sale of shares in primary o fering should
the same is actually sold at a profit. secondary o ferings. be filed and paid by the issuing corporation within thirty
A plain reading of Section 127(B) shows that tax is (30) days from the date of listing of the shares of stock in
imposed on EVERY sale, barter, exchange or other the local stock exchange, the tax on sale of shares in
CIR v. Lucio Co 2020 disposition through initial public o fering of shares of secondary o fering should be collected and remitted by
further clarifying Filinvest
stock in closely held corporations. e word "every" the stock broker within five (5) banking days from the
As regards the element of control, the Court, in Filinvest, precedes the word "sale." Each sale of shares of stock in date of collection thereof. It cannot be any clearer from
clarified that it is not necessary that, a ter the exchange, closely held corporations through initial public o fering is the foregoing that the sale of shares in primary o fering is
each of the transferors individually gains control of the taxed under Section 127(B). treated separately from the sale in secondary o fering.
transferee corporation.
e second paragraph of Section 127(B) provides for the
It also does not prohibit instances when the transferor types of sales covered in the sale of shares through initial
gains further control of the transferee corporation. e public o fering: Situs of Income Taxation
3
Court explained that the element of control is satisfied R.A. No. 8424, as amended, sec. 42
1. sale by the issuing corporation in primary
even if one of the transferors is already owning at least
o fering, and
51% of the shares of the transferee corporation, as long as
2. sale by each of the corporation's shareholders in Source Situs
a ter the exchange, the transferors, not more than five,
collectively increase their equity in the transferee secondary o fering. Compensation Where service rendered
corporation by 51% or more. us, every sale in Section 127(B) is referenced to the
Merchandising, Farming, Mining
ere is nothing in Section 40(C)(2) of the NIRC of 1997, seller, i.e.,
- Where business undertaken.
as amended, which requires the taxpayer to first secure a 1. the issuing corporation in case of primary Manufacturing
prior confirmatory ruling before the transaction may be o fering, and goods manufactured and sold
considered as a tax-free exchange. Business
2. each of the selling shareholders of the corporation a. Within PH - Purely within;
in case of secondary o fering. b. Outside - Purely without;
c. Place of manufacture and selling
I-Remit, Inc. v. CIR 2020 e sale contemplated is not a lone, lump sum sale, as
di ferent - Proportionate.
suggested by the petitioner, since more than one sale may
e tax on sale of shares of stock in closely held corporations sold
transpire under Section 127(B).
or exchanged through initial public o fering under Sec. 127 (B) is

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 204 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Source Situs Source Situs While it has been held that the phrase "from whatever
source derived" indicates a legislative policy to include all
1. Personal - Place of sale; Professional
From sale or income not expressly exempted within the class of
2. Sale of transport documents - place income of Exercise of profession
exchange of taxable income under our laws, the term "income" has
where sold; partners
property been variously interpreted to mean "cash received or its
3. Real - Location.
equivalent", "the amount of money coming to a person
Interest Residence of debtor within a specific time" or "something distinct from
Gross Income
principal or capital."
Rent Property located Definition; Concept of Income from
Otherwise stated, there must be proof of the actual or, at
Whatever Source Derived
Royalties Where intangible is used the very least, probable receipt or realization by the
4
Sources of Income Subject to Tax controlled taxpayer of the item of gross income sought to
1. From Domestic Corp - income purely
be distributed, apportioned or allocated by the CIR.
within; Exclusions from Gross Income
2. From Foreign Corp - if income Deductions from Gross Income b. Sources of Income Subject to Tax
Dividend derived from PH:
R.A. No. 8424, as amended, sec. 24, RR No. 2-98, as
a. > 85% = purely within; a. Definition; Concept of Income from
amended
b. <50% = purely without; Whatever Source Derived
c. 50%-85% = allocation. R.A. No. 8424, as amended, sec. 32 CG2IR2DAP3

Annuities Place of contract 1. In a narrow sense, gross income means all income 1. Compensation for services in whatever form paid,
derived from whatever source, including but not including, but not limited to fees, salaries, wages,
Either where services rendered or where commissions, and similar items;
Prizes limited to CG2IR2DAP3.
given.
2. In a broad sense, it means all items of income less 2. Gross income derived from the conduct of trade or
Where given on account of services exclusions. It is the total income from all sources business or the exercise of a profession;
Pension
rendered. before deductions, exemptions or other tax 3. Gains derived from dealings in property;
reductions.
4. Interests;

CIR v. Filinvest 2011 En Banc 5. Rents;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 205 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

to the employee such as when he can buy the share

6. Royalties; ii. Fringe Benefits
at a more favorable price than the public.
7. Dividends; Any good, service or other benefit furnished or granted in
e tax will be on the amount of the di ference cash or in kind by an employer to an individual employee
8. Annuities; between the book value or the FMV of the stock, (except rank and file employees)
9. Prizes and winnings; whichever is higher, and the exercise price. It is
imposed whether or not the stock option is 1. Housing
10. Pensions; and
exercised. 2. Expense Account
11. Partner's distributive share from the net income of
b. Promissory Notes. Equivalent to the face value of
the general professional partnership. 3. Vehicle of any kind
the promissory note, unless it is discounted. For a
discounted promissory note, the cash discounted 4. Household Personnel
i. Compensation Income value.
5. Interest on loan
It refers to all remuneration for services rendered by an c. Cancellation of Debt. Considered an income when
you render services and in exchange, your debt is 6. Membership Fees
employee for his employer, unless specifically excluded
under the Tax Code. forgiven. 7. Expense for Foreign Travel
d. Tax Liability. When the employer shoulders your tax
First Lepanto v. CIR 2013 8. Holiday and Vacation Expense
on compensation instead of you getting less than
e non-inclusion of the names of some of petitioner’s your gross monthly salary. 9. Educational Assistance
directors in the company’s Alpha List does not ipso facto
10. Life or Health Insurance
create a presumption that they are not employees of the COURAGE v. CIR 2018 En Banc
corporation, because the imposition of withholding tax TN: is list is NOT exclusive.
Withholding tax on compensation applies to the
on compensation hinges upon the nature of work Government of the Philippines, including its agencies, Conditions for FB to be taxable
performed by such individuals in the company. instrumentalities, and political subdivisions. a. Given to managerial or supervisory employees;
In Kind: Withholding shall be made by the o ficer or employee b. Good, service furnished or granted in cash or in
having control of the payments or by any o ficer or kind;
a. Stock Options. Stock options are taxable as
employee duly designated for such purpose.
compensation income taxed only if there is a benefit c. Must NOT be for the benefit or convenience of the
employer.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 206 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2. Housing unit inside or within a maximum of 50 Case Monetary Value

HOUSING
meters from perimeter of business;
Purchases vehicle in the Acquisition Cost
Case Annual Value Monthly MV 3. Temporary housing = 3 months or less;
name of EE
4. Granted to rank and file.
ER leases house for use 50% x Monthly Provides EE with cash for Cash received by EE
NA
of EE Rent EXPENSE ACCOUNT purchase
50% x Monthly a. In general, expenses incurred by EE but are paid by
5% of FMV, or Shoulders a portion of the Amount shouldered
Value his ER are taxable, except when: purchase price
ER owns house, assigns Zonal Value,
use to EE whichever is i. ey are duly receipted;
Monthly Value Purchases car on Acquisition cost (excl
higher ii. In the name of ER; and
= AV/12 installment in the name of interest) / 5 years.
iii. Do not partake the nature of a personal EE
5% of expense;
ER purchases house on
acquisition 50% x Monthly Owns a leet of vehicles for Acquisition cost of all
installment, assigns use b. Expenses paid for by EE, but reimbursed by ER are
cost, exc Value the use of EEs motor vehicles not normally
to EE taxable, except when (same as a);
interest used in business / 5 years x
c. Personal expenses of EE paid for or reimbursed by 50%
ER purchases then ER are taxable, regardless if they are receipted or not
Acquisition
transfers ownership to NA Leases and maintains leet Amount of rent x 50%
cost or FMV in the name of ER;
EE of vehicles
d. RATA are NOT taxable fringe benefits, but are
Zonal Value or taxable compensation income: Use of yacht Depreciation at 20 years of
ER purchases then
Assessed useful life.
transfers ownership to NA i. Fixed in amounts;
Value, minus
EE at a lower price ii. Regularly received by EE;
cost of EE
HOUSEHOLD EXPENSES
Exceptions (Not taxable): iii. Part of Monthly compensation income.
For household personnel, such as salaries of household
1. AFP, Navy, Air Force; MOTOR VEHICLES help, personal driver of the employee, or other similar
personal expenses.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 207 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

INTEREST ON LOAN at less than Market Rate EDUCATIONAL ASSISTANCE 2. If EE managerial or supervisory — FB subject to tax;
3. Company — NOT FB;
Market rate is at 12%. To the EE:
4. For Group of EEs — NOT FB.
GR: Taxable;
MEMBERSHIP FEES
EXC: Exemption from FBT
a. Should not be pursuant to the nature of the business 1. Directly connected with ER’s trade, business or 1) Authorized and exempted under the NIRC or special
of ER; profession; AND laws;
b. Should not be necessary for the position. 2. ere is a written contract to the e fect that EE 2) For EE’s retirement, insurance and hospitalization
is obliged to remain in the employ of ER for a (GROUP INSURANCE);
EXPENSES FOR FOREIGN TRAVEL mutually agreed period.
3) Given to Rank and File;
a. Reasonable business expenses for the purpose of To the Dependent of EE:
4) Required by the nature of, or necessary to the trade,
attending business meetings or conventions are GR: Taxable; business or profession of ER;
NOT taxable FBs. Inland travel expenses must not
exceed 300 USD, not including lodging cost. EXC: Assistance provided through a competitive 5) For the convenience of ER;
scheme.
b. Economy and business class NOT taxable. 30% of 6) De minimis benefits
cost of First class ticket taxable.
LIFE OR HEALTH INSURANCE
c. ere should be documentary evidence proving the DE MINIMIS
travel was in connection with a meeting or GR: Taxable;
Are of relatively small value and are o fered or furnished
convention. Otherwise, taxable FB. EXC: merely as a means of promoting goodwill, contentment or
d. If for the family members of EE, paid by ER, taxable. a) Pursuant to existing law, i.e. SSS, GSIS; AND e ficiency of his employees.

b) Cost of premiums borne by ER for the group Benefit Monthly Annual

HOLIDAY AND VACATION EXPENSES insurance of EEs.
Monetized unused VL not exceeding NA NA
Everything is considered as fringe benefit since it is not Beneficiary
10 days
pursuant to the purpose of the business of the employer. 1. Heir — income of EE;
Monetized value of VL and SL credits NA NA

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 208 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Benefit Monthly Annual iii. Professional Income Gains or income from the sale or exchange of properties
Professionals. — refer to persons who derive their which are not capital assets.
of Public employees
income from the practice of their profession. a. Business income;
Medical cash allowance 250 3,000
iv. Income from Business b. Compensation income;
Rice subsidy 2,000 24,000 1. Self-employment income consists of the earnings c. Passive income;
derived by the individual from the practice of
Uniform and Clothing 500 6,000 d. Others.
profession or conduct of trade or business carried
on by him as a sole proprietor or by a partnership by Special rules pertaining to income or loss from dealings in
Actual medical assistance 10,000
which he is a member. capital asset
Laundry 300 3,600 Rule Applies to
2. Business is any activity that entails the time,
Awards 10,000 attention and e fort of an individual or group of
individuals for livelihood or profit. Loss Capital losses are allowed Individuals
Gi ts during Christmas, etc 5,000
v. Income from Dealings in Property limitation only to the extent of capital and
gains. corporations
Daily Meal Allowance for OT, < 25% of MW 1. CAPITAL GAINS a) Ordinary loss deductible except trust
night-shi t from ordinary gain; companies
Gains or income from the sale or exchange of capital assets,
including: b) Capital loss deductible and banks.
By virtue of CBA, productivity 10,000
from capital gain;
incentive scheme a. Income from dealings in shares of stocks or
c) Capital loss NOT
domestic corporation WON through the
reshold of P90,000 deductible from ordinary
stock exchange;
gain;
e list of de minimis benefits is exclusive. e threshold
b. Income from dealings in real property d) Ordinary loss deductible
now under the TRAIN Law is P90,000. e amount in
located in PH; from capital gain.
excess of P90,000 will be subject to the normal income
tax rate or fringe benefit tax, as the case may be. c. Income from dealings in other capital assets.
Loss Shall be treated in the Individuals
2. ORDINARY GAINS
carry-over succeeding taxable year as
loss from the sale or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 209 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Rule Applies to property. Interest

In case of transfer by expropriation, the expropriating Amount of compensation paid for the use of money or
exchange of capital asset held authority shall shoulder the CGT, other taxes and fees as forbearance from such use.
for not more than 12 months. part of the just compensation due to the a fected owner
Loss must be in an amount However, interest income which are already subject to
of the property.
not in excess of the net final tax need not be included in the computation for a
income of such year. taxpayer’s annual ITR.
vi. Passive Investment Income
1. It is an income subject to FWT. Dividend
Holding 100% — asset was held for Individuals
Any distribution made by a corporation to its
period NOT more than 12 months; 2. e recipient is not required to include the income
50% — asset was held for in his gross income nor in his taxable income. shareholders out of its earnings or profits and payable to
more than 12 months its shareholders, whether in money or in other property.
3. Taxpayer is not required to file ITR if his income
(Sec 73)
consists solely of income subject to final tax.
1) Cash dividend — paid in given sum of money;
CIR v. Ocier 2018 4. Examples of passive investment income:
2) Property dividend — one paid by a corporation in
a) Interest income from bank deposit;
e taxpayer is liable to pay capital gains taxes for the securities (not its own stock) or other property;
sale, barter, exchange or other disposition of shares of b) Royalties;
3) Stock dividend — one paid by a corporation with
stock in a domestic corporation except if the sale or c) Dividend received from DC by an individual or its OWN stock.
disposition is through the stock exchange. For this NRFC;
purpose, the term disposition includes any act of GR: NOT taxable since they are considered
disposing, transferring or parting with, or alienation of, d) Prizes of > Php 10K; unrealized gain.
or giving up of property to another. e) Winnings except sweepstakes and lotto; EXC:
f) Partner’s share from the net income a ter tax of a) Change in the stockholder’s equity, right or
business partnership, joint account, joint interest in the net assets of the corporation;
Republic v. Sps Bunsay 2019 venture or consortium.
b) Recipient is other than the shareholder.
CGT, being a tax on passive income, is imposed by Stock dividend is taxable to the
the NIRC on the seller as a consequence of the latter's usufructuary.
presumed income from the sale or exchange of real

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 210 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) Cancellation or redemption of shares of Giver Recipient Tax Rate 2) Taxable —

stock; a) e redeemed shares are from stock
RC, NRC,
d) Distribution of treasury stocks; 10% dividend declarations other than as initial
RA
e) Dividends declared in the guise of treasury capital investment.
NRA - ETB 20%
stock dividend to avoid income taxation; b) ere is redemption or cancellation; the
f) Di ferent classes of stocks were issued. NRA - transaction involves stock dividends; and the
25% “time and manner” of the transaction makes
NETB
4) Liquidating dividend — one resulting from the it essentially equivalent to a distribution of
distribution by a corporation of all its property 15% subject to allowance for tax taxable dividends.
or assets in complete liquidation or dissolution. NRFC credit or the tax sparing rule;
Royalty income
Generally a return of capital, and hence, not otherwise, 25%
income. However, it is taxable income with Any payment of any kind received as consideration for
➔ Dividend received from foreign corporation is the use of or right to use:
respect to the excess of amount received over
subject to PH income tax if at least 50% of the world
cost of the share surrendered. 1) Any patent, trademark, design or model;
income of the FC is derived from PH for 3 years
preceding the declaration of such dividend. 2) Secret formula or process;
CIR v. Premium Leisure Corp 2019
Rules on redemption of share of stock 3) Industrial, commercial or scientific equipment;
e distribution of liquidating dividends on account of
the dissolution of a corporation is not to be treated as a 1) NOT taxable — 4) Information concerning industrial, commercial
sale for purposes of the imposition of capital gains tax. or scientific experience.
a) Shares are redeemed in the absence of the
Under Section 73 (A) of the 1997 NIRC, receipt by a availability of unrestricted earnings; Rental income
stockholder, whether corporate or individual, of
b) Not in the nature of a recurring return on Fixed sum either in cash or property equivalent, to be
liquidating dividends is subject to ordinary income tax
stock; paid at a definite period for the use or enjoyment of a
on the part of the individual stockholder.
thing or right.
c) e source of redemption is the original
capital subscription upon establishment of Value of permanent improvements made by lessee on
Giver Recipient Tax Rate
the corporation or initial capital investment leased property that will become the property of the
DC, RFC Exempt in an existing enterprise. lessor upon the expiration of the lease. e lessor shall
Domestic

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 211 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

report such an income under any of the following required to render substantial future services as
4. property used in the trade or business, of a
methods: a condition for receiving the prize or award; character which is subject to the allowance for
1) Outright method — FMV of the completed 2. ose granted to athletes in local and depreciation provided in Subsection (F) of
building or improvement shall be reported as international sports competitions sanctioned by Section 34; or
additional rent income. their respective national sports associations; and 5. real property used in trade or business of the
2) Spread out method — Allocate the depreciated 3. ose that are in the nature of gi ts. taxpayer.
value over the remaining term of the lease For specific guidelines in determining WON real
ix. Pensions, Retirement Benefit, or
contract. Separation Pay property is a capital or ordinary asset, please see RR
How about advance rentals? A pension is a gratuity granted as a favor or reward or 7-2003.
1) Prepaid rentals — taxable if so received under a one paid under given conditions to a person following Main takeaway — a taxpayer habitually engaged in the
claim of right and without restriction as to use. retirement from service or to surviving dependents. real estate business is someone:
Note however that pensions and retirement benefits
2) Security deposit — not taxable unless lessee 1. Registered with the HLURB or HUDCC as as a
under RA 7641 are excluded from gross income.
violates any provision of the contract. real estate dealer or developer; or
x. Capital Assets vs. Ordinary Assets
3) Loan — not taxable. 2. If not registered with the above, having
R.A. No. 8424, as amended, sec. 39-40 consummated during the preceding year of at
vii. Annuities, Proceeds from Life Insurance or
Other Types e term 'capital assets' means property held by the least six (6) taxable real estate sale transactions,
taxpayer (whether or not connected with his trade or regardless of amount; or
Annuity is a sum of money payable yearly or at regular
intervals. Note however that life insurance annuities are business), but does not include (ordinary assets) 3. Registered as habitually engaged in real estate
excluded from gross income. 1. stock in trade of the taxpayer; business with the LGU or BIR.

viii. Prizes and Awards 2. other property of a kind which would properly be c. Exclusions from Gross Income
GR: Taxable. included in the inventory of the taxpayer if on R.A. No. 8424, as amended, sec. 32(B)
hand at the close of the taxable year;
EXC: Taxpayers Who May Avail
3. property held by the taxpayer primarily for sale
1. If the recipient was selected without any action
to customers in the ordinary course of his trade LAGCIRM
on his part to enter the contest and he was not
or business;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 212 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) Life Insurance. — e proceeds of life insurance policies 2. Transfer for valuable consideration. 1. Actual damages for loss of anticipated
paid to the heirs or beneficiaries upon the death of the profits;
insured, whether in a single sum or otherwise, but if such 𝐼𝑁𝐶𝑂𝑀𝐸 = 𝑃𝑟𝑜𝑐𝑒𝑒𝑑𝑠 – (𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 + 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 𝑃𝑎𝑖𝑑)
2. Moral and exemplary damages awarded as a
amounts are held by the insurer under an agreement to pay 2) Amount Received by Insured as Return of result of breach of contract;
interest thereon, the interest payments shall be included in Premium. — e amount received by the insured, as a
gross income. 3. Interest for non-taxable damages above;
return of premiums paid by him under life insurance,
➔ If the company insures its employee and makes endowment, or annuity contracts, either during the term or 4. Damages as compensation for unrealized
the latter’s estate the beneficiary, THE at the maturity of the term mentioned in the contract or income.
PREMIUM IS TAXABLE, while the proceeds upon surrender of the contract. 5) Income Exempt under Treaty. — Income of any
NOT TAXABLE. kind, to the extent required by any treaty obligation
𝐼𝑁𝐶𝑂𝑀𝐸 = 𝐸𝑛𝑑𝑜𝑤𝑚𝑒𝑛𝑡 – 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 𝑃𝑎𝑖𝑑
➔ When taxable? binding upon the Government of the Philippines.
3) Gi ts, Bequests, and Devises. — e value of 6) Retirement Benefits, Pensions, Gratuities, etc. —
a. Insurer and insured agreed that the amount
property acquired by gi t, bequest, devise, or
of the proceeds shall be withheld by the a) Retirement benefits received under RA No. 7641
descent:
insurer with the obligation to pay interest in and those received by o ficials and employees of
the same – the interest is the one subject to Provided, however, at income from such property, as private firms, whether individual or corporate,
tax. well as gi t, bequest, devise or descent of income in accordance with a reasonable private benefit
from any property, in cases of transfers of divided plan maintained by the employer: xxxx
b. ere is transfer of the insurance policy.
interest, shall be included in gross income.
GR: NOT taxable regardless of the beneficiaries REQUISITES:
4) Compensation for Injuries or Sickness. — amounts
Conditions: 1. At least 50 years old;
received, through Accident or Health Insurance or
1. Paid to heirs; under Workmen's Compensation Acts, as 2. At least 10 years of service in same
compensation for personal injuries or sickness, plus company (aggregate, not necessarily
2. Paid upon death of the insured; continuous);
the amounts of any damages received, whether by
3. Paid in a single sum or in installment. suit or agreement, on account of such injuries or 3. Reasonable private benefit plan;
EXC: (When taxable) sickness.
4. In the nature of pension, plan, profit
1. Used to secure money obligation; EXC (Taxable): sharing plan, stock bonus or gratuity;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 213 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

5. Approved by the BIR; e) Benefits received from or enjoyed under the 3) the retiring o ficial or employee is not less than
6. Employer must give contribution and Social Security System in accordance with the fi ty (50) years of age at the time of his retirement;
must be established for the common provisions of Republic Act No. 8282. and
benefit of ALL. f) Benefits received from the GSIS under Republic 4) the benefit had been availed of only once.
7. Availed of only ONCE. (except if 2nd Act No. 8291, including retirement gratuity
received by government o ficials and employees. Petitioner was qualified for disability retirement. At the
employer is Government — still exempt) time of such retirement, petitioner was only 41 years of
b) Any amount received by an o ficial or employee Ma. Isabel T. Santos v. Servier Phil., Inc. age; and had been in the service for more or less eight (8)
or by his heirs from the employer as a on Retirement Benefits years. As such, the above provision is not applicable for
consequence of separation of such o ficial or failure to comply with the age and length of service
In the instant case, the Retirement Plan bars the
employee from the service of the employer requirements. erefore, respondent cannot be faulted
petitioner from claiming additional benefits on top of
because of death sickness or other physical for deducting from petitioner's total retirement benefits
that provided for in the Plan. Clearly, the benefits
disability or for any cause beyond the control of the amount of P362,386.87, for taxation purposes.
received by petitioner from the respondent represent her
the said o ficial or employee.
retirement benefits under the Plan. e question that 7) Miscellaneous Items. —
c) e provisions of any existing law to the contrary now confronts us is whether these benefits are taxable.
notwithstanding, social security benefits, a) Income Derived by Foreign Government. —
If so, respondent correctly made the deduction for tax
retirement gratuities, pensions and other Income derived from investments in the
purposes. Otherwise, the deduction was illegal and
similar benefits received by resident or Philippines in loans, stocks, bonds or other
respondent is still liable for the completion of petitioner's
nonresident citizens of the Philippines or aliens domestic securities, or from interest on deposits
retirement benefits.
who come to reside permanently in the in banks in the Philippines by
For the retirement benefits to be exempt from the
Philippines from foreign government agencies 1. foreign governments,
withholding tax, the taxpayer is burdened to prove the
and other institutions, private or public. 2. financing institutions owned, controlled, or
concurrence of the following elements:
d) Payments of benefits due or to become due to enjoying refinancing from foreign
1) a reasonable private benefit plan is maintained
any person residing in the Philippines under the governments, and
by the employer;
laws of the United States administered by the 3. international or regional financial
United States Veterans Administration. 2) the retiring o ficial or employee has been in the
institutions established by foreign
service of the same employer for at least ten (10)
governments.
years;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 214 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

public and private entities: Provided, however,

b) Income Derived by the Government or its ➔ Debentures are used for bonds, backed by
Political Subdivisions. — Income derived from at the total exclusion under this subparagraph general credit of the issuer rather than a
any public utility or from the exercise of any shall not exceed Ninety thousand pesos (P90,000) particular asset. ey are unsecured
essential governmental function accruing to the which shall cover: liabilities. is is like a bank letting someone
Government of the Philippines or to any political 1. Benefits received by o ficials and employees owe money without any collateral.
subdivision thereof. of the national and local government h) Gains from Redemption of Shares in Mutual
GOCC must be engaged in proprietary activity pursuant to Republic Act No. 6686; Fund. — Gains realized by the investor upon
for it to be TAXABLE. 2. Benefits received by employees pursuant to redemption of shares of stock in a mutual fund
c) Prizes and Awards. — Prizes and awards made Presidential Decree No. 851, as amended by company.
primarily in recognition of religious, charitable, Memorandum Order No. 28, dated August i) Income Derived from the Sale of Gold Pursuant
scientific, educational, artistic, literary, or civic 13, 1986; to RA No. 7076. — Income derived from the
achievement but only if: 3. Benefits received by o ficials and employees following transactions pursuant to the “People‘s
1. e recipient was selected without any action not covered by Presidential Decree No. 851, Small-scale Mining Act of 1991”:
on his part to enter the contest or as amended by Memorandum Order No. 28, i) e sale of gold to the BSP by registered
proceeding; and dated August 13, 1986; and small-scale miners and accredited
2. e recipient is not required to render 4. Other benefits such as productivity traders; and
substantial future services as a condition to incentives and Christmas bonus. ii) e sale of gold by registered small-scale
receiving the prize or award. f) GSIS, SSS, Medicare and Other Contributions. miners to accredited traders for eventual
d) Prizes and Awards in Sports Competition. — All — GSIS, SSS, Medicare and Pag-Ibig sale to the BSP. (RA 11256)
prizes and awards granted to athletes in local contributions, and union dues of individuals. Rationale
and international sports competitions and g) Gains from the Sale of Bonds, Debentures or Generally, they are excluded because they do not fall
tournaments whether held in the Philippines or other Certificate of Indebtedness. — Gains within the definition of income for income tax purposes
abroad and sanctioned by their national sports realized from the same or exchange or or a provision of the Tax Code or special law exempts
associations. retirement of bonds, debentures or other them from income tax.
e) 13th Month Pay and Other Benefits. — Gross certificate of indebtedness with a maturity of
benefits received by o ficials and employees of more than five (5) years.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 215 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Exclusion Rationale exempted by the constitution, by statute, or it does

EXPENSES
not come within the definition of income.
Proceeds of Life Indemnity rather than as gain or 2. Deductions from gross income are the amounts Kinds [CARTERS]
Insurance profit. which the law allows to be deducted from gross a) Compensation;
Amount received as income in order to arrive at net income.
Return of capital 1. Must be reasonable;
return of premium 3. Tax credits are directly deducted from tax liability.
2. Payment for actual services rendered.
Gi ts, bequests and d. Deductions from Gross Income Additional for Bonuses:
Not a product of capital or industry
devises R.A. No. 8424, as amended, secs. 34, 36
3. Made in good faith;
Compensation for i. Itemized Deductions
Compensatory; not gain or profit 4. Consider:
injuries or sickness ExInTaLoBaChaRePenDepDep
a. Nature of Business;
Income exempt Adherence to generally accepted 1) Expenses; b. Financial capacity of taxpayer; AND
under treaty principles of international law
2) Interest; c. Extent of services rendered;
Retirement benefits,
pensions, gratuities
Gratuity for years of service 3) Taxes; 5. General economic condition

4) Losses; b) Advertising and Promotional Expense;

Income received by To lessen the burden of foreign loans
foreign inasmuch as the interest of these To be deductible outright:
5) Bad Debts;
governments from loans are, by contractual i) Must be reasonable; AND
their investments in arrangement, borne by domestic 6) Charitable Contributions;
ii) Incurred to stimulate current sales and not
PH borrowers.
7) Research and Development; establish goodwill or future sales.

Distinguished from Deductions and Tax Credits 8) Pension; c) Rent;

1. Exclusions from gross income refer to a low of i) Required as condition for continued use or
wealth to the taxpayer which are not treated as part 9) Depreciations;
possession;
of gross income, for purposes of computing the 10) Depletion. ii) Purpose is for trade, business, profession;
taxpayer’s taxable income either because it is

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 216 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

iii) Taxpayer not owner of property leased; i) Ordinary - cost of repair increases the life of on Advertising Expense
iv) Subject to withholding tax of 5%. an asset for a period not more than 1 year;
WON the subject media advertising expense for “Tang”
ii) Extraordinary - > 1 year; Capitalized, subject incurred by respondent corporation was an ordinary and
d) Traveling Expense;
to depreciation. necessary expense fully deductible under the NIRC. Or was it a
i) Reasonable and necessary; capital expenditure, paid in order to create “goodwill and
g) Supplies and Materials. — Must be actually
ii) Incurred or paid while away from home - consumed during the taxable year. reputation” for respondent corporation and/or its products, which
station assignment or principal place of should have been amortized over a reasonable period?
business; h) Litigation Expense. —
To be deductible from gross income, the subject
iii) In the conduct of trade or business. i) If incurred in the defense or protection of advertising expense must comply with the following
title = capital in nature, NOT deductible; requisites:
e) Entertainment, Amusement and Recreational;
ii) If ordinary and necessary in pursuit of a) the expense must be ordinary and necessary;
i) Paid or incurred during taxable year; business = deductible.
ii) In carrying or which are directly attributable b) it must have been paid or incurred during the
i) An additional deduction from taxable income of taxable year;
to the development, management, operation one-half (1/2) of the value of labor training expenses
and/or conduct of the trade, business or incurred for skills development of enterprise-based c) it must have been paid or incurred in carrying on
exercise of profession; trainees enrolled in public senior high schools, the trade or business of the taxpayer; and
iii) Supported by adequate invoices or receipts; public higher education institutions, or public d) it must be supported by receipts, records or other
technical and vocational institutions and duly pertinent papers.
iv) Not contrary to law, public policy or moral;
covered by an apprenticeship agreement.
v) Not a bribe; e Commissioner, as upheld by the Court, maintains
Such deductions shall not exceed ten percent (10%) that the subject advertising expense was not ordinary on
vi) Properly withheld appropriate tax; of direct labor wage. the ground that it failed the two conditions set by U.S.
vii) Limitation: Option to Private Educational Institutions: jurisprudence:
1) Sale of goods = 0.5% of net sales; a) Outright Method; OR 1. first, “reasonableness” of the amount incurred
and
2) Service = 1% of net revenue. b) Spread-out Method = subject to depreciation.
2. second, the amount incurred must not be a capital
f) Repair and Maintenance;
CIR v. General Foods outlay to create “goodwill” for the product and/or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 217 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

private respondent’s business. our jurisdiction since the interest must be stipulated in
2) advertising designed to stimulate the future sale writing to be demandable.
Otherwise, the expense must be considered a capital of merchandise or use of services.
expenditure to be spread out over a reasonable time. Non-deductible interest expense
e second type involves expenditures incurred, in whole
ere being no hard and fast rule on the reasonableness or in part, to create or maintain some form of goodwill 1. Interest expense on preferred stock;
of an advertising expense, the right to a deduction for the taxpayer’s trade or business or for the industry or 2. When there is no agreement in writing to pay
depends on a number of factors such as but not limited profession of which the taxpayer is a member. interest;
to: If the expenditures are for the advertising of the first 3. On loan entered into between related taxpayers;
1. the type and size of business in which the kind, then, except as to the question of the
a. Members of family
taxpayer is engaged; reasonableness of the amount, there is no doubt such
expenditures are deductible as business expenses. i. Spouses;
2. the volume and amount of its net earnings;
If, however, the expenditures are for advertising of the ii. Siblings;
3. the nature of the expenditure itself;
second kind, then normally they should be spread out over iii. Descendants and ascendants.
4. the intention of the taxpayer and the general a reasonable period of time.
economic conditions. b. Between 2 corporations owned and controlled by
1 individual;
It is the interplay of these, among other factors and INTEREST
properly weighed, that will yield a proper evaluation. c. Between a corporation and its majority
Arbitrage rule shareholder;
e subject media advertising expense for “Tang” was
almost double the amount of respondent corporation’s e taxpayer’s allowable deduction for interest expense d. Parties to a trust
general and administrative expenses. We find the subject shall be reduced by an amount equal to 33% of the
i. Grant or Fiduciary;
expense for the advertisement of a single product to be interest income earned by him which has been
subjected to final tax. ii. One grantor, di ferent fiduciaries;
inordinately large. erefore, even if it is necessary, it
cannot be considered an ordinary expense deductible eoretical interest iii. Beneficiary and Fiduciary.
under then Section 29 (a) (1) (A) of the NIRC. 4. Interest paid or calculated for cost-keeping
An interest computed for the purposes of determining
Advertising is generally of two kinds: the opportunity cost of investing in a business. is is purposes;
not paid or incurred. eoretical interest income and 5. Paid in advance through discount;
1) advertising to stimulate the current sale of
theoretical interest expense is no longer applicable in
merchandise or use of services and 6. On obligation to finance petroleum exploration;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 218 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

7. On unclaimed salaries of employees; 1) Deducting the foreign income tax from gross income; NOLCO NCLCO
8. 33% of the interest income subject to final tax. or
gross income for any of capital asset
2) Claiming tax credit.
TAXES taxable year
Limitations on Credit
Exceptions Additional deductible item Capital losses are allowed
a) Per Country; from gross income similar only to the extent of capital
1) Special Assessment;
b) Global. to other allowable gains
2) Income Tax; deductions
LOSSES
3) Not connected with trade, business, profession;
Holding period is NOT Holding period is
4) Estate, Donor’s; NET OPERATING LOSS CARRY OVER (NOLCO). e
applicable applicable in case of
net operating loss of the business or enterprise for any
5) VAT; individual taxpayer
taxable year immediately preceding the current taxable
6) Final Taxes; year, which had not been previously o fset as deduction Can be carried over in the Treated in the succeeding
from gross income shall be carried over as a deduction next 3 consecutive years year as a deduction as
7) Excess electric consumption tax;
from gross income for the next three (3) consecutive years immediately following the short-term capital loss
8) Foreign income tax, war profits and excess profits immediately following the year of such loss. year of such loss from the net capital gains
tax - if used as tax credit;
When NOLCO is not deductible in case of individual
9) Paid for commodities not connected with business. taxpayer
1. Incurred during tax holiday;
Who may claim tax credit for taxes of foreign countries LOSSES ARISING FROM SECURITIES. When the
2. Tax is based on gross income or receipts;
1) Resident Citizens; securities which can be in the form of shares of stocks or
3. OSD is claimed;
2) Domestic Corporations; loan receivables be considered as worthless, the losses
4. MCIT is imposed; can be deducted. It will be worthless when the company
3) Members of GPPS; loses operations in which the shares belong.
5. Substantial change in ownership (75%).
4) Beneficiaries of estates and trusts.
China Banking Corp. v. CA
Options of Taxpayer qualified for a credit NOLCO NCLCO on Worthless Securities
Excess of deductions over Loss from sale or exchange An equity investment is a capital, not ordinary, asset of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 219 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the investor the sale or exchange of which results in only bonds, debentures, notes, certificates or other LOSSES FROM SHARE TRANSACTIONS. Losses from
either a capital gain or a capital loss. e gain or the loss evidence of indebtedness, with interest coupons or in share transactions can be claimed as deduction upon
is ordinary when the property sold or exchanged is not a registered form, which are the instruments of credit realization of the loss. Shrinkage in value of shares of
capital asset. normally dealt with in the usual lending operations of a stocks cannot be used to claim for the deduction as loss
When the shares held by such investor become worthless, financial institution. Equity holdings cannot come close because you haven't realized it yet. Only if you sold it
the loss is deemed to be a loss from the sale or exchange to being, within the purview of "evidence of then if there is any loss, you can claim it as a deduction.
of capital assets. A capital gain or a capital loss normally indebtedness". Verily, it is for a like thesis that the loss of
LOSSES FROM WASH SALES. A wash sale is the buying
requires the concurrence of two conditions for it to result: petitioner bank in its equity investment in the
or selling of the same type of stock or security at a loss
Hongkong subsidiary cannot also be deductible as a bad
1) ere is a sale or exchange; and within 30 days before the date of sale or 30 days a ter
debt. e shares of stock in question do not constitute a
date of sale. It cannot be claimed as allowable
2) e thing sold or exchanged is a capital asset. loan extended by it to its subsidiary (First CBC Capital) or
deduction.
a debt subject to obligatory repayment by the latter,
When securities become worthless, there is strictly no A wash sale is a price manipulation activity prohibited
essential elements to constitute a bad debt, but a long
sale or exchange but the law deems the loss anyway to be under the SRC. It is a practice where a person or entity
term investment made by CBC.
"a loss from the sale or exchange of capital assets.” Capital who is not a dealer of securities disposes of such
losses are allowed to be deducted only to the extent of In sum —
securities. It occurs when the taxpayer disposes shares
capital gains, i.e., gains derived from the sale or exchange a) e equity investment in shares of stock held by of stock or securities and within 30 days before or a ter
of capital assets, and not from any other income of the CBC of approximately 53% in its Hong Kong such disposition acquires substantially identical stocks
taxpayer. subsidiary, the First CBC Capital (Asia), Ltd., is or securities. at‘s why it is termed as a 61-day sale.
In the case at bar, First CBC Capital (Asia), Ltd., the not an indebtedness, and it is a capital, not an
WAGERING LOSSES. Losses from wagering
investee corporation, is a subsidiary corporation of ordinary, asset.
transactions shall be allowed only to the extent of the
petitioner bank whose shares in said investee corporation b) Assuming that the equity investment of CBC has gains from such transactions.
are not intended for purchase or sale but as an indeed become "worthless," the loss sustained is a
investment. Unquestionably then, any loss therefrom CASUALTY LOSSES. e loss is caused by fortuitous
capital, not an ordinary, loss.
would be a capital loss, not an ordinary loss, to the event or force majeure. Requisites for deductibility
investor. c) e capital loss sustained by CBC can only be
a. Report to taxing authorities within 45 days from
deducted from capital gains if any derived by it
e exclusionary clause found in the text of the law does occurrence of the loss;
during the same taxable year that the securities
not include all forms of securities but specifically covers have become "worthless." b. Related to trade and business;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 220 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c. Evidenced by a closed and completed transaction Kinds of Charitable Contributions RESEARCH AND DEVELOPMENT
(perfected sale; 1. Ordinary – those subject to limitations as to the
e deduction shall not apply
d. Actually sustained during the taxable year; amount deductible from gross income
1. Any expenditure or the acquisition or improvement
e. Must not be compensated by insurance or other a. 5% for Corporations;
of land, or for the improvement of property to be
forms of indemnity. b. 10% for Individuals. used in connection with research and development
ABANDONMENT LOSSES. In the event a contract area 2. Special – deductible in full from gross income of a character which is subject to depreciation and
where petroleum operations are undertaken is partially depletion; and
or wholly abandoned, all accumulated exploration and Conditions if Recipient is an NGO
2. Any expenditure paid or incurred for the purpose of
development expenditures shall be allowed as a a. Organized and operated exclusively for the
ascertaining the existence, location, extent, or
deduction. aforementioned purposes or a combination thereof,
quality of any deposit of ore or other mineral,
no part of the net income of which inures to the
BAD DEBTS including oil or gas.
benefit of any private individual;
When are bad debts ascertained to be worthless? A court order TYPES OF R&D
b. e donation must be utilized not later than the 15th
is necessary and the regular procedure is as follows: day of the 3rd month following the close of its 1. Not chargeable to capital account — deducted
1. Creditor sends a statement of Account to the debtor taxable year.(taxable year of the NGO concerned not outright, Ex. Project feasibility study;
which states the maturity date and amount due; the taxpayer); 2. Chargeable to a capital account — spread out or
2. If no payment is made, then the creditor sends a c. e administrative expense must not exceed 30% of amortized over a period of 60 months.
collection letter to the debtor; total expenses; PENSION
3. Still no payment is made, then the creditor‘s lawyer d. Upon dissolution, assets would be distributed to
Current Service Cost is the cost of the services rendered
will send a formal demand letter to the debtor; another nonprofit domestic corporation organized
from the time the pension trust is set up until its
for similar purpose or purposes, or to the state for
4. Still failed to pay, then an action is filed in court for retirement.
public purpose ,or would be distributed by a court to
collection;
another organization to be used in such manner as Past Service Cost is the cost of the services relating to
5. No payment despite the order of court, then the in the judgment of said court shall best accomplish those prior to the setting up of the pension trust.
account will be considered as bad debt. the general purpose for which the dissolved
DEPRECIATION
CHARITABLE CONTRIBUTIONS organization was organized.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 221 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Depreciable amount or cost is the cost of an asset or sale of taxable goods or services. e exhaustion of natural resources like mines and oil
other amount substituted for cost, less its residual From petitioner's evidence, the account vouchers and gas as well as the result of production or severance
value. specifically indicate that the disallowed purchases were from such mines or wells. ese are non-replaceable
Salvage value is the estimated net amount currently recorded under inventory accounts, instead of depreciable assets. is is applicable to wasting asset entities.
obtainable if the asset is at the end of the useful life. It is accounts. at petitioner failed to indicate under its fixed Cost Depletion Method. e method allowed under the
the value of the asset at the end of its useful life. assets or depreciable assets account, goods and services tax code is the cost depletion method. is is similar to
allegedly purchased pursuant to the rehabilitation and the unit of production method. e depletable amount
Useful life is either the period over which an asset is
maintenance of Malaya Power Plant Complex, militates of the wasting asset is divided by the units estimated to
expected to be available for use by the entity, or the
against its claim for refund. As correctly found by the be extracted to obtain a depletion rate per unit. e
number of production or similar units expected to be
CTA, the goods or properties must be recorded and depletion rate per unit is then multiplied by the units
obtained from the asset by the entity.
treated as depreciable assets. extracted during the year to arrive at the depletion for
METHODS OF DEPRECIATION the period. e depletable amount is equivalent to the
Petitioner further contends that since the disallowed
1. Straight line method items are treated as capital goods in the general ledger cost of the asset less salvage value, if any.

𝐴𝑛𝑛𝑢𝑎𝑙 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 =
𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 − 𝑆𝑎𝑙𝑣𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒 and accounting records, this should have been given Essential Factors
𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒
more significance than the account vouchers which listed
1. Basis of the property;
2. Declining balance method; the items under inventory accounts.
2. Estimated total recoverable units; AND
3. Sum of the years digit method. A general ledger is a record of a business entity's
accounts which make up its financial statements. 3. Number of units recovered during the taxable year.
Kepco Phil. Corp. v. CIR Information contained in a general ledger is gathered Requisites for Deductibility
"Capital goods or properties" refer to goods or from source documents such as account vouchers,
purchase orders and sales invoices. In case of variance Expenses
properties
between the source document and the general ledger, a. Ordinary and necessary;
1. with estimated useful life greater than one year the former is preferred.
and b. Paid or incurred during the taxable year;
2. which are treated as depreciable assets under c. Paid or incurred in carrying on or which are
DEPLETION
Section 29 (f), directly attributable to the development,
3. used directly or indirectly in the production or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 222 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

management, operation and/or conduct of the Losses Charitable Contributions

trade, business or exercise of profession;
a. Must be incurred in the trade, business, or a. Contribution or gi t must actually be paid;
d. Supported by adequate invoices or receipts; profession of the taxpayer; b. Given to organizations specified in the tax code;
e. Not contrary to law, public policy or moral; b. Actually sustained and charged o f within the c. Net income of the institution must not inure to the
f. Tax required to be withheld on the expense paid taxable year and not mere anticipated losses; benefit of any private stockholder or individual;
or payable is shown to have been remitted to the c. Evidenced by a closed and completed transaction;
BIR. d. Made within the taxable year;
d. Not be compensated by insurance or other forms e. Evidenced by adequate records or receipts;
Interest of indemnity;
f. Not exceed 10% in the case of individuals and 5% in
a. ere must be an indebtedness; e. IIf partly compensated, only the amount not the case of a corporation, of the taxpayer‘s taxable
compensated by insurance is deductible; income (except where the donation is deductible in
b. Paid or incurred upon such indebtedness;
f. In the case of casualty loss, taxpayer must file a full) to be determined without the benefit of the
c. Must be that of the taxpayer; sworn declaration of loss within 45 days a ter the contribution.
d. Connected with the trade, business or profession; date of discovery of the casualty or robbery, the t
or embezzlement. Research and Development
e. Paid or incurred during taxable year;
Bad Debt a. Incurred during taxable year;
f. Interest must have been stipulated in writing;
b. In connection with trade or business.
g. Legally due; a. Arise from a valid and subsisting obligation;
h. Not between related taxpayers; b. Ascertained to be worthless; Pension

i. Not incurred to finance petroleum operations; c. Charged o f and uncollectible within the taxable a. Employer must have established a pension or
j. Not treated as capital expenditure. year; retirement plan to provide for the payments of
reasonable pensions to his employees;
d. Uncollectible in the near future;
Taxes
b. Pension plan is reasonable and actuarially sound;
e. Arise from trade or business or profession of
a. Paid or incurred during taxable year; taxpayer. c. Contribution must be made by the employer to
b. In connection with trade, business, profession. the pension fund;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 223 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

d. Funded by the employer; Depletible asset — natural resources, i.e. mines, gas and a. those that are exempt, with no other taxable
oil wells; income; or
e. Amount contributed must no longer be subject to
Charged o f within taxable year; b. those with income subject to a special or
the control and disposition of the employer;
Allowance for depletion is computed in accordance with preferential tax rate.
f. Payment has not yet been allowed as deduction;
cost depletion method. c. those earning purely compensation income.
g. Deduction is apportioned in equal parts over a
period of 10 consecutive years beginning with the 5. e taxpayer must signify in his return his intention
ii. Optional Standard Deduction
year in which the transfer or payment is made. to elect the OSD. Such election shall be irrevocable
1. Optional Standard Deduction or OSD is a standard
for the taxable year for which the return is made.
Depreciation deduction of an amount not exceeding 40% of gross
sales or receipts (for individuals), or gross income 6. A general professional partnership and the partners
a. Property must be used in trade, business or (for corporations), as the case may be, in lieu of the comprising such partnership may avail of the OSD
profession of the taxpayer; itemized deductions. only once, either by the GPP or the partners
comprising the partnership.
b. ere must be depreciable properties; 2. It may be availed of by:
c. Allowance for depreciation must be reasonable; iii. Non-deductible Items
a. A citizen;
In computing net income, no deduction shall in any case be
d. Depreciation must be charged o f during the b. Resident alien;
allowed in respect to —
taxable year;
c. Domestic corporation;
1) Personal, living or family expenses;
e. Statement of the allowance must be attached to
d. Resident foreign corporation;
the return; 2) Any amount paid out for new buildings or for
e. Partnership; and permanent improvements, or betterments made to
f. Method for computing the allowance for
f. Taxable estate and trust. increase the value of any property or estate;
depreciation must be in accordance with the
method prescribed by the SOF upon the In other words, NRAs and NRFCs cannot claim OSD. Does not apply to intangible drilling and development costs
recommendation of the CIR. incurred in petroleum operations which are deductible
3. With the election of OSD, there is no more need to
under Sec 34(g)(1).
Depletion substantiate with receipts.
3) Any amount expended in restoring property or in
4. ose not allowed to use OSD are
making good the exhaustion thereof for which an
allowance is or has been made; or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 224 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

holding company or a foreign personal holding Individual Source of Income Tax Base
4) Premiums paid on any life insurance policy covering
the life of any o ficer or employee, or of any person company;
NRA-ETB within Taxable income
financially interested in any trade or business 4) Between the grantor and a fiduciary of any trust; or
carried on by the taxpayer, individual or corporate, 5) Between the fiduciary of and the fiduciary of a trust NRA-NETB within Gross income
when the taxpayer is directly or indirectly a beneficiary and the fiduciary of another trust if the same person
under such policy. is a grantor with respect to each trust; or a. Resident Citizens, Non-Resident Citizens,
and Resident Aliens
Losses from Sales or Exchanges of Property. — In computing 6) Between a fiduciary of a trust and beneficiary of
net income, no deductions shall in any case be allowed in Inclusions and Exclusions for Taxation on
such trust. (Sec 36)
respect of losses from sales or exchanges of property Compensation Income
directly or indirectly — Inclusions
Taxable Individuals
1) Between members of a family. For purposes of this R.A. No. 8424, as amended All remuneration for services rendered by an employee
paragraph, the family of an individual shall include for his employer unless specifically excluded. It includes
Resident Citizens, Non-Resident
only his brothers and sisters, spouse, ancestors, and Citizens, and Resident Aliens a) salaries, wages, emoluments,
lineal descendants; or
5 Non-Resident Aliens Engaged in Trade b) honoraria,
2) Except in the case of distributions in liquidation, or Business
c) bonuses,
between an individual and corporation more than
fi ty percent (50%) in value of the outstanding stock Non-Resident Aliens Not Engaged in d) allowances,
Trade or Business
of which is owned, directly or indirectly, by or for e) fringe benefits including director’s fee,
such individual; or Substituted Filing
f) taxable pensions and retirement pay and
3) Except in the case of distributions in liquidation,
between two corporations more than fi ty percent g) other income of similar nature including those
Individual Source of Income Tax Base
(50%) in value of the outstanding stock of which is paid in kind.
RC within and without Taxable income
owned, directly or indirectly, by or for the same i) COLA, PERA, housing allowance, OT pay,
individual if either one of such corporations, with NRC within Taxable income Emergency pay, Hazard pay, Rice and
respect to the taxable year of the corporation clothing allowance, Medical allowance,
preceding the date of the sale of exchange was under RA within Taxable income grocery allowance.
the law applicable to such taxable year, a personal

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 225 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Exclusions 7. Special Employees – 15% of gross compensation iv) Taxpayers subject to OPT except those under
a) Compensation for services rendered by an income. Sec 116.
independent contractor; 8% option v) Partners of a GPP since their distributive
b) Amounts paid either as advances or Self-employed individuals and/or professionals shall share is already net of costs and expenses;
reimbursement for transportation, have the option to avail of an eight percent (8%) tax on and
representation, and other bona fide ordinary gross sales or gross receipts and other non-operating vi) Individuals enjoying income tax exemption,
and necessary expenses incurred in the income in excess of Php250K in lieu of the graduated i.e. BMBEs.
performance of duties unless there is an excess income tax rates and the percentage tax.
Taxation of Passive Income
over actual expenses; Rules on availing the 8% tax rate
c) Income derived by partner from professional Passive Income Rate
a) e first Php250K is not subject to tax;
partnership.
b) is is in lieu of the 3% percentage tax; For RC, NRC, RA
d) Convenience of the Employer Rule. — benefits
which are given for the exclusive benefit or c) Taxpayer must signify intention to use this Royalties, in general 20%
convenience of the employer. option in the 1st quarter percentage or income
tax return. Otherwise, graduated rates apply. - Books, literary and musical 10%
e) De minimis benefits. compositions
d) Mixed income earners are not entitled to the
Taxation of Business Income/Income from Php250K reduction. Prizes and Winnings - P10K or less 0-35%
Practice of Profession
e) is option is NOT available to:
Schedular - > P10K 20%
i) Purely compensation income earners;
1. RC – 0-35% of net income within & without; PCSO and Lotto winnings - P10K or less EXEMPT
ii) VAT-registered taxpayers, regardless of gross
2. NRC – 0-35% on net income within;
sales or receipts; - > P10K 20%
3. RA – 0-35% of net income within;
iii) Non-VAT taxpayers whose gross sale or Interest income from FCDU 15%
4. NRA-ETB – 0-35% of net income within; receipts and other non-operating income >
5. NRA-NETB – 25% of gross income within; Php3M; Cash and Property Dividends - Individual to 10%
DC
6. Estates & Trusts – 0-35% of net income;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 226 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Passive Income Rate BDO v. Republic 2015 En Banc executed in the primary or secondary market in
connection with the purchase or sale of securities.
- DC to DC 0% WON the PEACe Bonds are “deposit substitutes” and thus
subject to 20% final withholding tax under the 1997 NIRC. Where the financial assets involved are government
Interest on long-term deposit or investment securities like bonds, the reckoning of “20 or more
EXEMPT Related to this question is the interpretation of the phrase
in banks (With maturity of at least 5 years) lenders/investors” is made at any transaction in
“borrowing from twenty (20) or more individual or corporate
connection with the purchase or sale of the Government
Plus NRA-ETB lenders at any one time” under Section 22(Y) of the 1997 NIRC,
Bonds. Consequently, the seller is required to withhold
particularly on whether the reckoning of the 20 lenders includes
Interest from currency deposits, trust funds 20% the 20% final withholding tax on the imputed interest
trading of the bonds in the secondary market.
and deposit substitutes income from the bonds.
20-lender rule
For debt instruments that are NOT
Interest Income from long-term deposit or EXEMPT Whether referring to money market securities or capital deposit substitutes, regular
investment market securities, transactions occur either in the income tax applies
primary market or in the secondary market. Primary
- Upon pre-termination with Holding 5% It must be emphasized, however, that debt instruments
markets facilitate the issuance of new securities.
period of 4-5 years that do not qualify as deposit substitutes under the 1997
Secondary markets facilitate the trading of existing
NIRC are subject to the regular income tax.
- 3-4 years 12% securities, which allows for a change in the ownership of
the securities. e transactions in primary markets exist e “gains” contemplated in Section 32(B)(7)(g) refers to:
- < 3 years 20% between issuers and investors, while secondary market 1) gain realized from the trading of the bonds before
transactions exist among investors. their maturity date, which is the di ference
ALL, including NRA-NETB
e financial market, therefore, is an agglomeration of between the selling price of the bonds in the
Capital gains 6% financial transactions in securities performed by market secondary market and the price at which the
participants that works to transfer the funds from the bonds were purchased by the seller; and
Capital gains for shares of stock not traded 15%
surplus units (or investors/lenders) to those who need 2) gain realized by the last holder of the bonds when
Only NRA-NETB them (deficit units or borrowers). the bonds are redeemed at maturity, which is the
Gross amount of income within PH 25% us, from the point of view of the financial market, the di ference between the proceeds from the
phrase “at any one time” for purposes of determining the retirement of the bonds and the price at which
“20 or more lenders” would mean every transaction such last holder acquired the bonds.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 227 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

RCBC Capital/CODE-NGO, or any lender or investor if balance sheet date nearest to the transaction
For discounted instruments, like the zero-coupon bonds, date.
the trading gain shall be the excess of the selling price over the such be the case, as the withholding agents.
book value or accreted value (original issue price plus d. For this purpose, the book value of the common
Taxation of Capital Gains shares of stock or the liquidation value of the
accumulated discount from the time of purchase up to
the time of sale) of the instruments. a) Income from sale of shares of stock of a Philippine preferred shares of stock need not be adjusted to
corporation include any appraisal surplus from any property
e BIR’s interpretation of “at any one time” to mean at of the corporation not re lected or included in
the point of origination alone is unduly restrictive. In the case of shares of stock not listed and traded in
the local stock exchanges, the following rules shall the latest audited financial statements, in order
Tax treatment of income derived apply: to determine the fair market value of the shares
from the PEACe Bonds of stock. e latest audited financial statements
a. For common shares of stock, the book value based shall be su ficient in determining the fair market
Should there have been a simultaneous sale to 20 or more on the latest available financial statements duly
lenders/investors, the PEACe Bonds are deemed deposit value of the shares of stock subject of the sale,
certified by an independent public accountant barter, exchange, or other disposition. (RR
substitutes. Further, the obligation to withhold the 20% prior to the date of sale, but not earlier than the
final tax on the corresponding interest from the PEACe 20-2020)
immediately preceding taxable year, shall be
Bonds would likewise be required of any lender/investor considered as the prima facie fair market value. b) Income from sale of real property situated in the
had the latter turned around and sold said PEACe Bonds, Philippines
whether in whole or part, simultaneously to 20 or more b. For preferred shares of stock, the liquidation value,
which is equal to the redemption price of the c) Income from sale, exchange, and other disposition
lenders or investors. of other capital assets.
preferred shares as of balance sheet date nearest
Under Section 24 of the 1997 NIRC, interest income received to the transaction date, including any premium
by individuals from long-term deposits or investments with a Type Rate Basis
and cumulative preferred dividends in arrears,
holding period of not less than five (5) years is exempt from the shall be considered as fair market value. Sale of shares of stocks 15% Net Capital Gains
final tax.
c. In case there are both common and preferred not traded
us, should the PEACe Bonds be found to be within the shares, the book value per common share is
coverage of deposit substitutes, the proper procedure was - Listed and 0.6% Gross Selling Price
computed by deducting the liquidation value of
for the Bureau of Treasury to pay the face value of the Traded
the preferred shares from the total equity of the
PEACe Bonds to the bondholders and for the BIR to corporation and dividing the result by the Sale of real property 6% GSP, FMV, higher
collect the unpaid final withholding tax directly from number of outstanding common shares as of located in PH

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 228 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Type Rate Basis a) Proceeds of sale of the principal residence have been Republic v. Sps Salvador 2017
fully utilized in acquiring a new one within 18
Sale of other capital assets Whether the capital gains tax on the transfer of the expropriated
months from date of sale;
property can be considered as consequential damages that may
- > 12 Months 0-35% 50% of CG b) e historical cost or adjusted basis of RP sold will be awarded to respondents.
be carried over to the new PR;
- 12 Months or less 0-35% 100% of CG NO. It is settled that the transfer of property through
c) CIR has been duly notified, through a prescribed expropriation proceedings is a sale or exchange within
RULES return, within 30 days, from date of sale of intention the meaning of Sections 24(D) and 56(A)(3) of the NIRC,
a. Real properties formerly forming part of the stock in to avail of tax exemption. and profit from the transaction constitutes capital gain.
trade of a taxpayer engaged in real estate or d) Net of proceeds not utilized will be subject to CGT. Since capital gains tax is a tax on passive income, it is the
formerly used in trade or business which were later seller, or respondents in this case, who are liable to
e) Buyer of principal residence shall deduct 6%, deposit shoulder the tax.
on abandoned continue to be treated as ORDINARY
in cash or manager’s check in an interest-bearing
assets. As far as the government is concerned, the capital gains
account with an Authorized Agent Bank under an
Provided, that such is automatically converted to Escrow Agreement. tax in expropriation proceedings remains a liability of
CAPITAL assets upon showing proof that they have the seller, as it is a tax on the seller's gain from the sale of
EXEMPT ENTITIES FROM CGT real property.
not been used in business for more than 2 years
prior to the consummation of the taxable 1) Dealer in securities;
transaction. 2) Exempt under special laws;
b. Non-Resident Aliens Engaged in Trade or
Business
b. Change of hands to recipient not engaged in real 3) Exchange of real property solely for shares of stock
estate or to use in business: resulting in corporate control; Passive Income Rate
i. Succession or donation - CAPITAL; 4) GOCC selling real property; Royalties, in general 20%
ii. As dividend - CAPITAL; 5) Disposition is gratuitous;
- Books, literary and musical 10%
iii. Exchange - ORDINARY; 6) Pursuant to CARP Law; compositions
iv. Involuntary Transfers - NO EFFECT. 7) Requirements above have been met, reg. principal
Prizes and Winnings - P10K or less 0-35%
CONDITIONALLY EXEMPT FROM CGT residence.
- > P10K 20%

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 229 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Passive Income Rate c. Non-Resident Aliens Not Engaged in Trade or d. Substituted Filing
Business
PCSO and Lotto winnings - P10K or less EXEMPT Who shall not be required to file an annual income tax return?
Passive Income Rate 1. Individual taxpayers
- > P10K 20%
Royalties, in general 20% 2. receiving purely compensation income, regardless
Interest income from FCDU 15%
of amount,
Cash and Property Dividends - Individual to 10% - Books, literary and musical 10%
3. from only one employer in the Philippines for the
DC compositions
calendar year,

- DC to DC 0% Prizes and Winnings - P10K or less 0-35% 4. the income tax of which has been withheld correctly
by the said employer (tax due equals tax withheld).
Interest on long-term deposit or investment - > P10K 20%
EXEMPT e certificate of withholding filed by the respective
in banks (With maturity of at least 5 years) PCSO and Lotto winnings - P10K or less EXEMPT employers, duly stamped 'received' by the BIR, shall be
Interest from currency deposits, trust funds 20% tantamount to the substituted filing of income tax returns by
- > P10K 20%
and deposit substitutes said employees. (Sec 51-A)
Interest income from FCDU 15%
Interest Income from long-term deposit or EXEMPT Taxable Corporations
investment Cash and Property Dividends - Individual to 10% R.A. No. 11534
DC
- Upon pre-termination with Holding 5% Domestic Corporations and Resident
- DC to DC 0% 6 Foreign Corporations
period of 4-5 years

Interest on long-term deposit or investment

Non-Resident Foreign Corporations
- 3-4 years 12%
EXEMPT
in banks (With maturity of at least 5 years) General Professional Partnerships
- < 3 years 20%
Capital gains 6% a. Domestic Corporations and Resident Foreign
Corporations
Capital gains for shares of stock not traded 15%
R.A. No. 8424, as amended, sec. 27
Gross amount of income within PH 25%

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 230 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Type Rate Condition is exclusive. Section 9(3) of Batas Pambansa Blg. 129, which
1. NO. e enumeration of direct costs deductible enumerated the quasi-judicial agencies within the
25% e fective July 1, 2020
from a PEZA-registered enterprise’s gross income in exclusive appellate jurisdiction of the Court of
a. with net taxable income RR No. 11-2005 is NOT exclusive. Appeals not exclusive.
DC P5M and below
20% 2. Under Section 24 of RA No. 7916 (PEZA Law), a 7. As the amendment in RR No. 11-2005 now stands,
b. with total assets P100M the enumeration of allowable deductions was only
and below.1 PEZA-registered enterprise, such as East Asia
Utilities, is entitled to the special tax of 5% on gross made by way of example or illustration of the nature
beginning July 1, 2020 until June and type of expenses that may be deducted from a
1% income earned within the ECOZONE in lieu of all
30, 2023 PEZA-registered enterprise’s gross income for
PEIH 2
national and local taxes.
10% therea ter purposes of computing the 5% GIT. e maxim
3. Gross income refers to “gross sales or gross expressio unius est exclusio alterius does not apply.
Same as revenues derived from business activity within the
GOCC3 except GSIS, SSS, HDMF, PHIC.
ECOZONE, net of sales discounts, sales returns and 8. us, the CTA En Banc did not err in examining the
DC
allowances and minus costs of sales or direct costs nature and type of each of the expenses East Asia
RFC 25% e fective July 1, 2020
but before any deduction is made for administrative Utilities claimed as deductions vis-à-vis their
expenses or incidental losses during a given taxable relation to East Asia Utilities’ PEZA-registered
i. Itemized Deductions
period.” activities in computing the correct amount of tax
Same with Taxable Individuals deficiency.
4. e BIR issued RR No. 11-2005 revoking Section 7 of
CIR v. East Asia Utilities 2020 Lopez, M., J. RR No. 2-2005 and removing the exclusivity of the ii. Optional Standard Deduction
enumeration of cost or expense that is allowed as a Same with Taxable Individuals
Using the word “including” necessarily conveys the enumeration’s
deduction from gross income.
very idea of non-exclusivity. iii. Minimum Corporate Income Tax
5. Sterling Selections Corp. v. Laguna Lake
WON the enumeration of direct costs deductible from a Under the MCIT scheme, a corporation,
Development Authority held that using the word
PEZA-registered enterprise’s gross income in RR No. 11-2005 1. beginning on its fourth year of operation,
“including” necessarily conveys the enumeration’s
very idea of non-exclusivity. 2. is assessed an MCIT of 2% of its gross income
1
excluding land on which the particular business entity’s o ce, plant, and 6. Similarly, United Coconut Planters Bank v. E. 3. when such MCIT is greater than the normal
equipment are situated during the taxable year for which the tax is imposed
Ganzon, Inc. construed the word “including” in corporate income tax imposed under Section 27(A).
2
Proprietary Educational Institutions and Hospitals.
3
GOCCs + Agencies or Instrumentalities.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 231 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

4. Provided, at e fective July 1, 2020 until June 30, Relief from the Minimum Corporate Income Tax Under Certain 4. including insurance while the goods are in transit.
2023, the rate shall be one percent (1%) Conditions. — Imposition of MCIT is suspended on any For a manufacturing concern, 'cost of goods manufactured
corporation and sold' shall include all costs of production of finished
If the regular income tax is higher than the MCIT, the
corporation does not pay the MCIT. Any excess of the MCIT 1. which su fers losses on account of prolonged labor goods, such as
over the normal tax shall be carried forward and credited dispute, or 1. raw materials used,
against the normal income tax for the three immediately 2. because of force majeure, or 2. direct labor and manufacturing overhead,
succeeding taxable years.
3. because of legitimate business reverses. 3. freight cost,
Carry Forward of Excess Minimum Tax. — Any excess of the
"Substantial losses from a prolonged labor dispute" means 4. insurance premiums and
MCIT over the normal income tax shall be carried forward
losses arising from a strike staged by the employees which
and credited against the normal income tax for the three (3) 5. other costs incurred to bring the raw materials to
lasted for more than six (6) months within a taxable period
immediately succeeding taxable years. the factory or warehouse.
and which has caused the temporary shutdown of business
RCIT MCIT operations. In the case of taxpayers engaged in the sale of service,
Applicable ALL corporate Gross Income Defined gross income = gross receipts — sales returns, allowances,
DC and RFC only
to TPs discounts and cost of services.
gross income = gross sales — sales returns, discounts and
2% allowances and cost of goods sold. 'Cost of services' shall mean all direct costs and expenses
Tax rate 20 or 25% (1% July 1, 2020 to June 30, 'Cost of goods sold' shall include all business expenses necessarily incurred to provide the services required by the
2023) directly incurred to produce the merchandise to bring them customers and clients including
to their present location and use. 1. salaries and employee benefits of personnel,
Tax base Taxable Income Gross Income
For a trading or merchandising concern, 'cost of goods consultants and specialists directly rendering the
Beginning on the 4th sold' shall include service and
Upon taxable year following 2. cost of facilities directly utilized in providing the
1. the invoice cost of the goods sold,
When commencement commencement of service such as depreciation or rental of equipment
business operation 2. plus import duties, used and cost of supplies:
imposable
3. freight in transporting the goods to the place where Provided, however, at in the case of banks, 'cost of
If greater than
If greater than RCIT the goods are actually sold
MCIT services' shall include interest expense.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 232 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Exceptions to MCIT corporate income tax of PAL shall be based on its annual located within the recognized economic or trade zones
net taxable income. In comparison, the 2% MCIT under "are granted preferential tax treatment." Any income
Corporations subject to special tax rates are exempt from
Section 27(E) of the NIRC of 1997 shall be based on the earned by a PEZA-registered enterprise which is NOT
MCIT:
gross income of the domestic corporation. related to its registered activities is NOT covered by the
1. Proprietary Educational Institutions that are incentives granted under R.A. No. 7916 and EO No. 226.
ird, even if the basic corporate income tax and the
subject to the preferential rate;
MCIT are both income taxes under Section 27 of the In its rudimentary definition, a hedge (as opposed to
2. Non-profit Hospitals that are subject to the NIRC of 1997, and one is paid in place of the other, the speculation and arbitrage) is an investment undertaken
preferential rate; two are distinct and separate taxes. MCIT is included in to reduce the risk of adverse price movements in an asset.
For (1) and (2), the income derived from unrelated "all other taxes" from which PAL is exempted. Simply put, it is a loose form of insurance against value or
trade, business, or activity should not exceed 50% of Fourth, the evident intent of Section 13 of PD No. 1590 is price luctuations of a particular asset (such as cash in the
the gross income. to extend to PAL tax concessions not ordinarily available form of foreign currency). In the context of foreign
to other domestic corporations. currency exchanges, hedging involves contracting with a
3. PEZA-registered entities for registered activities
foreign currency broker to deliver or receive a specified
that are subject to 5% preferential rate; Fi th, the Substitution theory of the CIR is untenable. It is foreign currency at a specified future date and at a
4. O fshore Banking Units; not the fact of tax payment that exempts PAL, but the specified exchange rate. Here, a fully hedged transaction
exercise of its option. results in no exchange gain or loss to the company; and
5. International Carriers subject to 2.5% of Gross
Philippine Billings. for a fee, the broker assumes all the risks associated with
exchange rate changes. is is because the equivalent
CIR v. PAL Aegis PeopleSupport, Inc. v. CIR 2019 amount or value of the foreign currency in legal tender
Petitioner is a domestic corporation. It is registered with remains to be a mere estimate until it is actually
WON PAL is liable for deficiency MCIT for FY 2000-2001.
the Board of Investments (BOI) as a new and pioneer IT converted to local currency. erefore, any occurring
NO. PD No. 1590, the franchise of PAL, contains Export service firm in the field of Customer Contact luctuation in local currency value before the conversion
provisions specifically governing the taxation of said Center. Also, petitioner is registered with the PEZA. of foreign currency does not result in the realization of
corporation. e Court concludes that PAL cannot be any gain or loss.
WON petitioner's foreign exchange gains derived from its
subjected to MCIT for FY 2000-2001.
hedging contract with the Citibank is covered by Income Tax In the instant case, petitioner may validly enter into a
First, PD No. 1590 refers to "basic corporate income tax." Holiday and subject to tax refund. hedging contract to manage its foreign currencies
Second, PD NO. 1590 further provides that the basic on-hand earned as gross revenues. Consequently, the
YES. Section 4 of R.A. No. 7916 provides that enterprises

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 233 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Court considers hedging to be very much related to its expense. A cost or expense is deemed "direct" when it is Verily, the GPB covers gross revenue derived from
registered activities and, hence, still subject to a readily attributable to the production of the goods or for transportation of passengers, cargo and/or mail
preferential tax treatment under R.A. No. 7916 and EO the rendition of the service. originating from the Philippines up to the final
No. 226. Premium taxes, though payable by MBLIC, are not direct destination. Any other income, therefore, is subject to the
costs within the contemplation of the phrase "cost of regular income tax rate.
services," incurred as they are AFTER the sale of service Demurrage fee is the allowance or compensation due to
Manila Bankers' Life Insurance Corp. v. CIR 2019 had already transpired. is cannot therefore be the master or owners of a ship, by the freighter, for the
CTA held ✘ that premium taxes on insurance policies are considered as the equivalent of raw materials, labor, and time the vessel may have been detained beyond the time
considered "costs of service" in computing the Minimum manufacturing cost of deductible "cost of sales" in the specified or implied in the contract of a freightment or
Corporate Income Tax (MCIT); sale of goods. the charter-party. It is only an extended freight or reward
Section 27(E) of the NIRC allows the government to to the vessel, in compensation for the earnings the carrier
collect from corporations MCIT equivalent to 2% of is improperly caused to lose.
Association of International Shipping Lines, Inc.et al. v. SOF
"gross income" in lieu of the 30% of "gross income" basic Detention occurs when the consignee holds on to the
2020
income tax for domestic corporations, whenever the carrier's container outside of the port, terminal, or depot
former is higher. It must be borne in mind, however, that WON demurrage and detention fees are subject to the
beyond the free time that is allotted. Detention fee is
although both rates of taxes are applied to "gross income" preferential tax rate of 2.5% of Gross PH Billings.
charged when import containers have been picked up,
as tax base, the definition of "gross income," for purposes NO. ey are properly regular income subject to regular but the container (regardless if it is full or empty) is still
of MCIT and basic corporate income tax, varies. income tax rate. in the possession of the consignee and has not been
"Gross income" as used in determining MCIT means To determine whether demurrage and detention fees are returned within the allotted time. Detention fee is also
"gross receipts less sales returns, allowances, discounts subject to the preferential 2.5% rate, we refer to the charged for export containers in which the empty
and cost of services." definition of "Gross Philippine Billings" (GPB) under container has been picked up for loading, and the loaded
Section 28(A)(I)(3a) of the NIRC, as amended by RA 10378, container is returned to the steamship line a ter the
"Cost of services" means all DIRECT costs and expenses
viz.: "gross revenue whether for passenger, cargo or mail allotted free time.
necessarily incurred to provide the services required by
the customers and clients. originating from the Philippines up to final destination, Indeed, the exclusion of demurrage and detention fees
regardless of the place of sale or payments of the passage or from the preferential rate of 2.5% is proper since they are
Premium taxes are NOT deductible cost of service
freight documents." not considered income derived from transportation of
e claimed deduction should be a direct cost or persons, goods and/or mail, in accordance with the rule

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 234 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

expressio unios est exclusio alterius. Passive Income Rate shall NOT be deemed "doing business" in the
Demurrage and detention fees definitely form part of an Philippines. It is clear then that the IGC's act of
Interest on foreign loans, i.e. lending to DC 20%
international sea carrier's gross income. For they are subscribing shares of stocks from McCann, a duly
acquired in the normal course of trade or business. Intercorporate dividend from DC registered domestic corporation, maintaining
➔ Subject to a condition that the country investments therein, and deriving dividend income
b. Non-Resident Foreign Corporations of domicile of the NRFC allows a credit therefrom, does not qualify as "doing business"
15% contemplated under R.A. No. 7042. Hence, the IGC is not
against the tax due from the NRFC
Type Rate Condition taxes deemed to have been paid in PH required to secure a license before it can file a claim for
equivalent to 15%. tax refund.
e fective January 1, 2021
e general rule that a foreign corporation is the same juridical
of the gross income received ➔ Otherwise 25%
entity as its branch o fice in the Philippines cannot apply here.
during each taxable year from all When the foreign corporation transacts business in the
sources within the Philippines, Philippines independently of its branch, the
such as interests, dividends, rents, CIR v. Interpublic Group of Companies 2019
principal-agent relationship is set aside. e transaction
royalties, salaries, premiums Can an NRFC which collects dividends from the Philippines sue becomes one of the foreign corporation, not of the
In (except reinsurance premiums), here to claim tax refund?
25% branch. Consequently, the taxpayer is the foreign
general annuities, emoluments or other
YES. e threshold question is whether the IGC was doing corporation, not the branch or the resident foreign
fixed or determinable annual, corporation.
periodic, or casual gains, profits business in the Philippines when it collected dividend earnings
and income, and capital gains, from sources within the Philippines. Corollarily, if the business transaction is conducted
except capital gains from Sale of Doing business implies a continuity of commercial through the branch o fice, the latter becomes the
Shares of Stock not Traded in the dealings and arrangements, and contemplates, to that taxpayer, and not the foreign corporation.
Stock Exchange. extent, the performance of acts or works or the exercise e RP-US Tax Treaty created a treaty obligation on the
of some of the functions normally incident to, and in part of the US that it "shall allow" to a US parent
Capital from Sale of Shares of Stock not progressive prosecution of, the purpose and object of its corporation receiving dividends from its Philippine
15%
Gains Traded in the Stock Exchange. organization. subsidiary "a tax credit for the appropriate amount of
Mere investment as a shareholder by a foreign taxes paid or accrued to the Philippines by the said
corporation in a duly registered domestic corporation Philippine subsidiary. e US allowed a "deemed paid"

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 235 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

tax credit to US corporations on dividends received from ii) Engaging in petroleum, coal, With regard to Nontaxable Taxable
foreign corporation. geothermal and other energy
operations pursuant to an operating the purpose of tax rate.
is goes to show that the IGC, being a non-resident US ascertaining the
corporation is qualified to avail of the aforesaid 15% or consortium agreement under a
service contract with the partners’ taxable
preferential tax rate on the dividends it earned from the shares.
Philippines. It was proven that the country which it was government.
domiciled shall grant similar tax relief/credit against the 2) ose subject to tax — those that derive income Requisites for a Joint Venture not to be considered a taxable
tax due upon the dividends earned from sources within from trade or business and are considered as corporation
the Philippines. Clearly, the IGC has made an corporations under the Tax Code. 1) e JV should be for the undertaking of a
overpayment of its tax due of FWT by using the 35% tax With regard to Nontaxable Taxable construction project;
rate.
Partner’s 2) Should involve joining or pooling of resources by
Since the RP-US Tax Treaty does not provide for any other Will form part of
distributive share in licensed local contracts;
prerequisite for the availment of the benefits under the partner’s gross
said treaty, to impose additional requirements would the net income is 3) e contractors are engaged in the construction
Distributive income in the ITR
negate the availment of the reliefs provided for under subject to a 10% business; and
share subject to
international agreements. final tax, except for
graduated income 4) e JV itself must be licensed under PCAB.
NRA-ETB which is
tax rates Determination of OSD by the GPP and its Partners
c. General Professional Partnerships subject to 20%
1. GPP and the professional partners may avail of OSD
ere are two kinds of partnerships for income tax May be claimed as a NOT deductible
Partner’s share only ONCE;
purposes: deductible expense since subject to
in net loss 2. Distributable net income of GPP may be determined
1) ose NOT subject to income tax in his personal ITR final tax.
using ID or OSD;
a) GPPs; Still required to file Deemed and
3. Share in the net income of the GPP shall be reported
b) Joint venture or consortium agreement How an annual treated as
as taxable income of each partner;
formed for the purpose of partnership is information return corporations
taxed on their incomes subject to the 4. e professional partners can no longer claim
i) Undertaking construction projects; or further deduction from their distributive share
and expenses for corporate income
regardless of method used in claiming deduction;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 236 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

FWT CWT system, wherein the payor of the income withholds

5. However, if the partner also derives other income
outside the GPP, then the deduction from the other withheld by the income payments are the tax and then remits it to the government.
income would either be ID or OSD. withholding agent is intended to equal or at 2. Some principles of FWT
constituted as a full and least approximate the tax
a) e amount of tax withheld is full and final.
H Withholding Taxes
final payment of the due of the payee on said
R.A. No. 8424, as amended, sec. 76 income tax due from the income. b) e liability for payment rests primarily on
payee on the said income. the withholding agent.
Concept
b) e liability for payment b) Payee of income is c) In case of failure to withhold, the agent is
e types of income subject to withholding tax are divided
of the tax rests primarily required to report the liable for the deficiency.
into three categories:
on the payor as a income and/or pay the d) e payee is not required to file any ITR for
a) withholding of final tax on certain incomes;
withholding agent. di ference between the tax the particular income.
b) withholding of creditable tax at source and withheld and the tax due
e) e finality of withheld tax is limited on that
c) tax-free covenant bonds. on the income. e payee
particular income and will not extend to the
also has the right to ask
e withholding tax system was devised for three primary payee’s other tax liability on said income.
for a refund if the tax
reasons: Creditable withholding tax
withheld is more than the
1. to provide the taxpayer a convenient manner to meet tax due. 1. e Secretary of Finance may require the
his probable income tax liability; withholding of a tax on the items of income payable
c) e payee is not required c) e income recipient is
2. to ensure the collection of income tax which can to file an income tax still required to file an to natural or juridical persons, residing in the
otherwise be lost or substantially reduced through return for the particular income tax return, as Philippines, by payor-corporation/persons as
failure to file the corresponding returns and income. prescribed in Sec. 51 and provided for by law, at the rate of not less than one
3. to improve the government's cash low. Sec. 52 of the NIRC, as percent (1%) but not more than fi teen percent (15%)
amended. of the income payment, which shall be credited
Creditable vs. Withholding Taxes against the income tax liability of the taxpayer for
Final withholding tax the taxable year.
FWT CWT 1. Income subject to final tax refers to income wherein 2. Creditable tax must be withheld at source, but
a) e amount of income tax a) Taxes withheld on certain tax due is fully collected through the withholding tax should still be included in the tax return of the
recipient.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 237 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3. ere are three types: Income subject to CWT Rate Income subject to CWT Rate
a) Expanded withholding tax on certain income individuals, entertainers, and athletes agents
payments made by private persons to
resident taxpayers; Individual payee Real property which are NOT capital assets
1.5% or
sold by a person engaged in the real estate
b) Withholding tax on compensation income in - If gross income > P3M or 3% or 5%
10% business
PH; VAT-registered
c) Withholding tax on money payments of the - If NOT engaged in real estate business 6%
- If gross income did not exceed P3M 5%
government.
On additional payments by importers,
Expanded withholding tax Non-individual payee shipping and airline companies to 15%
When EWT will apply - If gross income > P720K 15% government personnel for OT services
1. Expense is paid by the taxpayer, which is income to On the amount paid by any credit card
- If gross income did not exceed P720K 10% 1% of ½ of
the recipient thereof subject to income tax; company to any business entity representing
gross
2. Income is fixed or determinable at the time of Rentals for continued use or possession of real the sale of goods, services made by them to
amounts
payment; properties used in business, which the payor 5% cardholders
has not taken title
3. Income is one of the income payments listed in the 1%
regulations; and Cinematographic film rentals and other Payments made by any of the top withholding (goods)
5%
4. Income recipient is a RESIDENT of the PH liable to payments agents to their local suppliers 2%
income tax. (services)
Income payments to certain contractors,
If the recipient is a nonresident, then income general engineering, general building, 2% 1%
payment is subject to FWT, not CWT. specialty and other contractors Payments by the government to local suppliers (goods)
Withholding tax on compensation except if below P10K 2%
Income distributed to the beneficiaries of (services)
15%
Income subject to CWT Rate estates and trusts
Income payments to partners of GPP
Professional fees, promotional and talent fees, referred by Income payments to certain brokers and 10%

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 238 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Income subject to CWT Rate As a bank, petitioner is covered by both taxes. bank's passive income form part of the taxable gross receipts for
the purpose of computing the five percent (5%) gross receipts tax
- If gross income > P720K 15% A percentage tax is a national tax measured by a certain (GRT)?
percentage of the gross selling price or gross value in
- If it does not exceed P720K 10% money of goods sold, bartered or imported; or of the YES. A catena of cases are unanimous in defining "gross
gross receipts or earnings derived by any person engaged receipts" as "the entire receipts without any deduction."
Income payments made by political parties
in the sale of services. It is not subject to withholding. As commonly understood, the term "gross receipts"
and candidates for all purchases of goods and
means the entire receipts without any deduction.
services as campaign expenditures, as well as An income tax, on the other hand, is a national tax
5% Deducting any amount from the gross receipts changes
income payments made by individuals and imposed on the net or the gross income realized in a
the result, and the meaning, to net receipts. Any
juridical entities for all purchases intended to taxable year. It is subject to withholding.
deduction from gross receipts is inconsistent with a law
be given as campaign contribution
In a withholding tax system, the payee is the taxpayer, that mandates a tax on gross receipts, unless the law
Interest income from other instruments, i.e. the person on whom the tax is imposed; the payor, a itself makes an exception.
15% separate entity, acts as no more than an agent of the
not deposit substitutes When we speak of the "gross earnings" of a person or
government for the collection of the tax in order to ensure
corporation, we mean the entire earnings or receipts of
its payment. In our withholding tax system, possession is
such person or corporation from the business or
CIR v. Solidbank acquired by the payor as the withholding agent of the
operation to which we refer.
government, because the taxpayer ratifies the very act of
Whether the 20% FWT Forms Part of the Taxable Gross Receipts possession for the government. ere is thus From these cases, "gross receipts" refer to the total, as
constructive receipt. e processes of bookkeeping and opposed to the net income. ese are therefore the total
YES. Although the 20% FWT on respondent's interest
accounting for interest on deposits and yield on deposit receipts before any deduction for the expenses of
income was not actually received by respondent because
substitutes that are subjected to FWT are indeed—for management.
it was remitted directly to the government, the fact that
the amount redounded to the bank's benefit makes it part legal purposes—tantamount to delivery, receipt or e Manila Jockey Club does not apply to the cases at bar
of the taxable gross receipts in computing the 5% GRT. remittance. because what happened there is earmarking and not
withholding. Earmarking is not the same as withholding.
Two types of taxes are involved in the present controversy:
Amounts earmarked do not form part of gross receipts
1) the GRT, which is a percentage tax; and CIR v. Citytrust Investment Phils. because these are by law or regulation reserved for some
2) the FWT, which is an income tax. person other than the taxpayer, although delivered or
Does the twenty percent (20%) final withholding tax (FWT) on a
received. On the contrary, amounts withheld form part

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 239 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

of gross receipts because these are in constructive based on the value of such net estate. (Sec 84 of RA to tax. ere is no statute in the Philippines which
possession and not subject to any reservation, the 10963) requires trustees' commissions to be deducted in
withholding agent being merely a conduit in the Lorenzo v. Posadas, Jr. determining the net value of the estate subject to
collection process. inheritance tax
a) When does the inheritance tax accrue and when must it
be satisfied? d) What law governs the case at bar?

e accrual of the inheritance tax is distinct from the Inheritance taxation is governed by the statute in force at
I Transfer Taxes
obligation to pay the same. e tax therefore is upon the time of the death of the decedent.
Estate Tax; Basic Principles and Concepts transmission or the transfer or devolution of property of e) Has there been delinquency in the payment of the
a decedent, made e fective by his death. inheritance tax? If so, should the additional interest
Donor’s Tax; Basic Principles and Concepts
b) Should the inheritance tax be computed on the basis of claimed by the defendant in his appeal be paid by the
Estate Tax; Basic Principles and the value of the estate at the time of the testator's death, estate?
1 or on its value ten years later?
Concepts e mere failure to pay one's tax does not render one
If death is the generating source from which the power of delinquent until and unless the entire period has elapsed
RR 12-18 Consolidated Revenue Regulations on Estate Tax
the state to impose inheritance taxes takes its being and within which the taxpayer is authorized by law to make
and Donor's Tax Incorporating the Amendments Introduced by such payments without being subjected to the payment of
if, upon the death of the decedent, succession takes place
RA 10963. penalties for failure to pay his taxes within the prescribed
and the right of the state to tax vests instantly, the tax
1. It is an excise tax or privilege tax and its object is to should be measured by the value of the estate as it stood period.
tax the shi ting of economic benefits and at the time of the decedent's death regardless of any e delinquency in payment occurred on March 10, 1924,
enjoyment of property from the dead to the living. subsequent contingency a fecting value or any the date when Moore became trustee. e interest due
2. Estate taxation is governed by the statute in force at subsequent increase or decrease in value. should be computed from that date and it is error on the
the time of death of decedent. c) In determining the net value of the estate subject to tax, part of the defendant to compute it one month later. e
3. ere shall be levied, assessed, collected and paid is it proper to deduct the compensation due to trustees? provision of law requiring the payment of interest in
upon the transfer of the net estate as determined in appropriate cases is mandatory, and neither the Collector
NO. A trustee, no doubt, is entitled to receive a fair
accordance with Sections 85 and 86 of every of Internal Revenue nor this court may remit or decrease
compensation for his services. But from this it does not
decedent, whether resident or nonresident of the such interest, no matter how heavily it may burden the
follow that the compensation due him may lawfully be
taxpayer.
Philippines, a tax at the rate of six percent (6%) deducted in arriving at the net value of the estate subject

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 240 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

death of all property, real or personal, tangible or

Classification of Decedent 3) Shares, obligations or bonds by any
foreign corporation eighty-five intangible, wherever situated. (Sec 85 of RA 10963)
1. Citizen and resident alien
percent (85%) of the business of Items to be included in determining gross estate
a. Real property wherever situated; which is located in PH; i. Decedent's interest
b. Tangible personal property; 4) Shares, obligations or bonds issued a. Property owned;
c. Intangible personal property. by any foreign corporation if such
shares, obligations or bonds have b. Interest in property possessed;
GR: e situs is at the domicile or
acquired a business situs in PH; c. Property or interest transferred.
residence of the owner following the
principle of mobilia sequuntur 5) Shares or rights in any partnership, ii. Transfers in contemplation of death
personam. business or industry established in
PH. To the extent of any interest therein of which the
EXC: decedent has at any time made a transfer, by trust or
2. Non-resident alien otherwise, in contemplation of or intended to take
1) When it is inconsistent with express
provisions of statute, OR a. Real property situated in PH; e fect in possession or enjoyment at or a ter death, or of
b. Tangible personal property situated in PH; which he has at any time made a transfer, by trust or
2) When justice does not demand that it
otherwise, under which he has retained for his life or for
should be, as when the property has c. Intangible personal property with a situs in any period which does not in fact end before his death
in fact a situs elsewhere. PH, unless exempted on the basis of
reciprocity (Sec 104, NIRC). 1) the possession or enjoyment of, or the right to
SEC 104 of the NIRC provides that the
the income from the property, or
following intangible personal properties have When is the Rule on Reciprocity applicable?
situs in PH: 2) the right, either alone or in conjunction with any
1. e donor or decedent is a NRA; and person, to designate the person who shall
1) Franchise which must be exercised in
2. It involves intangible personal property located in possess or enjoy the property or the income
PH;
PH. therefrom;
2) Shares, obligations or bonds issued
Composition of Gross Estate except in case of a bona fide sale for an adequate and full
by any corporation or sociedad
consideration in money or money's worth.
anonima organized or constituted in e value of the gross estate of the decedent shall be
PH in accordance with its laws; determined by including the value at the time of his Circumstances taken into account include

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 241 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) Age and state of health of decedent; 2) by deed executed in contemplation of, or a. the estate, his executor or administrator,
2) Length of time between the gi t and date of intended to take e fect in possession or irrespective of the manner of designation;
death. A short interval suggests the transfer was enjoyment at, or a ter his death, or b. other than those mentioned in (a), when the
in contemplation of death; 3) by deed under which he has retained for his life designation is not expressly made irrevocable or
3) Concurrent making of a will or making a will or any period not ascertainable without that the designation is revocable.
within a short time a ter the transfer. reference to his death or for any period which
2. ✘ NOT taxable:
does not in fact end before his death
iii. Revocable transfers a. Accident insurance proceeds;
a) the possession or enjoyment of, or the right
To the extent of any interest therein, of which the to the income from, the property, or b. Proceeds of a group insurance policy taken out
decedent has at any time made a transfer by trust or by a company for its EEs;
otherwise, b) the right, either alone or in conjunction with
any person, to designate the persons who c. Amount received by any beneficiary irrevocably
a) where the enjoyment thereof was subject at the shall possess or enjoy the property or the designated in the policy of insurance by the
date of his death to any change through the income therefrom; insured;
exercise of a power by the decedent alone or by
except in case of a bona fide sale for an adequate and full d. GSIS;
the decedent in conjunction with any other
person, to alter, amend, revoke, or terminate, or consideration in money or money's worth. e. SSS;

b) where any such power is relinquished in v. Proceeds of life insurance f. Payable to heirs of deceased members of military
contemplation of the decedent's death Will depend on: personnel.

except in case of a bona fide sale for an adequate and full 1) e designated beneficiary; 3. To determine the conjugal or separate character of
consideration in money or money's worth. proceeds:
2) Manner of designation, whether irrevocable or
iv. Property passing under a general power of revocable; a. Policy taken before marriage — source of funds;
appointment 3) Period and source of the funds used in paying b. Policy taken during marriage
To the extent of any property passing under a GENERAL the premium. i. Beneficiary is estate of the insured —
power of appointment exercised by the decedent: proceeds are presumed conjugal; hence, ½
1. ✔ Taxable if the beneficiary is:
1) by will, or share of surviving spouse is NOT taxable;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 242 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

ii. Beneficiary is 3rd person — proceeds are Citizen & 4. Reasonably certain in amount; AND
NRA
payable to the beneficiary even if premiums Resident
5. At the time the debt was incurred, the debt
were paid out of the conjugal partnership. persons which the value instrument was duly notarized and if the loan was
vi. Prior interests of decedent’s contracted within 3 years before the death of
Unpaid mortgages and gross estate in
Transfer in contemplation of death, revocable transfers, ✔ decedent, a statement showing the disposition of
taxes PH bears to his
and proceeds of life insurance shall apply to the the proceeds of the loan must be submitted.
entire gross
transfers, trusts, estates, interests, rights, powers and Losses ✔ estate Carlos Moran Sison v. Narcisa F. Teodoro
relinquishment of powers, as severally enumerated and
described therein. Property previously taxed Whether a judicial administrator, serving without
✔ ✔ compensation, is entitled to charge as an expense of
vii. Transfers for insu ficient consideration or Vanishing deductions
administration the premiums paid on his bond.
1. For transfers in contemplation of death, revocable Transfers for public use ✔ ✔ NO. e expense incurred by an execution or
transfers, and transfers under a GPA, if such
administrator to procure a bond is not a proper charge
transfer is in the nature of a bona fide sale, then the Family home P10M ✘
against the estate.
value will NOT form part of the gross estate.
Amount received by heirs Expense incurred by an executor or administrator to
2. However, if the consideration received was LESS than ✔ ✘
under RA 4917 produce a bond is not a proper charge against the estate.
adequate and full, then include in gross estate:
e ability to give this bond is in the nature of a
FMV at time of death — consideration received. Net Share of surviving
qualification for the o fice. e execution and approval of
spouse in the conjugal
Allowable deductions from gross estate ✔ ✔ the bond constitute a condition precedent to acceptance
partnership or community
of the responsibilities of the trust. If an individual does
Citizen & of property
NRA not desire to assume the position of executor or
Resident
Claims against the estate administrator, he may refuse to do so. On the other hand,
Standard deduction P5M P500K when the individual prefers an adequate bond and has it
1. Contracted in good faith and for an adequate and
approved by the probate court, he thereby admits the
Claims against the estate ✔ Proportion of full consideration;
adequacy of the compensation which is permitted him
total losses and
2. Existing against the estate; pursuant to law. It would be a very far-fetched
Claims against insolvent ✔ indebtedness
3. Enforced by the claimants; construction to deduce that the giving of a bond in order

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 243 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

to qualify for the o fice of executor or administrator is a Attorney's fees are allowable deductions if incurred for the 7. brokerage fees or commissions for selling or
necessary expense in the care, management, and settlement of the estate. It is noteworthy to point out that disposing of the estate, and the like.
settlement of the estate for these are expenses incurred PNB was appointed the guardian over the assets of the
a ter the executor or administrator has met the Deductible attorney's fees are those incurred by the
deceased. Necessarily the assets of the deceased formed executor or administrator in the settlement of the estate
requirements of the law and has entered upon the part of his gross estate. Accordingly, all expenses incurred
performance of his duties. or in defending or prosecuting claims against or due the
in relation to the estate of the deceased will be deductible estate.
for estate tax purposes provided these are necessary and
ordinary expenses for administration of the settlement of Attorney's fees, on the other hand, in order to be
CIR v. CA the estate. deductible from the gross estate must be essential to the
settlement of the estate.
All expenses incurred in relation to the estate of the Although the Tax Code specifies "judicial expenses of the
deceased will be deductible for estate tax purposes testamentary or intestate proceedings," there is no reason Coming to the case at bar, the notarial fee paid for the
provided these are necessary and ordinary expenses for why expenses incurred in the administration and extrajudicial settlement is clearly a deductible expense
administration of the settlement of the estate. settlement of an estate in extrajudicial proceedings since such settlement e fected a distribution of Pedro
should not be allowed. However, deduction is limited to Pajonar's estate to his lawful heirs. Similarly, the
Among the deductions from the gross estate allowed by
such administration expenses as are actually and necessarily attorney's fees paid to PNB for acting as the guardian of
the CTA were the amounts of P60,753 representing the
incurred in the collection of the assets of the estate, Pedro Pajonar's property during his lifetime should also
notarial fee for the Extrajudicial Settlement and the
payment of the debts, and distribution of the remainder be considered as a deductible administration expense.
amount of P50,000 as the attorney's fees.
among those entitled thereto. Such expenses may include PNB provided a detailed accounting of decedent's
Whether the notarial fee paid for the extrajudicial settlement and property and gave advice as to the proper settlement of
the attorney's fees in the guardianship proceedings may be 1. executor's or administrator's fees, the latter's estate, acts which contributed towards the
allowed as deductions from the gross estate of decedent in order to 2. attorney's fees, collection of decedent's assets and the subsequent
arrive at the value of the net estate. settlement of the estate.
3. court fees and charges,
YES. Attorneys' and guardians' fees incurred in a trustee's
4. appraiser's fees,
accounting of a taxable inter vivos trust attributable to
the usual issues involved in such an accounting was held 5. clerk hire, Dizon v. CTA and CIR
to be proper deductions because these are expenses 6. costs of preserving and distributing the estate and WON the actual claims of the creditors may be fully allowed as
incurred in terminating an inter vivos trust that was storing or maintaining it, deductions from the gross estate of Jose despite the fact that the
includible in the decedent's estate.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 244 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

said claims were reduced or condoned through compromise estate, or the extent of the decedent's interest,
2. e incapacity of the debtors to pay is proven and
agreements entered into by the Estate with its creditors. not merely alleged. whichever is lower, but not exceeding P10M.

YES. It is admitted that the claims of the estate's Taxes Property Previously Taxed or
aforementioned creditors have been condoned. Vanishing Deductions
1. Deductible if accrued PRIOR to decedent’s death.
An amount equal to the value specified below of any
We express our agreement with the date-of-death
Losses property forming part of the gross estate situated in the
valuation rule, made pursuant to the ruling of the U.S.
1. Arising from fire, storm, shipwreck, or other Philippines of any person who died within five (5) years
Supreme Court in Ithaca Trust Co. v. United States.
casualty, robbery, the t or embezzlement; prior to the death of the decedent, or transferred to the
First. It bears emphasis that tax burdens are not to be decedent by gi t within five (5) years prior to his death,
imposed, nor presumed to be imposed, beyond what the 2. Not compensated by insurance or otherwise;
where such property can be identified as having been
statute expressly and clearly imports, tax statutes being 3. Not claimed as a deduction in an income tax return received by the decedent from the donor by gi t, or from
construed strictissimi juris against the government. Any of the estate subject to income tax; such prior decedent by gi t, bequest, devise or
doubt on whether a person, article or activity is taxable is 4. Occurring during the settlement of the estate; and inheritance, or which can be identified as having been
generally resolved against taxation. acquired in exchange for property so received:
5. Occurring before the last day for the payment of the
Second. Such construction finds relevance and estate tax. 100% Within 1 year
consistency in our Rules on Special Proceedings wherein
the term "claims" required to be presented against a Family Home
80% 1-2 years
decedent's estate is generally construed to mean debts or 1. e family home must be the actual residential
demands of a pecuniary nature which could have been home of the decedent and his family at the time of
60% 2-3 years
enforced against the deceased in his lifetime, or liability his death, as certified by the Barangay Captain of the
contracted by the deceased before his death. erefore, locality where the family home is situated;
40% 3-4 years
the claims existing at the time of death are significant to, 2. e total value of the family home must be included
and should be made the basis of, the determination of as part of the gross estate of the decedent; and 20% 4-5 years
allowable deductions.
3. Allowable deduction must be in an amount
Requisites
Claims against insolvent persons equivalent to the current fair market value of the
family home as declared or included in the gross 1. Death — Present decedent died within 5 years
1. e amount of said claims has been initially
from date of death of prior decedent or date of
included as part of the gross estate; AND
gi t;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 245 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

is taken, which the decedent's net estate situated

2. Identity of property; Exemptions of certain acquisitions and
transmissions within such country taxable under this Title
3. Inclusion of property; bears to his entire net estate; and
1. Merger of usufruct in the owner of the naked title;
4. Previous taxation of property; b) e total amount of the credit shall not exceed
2. Transmission or delivery of the inheritance or legacy
5. No previous vanishing deduction on the property. the same proportion of the tax against which
by the fiduciary heir or legatee to the
such credit is taken, which the decedent's net
Exclusions from gross estate and exemptions fideicommissary;
estate situated outside the Philippines taxable
of certain acquisitions and transmissions 3. Transmission from the first heir, legatee or donee in under this Title bears to his entire net estate.
1. Amount received by heirs under RA 4917 — any favor of another beneficiary, in accordance with the
amount received by the heirs from the decedent’s desire of the predecessor; Filing of estate tax returns and payment of
employer as a consequence of death of a estate tax
4. Bequests, legacies or donations mortis causa to social
decedent-employee in accordance with a reasonable a) In all cases of transfers subject to the tax imposed
welfare, cultural, or charitable organizations, no
private benefit plan maintained by the employer; herein, or
part of the net income of which inures to the benefit
provided, such amount is included in the gross b) regardless of the gross value of the estate, where the
of any individual, provided that not more than 30% of
estate; said estate consists of registered or registrable
said bequests, devises, legacies or transfers shall be
2. Share of surviving spouse in the conjugal property; used for administration purposes; but bequests to property such as
3. Amount received by heirs under special laws: religious and educational institutions are NOT i) real property,
exempt.
a. GSIS; ii) motor vehicle,
b. SSS;
Tax credit for estate taxes paid to a foreign iii) shares of stock or
country
c. From PH and US governments for damages iv) other similar property for which a
Shall be credited with the amounts of any estate tax
su fered during the last war; Certificate Authorizing Registration
imposed by the authority of a foreign country.
d. US Veterans Administration; from the BIR is required as a condition
Limitations on Credit. — e amount of the credit taken precedent for the transfer of ownership
e. Grants and donations to the Intramuros shall be subject to each of the following limitations: thereof in the name of the transferee,
administration;
a) e amount of the credit in respect to the tax the executor, or the administrator, or any of the legal
f. PERA assets of decedent-contributor (Sec 14, paid to any country shall not exceed the same heirs, as the case may be, shall file a return under oath.
RA 9505). proportion of the tax against which such credit

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 246 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

interest reckoned from the prescribed

Estate tax returns showing a gross value exceeding a. five (5) years in case the estate is settled through
Php5M shall be supported with a statement duly the courts, or deadline for filing the return and payment of
certified to by a CPA. the estate tax; and
b. two (2) years in case the estate is settled
Time for filing estate tax return. — For purposes of extrajudicially. e) No civil penalties or interest may be imposed
determining the estate tax, the estate tax return shall be on estates permitted to pay the estate tax due
Any amount paid a ter the statutory due date of the tax, by installment. Nothing in this subsection,
filed within one (1) year from the decedent's death. but within the extension period, shall be subject to however, prevents the CIR from executing
Extension of time to file estate tax return. — e interest but NOT to surcharge. enforcement action against the estate a ter
Commissioner or any Revenue O ficer authorized by Payment of the estate tax by installment and partial the due date of the estate tax.
him pursuant to the NIRC shall have authority to grant, disposition of estate. — In case of insu ficiency of cash for 2. Partial disposition of estate and application of its
in meritorious cases, a reasonable extension, not the immediate payment of the total estate tax due, the proceeds to the estate tax due
exceeding thirty (30) days, for filing the return. e estate may be allowed to pay the estate tax due through
application for the extension of time to file the estate tax the following options, including the corresponding a) e disposition, for purposes of this option,
return must be filed with the Revenue District O fice terms and conditions: shall refer to the conveyance of property,
(RDO) where the estate is required to secure its TIN and whether real, personal or intangible
1. Cash installment property, with the equivalent cash
file the tax returns of the estate, which RDO, likewise,
has jurisdiction over the estate tax return required to be a) e cash installments shall be made within consideration;
filed by any party as a result of the distribution of the two (2) years from the date of filing of the b) e estate tax return shall be filed within one
assets and liabilities of the decedent. estate tax return; year from the date of decedent's death;
Time for payment of the estate tax. — As a general rule, the b) e estate tax return shall be filed within one c) e written request for the partial
estate tax imposed under the NIRC shall be paid at the year from the date of decedent's death; disposition of estate shall be approved by the
time the return is filed by the executor, administrator or c) e frequency, deadline and amount of each BIR. e said request shall be filed, together
the heirs. installment shall be indicated in the estate with a notarized undertaking that the
Extension of time to pay estate tax. — When the CIR finds tax return; proceeds thereof shall be exclusively used for
that the payment of the estate tax or of any part thereof the payment of the total estate tax due;
d) In case of lapse of two years without the
would impose undue hardship upon the estate or any of payment of the entire tax due, the remaining d) e computed estate tax due shall be
the heirs, he may extend the time for payment of such balance thereof shall be due and demandable allocated in proportion to the value of each
tax or any part thereof not to exceed subject to the applicable penalties and property;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 247 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

delivery, either actually or constructively, of the

e) e estate shall pay to the BIR the 1. Donation is an act of liberality whereby a person
proportionate estate tax due of the property donated property to the donee.
disposes gratuitously of a thing or right in favor of
intended to be disposed of; another who accepts it. 9. us, the law in force at the time of the
f) An electronic Certificate Authorizing perfection/completion of the donation shall govern
2. In taxation, donation extends to sales or exchanges
Registration (eCAR) shall be issued upon the imposition of the donor's tax.
of property, other than real property classified as
presentation of the proof of payment of the capital asset located in PH, for less than adequate Requisites of a Valid Donation
proportionate estate tax due of the property and full consideration in money or money’s worth. 1. Capacity of donor;
intended to be disposed. Accordingly, eCARs
3. Gi t tax is also an excise tax imposed on the privilege 2. Donative intent;
shall be issued as many as there are
of the owner to give.
properties intended to be disposed to cover 3. Delivery, whether actual or constructive, of the
the total estate tax due, net of the 4. Gi ts in favor of religious institutions are now subject matter;
proportionate estate tax(es) previously paid exempt from donor’s tax.
4. Acceptance of the gi t by the donee.
under this option; and 5. Rate of Donor’s Tax. e tax for each calendar year
g) In case of failure to pay the total estate tax shall be six percent (6%) computed on the basis of Manuel G. Abello, et al. v. CIR
due out from the proceeds of the said the total gi ts in excess of P250,000 exempt gi t
During the 1987 national elections, petitioners, who are
disposition, the estate tax due shall be made during the calendar year.
partners in the ACCRA law firm, contributed P882,661.31
immediately due and demandable subject to 6. "NET GIFT" shall mean the net economic benefit from the each to the campaign funds of Senator Edgardo Angara,
the applicable penalties and interest transfer that accrues to the donee. then running for the Senate. e BIR assessed each of the
reckoned from the prescribed deadline for
7. Any contribution in cash or in kind to any candidate petitioners P263,032.66 for their contributions.
filing the return and payment of the estate
or political party or coalition of parties for campaign e present case falls squarely within the definition of a
tax, without prejudice of withholding the
purposes, duly reported to the Comelec shall NOT be donation.
issuance of eCAR(s) on the remaining
subject to the payment of any gi t tax. (Sec 13, RA
properties until the payment of the Petitioners maintain that the definition of an “electoral
7166)
remaining balance of the estate tax due, contribution” under the Omnibus Election Code is
including the penalties and interest. 8. e donor's tax shall not apply unless and until there essential to appreciate how a political contribution di fers
is a completed gi t. e transfer of property by gi t is from a taxable gi t.
Donor’s Tax; Basic Principles and perfected from the moment the donor knows of the
2 Donative intent is not negated by the presence of other
Concepts acceptance by the donee; it is completed by the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 248 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

intentions, motives or purposes which do not contradict 2) at arm's length, and value did not by itself justify a finding of false return.
donative intent. Indeed, private respondent declared the sale in its 1974
3) free from any donative intent,
Subsequent to the donations involved in this case, return submitted to the BIR. Within the five-year
will be considered as made for an adequate and full prescriptive period, the BIR could have issued the
Congress approved Republic Act No. 7166 on November
consideration in money or money's worth. questioned assessment, because the declared fair market
25, 1991, providing in Section 13 thereof that
political/electoral contributions, duly reported to the value of said property was of public record. is it did not
CIR v. B.F. Goodrich Phils., Inc.
Comelec, are not subject to the payment of any gi t tax. do, however, during all those five years. Moreover, the
is all the more shows that the political contributions Petitioner insists that private respondent committed BIR failed to prove that respondent's 1974 return had been
herein made are subject to the payment of gi t taxes, "falsity" when it sold the property for a price lesser than filed fraudulently.
since the same were made prior to the exempting its declared fair market value. is fact alone did not
constitute a false return which contains wrong b. Condonation or remission of debt
legislation, and RA No. 7166 provides no retroactive e fect
on this point. information due to mistake, carelessness or ignorance. It If a creditor desires to benefit a debtor, and without any
is possible that real property may be sold for less than consideration therefore, cancels the debt, the amount of
Transfers which may be considered as adequate consideration for a bona fide business the debt is a donation by the creditor to the debtor.
donation purpose; in such event, the sale remains an "arm's c. Renunciation of inheritance; exception
length" transaction.
a. Sale, exchange, or transfer of property for less Renunciation by the surviving spouse of his/her share in
than adequate and full consideration; exception In the present case, the private respondent was the conjugal partnership or absolute community a ter
compelled to sell the property even at a price less than its the dissolution of the marriage in favor of the heirs of
Where property is transferred for less than an adequate
market value, because it would have lost all ownership the deceased spouse or any other person/s is subject to
and full consideration in money or money's worth, then
rights over it upon the expiration of the parity donor's tax.
the amount by which the fair market value of the
amendment. In other words, private respondent was
property exceeded the value of the consideration shall Whereas general renunciation by an heir, including the
attempting to minimize its losses. At the same time, it
be deemed a gi t, and shall be included in computing surviving spouse, of his/her share in the hereditary
was able to lease the property for 25 years, renewable for
the amount of gi ts made during the calendar year: estate le t by the decedent is NOT subject to donor's tax,
another 25. is can be regarded as another consideration
Provided, however, at a sale, exchange, or other on the price. unless specifically and categorically done in favor of
transfer of property made in the ordinary course of identified heir/s to the exclusion or disadvantage of the
Furthermore, the fact that private respondent sold its real other co-heirs in the hereditary estate.
business, a transaction which is
property for a price less than its declared fair market
1) a bona fide,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 249 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Classification of Donor b. Valuation of gifts made in property Right to usufruct, use or habitation, as well as that of
Valuation. — e amount of any charitable contribution annuity — there shall be taken into account the
1. Resident or citizen and DC. — donation of all types of
of property other than money shall be based on the probable life of the beneficiary in accordance with the
properties wherever situated;
acquisition cost of said property. (Sec 34[H][3]) latest basic standard mortality table, to be approved by
2. Nonresident alien and FC. — donation of real the Secretary of Finance, upon recommendation of the
property and tangible personal property situated in If real property — the appraised value as of the time of Insurance Commissioner.
PH; donation shall be whichever is higher of the FMV as:
c. Exemption of certain gifts
Donation of intangible PP with a situs in PH, unless a) Determined by the CIR; or
Made by a Resident
exempted on the basis of reciprocity. b) Shown in the schedule of values fixed by local
assessors. 1) Gi ts made to or for the use of the National
Determination of Gross Gift
Government or any entity created by any of its
a. Composition of gross gift If shares of stocks — the FMV depends on whether the agencies which is not conducted for profit, or to
shares are listed or unlisted. any political subdivision of the said Government;
Gross gi ts include real and personal property, whether
tangible or intangible, or mixed, wherever situated: a) Unlisted common shares = Book value; and
Provided, however, at where the donor was a b) Unlisted preferred shares = Par value. 2) Gi ts in favor of an educational and/or
nonresident alien at the time of donation, his real and charitable, religious, cultural or social welfare
In determining the book value of common shares,
personal property so transferred but which are situated corporation, institution, accredited
appraisal surplus shall not be considered as well as the
outside the Philippines shall not be included as part of non-government organization, trust or
value assigned to preferred shares, if there are any.
his 'gross gi t.’ philanthropic organization or research
c) Listed in stock exchange = FMV shall be the institution or organization: Provided, however,
e computation of the donor's tax is on a cumulative
arithmetic mean between the highest and lowest at not more than thirty percent (30%) of said
basis over a period of one calendar year. Husband and
quotation at a date nearest the date of death, if gi ts shall be used by such donee for
wife are considered as separate and distinct taxpayer's none is available on the date of death itself. administration purposes.
for purposes of the donor's tax. However, if what was
donated is a conjugal or community property and only Units of participation in any association, recreation or e donee-entity must be:
the husband signed the deed of donation, there is only amusement club — the bid price nearest the date of
a) Non-stock;
one donor for donor's tax purposes, without prejudice death published in any newspaper or publication of
to the right of the wife to question the validity of the general circulation. b) Paying no dividends;
donation without her consent.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 250 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) Governed by trustees who receive no 6) To the Southern Philippines Development Filing of return and payment
compensation; and Administration;
Requirements. — Any person making a donation
d) Devotes all its income to the 7) To the Intramuros Foundation. (whether direct or indirect), unless the donation is
accomplishment of its purpose as specifically exempt under the NIRC or other special
Tax credit for donor's taxes paid to a foreign
enumerated in its AOI. laws, is required, for every donation, to accomplish
country
Made by a Non-resident Alien under oath a donor's tax return in duplicate. e return
e tax imposed by this Title upon a donor who was a shall set forth:
1) - same - citizen or a resident at the time of donation shall be
1. Each gi t made during the calendar year which is
2) - same - but change ‘accredited non-government credited with the amount of any donor's tax of any
to be included in gi ts;
organization’ to ‘foundation’. character and description imposed by the authority of a
foreign country. 2. e deductions claimed and allowable;
Deductions under RR 12-2018
Limitations on Credit. — e amount of the credit taken 3. Any previous net gi ts made during the same
1) Encumbrance on the property donated, if
under this Section shall be subject to each of the calendar year;
assumed by donee;
following limitations: 4. e name of the donee; and
2) ose specifically provided by the donor as a
a) e amount of the credit in respect to the tax 5. Such further information as the Commissioner
diminution of the property donated.
paid to any country shall not exceed the same may require.
Exemptions under Special Laws proportion of the tax against which such credit
Time and place of filing and payment. — e donor's tax
1) Donations to PH government for scientific, is taken, which the net gi ts situated within such
return shall be filed within thirty (30) days a ter the date
engineering, and technological research, country taxable under this Title bears to his
the gi t is made or completed and the tax due thereon
invention and development; entire net gi ts; and
shall be paid at the same time that the return is filed.
2) To social welfare, cultural, and charitable b) e total amount of the credit shall not exceed
organizations; the same proportion of the tax against which Value-Added Tax (VAT)
such credit is taken, which the donor's net gi ts J
3) To IRRI; R.A. No. 8424, as amended, R.R. No. 16-2005, as
situated outside the Philippines taxable under
amended
4) To Ramon Magsaysay Award Foundation; this title bears to his entire net gi ts.
5) To the National Museum, National Library, and Concept
the archives of the NHI;
Elements of VATable Transactions

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 251 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Destination Principle and Cross-Border b. Sales tax profit, for purposes of determining liability for VAT on
Doctrine services rendered. As long as the entity provides service
VAT is a tax on the taxable sale, barter or exchange of
for a fee, remuneration or consideration, then the
Transactions Deemed Sale Subject to VAT goods, properties or services. A sale may be an actual or
service rendered is subject to VAT.
deemed sale, or an export or a local sale.
Zero-Rated Transactions
GR: ere must be an actual sale in PH in order that c. Tax on consumption
VAT-Exempt Transactions VAT may be imposed. VAT is broad-based because every sale at the levels of
Input and Output VAT EXC: manufacturers or producers and distributors is subject
to VAT. e tax burden rests with the final consumer
VAT Refund or Credit 1. Importation of goods;
who consumes the goods, properties or services.
2. Erroneous issuance of VAT invoice or receipt for
1 Concept VAT-exempt sales;
d. Tax credit method

a. Tax on value added Cost deduction method — refers to the manner of

3. Deemed sales of goods or properties.
computing the taxpayer’s VAT liability by deducting his
VAT is a tax on the value added of a taxpayer arising
CIR v. CA and COMASERCO costs and expenses subject to VAT from his taxable sales
from taxable sales of goods, properties, or services
and multiplying the resulting value added by 12%.
during the quarter at the rate of 0% or 12%. WON COMASERCO was engaged in the sale of services, and
thus liable to pay VAT thereon. Tax credit method or invoice method — the input taxes
Value added is the di ference between total sales of the
shi ted by the sellers to the buyer are credited against
taxpayer for the taxable quarter subject to VAT and his YES. Sec 105 of the NIRC clarifies that even a non-stock, the buyer’s output taxes when he in turn sells the taxable
total purchases for the same period subject also to VAT. non-profit, organization or government entity, is liable to goods, properties, or services.
Output tax means the VAT due on the sale or lease of pay VAT on the sale of goods or services.
ere is generally forward shi ting of tax when there is a
taxable goods, properties or services by any person Section 108 of the NIRC defines the phrase "sale of seller’s market — more buyers than sellers, or demand >
registered or required to register. services" as the "performance of all kinds of services for supply.
Input tax means the VAT due from or paid by a others for a fee, remuneration or consideration."
ere is backward shi ting when there is a buyer’s market
VAT-registered person in the course of his trade or Hence, it is immaterial whether the primary purpose of a like in real estate and the coconut oil industries.
business on importation of goods or local purchase of corporation indicates that it receives payments for
goods, properties, or services, including lease or use of services rendered to its a filiates on a 2 Elements of VATable Transactions
property, from a VAT-registered person. reimbursement-on-cost basis only, without realizing

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 252 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

§105. Persons Liable. — Any person who, in the 2) the service falls under any of the categories Doctrine mandates that no VAT shall be imposed to form
course of trade or business, sells barters, exchanges, provided in Section 102(b) of the Tax Code; and part of the cost of goods destined for consumption
leases goods or properties, renders services, and any outside the territorial border of the taxing authority.
person who imports goods shall be subject to the 3) it is paid for in acceptable foreign currency that is Hence, actual export of goods and services from the
value-added tax (VAT) imposed in Sections 106 to 108 accounted for in accordance with the regulations Philippines to a foreign country must be free of VAT;
of this Code. of the BSP. while, those destined for use or consumption within the
Since respondent’s services meet these requirements, Philippines shall be imposed with VAT. Plainly, sales of
Destination Principle and they are zero-rated. Petitioner’s Revenue Regulations export products to another producer or to an export
3
Cross-Border Doctrine that alter or revoke the above requirements are ultra vires trader are subject to zero percent rate provided the export
e destination of the goods determines taxation or and invalid. products are actually exported and consumed in a foreign
exemption from tax. Export sales of goods are country.
Tax situs of a zero-rated service
zero-rated, while imports of goods are subject to 12%
e place where the service is rendered determines the
VAT. us, the situs of taxation is where the goods are
jurisdiction to impose the VAT. Performed in the Transactions Deemed Sale Subject to
consumed. As for services, consumption takes place 4
Philippines, such service is necessarily subject to its VAT
where the service is performed. jurisdiction, for the State necessarily has to have “a
Cross border doctrine mandates that no VAT shall be substantial connection” to it, in order to enforce a zero 1) Transfer, use or consumption not in the course of
imposed to form part of the cost of the goods destined rate. e place of payment is immaterial; much less is the business of goods or properties originally intended for
for consumption outside the territorial border of the place where the output of the service will be further or sale or for use in the course of business;
taxing authority. ultimately used. 2) Distribution or transfer to:

CIR v. American Express a) Shareholders or investors as share in the profits

of the VAT-registered persons; or
As a general rule, the VAT system uses the destination CIR v. Filminera Resources Corporation 2020
b) Creditors in payment of debt;
principle. However, our VAT law itself provides for a e tax treatment of export sales is based on the Cross
clear exception, under which the supply of service shall be Border Doctrine and Destination Principle of the 3) Consignment of goods if actual sale is not made
zero-rated when the following requirements are met: Philippine VAT system. Under the Destination Principle, within sixty (60) days following the date such goods
goods and services are taxed only in the country where were consigned; and
1) the service is performed in the Philippines;
these are consumed. In this regard, the Cross Border

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 253 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

4) Retirement from or cessation of business, with a) e sale and actual shipment of goods from the c) whose export sales exceed seventy percent (70%)
respect to inventories of taxable goods existing as of Philippines to a foreign country, irrespective of of total annual production;
such retirement or cessation. any shipping arrangement that may be agreed 4) ose considered export sales under EO No. 226,
Here, the seller is also the buyer and no valuable upon which may in luence or determine the otherwise known as the Omnibus Investment Code
consideration is thus paid. e rationale is to recapture transfer of ownership of the goods so exported of 1987, and other special laws; and
the VAT that was claimed as input tax at the time of and
"Considered export sales under EO No. 226" shall mean
purchase. b) paid for in acceptable foreign currency or its
the Philippine port F.O.B. value determined from
In the course of trade or business — means the regular equivalent in goods or services, and
invoices, bills of lading, inward letters of credit,
conduct or pursuit of a commercial or an economic c) accounted for in accordance with the rules and landing certificates, and other commercial
activity, including transactions incidental thereto, by regulations of the BSP; documents, of export products exported directly by
any person regardless of whether or not the person 2) a registered export producer, or the net selling price
engaged therein is a non-stock, nonprofit private of export products sold by a registered export
organization (irrespective of the disposition of its net a) Sale of raw materials or packaging materials producer to another export producer, or to an export
income and whether or not it sells exclusively to b) to a nonresident buyer trader that subsequently exports the same:
members or their guests), or government entity.
c) for delivery to a resident local export-oriented Sales of export products to another producer or to
e rule of regularity, to the contrary enterprise an export trader shall only be deemed export sales
notwithstanding, services rendered in the Philippines when actually exported by the latter, as evidenced
d) to be used in manufacturing, processing,
by nonresident foreign persons shall be considered as by landing certificates or similar commercial
packing or repacking in the Philippines of the
being rendered in the course of trade or business. documents:
said buyer's goods and
Without actual exportation the following shall be
5 Zero-Rated Transactions e) paid for in acceptable foreign currency and
considered constructively exported for purposes of
f) accounted for in accordance with the rules and these provisions:
Zero-rated sale regulations of the BSP;
a. Export Sales. — e term 'export sales' means: 1. sales to bonded manufacturing warehouses
3)
of export-oriented manufacturers;
1)
a) Sale of raw materials or packaging materials 2. sales to export processing zones;
b) to export-oriented enterprise

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 254 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

is outside the Philippines when the services are

3. sales to registered export traders operating 2) All pending VAT refund claims as of December 31,
bonded trading warehouses supplying raw 2017 shall be fully paid in cash by December 31, 2019. performed,
materials in the manufacture of export xxxx c) the consideration for which is paid for in
products under guidelines to be set by the acceptable foreign currency and
Board in consultation with the BIR and the b. E fectively Zero-Rated Transaction. — Sales to persons or
entities whose exemption under special laws or d) accounted for in accordance with the rules and
BOC; regulations of the BSP;
international agreements to which the Philippines is a
4. sales to diplomatic missions and other signatory e fectively subjects such sales to zero rate. 3) Services rendered to persons or entities whose
agencies and/or instrumentalities granted exemption under special laws or international agreements
tax immunities, of locally manufactured, e following services performed in the Philippines by
to which the Philippines is a signatory e fectively
assembled or repacked products whether VAT-registered persons shall be subject to zero percent subjects the supply of such services to zero percent
paid for in foreign currency or not. (0%) rate: (0%) rate;
5) e sale of goods, supplies, equipment and fuel to 1) 4) Services rendered to persons exclusively engaged in
persons engaged in international shipping or international shipping or international air transport
a) Processing, manufacturing or repacking goods
international air transport operations: Provided, operations, including leases of property for use
at the goods, supplies, equipment and fuel shall b) for other persons doing business outside the
thereof;
be used for international shipping or air transport Philippines
operations. 5) Services performed by subcontractors and/or
c) which goods are subsequently exported,
contractors in processing, converting, or
Provided, at subparagraphs (3), (4), and (5) hereof shall be d) where the services are paid for in acceptable manufacturing goods for an enterprise whose
subject to the 12% VAT and no longer be considered export foreign currency and export sales exceed seventy percent (70%) of total
sales subject to 0% VAT rate upon satisfaction of the e) accounted for in accordance with the rules and annual production;
following conditions: regulations of the BSP; 6) Transport of passengers and cargo by domestic air
1) e successful establishment and implementation of 2) or sea vessels from the Philippines to a foreign
an enhanced VAT refund system that grants refunds country; and
a) Services other than PMR,
of creditable input tax within ninety (90) days from ★ If international, VAT-exempt if passenger; and
the filing of the VAT refund application with the b) rendered to a person engaged in business
subject to other percentage tax of 3% if cargo.
BIR; and conducted outside the Philippines or to a
nonresident person not engaged in business who

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 255 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

7) Sale of power or fuel generated through renewable with the accounting and invoicing requirements laid Border Doctrine and Destination Principle of the
sources of energy such as, but not limited to, biomass, down in Section 108, a penalty similar to that found in Philippine VAT system. Under the Destination Principle,
solar, wind, hydropower, geothermal, ocean energy, Sections 111 and 263. In short, Section 108 provides the goods and services are taxed only in the country where
and other emerging energy sources using guidelines and necessary requirements for VAT invoices; these are consumed. In this regard, the Cross Border
technologies such as fuel cells and hydrogen fuels. Sections 111 and 263 of the Tax Code provide penalties for Doctrine mandates that no VAT shall be imposed to form
di ferent types of violations of Section 108; and Section 21 part of the cost of goods destined for consumption
Atlas Consolidated Mining v. CIR of Revenue Regulation 5-87 specifies the penalty for a outside the territorial border of the taxing authority.
WON the totality of sales to EPZA-registered enterprises should specific violation of Section 108. Hence, actual export of goods and services from the
be zero-rated, not merely the proportion which such sales have to Furthermore, we agree with respondent's position that Philippines to a foreign country must be free of VAT;
the actual exports of the enterprise. the computation of the output VAT of the seller should be while, those destined for use or consumption within the
based on the selling price appearing on its own VAT Philippines shall be imposed with VAT. Plainly, sales of
YES. An examination of Section 4.100.2 of Revenue export products to another producer or to an export
invoice, not on the selling price appearing on that of the
Regulation 7-95 in relation to Section 102 (b) of the Tax trader are subject to zero percent rate provided the export
customer. Indeed, it is the duty of the seller to comply
Code shows that sales to an export-oriented enterprise products are actually exported and consumed in a foreign
with the invoicing and accounting requirements.
whose export sales exceed 70 percent of its annual country.
production are to be zero-rated, provided the seller
complies with other requirements, like registration with Section 4.106-5(a)(5) of RR No. 16-2005 classified sales to
the BOI and the EPZA. e said Regulation does not even CIR v. Filiminera Resources 2020 Lopez, M.J. BOI-registered entities as zero-rated export sales if the
hint, much less expressly mention, that only a following conditions are met:
Proof of actual exportation of goods sold by a Value
percentage of the sales would be zero-rated. e internal Added Tax (VAT)-registered taxpayer to a Board of 1) the buyer is a BOI-registered
revenue commissioner cannot, by administrative fiat, Investments (BOI)-registered enterprise is vital for the manufacturer/producer;
amend the law by making compliance therewith more transaction to be considered as zero-rated export sales. 2) the buyer's products are 100% exported; and
burdensome.
WON the sales made to PGPRC for the third and fourth quarters 3) the BOI certified that the buyer exported 100% of
WON Section 21 of Revenue Regulations No. 5-87 is invalid, of the FY ending June 30, 2010 are zero-rated export sales based its products.
insofar as it went beyond the law by disallowing input VAT for on the certification issued by the BOI on January 27, 2010.
purchases not covered by VAT invoices. For this purpose, the BOI Certification is vital for the
CIR is correct. seller-taxpayer to avail of the benefits of zero-rating. e
NO. Section 21 of Revenue Regulation 5-87 is not invalid, certification is evidence that the buyer exported its entire
e tax treatment of export sales is based on the Cross
as it simply prescribes the penalty for failure to comply

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 256 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

products and shall serve as authority for the seller to 5) in case of zero-rated sales, the acceptable foreign 1. It could avail of an income tax holiday pursuant to
claim for refund or tax credit. currency exchange proceeds have been duly provisions of E.O. No. 226, thus exempt it from
To be entitled for the refund or tax credit, the taxpayer accounted for in accordance with BSP rules and income taxes for a number of years but not from
must not only prove the existence of zero-rated sales, but regulations. other internal revenue taxes such as VAT; or
must also prove that the zero-rated sales were issued As for the second requisite, Filminera Resources failed to 2. It could avail of the tax exemptions on all taxes,
valid invoice or o ficial receipts pursuant to Sections prove that its sales to PGPRC for the third and fourth including VAT under P.D. No. 66 and pay only the
113(A) and (B), and 237 of the 1997 NIRC, in relation to quarters of FY 2010 are export sales. preferential tax rate of 5% under Rep. Act No.
Section 4.113-l(B) of RR No. 16-2005. 7916.
In fine, Filminera Resources Corporation is NOT entitled
To ensure compliance with invoicing requirements, to a refund or the issuance of tax credit certificate in the Respondent availed of the income tax holiday for four (4)
Section 3 of RMO No. 09-00 requires the BOI-registered amount of P111,579,541.76, representing its unutilized years. Hence, respondent is NOT exempt from VAT and it
buyer to furnish its suppliers with a copy of the BOI input VAT attributable to zero-rated sales for the third correctly registered itself as a VAT taxpayer. In fine, it is
Certification attesting that it exported 100% of its and fourth quarters of the fiscal year ending June 30, engaged in taxable rather than exempt transactions.
products. 2010. Generally, sale of goods and supply of services performed
Under Section 112(A) of the 1997 NIRC, the seller may in the Philippines are taxable at the rate of 10% (now 12%).
claim a refund or tax credit for the input VAT attributable However, export sales, or sales outside the Philippines,
to its zero-rated sales subject to the following conditions: CIR v. Cebu Toyo Corporation shall be subject to VAT at 0% if made by a VAT-registered
1) the taxpayer is VAT-registered; WON the CA erred in a firming the CTA resolution granting a person.

2) the taxpayer is engaged in zero-rated or refund in the amount of P2,158,714.46 representing unutilized While the zero rating and the exemption are
e fectively zero-rated sales; input VAT on goods and services for the period April 1, 1996 to computationally the same, they actually di fer in several
December 31, 1997. aspects, to wit:
3) the claim must be filed within two years a ter the
close of the taxable quarter when such sales were NO. Petitioner’s contention that respondent is not a) A zero-rated sale is a taxable transaction but does
made; entitled to refund for being exempt from VAT is not result in an output tax while an exempted
untenable. transaction is not subject to the output tax;
4) the creditable input tax due or paid must be
attributable to such sales, except the transitional Under RA 7916, respondent had two options with respect b) e input VAT on the purchases of a
input tax, to the extent that such input tax has not to its tax burden. VAT-registered person with zero-rated sales may
been applied against the output tax; and be allowed as tax credits or refunded while the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 257 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

seller in an exempt transaction is not entitled to 2. seeds, seedlings and fingerlings; 1. Sale or lease of goods or properties or the
any input tax on his purchases despite the performance of services of non-VAT-registered
3. fish, prawn, livestock and poultry feeds,
issuance of a VAT invoice or receipt. persons, other than the transactions mentioned
including ingredients, whether locally produced
c) Persons engaged in transactions which are or imported, used in the manufacture of in paragraphs (A) to (AA) of Sec. 109(1) of the Tax
zero-rated, being subject to VAT, are required to finished feeds Code, the gross annual sales and/or receipts of
register while registration is optional for which does not exceed the amount of Php3M.
except specialty feeds for race horses, fighting
VAT-exempt persons. 2. Services rendered by domestic common carriers
cocks, aquarium fish, zoo animals and other
Here, respondent is engaged in the export business and is animals generally considered as pets; by land, for the transport of passengers and
registered as a VAT taxpayer. Further, the records show keepers of garages (Sec. 117);
C. Importation of personal and household e fects
that the respondent is subject to VAT as it availed of the 3. Services rendered by international air/shipping
belonging to the residents of the Philippines
income tax holiday under E.O. No. 226. Perforce, carriers (Sec. 118);
returning from abroad and nonresident citizens
respondent is subject to VAT at 0% rate and is entitled to
coming to resettle in the Philippines: Provided, at 4. Services rendered by franchise grantees of radio
a refund or credit of the unutilized input taxes.
such goods are exempt from customs duties; and/or television broadcasting whose annual
D. Importation of professional instruments and gross receipts of the preceding year do not
implements, tools of trade, occupation or exceed Php10M, and by franchise grantees of gas
6 VAT-Exempt Transactions and water utilities (Sec. 119);
employment, wearing apparel, domestic animals,
A. Sale or importation of and personal and household e fects belonging to 5. Service rendered for overseas dispatch, message
1. agricultural and marine food products in their persons coming to settle in the Philippines or or conversation originating from the
original state, Filipinos or their families and descendants who are Philippines (Sec. 120);
now residents or citizens of other countries. 6. Services rendered by any person, company or
2. livestock and poultry of a kind generally used as,
or yielding or producing foods for human Vehicles, vessels, aircra ts, machineries and other corporation (except purely cooperative
consumption; and similar goods for use in manufacture, shall NOT fall companies or associations) doing life insurance
within this classification and shall therefore be business of any sort in the Philippines (Sec. 123);
3. breeding stock and genetic materials therefor.
subject to duties, taxes and other charges; 7. Services rendered by fire, marine or
B. Sale or importation of
E. Services subject to percentage tax under Title V; miscellaneous insurance agents of foreign
1. fertilizers; insurance companies (Sec. 124);

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 258 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

8. Services of proprietors, lessees or operators of L. 2) to both members and non-members, its produce,
cockpits, cabarets, night or day clubs, boxing a) Sales by agricultural cooperatives duly registered whether in its original state or processed form.
exhibitions, professional basketball games, with the CDA to their members
Jai-Alai and race tracks (Sec. 125); and e second requisite di ferentiates cooperatives
b) as well as sale of their produce, whether in its according to its customers. If the cooperative transacts
9. Receipts on sale, barter or exchange of shares of original state or processed form, to only with members, all its sales are VAT-exempt,
stock listed and traded through the local stock non-members; regardless of what it sells. On the other hand, if it
exchange or through initial public o fering (Sec. transacts with both members and non-members, the
127). c) their importation of direct farm inputs,
product sold must be the cooperative's own produce in
machineries and equipment, including spare
F. Services by agricultural contract growers and order to be VAT-exempt. Stated di ferently, if the
parts thereof, to be used directly and exclusively
milling for others of palay into rice, corn into grits cooperative only sells its produce or goods that it
in the production and/or processing of their
and sugar cane into raw sugar; manufactures on its own, its entire sales is VAT-exempt.
produce;
G. Medical, dental, hospital and veterinary services A cooperative is the producer of the sugar if it owns or
except those rendered by professionals; CIR v. United Cadiz Sugar Farmers Association 2016 leases the land tilled, incurs the cost of agricultural
Although the sale of refined sugar is generally subject to production of the sugar, and produces the sugar cane to
H. Educational services rendered by private
VAT, such transaction may nevertheless qualify as a be refined. It should not have merely purchased the sugar
educational institutions, duly accredited by the
VAT-exempt transaction if the sale is made by a cooperative. cane from its planters-members.
DepEd, CHED, TESDA and those rendered by
government educational institutions; Under Section 109(L) of the NIRC, sales by agricultural
cooperatives are exempt from VAT provided the following
“Educational services” shall refer to academic, CIR v. Negros Consolidated Farmers MPC 2018
conditions concur, viz:
technical or vocational education.
First, the seller must be an agricultural cooperative duly For an agricultural cooperative to be exempted from the
I. Services rendered by individuals pursuant to an payment of advance VAT on refined sugar, it must be
registered with the CDA. An agricultural cooperative is
employer-employee relationship;
"duly registered" when it has been issued a certificate of a) a cooperative in good standing duly accredited
J. Services rendered by RAHQ that do not earn or registration by the CDA. is certificate is conclusive and registered with the CDA; and
derive income from the Philippines; evidence of its registration.
b) the producer of the sugar.
K. Transactions which are exempt under international Second, the cooperative must sell either:
agreements to which the Philippines is a signatory
1) exclusively to its members; or
or under special laws, except those under PD No. 529;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 259 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

transaction incidental to the taxpayer's main

M. Gross receipts from lending activities by credit or 1. sale of real properties not primarily held for
multi-purpose cooperatives duly registered with the business. sale to customers or held for lease in the
CDA; 2) Sale of real properties utilized for low-cost ordinary course of trade or business,
N. Sales by non-agricultural, non-electric and housing. 2. sale of real property utilized for socialized
non-credit cooperatives duly registered with the 3) Sale of real properties utilized for socialized housing,
CDA. housing wherein the price ceiling per unit is 3. sale of house and lot, and other residential
e share capital contribution of each member does P450K or as may from time to time be dwellings with selling price of not more than
not exceed Php15K and regardless of the aggregate determined by the HUDCC and the NEDA and Php3,199,200.
capital and net surplus ratably distributed among other related laws.
Q. Lease of a residential unit with a monthly rental not
the members; 4) Sale of residential lots valued at Php1,919,500 exceeding P15K;
Importation by non-agricultural, non-electric and and below, or house & lot and other residential
e foregoing notwithstanding, lease of residential
non-credit cooperatives of machineries and dwellings valued at Php3,199,200 and below.
units where the monthly rental per unit exceeds
equipment, including spare parts thereof, to be used If two or more adjacent residential lots are sold or P15K, but the aggregate of such rentals of the lessor
by them are subject to VAT. disposed of in favor of one buyer, for the purpose of during the year do not exceed P3M shall likewise be
O. Export sales by persons who are not VAT-registered; utilizing the lots as one residential lot, the sale shall exempt from VAT; however, the same shall be subject
be exempt from VAT only if the aggregate value of to three percent (3%) percentage tax under Section
If VAT-registered, zero-rated.
the lots do not exceed Php1,919,500M. 116 of the Tax Code.
P. e following sales of real properties are exempt
Adjacent residential lots, although covered by In cases where a lessor has several residential units
from VAT, namely:
separate titles and/or separate tax declarations, for lease, some are leased out for a monthly rental
1) Sale of real properties not primarily held for sale when sold or disposed to one and the same buyer, per unit of not exceeding P15K while others are
to customers or held for lease in the ordinary whether covered by one or separate Deed of leased out for more than P15K per unit, his tax
course of trade or business. However, even if the Conveyance, shall be presumed as a sale of one liability will be as follows:
real property is not primarily held for sale to residential lot.
1. e gross receipts from rentals not exceeding
customers or held for lease in the ordinary
Provided, at beginning January 1, 2021, the VAT P15K per month per unit shall be exempt
course of trade or business but the same is used
exemption shall only apply to from VAT regardless of the aggregate annual
in the trade or business of the seller, the sale
thereof shall be subject to VAT being a

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 260 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

gross receipts. It is also exempt from the 3% Materials, including the digital or electronic V. Services of bank, non-bank financial
percentage tax. format thereof: Provided, at the materials intermediaries performing quasi-banking
2. e gross receipts from rentals exceeding enumerated herein are not devoted principally to functions, and other non-bank financial
P15K per month per unit shall be subject to the publication of paid advertisements; intermediaries;
VAT if the aggregate annual gross receipts S. Transport of passengers by international carriers; Such as money changers and pawnshops, subject to
from said units only exceeds P3M. Otherwise, percentage tax under Secs. 121 and 122, respectively,
If cargo, 3% OPT.
the gross receipts will be subject to the 3% of the Tax Code;
tax imposed under Section 116 of the Tax T. Sale, importation or lease of passenger or cargo
Code. vessels and aircra t, including engine, equipment W. Sale or lease of goods and services to senior citizens
and spare parts thereof for domestic or and persons with disability, as provided under RA
In case of mixed transactions, the abovementioned Nos. 9994 and 10754, respectively;
international transport operations;
rule should be observed.
U. Importation of fuel, goods and supplies by persons X. Transfer of property pursuant to Section 40(C)(2) of
e term 'residential units' shall refer to apartments the NIRC, as amended;
engaged in international shipping or air transport
and houses & lots used for residential purposes, and
operations: Tax-free exchange of property in pursuance of a plan
buildings or parts or units thereof used solely as
dwelling places (e.g., dormitories, rooms and bed Provided, at the fuel, goods, and supplies shall be of merger or consolidation.
spaces) except motels, motel rooms, hotels and hotel rooms, used for international shipping or air transport Y. Association dues, membership fees, and other
lodging houses, inns and pension houses. operations; assessments and charges collected by homeowners
e term 'unit' shall mean an apartment unit in the us, said fuel, goods and supplies shall be used associations and condominium corporations;
case of apartments, house in the case of residential exclusively or shall pertain to the transport of goods Z. Sale of gold to the BSP;
houses; per person in the case of dormitories, and/or passenger from a port in the Philippines
AA. Sale of or importation of prescription drugs and
boarding houses and bed spaces; and per room in directly to a foreign port, or vice versa, without
medicine for:
case of rooms for rent. docking or stopping at any other port in the
Philippines unless the docking or stopping at any a) Diabetes, high cholesterol, and hypertension
R. Sale, importation, printing or publication of books,
other Philippine port is for the purpose of unloading beginning January 1, 2020; and
and any newspaper, magazine, journal, review
passengers and/or cargoes that originated from b) Cancer, mental illness, tuberculosis, and kidney
bulletin, or any such educational reading material
abroad, or to load passengers and/or cargoes bound diseases beginning January 1, 2021; and
covered by the UNESCO Agreement on the
for abroad.
Importation of Educational, Scientific and Cultural

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 261 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

BB. Sale or importation of the following beginning founded mainly on Section 12 (b) and (c) of RA 7227,
January 1, 2021 to December 31, 2023: which basically exempts them from all national and local PSALM v. CIR 2019
internal revenue taxes, including VAT. Petitioner is
a) Capital equipment, its spare parts and raw WON PSALM’s privatization activities are subject to VAT.
registered as a NON-VAT taxpayer per Certificate of
materials, necessary for the production of
Registration issued by the BIR. As such, it is exempt NO. e sale of the power plants in this case is not subject
personal protective equipment components such
from VAT on all its sales and importations of goods and to VAT since the sale was made pursuant to PSALM's
as coveralls, gown, surgical cap, surgical mask,
services. mandate to privatize NPC's assets, and was not undertaken
N-96 mask, scrub suits, goggles and face shield,
Petitioner’s claim, however, for exemption from VAT for in the course of trade or business. In selling the power plants,
double or surgical gloves, dedicated shoes, and
its purchases of supplies and raw materials is incongruous PSALM was merely exercising a governmental function
shoe covers, for COVID-19 prevention;
with its claim that it is VAT-Exempt, for only for which it was created under the EPIRA law.
b) All drugs, vaccines and medical devices VAT-Registered entities can claim Input VAT During its corporate life, PSALM has powers relating to
specifically prescribed and directly used for the Credit/Refund. the management of its personnel and leasing of its
treatment of COVID-19; and
WON the petitioner may claim a refund on the Input VAT properties as may be necessary to discharge its mandate.
c) Drugs for the treatment of COVID-19 approved erroneously passed on to it by its suppliers.
by the Food and Drug Administration (FDA) for
NO. While it is true that the petitioner should not have
use in clinical trials, including raw materials 7 Input and Output VAT
been liable for the VAT inadvertently passed on to it by its
directly necessary for the production of such
supplier since such is a zero-rated sale on the part of the Categories of Input taxes
drugs.
supplier, the petitioner is not the proper party to claim
1. Input tax credit on importation of goods and
CC. Sale or lease of goods or properties or the such VAT refund. Since the transaction is deemed a
current local purchases of goods, properties, and
performance of services other than the transactions zero-rated sale, petitioner’s supplier may claim an Input
services (Sec 110);
mentioned in the preceding paragraphs, the gross VAT credit with no corresponding Output VAT liability.
Congruently, no Output VAT may be passed on to the 2. Transitional input tax credit — 2%;
annual sales and/or receipts do not exceed the
amount of P3M. petitioner. 3. Presumptive input tax credit — 4%;
Rather, it is the petitioner’s suppliers who are the proper 4. Final withholding tax credit; and
Contex Corp. v. CIR parties to claim the tax credit and accordingly refund the
5. Excess input tax credit.
e petitioner’s claim to VAT exemption in the instant petitioner of the VAT erroneously passed on to the latter.
case for its purchases of supplies and raw materials is Sources of input tax credits

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 262 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

of tax credit only if it shows the information

1. Purchase or importation of goods: Substantiation of Input Tax Credits
required under Secs. 113 and 237 of the Tax Code.
a. For sale; or a) Input taxes for the importation of goods or the
domestic purchase of goods, properties or services b) Transitional input tax shall be supported by an
b. For conversion into or intended to form part of a inventory of goods as shown in a detailed list to be
finished product for sale including packaging is made in the course of trade or business, whether
such input taxes shall be credited against zero-rated submitted to the BIR.
materials; or
sale, non-zero-rated sales, or subjected to the 5% c) Input tax on “deemed sale” transactions shall be
c. For use as supplies in the course of business; or Final Withholding VAT, must be substantiated and substantiated with the invoice required under Sec.
d. For use as materials supplied in the sale of supported by the following documents, and must be 4.113-2.
service; or reported in the information returns required to be d) Input tax from payments made to non-residents
submitted to the Bureau: (such as for services, rentals and royalties) shall be
e. For use in trade or business for which deduction
for depreciation or amortization is allowed 1) For the importation of goods - import entry or supported by a copy of the Monthly Remittance
under this Code. other equivalent document showing actual Return of Value Added Tax Withheld (BIR Form
payment of VAT on the imported goods. 1600) filed by the resident payor in behalf of the
2. Purchase of services on which a VAT has been
2) For the domestic purchase of goods and non-resident evidencing remittance of VAT due
actually paid.
properties – invoice showing the information which was withheld by the payor.
3. Transactions deemed sale;
required under Secs. 113 and 237 of the Tax Code. e) Advance VAT on sugar shall be supported by the
4. Transitional input tax. Payment Order showing payment of the advance
3) For the purchase of real property – public
When creditable instrument i.e., deed of absolute sale, deed of VAT.

1. On purchase of goods or properties — upon conditional sale, contract/agreement to sell, etc., Transitional Input Tax Credits
consummation of sale, or issue of the sales invoice, together with VAT invoice issued by the seller.
A person who becomes liable to VAT or any person who
although no payment thereof was made by the 4) For the purchase of services – o ficial receipt elects to be a VAT-registered person shall, subject to the
buyer. showing the information required under Secs. filing of an inventory be allowed input tax
2. On importation — upon payment of the VAT prior 113 and 237 of the Tax Code.
1. on his beginning inventory of goods, materials and
to the release of the goods from customs custody. A cash register machine tape issued to a registered supplies equivalent to two percent (2%) of the value
3. On purchase of services — when paid by the buyer buyer shall constitute valid proof of substantiation of such inventory or
and evidenced by the seller’s o ficial receipt.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 263 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

which it could not have been put in its original form or invoices and other documents in support of the application
2. the actual VAT paid on such goods, materials and
supplies, condition. filed:

whichever is higher, which shall be creditable against the Provided, at should the CIR find that the grant of refund is
VAT Refund or Credit
output tax. 8 not proper, the CIR must state in writing the legal and
R.A. No. 8424, as amended, sec. 112
factual basis for the denial.
When may one claim transitional input tax 1. Any VAT-registered person, In case of full or partial denial of the claim for tax refund,
1. He becomes liable to VAT for the first-time either 2. whose sales are zero-rated or e fectively zero-rated the taxpayer a fected may, within thirty (30) days from the
through a new law or when his taxable transactions may, receipt of the decision denying the claim, appeal the
exceed the P3M threshold; decision with the CTA:
3. within two (2) years a ter the close of the taxable
2. He elects to register as a VAT-registered person; and quarter when the sales were made, Provided, however, at failure on the part of any o ficial,
3. He is already VAT-registered and also deals in goods 4. apply for the issuance of a tax credit certificate or agent, or employee of the BIR to act on the application
or properties, the sale of which is exempt, but later refund of creditable input tax due or paid within the ninety (90)-day period shall be punishable under
becomes a taxable transaction through legislation. attributable to such sales, except transitional input tax, Section 269 of this Code.

Presumptive Input Tax Credits to the extent that such input tax has not been When based on statute, a claim for tax refund partakes of
applied against output tax. the nature of an exemption.
Persons or firms engaged
Cancellation of VAT Registration. — A person whose Categories of refunds or credits
1. in the processing of sardines, mackerel and milk,
registration has been cancelled due to retirement from or 1. Zero-rated or e fectively zero-rated sales of goods.
and
cessation of business, or due to changes in or cessation of Petitioner must prove or comply the following:
2. in manufacturing refined sugar and cooking oil, status under Section 106(C) of this Code may, within two (2)
years from the date of cancellation, apply for the issuance a. He is a VAT-registered person;
shall be allowed a presumptive input tax, creditable against
the output tax, equivalent to four percent (4%) of the gross of a tax credit certificate for any unused input tax which b. Filed with the BIR or DOF Center within 2 years
value in money of their purchases of primary agricultural may be used in payment of his other internal revenue taxes. a ter the close of taxable quarter when the sales
products which are used as inputs to their production. Period within which Refund or Tax Credit of Input Taxes shall were made

e term 'processing' shall mean pasteurization, canning be Made. — In proper cases, the Commissioner shall grant a With the CTA within 30 days from date of receipt
and activities which through physical or chemical process refund for creditable input taxes within ninety (90) days of denial from CIR;
alter the exterior texture or form or inner substance of a from the date of submission of the o ficial receipts or
product in such manner as to prepare it for special use to

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 264 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c. e claimed input tax payments were not b. e date of cancellation being referred herein is a net loss in its financial statements is no di ferent from
applied against any output tax during the period the date of issuance of tax clearance by the BIR, another that presents a net income. Both are entitled to
covered by the claim and in the succeeding a ter full settlement of all tax liabilities relative the tax credit provided for under RA 7432, since the law
periods, unless there be a separate claim; to cessation of business or change of status. itself accords that unconditional benefit.
d. Deduct from its quarterly return the input tax c. e filing of the claim shall be made only a ter
being claimed as refund or credit; completion of the mandatory audit of all
CIR v. Aichi Forging October 6, 2010
e. Directly attributable to the sale; internal revenue tax liabilities covering the
immediately preceding year and the short period 1. us, in claims for tax refund or credit of
f. e acceptable foreign currency exchange return and the issuance of the applicable tax unutilized input VAT, only the administrative
proceeds had been duly accounted for, if clearance/s by the appropriate BIR O fice which has claim must be within the 2-year prescriptive
applicable; jurisdiction over the taxpayer. period reckoned from the close of the taxable
g. Duly supported by VAT invoices or o ficial quarter when the sale was made.
receipts; CIR v. Central Luzon Drug Corporation
2. e claimant may then file his judicial claim
Imprinting of the word “zero-rated” on the Tax liability required for Tax credit
a. Within 30 days from receipt of the denial
invoices or receipts is required. Since a tax credit is used to directly reduce the tax that is of the CIR; OR
h. e VAT return for the succeeding quarters due, there ought to be a tax liability before the tax credit
b. Within 30 days a ter the lapse of the
covered by the claim must be submitted with the can be applied. While the grant is mandatory, the availment
90-day period given to the CIR to decide
CTA. or use is not. By its nature, the tax credit may still be
that is reckoned from the date when
deducted from a future, not a present, tax liability,
2. Cancellation of VAT registration due to cessation of documents are deemed submitted.
without which it does not have any use.
business or dissolution of the corporation. is is considered a denial on the part of
Prior tax payments NOT required for Tax credit
a. Within two (2) years from the date of the CIR.
cancellation, apply for the issuance of a tax While a tax liability is essential to the availment or use of
3. If the claimant files his judicial claim without
credit certificate for any unused input tax which any tax credit, prior tax payments are not. On the
respecting the 90-day period, such will be
may be used in payment of his other internal contrary, for the existence or grant solely of such credit,
dismissed as being premature.
revenue taxes. neither a tax liability nor a prior tax payment is needed.
Regarding this matter, a private establishment reporting 4. e rule that both administrative and judicial
claims fall within the 2-year period applies to

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 265 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

erroneously or excessively paid taxes, and is WON respondent’s judicial claim for refund was filed within the In this case, records disclose that petitioner filed its
reckoned from the date of payment. Input VAT is prescriptive period. administrative and judicial claims for refund/credit of its
NOT erroneously or excessively paid. input VAT on December 29, 2005 and January 20, 2006,
NO. In accordance with San Roque, respondent’s judicial
respectively, or during the period when BIR Ruling No.
claim for refund must be denied for having been filed
DA-489-03 was in place.
late. Although respondent filed its administrative claim
Philippine Phosphate Fertilizer v. CIR As such, it need not wait for the expiration of the 120-day
with the BIR on August 9, 2004 before the expiration of
WON the CTA should have granted petitioner’s claim for refund. the two-year period in Section 112(A), it undoubtedly period before filing its judicial claim before the CTA, and
YES. Nowhere in the Circular is it stated that invoices are failed to comply with the 120+30-day period in Section hence, is deemed timely filed. In view of the foregoing,
required to be presented in claiming refunds. 112(D) (now subparagraph C) which requires that upon the CTA En Banc erred in dismissing outright petitioner’s
the inaction of the CIR for 120 days a ter the submission claim on the ground of prematurity.
of the documents in support of the claim, the taxpayer
CIR v. San Roque Power 2013 En Banc has to file its judicial claim within 30 days a ter the lapse
of the said period. Cargill Phils., Inc. v. CIR 2015
Application of the 120+30 Day Periods (please note that the
120 days is now 90 days under the TRAIN law) Anent Cargill’s first refund claim, it filed its
administrative claim with the BIR on June 27, 2003, and
GR: Taxpayer must wait for the lapse of 120 days before ROHM Apollo v. CIR 2015 its judicial claim before the CTA on June 30, 2003, or
it could seek relief with the CTA.
e taxpayer can file an appeal in one of two ways: before the period when BIR Ruling No. DA-489-03 was in
EXC: ose who filed their judicial claim between e fect. As such, it was incumbent upon Cargill to wait for the
1) file the judicial claim within 30 days a ter the
10 Dec 2003 — 6 Oct 2010. lapse of the 120-day period before seeking relief with the
Commissioner denies the claim within the 90-day
CTA. It was thus prematurely filed.
“Excess” Input VAT and “Excessively” Collected Tax waiting period, or
In contrast, Cargill’s second refund claims were both
e input VAT is NOT “excessively” collected as 2) file the judicial claim within 30 days from the
filed on May 31, 2005, falling within the exemption
understood under Section 229 because at the time the expiration of the 90-day period if the CIR does not
window period contemplated in San Roque. Verily, the
input VAT is collected the amount paid is correct and act within that period.
CTA En Banc erred when it outrightly dismissed CTA
proper. Case No. 7262 on the ground of prematurity.

Panay Power Corp. v. CIR 2015

CIR v. Dash Engineering 2013 cf. San Roque

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 266 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Pilipinas Total Gas v. CIR 2015 En Banc under Section 108 (B)(2) of the Tax Code. Knowledge Services Pte. Ltd. emphasized that for
re Submission of Documents sales to a non-resident foreign corporation to
1. NO. Chevron Holdings failed to prove that certain
Under the current rule, the reckoning of the 120-day services to non-resident foreign a filiate clients qualify for zero-rating, the following must be
period has been withdrawn from the taxpayer by RMC qualify for VAT zero-rating under Section 108 proved:
54-2014, since it requires him at the time he files his claim (B)(2) of the Tax Code. a. that their client was established under the
to complete his supporting documents and attest that he laws of a country, not the Philippines or,
2. To qualify for VAT zero-rating, Section 108 (B)(2)
will no longer submit any other document to prove his simply, is not a domestic corporation; and
requires the concurrence of four conditions:
claim. Further, the taxpayer is barred from submitting
a. first, the services rendered should be other b. that it is not engaged in trade or business
additional documents a ter he has filed his administrative claim.
than "processing, manufacturing or in the Philippines.
repacking of goods;" 4. erefore, the taxpayer-claimant must present, at
Hedcor, Inc. v. CIR 2015 b. second, the services are performed in the the very least, both
also on Submission of Documents
Philippines; a. the SEC Certificates of Non-Registration –
e Transmittal Letter submitted by petitioner is not a c. third, the service-recipient is to prove that the a filiate is foreign; and
substantial submission that would warrant a change in the b. the Articles or Certificates of Foreign
reckoning date for the 120-day period for the BIR to act i. a person engaged in business
conducted outside the Philippines; Incorporation, printed screenshots of US
on the claim for refund. SEC website showing the
or
state/province/country where the entity
ii. a non-resident person not engaged was organized, or any similar document –
Chevron Holdings v. CIR 2022 En Banc Lopez, M., J. in a business which is outside the to prove the fact of not engaging in trade
Philippines when the services are or business in the Philippines at the time
e Court will not deny the request for a refund of unutilized
performed; and the sales are rendered.
input Value-Added Tax (VAT) from zero-rated sales on the basis
that the taxpayer does not have "excess" input VAT from the d. fourth, the services are paid for in 5. e Court agrees with the observation of the CTA
output VAT when the law does not require its compliance with the acceptable foreign currency inwardly En Banc that some foreign a filiate clients were
taxpayer to be entitled to a refund. remitted and accounted for in conformity not adequately supported by these two
with BSP rules and regulations. documents.
I. WON the sales rendered to Chevron Holdings'
non-resident foreign a filiates qualify for VAT zero-rating 3. Anent the third requisite, CIR v. Deutsche 6. As regards the fourth condition, apart from the JP

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 267 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Morgan Reports, and VAT zero-rated receipts, transactions i.e., VAT-able, exempt, and requiring Chevron Holdings to substantiate its
Chevron Holdings failed to substantiate the zero-rated sales and the input taxes cannot excess input tax carried over from the previous
inward remittance of the proceeds of P10M sales be directly and entirely attributable to any of quarter as it is not a requirement for entitlement to
duly accounted for in conformity with BSP rules. these transactions, only the input taxes a refund of unused or unutilized input VAT from
II. WON Chevron Holdings is required to substantiate its proportionately allocated to zero-rated sales zero-rated sales.
excess input tax carried-over from the previous quarters to based on sales volume may be refunded or
be entitled to refund or credit of unutilized input taxes issued a tax credit certificate.
arising from zero-rated sales from January 1 to December 3. e dispute lies with the fourth requirement. It CIR v. Philex Mining 2020 Lopez, M., J.
31, 2006. seemed that the tax court required Chevron While the tax law requires mandatory compliance with the
1. NO. e courts cannot condition the refund of input Holdings to substantiate its prior quarters' excess keeping of subsidiary journals and the filing of monthly
taxes allocable to zero-rated sales on the existence input taxes so that there would be a su ficient value-added tax (VAT) declarations, the Court will not deny the
of "excess" creditable input taxes, which includes the amount to cover its output tax liability, and, only request for refund on the sole basis that the taxpayer failed to
input taxes carried over from the previous periods, a ter the output tax had been paid or "covered" that comply with these requirements when the law does not provide
from the output taxes. ese procedures find no the CTA allowed a refund. for its compliance by the taxpayer to be entitled for refund.
basis in law and jurisprudence. 4. e Court cannot adhere to this view. Nowhere in WON Philex Mining is entitled to the tax refund for its
2. To be refunded or issued a tax credit certificate, the Section 112 (A) does it require that the taxpayer must unutilized input VAT attributable to its zero-rated sales for
following must be complied with: first o fset its input tax with any output tax before the second and third quarters of TY 2010.
its claim for refund may prosper. Notably, the word
2.1. the input tax is a creditable input tax due or 1. YES. Philex Mining's failure to maintain subsidiary
"excess" does not even appear in this section.
paid; sales and purchase journals or to file the monthly
Instead, what recurs is the refundability of input tax
VAT declarations should not result in the outright
2.2. the input tax is attributable to the zero-rated that has not been applied against output tax or that
denial of its claim for refund or credit of unutilized
sales; has simply remained unused.
input VAT attributable to its zero-rated sales.
2.3. the input tax is not transitional; 5. All told, it was erroneous for the CTA to charge the
2. Under Section 112 (A), a taxpayer engaged in
validated and substantiated input taxes against
2.4. the input tax was not applied against the zero-rated sales may apply for the issuance of a tax
Chevron Holdings' output taxes first and use the
output tax; and credit certificate, or refund of excess input tax due
resultant amount as the basis for computing the
2.5. in case the taxpayer is engaged in mixed or paid, attributable to the sale, subject to the
allowable amount for refund. e CTA also erred in

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 268 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

following conditions: was nothing in the Tax Code or in RR No. 16-2005 requirements as a ground for denial of the claim for
2.1. the taxpayer must be VAT-registered; that would suggest that the subsidiary journals and refund or credit.
monthly VAT declarations are part of the 8. e reason for strict compliance with invoicing
2.2. the taxpayer must be engaged in sales which substantiation requirements that must be complied
are zero-rated or e fectively zero-rated; requirements is only a "VAT invoice/o ficial receipt"
with to support a claim for tax refund or credit. can give rise to any input tax from domestic
2.3. the claim must be filed within two (2) years 5. Under Section 110 (A) of the Tax Code, creditable purchase of goods or service. Without input tax,
a ter the close of the taxable quarter when input taxes must be evidenced by a VAT invoice or there is nothing to refund. On the other hand, the
such sales were made; o ficial receipt, which must, in turn, be issued in particulars recorded in the subsidiary journals do
2.4. the creditable input tax due or paid must be accordance with Sections 113 and 237. not a fect the character of an invoice or receipt as a
attributable to such sales, except the 6. Importation of non-capital goods must be "VAT invoice/o ficial receipt."
transitional input tax, to the extent that such evidenced by import entry declarations or any 9. Subsidiary journals may be sources of information
input tax has not been applied against the equivalent document; and the domestic purchase of from which the CIR may utilize in making
output tax; and services, by VAT o ficial receipts showing: assessments but their submission is not
2.5. in case of zero-rated sales under Section 106 6.1. that the seller is a VAT-registered person; indispensable to substantiate the input taxes.
(A)(2)(a)(1), the acceptable foreign currency 10. In prior pronouncements, the Court's statement
exchange proceeds have been duly accounted 6.2. the Tax Identification Number (TIN) of the
seller; that accounting requirements must be complied
for in accordance with Bangko Sental ng with in addition to the invoicing requirements to
Pilipinas rules and regulations. 6.3. the word "zero-rated sale" was written or entitle the claimant for refund or credit is, at best,
3. e issue hinges on the fourth requisite. e CIR printed prominently on the receipt in case of merely an obiter dictum that is not binding as a
posits that Philex Mining did not comply with the zero-rated sales; precedent. e issue in said cases was limited to
requirement of Section 4.113-3 of Revenue 6.4. the date of transaction, nature of service, as non-compliance with the invoicing requirements.
Regulations (RR) No. 16-2005 to keep, preserve, and well as the name, business style, if any, and 11. Similarly, there was nothing in Section 112 (A) and
maintain subsidiary sales and purchase journals. address of the purchaser; and RR No. 16-2005 that require prior filing of monthly
Likewise, Philex Mining failed to prove that it filed 6.5. the TIN of the purchaser. VAT declarations as a condition precedent to the
the monthly VAT declarations required under entitlement for refund. e failure to pay VAT every
Section 114 (A) of the Tax Code. 7. Revenue Memorandum Circular No. 42-2003 only
month may give rise to the payment of penalties but
provides for non-compliance with the invoicing
4. e CIR is mistaken. As the CTA aptly held, there it does not a fect the taxpayer's entitlement to its

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 269 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

claim for refund as long as it has su ficiently shown Clearly, the legislative intent is to treat the judicial claim requirements as to the amount of P4.6M which is the
that the VAT has in fact been paid. as independent and separate action from the amount both verified by the CTA to have been included in
administrative claim; provided that the latter must be the former's General Ledger and Annual ITR for 2006,
12. Verily, the CTA did not err in ruling that the absence
filed in order for the former to be maintained. and supported by the required Certificates of CTW at
of subsidiary sales journal, subsidiary purchase
Source (BIR Form No. 2307).
journal, and monthly VAT declarations is not PBCOM is entitled to a tax credit/refund of its CWT in
su ficient to deprive Philex Mining of its right to a the amount of P4.6M. In determining the CWT amount to be credited, the same
refund. must not only be supported by the required BIR Forms
e requisites for claiming a tax credit or a refund of but it must also correspond with the income included in
CWT are as follows: the tax return of the claimant, upon which the taxes were
CIR v. Philippine Bank of Communications 2022 1. e claim must be filed with the CIR within the withheld. Simply put, the amount of P4.6M is the only
two (2)-year period from the date of payment of amount of CWT claimed by PBCOM that complied with
e failure of PBCOM to comply with the requirements of
the tax; all the requirements under the law.
its administrative claim for CWT refund/credit does not
preclude its judicial claim. CIR v. Manila Mining 2. It must be shown on the return that the income
Corporation held that cases before the CTA are litigated de received was declared as part of the gross income;
CIR v. Philex Mining 2021
novo where party litigants should prove every minute and
aspect of their cases. 3. e fact of withholding must be established by a e running of the 120-day period for the CIR to decide
copy of a statement duly issued by the payor to the the claim for refund commences from the time of the
Here, since the claim for tax refund/credit was litigated
payee showing the amount paid and the amount submission of complete documents in support of the tax
anew before the CTA, the latter's decision should be solely
of the tax withheld. refund application.
based on the evidence formally presented before it,
notwithstanding any pieces of evidence that may have As to the first requisite, PBCOM's claim covers its Annual Pilipinas Total Gas, Inc. v. CIR explained the term "complete
been submitted (or not submitted) to the CIR. ITR for taxable year 2006, which it filed on April 16, 2007. documents" in accordance with RMC No. 49-2003:

CIR v. Univation Motor Philippines, Inc. has explained that us, when PBCOM filed its administrative claim on For purposes of determining when the supporting
the CTA is not limited by the evidence presented in the April 3, 2009, and its judicial claim before the CTA on documents have been completed - it is the taxpayer
administrative claim. Sections 204 (C) and 229 of the April 15, both of these were within the two-year who ultimately determines when complete
NIRC require both administrative and judicial claims to prescriptive period. documents have been submitted for the purpose of
be filed within the same two-year prescriptive period. On the other hand, PBCOM complied with the last two commencing and continuing the running of the
120-day period.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 270 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Here, Philex filed its application for tax refund, attaching Harte-Hanks Philippines, Inc. v. CIR 2022 Four days later, or on June 29, 2010, petitioner filed its
therewith the necessary documents, on September 28, judicial claim. us, the judicial claim was filed well
e general rule under Section 112 (C) of the NIRC, as
2011. Considering that no notice was given by the CIR or within the issuance of BIR Ruling No. DA-489-03 before it
explained in Aichi, is clear that the observance of the 120
no other action was taken within the said 120 days, Philex was invalidated by Aichi.
and 30-day periods is crucial in filing a judicial appeal
had 30 days from January 26, 2012, the expiration of the before the CTA. As an exception, however, during the Petitioner's immediate filing of its petition for review
120-day period, or until February 26, 2012, to appeal to window period from 10 December 2003, upon the before the CTA without waiting for the prescribed period
the CTA. Philex properly and timely filed its judicial claim issuance of BIR Ruling No. DA-489-03 up to 6 October of 120 days to lapse is thus permissible.
on February 3, 2012. 2010, or date of promulgation of Aichi, taxpayers need e Court proceeded to reiterate the rules on the
Finally, the submission of the subsidiary sales journal and not observe the stringent 120-day period. determination of the prescriptive period for filing a tax
subsidiary purchase journal is not indispensable to Here, even if petitioner seemed to have prematurely filed refund or credit of unutilized input VAT under Section 112
support Philex's claim for refund. Section 112(A) of the its judicial claim under the general rule, the Court, of the Tax Code as summarized in Mindanao II Geothermal
NIRC, which enumerates the requisites for a taxpayer to pursuant to BIR Ruling No. DA-489-03, considers Partnership v. CIR:
be entitled to a tax refund or credit, does not require petitioner to have filed its judicial claim on time. 1. An administrative claim must be filed with the
subsidiary journals as part of the substantiation CIR within two years a ter the close of the taxable
requirements. quarter when the zero-rated or e fectively zero
Hedcor Sibulan, Inc v. CIR 2021 rated sales were made.
Issued on December 10, 2003, BIR Ruling No. DA-A89-03 2. e CIR has 120 days from the date of submission
Silicon Philippines v. CIR 2016
expressly provides that a taxpayer-claimant may seek of complete documents in support of the
e general interpretative rule allowed the premature judicial relief with the CTA by filing a petition for review administrative claim within which to decide
filing of judicial claims by providing that the without waiting for the 120-day period to lapse. whether to grant a refund or issue a tax credit
"taxpayer-claimant need not wait for the lapse of the certificate.
CIR v. San Roque Power recognized BIR Ruling No.
120-day period before it could seek judicial relief with the
DA-489-03 as an equitable estoppel in favor of taxpayers 2.1. e 120-day period may extend beyond the
CTA by way of Petition for Review." e rule certainly did not
and whose date of issuance on December 10, 2003 up to two-year period from the filing of the
allow the filing of a judicial claim long a ter the expiration of the
October 6, 2010 (when CIR v. Aichi was adopted), may be administrative claim if the claim is filed in
120+30 day period.
relied upon by taxpayers. the later part of the two-year period.
Here, the administrative claim was filed on June 25, 2010. 2.2. If the 120-day period expires without any

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 271 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

decision from the CIR, then the reversal in Aichi on October 6, 2010. BIR Ruling No. within a two (2)-year reglementary period. Timeliness of
administrative claim may be considered to DA-489-03 expressly states that the "taxpayer-claimant the filing of the claim is mandatory and jurisdictional.
be denied by inaction. need not wait for the lapse of the 120-day period before it e date of payment of excise tax on domestic products
3. A judicial claim must be filed, with the CTA within could seek judicial relief with the CTA by way of Petition depends on the date of actual removal of the taxable
30 days for Review." domestic products from the place of production.
3.1. from the receipt of the CIR's decision Here, EDC did not comply with Section 112 (C) of the Here, SMC filed its administrative claim on January 10,
denying the administrative claim or NIRC relative to the filing of its judicial claim before the 2003 and its judicial claim through a Petition for Review
CTA. However, applying the exception molded in San on February 24, 2003. Counting back from February 24,
3.2. from the expiration of the 120-day period Roque, EDC's petition for review before the CTA should
without any action from the CIR. 2003, the reckoning date for the two (2)-year prescriptive
be reinstated since the filing of its administrative and period for this particular judicial claim of SMC was
4. All taxpayers, however, can rely on BIR Ruling No. judicial claims fell within the stated period. February 24, 2001. Accordingly, the claim of SMC for
DA-489-03 from the time of its issuance on 10 excess excise tax paid prior to said date had already
December 2003 up to its reversal by this Court in prescribed.
Aichi on 6 October 2010, as an exception to the CIR v. San Miguel Corporation 2019
mandatory and jurisdictional 120+30 day periods. Under the Tax Code, a claim for tax refund may be based
e claim for refund/credit of excess excise tax payments on the following:
of SMC from January 11 to February 28, 2001 is disallowed
1. erroneously or illegally assessed or collected
on the grounds of prescription and insu ficient evidence.
Energy Development Corporation v. CIR 2021 internal revenue taxes;
Firstly, it is already settled that the qualifying provision
As held in Aichi, there is nothing in Section 112 of the 2. penalties imposed without authority; and
under Section 1 of RR 17-99 that the new specific tax rate
NIRC which sanctions the simultaneous filing of for the taxable products shall not be lower than the excise 3. any sum alleged to have been excessive or in any
administrative and judicial claims, and the filing of the tax paid prior to January 1, 2000 was an unauthorized manner wrongfully collected.
judicial claim prior to the action of the CIR or the lapse of administrative legislation and was violative of the CIR v. Meralco applied the two (2)-year prescriptive period
the 120-day period within which the CIR is required to provisions of the Tax Reform Act of 1997. under the Tax Reform Act of 1997 which is mandatory
act on the administrative claim.
Sec 229 of the NIRC is clear that within two (2) years from regardless of any supervening cause that may arise a ter
e Court ruled in San Roque that all taxpayers can rely on the date of payment of tax, the claimant must first file an payment and categorically declared that solutio indebiti
BIR Ruling No. DA-489-03 dated December 10, 2003 administrative claim with the CIR before filing its judicial was inapplicable.
issued by the CIR from the time of its issuance up to its claim with the courts of law. Both claims must be filed

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 272 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Procedure for Claiming 3) the claim must be filed within two years a ter the Non-Registration of Company and Authenticated
Refunds or Tax Credits of close of the taxable quarter when such sales were Articles of Association and/or Certificates of
Input VAT under Section 112 made; and Registration/Good Standing/Incorporation su ficiently
1) e claim for refund must be filed with the CIR established the NRFC status of 11 of DKS's a filiates
4) the creditable input tax due or paid must be clients.
within two (2) years counted from the last day of the attributable to such sales, except the transitional
quarter when the zero-rated sale was made; input tax, to the extent that such input tax has not
2) e claim for refund must be accompanied by a been applied against the output tax.
K Tax Remedies
statement under oath that all documents to support Conditions for Zero-rating of Sales of Services
the claim has been submitted at the time of filing of
First, the seller is VAT-registered. Government
claim for refund;
Second, the services are rendered "to a person Taxpayer
3) e CIR must decide on the claim within 90 days
from the date of filing. e adverse decision is engaged in business conducted outside the Civil Penalties
appealable to the CTA within 30 days from receipt; Philippines or to a nonresident person not engaged
in business who is outside the Philippines when the Compromise Penalty
4) If no decision is made within the 90-day period, services are performed."
there is a deemed denial or adverse decision which Government
is appealable to the CTA within 30 days from the ird, the services are "paid for in acceptable foreign
currency and accounted for in accordance with [BSP] Assessment of Internal Revenue Taxes
lapse of the 90-day period. 1
rules and regulations." Collection of Delinquent Taxes
CIR v. Deutsche Knowledge Services Pte. Ltd. 2020 Proof of NRFC Status. — e claimant must establish the Statute of Limitations
A claimant's entitlement to a tax refund or credit of two components of a client's NRFC status, viz.:
excess input VAT attributable to zero-rated sales hinges 1) that their client was established under the laws of a. Assessment of Internal Revenue Taxes
upon the following requisites: a country not the Philippines or, simply, is not a An assessment is the notice to the e fect that the amount
1) the taxpayer must be VAT-registered; domestic corporation; and therein stated is due from a taxpayer as a tax with a demand
2) that it is not engaged in trade or business in the for payment of the same within the stated period of time.
2) the taxpayer must be engaged in sales which are
Philippines. To assess means to impose a tax.
zero-rated or e fectively zero-rated;
e CTA found that the SEC Certification of Assessment Process

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 273 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1) Self-assessment by taxpayer; e PAN shall show the facts and the law, rules and 5) Issuance of Formal Assessment Notice (FAN) and
2) Filing of tax return; regulations, or jurisprudence on which the proposed Letter of Demand (LD) — e invalid service of
assessment is based. LD/FAN to an unauthorized person will render the
3) Payment of the entire tax due. assessment VOID for violation of the due process
e taxpayer is given 15 days from receipt of PAN to
Role of the government in the assessment process reply. requirement.
1) Examination of books of accounts and other Failure to respond within said time, the taxpayer 6) Filing of administrative protest by the taxpayer
accounting records of taxpayers; shall be considered in default. against the assessment. — e taxpayer has 30 days
from receipt of LD/FAN to file a protest.
a) Best evidence obtainable — When a report A formal letter of demand and assessment shall then
required by law as a basis for the assessment of be issued, calling for payment of the deficiency tax e taxpayer may protest part of the LD/FAN, in
any national internal revenue tax shall not be liability + penalties. which case, those undisputed issues may be duly
forthcoming within the time fixed or when there collected.
is reason to believe that any such report is false, 4) Reply — To contest in writing the findings
contained in a PAN. No action shall be taken on the disputed issues until
incomplete or erroneous, the CIR shall assess the taxes on the undisputed issues have been fully
the proper tax on the best evidence obtainable. paid.
REPLY PROTEST
b) Net worth method of investigation — this method e prescriptive period for assessment or collection
is supported by Sec 43 of the NIRC which allows 15 days from receipt of PAN 30 days from receipt of FAN
of the tax attributable to the disputed issues shall be
the CIR to use any method of computation or suspended.
Usually done by the
accounting which would more clearly re lect the Needs legal assistance
taxpayer e taxpayer should state the facts, applicable law,
income of the taxpayer.
rules, regulations, or jurisprudence on which his
2) Preparation of tentative findings and holding of Directory Mandatory
protest is based; otherwise, protest is deemed void.
informal conference;
Failure makes the FAN final Failure to file a valid protest within the 30-day
3) Issuance of Preliminary Assessment Notice (PAN) Failure makes the taxpayer and executory — taxpayer period shall make the assessment final, executory
— the Assessment Division or the CIR shall issue by in default — no liability for loses right to contest the and demandable.
registered mail, a PAN, if there exists su ficient additional or deficiency tax assessment both at the
basis to assess the taxpayer for any deficiency tax. 7) Submission of documentary evidence and
admin and judicial levels.
arguments. — e taxpayer shall submit the
required documents in support of his protest within

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 274 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

60 days from date of filing of protest; otherwise, the

c. Submits written report to Revenue District c) When a taxpayer who opted to claim a
assessment shall become final, executory and O ficer. refund or tax credit of excess creditable
demandable. withholding tax for a taxable period was
2) Post-reporting Notice
If the protest is denied, appeal to the CTA within 30 determined to have carried over and
days from receipt of decision. Revenue District O ficer — 15 days automatically applied the same amount
8) Denial of protest. — Generally, appeal is to be taken a. Taxpayer submits written explanations on claimed against the estimated tax liabilities
to the CTA. But if the taxpayer appeals the adverse findings; for the taxable quarter or quarters of the
decision of the duly authorized representative of the succeeding taxable year; or
b. RDO forwards report to Assessment Division.
CIR to the CIR, then the decision is not yet final, d) When the excise tax due on excisable articles
3) Preliminary Assessment Notice (PAN)
executory, and demandable. has not been paid; or
Chief, Assessment Division — 15 days
9) Appeal by the taxpayer of the final decision of the e) When the article locally purchased or
CIR or his authorized representative on the a. Taxpayer submits written explanations on imported by an exempt person, such as, but
disputed assessment to the CTA. — e CIR has 180 findings; not limited to, vehicles, capital equipment,
days from submission of required documents to act b. e Chief prepares assessment notice and machineries and spare parts, has been sold,
on the protest. If the CIR fails to act during said demand letter for approval by the RD. traded or transferred to non-exempt
period, the taxpayer has 30 days from the lapse of persons.
GR: PAN is REQUIRED to be issued by the BIR
the 180 day period to appeal to the CTA. Assessment is NULL and VOID for having been
EXC:
Procedural Due Process in Tax Assessments issued on the day the PAN was received by the
a) When the finding for any deficiency tax is taxpayer, or within 15 days from receipt of the PAN.
1) Notice of informal conference
the result of mathematical error in the
Revenue O ficer computation of the tax as appearing on the CIR v. Metro Star Superama, Inc. 2010
face of the return; or on mandatoriness of PAN
a. Informs the taxpayer of his findings as well as
the factual and legal bases a ter the completion b) When a discrepancy has been determined PAN is MANDATORY. Section 228 of the Tax Code clearly
of his tax audit in an informal meeting; between the tax withheld and the amount requires that the taxpayer must first be informed that he
b. Prepares report of examination based on the actually remitted by the withholding agent; is liable for deficiency taxes through the sending of a
results of meeting; or PAN. He must be informed of the facts and the law upon
which the assessment is made. e law imposes a

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 275 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

substantive, not merely a formal, requirement. e ese steps were mere perfunctory discharges of the CIR's Philippine Dream Company, Inc. v. CIR 2020
sending of a PAN to taxpayer to inform him of the duties in correctly assessing a taxpayer.
Did PDCI timely file its appeal? NO.
assessment made is but part of the "due process e law requires that the legal and factual bases of the
requirement in the issuance of a deficiency tax PDCI mistakenly computed the period of appeal. Having
assessment be stated in the formal letter of demand and
assessment," the absence of which renders nugatory any chosen the remedy of appeal against the CIR's supposed
assessment notice. us, such cannot be presumed.
assessment made by the tax authorities. inaction on its protest, PDCI should have reckoned its
Otherwise, the express provisions of Sec 228 of the NIRC
thirty-day period for appeal from the lapse of 180 days
us, for its failure to send the PAN stating the facts and and RR No. 12-99 would be rendered nugatory. e
from the time it filed its protest against the Final Letter
the law on which the assessment was made as required by alleged "factual bases" in the advice, preliminary letter
of Demand and Assessment Notice. us, the petition
Section 228 of R.A. No. 8424, the assessment made by the and "audit working papers" did not su fice.
should have been filed on December 6, 2006 and not on
CIR is VOID.
4) Formal Assessment Notice (FAN) and Letter of Demand October 31, 2007.

Regional Director — three (3) years from date of Following this Court's ruling in CIR v. Isabela Cultural
CIR v. Nippo Metal Tech Philippines, Inc 2019 filing of return or 10 years from date of filing false Corporation, the CTA En Banc considered the Final Notice
or fraudulent return. Before Seizure as CIR's action on PDCI's protest and
By disregarding the 15-day period provided by law, the
reckoned the thirty-day period for appeal from PDCI's
CIR utterly deprived respondent of the opportunity to a. RD signs assessment notice and demand letter;
receipt thereof. As the Final Notice A ter Seizure is the
contest the PAN and present evidence in support thereto b. He causes to be released and mailed FAN/DL, or final decision on its protest, PDCI's subsequent MRs
before an FLD/FAN was issued. personal service thereof to the taxpayer. therea ter filed did not toll the running of the thirty-day
Clearly, due process demands that the taxpayer receives period for appeal to the CTA.
the PAN and that he is given the opportunity to respond CIR v. Isabela Cultural Corp.
thereto. A final demand letter from the BIR, reiterating to the
taxpayer the immediate payment of a tax deficiency CIR v. Unioil Corporation 2021
assessment previously made, is tantamount to a denial of e CIR's failure to comply with the notice requirements
CIR v. Enron Subic Power the taxpayer's request for reconsideration. Such letter under Section 228 of the 1997 NIRC e fectively denied
e advice of tax deficiency, given by the CIR to an amounts to a final decision on a disputed assessment and Unioil of its right to due process. us, the CIR's
employee of Enron, as well as the preliminary five-day is thus appealable to the CTA. assessment was void. e CIR's negligence in their power
letter, were not valid substitutes for the mandatory notice in and duty to properly assess taxes is palpable in this case.
writing of the legal and factual bases of the assessment.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 276 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

1. First, the CIR failed to establish the fact of their FAN which were simultaneously issued on January 14, a. BIR evaluates the legal and factual arguments;
issuance of a PAN by not keeping proper records 2009 and only received by Unioil on January 26, 2009, the
b. Reiterates original findings or revises report of
of the tax audit and assessment of Unioil. three-year prescriptive period reckoned from the
examination and submits it to RDO until it
deadline set by law for the filing of the return, assessment
2. Second, the issue on the ostensibly "missing" PAN reaches the RD.
of the January to November 2005 monthly remittance
arose because of the CIR's contention that the returns has palpably prescribed. 7) Denial of Protest by RD
timely issuance thereof su ficiently interrupted
e CIR, in exercising its power to assess and collect taxes 180 days from date of filing protest or submission
the three-year prescriptive period for the
if these are owed, ought to give due consideration to the of documentary evidence by taxpayer.
assessment of taxes under Section 203 of the
NIRC. arguments and evidence submitted by the a fected party. 8) Administrative Appeal to CIR of decision of RD
Here, the CIR only perfunctorily assessed Unioil and
3. Lastly, the FAN accompanying the Formal Letter 9) Denial of Protest or Inaction by CIR within 180 day
went through just the motions without due
of Demand did not comply with the obligatory period
consideration. is is apparent from the haste in which
provision on protesting a tax assessment under the FLD and the FAN were issued on January 14, 2009 in RCBC v. CIR
Section 228 of the NIRC. order to ostensibly beat the 3-year prescriptive period
In fine, the assessment is void for not stating the factual which was set a ter January 15, 2009. In case the CIR failed to act on the disputed assessment
and legal bases therefor and the three-year period for within the 180-day period from date of submission of
e requirement set by law to state in writing the factual
assessment has already prescribed. documents, a taxpayer can either:
and legal bases for the assessment is not a hollow
e SC emphasized the import of an assessment as exhortation. e law imposes a substantive, not merely a 1) file a petition for review with the CTA within 30
containing not only a computation of tax liabilities but formal, requirement. days a ter the expiration of the 180-day period; or
also a demand for payment within a prescribed period. 2) await the final decision of the CIR on the disputed
5) Protest letter
Here, the CIR's assessment of Unioil for deficiency assessments and appeal such final decision to the
a. Taxpayer files request for reinvestigation or
withholding taxes has prescribed. Section 203 of the CTA within 30 days a ter receipt of a copy of such
motion for reconsideration within 30 days from
NIRC mandates the government to assess internal decision.
receipt of FAN/DL;
revenue taxes within 3 years from the last day prescribed b. He submits additional documentary evidence However, these options are mutually exclusive, and
by law for the filing of the tax return or the actual date of within 60 days from submission of the protest resort to one bar the application of the other.
filing of such return, whichever comes later. letter.
10) Appeal to CTA by taxpayer — 30 days from receipt.
From the date of the Formal Letter of Demand and the 6) Reinvestigation

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 277 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

which has been notified of possible involuntary

GR: Taxes are SELF-ASSESSING. PAN FAN
dissolution by the SEC, or for its reorganization,
EXC: render a correct return to the CIR, verified under taxpayer to reply within 15 when penalties and
1) Tax period of a taxpayer is terminated — When it oath, setting forth the terms of such resolution or days from receipt. interests begin to accrue
shall come to the knowledge of the CIR that a plan. Otherwise, the CIR will against the taxpayer.
taxpayer is finalize an assessment and
e dissolving or reorganizing corporation shall,
issue a FAN. Failure to file an
a) retiring from business subject to tax, or prior to the issuance by the SEC of the Certificate of
administrative protest
Dissolution or Reorganization, as may be defined
b) intending to leave the Philippines or to remove within 30 days from receipt
by rules and regulations prescribed by the Secretary
his property therefrom or to hide or conceal his of the FAN will render the
of Finance, upon recommendation of the CIR,
property, or assessment final,
secure a certificate of tax clearance from the BIR
c) performing any act tending to obstruct the executory, and
which certificate shall be submitted to the SEC.
proceedings for the collection of the tax for the demandable.
past or current quarter or year or to render the PAN FAN
i. Requisites of a Valid Assessment
same totally or partly ine fective unless such
proceedings are begun immediately; Merely informs the Contains not only a 1) e Final Assessment Notice (FAN) contains
taxpayer of the initial computation of tax
2) Deficiency tax liability arising from a tax audit a) the name, address, and TIN of the taxpayer;
findings of the BIR. liabilities but also a
conducted by the BIR; demand for payment b) the kind of tax, period covered, basic tax,
3) Tax lien — If any person liable to pay an internal It contains the proposed within a prescribed period. and penalties;
revenue tax, neglects or refuses to pay the same assessment, and the facts, c) signed by the authorized BIR o ficial, and
a ter demand, the amount shall be a lien in favor of law, rules, and regulations As soon as it is served, an
d) the date of payment of the tax.
the Government of the Philippines from the time or jurisprudence on which obligation arises on the
when the assessment was made by the CIR; the proposed assessment is part of the taxpayer e Demand Letter (DL) contains

4) Dissolving corporation — Every corporation shall, based. concerned to pay the a) the computation of the deficiency tax,
within thirty (30) days a ter the adoption by the amount assessed and including penalties, if any;
corporation of a resolution or plan for its It does not contain a demanded.
b) the factual and legal bases of the assessment;
dissolution, or for the liquidation of the whole or demand for payment but
and
any part of its capital stock, including a corporation usually requires the It also signals the time

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 278 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) the demand for payment of the tax. does not contain such a limitation. 2) Informal written notice. — An assessment may
2) e FAN/DL must be issued on account of or covered also be in the form of a letter or other less formal
communications to the taxpayer. e
by a validly issued letter of authority;
CIR v. Fitness by Design, Inc 2016 notification must contain an outright demand
An LOA is the authority given to the appropriate for payment of the amount alleged to be due in
To avail of the extraordinary period of assessment in
revenue o ficer assigned to perform assessment order to constitute an assessment.
Section 222(a) of the NIRC, the CIR should show that the
functions. A Letter Notice (LN) cannot be converted
facts upon which the fraud is based is communicated to Significance of Assessment — It is relevant
into an LOA. An LN is merely a notice of audit or
the taxpayer. e burden of proving that the facts exist in 1) In the proper pursuit of judicial and extrajudicial
investigation only for the purpose of disqualifying
any subsequent proceeding is with the CIR. Furthermore, remedies to enforce tax liabilities and other
the taxpayer from amending his returns.
the Final Assessment Notice is not valid if it does not charges;
Medicard Philippines v. CIR 2017 contain a definite due date for payment by the taxpayer.
2) In the application of statutes of limitations;
re LOA vs. LN
3) Must state the factual and legal bases of the 3) In the establishment of tax liens; and
e following di ferences between an LOA and LN are assessment and jurisprudence on which it is based;
crucial. otherwise it shall be void; 4) In estimating the revenues that may be collected
by the government in the coming year.
1. First, an LOA addressed to a revenue o ficer is 4) Must be signed by the CIR or his duly authorized
specifically required under the NIRC before an representative; When is a tax assessment made or deemed made?
examination of a taxpayer may be had while an LN 1) Issue Date — NOT the reckoning point in
5) Must be issued within the original prescriptive
is not found in the NIRC and is only for the prescription.
period prescribed by law or within the extended
purpose of notifying the taxpayer that a
prescriptive period as validly agreed between the 2) ✓ Date of Service or Mailing — Assessment is
discrepancy is found based on the BIR's RELIEF
BIR and the taxpayer; and served by personal deemed made when notice is released or mailed
System.
delivery or by registered mail; and to the correct taxpayer.
2. Second, an LOA is valid only for 30 days from date
6) Must be addressed and served to the correct person 3) Date of Receipt — e law does not require that
of issue while an LN has no such limitation.
in his registered or duly notified new address. the demand or notice be received within the
3. ird, an LOA gives the revenue o ficer only a prescriptive period.
Forms of Assessment
period of 120 days from receipt of LOA to conduct
his examination of the taxpayer whereas an LN 1) Formal Assessment Notice or FAN;

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 279 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

ii. False Returns, Fraudulent Returns, intent to evade the taxes due, the filing of a false return ii. Civil action for Collection
Non-Filing of Returns
can be intentional or due to honest mistake. For instance, Tax lien
CIR v. Asalus Corp 2017 an entry of wrong information due to mistake,
1. A legal claim or charge on property as security for
re False Return carelessness, or ignorance, without intent to evade tax,
the payment of tax due.
does not constitute a false return.
Under Section 248(B) of the NIRC, there is a prima facie 2. Attaches from the time when the assessment was
evidence of a false return if there is a substantial made by the CIR until paid, with interests,
b. Collection of Delinquent Taxes
underdeclaration of taxable sales, receipt or income. e penalties, and costs that may accrue upon all
failure to report sales, receipts or income in an amount In a nutshell:
property and rights to property belonging to the
exceeding 30% what is declared in the returns constitute 1. Tax lien; taxpayer.
substantial underdeclaration. e CIR need not 2. Distraint of personal property, or levy of real
immediately present evidence to support the falsity of the 3. Shall not be valid against any mortgagee, purchaser
property, or garnishment of bank deposits; or judgment creditor until notice of such lien shall
return, unless the taxpayer fails to overcome the
presumption against it. 3. Sale of property; be filed by the CIR in the o fice of the Register of
Deeds.
Asalus was bound to refute the presumption of the falsity 4. Forfeiture;
of the return and to prove that it had filed accurate 4. e claim of the government for unpaid taxes may
5. Compromise and abatement;
returns. Its failure to overcome the same warranted the only be defeated by claims of unpaid wages if the
6. Penalties and fines; and employer-taxpayer is bankrupt or under liquidation at
application of the ten (10)-year prescriptive period for
assessment under Section 222 of the NIRC. 7. Suspension of business operations. the time the warrants of distraint and levy were
issued.
i. Requisites
5. CIR v. Pineda. BIR may collect the deficiency tax due
A taxpayer is delinquent in the payment of his tax when
CIR v. PDI 2017 from one heir only or from all the heirs in
re Concept of Intentional Falsity as reiterated in 1. e self-assessed tax per return filed by the taxpayer proportion to their inheritance received. e
CIR v. BPI-Philam Life Assurance 2019 on the prescribed date was not paid at all or was only liability, however, shall not exceed the amount of the
Mere understatement of a tax is not itself proof of fraud partially paid; OR heir’s share.
for the purpose of tax evasion. 2. e deficiency tax assessed by the BIR became final
BIR v. Tico Insurance Co., Inc. 2022
While the filing of a fraudulent return necessarily implies and executory.
that the act of the taxpayer was intentional and done with A tax lien is enforceable against all property and rights to

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 280 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

property belonging to the taxpayer, and retroacts to the income thereof until the expiration of the time allowed
iv) to perform any act tending to obstruct
time when the tax assessment was made. However, the the proceedings for collecting the tax due for its redemption.
tax lien shall not be valid against any judgment creditor or which may be due from him. Marcos II v. CA. e estate tax is EXEMPTED from the
until notice of such lien is filed with the Register of application of the statute of non-claims.
Levy upon real property and interest in rights to real
Deeds.
property; Forfeiture of real property
Considering GLOWIDE and PMI's rights over the
Garnishment is a warning to a person in whose hands In case
condominium units retroact to December 2000, the
the e fects of another are attached, not to pay the money
condominium units may no longer be considered TICO's 1. there is no bidder for real property exposed for sale
or deliver the property or allow the withdrawal of
property when the BIR annotated its tax lien in 2005. or
deposits of the defendant in his hands.
Distraint and levy 2. if the highest bid is for an amount insu ficient to pay
e BIR is authorized to issue a warrant of
the taxes, penalties and costs,
Distraint of goods, chattels, or e fects, and other garnishment despite the pendency of a protest.
xxxx (§208, NIRC) the Internal Revenue O ficer conducting the sale shall
personal property of whatever character, including
declare the property forfeited to the Government in
stocks and other securities, debts, credits, bank e remedy by distraint of personal property and levy on
satisfaction of the claim in question.
accounts and interest in and rights to personal property. realty may be repeated if necessary until the full amount
due, including all expenses, is collected. Within one (1) year from the date of such forfeiture, the
a) Actual — seizure and taking possession of
taxpayer, or any one for him, may redeem said property.
personal property of taxpayer. Redemption of property sold — Within one (1) year from
b) Constructive — CIR may place under constructive the date of sale, the delinquent taxpayer, or any one for Suspension of business operation
distraint the property of a delinquent taxpayer or him, shall have the right of paying to the Revenue
e CIR is empowered to suspend the business
ANY taxpayer who, in his opinion, District O ficer the amount of the public taxes,
operations and temporarily close the business
penalties, and interest thereon from the date of
i) is retiring from any business subject to establishment of any person for any of the following
delinquency to the date of sale, together with interest
tax, or violations:
on said purchase price at the rate of fi teen percent
ii) is intending to leave the Philippines or to (15%) per annum from the date of purchase to the date a) In the case of a VAT-registered Person. —
remove his property therefrom or of redemption. 1) Failure to issue receipts or invoices;
iii) to hide or conceal his property or e owner shall not be deprived of the possession of the said 2) Failure to file a VAT return as required under
property and shall be entitled to the rents and other Section 114; or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 281 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3) Understatement of taxable sales or receipts 2) Final assessment is not protested administratively govern the prosecution of criminal tax law violations and the
by thirty percent (30%) or more of his correct within 30 days from date of receipt; corresponding civil liability for unpaid taxes:
taxable sales or receipts for the taxable 3) Non-compliance with the condition laid in the 1. When a criminal action for violation of the tax laws is
quarter. approval of protest; filed, a prior assessment is not required. Neither a final
b) Failure of any Person to Register as Required 4) Failure to file a timely appeal to the CTA on the final assessment is a precondition to collection of delinquent
under Section 236. decision of the CIR or his authorized representative taxes in the criminal tax case. e criminal action is
e temporary closure of the establishment shall be for on the disputed assessment. deemed a collection case. erefore, the government must
the duration of not less than five (5) days and shall be prove two things: one, the guilt of the accused by proof
When to go to court to collect tax liability? beyond reasonable doubt, and two, the accused's civil
li ted only upon compliance with whatever
requirements prescribed by the CIR in the closure order. 1. FIVE (5) YEARS from the date of assessment. liability for taxes by competent evidence (other than an
(Sec 115) 2. Republic v. Lim Tian Teng Sons instructs that the CIR assessment).

Civil actions is not required to rule first on the taxpayer’s request 2. If before the institution of the criminal action, the
for reinvestigation before he can go to court for the government filed
1) Civil case for collection of sum of money
purpose of collecting the tax assessed. is is a. a civil suit for collection, or
a) Below P300K — MTC; indicative of his decision against reinvestigation and
should prompt the taxpayer to file an appeal to the b. an answer to the taxpayer's petition for review
b) P300K - P999,999 — RTC; before the CTA,
CTA.
c) P1M or more — CTA. the civil action or the resolution of the taxpayer's petition
iii. Criminal action for Collection
Here, the Republic is the party plainti f. for review shall be suspended before judgment on the
Two common crimes under NIRC:
2) Filing an answer to the petition for review filed by merits until final judgment is rendered in the criminal
1) Attempt to evade or defeat tax; action. However, before judgment on the merits is
the taxpayer with the CTA.
2) Failure to file return, supply correct and accurate rendered in the civil action, it may be consolidated with
Here, the CIR is the respondent, not the Republic. the criminal action. In such a case, the judgment in the
information, pay tax, withhold and remit tax, and
When collectibility of tax liability arises refund excess taxes withheld on compensation. criminal action shall include a finding of the accused's
civil liability for unpaid taxes relative to the criminal
1) Self-assessed tax shown in the return was not paid
People v. Mendez 2023 En Banc Lopez, M., J. case.
within the date prescribed by law;
For the guidance of the bench and bar, the following rules shall I. WON the CTA has jurisdiction over the criminal cases

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 282 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

against the accused Joel. decided by the first-level courts shall be which the Complaint or Information is filed has
1. YES. e CTA has jurisdiction over the two exercised by the RTC; jurisdiction, then the court may validly take
criminal cases. d. EOJ over criminal o fenses or felonies cognizance of the case.

2. RA No. 9282 conferred original and appellate where the principal amount of taxes and 6. Here, the Amended Informations have the factual
jurisdiction over criminal cases to the CTA fees, exclusive of charges and penalties, averments that constitute the elements of the
Division. claimed is P1M or more remains with the crimes as well as the amounts that vest
CTA; jurisdiction to the CTA.
a. for criminal o fenses with an attendant
claim amounting to P1M or more, exclusive e. EOJ over criminal o fenses or felonies II. WON the prosecution proved Joel's guilt for violating
original jurisdiction is vested with the CTA where the principal amount of taxes and Section 255 of the Tax Code beyond reasonable doubt.
Division. fees, exclusive of charges and penalties, 1. YES. e prosecution established Joel's guilt
claimed is less than P1M shall be exercised beyond reasonable doubt.
b. when the tax claim is below P1M or there is by the proper first-level courts; and
no specified amount or no attendant 2. To successfully prosecute a violation of Section
claim, as when the o fense is only f. EAJ over criminal o fenses or felonies 255, it must be shown that:
punishable by a fine and/or imprisonment, originally decided by the first-level courts
remains with the RTC. a. the taxpayer is required to pay any tax,
original jurisdiction is vested with the make or file a return, keep any record, or
regular courts. 4. Here, e Amended Informations stated that Joel's supply correct and accurate information,
3. e apparent con licting provisions of RA No. potential liability for deficiency taxes is P1.5M and or withhold or remit taxes withheld, or
9282 and BP Blg. 129, as amended by RA No. 11576, P2.1M more than P1M in both cases. Clearly, refund excess taxes withheld on
are reconciled as follows: pursuant to RA No. 9282, the statute in force when compensation, at the time or times
the criminal actions at bar were instituted, required by law or rules and regulations;
a. EOJ over tax collection cases involving P1M jurisdiction over the cases is with the CTA
or more remains with the CTA; Division. b. the taxpayer failed to do so; and
b. EOJ over tax collection cases involving less 5. Jurisdiction over the subject matter is conferred c. the act is willful.
than P1M shall be exercised by the proper by law and determined by the allegations in the 3. A method commonly used by the government is
first-level courts; Complaint or Information. If the facts set out the expenditure method, which is a method of
c. EAJ over tax collection cases originally therein are su ficient to show that the court in reconstructing a taxpayer's income by deducting

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 283 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the aggregate yearly expenditures from the assessment is not a condition precedent to the and/or addition of the branches of petitioner’s operation;
declared yearly income. e theory of this method imposition of civil liability for taxes in the criminal and (iv) the addition of the phrase “for income earned.”
is that when the amount of the money that a action for violation of the tax laws. We cannot see how these amendments would adversely
taxpayer spends during a given year exceeds his a fect any substantial right of the petitioner as accused.
2. e Court has ruled that a precise computation and
reported or declared income and the source of final determination of a deficiency tax is not
such money is unexplained, it may be inferred required before one is prosecuted for criminal
that such expenditures represent unreported or Lucas G. Adamson, et al. v. CA
violation of the Tax Code. e prosecution needs
undeclared income. only to establish probable cause to indict the An assessment contains not only a computation of tax
4. Here, the prosecution proved that Joel spent a taxpayer. e reason is that the crime is committed liabilities, but also a demand for payment within a
large amount of money on rentals and by the mere conduct of the taxpayer and not because prescribed period. It also signals the time when penalties
advertisements, purchases of vehicles, and foreign he had delinquent taxes. and interests begin to accrue against the taxpayer. To
travel in 2002. Joel did not file ITR for the taxable 3. us, the CTA erroneously refused to make a enable the taxpayer to determine his remedies thereon,
year 2002 with the RDO of his legal residence or determination on the civil liability for unpaid taxes due process requires that it must be served on and received by the
principal place of business. To be sure, Joel never on the part of accused Joel on the ground of lack of a taxpayer. Accordingly, an a fidavit, which was executed by
denied the non- filing of his Annual ITR. formal assessment duly issued by the CIR. Under revenue o ficers stating the tax liabilities of a taxpayer
5. As to the willful non-filing of the ITR, the BIR RA No. 9282, a formal assessment is no longer a and attached to a criminal complaint for tax evasion,
issued an LoA to examine Joel's books of accounts condition precedent to the imposition of civil cannot be deemed an assessment that can be questioned
and accounting records, which was followed by liability for unpaid taxes relative to the criminal tax before the CTA.
three-letter notices to produce records and case. e first issue is whether the CIR’s letter addressed to the SOJ
documents. As a result, Joel was made aware of a recommending the filing of criminal complaints against AMC
possible tax violation. Joel's failure to take any can be considered as a formal assessment. NO. Even a cursory
action on the letter requests is simply an Dr. Joel C. Mendoza v. People and CTA 2014 perusal of the said letter would reveal three key points:
indication of his conscious and intentional refusal
In the present case, the amendments sought by the 1. It was not addressed to the taxpayers.
to comply with his obligation under the tax laws.
prosecution pertains to (i) the alleged change in the date 2. ere was no demand made on the taxpayers to
III. WON Joel is liable for deficiency income tax for taxable in the commission of the crime from 2001 to 2002; (ii) the pay the tax liability, nor a period for payment set
years 2002 and 2003. addition of the phrase “doing business under the name therein.
1. YES. e CIR's final Decision on the disputed and style of Mendez Medical Group;” (iii) the change

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 284 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3. e letter was never mailed or sent to the Tax avoidance is the tax saving device within the means 2. e charge need only be proved by a prima facie
taxpayers by the Commissioner. sanctioned by law. is method should be used by the showing of failure to file a required tax return and
taxpayer in good faith and at arms length. Tax evasion, such fact need not be proved by an assessment. CIR
e next issue is whether the filing of the criminal complaints on the other hand, is a scheme used outside of those v. Pascor Realty.
against the private respondents by the DOJ is premature for lack lawful means and when availed of, it usually subjects the
3. In the case of associations, partnerships or
of a formal assessment. NO. Ungab v. Cusi ruled that there taxpayer to further or additional civil or criminal
corporations, the penalty shall be imposed on the
was no need for precise computation and formal assessment in liabilities.
partner, president, general manager, branch
order for criminal complaints to be filed against him.
Non-filing of Tax Return manager, treasurer, o ficer-in-charge, and the
An assessment of a deficiency is not necessary to a employees responsible for the violation.
criminal prosecution for willful attempt to defeat and 1) e accused is a person required to make or file a
evade the income tax. return; iv. Injunction

2) e accused failed to make or file the return at the R.A. No. 8424, as amended, sec. 218, R.A. No.
Tax Evasion 9282, as amended, sec. 11
time required by law; and
To establish the existence of fraud, the following requisites §218. Injunction not Available to Restrain Collection of
3) e failure to make or file the return was willful.
must be present and established by competent evidence: Tax. — No court shall have the authority to grant an
Failure to Supply Correct Information
1) e end to be achieved — the aim is to pay an amount injunction to restrain the collection of any national
of tax that is less than that known by the taxpayer to 1) e accused is a person required to pay any tax, internal revenue tax, fee or charge imposed by this
be legally due; make a return, keep any record, OR supply correct Code.
and accurate information;
2) e accompanying state of mind — described as being EXC ere is a pending case filed in the CTA to enjoin
evil, in bad faith, deliberate and not accident, or 2) e accused failed to supply correct and accurate the collection of tax. e following conditions
willful; and information at the time or times required by law or concur:
rules and regulations; and
3) e overt act done or scheme used by the taxpayer — 1) ere is an appeal to the CTA;
must be tinged with some element of deceit, 3) Such failure to supply information is willful.
2) In the opinion of the court, the collection by the
misrepresentation, trick, device, concealment, or Important points government may jeopardize the interest of the
dishonesty. government and/or the taxpayer; and
1. e GR is that an assessment is NOT necessary
CIR v. e Estate of Benigno P. Toda, Jr., et al. before a criminal charge can be filed.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 285 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

3) Taxpayer either to deposit the amount claimed e taxpayer is given three (3) years from date of e prescription shall be interrupted when
or to file a surety bond of not more than double filing of original return to amend, provided that no proceedings are instituted and shall begin to run
the amount. notice for audit or investigation of such return, again if the proceedings are dismissed for reasons
However, the bond requirement may be statement or declaration has in the meantime been not constituting jeopardy.
dispensed with at the sound discretion of the actually served upon the taxpayer. e term of prescription shall not run when the
court, or whenever the method employed by the 2) Collection. — o fender is absent from the Philippines.
CIR in the collection of tax is not sanctioned by a) When the CIR validly issues an assessment
law. Imelda Sze, et al. v. BIR 2020
within the three (3)-year period, it has another
c. Statute of Limitations three (3) years within which to collect the tax How to determine the reckoning point of the 5-year prescriptive
due by distraint, levy, or court proceeding. (CIR period for violations of the NIRC?
1) Period of Limitation Upon Assessment. — Internal
v. United Salvage and Towage 2014) e CTA explained that RMC 101-90 provides that an
revenue taxes shall be assessed within three (3)
years b) In the case of an omission to file or if the return o fense under the tax code is considered discovered only
filed is false or fraudulent, the period to collect is a ter the manner of commission and the nature and
a) a ter the last day prescribed by law for the filing extent of fraud has been definitely ascertained. is
of the return, OR i) within ten (10) years from discovery
occurs when the BIR renders its final decision and
without need of assessment; or
b) where a return is filed beyond the period requires the taxpayer to pay the deficiency tax.
prescribed by law, from the day the return was ii) Within five (5) years from date of
Here, counting 30 days from the service of the FLD and
filed. assessment. (Sec 222, NIRC) the FAN, the violations were considered discovered on
In the case of a false or fraudulent return with intent 3) Period to File Criminal Action — All violations of any March 9, 2005. e BIR's revenue o ficers filed their joint
to evade tax or of failure to file a return — within provision of this Code shall prescribe a ter five (5) a fidavit in the DOJ for preliminary investigation on May
ten (10) years a ter the discovery of the falsity, years. 26, 2005. However, the original Information was only
fraud or omission. filed in court on April 23, 2014, which exceeded the
Prescription shall begin to run from the day of the
five-year prescriptive period. erefore, the action had
If the return is amended substantially, then the commission of the violation of the law, and if the
prescribed.
period to assess will be reckoned from the filing of same be not known at the time, from the discovery
the amended return. thereof. 4) No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing with the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 286 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Commissioner a claim for credit or refund within dispute the CIR's claim. erefore, the BIR had until 13 of a copy of such decision or ruling, even a ter the
two (2) years a ter the payment of the tax or April 1997. However, as there was no Warrant of Distraint expiration of the 180-day period fixed by law for the CIR
penalty. and/or Levy served on the respondents nor any judicial to act on the disputed assessments.
5) Local taxes, fees, or charges shall be assessed within proceedings initiated by the BIR, the earliest attempt of
the BIR to collect the tax due based on this assessment
five (5) years from the date they became due.
was when it filed its Answer in CTA Case No. 6568 on 9 CIR v. Primetown Property Group, Inc.
In case of fraud or intent to evade the payment of January 2003, which was several years beyond the
taxes, fees, or charges, the same may be assessed e rule is that the two-year prescriptive period for the
three-year prescriptive period. us, the CIR is now
filing of tax refunds and tax credits is reckoned from the
within ten (10) years from discovery of the fraud or prescribed from collecting the assessed tax.
filing of the final adjusted return. But how should the
intent to evade payment.
two-year prescriptive period be computed?
Local taxes, fees, or charges may be collected within
Fishwealth Canning Corp. v. CIR 2010 Section 31, Chapter VIII, Book I of the Administrative Code of
five (5) years from the date of assessment by
1987, being the more recent law, governs the computation of
administrative or judicial action. Since petitioner received the denial of its administrative legal periods. Lex posteriori derogat priori.
6) Under the Tax Code, if the law does not provide for protest on August 4, 2005, it had until September 3, 2005
to file a petition for review before the CTA Division. It We therefore hold that respondent's petition (filed on
any particular prescriptive period of assessment, the
filed one, however, on October 20, 2005, hence, it was April 14, 2000) was filed on the last day of the 24th
rule is that the tax sought to be assessed becomes
filed out of time. For a motion for reconsideration of the calendar month from the day respondent filed its final
IMPRESCRIPTIBLE.
denial of the administrative protest does not toll the adjusted return. Hence, it was filed within the
7) e issue of prescription must be raised at the reglementary period.
30-day period to appeal to the CTA.
administrative level and evidence to prove
prescription must be introduced by the taxpayer.

Lascona Land Co., Inc. v. CIR 2012 CIR v. Univation Motor Philippines, Inc. 2019
CIR v. Phil. Global Communication, Inc.
waited for CIR Decision even a ter lapse of 180 days WON the CTA has prematurely assumed jurisdiction on
WON CIR's right to collect respondent's alleged deficiency respondent's judicial claim for tax refund or credit without
Considering that Lascona opted to await the final
income tax is barred by prescription. waiting for the decision of petitioner.
decision of the CIR on the protested assessment, it then
YES. e assessment, in this case, was presumably has the right to appeal such final decision to the Court by NO. In the instant case, the two-year period to file a
issued on 14 April 1994 since the respondent did not filing a petition for review within thirty days a ter receipt claim for refund is reckoned from April 15, 2011, the date

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 287 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

respondent filed its Final Adjustment Return. Since may be extended by subsequent written waiver
b) e waiver shall be signed by the taxpayer
respondent filed its administrative claim on March 12, himself or his duly authorized made in accordance with this Order.
2012 and its judicial claim on April 12, 2013, therefore, representative;
CIR v. Kudos Metal 2010
both of respondent's administrative and judicial claim for
c) e expiry date should be indicated;
refund were filed on time or within the two-year A perusal of the waivers executed by respondent's
prescriptive period provided by law. Under the 2. Except for waiver of collection of taxes which shall accountant reveals the following infirmities:
circumstances, if respondent awaited for the indicate the particular taxes assessed, the waiver
1. e waivers were executed without the notarized
commissioner to act on its administrative claim (before need not specify the particular taxes to be assessed
written authority of Pasco to sign the waiver in
resort to the Court), chances are, the two-year nor the amount thereof.
behalf of respondent.
prescriptive period will lapse e fectively resulting to the 3. e waiver may be notarized. However, it is su ficient
loss of respondent's right to seek judicial recourse and 2. e waivers failed to indicate the date of
that the waiver is in writing as specifically provided
worse, its right to recover the taxes it erroneously paid to acceptance.
by the NIRC, as amended.
the government. Hence, respondent's immediate resort 3. e fact of receipt by the respondent of its file
4. Considering that the waiver is a voluntary act of the
to the Court is justified. copy was not indicated in the original copies of
taxpayer, the waiver shall take legal e fect and be
the waivers.
binding on the taxpayer upon its execution thereof.
Guidelines for the Execution of Waivers
Due to the defects in the waivers, the period to assess or
form the Defense of Prescription 5. e taxpayer shall have the duty to retain a copy of
collect taxes was not extended. Consequently, the
See RMO No. 14-2016 the accepted waiver.
assessments were issued by the BIR beyond the
1. e taxpayer's failure to follow the forms does not 6. Note that there shall only be two (2) material dates three-year period and are VOID.
invalidate the executed waiver, for as long as the that need to be present on the waiver:
following are complied with: a) e date of execution of the waiver by the
a) e Waiver of the Statute of Limitations taxpayer or its authorized representative; CIR v. Next Mobile 2015
and Asian Transmission v. CIR 2018
under Section 222 (b) and (d) shall be
executed before the expiration of the period b) e expiry date of the period the taxpayer e deficiencies of the Waivers in this case are the same
to assess or to collect taxes. e date of waives the statute of limitations as the defects of the waiver in Kudos. In the instant case,
execution shall be specifically indicated in the CTA found the Waivers because of the following laws:
7. Before the expiration of the period set on the
the waiver.
previously executed waiver, the period earlier set 1) they were executed without a notarized board

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 288 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

authority; WDL to collect the deficiency taxes under FLD was 4. for a definite period beyond ordinary prescriptive
2) the dates of acceptance by the BIR were not therefore null and void as it was clearly issued beyond the period for assessment and collection.
indicated therein; and prescriptive period.
e waivers subject of this case failed to strictly comply
3) the fact of receipt by respondent of its copy of the Philippine Journalists, Inc. v. CIR ruled that the CTA's with the requirements under the law. e first and fourth
Second Waiver was not indicated on the face of appellate jurisdiction is not limited to cases involving waivers, failed to specify the date of acceptance by the
the original Second Waiver. decisions of the CIR on matters relating to assessments CIR or his duly authorized representative; All five waivers
or refunds. e CTA has jurisdiction to determine were signed by Maranan, the Accounting Manager of La
Similarly, the BIR violated its own rules and was careless whether the WDL issued by the BIR is valid and rule on
in performing its functions with respect to these Waivers. Flor. No notarized written authority was attached to the
the validity of the five waivers of the statute of limitations waivers authorizing Maranan to sign the waivers for and
Due to its peculiar circumstances, We shall treat this case and La Flor's application for tax amnesty under RA 9480.
as an exception to this rule and find the Waivers valid. on behalf of La Flor. Neither was there any evidence
Section 203 of the NIRC, as amended, provides for a showing that Maranan was among the responsible
It is true that petitioner was also at fault here because it period of three years for the BIR to assess and collect o ficials of La Flor authorized by its by-laws to execute a
was careless in complying with the requirements of RMO internal revenue taxes, counted from the last day waiver. e fourth Waiver was executed and notarized
No. 20-90 and RDAO 01-05. Nevertheless, petitioner's prescribed by law for the filing of the return or from the only on January 6, 2004, clearly beyond the expiry of the
negligence may be addressed by enforcing the provisions day the return was filed, whichever comes later. third waiver on December 31, 2003. With the nullity of the
imposing administrative liabilities upon the o ficers responsible fourth waiver, the execution and acceptance of the fi th
for these errors. e BIR's right to assess and collect taxes Section 222(b) of the NIRC provides that any internal
revenue tax which has been assessed within the period of waiver on November 4, 2004 were not valid.
should not be jeopardized merely because of the
mistakes and lapses of its o ficers, especially in cases like limitation may be collected by distraint or levy or by a With the defects in the waivers, the periods for the CIR to
this where the taxpayer is obviously in bad faith. proceeding in court within five years from the assess or collect the alleged WTC and EWT deficiencies
assessment. were not extended and have therefore prescribed.
Assuming that La Flor indeed failed to timely file an
A valid waiver of statute of limitations must be:
La Flor Dela Isabela v. CIR 2021 appeal, such failure is immaterial in view of the invalidity
1. in writing; of the assessments.
La Flor's assessed EWT and WTC deficiencies under 2. agreed to by both the Commissioner and the
FDDA had already prescribed on the ground that the taxpayer;
subject waivers failed to strictly comply with the CIR v. Systems Technology, Inc. 2017
requirements under the law. In turn, the issuance of the 3. before the expiration of the ordinary prescriptive
periods for assessment and collection; and RCBC is not on all fours with the instant case. e

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 289 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

estoppel upheld in the said case arose from the taxpayer's a) the benefit obtained by the taxpayer from its o fered or considered by the CTA, the same conclusion
act of payment and not on the reduction in the amount of execution of the waiver, in the form of a drastic would be reached — the assessments had prescribed as
the assessed taxes. RCBC's partial payment of the revised reduction of the deficiency taxes, and there was no valid waiver.
assessments e fectively belied its insistence that the
waivers are invalid and the assessments were issued b) the taxpayer's payment of a portion of the reduced Internal revenue taxes shall be assessed within three (3)
beyond the prescriptive period. tax assessment. years

Here, as no such payment was made by STI, mere Here, Avon did not receive any benefit from the waivers. a) a ter the last day prescribed by law for the filing of
reduction of the amount of the assessment because of a On the contrary, there was even a drastic increase in the the return or
request for reinvestigation should not bar it from raising assessed deficiency taxes when the Commissioner
b) from the day the return was filed in case of belated
the defense of prescription. increased the alleged sales discrepancy. Under these
filing.
circumstances, Avon's payment of an insignificant
portion of the assessment cannot be deemed an Exceptions as to Period of Limitation of Assessment and
admission or recognition of the validity of the waivers. Collection of Taxes. —
CIR v. Transitions Philippines Optical, Inc. 2017
a) In the case of a false or fraudulent return with intent
Estoppel applies against a taxpayer who did not only raise
to evade tax or of failure to file a return — within ten (10)
at the earliest opportunity its representative's lack of CIR v. La Flor Dela Isabela, Inc. 2019
years a ter the discovery of the falsity, fraud or
authority to execute two (2) waivers of defense of
prescription, but was also accorded, through these In CIR v. Systems Technology Institute, Inc., the Court had omission:
waivers, more time to comply with the audit ruled that waivers extending the prescriptive period of Provided, at in a fraud assessment which has
requirements of the BIR. Nonetheless, a tax assessment tax assessments must be compliant with RMO No. 20-90 become final and executory, the fact of fraud shall be
served beyond the extended period is void. and must indicate the nature and amount of the tax due. judicially taken cognizance of in the civil or criminal
us, having benefited from the Waivers executed at its In the present case, the Waivers failed to indicate the action for the collection thereof.
instance, respondent is estopped from claiming that they specific tax involved and the exact amount of the tax to b) If before the expiration of the time prescribed in
were invalid and that prescription had set in. be assessed or collected. Clearly, the Waivers did not Section 203 for the assessment of the tax, both the
e fectively extend the prescriptive period under Section CIR and the taxpayer have agreed in writing to its
203 on account of their invalidity. e issue on whether assessment a ter such time, the tax may be assessed
CIR v. Avon Products Manufacturing 2018 the CTA was correct in not admitting them as evidence within the period agreed upon.
becomes immaterial since even if they were properly
e estoppel upheld in the RCBC case arose from

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 290 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

c) Collection by distraint or levy or by a proceeding in Taxpayer b. from the lapse of 180-day period;
court within five (5) years following the assessment otherwise, the decision shall become final, executory
Administrative
of the tax. and demandable.
Judicial
e running of the Statute of Limitations shall be 2 2. When in the opinion of the Court the collection may
suspended Compromise and Abatement of Taxes jeopardize the interest of the Government and/or
1. for the period during which the CIR is Refund of Tax Erroneously or Illegally the taxpayer, the Court, at any stage of the
prohibited from making the assessment or Collected proceeding, may suspend the said collection and
beginning distraint or levy or a proceeding in require the taxpayer either
court and for sixty (60) days therea ter; a. Administrative a. to deposit the amount claimed or
2. when the taxpayer requests for a reinvestigation 1. Before payment of the deficiency tax assessment, the
b. to file a surety bond for not more than double
which is granted by the CIR; remedy is to file a written protest within 30 days
the amount with the Court.
from receipt of FAN;
3. when the taxpayer cannot be located; 3. A preliminary hearing is required for the proper
2. A ter payment of the same, the remedy is to file a
4. when the warrant of distraint or levy is duly determination of the necessity of a surety bond or
written claim for refund or tax credit — either the reduction thereof. (Pacquiao v. CTA)
served upon the taxpayer and no property could
with the BIR or the DOF One Stop Shop Center.
be located; and
c. Compromise and Abatement of Taxes
e taxpayer need NOT pay the deficiency tax
5. when the taxpayer is out of the Philippines.
assessment under protest nor is he required to e Commissioner may —

CIR v. Hambrecht & Quist Philippines 2010 protest at the time of payment. A) Compromise the payment of any internal revenue
tax, when:
e mere filing of a protest letter which is not granted b. Judicial
does not operate to suspend the running of the period to 1. Appeal to CTA. If the protest is denied in whole or in 1) Doubtful validity. A reasonable doubt as to the
collect taxes. In the case at bar, the records show that part, or is not acted upon within one hundred eighty validity of the claim against the taxpayer exists;
respondent filed a request for reinvestigation on (180) days from submission of documents, the or
December 3, 1993, however, there is no indication that taxpayer adversely a fected by the decision or 2) Financial incapacity. e financial position of the
petitioner acted upon respondent's protest. inaction may appeal to the CTA taxpayer demonstrates a clear inability to pay
a. within thirty (30) days from receipt of the the assessed tax.
said decision, OR

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 291 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

entire taxable income of that year, the corporation shall

is should be accompanied by a waiver of the In addition, the following cannot be compromised:
secrecy of bank deposits. either:
c) Cases where final reports of reinvestigation or
e compromise settlement of any tax liability shall reconsideration have been issued resulting in a) Pay the balance of tax still due; or
be subject to the following minimum amounts: the reduction of the original assessment agreed b) Carry-over the excess credit; or
1) For cases of financial incapacity, a minimum to by the taxpayer when he signed the required c) Be credited or refunded with the excess amount
compromise rate equivalent to ten percent (10%) agreement form. paid, as the case may be.
of the basic assessed tax; and d) Payment of withholding tax, where the financial Once the option to carry-over and apply the excess quarterly
2) For other cases, a minimum compromise rate position of the withholding agent shows a clear income tax against income tax due for the taxable quarters
equivalent to forty percent (40%) of the basic inability to pay. of the succeeding taxable years has been made, such option
assessed tax. GR: e power to compromise and abate belongs to shall be considered irrevocable for that taxable period and
Where the basic tax involved exceeds P1M or where the CIR. no application for cash refund or issuance of a tax credit
the settlement o fered is less than the prescribed EXC: certificate shall be allowed therefor.
minimum rates, the compromise shall be subject to 1) assessments issued by the regional o fices 1) A Tax Credit Certificate is a certification, duly issued
the approval of the National Evaluation Board. involving basic deficiency taxes of P500K or less, to the taxpayer named therein acknowledging that
TN: Compromise can not be availed of by a and the grantee-taxpayer is legally entitled a tax credit,
withholding agent. the money value of which
2) minor criminal violations.
a) May be used in payment of any of his
B) Abate or cancel a tax liability, when: may be compromised by a regional evaluation board. internal revenue tax liability, or
1) e tax or any portion thereof appears to be e last step in the abatement process is the issuance of b) May be converted as a cash refund.
unjustly or excessively assessed; or a termination letter.
2) A refund is a claim for the payment of cash for taxes
2) e administration and collection costs involved
d. Refund of Tax Erroneously or Illegally erroneously or illegally paid by the taxpayer.
do not justify the collection of the amount due.
Collected
3) No credit or refund of taxes or penalties shall be
All criminal violations may be compromised except: R.A. No. 8424, sec. 229 allowed unless the taxpayer files in writing with the
a) those already filed in court, or If the sum of the quarterly tax payments made during the CIR a claim for credit or refund within two (2)
b) those involving fraud. said taxable year is not equal to the total tax due on the years a ter the payment of the tax or penalty.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 292 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

period shall be counted from the date of the

4) A refund shall not be granted when there is a Procedure for Claiming Refunds or
deficiency tax assessment against the filing of the annual corporate income tax Tax Credits of Tax Erroneously or
claimant-taxpayer. return. Illegally Collected under Section 229
b) Income tax paid in installments. — Where the 1) A written claim for refund must be filed with the
5) Once the taxpayer opts to carry-over the excess
tax had been paid in installments, the taxes CIR within two (2) years from date of payment of
income tax against the taxes due for the succeeding
are deemed paid, for purposes of the tax;
taxable years, such option is irrevocable for the
whole amount of the excess. e excess shall be determining the commencement of the 2) A decision of the CIR denying the claim is
carried over and duly applied UNTIL FULLY two-year period, on the date the last appealable to the CTA within 30 days from receipt
UTILIZED. installment was paid. thereof or within two (2) years from date of
payment, whichever comes first;
6) An exception to the irrevocability rule is when a University Physician Services v. CIR 2018
corporation dissolves. A refund is then allowed for re Irrevocability Rule 3) If no decision is made by the CIR, the aggrieved
any unutilized tax credit it had previously opted to taxpayer must consider the inaction as a denial and
e irrevocability is limited only to the option of
be carried over. appeal to the CTA must be filed before the lapse of two
carry-over such that a taxpayer is still free to change its
(2) years counted from date of payment.
7) A withholding agent is allowed to claim for tax choice a ter electing a refund of its excess tax credit. But
refund, because under the law, said agent is the one once it opts to carry over such excess creditable tax, a ter When is Tax Erroneously or Illegally Collected
who is held liable for any violation of the electing refund or issuance of tax credit certificate, the 1. Erroneously or illegally assessed or collected internal
withholding tax law should such violation occur. carry-over option becomes irrevocable. revenue taxes;
8) Starting date for counting the two-year period — 2. Penalties imposed without authority;
GR: From the date of payment regardless of any 3. Any sum alleged to have excessively or in any
Rhombus Energy v. CIR 2018
supervening cause that may arise a ter manner wrongfully collected;
payment; e controlling factor for the operation of the
irrevocability rule is that the taxpayer chose an option; 4. Refund of BIR stamps when returned in good
EXC: condition by the purchaser;
and once it had already done so, it could no longer make
a) Corporate income tax. — Where a corporation another one. 5. Redemption or change of unused stamps rendered
paid quarterly income taxes in any of the unfit for use and refund of their value.
first three quarters during the taxable year
but incurs a net loss during said year, the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 293 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

204(c) and 229 112(c) 228 e right of a withholding agent to claim a refund of Zuellig-Pharma Asia Pacific Ltd. Phils. ROHQ v. CIR 2020
erroneously or illegally withheld taxes comes with the
Refund of As held in Pilipinas Total Gas, it is the taxpayer who
Recovery of tax Administrative responsibility to return the same to the principal
unutilized input ultimately determines when complete documents have
erroneously or Protest on taxpayer.
VAT from 0% been submitted for the purpose of commencing and
illegally collected Assessment continuing the running of the 120-day period. As herein
transactions
applied, the 120-day period should therefore be reckoned
e 2-year prescriptive period Winebrenner & Iñigo v. CIR 2015 reiterated in
from the April 29, 2014 letter of Zuellig-PH wherein it
CIR v. Philippine National Bank 2019
stated that it had already submitted the complete
Applies to AC 30-day WON the submission and presentation of the quarterly ITRs of documents in support of its refund claim. In turn, the
Applies to AC and only from close reglementary the succeeding quarters of a taxable year is indispensable in a BIR had 120 days from such time (or until August 27,
JC from date of of taxable period claim for refund. 2014) to act on Zuellig-PH's administrative claim for
payment quarter when
NO. e irrevocability rule under Section 76 of the NIRC refund. Since it was established that the BIR failed to act
sale was made
means that once an option, either for refund or issuance within such period, Zuellig-PH had thirty (30) days, or
CIR has no of tax credit certificate or carry-over of CWT has been until September 26, 2014, to file its judicial claim. us,
CIR has 90 days CIR has 180 days its Petition for Review was timely filed on September 25,
prescribed exercised, the same can no longer be modified for the
to resolve to resolve 2014.
period to resolve succeeding taxable years. What Section 76 requires, just
like in all civil cases, is to prove the prima facie entitlement
Appeal to the CTA
to a claim, including the fact of not having carried over the
excess credits to the subsequent quarters or taxable year. Civil Penalties
30 days from
Within the 2 year It does not say that to prove such a fact, succeeding
receipt of 3 Tax Delinquency, Tax Deficiency
prescriptive 30 days from quarterly ITRs are absolutely needed.
decision; OR
period; or 30 days receipt of denial Surcharge
From inaction or is simply underscores the rule that any document,
from receipt of of CIR.
await then appeal other than quarterly ITRs may be used to establish that
decision of CIR. a. Tax Delinquency, Tax Deficiency
within 30 days indeed the non-carry over clause has been complied
A taxpayer is delinquent in the payment of his tax when
with, provided that such is competent, relevant and part
of the records. 1) e self-assessed tax per return filed by the taxpayer
CIR v. Smart Communication, Inc. 2010 on the prescribed date was not paid at all or was only
partially paid; OR

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 294 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

2) e deficiency tax assessed by the BIR became final Delinquent Deficient Interest on Extended Payment. — If any person required
and executory. to pay the tax is qualified and elects to pay the tax on
penalties such as 25% to 25% installment, but fails to pay, or where the CIR has
e term 'deficiency' means: surcharge, interest and surcharge authorized an extension of time within which to pay,
1) e amount by which the tax imposed exceeds the compromise penalty there shall be assessed and collected interest at the rate
amount shown as the tax by the taxpayer upon his of 12% on the tax or deficiency tax or any part thereof
In General. — ere shall be assessed and collected on
return; OR unpaid from the date of notice and demand until it is
any unpaid amount of tax, interest at the rate of double
2) If no amount is shown as the tax by the taxpayer the legal interest rate (12%) for loans or forbearance of paid.
upon this return, or if no return is made by the any money in the absence of an express stipulation: b. Surcharge
taxpayer, then the amount by which the tax exceeds
Provided, at in no case shall the deficiency and the ere shall be imposed, in addition to the tax required
the amounts previously assessed (or collected
delinquency interest be imposed simultaneously. to be paid, a penalty equivalent to twenty-five percent
without assessment) as a deficiency.
Deficiency Interest. — Any deficiency in the tax due shall (25%) of the amount due, in the following cases:
Remedies in the collection of deficiency and delinquency tax
be subject to the 12% interest. 1) Failure to file any return and pay the tax due
Delinquent Deficient Delinquency Interest. — In case of failure to pay: thereon on the date prescribed; or

Can immediately be 1) e amount of the tax due on any return to be 2) Unless otherwise authorized by the CIR, filing a
collected administratively Has to go filed, or return with an internal revenue o ficer other
through the issuance of through 2) e amount of the tax due for which no return is than those with whom the return is required to
✔
warrant of distraint and protest required, or be filed; or
levy, and/or judicial action 3) A deficiency tax, or any surcharge or interest 3) Failure to pay the deficiency tax within the time
thereon on the due date appearing in the notice prescribed for its payment in the notice of
May be assessment; or
dismissed and demand of the CIR,
Filing of civil action for the 4) Failure to pay the full or part of the amount of
✔ during there shall be assessed and collected on the unpaid
collection in ordinary court tax shown on any return required to be filed, or
pendency of amount, interest at the rate of 12% until the amount is
protest fully paid, which interest shall form part of the tax. the full amount of tax due for which no return is
required to be filed, on or before the date
Subject to administrative ✔ NOT subject prescribed for its payment.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 295 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

e penalty to be imposed shall be fi ty percent (50%) of due for failure to timely file any return and pay the tax Fraud penalty
the tax or of the deficiency tax, in case any payment has due thereon. Dura lex sed lex.
A taxpayer who files a false return is liable to pay the
been made on the basis of such return before the
fraud penalty of 50% of the tax due from him or of the
discovery of the falsity or fraud:
deficiency tax in case payment has been made on the
1) In case of willful neglect to file the return within 4 Compromise Penalty
basis of the return filed before the discovery of the
the period prescribed by this Code or by rules falsity or fraud.
and regulations, or
COMPROMISE PENALTY COMPROMISE
2) In case a false or fraudulent return is willfully Local Taxation
An amount paid by a
L
made. R.A. No. 7160, Book II, Title I
taxpayer to compromise a
A substantial under-declaration of taxable sales, Amount paid to settle civil
receipts or income, or a substantial overstatement of
tax violation that he has General Principles
liability for tax assessed by
committed, which may be
deductions, shall constitute prima facie evidence of a the government. Common Limitations on the Taxing Powers
the subject of criminal
false or fraudulent return. of Local Government Units
prosecution.
Failure to report sales, receipts or income in an amount Local Business Tax
exceeding thirty percent (30%) of that declared per e basis is the gross sales e basis of the amount
return, and a claim of deductions in an amount or receipts during the year paid is the basic tax Validity of a Local Tax Ordinance
exceeding (30%) of actual deductions, shall render the or the tax due. assessed. Taxpayer’s Remedies
taxpayer liable for substantial under-declaration of
e amount set is based on Assessment and Collection of Local Taxes
sales, receipts or income or for overstatement of ere is a minimum
the nature of the tax
deductions, as mentioned herein. amount prescribed
violation and the minimum General Principles
depending on the ground. 1
amount is not less than P1K. R.A. No. 7160, secs. 130, 132
Qatar Airways Company v. CIR 2020
Each LGU shall have the power to create its own sources of
e Court agrees that the surcharge imposed upon ★ Requires consent of the taxpayer and a validly
revenues and to levy taxes, fees and charges subject to such
petitioner was not unjust or excessive pursuant to Section entered compromise agreement between the
guidelines and limitations as the Congress may provide,
248(A)(1) of the 1997 NIRC which provides for the taxpayer and CIR.
consistent with the basic policy of local autonomy. Such taxes,
imposition of a penalty equivalent to 25% of the amount

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 296 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

fees, and charges shall accrue exclusively to the local §132. Local Taxing Authority. — e power to impose or otherwise, or other taxes, fees, or charges in any
governments. (Sec 5 Art X, 1987 Constitution) a tax, fee, or charge or to generate revenue under this form whatsoever upon such goods or merchandise;
e following fundamental principles shall govern the Code shall be exercised by the sanggunian of the local f) Taxes, fees or charges on agricultural and aquatic
exercise of the taxing and other revenue-raising powers of government unit concerned through an appropriate products when sold by marginal farmers or
LGUs: ordinance. fishermen;
a) Taxation shall be uniform in each LGU; Common Limitations on the Taxing "Marginal Farmer or Fisherman" refers to an individual
b) Taxes, fees, charges and other impositions shall: 2 Powers of Local Government Units engaged in subsistence farming or fishing.
R.A. No. 7160, sec. 133 g) Taxes on business enterprises certified to by the
1) be equitable and based as far as practicable on
the taxpayer's ability to pay; Unless otherwise provided herein, the exercise of the taxing Board of Investments as pioneer or non-pioneer for
powers of provinces, cities, municipalities, and barangays a period of six (6) and four (4) years, respectively
2) be levied and collected only for public purposes; from the date of registration;
shall not extend to the levy of the following:
3) not be unjust, excessive, oppressive, or h)
a) Income tax, except when levied on banks and other
confiscatory;
financial institutions; i) Excise taxes on articles enumerated under
4) not be contrary to law, public policy, national the NIRC, as amended, and
b) Documentary stamp tax;
economic policy, or in the restraint of trade;
c) Taxes on estates, inheritance, gi ts, legacies and ii) Taxes, fees or charges on petroleum
c) e collection of local taxes, fees, charges and other products;
other acquisitions mortis causa, except as otherwise
impositions shall in no case be let to any private
provided herein; NB: ALL types of taxes on petroleum are
person;
d) Customs duties, registration fees of vessel and prohibited.
d) e revenue collected pursuant to the provisions of
wharfage on wharves, tonnage dues, and all other i) Percentage or VAT (VAT) on sales, barters or
this Code shall inure solely to the benefit of, and be
kinds of customs fees, charges and dues except exchanges or similar transactions on goods or
subject to the disposition by, the LGU levying the tax,
wharfage on wharves constructed and maintained services
fee, charge or other imposition unless otherwise
by the LGU concerned;
specifically provided herein; and j) Taxes on the gross receipts of transportation
e) Taxes, fees, and charges and other impositions upon contractors and persons engaged in the
e) Each LGU shall, as far as practicable, evolve a
goods carried into or out of, or passing through, the transportation of passengers or freight by hire and
progressive system of taxation.
territorial jurisdictions of local government units in common carriers by air, land or water,
the guise of charges for wharfage, tolls for bridges

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 297 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

k) Taxes on premiums paid by way or reinsurance or derives from Section 143 of the LGC. However, the same is TAX RATE BASE
retrocession; subject to the explicit statutory impediment provided for
under Section 133(h) of which prohibits LGUs from processors of any article preceding calendar
l) Taxes, fees or charges for the registration of motor of commerce of whatever year
imposing "taxes, fees or charges on petroleum products."
vehicles and for the issuance of all kinds of licenses kind or nature
It can, therefore, be deduced that although petroleum
or permits for the driving thereof, except tricycles;
products are subject to excise tax, the same is specifically wholesalers,
m) Taxes, fees, or other charges on Philippine products excluded from the broad power granted to LGUs under gross sales or
distributors, or dealers
actually exported, Section 143(h) of the LGC to impose business taxes. See receipts for the
in any article of
n) Taxes, fees, or charges, on Countryside and schedule preceding calendar
commerce of whatever
Barangay Business Enterprises and cooperatives year
kind or nature
duly registered under R.A. No. 6810 and R.A. No. Angeles University Foundation v. City of Angeles 2012
6938; and exporters, and on
Considering that exemption from payment of regulatory a rate not exceeding one-half (½)
manufacturers , millers,
o) Taxes, fees or charges of any kind on the National fees was not among those “incentives” granted to of the rates prescribed under
producers, wholesalers
Government, its agencies and instrumentalities, petitioner under R.A. No. 6055, there is no such incentive subsection (a), (b) and (d)
of essential commodities
and LGUs. that is retained under the LGC of 1991. us, petitioner is
liable to pay the subject building permit and related fees. gross annual receipts for the
Batangas City, et al. v. Pilipinas Shell 2015 preceding calendar year
WON an LGU is empowered under the LGC to impose business retailers
Local Business Tax 2% P400K or less
taxes on persons or entities engaged in the business of 3
manufacturing and distribution of petroleum products. R.A. No. 7160, secs. 143, 145, 146
1% More than P400K
NO. Section 133(h) of the LGC clearly specifies the two Municipalities may impose taxes on the following
businesses: gross sales or
kinds of taxes which cannot be imposed by LGUs:
contractors and other See receipts for the
1) excise taxes on articles enumerated under the TAX RATE BASE
independent contractors schedule preceding calendar
NIRC, as amended; and year
Tax on Business
2) taxes, fees or charges on petroleum products.
manufacturers, See gross sales or banks and other not more gross receipts of the
Indisputably, the power of LGUs to impose business taxes assemblers, repackers, schedule receipts for the financial institutions than 0.5% preceding calendar

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 298 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

TAX RATE BASE "Contractor" includes persons, natural or juridical, whose ordinance.
activity consists essentially of the sale of all kinds of services
year for a fee, regardless of whether or not the performance of
peddlers engaged in the Not more the service calls for the exercise or use of the physical or City of Davao v. Randy Allied Ventures 2019
sale of any merchandise than Php Per peddler annually mental faculties of such contractor or his employees.
WON RAVI is an NBFI subject to LBT under Section 143 (f) of the
or article of commerce 50.00 us, a holding company cannot be assessed as a LGC.
contractor.
gross sales or NO. RAVI is a CIIF holding company. e SMC preferred
any business, not Not more receipts of the City of Pasig v. Meralco 2018 shares held by it are considered government assets owned
otherwise specified than 2% preceding calendar by the National Government for the coconut industry. As
year. Under the LGC of 1991, a municipality is bere t of held in the same case, these SMC shares as well as any
authority to levy and impose franchise tax on franchise resulting dividends or increments from said shares are
Essential Commodities holders within its territorial jurisdiction. at authority owned by the National Government and shall be used only
1) Rice and corn; belongs to provinces and cities only. A franchise tax levied for the benefit of the coconut farmers and for the
by a municipality is, thus, null and void. e nullity is not development of the coconut industry. us, RAVI's
2) Wheat or cassava lour, meat, dairy products, locally cured by the subsequent conversion of the municipality
manufactured, processed or preserved food, sugar, management of the dividends from the SMC preferred
into a city. shares, including placing the same in a trust account
salt and other agricultural, marine, and fresh water
products, whether in their original state or not; yielding interest, is not tantamount to doing business
whether as a bank or other financial institution, i.e., an
3) Cooking oil and cooking gas; Meralco v. City of Muntinlupa 2021 En Banc NBFI, but rather an activity that is essential to its nature
4) Laundry soap, detergents, and medicine; Section 25 of MO 93-35 is null and void for being ultra as a CIIF holding company.
5) Agricultural implements. equipment and vires. Applying the Formal Test, the passage of the subject
post-harvest facilities, fertilizers, pesticides, ordinance was beyond the corporate powers of the then
insecticides, herbicides and other farm inputs; Municipality of Muntinlupa, hence, ultra vires. Based on City of Davao v. AP Holdings 2020
the Substantive Test, Section 25 of MO 93-35 deviated
6) Poultry feeds and other animal feeds; As a CIIF holding company, is APHI liable to pay local business
from the express provision of RA 7160.
taxes on its dividend earnings from its SMC preferred shares?
7) School supplies; and
Muntinlupa being then a municipality definitely had no
NO. In the recent case of City of Davao, et al. v. Randy Allied
8) Cement. power or authority to enact the subject franchise tax

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 299 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Ventures, Inc. (RAVI), the Court ordained that RAVI, a CIIF and in the process acquire debt or equity 1. Public hearings shall be conducted for the purpose
holding company like APHI, was exclusively established to securities; prior to the enactment thereof.
own and hold SMC shares of stock. As such, it is not liable b. Use principally the funds received for 2. Any question on the constitutionality or legality of
to pay local business taxes on the dividends earned from acquiring various types of debt or equity tax ordinances or revenue measures may be raised
its SMC preferred shares as the same shares are securities; on appeal within thirty (30) days from the e fectivity
government assets owned by the national government for thereof to the Secretary of Justice.
the benefit of the coconut industry. c. Borrow against, or lend on, or buy or sell
debt or equity securities. 3. e SOJ shall render a decision within sixty (60) days
In order to be considered as an NBFI under the NIRC, from the date of receipt of the appeal.
banking laws, and pertinent regulations, the following APHI cannot be considered as a non-bank financial
must concur: intermediary since its investment and placement of funds 4. Such appeal shall NOT have the e fect of suspending
are not done in a regular or recurring manner for the the e fectivity of the ordinance and the accrual and
1. e person or entity is authorized by the BSP to purpose of earning profit. Rather, its management of payment of the tax, fee, or charge levied therein.
perform quasi-banking functions; dividends from the SMC shares is only in furtherance of 5. Within thirty (30) days a ter receipt of the decision
2. e principal functions of said person or entity its purpose as a CIIF holding company for the benefit of or the lapse of the sixty-day period without the SOJ
include the lending, investing or placement of the Republic. acting upon the appeal, the aggrieved party may file
funds or evidences of indebtedness or equity All told, the City of Davao acted beyond its taxing appropriate proceedings with a court of competent
deposited to them, acquired by them, or otherwise authority when it imposed the questioned business tax on jurisdiction.
coursed through them, either for their own APHI.
account or for the account of others; and City Treasurer of Manila v. Philippine Beverage Partners
3. e person or entity must perform any of the 2019
following functions on a regular and recurring, not Validity of a Local Tax Ordinance WON a taxpayer who protested an assessment may later on
4
on an isolated basis, to wit: R.A. No. 7160, sec. 187 institute a judicial action for refund.
a. Receive funds from one (1) group of §187. Procedure for Approval and E fectivity of Tax, YES. Petitioner contends that the assessment against
persons, irrespective of number, through Ordinances and Revenue Measures; Mandatory Public respondent became final and executory when the latter
traditional deposits, or issuance of debt or Hearings. — e procedure for approval of local tax e fectively abandoned its protest and instead sued in
equity securities; and make available/lend ordinances and revenue measures shall be in accordance court for the refund of the assessed taxes and charges.
these funds to another person or entity, with the provisions of this Code:
e Court has settled in Cosmos that a taxpayer facing an

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 300 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

assessment issued by the local treasurer may protest it Whether there is payment of the assessed tax or not, it is pending tax liability. e local treasurer cannot simply
and alternatively: clear that the protest in writing must be made within collect deficiency taxes for a di ferent taxing period by
1) appeal the assessment in court, or sixty (60) days from receipt of the notice of assessment; raising it as a defense in an action for refund of
otherwise, the assessment shall become final and erroneously or illegally collected taxes.
2) pay the tax, and therea ter, seek a refund.
conclusive. Additionally, the subsequent court action
Where an assessment is to be protested or disputed, the must be initiated within thirty (30) days from denial or
taxpayer may proceed inaction by the local treasurer; otherwise, the assessment Taxpayer’s Remedies
a) without payment, or becomes conclusive and unappealable. Administrative
Simply put, there are two conditions that must be
5
the taxpayer's procedural remedy is governed Judicial
strictly by Section 195. at is, in case of whole or satisfied in order to successfully prosecute an action for
partial denial of the protest, or inaction by the refund in case the taxpayer had received an assessment. Refund
local treasurer, the taxpayer's only recourse is to One, pay the tax and administratively assail within 60
appeal the assessment with the court of
a. Administrative
days the assessment before the local treasurer,
competent jurisdiction. e appeal before the R.A. No. 7160, sec. 195
whether in a letter-protest or in a claim for refund.
court does not seek a refund but only questions When the local treasurer or his duly authorized
the validity or correctness of the assessment. Two, bring an action in court within thirty (30) days
representative finds that correct taxes, fees, or charges
from decision or inaction by the local treasurer,
b) with payment of the assessed tax, fee or charge. have not been paid, he shall issue a notice of assessment
whether such action is denominated as an appeal from
stating the nature of the tax, fee, or charge, the amount
the taxpayer may therea ter maintain an action in assessment and/or claim for refund of erroneously or
of deficiency, the surcharges, interests and penalties.
court questioning the validity and correctness of illegally collected tax.
the assessment (Section 195, LGC) and at the same Within sixty (60) days from the receipt of the notice of
WON the alleged deficiency taxes of respondent may be used to
time seeking a refund of the taxes. In truth, it o fset its claim for refund. assessment, the taxpayer may file a written protest
would be illogical for the taxpayer to only seek a with the local treasurer contesting the assessment;
reversal of the assessment without praying for the NO. e issuance of a notice of assessment is mandatory otherwise, the assessment shall become final and
refund of taxes. Once the assessment is set aside before the local treasurer may collect deficiency taxes executory.
by the court, it follows as a matter of course that from the taxpayer. e notice of assessment is not only a
e local treasurer shall decide the protest within sixty
all taxes paid under the erroneous or invalid requirement of due process but it also stands as the first
(60) days from the time of its filing. If the local treasurer
assessment are refunded to the taxpayer. instance the taxpayer is o ficially made aware of the
finds the protest to be wholly or partly meritorious, he

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 301 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

shall issue a notice canceling wholly or partially the

a) from the date of the payment of such tax, fee, or In cases where there is no such branch or sales outlet in
assessment. However, if the local treasurer finds the charge, or the city or municipality where the sale or
assessment to be wholly or partly correct, he shall deny transaction is made, the sale shall be duly recorded
the protest wholly or partly with notice to the taxpayer. b) from the date the taxpayer is entitled to a refund
or credit. in the principal o fice and the taxes due shall accrue
b. Judicial and shall be paid to such city or municipality.

e taxpayer shall have thirty (30) days Assessment and Collection of Local b) e following sales allocation shall apply to
Taxes manufacturers, assemblers, contractors, producers,
a) from the receipt of the denial of the protest or R.A. No. 7160, sec. 194 and exporters with factories, project o fices, plants,
b) from the lapse of the sixty (60) day period 6 Remedies of Local Government Units and plantations in the pursuit of their business:
prescribed herein
Prescriptive Period 1) irty percent (30%) of all sales recorded in
within which to appeal with the court of competent the principal o fice shall be taxable by the city
jurisdiction otherwise the assessment becomes Injunction or municipality where the principal o fice is
conclusive and unappealable. located; and
Situs
NB: Note that this does not require payment under 2) Seventy percent (70%) of all sales recorded in
a) For purposes of collection of the taxes under Section
protest unlike that in RPTs. However, the principal o fice shall be taxable by the city
143 of this Code, manufacturers, assemblers,
non-payment of local business tax may make the or municipality where the factory, project
repackers, brewers, distillers, rectifiers and
business illegal since a mayor’s permit may not o fice, plant, or plantation is located.
compounders of liquor, distilled spirits and wines,
then be issued. Better just pay under protest.
millers, producers, exporters, wholesalers, c) In case of a plantation located at a place other than
c. Refund distributors, dealers, contractors, banks and other the place where the factory is located, said seventy
R.A. No. 7160, sec. 196 financial institutions, and other businesses, percent (70%) shall be divided as follows:
maintaining or operating branch or sales outlet
No case or proceeding shall be maintained in any court 1) Sixty percent (60%) to the city or
elsewhere shall record the sale in the branch or sales
for the recovery of any tax, fee, or charge erroneously or municipality where the factory is located;
outlet making the sale or transaction, and the tax
illegally collected until a written claim for refund or and
thereon shall accrue and shall be paid to the
credit has been filed with the local treasurer. 2) Forty percent (40%) to the city or
municipality where such branch or sales outlet is
No case or proceeding shall be entertained in any court located. municipality where the plantation is located.
a ter the expiration of two (2) years

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 302 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

LHC's Makati o fice, nor does it operate any aspect or rights therein which may be subject to the lien but
d) In cases where a manufacturer, assembler, producer,
exporter or contractor has two (2) or more factories, primary purpose of LHC as provided in its Articles of also upon property used in business, occupation,
project o fices, plants, or plantations located in Incorporation. practice of profession or calling, or exercise of
di ferent localities, the seventy percent (70%) sales privilege with respect to which the lien is imposed.
e rules on tax allocation in relation to tax situs under
allocation shall be prorated among the localities Sec. 150 of R.A. No. 7160 come into play when a business e lien may only be extinguished upon full payment
where the factories, project o fices, plants, and subject to it does not operate a branch or sales o fice of the delinquent local taxes fees and charges
plantations are located in proportion to their outside of its principal o fice where all sales are recorded, including related surcharges and interest.
respective volumes of production during the period for but has a factory, project o fice, plant, or plantation 2. Distraint and Levy. — By administrative action thru
which the tax is due. situated in di ferent localities, whether or not sales are distraint of goods, chattels, or e fects, and other
e) e foregoing sales allocation shall be applied made in these localities. personal property of whatever character, including
irrespective of whether or not sales are made in the us, even if no sales were recorded or undertaken at stocks and other securities, debts, credits, bank
locality where the factory, project o fice, plant, or LHC's Makati o fice, Makati would have been entitled to accounts, and interest in and rights to personal
plantation is located. share with LHC's power plant sites in the 70% portion of property, and by levy upon real property and interest
the business tax if it could be shown that the Makati in or rights to real property.
e City of Makati v. e Municipality of Bakun and Luzon
o fice was a project o fice of LHC akin to a factory. e e remedies by distraint and levy may be repeated
Hydro Corporation 2020
enumeration itself - factory, project o fice, plant, or if necessary until the full amount due, including all
WON LHC's Makati o fice was a project o fice or a mere plantation — reveals the character of the o fice expenses, is collected.
administrative o fice, in order to determine whether or not it had contemplated by the provision. ese are o fices directly
3. Judicial action. — e LGU concerned may enforce
a right to participate in the 70% portion of LHC's business tax. involved in production or operations; hence, the
the collection of delinquent taxes, fees, charges or
Mere Administrative O fice NOT entitled to a share of inescapable conclusion that LHC's Makati o fice was a mere
other revenues by civil action in any court of
the 70%. administrative o fice.
competent jurisdiction. e civil action shall be filed
A project o fice has been defined as "equivalent to the by the local treasurer within the period prescribed
a. Remedies of Local Government Units
factory of a manufacturer." in Section 194.
1. Local Government's Lien. — Local taxes, fees, charges
e subject tax is a tax on business, particularly one that and other revenues constitute a lien, superior to all NPC v. City of Cabanatuan 2014
is expressly imposed on gross sales recorded. For this liens, charges or encumbrances in favor of any
reason, it was relevant to the CTA's discussion to consider Section 168 of the LGC categorically provides that the
person, enforceable by appropriate administrative
that invoices or records of all sales are not handled by LGU may impose a surcharge not exceeding 25% of the
or judicial action, not only upon any property or

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 303 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

amount of taxes, fees, or charges not paid on time. the correction of an erroneous classification, and not, an 5 years) - 1.1%, thus, for the years 2017-2021, the tax
e surcharge is a civil penalty imposed once for late upward adjustment or increase of tax rates. e fact that adjustment is 1.21%. However, for this purpose, Davao
payment of a tax. Contrast this with the succeeding there occurred an increase in payment due to the City should pass an ordinance to give e fect to the
provisions on interest, which was imposable at the rate reclassification is of no moment, because: above-discussed tax adjustments.
not exceeding 2% per month of the unpaid taxes until 1) reclassification is not prohibited;
fully paid. e fact that the interest charge is made 2) reclassification was made to e fect a correction;
proportionate to the period of delay, whereas the De Lima v. City of Manila 2018
and
surcharge is not, clearly reveals the legislative intent for e Court is mindful that the interval of time between the
the di ferent modes in their application. 3) the taxes imposed upon the reclassified taxpayers,
two ordinances is 20 years, Ordinance No. 7807 having
was not amended or increased from that stated in
been enacted in 1993, and Ordinance No. 8331 in 2013.
§191. Authority of LGUs to Adjust Rates of Tax the LGC.
However, this does not justify the accumulation of
Ordinances. — LGUs shall have the authority to adjust However, while Davao City may rectify and amend their allowable increases and then their subsequent one-time
the tax rates as prescribed herein not o tener than old tax ordinance in order to give full implementation of imposition. e option to increase the tax rates under the
once every five (5) years, but in no case shall such the LGC, it, however, cannot impose a straight 1.25% at its LGC arises every five (5) years reckoned from the
adjustment exceed ten percent (10%) of the rates initial implementation of the LGC in so far as retailers are enactment of the ordinance sought to be adjusted.
fixed under this Code. concerned. Davao City should, at the very least, start with
In the event that the LGU fails to make such adjustment
Mindanao Shopping Destination v. Duterte 2017 En Banc 1% (the minimum tax rate) as provided under Section
within the five (5)-year period, the option to increase the
143(d) of the LGC. While Davao City cannot be faulted in
Section 191 of the LGC presupposes that the following prevailing ordinance remains open until such right is
failing to immediately implement the LGC, petitioners
requirements are present for it to apply, to wit: exercised, at which point, the five (5)-year period of
cannot likewise be unjustly prejudiced by its initial
limitation starts to run again.
1) there is a tax ordinance that already imposes a tax implementation of the LGC.
in accordance with the provisions of the LGC; and On the other hand, were the LGU decides to make such
Considering that 11 years had already elapsed from its
adjustment, the basis for the increase would be the
2) there is a second tax ordinance that made implementing in 2006, Davao City could adjust its tax
prevailing tax rate.
adjustment on the tax rate fixed by the first tax rate twice now which will make its adjusted tax rate for
ordinance. retailers pegged at 1.2%, in accordance with Section 191 of
b. Prescriptive Period
the LGC. To clarify, from 2006-2011 (first 5 years), the
Section 191 has no bearing in the instant case because 1. Local taxes, fees, or charges shall be assessed within
initial tax rate should start with 1%; from 2011-2016 (next
what actually took place in the questioned Ordinance was five (5) years from the date they became due. No

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 304 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

action for the collection of such taxes, fees, or e prohibition on the issuance of a writ of injunction to
charges, whether administrative or judicial, shall be
Taxpayer’s Remedies
enjoin the collection of taxes applies ONLY to national
instituted a ter the expiration of such period. internal revenue taxes, and NOT to local taxes. 1 Fundamental Principles; Nature
2. In case of fraud or intent to evade the payment of Taxes being the lifeblood of the government should be
taxes, fees, or charges, the same may be assessed e appraisal, assessment, levy and collection of real
collected promptly, without unnecessary hindrance or property tax shall be guided by the following fundamental
within ten (10) years from discovery of the fraud or delay. us, the NIRC expressly provides that no court principles:
intent to evade payment. shall have the authority to grant an injunction to restrain
the collection of any national internal revenue tax, fee or a) Real property shall be appraised at its current and
3. Local taxes, fees, or charges may be collected within
charge imposed by the code. fair market value;
five (5) years from the date of assessment by
administrative or judicial action. No such action e situation, however, is di ferent in the case of the b) Real property shall be classified for assessment
shall be instituted a ter the expiration of said collection of local taxes as there is no express provision in purposes on the basis of its actual use;
period. the LGC prohibiting courts from issuing an injunction to Even if the user is not the owner.
4. e running of the periods of prescription provided restrain local governments from collecting taxes.
c) Real property shall be assessed on the basis of a
in the preceding paragraphs shall be suspended for Nevertheless, it must be emphasized that although there uniform classification within each local government
the time during which: is no express prohibition in the LGC, injunctions unit;
a) e treasurer is legally prevented from making enjoining the collection of local taxes are frowned upon.
d) e appraisal, assessment, levy and collection of real
the assessment of collection; Courts therefore should exercise extreme caution in
property tax shall not be let to any private person;
issuing such injunctions.
b) e taxpayer requests for a reinvestigation and and
executes a waiver in writing before expiration of e) e appraisal and assessment of real property shall
the period within which to assess or collect; and be equitable.
Real Property Taxation
c) e taxpayer is out of the country or otherwise M It is a tax on property. A NATIONAL tax, not a local tax.
R.A. No. 7160, Book II, Title II
cannot be located.
Fundamental Principles; Nature Exemption from Real Property Tax
c. Injunction 2
R.A. No. 7160, sec. 234
Exemption from Real Property Tax
Angeles City v. Angeles City Electric Corporation 2010
Government’s Remedies

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 305 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

§234 of the LGC provides for the exemptions from payment 1) all lands, buildings and improvements which Considering that the subject land and the revenue
of real property taxes based on the ownership, character, are actually directly and exclusively used for derived from the lease thereof are used by UP for
and use of the property. us: religious, charitable or educational purposes; educational purposes and in support of its educational
a) Ownership Exemptions. Exemptions from real 2) all machineries and equipment actually, purposes, UP should not be assessed, and should not be
property taxes on the basis of ownership are real directly and exclusively used by local water made liable for RPT on the land subject of this case.
properties owned by: districts or by government-owned or Under RA 9500, this tax exemption, however, applies only
1) the Republic, controlled corporations engaged in the to "assets of UP," referring to assets owned by UP. e
supply and distribution of water and/or improvements are not "assets" owned by UP; and thus,
2) a province, generation and transmission of electric UP's tax exemption under RA 9500 does not extend to these
3) a city, power; and improvements during the term of the lease.
4) a municipality, 3) all machinery and equipment used for
pollution control and environmental protection.
5) a barangay, and
MWSS v. CBAA 2021 Lopez, M., J.
6) registered cooperatives. UP v. City Treasurer of QC 2019
e unpaid realty tax attaches to the property but is directly
b) Character Exemptions. Exempted from real property WON UP is liable for RPT imposed on the subject property chargeable against the taxable person who has actual and
taxes on the basis of their character are: leased to Ayala Land. beneficial use and possession of the property regardless of
1) charitable institutions, NO. RA 9500 gave a specific tax exemption to UP which whether or not that person is the owner.
2) houses and temples of prayer like churches, covers the land subject of the present case. A ter the WON Pasay City is authorized to assess and collect real
parsonages or convents appurtenant thereto, passage of said law, there is a need to determine whether property taxes from MWSS.
mosques, and UP's property is used for educational purposes or in
1. NO. MWSS is a government instrumentality with
support thereof before the property may be subjected to
3) non-profit or religious cemeteries. corporate powers, not liable to the local government
real property tax.
c) Usage exemptions. Exempted from real property of Pasay City for real property taxes.
e Contract of Lease between UP and ALI shows that the
taxes on the basis of the actual, direct and exclusive 2. e tax exemption that its properties carries,
development of the subject land is clearly for an educational
use to which they are devoted are: however, ceases when their beneficial use has been
purpose, or at the very least, in support of an educational
extended to a taxable person. e liability to pay real
purpose.
property taxes on government-owned properties,

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 306 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the beneficial or actual use of which was granted to exemption of its properties, however, ceases when treasurer will not act on the protest, and the Local Board of
a taxable entity, devolves on the taxable beneficial the beneficial or actual use is alleged and proven to Assessment Appeals will have no authority to take cognizance of
user. have been extended to a taxable person. All the the appeal.
3. MWSS v. e Local Government of Quezon City assessments issued in the name of MWSS should I. WON compliance with the payment under protest
already settled with finality that MWSS is a thus, be declared void. requirement in Section 252 of the LGC is a condition sine
government instrumentality vested with corporate 8. As the real property tax assessments issued in the qua non to question the assessment of the local assessor
powers, and as such, exempt from payment of real name of MWSS are declared void, MWSS's claim for before the LBAA?
property taxes. refund of the real property taxes erroneously paid 1. YES. Payment under protest is required before the
4. Consistent with our ruling in the 2018 MWSS Case, based on void assessments cannot be ignored. is NPC can appeal to the LBAA.
in relation to MIAA, the tax exemptions under entitlement to a tax refund, however, is not
automatic. 2. NPC v. Province of Quezon ruled that a claim for
Sections 133(o) and 234(a) of the LGC apply to exemption is a question of fact that pertains to the
MWSS. 9. MWSS's claim for tax refund should be filed with correctness of an assessment. Hence, payment
5. e tax exemption under Section 234(a), however, the city treasurer in accordance with Sec 253 of the under protest is mandatory. Otherwise, there is
ceases when the beneficial use of the real properties LGC within two years from the finality of this no valid protest, and the appellate authority of the
is alleged and proved to have been granted, for a Decision, as it is only then that the invalidity of the LBAA cannot be invoked. e LBAA could not
consideration or otherwise, to a taxable person. Pasay City assessment is finally settled. assume jurisdiction over the Petition.
6. Here, there was an allegation that the beneficial use 3. On the other hand, an issue that concerns the very
of MWSS's properties in Pasay were given to authority and power of the local assessor to
NPC v. Provincial Government of Bulacan 2023 Lopez, M., J.
Maynilad by virtue of a concession agreement. is impose the assessment and the local treasurer to
factual allegation, however, was not proved and A claim for exemption from real property tax, whether full or collect the tax is a legal question that is properly
merely based on a sweeping conclusion that when partial, does not deal with the authority and power of the local cognizable by the trial court. In such a case,
MWSS entered into a concession agreement, all its assessor to impose the assessment or the local treasurer to collect Section 252 of the LGC will not apply.
properties were e fectively turned over to the the tax. e issue of exemption that pertains to the
4. Capitol Wireless, Inc. v. Provincial Treasurer of
concessionaires for their operations. reasonableness or correctness of the assessment is a question of
Batangas clarified that when the real issue
fact that administrative agencies should resolve. erefore,
7. In sum, MWSS is not liable to the local government involves questions of fact instead of pure
compliance with the "payment under protest" requirement in
of Pasay City for real property taxes. e tax questions of law, the case is cognizable by local
Section 252 (a) of the LGC is mandatory. Otherwise, the local

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 307 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

administrative bodies like the LBAA and CBAA, injunction with the RTC and not an appeal under III. WON the properties listed in the Land Assessment are
which are the proper venues for trying these Section 226 of the LGC to the LBAA. exempt from RPT?
factual issues. II. WON the properties listed in the Machineries Assessment 1. NO. e properties listed in the Land Assessment
5. Here, the authority or power of the municipal are exempt from RPT? are not exempt from real property tax.
assessor to impose RPT on the NPC's properties is 1. NO. e properties listed in the Machineries
not being questioned. Nothing in the Petition filed 2. NPC's claim for exemption from RPT on the Land
Assessment are not exempt from real property Assessment because it is a "government
with the LBAA supported NPC's claim regarding tax.
the assessor's alleged lack of authority. Instead, instrumentality" is misplaced. For one, NPC
the Petition primarily involved factual questions 2. To successfully claim exemption under Sec 234(c) admitted that it is a GOCC.
on the correctness of the assessment. erefore, of the LGC, the claimant must prove that: 3. NPC v. City of Cabanatuan categorically ruled that
the administrative procedures for contesting an a. the machineries and equipment are the exemption from local taxes of NPC, as a GOCC,
assessment under the LGC must be complied actually, directly, and exclusively used by had been repealed by Section 193 of the LGC.
with. local water districts and [GOCCs]; and erefore, it is incumbent upon the NPC to point to
6. NPC did not pay the tax negating the perfection of b. the local water districts and [GOCCs] some provisions of the LGC that expressly exempt it
its protest to the local assessor. Without a valid claiming exemption must be engaged in from local taxes.
protest, therefore, the LBAA could not have had the supply and distribution of water 4. Under Sections 216 and 218 of the LGC, all lands,
the authority to act on NPC's appeal. e CTA En and/or the generation and transmission of buildings, and other improvements owned and used
Banc was correct in ruling that NPC's Petition was electric power. by GOCCs rendering essential public services in the
prematurely filed. NPC failed to exhaust the generation and transmission of electric power are
3. Here, the eleven properties assessed for RPT
administrative remedies provided under the LGC. classified as special classes of real property subject
under the Machineries Assessment are not
7. Even if NPC's argument that it is questioning the actually, directly, and exclusively used by NPC for to a 10% assessment level.
legality of the assessment is accepted, it filed an the exempting purpose of power generation and
action before the wrong court. When the only transmission of electricity. ey may have some
issue is the legality or validity of the assessment usage in the Angat Hydro-Electric Power Plant LRTA v. City of Pasay 2022 En Banc
such as when the local assessor had no authority operation but NOT EXCLUSIVELY. Accordingly, A government instrumentality like LRTA falls under
to impose the assessment, the trial court shall the Municipality of Norzagaray properly imposed Section 133 (o) of the LGC. e provision recognizes the
have jurisdiction. Here, NPC should have filed an RPT upon them. basic principle that local governments cannot tax the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 308 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

national government, as the former's power to tax is, a. Real Property Tax Assessment i) local water districts, and
historically, merely delegated by the latter. ii) GOCCs rendering essential public
Classes of Real Property
e properties owned by LRTA, a national government services in
1) Residential. — land principally devoted to
instrumentality, are exempt from real property taxation 1) the supply and distribution of water
habitation.
as they are of public dominion. and/or
2) Agricultural. — land devoted principally to the
e mere fact that LRTA collects fees and other charges planting of trees, raising of crops, livestock and 2) generation and transmission of
from the public does not remove the character of the rail poultry, dairying, salt making, inland fishing and electric power.
roads and terminals as properties for public use. e similar aquacultural activities, and other
charging of fees to the public does not determine the Assessment Based on Actual Use
agricultural activities;
character of the property whether it is of public dominion Real property shall be classified, valued and assessed on
3) Commercial. — land devoted principally for the the basis of its actual use regardless of where located,
or not. Article 420 of the Civil Code defines property of
object of profit. whoever owns it, and whoever uses it. (Sec 217 LGC)
public dominion as one "intended for public use."
4) Industrial. — land devoted principally to industrial
Section 234 (a) of the LGC exempts from real property tax Zero level assessment. Applies to residential land assessed
activity as capital investment.
any real property owned by the Republic. LRTA, as a at not more than P175K.
government instrumentality, is not a taxable person 5) Mineral. — lands in which minerals, metallic or
e provincial, city or municipal assessor shall
under Section 133 (o) of the LGC. However, portions of the non-metallic, exist in su ficient quantity or grade to
undertake a general revision of real property
justify the necessary expenditures to extract and
LRT properties that LRTA leases to private entities are not assessments within two (2) years a ter the e fectivity of
utilize such materials.
exempt from real estate tax which must consequently be this Code and every three (3) years therea ter.
paid by said taxable person. 6) Timberland or
b. Collection
7) Special. All lands, buildings, and other
improvements thereon Date of Accrual
Government’s Remedies e real property tax for any year shall accrue on the
a) actually, directly and exclusively used for
3 Real Property Tax Assessment first day of January and from that date it shall
i) hospitals,
constitute a lien on the property which shall be superior
Collection ii) cultural, or to any other lien, mortgage, or encumbrance of any kind
iii) scientific purposes, and whatsoever, and shall be extinguished only upon the
payment of the delinquent tax.
b) those owned and used by

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 309 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Periods to Collect made by means thereof are carried out in consonance

3) Levy (Sec 258)
GR: 5 years from the due date. with the law for such cases provided and NOT when said
A ter the expiration of the time required to pay the
EXC: If there is fraud, 10 years. processes are obviously in violation of the law to the
basic real property tax or any other tax levied under
extreme that they have to be suspended for jeopardizing
Suspended when this Title, real property subject to such tax may be
the interests of taxpayer.
levied upon through the issuance of a warrant on or
1) e local treasurer is legally prevented from
before, or simultaneously with, the institution of the Verily, since the method employed by the respondent
collecting the tax;
civil action for the collection of the delinquent tax. City in collecting the realty taxes due - through the
2) e owner of the property or the person having legal warrant of levy and the eventual public auction of a
Judicial. Civil action to be filed by the local treasurer.
interest therein requests for reinvestigation and property of public dominion - is not sanctioned by law,
executes a waiver in writing before the expiration of Privatization and Management O fice v. CTA 2019 then it is NO longer necessary for the petitioner to file a
the period within which to collect; and surety bond as a condition precedent to suspend the tax
WON petitioner, as an agency of the government, is exempt from collection.
3) e owner of the property or the person having legal
posting a surety bond as a condition to the suspension of
interest therein is out of the country or otherwise Indeed, the Republic of the Philippines need not give this
collection of real property tax.
cannot be located. security as it is presumed to be always solvent and able to
YES. e CTA may order the suspension of the collection meet its obligations. us, the petitioner, being an agent
Remedies of Local Government Units of taxes, provided that the taxpayer either: of the national government, is NOT required to put up a
Administrative bond because to do so would be to indirectly require the
1) deposits the amount claimed; or
1) Lien (Sec 257) state to submit such bond.
2) files a surety bond for not more than double the
superior to all liens, charges or encumbrances in amount.
favor of any person, irrespective of the owner or
ese condition precedents were required by law in order Provincial Government of Cavite and Provincial Treasurer of
possessor thereof, enforceable by administrative or
to guarantee the payment of the deficiency taxes assessed Cavite v. CQM Management, Inc 2020
judicial action, and may only be extinguished upon
against the taxpayer, if and when the case is finally
payment of the tax and the related interests and e Provincial Government of Cavite and the Provincial
decided against the said taxpayer.
expenses. Treasurer of Cavite were enjoined by the CA from
e requirement of the bond as a condition precedent to conducting a tax delinquency sale of the real properties of
2) Distraint (Sec 254)
the issuance of the writ of injunction applies only in cases CQM Management, Inc.
Personal property may be distrained to e fect where the processes by which the collection sought to be
In National Power Corp. v. Province of Quezon, et al., the
payment.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 310 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Court explained that the liability for taxes generally rests 35 of RA No. 7916, the only requirement for business 3) Appeal to LBAA 60 days from receipt of decision of
on the owner of the real property at the time the tax enterprises within a designated ECOZONE to avail local treasurer who is granted 60 days to decide.
accrues as a necessary repercussion of exclusive themselves of all incentives and benefits provided for
4) Appeal to CBAA 30 days from receipt of decision;
dominion. However, personal liability for real property under RA 7916 is to register with the PEZA. is
taxes may also expressly rest on the entity with the requirement was satisfied by respondent. 5) Appeal to CTA En banc 30 days from receipt of
beneficial use of the real property. In either case, the decision via Rule 43;
PEZA issued Memorandum Circular No. 2004-024 which
unpaid tax attaches to the property and is chargeable provides in part that "PEZA-registered economic zone 6) Supreme Court 15 days from receipt of decision via
against the taxable person who had actual or beneficial enterprises availing of the 5% [gross income tax] incentive Rule 45.
use and possession of it regardless of whether or not he is are exempted from payment of all national and local taxes,
the owner. Payment Under Protest; Exceptions
except real property tax on land owned by developers."
GR: No protest shall be entertained unless the
Here, petitioners cannot conduct a tax delinquency sale In this case, there is nothing to indicate that respondent taxpayer first pays the tax. (Sec 252 LGC)
of the Maxon and Ultimate properties which are now is a developer. us, considering RA 7916, as amended, its
owned by respondent. To do so would e fectively make EXC:
IRR, and Memorandum Circular No. 2004-024, it is
respondent liable for the payment of real property taxes evident that save for the payment of 5% gross income tax, 1. local business tax;
due on the Maxon property for the years 2000-2013 and respondent is exempt from the payment of national and 2. in protesting RPT assessments, when the
on the Ultimate properties for the years 1997-2013 when it local taxes including real property tax on the Maxon and issue involved is a pure question of law.
did not yet own or had actual or beneficial use of the Ultimate Properties.
properties.
LRTA v. City of Pasay 2022 En Banc
Parenthetically, respondent is exempt from paying real
e issues involved in this petition are purely legal issues.
property taxes over the Maxon and Ultimate properties Taxpayer’s Remedies
from the time it had acquired ownership and/or actual or 4 Questions regarding jurisdiction are necessarily legal as
Refund the existence or extent of an entity's jurisdiction over a
beneficial use of the properties pursuant to Section 24 of
RA 7916, as amended by RA 8748. certain subject matter is determined by what is conferred
Contesting an Assessment
by law. us, there was no need for the LRTA to exhaust
As correctly ruled by the CA, there is nothing in Section 1) Pay under Protest; administrative remedies.
24 which requires prior concurrence from the local
2) File protest with Local treasurer within 30 days from Also, there are no competent administrative tribunals
government unit before respondent can avail itself of the
payment; that may grant the relief that LRTA is seeking.
exemption provided under the law. In fact, under Section

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 311 of 319
 Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Here, the LRTA clearly intended to question the local Appeal to the Central Board of Assessment Appeals 2. Yamane v. BA Lepanto Condominium Corp. stressed
assessor's authority to assess real property taxes on its e owner of the property or the person having legal the details that must be contained in the notice of
property and the local treasurer's authority to collect such interest therein or the assessor who is not satisfied with the assessment: taxpayers must be informed of the
taxes. It never invoked Section 206 of the LGC, or even decision of the Board, may, within thirty (30) days a ter nature of the deficiency tax, fee, or charge, as well
bothered to file a protest under Section 252. receipt of the decision of said Board, appeal to the CBAA. as the amount of deficiency, surcharge, interest,
e protest provided for in Sections 226 and 229 of RA e decision of the CBAA shall be final and executory. and penalty. Failure of the taxing authority to
7160 is not an adequate remedy, as such protest is limited su ficiently inform the taxpayer of the facts and law
E fect of Payment of Taxes used as bases for the assessment will render the
to questioning the assessment itself, and not the
authority of the assessor. Appeal on assessments of real property shall, in no case, assessment void.
suspend the collection of the corresponding realty taxes on
3. Here, the Assessment Letter hardly complies with
Contesting a Valuation of Property the property involved as assessed by the provincial or city
the requirements of Section 195 of the LGC and
assessor, without prejudice to subsequent adjustment
1) Contest to the LBAA 60 days from receipt of Notice implementing rules that will enable NPC to file an
depending upon the final outcome of the appeal.
of Assessment; e fective protest. e letter quoted provisions of the
a. Refund Tax Ordinance of the Province of Pampanga
NO need to pay under protest.
imposing franchise tax and penalties for
1. File claim for refund within 2 years from
LBAA has 120 days to decide. non-payment or late payment. Glaringly absent,
entitlement;
2) CBAA — SC, same procedure. however, are the amount of the alleged deficiency
2. LBAA — SC, same procedure. tax, surcharges, interest, and penalties. e period
Appeal to the Local Board of Assessment Appeals covered by the assessment was not also indicated.
Any owner or person having legal interest in the property NPC v. e Province of Pampanga 2021 Lopez, M., J.
who is not satisfied with the action of the provincial, city or Tax assessments issued in violation of the due process rights of a
municipal assessor in the assessment of his property may, taxpayer are null and void and of no force and e fect. N Judicial Remedies
within sixty (60) days from the date of receipt of the
WON the assessment was void.
written notice of assessment, appeal to the Board of Jurisdiction of the Court of Tax Appeals
Assessment Appeals. 1. YES. e Province of Pampanga failed to observe
the due process requirements in issuing a deficiency
Suspension of Collection of Taxes
e Board shall decide the appeal within one hundred
local tax assessment; hence, the assessment is void. Petition for Review on Certiorari to the SC
twenty (120) days from the date of receipt of such appeal.

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 312 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the principal amount of taxes and penalties over criminal o fenses mentioned in the preceding
Jurisdiction of the Court of Tax
claimed is less than one million pesos; subparagraph; and
Appeals
R.A. No. 1125, as amended by R.A. No. 9282, A.M. b) Decisions, resolutions or orders of the RTCs in local h) Decisions, resolutions or orders of the RTCs in the
No. 05-11-07-CTA, R.A. No. 11576 tax cases decided or resolved by them in the exercise exercise of their appellate jurisdiction over criminal
of their appellate jurisdiction; o fenses mentioned in subparagraph (f).
Civil Cases
1 c) Decisions, resolutions or orders of the RTCs in tax
Criminal Cases In Division
collection cases decided or resolved by them in the
e Court in Divisions shall exercise:
Institution of Civil Action in Criminal exercise of their appellate jurisdiction;
Action a) Exclusive original or appellate jurisdiction to review
d) Decisions, resolutions or orders on motions for
by appeal the following:
Certiorari jurisdiction reconsideration or new trial of the Court in Division
in the exercise of its exclusive original jurisdiction i) Decisions of the CIR in cases involving
En Banc over tax collection cases; disputed assessments, refunds of internal
e Court en banc shall exercise exclusive appellate revenue taxes, fees or other charges,
e) Decisions of the Central Board of Assessment
jurisdiction to review by appeal the following: penalties in relation thereto, or other
Appeals (CBAA) in the exercise of its appellate
matters arising under the NIRC or other
a) Decisions or resolutions on motions for jurisdiction over cases involving the assessment and
laws administered by the BIR;
reconsideration or new trial of the Court in taxation of real property originally decided by the
Divisions in the exercise of its exclusive appellate provincial or city board of assessment appeals; ii) Inaction by the CIR in cases involving
jurisdiction over: disputed assessments, refunds of internal
f) Decisions, resolutions or orders on motions for
revenue taxes, fees or other charges,
1) Cases arising from administrative agencies – reconsideration or new trial of the Court in Division
penalties in relation thereto, or other
BIR, BOC, DOF, DTI, DA; in the exercise of its exclusive original jurisdiction
matters arising under the NIRC or other
over cases involving criminal o fenses arising from
2) Local tax cases decided by the RTCs in the laws administered by the BIR, where the
violations of the NIRC or the TCC and other laws
exercise of their original jurisdiction; and NIRC or other applicable law provides a
administered by the BIR or BOC;
specific period for action:
3) Tax collection cases decided by the RTCs in
g) Decisions, resolutions or orders on motions for
the exercise of their original jurisdiction Provided, that in case of disputed
reconsideration or new trial of the Court in Division
involving final and executory assessments assessments, the inaction of the CIR within
in the exercise of its exclusive appellate jurisdiction
for taxes, fees, charges and penalties, where the one hundred eighty day-period under

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 313 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

Section 228 of the NIRC shall be deemed a under the Customs Law or other laws
ii) Appellate jurisdiction over appeals from the
denial for purposes of allowing the taxpayer administered by the BOC; judgments, resolutions or orders of the RTCs
to appeal his case to the Court and does not v) Decisions of the Secretary of Finance on in their original jurisdiction in criminal
necessarily constitute a formal decision of customs cases elevated to him automatically o fenses arising from violations of the NIRC
the CIR on the tax case; for review from decisions of the or TCC and other laws administered by the
Provided, further, that should the taxpayer opt Commissioner of Customs adverse to the BIR or the BOC, where the principal amount
to await the final decision of the CIR on the Government under Section 2315 of the Tari f of taxes and fees, exclusive of charges and
disputed assessments beyond the one and Customs Code; and penalties, claimed is less than P1M or where
hundred eighty day-period abovementioned, vi) Decisions of the Secretary of Trade and there is no specified amount claimed.
the taxpayer may appeal such final decision Industry, in the case of non-agricultural c) Exclusive Original and Appellate Jurisdiction Over Civil
to the Court under Section 3(a), Rule 8 of product, commodity or article, and the Cases
these Rules; and Secretary of Agriculture, in the case of i) Original jurisdiction in tax collection cases
Provided, still further, that in the case of claims agricultural product, commodity or article, involving final and executory assessments
for refund of taxes erroneously or illegally involving dumping and countervailing duties for taxes, fees, charges and penalties, where
collected, the taxpayer must file a petition under Section 301 and 302, respectively, of the principal amount of taxes and fees,
for review with the Court prior to the expiration the Tari f and Customs Code, and safeguard exclusive of charges and penalties, claimed is
of the two-year period under Section 229 of the measures under Republic Act No. 8800, P1M or more; and
NIRC; where either party may appeal the decision
to impose or not to impose said duties. ii) Appellate jurisdiction over appeals from the
iii) Decisions, resolutions or orders of the RTCs judgments, resolutions or orders of the RTCs
in local tax cases decided or resolved by them b) Exclusive Original and Appellate Jurisdiction Over in tax collection cases originally decided by
in the exercise of their original jurisdiction; Criminal Cases them within their respective territorial
iv) Decisions of the Commissioner of Customs i) Original jurisdiction over all criminal jurisdiction.
in cases involving liability for customs o fenses arising from violations of the NIRC
duties, fees or other money charges, seizure, or TCC and other laws administered by the Republic v. City of Surigao 2022 Lopez, M., J.
detention or release of property a fected, BIR or the BOC, where the principal amount
e Court of Tax Appeals has the exclusive appellate jurisdiction
fines, forfeitures of other penalties in of taxes and fees, exclusive of charges and
over decisions, orders, or resolutions issued by the Regional Trial
relation thereto, or other matters arising penalties, claimed is P1M or more; and
Court in a local tax case. is includes the power to issue a writ of

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 314 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

certiorari in aid of its appellate jurisdiction. a tax issue. appeal for lack of jurisdiction.
WON the petition for certiorari was properly filed before the 5. In Mactel Corp. v. City Government of Makati, the 9. Similarly, the instant case primarily involves a tax
CA. Court ruled that the CTA should have dismissed the issue. Petitioner was questioning the denial of its
1. NO. e petition for certiorari questioning the case for lack of jurisdiction. e issue did not application for a writ of injunction to enjoin the
RTC's denial of the application for a writ of involve a local tax case but was civil in nature. respondents from selling the redundant assets in
injunction was filed in the wrong court. 6. In Ignacio v. O fice of the City Treasurer of Quezon consequence of its alleged unpaid RPT. Being in the
City, the case was related to collecting tax nature of a local tax case, the petitioner should have
2. Under Section 7 (a) (3) of RA No. 1125, as amended by filed the petition with the CTA and not with the CA.
RA No. 9282, the CTA has the exclusive appellate deficiencies. However, the Court ruled that it was
jurisdiction over local tax cases, including cases not a local tax case over which the CTA could have
involving real property taxes, decided by the RTC. properly assumed jurisdiction. e action filed with
the RTC was essentially one for recovery of CIR v. Comelec 2021 En Banc Lopez, M., J.
e CTA's jurisdiction includes the power to issue
writs of certiorari over interlocutory orders issued ownership and possession of the property, which is One may be exempt from the obligation to pay income tax but
by the RTC in a local tax case. not anchored on a tax issue but due on process may still be liable for withholding the tax on income payments
considerations. made to taxable entities. e first is based on personal tax
3. City of Manila v. Grecia-Cuerdo instructs that the
7. e petition for injunction filed before the RTC in liability, while the second is premised on its duty as a
supervisory power or jurisdiction of the CTA to
City of Lapu-Lapu v. Phil. Economic Zone Authority withholding agent to withhold the taxes paid to the payee.
issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a was a local tax case. e PEZA sought to enjoin the I. WON the CTA has exclusive appellate jurisdiction to
complement to, its appellate jurisdiction to review, collection of its alleged real property taxes on the decide the dispute between the COMELEC and the BIR on
by appeal, the final orders and decisions of the RTC, ground that it is exempt from the payment of RPT. the deficiency tax assessment.
in order to have complete supervision over the acts e RTC denied its petition so it filed a petition for
1. YES. e CTA has exclusive appellate jurisdiction
of the latter. certiorari with the CA. e Court ruled that the
to decide the dispute between the COMELEC and
proper remedy was to file an appeal to the CTA.
4. It must be stressed that the CTA's appellate the BIR on the deficiency tax assessment; PD No.
jurisdiction in above provision becomes operative 8. In National Power Corp. v. Provincial Government 242 does not apply.
only when the RTC has ruled on a local tax case. is of Bataan, the case involved the validity and legality
2. PD No. 242 is not the law applicable for the
means that the action before the RTC must be in the of the foreclosure sale, which is related to the
settlement or adjudication of disputes, claims,
nature of a tax case or one which primarily involves demandability of the local franchise tax — a local
and controversies between a constitutional o fice,
tax issue. us, the CA correctly dismissed the

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 315 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

like the COMELEC, and a government o fice, appeal to the CTA En Banc must be preceded by properly brought an appeal to the CTA En Banc
agency, or bureau, such as the BIR. the filing of a timely motion for reconsideration or without first seeking to reconsider the Amended
3. e COMELEC, being a constitutional o fice new trial with the CTA Division that issued the Decision.
independent from the three branches of the decision or resolution.
III. WON the COMELEC is exempt from the obligation to
government, is not required to go through the 3. However, the COMELEC correctly instituted a withhold EWT.
procedure prescribed in PD No. 242 and EO No. petition with the CTA En Banc without first
1. NO. e COMELEC is not exempt from the
292. seeking a reconsideration of the CTA Division's
obligation to withhold EWT.
4. Instead, Section 4 of the Tax Code, in relation to Amended Decision.
2. e withholding tax is not an internal revenue or
Section 3, Rule 4 of the RRCTA and Section 7 of RA 4. In the cases of Asiatrust and CE Luzon, the
local tax, but a mode of collecting income tax in
No. 9282, which defined the exclusive appellate amended decision of the CTA Division is entirely
advance. e withholding tax system was devised
jurisdiction of the CTA shall apply. new. e amended decision is based on a
for three primary purposes:
5. Since the issue here is the disputed assessment for re-evaluation of the parties' allegations or
reconsideration of new and/or existing evidence 2.1. to provide taxpayers a. convenient manner
deficiency basic EWT for the year 2008 against the
that were not considered and/or previously to meet their probable income tax liability;
COMELEC, arising from its failure to withhold the
tax on income payments made to Smartmatic and rejected in the original decision. In both cases, the 2.2. to ensure the collection of income tax which
Avante under the lease contracts, the CTA has the amended decisions are proper subjects of motions can otherwise be lost or substantially
exclusive appellate jurisdiction to take cognizance for reconsideration. reduced through failure to file the
of the COMELEC's petition. 5. Here, the Amended Decision of the CTA Division corresponding returns; and
is not a "new" decision, but a reiteration of its 2.3. to improve the government's cash low.
II. WON a motion for reconsideration is required before the
prior Decision. It was not based on a reevaluation
CTA En Banc may take cognizance of the COMELEC's 3. Simply put, withholding tax is intended to facilitate
or re-examination of documentary exhibits
petition for review. the collection of income tax. erefore, unless the
presented by the parties. e CTA Division,
1. NO. e CTA En Banc may take cognizance of the income recipient is exempt from income tax, the
without any modification, repeated in toto its
COMELEC's petition for review even without a payor is generally required to deduct, and withhold
discussion and ruling in the original decision.
prior reconsideration of the CTA Division's EWT on income payments made.
6. Indeed, the Amended Decision is a mere
Amended Decision. 4. Here, the lease contract payments to Smartmatic
clarification, a correction at best, of the amount
2. Section 1, Rule 8 of the RRCTA requires that an and Avante are not exempt from the requirement of
due from the COMELEC. us, COMELEC

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 316 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

withholding under Section 2.57.5 of Revenue imposed in relation thereto, or other matters arising may file, within thirty (30) days from receipt of the
Regulations (RR) No. 2-98. under this Code or other laws or portions thereof assailed decision, a petition for review with the CTA
administered by the BIR is vested in the Commissioner, pursuant to Section 7(a) of R.A. 9282. In cases where the
5. Smartmatic and Avante are not part of the national
subject to the exclusive appellate jurisdiction of the CTA. question involves the amount of the tax or the
or local government or its instrumentalities. ey
correctness thereof, the appeal will be pursuant to
do not enjoy exemption from payment of income tax
Section 7(a)(5) of R.A. 9282. When the appeal comes from
under any provision of law. Well-settled is the rule
CIR v. Hambrecht & Quist Philippines 2010 a judicial remedy which questions the authority of the
that exemption from taxation is never presumed.
local government to impose the tax, Section 7(a)(3) of R.A.
For tax exemption to be recognized, the grant must e issue of prescription of the BIR's right to collect taxes
9282 applies. erea ter, such decision, ruling or
be explicit and express and cannot rest on vague may be considered as covered by the term "other matters"
resolution may be further reviewed by the CTA En Banc
implications. Absent a clear grant of exemption over which the CTA has appellate jurisdiction.
pursuant to Section 2, Rule 4 of the Revised Rules of the
from income tax in favor of Smartmatic and Avante,
CTA.
income payments made to them for the lease
contracts are subject to the rules on withholding. NPC v. Municipal Govt. of Navotas, et al. 2014 us, the CTA En Banc erred in dismissing the petition
for review en banc, and a firming the CTA Second
6. Verily, the COMELEC's exemption from taxes and WON the CTA Second Division has jurisdiction to review the
Division’s position that the RTC has no jurisdiction over
import duties on the lease of election voting decision of the RTC which concerns a petition for declaratory
the instant case for failure of petitioner to exhaust
machines under Section 12 of RA No. 8436, as relief involving real property taxes.
administrative remedies which resulted in the finality of
amended, is distinct from its liability as a
YES. When the legality or validity of the assessment is in the assessment.
withholding agent for the government.
question, and not its reasonableness or correctness,
appeals to the LBAA, and subsequently to the CBAA,
pursuant to Sections 226 and 229 of the LGC, are NOT CIR v. V.Y. Domingo Jewellers, Inc. 2019
Lucas G. Adamson, et al. v. CA
necessary. Stated di ferently, in the event that the
Whether the CTA has no jurisdiction to take cognizance of both taxpayer questions the authority and power of the WON the First Division of the CTA has jurisdiction to entertain
V.Y. Domingo's petition for review.
the criminal and civil cases here at bar. assessor to impose the assessment, and of the treasurer
to collect the real property tax, resort to judicial action NO. V.Y. Domingo received the PCL issued by petitioner
NO. Under Republic Act No. 1125 as amended, the rulings
may prosper. CIR informing it of Assessment Notices dated November
of the Commissioner are appealable to the CTA. e
18, 2010. On September 12, 2011, the former sent a letter
power to decide disputed assessments, refunds of In fine, if a taxpayer is not satisfied with the decision of
request to the BIR requesting for certified true copies of
internal revenue taxes, fees or other charges, penalties the CBAA or the RTC, as the case may be, the taxpayer

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 317 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the said Assessment Notices. a) An appeal from a decision or ruling or the Rule 43 of the Rules of Court. e Court en banc
inaction of shall act on the appeal.
However, instead of filing an administrative protest
against the assessment notice within thirty (30) days from i) the CIR on disputed assessments or claim for b. Criminal Cases
its receipt, V.Y. Domingo elected to file its petition for refund of internal revenue taxes erroneously All criminal actions before the Court in Division in the
review before the CTA First Division on September 16, or illegally collected, exercise of its original jurisdiction shall be instituted by
2011, ratiocinating that the issuance of the PCL and the the filing of an information in the name of the People of
ii) the decision or ruling of the Commissioner
alleged finality of the terms used for demanding payment the Philippines.
of Customs, the Secretary of Finance, the
therein proved that its Request for Re-evaluation/
Secretary of Trade & Industry, the Secretary In criminal actions involving violations of the NIRC and
Re-investigation and Reconsideration had been denied by
of Agriculture, and other laws enforced by the BIR, the CIR must approve their
the CIR.
iii) the Regional Trial Court filing.
e word "decisions" in the aforementioned provision of
in the exercise of their original jurisdiction, In criminal actions involving violations of the TCC and
R.A. No. 9282 has been interpreted to mean the decisions
other laws enforced by the BOC, the Commissioner of
of the CIR on the protest of the taxpayer against the shall be taken to the Court by filing before it a
Customs must approve their filing.
assessments. Definitely, said word does not signify the petition for review as provided in Rule 42 of
assessment itself. the Rules of Court. e Court in Division shall e institution of the criminal action shall interrupt the
act on the appeal. running of the period of prescription.
Evidently, V.Y. Domingo's immediate recourse to the
CTA First Division was in violation of the doctrine of b) An appeal from a decision or resolution of the All criminal actions shall be conducted and prosecuted
exhaustion of administrative remedies. Court in Division on a motion for under the direction and control of the public
reconsideration or new trial shall be taken to the prosecutor. In criminal actions involving violation of
a. Civil Cases Court by petition for review as provided in Rule the NIRC or other laws enforced by the BIR, and
Review of cases in the Court en banc. — In cases falling violations of the TCC or other laws enforced by the BOC,
43 of the Rules of Court. e Court en banc shall
under the exclusive appellate jurisdiction of the Court the prosecution may be conducted by their respective
act on the appeal.
en banc, the petition for review of a decision or duly deputized legal o ficers.
c) An appeal from a decision or ruling of the CBAA
resolution of the Court in Division must be preceded by
or the RTC in the exercise of their appellate c. Institution of Civil Action in Criminal Action
the filing of a timely motion for reconsideration or new
jurisdiction shall be taken to the Court by filing
trial with the Division. In cases within the jurisdiction of the Court, the
before it a petition for review as provided in
criminal action and the corresponding civil action for

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 318 of 319
Commercial Law and Taxation v2 Syllabus-based Reviewer with Bar Chair Case Doctrines for the 2024 Bar by Atty. Rehne Gibb N. Larena

the recovery of civil liability for taxes and penalties shall

A party adversely a fected by a decision or ruling of the
be deemed jointly instituted in the same proceeding. Court en banc may appeal therefrom by filing with the
e filing of the criminal action shall necessarily carry 2 Suspension of Collection of Taxes
Supreme Court a verified petition for review on
with it the filing of the civil action. No right to reserve GR: No appeal taken to the Court shall suspend the certiorari within fi teen days from receipt of a copy of
the filing of such civil action separately from the payment, levy, distraint, or sale of any property the decision or resolution, as provided in Rule 45 of the
criminal action shall be allowed or recognized. of the taxpayer for the satisfaction of his tax Rules of Court.
d. Certiorari jurisdiction liability;
If such party has filed a motion for reconsideration or
EXC: Where the collection of the amount of the for new trial, the period herein fixed shall run from the
Philamlife v. Sec. of Finance and CIR 2014 taxpayer’s liability, sought by means of a party’s receipt of a copy of the resolution denying the
Where does one seek immediate recourse from the adverse ruling demand for payment, by levy, distraint or sale of motion for reconsideration or for new trial.
of the Secretary of Finance in its exercise of its power of review any property of the taxpayer, or by whatever
E fect of appeal. — e motion for reconsideration or for
under Sec. 4? means, as provided under existing laws, may
new trial filed before the Court shall be deemed
jeopardize the interest of the Government or the
Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming abandoned if, during its pendency, the movant shall
taxpayer, an interested party may file a motion
gap in the law as it vests the CTA, albeit impliedly, with appeal to the Supreme Court.
for the suspension of the collection of the tax
jurisdiction over the CA petition as “other matters”
liability.
arising under the NIRC or other laws administered by
the BIR. e motion may be filed

In the recent case of City of Manila v. Grecia-Cuerdo, the a) together with the petition for review or
Court en banc has ruled that the CTA now has the power b) with the answer, or
of certiorari in cases within its appellate jurisdiction.
c) in a separate motion filed by the interested party
Guided by the doctrinal teaching in resolving the case at at any stage of the proceedings.
bar, the fact that the CA petition not only contested the
e adverse party shall, within five days a ter receipt of
applicability of Sec. 100 of the NIRC over the sales
a copy of the motion, file an opposition thereto, if any.
transaction but likewise questioned the validity of Sec.
7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the
Petition for Review on Certiorari to the
CTA of its jurisdiction over the controversy. 3
SC

eCodal+Pro This material is available only to eCodal+Pro subscribers for their PERSONAL use; and must not be reproduced and/or distributed either for profit or otherwise. Page 319 of 319