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Mercantile Law Jurisprudence
Atty. Ronel U. Buenaventura, M.A., M.C.L.1

CORPORATION LAW

A corporation cannot recover moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings or serious anxiety.
Grant of moral damages to corporations is allowed if there is proof of the existence of the factual
basis of the damage and its causal relation to the defendant’s acts. (First Lepanto-Taisho Insurance
Corporation v. Chevron Philippines, Inc., January 18, 2012) Thus, a corporation can claim moral
damages when it sued for libel or any other form of defamation (Republic v. Tuvera, February 16,
2007) or when the corporation has a reputation that is debased, resulting in its humiliation in the
business realm. (Manila Electric Company v. T.E.A.M. Electronics Corporation, December 13,
2007) Mere general conclusion that by reason of defendant’s oppressive and malevolent acts and
excesses, the corporation was compelled to litigate to protect its interests and good standing in the
community is insufficient to warrant moral damages, absent causal link between the conduct of the

Lopez, Geoffrey S.
defendant and the alleged besmirched reputation of corporation. (United Coconut Planters Bank, Inc.
v. E. Ganzon, Inc., November 10, 2021)

Under the doctrine of separate juridical entity, a corporation has a legal personality
separate and distinct from that of people comprising it. Stockholders enjoy the principle of
limited liability: corporate debt is not the debt of the stockholder. Thus, being an officer or a
stockholder of a corporation does not make one’s property the property also of the corporation.
(Bustos v. Millian Shoes, Inc., April 4, 2017)

The privilege of being considered a distinct and separate entity is confined to legitimate
uses and is subject to equitable limitations to prevent its being exercised for fraudulent,
unfair or illegal purposes. However, once equitable limitations are breached using the coverture
of the corporate veil, courts may step in to pierce the same. Piercing the corporate veil is warranted
when the separate personality of a corporation is used as a means to perpetrate fraud or an illegal
act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to
confuse legitimate issues. It is also warranted in alter ego cases where a corporation is merely a
farce since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation. Thus, the acts of the father in utilizing a
corporation as a mere subterfuge as well as the inaction of her siblings unlawfully deprived the
petitioner of her legitime showed that the corporation is merely a subterfuge: (a) the father

1
Atty. Ronel U. Buenaventura was consistent awardee of Academic Excellence Award and University President Scholarship and
graduated Class Valedictorian and Magna Cum Laude from Bulacan State University College of Law Class of 2015 and ranked 10th
in the 2015 Bar Examinations. He finished Master of Corporate Law in the University of Cambridge, obtaining First Class Honours,
ranking 11th in Class of 2024, and was awarded Simms Prize for Educational Achievement (Distinction Results). He also completed
Master of Arts (2011) and Bachelor of Arts (2009) from the University of the Philippines. He is a professor of law at Tarlac State
University, University of Sto. Tomas, Bulacan State University, and Pampanga State University, and previously at Tomas Claudio
Colleges and Wesleyan University Philippines. He is an MCLE lecturer and bar reviewer at Jurists Bar Review Center, Villasis Law
Center, Albano Review Center, and Magnificus Juris Reviews and Seminars. He has authored several books and journal articles
and a former General Editor of the Editorial Board of Cambridge International Law Journal. He has received several awards and
recognition from the Integrated Bar of the Philippines – Bulacan, where he presently serves as one of its directors, and previously
served as Integrated Bar of the Philippines Central Luzon Regional Director for Legal Education and Development. He has acted
as Deputy Director of the Anti-Money Laundering Council and has worked as Legal Officer in Bangko Sentral ng Pilipinas and as
Associate Solicitor in the Office of the Solicitor General. He currently works as Vice President at Globe Fintech Innovations, Inc.,
GCash’s mother company.

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transferred the properties which were inherited from the deceased spouse to the corporation in
exchange for shares of stock; (b) prior to his death, he then transferred the shares to his other
children and third persons to the exclusion of petitioner; and (c) after the death of the father, the
siblings took no measure to rectify the situation. The corporation was actually used to perpetuate
fraud and injustice against the petitioner. (Cali Realty Corporation v. Enriquez, July 26, 2023 [J.
Lazaro-Javier])

The doctrine of piercing the corporate veil applies only in three basic instances: (a) when
the separate distinct corporate personality defeats public convenience, as when the corporate
fiction is used as a vehicle for the evasion of an existing obligation; (b) in fraud cases, or when the
corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or (c) is used in alter
ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation. (Gesolgone v. CyberOne PH., Inc., October 14, 2020) A corporate officer cannot protect
himself behind a corporation where he is the actual, present, and efficient actor. (Fernandez v.
People, July 6, 2022)
Lopez, Geoffrey S.
Elements for piercing the corporate veil: (i) control, not mere majority or complete stock control,
but complete domination, not only or finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own, (ii) such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right, and (iii) aforesaid control and breach of duty must
have proximately caused the injury or unjust loss complained of. (Tiangco v. Sunlife Financial
Plans, Inc., October 12, 2020) In a subsidiary company-parent company relationship, the first
prong is the “instrumentality” or “control” test. This test requires that the subsidiary be completely
under the control and domination of the parent. It examines the parent corporation’s relationship
with the subsidiary. The second prong is the “fraud” test. This test requires that the parent
corporation’s conduct in using the subsidiary corporation be unjust, fraudulent, or wrongful. The
third prong is the “harm” test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal, or otherwise unfair manner toward it, caused the harm suffered.
(Maricalum Mining Corporation v. Florentino, July 23, 2018) A holding corporation has a separate
corporate existence and is to be treated as a separate entity, unless the facts show that such
separate corporate existence is a mere sham or has been used as an instrument for concealing
the truth. (Montilla Jr. v. G Holdings, Inc., November 18, 2021)

The mere existence of interlocking directors, corporate officers, and shareholders is not
sufficient ground for piercing the veil of corporate fiction. (Philippine National Bank v. Hydro
Resources Contractors Corporation, March 13, 2013) So is mere ownership by a single
stockholder or by another corporation of all or all the capital stock of a corporation, (Lozada v.
Mendoza, October 12, 2016) unless said ownership is coupled with the fact that the corporation never
went to operation. (Virata v. Wee, July 5, 2017) Thus, the doctrine applies where a security guard
was made to resign in his agency as a condition to his being hired in another agency, where both the
original and new agencies are controlled by one group of persons and despite being deployed in
the new agency, the security guard still used patches and agency clothes of the original agency. For
purposes of computing his length of service and claim for benefits, the corporation fictions of the

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original and new agencies may be pierced. (Sarona v. National Labor Relations Commission, January
18, 2012)

Courts cannot pierce the veil of corporate fiction as against another corporation which is
not impleaded in the case. The doctrine is applied only to determine established liability; it is not
available to confer on the court a jurisdiction. (Kukan International Corporation v. Reyes,
September 29, 2010) Clearly, the doctrine of piercing the corporate fiction is only applied during
trial to determine established liability, because it presupposes that it had previously acquired
jurisdiction over a defendant. (Amoroso v. Vantage Drilling International and Group of Companies,
August 8, 2022) The exception is if the separate and distinct personality of the corporation is
purposefully employed to evade a legitimate and binding commitment and perpetuate fraud or like
wrongdoings. Thus, piercing is allowed even after final judgment and on execution when the
judgment debtor created a corporation shortly after he was adjudged liable for damages and all his
properties were transferred to said corporation (International Academy of Management and
Economics v. Litton and Company, Inc., December 13, 2017) This applies in labor cases as well where
the company attempted to evade their financial obligations to their employees through the creation of

Lopez, Geoffrey S.
a “run-away corporation” or where the assets of the liable corporation was being transferred to a
new family corporation while the appeal on the labor case was pending. (Dinoyo v. Undaloc
Construction Company, Inc., June 23, 2021)

Contracts entered prior to the corporate existence by its representatives have binding effects
depending on the prevailing circumstances. Among which is where a contract is entered into
with the parties knowing fully well that a corporation does not yet legally exist, particularly a
corporation yet to be registered or still in the process of registration. Governed by law on agency,
these contracts are known as promotor’s contracts or pre-incorporation contract and are entered into in
the name of the intended corporation by the “promoters” or organizers of the corporation to establish
the corporate business enterprise. Applying the pertinent provisions of agency, the law explicitly
provides that an agent who acts as such is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers. Thus, the promoter cannot be held personally liable on the
obligations of the lease contract executed by the promoter with the lessor in preparation for setting
up a diagnostic center, which eventually was organized as a corporation, especially that the
corporation signified its ratification to the lease agreement executed by the promoter and the lessor
when it operated its business. (Hao v. Galang, October 6, 2021)

A change in the corporate name does not make a new corporation, whether effected by a
special act or under a general law. It has no effect on the identity of the corporation, or on its
property, rights, or liabilities. The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same corporation with a different
name. After a corporation has effected a change in its name, it should sue and be sued in its new
name. Thus, a corporation’s change of name without more cannot be invoked to disregard the
employee’s constitutional right to security of tenure such that it was illegal for the employee to be
prevented from reporting for work after the change of name. (Bantogon v. PVC Master MFG.
Corp., September 16, 2020 [J. Lazaro-Javier])

When a non-existent corporation enters contracts or dealings with third persons, the
person who has contracted or otherwise dealt with the non-existent corporation is

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estopped to deny the latter’s legal existence in any action leading out of or involving such
contract or dealing. Conversely, a person who has assumed an obligation in favor of a non-
existent corporation, having transacted with the latter as if it were duly incorporated, is prevented
from denying the existence of the latter to avoid the enforcement of the contract. The doctrine rests
on the idea that if the courts were to disregard the existence of an entity which entered a transaction
with a third party, unjust enrichment would result as some forms of benefit have already accrued
on the part of one of the parties. Thus, a remuneratory donation made to a corporation by estoppel
is valid. (The Missionary Sisters of Our Lady of Fatima v. Alzona, August 6, 2018)

Pursuant to the doctrine of centralized management, as a juridical entity, a corporation

acts through its board of directors, which exercises almost all corporate powers, lays down all
corporate business policies and is responsible for the efficiency of management. Nonetheless,
just as a natural person may authorize another to do certain acts for and on his behalf, the board
of directors may validly delegate some of its functions and powers to officers, committees, or
agents. The authority of such individuals to bind the corporation is generally derived from law,
corporate by laws or authorization from the board, either expressly or impliedly by habit, custom or

Lopez, Geoffrey S.
acquiescence in the general course of business. Thus, the president can sign a demand letter
without the need of a board resolution as such a signing was done in the ordinary course of
business, the president managing the affairs of the corporation, including collection of receivables.
(Colegio Medico-Farmaceutico De Filipinas, Inc. v. Lim, July 2, 2018) Relatedly, under the business
judgment rule, courts are barred from intruding into the business judgments of the corporation, when
the same are made in good faith. (Virata v. Wee, July 5, 2017)

Rules on liability of corporate directors, trustees, and officers. First, officers of the corporation
are not personally liable for acts as such officers unless it is shown that they have exceeded their
authority. Second, if the officer acted without authority, but the corporation ratified his actions
subsequently or permits him to act with apparent authority, the corporation shall be liable. Third, if by
mere error in business judgment, not amounting to bad faith or negligence, losses resulted,
directors and/or officers are not liable. Fourth, director, trustee, or officer of a corporation may be
made solidarily liable with it for all damages suffered by the corporation, its stockholders or
members, and other persons in any of the following: (i) the director or trustee willfully and knowingly
voted for or assented to a patently unlawful corporate act; (ii) the director or trustee was guilty of
gross negligence or bad faith in directing corporate affairs; (iii) the director or trustee acquired
personal or pecuniary interest in conflict with his duties as director or trustee; (iv) when a director or
officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection thereto; (v) when a director, trustee
or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with
the corporation; and (vi) when a director, trustee or officer is made, by specific provision of law,
personally liable for corporate action. (Lanuza Jr. v. BF Corporation, October 1, 2014; Malate
Construction Development Corporation v. Extraordinary Realty Agents & Brokers Cooperative,
January 5, 2022)

To hold a director or officer personally liable for corporate obligations, two requisites must
concur: (1) complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2)
complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. Thus, a
president of a corporation who served as frontrunner in the transactions between such corporation and

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another corporation and actively participated in the management and operation of such corporation
can be held solidarily liable on the basis of the clear and convincing evidence as follows: (a) the
president’s letter dissolving the corporation was “purely on his own prerogative” showing that the
president is the controlling mind and that the corporation has no mind of its own; (b) the president’s
communication to the other corporation that he merely changed the name of his corporation to another
but subsequently claimed that there was really a new corporation after the counterparty corporation
executed a new contract; and (c) for no valid reason, the president, on behalf of his corporation, ordered
a stop-payment on the checks he issued as payment for the obligations of the corporation. (Total
Petroleum Philippines Corporation v. Lim, June 23, 2020 [J. Lazaro-Javier]) In contrast, although the
allegation of constructive dismissal was duly substantiated, where the president’s participation in the
illegal transfer that led to the constructive dismissal was not specifically alleged, much less, proven, the
president cannot be held solidarily liable. To be sure, the employees merely impleaded the president
and made a general allegation of bad faith on his part – nothing more. Bad faith, however, is never
presumed and must be proved by clear and convincing evidence. (Reliable Industrial and Commercial
Security Agency, Inc. v. Court of Appeals, September 14, 2021 [J. Lazaro-Javier])

Lopez, Geoffrey S.
The wording of the Revised Corporation Code (RCC) reinforces the interpretation that a
violation of Section 30 of the RCC (Liability of Directors, Trustees or Officers) is not covered
by Section 170 of the RCC (Other violations of the Code; Separate Liability). Interpretation of
Section 31 of the old Corporation Code, which is the counterpart provision of Section 30 of the RCC,
discloses that the lack of specific language imposing criminal liability in Sections 31 shows legislative
intent to limit the consequences of their violation to the civil liability mentioned therein. Had it been
the intention of the drafters of the law to define Sections 31 as an offense, they could have easily
included similar language as that found in other Sections, e.g., Section 74 (refusal to inspect
corporate books). Notably, Section 170 of the RCC clarifies that the said Section applies to “Other
Violations of the Code” or “violations of any of the other provisions of this Code or its amendments
not otherwise specifically penalized therein” and provides for ”Separate Liability” to the effect that
“[l]iability for any of the foregoing offenses [or such violations] shall be separate from any other
administrative, civil, or criminal liability under this Code and other laws.” Nevertheless, it must be
noted that under Section 158 of the RCC, there is a provision on administrative sanctions that the
SEC can impose if, after due notice and hearing, it finds that any provision of the RCC has been
violated. (United Coconut Planters Bank v. Secretary of Justice, January 12, 2021)

Under the doctrine of corporate opportunity, where a director, by virtue of his office, acquires
for himself a business opportunity which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he must account to the latter for all such profits
by refunding the same. A claim for damages under this doctrine arises when a corporate officer
or director takes a business opportunity for his own, provided that it is sufficiently shown by the
claimant that: (a) the corporation is financially able to exploit the opportunity; (b) the opportunity is
within the corporation’s line of business; (c) the corporation has an interest or expectancy in the
opportunity; and (d) by taking the opportunity for his own, the corporate fiduciary (i.e., corporate
director, trustee or officer) will thereby be placed in a position inimical to his duties to the corporation.
In determining paragraph (b), whether the opportunity is within the corporation’s line of business,
the involved corporations must be shown to be in competition with one another. They must be
engaged in related areas of business, producing the same products with overlapping markets. It is
not enough to impute bare acts of transactions in which the claimant subjectively perceives the
duty of loyalty to be breached. Thus, a director is liable where he committed several acts showing

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personal or pecuniary interest that conflicted with his duties as director and officer of his corporation,
such as establishing other competing corporations and using the name and resources of his first
corporation to favor investment opportunities to the competing corporations. (TOPROS, Inc. v. Chang
Jr., December 7, 2021)

After a corporation faithfully complies with the requirements to decrease its capital stock,
the SEC has nothing more to do other than approve the same. The scope of the SEC’s
determination of the legality of the decrease in authorized capital stock is confined only to the
determination of whether the corporation submitted the requisite authentic documents to support
the diminution. Decreasing a corporation’s authorized capital stock is a decision that only the
stockholders and the directors can make, considering that they are the contracting parties thereto.
For third persons or parties outside the corporation like the SEC to interfere with the decrease of
the capital stock without reasonable ground is a violation of the business judgment rule. (Metroplex
Berhad and Paxell Investment Limited v. Sinophil Corporation, June 28, 2021)

Trust fund doctrine. Capital stock, property, and other assets of a corporation are regarded as

Lopez, Geoffrey S.
equity in trust for the payment of corporate creditors. Creditors of a corporation are preferred over
the stockholders in the distribution of corporate assets. There can be no distribution of assets
among the stockholders without first paying corporate creditors. Any disposition of corporate funds
to the prejudice of creditors is void. (Turner v. Lorenzo Shipping Corporation, November 24, 2010)

Instances when the creditor is allowed to maintain an action against the shareholders upon any
unpaid subscriptions based on the trust fund doctrine: (1) where the debtor corporation released
the subscriber to its capital stock from the obligation of paying for their shares, in whole or in part,
without a valuable consideration, or fraudulently, to the prejudice of creditors; and (2) where
the debtor corporation is insolvent or has been dissolved without providing for the payment of its
creditors. To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that the stockholders have not
in good faith paid the par value of the stocks of the corporation. Thus, a suit will not prosper if the
complainant has not even pleaded either insolvency or dissolution of the corporation. (Enano-Bote
v. Alvarez, November 10, 2020)

The right of dissenting stockholders to demand payment of the value of their

shareholdings cannot be exercised in the absence of unrestricted retained earnings. No
payment shall be made to any dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover the payment. Otherwise, the trust fund doctrine will be
violated. Thus, if the corporation has no available unrestricted retained earnings in its books and
the dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting
and dividend rights shall immediately be restored. (Turner v. Lorenzo Shipping Corporation,
November 24, 2010)

A stockholder who owns only 0.001% of a corporation can demand examination of

corporate records. The law granted all stockholders the right to inspect the corporate books and
records, and in so doing has not required any specific amount of interest for the exercise of the
right to inspect. But the corporation may refuse examination by any stockholder when the
corporation puts up as a defense to any action that the person demanding had improperly used any

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information secured through any prior examination of the records or minutes of such corporation
or of any other corporation or was not acting in good faith or for a legitimate purpose in making his
demand. (Terelay Investment and Development Corporation v. Yulo, August 5, 2015)

An action for injunction filed by a corporation generally does not lie to prevent the enforcement
by a stockholder of his right to inspection. The law provides that access to the information is
mandatory. The presumption is that the corporation should provide access. If it has basis for
denial, then the corporation shoulders the risks of being sued and of successfully raising the
proper defenses. The corporation cannot immediately deploy its resources — part of which is
owned by the requesting stockholder — to put the owner on the defensive. Specifically,
corporations may raise their objections to the right of inspection through affirmative defense in an
ordinary civil action for specific performance or damages, or through a comment, if one is required,
in a petition for mandamus. The corporation still carries the burden of proving (i) that the
stockholder has improperly used information before, (ii) lack of good faith, or (iii) lack of
legitimate purpose. (Philippine Associated Smelting and Refining Corporation v. Lim,
October 5, 2016)

Lopez, Geoffrey S.
A merger does not become effective upon mere agreement of constituent corporations,
but upon approval of the articles of merger by the SEC issuing the certificate of merger.
(Bank of Commerce v. Heirs of Dela Cruz, August 14, 2017) Thus, the purchase by Bancommerce
of Traders Royal Bank (TRB)’s identified recorded assets in consideration of Bancommerce’s
assumption of TRB’s identified recorded liabilities does not amount to merger. Bancommerce and
TRB remained separate corporations with distinct corporate personalities. There is no
merger by mere sale of assets and assumption of liabilities. (Bank of Commerce v. Radio
Philippines Network, Inc., April 21, 2014).

There are whole range or levels of transfers of corporate assets and liabilities as follows: (1)
the assets-only level; (2) the business enterprise level; and (3) the equity level. The asset-
only transfer affects only the corporate seller’s raw assets and properties; the purchaser is not
interested in the seller’s corporate personality - its goodwill, or in other factors affecting the business
itself. In this transaction, no complications arise affecting the employer-employee relationship, except
perhaps the redundancy of employees whose presence in the selling company is affected by the
sale of the chosen assets and properties, but this is a development completely internal to the selling
corporation. In the business enterprise level transaction, the purchaser’s interest goes beyond the
assets and properties and extends into the seller corporation’s whole business and “earning
capability,” short of the seller’s juridical personality. Thus, a whole business is sold and purchased but
the parties retain their respective juridical personalities. A transaction at the equity level does not disturb
the participating corporations’ separate juridical personality as both corporations continue to remain in
existence; the purchaser corporation simply buys the underlying equity of the selling corporation
which thus retains its separate corporate personality. The selling corporation continues to run its
business, but control of the business is transferred to the purchaser corporation whose control of
the selling corporation’s equity enables it to elect the members of the selling corporation’s board of
directors. (BPI v. BPI Employees Union-Davao Chapter Federation of Unions in BPI Unibank,
August 10, 2010)

Derivative suit vis-à-vis individual suit vis-à-vis class/representative suit. A derivative suit is
an action filed by stockholders to enforce a corporate action. It concerns a wrong to the corporation

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itself. The real party in interest is the corporation. Stockholders are technically nominal parties but
are nonetheless the active persons who pursue the action for and on behalf of the corporation. An
individual suit is filed when the cause of action belongs to the individual stockholder personally,
and not to the stockholders as a group or to the corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder. If the cause of action belongs to a group of stockholders, such
as when the rights violated belong to preferred stockholders, a class or representative suit may be
filed to protect the stockholders in the group. (Florete v. Florete, January 20, 2016) Thus, a dispute
involving election directors filed by losing candidates against winning candidates on ground that
the election is invalid for lack of quorum is not a derivative suit. The losing candidates, not the
corporation, are the injured parties, whose rights to vote and to be voted upon were directly affected
by the election of the new set of board of directors. (Legaspi Towers 300, Inc. v. Muer, June 18,
2012)

Requisites of derivative suit: (i) party bringing suit is a shareholder as of time of the act
complained of, (ii) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on
the board of directors for appropriate relief but latter has failed or refused to heed his plea, (iii) no

Lopez, Geoffrey S.
appraisal rights are available for act complained of, (iv) suit is not nuisance or harassment suit, and
(v) cause of action devolves on the corporation, the wrongdoing or harm having been, or being
caused to the corporation. (Forest Hills Golf and Country Club, Inc. v. Fil-Estate Properties, Inc., July
20, 2016) Thus, a derivative suit for nullification of mortgage of substantially all the assets of the
corporation should be dismissed if there is no allegation as to availability of appraisal right and the
explanation of non-availment thereof since a mortgage of all or substantially all the corporation’s
assets is subject to the exercise of the appraisal right. Also, to provide legal justification for what is
essentially an unauthorized suit filed on behalf of the corporation, stockholders who resort to the
equitable remedy of a derivative suit must categorically declare under oath that the remedy is being
sought for just and legitimate purposes and not as a form of nuisance or harassment. Without this,
the derivative suit is dismissible. (Metrobank v. Salazar Realty Corporation, March 9, 2022)

A board resolution is not needed for the institution of a derivative suit. Since the board is
guilty of breaching the trust reposed in it by the stockholders, it is but logical to dispense with the
requirement of obtaining its authority to institute the case and to sign the certification against forum
shopping. (Ago Realty & Development Corporation v. Ago, October 16, 2019)

For purposes of determining Filipino ownership of a public utility, “capital” in Section 11,
Article XII of Constitution refers to both (i) the total number of outstanding shares of stock
entitled to vote in the election of directors and (ii) the total number of outstanding shares of
stock, whether entitled to vote. Full and legal beneficial ownership of 60% of the outstanding
capital stock, coupled with 60% of the voting rights must rest in the hands of Filipino national. (Roy
v. Herbosa, April 18, 2017)

Two tests to determine nationality of a corporation. First is the control test, which provides that
the shares belonging to corporations or partnerships at least 60% of the capital of which is owned by
Filipino citizens is of Philippine nationality. Second test is the grandfather rule, which provides that if
the percentage of Filipino ownership in the corporation or partnership is less than 60%,
only the number of shares corresponding to such percentage shall be counted as of Philippine
nationality. The control test is still the prevailing mode of determining whether a corporation is a
Filipino corporation. When there is doubt, based on the attendant facts and circumstances of the

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case, in the 60-40 Filipino-equity ownership in the corporation, the grandfather rule applies. For
example, if 100,000 shares are registered in the name of a corporation or partnership at least 60%
of the capital stock or capital, respectively, of which belong to Filipino citizens, all the shares shall
be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital
of the corporation or partnership, belongs to Filipino citizens, only 50,000 shares shall be counted
as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens. Under the
control test, there is no need to further trace the ownership of the 60% (or more) Filipino
stockholdings since a corporation which is at least 60% Filipino-owned is considered as Filipino.
The grandfather rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt, i.e.,
in cases where the joint venture corporation with Filipino and foreign stockholders with less than
60% Filipino stockholdings. Stated differently, where the 60-40 Filipino- foreign equity ownership
is not in doubt, the grandfather rule will not apply. (Narra Nickel Mining and Development Corp. v.
Redmont Consolidated Mines Corp., April 21, 2014)

A foreign corporation is “doing business” in the Philippines when it performs act or acts
that imply a continuity of dealings or arrangements and contemplate to that extent the

Lopez, Geoffrey S.
performance of acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of commercial gain or of the purpose and object of the
business organization. It includes (i) soliciting orders, service contracts, opening offices, whether
called “liaison” offices or branches, (ii) appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or periods totaling 180
days or more, and (iii) participating in the management, supervision or control of any domestic
business, firm, entity, or corporation in the Philippines. But it does not include (i) mere investment
as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or
the exercise of rights as such investor, (ii) having a nominee director or officer to represent its
interests in such corporation, and (iii) appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account. (Steelcase, Inc. v.
Design International Selections, Inc., April 18, 2012) Clearly, there is no specific criterion as to what
constitutes 'doing' or 'engaging in' or 'transacting' business. Each case must be judged in the light
of its peculiar environmental circumstances. In order that a foreign corporation may be regarded
as doing business within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a temporary
character. Moreover, the activity to be undertaken in the Philippines is one that is by and large for
profit-making. (Commissioner of Internal Revenue v. BW Shipping Philippines, Inc., October 4,
2023)

The following constitute doing business in the Philippines: (i) offline international air carrier
selling passage tickets in the Philippines, through a general agent. Appointing representatives
operating under full control of the foreign corporation constitutes doing business; (Air Canada v.
Commissioner of Internal Revenue, January 11, 2016) and (ii) foreign corporation opening office
in the Philippines. The phrase “doing business” shall include opening offices, whether called “liaison”
offices or branches. (Saudi Arabian Airlines v. Rebesencio, January 14, 2015) But appointment by
a foreign corporation of a distributor in the Philippines may or may not constitute doing business.
Appointment of a distributor in the Philippines is not sufficient to constitute “doing business” unless it
is under the full control of the foreign corporation. If the distributor is an independent entity which
buys and distributes products, other than those of the foreign corporation, for its own name and its

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own account, the latter is not doing business in the Philippines. (Steelcase, Inc. v. Design International
Selections, Inc., April 18, 2012)

The following do not constitute doing business in the Philippines: (i) foreign corporation
importing molasses from Philippine exporter, where the parties amended the contract thrice for the
exporter to deliver the molasses. There is no showing that the transactions signify the intent of the
parties to establish a continuous business or extend its operations in the Philippines (Cargill, Inc. v.
Intra Strata Assurance Corporation, March 15, 2010), (ii) purchases of a Philippine corporation from a
Hong Kong corporation, where the goods purchased shall be delivered to another Hong Kong
corporation. The series of transactions between parties transpired and were consummated in Hong
Kong. There is no single activity which was performed here in the Philippines (B. Van Zuiden Bros.
Ltd. v. GTVL Manufacturing Industries, Inc., May 28, 2007), (iii) a non-resident foreign corporation
which collects dividends from the Philippines. As mere investment as a shareholder by a foreign
corporation in a duly registered domestic corporation shall not be deemed “doing business” in the
Philippines, the foreign corporation’s act of subscribing shares of stocks from a duly registered
domestic corporation, maintaining investments therein, and deriving dividend income therefrom, does

Lopez, Geoffrey S.
not qualify as “doing business” (Commissioner of Internal Revenue v. Interpublic Group of
Companies, Inc., August 14, 2019), and (iv) a foreign corporation engaged in selling acrylic fibers
through a domestic indentor corporation. Since an indentor is a middleman in the same class as
commercial brokers and commission merchants, acting as a “go-between” is exactly the business of
an indentor and as such, it transacts business in its own name and account. (Development Bank of
the Philippines v. Monsanto Company, January 25, 2023)

A foreign corporation that conducts business in the Philippines must first secure a license
for it to be allowed to initiate or intervene in any action in any court or administrative agency in
the Philippines. A corporation has legal status only in the state that granted it personality. Hence,
a foreign corporation has no personality in the Philippines, much less legal capacity to file a case,
unless it procures a license as provided by law. (Magna Ready Mix Concrete Corporation v.
Andersen Bjornstad Kane Jacobs, Inc., January 20, 2021) But a suit instituted by the unlicensed
foreign corporation will not be dismissed if the local entity knows that said corporation has no license.
The local entity is estopped from challenging the personality of a corporation after it has acknowledged
said corporation by entering a contract with it especially so that entity that had derived some benefit
from their contractual arrangement. (Steelcase, Inc. v. Design International Selections, Inc., April 18,
2012) Similarly, a foreign corporation not engaged in business in the Philippines may not be denied
the right to file an action in the Philippine courts for an isolated transaction. A foreign corporation that is
not doing business in the Philippines must disclose such fact if it desires to sue in Philippine courts under
the “isolated transaction rule” because without such disclosure, the court may choose to deny it the
right to sue. (Llorente v. Star City Pty Limited, January 15, 2020) Thus, a foreign insurance
company may sue in Philippine courts upon the marine insurance policies issued by it abroad to
cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do
business in this country. (C.V. Gaspar Salvage & Lighterage Corporation v. LG Insurance Company,
Ltd., February 3, 2021)

PARTNERSHIP

The best evidence to prove the existence of a partnership is the contract or articles of
partnership. Nevertheless, in its absence, its existence can be established by circumstantial evidence.

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The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in
payment as wages of an employee or rent to a landlord. In addition, the sharing of gross returns
does not in itself establish a partnership, whether the persons sharing them have a joint or common
right or interest in any property from which the returns are derived. Thus, a person is considered an
employee, not a partner, where there is no clear indication that the parties agreed to contribute
money, property, or industry to engage in particular business, or the specification of the supposed
contributions to the partnership, or proof of intention to divide profits as partners. (Dusol v. Lazo,
January 20, 2021)

A partnership is a juridical entity that has a distinct and separate personality from the
persons composing it. Although a partnership is based on delectus personae or mutual agency,
whereby any partner can generally represent the partnership in its business affairs, it does not
follow that a suit against the partnership is necessarily a suit impleading every partner. (Guy v.
Gacott, January 13, 2016)

Lopez, Geoffrey S.
Partners’ obligation with respect to the partnership liabilities is subsidiary in nature.
Partners shall only be liable with their property after all the partnership assets have been
exhausted. Resort to the properties of a partner may be made only after efforts in exhausting
partnership assets have failed or that such partnership assets are insufficient to cover the entire
obligation. The subsidiary nature of the partners’ liability with the partnership is one of the valid
defenses against a premature execution of judgment directed to a partner. (Guy v. Gacott, January
13, 2016)

As a rule, the partners’ obligation to third persons with respect to the partnership liability
is pro rata or joint. The liability is joint when a debtor is liable only for the payment of only a
proportionate part of the debt. Only in exceptional circumstances shall the partners’ liability be
solidary in nature. These are in cases: (i) where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or with the authority of his co-
partners, loss or injury is caused to any third person, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to act; and (ii) the partnership
is bound to make good the loss (a) where one partner acting within the scope of his apparent
authority receives money or property of a third person and misapplies it; and (b) where the
partnership in the course of its business receives money or property of a third person and the
money or property so received is misapplied by any partner while it is in the custody of the
partnership. These provisions articulate that it is the act of a partner which caused loss or injury to
a third person that makes all other partners solidarily liable with the partnership because of the
words “any wrongful act or omission of any partner acting in the ordinary course of the business,”
“one partner acting within the scope of his apparent authority” and “misapplied by any partner while
it is in the custody of the partnership.” The obligation is solidary because the law protects the third
person, who in good faith relied upon the authority of a partner, whether such authority is real or
apparent. (Guy v. Gacott, January 13, 2016)

BANKING AND ANTI-MONEY LAUNDERING LAWS

A banking institution is obliged to exercise the highest degree of diligence as well as high
standards of integrity and performance in all its transactions because its business is

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imbued with public interest. (Comsavings Bank v. Capistrano, August 28, 2013) Thus, the bank
was dutybound to exercise the highest degree of diligence in handling the client’s bank accounts
and in ascertaining that the signature on the withdrawal slips and in the manager’s checks were
made by the client and not by anybody else. (Banco de Oro Universal Bank, Inc. v. Seastres,
February 13, 2023) A bank is bound to know the signatures of its customers. If it pays a forged
check, it must be considered as making the payment out of its own funds and cannot ordinarily
charge the amount so paid to the account of the depositor whose name was forged. (Philippine
Savings Bank v. Sakata, June 17, 2020) Moreover, a bank should have taken the extra steps of
finding a way to immediately apprise the clients of its discovery of its own mistake in check clearing
even if it would mean that its officers would have to work beyond the official banking hours to rectify
or at least deescalate the situation. (Philippine National Bank v. Caguimbal, October 10, 2022)
Finally, notwithstanding the absence of an express directive under Act No. 3135 or the law on
extrajudicial foreclosure, principles of due process and utmost diligence of banks require that
mortgagors be personally notified of extrajudicial foreclosures of their mortgages prior to public
auctions. (Philippine Savings Bank v. Co, October 6, 2021)

Lopez, Geoffrey S.
A banking corporation is liable to innocent third persons where the representation is made
in the course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit. The existence of apparent or implied authority is measured by previous acts that
have been ratified or approved or where the accruing benefits have been accepted by the principal.
It may also be established by proof of the course of business, usages and practices of the bank;
or knowledge that the bank or its officials have or is presumed to have of its responsible officers’
acts regarding bank branch affairs. Thus, the bank is liable where the bank’s witnesses admitted
that while the bank’s general policy requires that transactions be completed inside the bank
premises, exceptions are made in favor of valued clients and that the branch manager has
authority to transact outside the bank premises, which opened the opportunity to the branch
manager to defraud the bank’s client. (Citystate Savings Bank v. Tobias, March 7, 2018)

In cases of mortgage, banks may not simply rely on the face of the title. (Philippine National
Bank v. Villa, August 1, 2016) Before approving a loan application, it is standard operating
procedure for banks and financial institutions to conduct an ocular inspection of the property offered
for mortgage and to determine the real owner thereof. The apparent purpose of an ocular
inspection is to protect the true owner of the property as well as innocent third parties with a right,
interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title
thereto. (Concorde Condominium, Inc. v. Philippine National Bank, November 26, 2018)

The relationship of depositor and bank is that of a creditor-debtor. The bank is the debtor,
and the depositor is the creditor. The depositor lends bank money and the bank agrees to pay the
depositor on demand. Thus, legal compensation under the Civil Code applies, provided all the
requisites are present. (Areza v. Express Savings Bank, Inc., September 10, 2014)

Depositors of a joint account are joint owners or co-owners and their share in the deposits
shall be presumed equal unless the contrary is proved. Regardless of who puts the money
into the account, each of the named account holder has an undivided right to the entire balance
and any of them may deposit and/or withdraw, partially or wholly, the funds without the consent of

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the other. As between account holders, their right against each other may depend on what they
have agreed upon and the purposes for which the account was opened and how it will be operated.
(Apique v. Fahnenstich, August 5, 2015)

All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political
subdivisions, and its instrumentalities, are absolutely confidential and may not be examined,
inquired or looked into by any person, government official, bureau or office. The term
“deposits” includes trust accounts. The phrase “of whatever nature” proscribes any restrictive
interpretation of “deposits.” The law applies not only to money which is deposited but also to those
which are invested. (Ejercito v. Sandiganbayan, November 30, 2006)

One of the exceptions to bank secrecy law is “upon order of a competent court in cases of
bribery or dereliction of duty of public officials.” This phrase is not exclusive such that similar
cases, such as cases of unexplained wealth, may be considered as falling within the same
exception. The policy as to one cannot be different from the policy as to the other. This policy

Lopez, Geoffrey S.
expresses the notion that a public office is a public trust and any person who enters upon its
discharge does so with the full knowledge that his life, as far as relevant to his duty, is open to
public scrutiny. Thus, it was proper for the court in a case of forfeiture of unlawfully acquired
properties/unexplained wealth to issue subpoenas, which required certain persons to testify in
open court and present certain documents which pertain not only to the existence and identity of
the subject accounts, but to the contents found therein. (Republic v. Rabusa, August 31, 2022)

Another exception to bank secrecy law is where the deposits are the very subject matter
of litigation. The phrase “subject matter of the litigation” is consistent with the term “subject matter
of the action,” which is the matter or thing with respect to which the controversy has arisen,
concerning which the wrong has been done, and this ordinarily is the property or the contract and
its subject matter, or the thing in dispute. Thus, in action to recover ill-gotten wealth, the subject
accounts themselves are the very subject matter of the litigation, as the inquiry is directed at the
whereabouts and recovery of the money that had allegedly been illegally acquired and now subject
to forfeiture. While it may be argued that the subject matter of the action ought to be the amount
sought to be forfeited and not the subject accounts per se, the law allows the disclosure of bank
deposits in cases where the money deposited is the subject matter of the litigation. The allowance
of such an inquiry similarly extends to the bank accounts not only of the public official but also to
their spouse and other dependents. (Republic v. Rabusa, August 31, 2022) Clearly, for inquiry to
be allowed under this exception, the subject matter should be the actual money itself, not the mere
money equivalent of the checks. Hence, it was improper for the trial court to order the production
of an imposter’s bank records where the true account holder’s action is to recover from the bank
the money that was deposited and encashed by the impostor in the true account holder’s account.
(The Real Bank, Inc. v. Maningas, March 16, 2022)

The rule that foreign currency deposits shall be exempt from attachment, garnishment, or
any other order or process of any court is not applicable to a foreign transient who raped
a Filipina. Foreign currency deposits made by a transient or tourist are not the kind of deposits
encouraged and given protection by the Foreign Currency Deposit Act. The law was enacted in
1983 or at a time when the country’s economy was in a shambles; when foreign investments were

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minimal and presumably, this was the reason why said statute was enacted. (Salvacion v. Central
Bank, August 21, 1997)

In deposit splitting, there is a presumption that the transferees have no beneficial

ownership considering that the source account, which exceeded the maximum deposit
insurance coverage, was split into two or more accounts within 120 days immediately
preceding bank closure. Nonetheless, in cases wherein the transfer into two or more accounts
occurred before the 120-day period, the PDIC does not discount the possibility that there may have
been a transfer for valid consideration, but in the absence of transfer documents found in the
records of the bank at the time of closure, the presumption arises that the source account remained
with the transferor. Thus, when the purported donation is the alleged basis for the transactions but
no document evidences that the alleged donation is in custody or possession of the bank upon
takeover by PDIC, the PDIC properly relied on the records of the bank which showed that the
donor's accounts remained in his name and for his account. (Linsangan v. PDIC, February 11,
2019)

Lopez, Geoffrey S.
Elements of money laundering are the following: (1) there is an unlawful activity enumerated
under the law; (2) the proceeds of the unlawful activity are transacted by the accused; (3) the
accused knows that the proceeds involve or relate to the unlawful activity; and (4) the proceeds
are made to appear to have originated from legitimate sources. (Lingad v. People, October 11,
2022)

Money laundering may involve a situation where the predicate unlawful activity is not
necessarily committed by the money launderer; the unlawful activity may be a separate
crime, possibly committed by a different person. For example, Person A commits kidnapping
for ransom under Article 267 of the Revised Penal Code, an unlawful activity under the AMLA.
Person A asks Person B for assistance in concealing the ransom money. Person B knows that it
was ransom money but agrees to keep it in a location unchecked by authorities. In this example,
Person A is the only person who may be charged with kidnapping, though Person A may still be
charged with money laundering. Person B, however, may be charged with money laundering, but
not kidnapping. Thus, the action for money laundering may proceed independently of any
proceeding involving unlawful activity. A charge for money laundering may still be filed against
Person B, and it need not depend on the outcome of the kidnapping charge against Person A. It
is not necessary to first obtain a finding of guilt in the kidnapping case before the prosecution of
Person B’s money laundering offense. (Lingad v. People, October 11, 2022)

While the prosecution for the money laundering offense can proceed independently of the
prosecution of the related unlawful activity, particular elements of that unlawful activity must
still be proven beyond reasonable doubt. For example, in a kidnapping for ransom, before the
launderer can be found guilty of money laundering, the prosecution must prove beyond reasonable
doubt that the money forms the proceed from the kidnapping. The prosecution need not prove who
committed the kidnapping, but it must still prove that the money was extorted for the release of the
person deprived of liberty. It must be proven beyond reasonable doubt that the nature of the
proceeds is from unlawful activity. Otherwise, an element of the offense of money laundering is
missing. (Lingad v. People, October 11, 2022)

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The Anti-Money Laundering Council (AMLC) is not merely a repository of reports and
information on covered and suspicious transactions; it was created precisely to investigate
and institute charges against those suspected to commit money laundering activities. The
criminal prosecution of such offenses would be unduly hampered if it were to be prohibited from
disclosing such information. For the AMLC to refuse disclosing the information required of it would
be to go against its own functions under the law. The AMLC is not one of the covered institutions
prohibited from disclosing information on covered and suspicious transactions. Thus, the
Sandiganbayan was correct when it allowed the Executive Director of the AMLC Secretariat to
testify and produce bank records of a subject involved in an unlawful activity. (Republic v.
Sandiganbayan, February 15, 2021)

Section 9 of the AMLA pertains to the obligation of covered institutions to maintain and
safely store all records of transactions for five years for purposes of determining possible
violations of the AMLA. Thus, a bank cannot use this provision to escape proper accounting of
client’s deposits on the pretext that all documents pertaining to closed accounts and settled loans
have already been disposed. Ultimately, as between its five-year holding policy versus its legal and

Lopez, Geoffrey S.
jurisprudential fiduciary duty to exercise the highest degree of care in conducting its affairs, the
latter consideration certainly prevails. (Metrobank v. Cruz, January 19, 2021)

The burden of proving probable cause always rests with the AMLC, never with the account
owners. Once it has established a prima facie case against the owner of the accounts sought to
be frozen, the burden of evidence shifts to the owner to present counterevidence and prove that
their accounts are funded by legitimate sources. If the counterevidence balances the evidence of
probable cause, the burden of evidence shifts back to the AMLC to justify the continued freezing
of the accounts. (Republic v. Ongpin, June 20, 2022) Thus, the Court of Appeals has no probable
cause to issue the freeze order against the petitioner and her husband’s bank accounts and
properties where the petition to freeze failed to mention how the petitioner was related to spurious
transactions. Notably, the petitioner was only implicated as a subject of the Freeze Order because
of a database searched conducted by the AMLC on the surname Ampatuan. There was also an
admission from AMLC investigator that petitioner was only included in the search and assumed to
be connected to the other Ampatuans because she bore the same surname. Clearly, a person
having a similar surname with another is not sufficient to prove their relationship, much less their
participation in unlawful activities. It does not establish probable cause. (Sema v. Republic, October
10, 2022)

A bank that complies with the freeze order issued by the Court of Appeals is not
determining probable cause which account to freeze but simply implements the freeze
order. Thus, when a bank freezes, pursuant to the freeze order, a related account – defined as an
account, the funds and sources of which originated from and/or are materially linked to the
monetary instruments or properties subject of the freeze order – which was opened and received
substantially the same amount of cash from the principal account after it was closed, the said bank
acted in good faith. (BCD Foreign Exchange Corp. v. Republic, October 13, 2021)

Section 11 of R.A. No. 9160 on AMLC’s authority to file with the Court of Appeals an ex
parte application for inquiry into certain bank deposits and investments is constitutional
and does not violate the due process clause and the right to privacy. There is no physical
seizure of property involved at that stage. It is the preliminary and actual seizure of the bank

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deposits or investments in question which brings these within reach of judicial process, specifically
a determination that the seizure violated due process. Moreover, AMLC’s power of inquiry does
not transform it into an investigative body exercising quasi-judicial powers. Hence, there can be no
violation of the right to procedural due process. (Subido Pagente Certeza Mendoza and Binay Law
Offices v. Court of Appeals, December 6, 2016) Also, the source of the right to privacy respecting
bank deposits is statutory, not constitutional; hence, the Congress may validly carve out exceptions
to the rule on the secrecy of bank deposits, as illustrated in Section 11 of R.A. No. 9160. (Estrada
v. Sandiganbayan, July 17, 2018)

Nothing in the law provides that the purely ex parte bank inquiry proceedings cannot be
conducted jointly, albeit subsequently, with the proceedings for the freeze order.
Considering the functions of a bank inquiry order and a freeze order, a joint hearing is inevitable
when the subjects of a bank inquiry and of a freeze order are the same account. The results of the
bank inquiry are usually used in the freeze order proceedings. Notably, nothing in the law does
state that a petition for freeze order may be filed only after an application for bank inquiry has been
previously availed of. In other words, the AMLC may file a petition for a freeze order without the

Lopez, Geoffrey S.
benefit of a bank inquiry if it is confident that the information it has at hand is sufficient to justify a
finding of probable cause. In the end, it is a matter of strategy on what it should file first. Ultimately,
while the remedies of freeze order and bank inquiry are distinct, the Court of Appeals has the
discretion to jointly hear “actions involving a common question of law or fact,” especially if it will
“tend to avoid unnecessary costs or delay.” (Republic v. Ongpin, June 20, 2022)

INSURANCE LAW

Incontestability clause is a provision in law that after a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the
insured for a period of two years from the date of its issue or of its last reinstatement, the
insurer cannot prove that the policy is void ab initio or is rescindable by reason of
fraudulent concealment or misrepresentation of the insured or his agent. (Manila Bankers
Life Insurance Corporation v. Aban, July 29, 2013) The date of last reinstatement pertains to the
date that the insurer approved the application for reinstatement. (Insular Life Assurance
Company Ltd. v. Khu, April 18, 2016)

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

Elements of double insurance: (i) person insured is the same, (ii) two or more insurers insuring
separately, (iii) there is identity of subject matter, (iv) there is identity of interest insured, and (v) there
is identity of the risk or peril insured against. There is no double insurance if two insurance contracts
are issued to two different persons/entities having distinct insurable interests. Thus, there is no double
insurance where an insurer issued an insurance in consideration of the legal and/or equitable
interest of the insured over its own goods and another insurer insuring the common carrier for the

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safety of the same goods. (Malayan Insurance Co., Inc. v. Philippine First Insurance Co., Inc., July
11, 2012)

As a rule, no insurance contract takes effect unless premium is paid. The exceptions are
(i) in case of life or industrial life policy, whenever the grace period provision applies, (ii) insurer
acknowledged in the policy or contract of insurance itself the receipt of premium, even if premium
has not been actually paid, (iii) parties agreed that premium payment shall be in installments and
partial payment has been made at the time of loss, (iv) insurer granted the insured a credit term for
the payment of the premium, and loss occurs before the expiration of the term, and (v) insurer is
in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of
premiums. (Gaisano v. Development Insurance and Surety Corporation, February 27, 2017) But
there can be no extension of credit term if there is an agreement between the parties that failure to
pay in full any of the scheduled installments on or before the due date shall render the insurance
policy void. There is no credit extension to consider as the agreement itself expressly cuts off the
inception of the insurance policy in case of default. (Philam Insurance Co., Inc. v. Parc Chateau
Condominium Unit Owners Association, Inc., March 4, 2019)

Lopez, Geoffrey S.
The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. Payment by the insurer to the insured operates as an equitable assignment to
the insurer of all the remedies that the insured may have against the third party whose negligence
or wrongful act caused the loss. (Malayan Insurance Co., Inc. v. Alberto, February 1, 2012) Thus,
where the insurer has been subrogated to the rights of the insured, non-presentation of the
insurance policy is not fatal since the right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. (Equitable Insurance Corporation v. Transmodal
International Inc., August 7, 2017) Hence, if insurer pays insured and it turns out the indemnification
is not due, the insurer takes the risk of not being able to seek recompense from the alleged
wrongdoer. A subrogee in effect steps into the shoes of the insured and can recover only if the
insured likewise could have recovered. (Loadstar Shipping Company, Incorporated v. Malayan
Insurance Company, Incorporated, November 26, 2014) An insurer-subrogee who stepped into
the shoes of insured is bound by provision of a contract, such as prescription, between the insured
and the other party against whom claim is made, e.g., a contract between warehouseman and the
insured. (Oriental Assurance Corporation v. Ong, October 11, 2017)

A policy that provides that the claims shall be forfeited if no action is instituted within 12
months from final rejection of insurer means that the final rejection beings to run from
denial by the insurer of the claims of the insured, not the rejection or denial by the insurer
of the insured’s motion or request for reconsideration. The rejection referred to should be
construed as the rejection in the first instance. (H. H. Hollero Construction, Inc. v. Government
Service Insurance System, September 24, 2014)

A condition, stipulation, or agreement in any policy of insurance, which limits the time for
commencing an action thereunder to a period of less than one (1) year from the time when
the cause of action accrues, is void. Thus, an insurance policy that contained the condition of
bringing a suit within a period of twelve months, the 12-month period stated in the insurance policy
refers to the period of one year, or 365 days, and not 360 days. This is also consistent with Article
13 of the Civil Code which provides that when the law speaks of a year, it is understood to be

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equivalent to 365 days. (Alpha Plus International Enterprises Corp. v. Philippine Charter Insurance
Corp., February 10, 2021)

Guidelines on the prescriptive period in cases where the insurer is subrogated to the rights
of the insured against the wrongdoer based on quasi-delict. First, for actions of such nature
that have already been filed and are currently pending before the courts at the time of the finality
of the Decision in this case (Henson v. UCPB General Insurance Co., Inc., August 14, 2019),
the rules on prescription prevailing at the time the action is filed would apply. Particularly, (a) for
cases that were filed by the subrogee-insurer during the applicability of the Vector Shipping
Corporation v. American Home Assurance Company ruling (i.e., from Vector’s finality on August
15, 2013 up until the finality of the Decision in this case), the prescriptive period is ten years from
the time of payment by the insurer to the insured, which gave rise to an obligation created by law;
and (b) for cases that were filed by the subrogee-insurer prior to the applicability of
the Vector ruling (i.e., before August 15, 2013), the prescriptive period is four years from the time the
tort is committed against the insured by the wrongdoer. Second, for actions of such nature that
have not yet been filed at the time of the finality of this Decision in this case: (a) for cases where

Lopez, Geoffrey S.
the tort was committed and the consequent loss/injury against the insured occurred prior to the
finality of the Decision in this case, the subrogee-insurer is given a period not exceeding four years
from the time of the finality of the Decision in this case to file the action against the
wrongdoer; provided, that in all instances, the total period to file such case shall not exceed ten
years from the time the insurer is subrogated to the rights of the insured; and (b) for cases where
the tort was committed and the consequent loss/injury against the insured occurred only upon or
after the finality of the Decision in this case, the Vector doctrine would hold no application. The
prescriptive period is four years from the time the tort is committed against the insured by the
wrongdoer. (Henson v. UCPB General Insurance Co., Inc., August 14, 2019) Hence, where the
action was filed on February 1, 2012, prior to Vector, the applicable prescriptive period is four years.
The subrogee-insurer, therefore, had four years from November 16, 2007 when the vehicular mishap
took place, or until November 16, 2011, within which to file its action for sum of money against the
wrongdoer. (Filcon Ready Mix, Inc. v. UCPB General Insurance Company, Inc., July 15, 2020 [J.
Lazaro-Javier])

TRANSPORTATION LAW

A common carrier is a person, corporation, firm, or association engaged in the business

of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering such services to the public. The true test for a common carrier is
whether the undertaking is a part of the activity engaged in by the carrier that he has held out to
the public as his business or occupation. If the undertaking is a single transaction, not a part of the
general business or occupation engaged in, as advertised, and held out to the public, the individual
or the entity rendering such service is a private, not a common, carrier. (Perena v. Zarate, August
29, 2012) There is no distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic, or unscheduled
basis. Neither is there a distinction between a carrier offering its services to the public, i.e., the general
community or population, and one who offers services or solicits business only from a narrow
segment of the general population. (Land Transportation Franchising and Regulatory Board v.
Valenzuela, March 11, 2019)

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[Note: In Land Transportation Franchising and Regulatory Board v. Valenzuela, 11 March 2019,
the Supreme Court made preliminary analysis that the TNC Angkas’s operations may fall under
the definition of common carriers, as it is practically functioning as a booking agent or acts as a
third-party liaison for its accredited bikers and that, on the one hand, these bikers offer
transportation services to wiling public consumers, and on the other hand, these services may be
readily accessed by anyone who chooses to download the Angkas app. Nonetheless, no definitive
ruling was made as the issue involved assailing via certiorari a writ of preliminary injunction issued
in favor of Angkas operator enjoining LTFRB from regulating its operations.]

The following are common carriers: (i) school bus – despite catering to a limited clientèle,
operators of school bus services operated as a common carrier because they held themselves out
as a ready transportation indiscriminately to the students of a particular school for a fee (Perena v.
Zarate, August 29, 2012) and (ii) resort with tour packages for its ferry operations – its ferry services
are so intertwined with its main business as to be properly considered ancillary thereto. The tour
packages it offers, which include the ferry services, may be availed of by anyone who can afford
to pay the same. These services are thus available to the public. (Cruz v. Sun Holidays, Inc., June
29, 2010)
Lopez, Geoffrey S.
The following are not common carriers: (i) stevedore – stevedoring refers to the handling of the
cargo in the holds of the vessel or between the ship’s tackle and the holds of the vessel. A
stevedore does not transport goods or passengers (Mindanao Terminal and Brokerage Service,
Inc. v. Phoenix Assurance Company of New York, May 8, 2009) and (ii) arrastre operator – the
relationship between consignee and arrastre operator is akin to that existing between consignee
and/or owner of the shipped goods and the common carrier, or that between a depositor and a
warehouseman. Safekeeping of the goods is its responsibility. (Asian Terminals, Inc. v. First Lepanto-
Taisho Insurance Corporation, June 16, 2014)

The following may or may not be common carriers: (i) customs broker/brokerage – customs
broker/brokerage may be regarded as a common carrier if it undertakes to deliver the goods for its
customers. The law does not distinguish between one whose principal business activity is the
carrying of goods and one who does such carrying only as an ancillary activity (Torres-Madrid
Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc., July 11, 2016) and (ii) freight forwarder
– freight forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their
destination instead of merely arranging for their transportation, it becomes liable as a common
carrier for loss or damage to goods. (Unsworth Transport International, Inc. v. Court of Appeals,
July 26, 2010)

The common carrier is not required to be notified first of belongings brought by the
passengers to be liable for the loss thereof. By allowing passengers to board the vessel with
belongings without any protest, common carriers became sufficiently notified of such belongings. So
long as the belongings were brought inside the premises of the ship/vessel, the common carrier was
thereby effectively notified and consequently duty-bound to observe the required diligence in ensuring
the safety of the belongings during the voyage. (Sulpicio Lines, Inc. v. Sesante, July 27, 2016)

Common carrier is not liable if its passenger is suddenly shot by a co-passenger. While the law
requires the highest degree of diligence from common carriers in the safe transport of their

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passengers and creates a presumption of negligence against them, it does not, however, make the
carrier an insurer of the absolute safety of its passengers. (G.V. Florida Transport, Inc. v. Heirs of
Battung, October 14, 2015)

INTELLECTUAL PROPERTY LAW

There are two kinds of patent infringement: direct and indirect infringement. Direct infringement
pertains to the making, using, offering for sale, selling, or importing the patented product or product
obtained directly or indirectly from a patented process, or the unauthorized use of a patented process.
On the other hand, indirect infringement can result from a person’s act of inducing another to infringe a
patent (infringement by inducement), or contributing to the infringement of the patent (contributory
infringement). Contributory infringement requires knowledge on the infringer's part that the component
is used for infringing a patented invention and is not suitable for substantial non-infringing use. The law
makes the person who committed any of the two acts solidarily liable with the direct infringer who is
primarily liable for the infringement. Hence, indirect infringement presupposes the existence of a direct
infringer. There can be no contributory infringement if there is no direct infringement. (Tuna Processors,

Lopez, Geoffrey S.
Inc. v. Frescomar Corporation, February 27, 2024)

Example of infringement by inducement. Patent A includes claims consisting of elements [a] + [b]
+ [c] + [d]. Product B has elements identical or equivalent to [a] + [b] + [c] + [d], with the addition of
element [e]. Company X induced the producer of Product B to use the elements in Patent A. In this
case, Company X is liable for infringement by inducement, while the producer of Product B is liable for
direct infringement. (Tuna Processors, Inc. v. Frescomar Corporation, February 27, 2024)

Example of contributory infringement. Patent A includes claims consisting of elements [a] + [b] +
[c] + [d]. Product B has elements identical or equivalent to [a] + [b] + [c] + [d]. Company X, knowing that
element [a] can only be used in infringing Patent A, provided the producer of Product B with element
[a]. In this case, Company X is liable for contributory infringement, while the produce of Product B is
liable for direct infringement. (Tuna Processors, Inc. v. Frescomar Corporation, February 27, 2024)

Literal infringement differs from doctrine of equivalents. In literal infringement, to determine

whether the item falls within the literal meaning of the patent claims, the court must juxtapose the
claims of the patent and the accused product within the overall context of the claims and
specifications, to determine whether there is exact identity of all material elements while in
doctrine of equivalents, an infringement also occurs when a device appropriates a prior invention by
incorporating its innovative concept and, albeit with some modification and change, performs
substantially the same function in substantially the same way to achieve substantially the same
result. (Godines v. Court of Appeals, September 13, 1993) There is direct patent infringement
where Patent A includes claims consisting of elements [a] + [b] + [c] + [d] and Product B has
elements identical or equivalent to [a] + [b] + [c] + [d], with the addition of element [e]. In this case,
Product B would infringe literally infringe on Patent A because Product B has all features that are
covered by Patent A, even though it has an additional element [e]. But Product B may not infringe
on Patent A directly where Patent A includes claims consisting of elements [a] + [b] + [c] + [d] but
Product B has features covered by identical elements [a] + [b] + [c] because Product B does not
include – literally or equivalently – element [d] of Patent A. Thus, there is no patent infringement
where a patent covers a method of curing tuna meat using filtered smoke cooled to between 0°
Celsius and 5° Celsius but the other process did not perform all the elements of the patent since

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its process ended with the production of smoke, that is, it performed the first two elements of the
patent, i.e., burning of smoking material and filtering of the produced smoke, yielding burned the
materials at 250° to 400°C. (Tuna Processors, Inc. v. Frescomar Corporation, February 27, 2024)

To effectively enforce their economic rights, the copyright owners can designate a society
of artists, writers or composers on their behalf through a deed of assignment. An example
of this is Filipino Society of Composers, Authors and Publishers, Inc. (FILSCAP). Necessarily,
FILSCAP's scope of authority is limited by what the deeds or agreements specifically provide.
Therefore, FILSCAP, as the assignee, is entitled to all the rights and remedies which the assignor had
with respect to the copyright. If FILSCAP determines that there is an infringement of the copyrighted
musical works, it can pursue appropriate measures to protect its rights and that of the
assignors. (COSAC, Inc. v. Filipino Society of Composers, Authors and Publishers, Inc., February
28, 2023)

A cable tv operator commits copyright infringement when it played videoke containing

copyrighted musical compositions without obtaining a license. A typical videoke of a song is

Lopez, Geoffrey S.
not one single object, having discrete components: a set of moving images, the song's lyrics
superimposed over the moving images, and a musical composition in instrumental format
synchronized to the superimposed lyrics. Each of these components may be separately protected
by copyright. Notably, derivative works do not affect the force of or extend any subsisting copyright
on the original works used in the derivate work, and the copyright protection over the derivative
works does not imply by itself the right to use the original works. Verily, when a cable television
system operator transmits a musical composition fixed in an audiovisual derivative work over a
channel they control and operate, the operator is making that work accessible to members of the
public from a place or time individually chosen by them. This is the essence of the "communication
to the public" right in the Intellectual Property Code. Should any person, without the consent or
authority of the copyright holder, exercise economic rights, including this “communication to the
public” right, they may be liable for copyright infringement. (Philippine Home Cable Holdings, Inc.
v. Filipino Society of Composers, Authors and Publishers, Inc., February 21, 2023)

The act of playing radio broadcasts containing sound recordings using loudspeakers
amounts to an unauthorized communication of such copyrighted music to the public and
thus violates the public performance rights of the copyright owner. A radio reception creates
a performance separate from the broadcast. This is otherwise known as the doctrine of multiple
performances which provides that a radio (or television) transmission or broadcast can create multiple
performances at once. On whether the reception of a broadcast may be publicly performed, it is
immaterial if the broadcasting station has been licensed by the copyright owner because the
reception becomes a new public performance requiring separate protection. Typically, radio stations
already secured from the copyright owner (or his/her assignee) the license to broadcast the sound
recording. And by the nature of broadcasting, it is necessarily implied that its reception by the public
has been consented to by the copyright owners. But the author normally thinks of the license to
broadcast as to “cover only the direct audience receiving the signal within the family circle.” Any further
communication of the reception creates, by legal fiction, a “new public” which the author never
contemplated when they authorized its use in the initial communication to the public. Notably, radio
reception transmitted through loudspeakers to enhance profit does not constitute, and is not
analogous to, fair use. Thus, the unlicensed playing of radio broadcasts as background music in dining
areas of a restaurant for the entertainment of customers and for the enhancement of their dining

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experience amounts to copyright infringement. (Filipino Society of Composers, Authors and
Publishers, Inc. v. Anrey, Inc., August 9, 2022) Even the playing of copyrighted broadcasted music
through a radio in the restaurant amounts to a public performance of the said copyrighted music and
is an infringement if done without license from the copyright owner. (Iceberg’s Food Concepts, Inc. v.
Filipino Society of Composers, Authors and Publishers, Inc., April 12, 2023)

A restaurant should have obtained a license from copyright owners for allowing live bands
to play copyrighted music and playing recorded copyrighted music in its premises;
otherwise it is liable for copyright infringement. As the playing of music was not done privately
but commercial in nature, and the establishment is not a charitable or religious institution, the case
does not fall under any of the limitations or the concept of fair use. Accordingly, such restaurant is
a primary infringer (or that directly commit the infringing acts) and a secondary infringer (or that
who induce, materially contribute to, or benefit from, an infringing act of another) because it allowed
the commission of infringing acts when it permitted musical artists or bands to perform copyrighted
music (secondary infringer), and played sound recordings as background music (primary infringer)
without first procuring a license from the copyright owners (or assignees) of the songs and paying

Lopez, Geoffrey S.
the fee. By doing so, such restaurant unduly enriched itself when it allowed the playing in public of
copyrighted songs which in turn paved the way for it to generate more profit without any additional
expense to it. (COSAC, Inc. v. Filipino Society of Composers, Authors and Publishers, Inc.,
February 28, 2023)

The doctrine of fair use provides that the fair use of a copyrighted work for criticism, comment,
news reporting, teaching including multiple copies for classroom use, scholarship, research, and
similar purposes is not an infringement of copyright. Fair use is a privilege to use the copyrighted
material in a reasonable manner without the consent of the copyright owner or by copying the theme
or ideas rather than their expression. (ABS-CBN Corporation v. Gozon, March 11, 2015)

Factors to determine if there is fair use of a copyrighted work. First, the purpose and character
of the use of the copyrighted material must fall under those listed in Section 185, thus: ‘criticism,
comment, news reporting, teaching including multiple copies for classroom use, scholarship,
research, and similar purposes.’ The purpose and character requirements are important in view of
copyright’s goal to promote creativity and encourage creation of works. Hence, commercial use of
copyrighted work can be weighed against fair use. The ‘transformative test’ is generally used in
reviewing the purpose and character of the usage of the copyrighted work. The court must investigate
whether the copy of the work adds ‘new expression, meaning or message’ to transform it into
something else. Second, the nature of the copyrighted work is significant in deciding whether its use
was fair. If the nature of the work is more factual than creative, then fair use will be weighed in favor
of the user. Third, the amount and substantiality of the portion used is important to determine
whether usage falls under fair use. An exact reproduction of a copyrighted work, compared to a
small portion of it, can result in the conclusion that its use is not fair. There may also be cases
where, though the entirety of the copyrighted work is used without consent, its purpose
determines that the usage is still fair. For example, a parody using a substantial amount of copyrighted
work may be permissible as fair use as opposed to a copy of a work produced purely for economic gain.
Lastly, the effect of the use on the copyrighted work’s market is also weighed for or against the
user. If the court finds that the use had or will have a negative impact on the copyrighted work’s
market, then the use is deemed unfair. Thus, the playing of musical compositions or sound recordings
at a restaurant, regardless of the medium used, whether via live band or using speakers or

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monitors, does not fall under any of the limitations or the concept of fair use. (COSAC, Inc. v. Filipino
Society of Composers, Authors and Publishers, Inc., February 28, 2023)

The law did not provide parameters to determine how an entity or individual would be deemed
exempt from copyright infringement in certain instances. There is no law, rule, or previous
jurisprudence delineating the treatment for copyright music infringers, whether it be big businesses
(“large-scale users”) or small establishments (“small-scale users”). Additionally, the law did not
expressly make distinctions as to the possible levels of liabilities or exemptions if copyrighted music
was played using different media. It did not categorize the “treatments” per medium, if the use would
be sourced from a television/radio broadcast, personal recordings through a CD or mp3s, music
videos, etc. (COSAC, Inc. v. Filipino Society of Composers, Authors and Publishers, Inc., February
28, 2023)

Ownership of a mark is acquired through registration. Prior use no longer determines the
acquisition of ownership of a mark considering the adoption of the rule that ownership of a mark is
acquired through registration made validly in accordance with the provisions of the Intellectual Property

Lopez, Geoffrey S.
Code. The prima facie nature of the certificate of registration is not indicative of the fact that prior use is still
a recognized mode of acquiring ownership. It is meant to recognize the instances when the certificate of
registration is not reflective of ownership of the holder thereof, such as when: (i) the first registrant has
acquired ownership of the mark through registration but subsequently lost the same due to non-
use or abandonment; (ii) the registration was done in bad faith; (iii) the mark itself becomes
generic; (iv) the mark was registered contrary to the Intellectual Property Code; or (v) the registered
mark is being used by, or with the permission of, the registrant so as to misrepresent the source of
the goods or services on or in connection with which the mark is used. (Zuneca Pharmaceutical v.
Natrapharm, Inc., September 8, 2020) A certificate of registration accords the registrant a prima
facie presumption of their ownership of the mark. However, this presumption may be rebutted by
proof that the registration was obtained fraudulently or contrary to the provisions of the Intellectual
Property Code, e.g., evidence of actual and real ownership of another by prior use. (Medina v.
Global Quest Ventures, Inc., February 8, 2021)

The first-to-file rule does not apply if bad faith attended the trademark registration. Bad faith in
the context of trademark registration means that the applicant or registrant has knowledge of prior
creation, use and/or registration by another of an identical or similar trademark. An example of
trademark registration in bad faith would be the act of trademark squatting which occurs when a party
registers another’s trademark as their own in a jurisdiction where the original trademark owner has
yet to register to gain benefits from the original marks or real trademark owners. The act of trademark
squatting essentially blocks the registration of the original brand owner and may result in the
registrant in bad faith extracting benefits from the former for them to be able to register. Thus, a
trademark was registered in bad faith where the same was done by a mere importer or distributor without
the grant of authority to register the subject trademarks in his name. (Lim v. See, January 25, 2023)
Similarly, a registrant’s trademark application was made in bad faith when as a partner, the
registrant, was without a doubt aware of the prior use of the trademark by the partnership, and that
it had been another partner who conceptualized the mark for the partnership while on vacation in
Greece. (Zulueta v. Cyma Greek Taverna Co., January 23, 2023)

A prior user in good faith may continue to use its mark even after the registration of the
mark by the first-to-file registrant in good faith, subject to the condition that any transfer or

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assignment of the mark by the prior user in good faith should be made together with the
enterprise or business or with that part of his enterprise or business in which the mark is used.
The mark cannot be transferred independently of the enterprise and business using it. (Zuneca
Pharmaceutical v. Natrapharm, Inc., September 8, 2020)

The spectrum of distinctiveness of trademarks. The strongest trademarks, and those that enjoy
the broadest protection, are arbitrary and fanciful marks. Fanciful marks are not found in the dictionary.
They are coined letter and/or number combinations whose sole function is to serve as a mark, not as
a word in the English language, and are the “strongest and most distinctive” marks. An example of a
fanciful mark would be the term “KODAK” for film products as that word is not found in the dictionary
and it was particularly coined for the sole purpose of distinguishing a mark. Arbitrary marks are terms
that have ordinary meaning apart from their connection to the goods and services at issue but are
unrelated to the goods and services cm which they are applied. An example of an arbitrary mark is
“ADAGIO,” a musical term, which means slowly or in an easy manner, but when applied to
brassieres, develops to an arbitrary mark, not being a common descriptive name for a particular style
of brassieres, thus, it becomes distinct and registrable as a trademark. The next category of

Lopez, Geoffrey S.
distinctiveness is suggestive marks. These are inherently distinctive and thus protectable as
trademarks. They are presumed to be valid and may be registered without the necessity of
presenting proof of secondary meaning. These terms merely imply or suggest, but do not explicitly
describe the qualities or functions of a particular product or service. Case law holds that the “FAMILY
BANK” is a suggestive mark. The next category, which entails a weaker trademark protection, is
descriptive terms. Words which are merely descriptive of character, qualities, or composition of
article, or of place where it is manufactured or produced, cannot be monopolized as trademark.
Descriptive marks are generally not registrable as trademarks. In a case, “PALE PILSEN” is held to be
a descriptive term because it merely describes the color (pale), of a type of beer (pilsen), which is a
light bohemian beer with a strong hops flavor that originated in the City of Pilsen in Czechoslovakia.
Since it was a descriptive term, it cannot be appropriated as a trademark for exclusive use.
Nevertheless, there is an exception wherein a descriptive mark may become registrable as a
trademark based on the doctrine of secondary meaning. Under this doctrine, a word or a phrase that
is “originally incapable of exclusive appropriation” may nonetheless be used as a trademark of an
enterprise if such word or phrase—by reason of the latter’s long and exclusive use thereof with
reference to its article—has come to mean that such article was its product. The last and weakest
mark in the spectrum of distinctiveness is the generic mark. A generic word or term is the name by
which a class of products or services is commonly known. These are words or signs that name the
species or object to which they apply. For this reason, they are not eligible for protection as marks
under the IP Code as the law precisely requires a trademark to be comprised of words or signs that can
distinguish the goods or services of a particular enterprise. (Ginebra San Miguel, Inc. v. Director of the
Bureau of Trademarks, August 9, 2022)

The ultimate factor in determining whether a particular word is generic is public perception.
Based on public perception, a word is regarded as generic if the relevant consuming public
understands such word as merely referring to the general class of product it purports to represent as a
mark. Conversely, if the relevant consuming public understands a word as pertaining to the product
of a particular enterprise, then such word is not considered as generic but a distinctive one. A word
or a sign’s distinctive capacity is the recognized benchmark of trademark protection. Relatedly,
under the primary significance test adopted in the US and in the Philippines, a term is not generic
when the primary significance of the term in the minds of the consuming public is not the product

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but the producer. Hence, a generic term may evolve into a descriptive term, and it is only when it
has already become descriptive that it may be capable of acquiring distinctiveness. In other words,
under the doctrine of secondary meaning, a term cannot jump from being generic to being
distinctive at once. It must first evolve into a descriptive term and thereafter acquire distinctiveness.
(Ginebra San Miguel, Inc. v. Director of the Bureau of Trademarks, August 9, 2022)

The doctrine of foreign equivalents is a legal principle that advocates resort to dictionary
translations to ascertain whether a foreign word is generic or not. It stipulates that a foreign
word ought to be considered generic with respect to a certain product if the English translation thereof
likewise concedes a generic meaning in relation to such product. A common term from another country
used to describe an item from that same country should not be given trademark protection in this
country. Words that are foreign equivalents of generic or merely descriptive terms may not merit
legal protection where consumers would recognize the generic or descriptive meaning of the
foreign terms. Following this doctrine, a tribunal may, under certain circumstances, translate foreign
words into their English-equivalent to determine their genericness and descriptiveness. Generic or
descriptive names for a product, in whatever language, belong in the public domain if the typical

Lopez, Geoffrey S.
consumer would recognize those names as generic or descriptive. The foreign equivalent of a
generic term is unregistrable where the typical consumer would translate the term into English. No
merchant may obtain the exclusive right over a trademark designation if that exclusivity would
prevent competitors from designating a product as what it is in the foreign language their customers
know best. For instance, the Latin word “LYCEUM,” which in English translates to “University,” a
generic mark, hence, not subject to the protection of trademark. Notably, the doctrine of foreign
equivalents is not an absolute rule and should only be considered as a guideline. In addition, the
doctrine should only be applied when an ordinary purchaser would “stop and translate the foreign
word into its English equivalent” If an ordinary purchaser would not likely “stop and translate the foreign
word” because the said word already signifies a different meaning based on public perception, then the
doctrine of foreign equivalents is inapplicable. (Ginebra San Miguel, Inc. v. Director of the Bureau of
Trademarks, August 9, 2022)

In trademark cases, survey evidence is admissible because of necessity and trustworthiness and
may be given weight. As to admissibility, there must be a further examination of the necessity for the
statements in the survey evidence at trial and the circumstantial guaranty of trustworthiness
surrounding the making of the statements in the survey evidence. Necessity requires a comparison
of the probative value of the survey with the evidence, if any, which as a practical matter could be
used if the survey were excluded. If the survey is more valuable, then necessity exists for the survey,
i.e., it is the inability to get ‘evidence of the same value’ which makes the hearsay statement necessary.
The second element is the guaranty of trustworthiness supplied by the circumstances under which
the out-of-court statements were made. A logical step in this inquiry is to see which of the hearsay
dangers are present. The only appreciable danger is that the respondent is insincere. But this danger
is minimized by the circumstances of this or any public opinion poll in which scientific sampling is
employed, because members of the public who are asked questions about things in which they have
no interest have no reason to falsify their feelings. Notably, the rules of procedure in intellectual
property rights cases allow market surveys to be presented in court to prove the primary significance of
the mark to the public and/or the likelihood of confusion. As to weight, the court must be circumspect to
determine the reliability of the survey, by considering the different factors that affect its probative value and
evidentiary weight. These factors may include the following: the universe was properly defined; a
representative sample of that universe was selected; the questions to be asked of interviewees were

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framed in a clear, precise and non-leading manner; sound interview procedures were followed by
competent interviewers who had no knowledge of the litigation or the purpose for which the survey was
conducted; the data gathered was accurately reported; the data was analyzed in accordance with
accepted statistical principles; and objectivity of the entire process was assured. (Ginebra San Miguel,
Inc. v. Director of the Bureau of Trademarks, August 9, 2022)

Through empirical survey evidence and a century of advertisement, public perception views
“GINEBRA” not as a generic English term for gin; rather, “GINEBRA,” through its long usage
in the Philippines, now refers to the gin products of Ginebra San Miguel, Inc. (GSMI) to the
public. The entirety of the evidence shows the public perception with respect to the term, “GINEBRA”
and it cannot be gainsaid that an ordinary Filipino purchaser would “stop and translate the foreign
word into its English equivalent.” As stated by a direct consumer survey, 90% of the respondents
readily associated the word “GINEBRA” with the gin product of GSMI. Evidently, the doctrine of
foreign equivalents is not applicable. Almost the entire consuming public will not stop and translate
the Spanish word “GINEBRA” to its English equivalent based on the dictionary. Instead, the
consuming public immediately associates “GINEBRA” with the gin product of GSMI because of

Lopez, Geoffrey S.
the primary significance the public associate with the mark. (Ginebra San Miguel, Inc. v. Director
of the Bureau of Trademarks, August 9, 2022)

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

Considering the adoption of the Dominancy Test and the abandonment of the Holistic Test,
as confirmed by the provisions of the Intellectual Property Code and the legislative
deliberations, the use of the Holistic Test in determining the resemblance of marks has been
abandoned. (Kolin Electronics Co., Inc. v. Kolin Philippines International Inc., February 9, 2021)
Thus, a previous case which used the Holistic Test cannot bind subsequent similar cases since
the principle of stare decisis does not and should not apply when there is conflict between the
precedent and the law, as in this case prescribing the Dominancy Test. (Kolin Electronics Co., Inc.
v. Kolin Philippines International, Inc., July 6, 2021) Relatedly, there are no set rules in determining
what constitutes a dominant feature in trademarks. Instead, considered are the signs, color, design,
peculiar shape or name, or some special, easily remembered earmarks of the brand that readily
attracts and catches the attention of the ordinary consumer. (Lacoste S.A. v. Crocodile International
PTE, Ltd., November 6, 2023)

Whether based on dominancy test, there are confusingly similar marks in the following: (a)
Emzee Foods, Inc.’s "ELARZ LECHON" and "ELAR LECHON" bear an indubitable likeness with
Elarfoods, Inc.’s "ELARS LECHON." Both marks use the essential and dominant word "ELAR".

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The only difference between the two is the last letters Z and S, respectively. However, the letters
Z and S sound similar when pronounced. Thus, both marks are not only visually similar, but are
phonetically and aurally similar as well. To top it all off, both marks are used in selling lechon
products. Verily, there exists a high likelihood that the consumers may conclude an association or
relation between the products. (Emzee Foods, Inc. v. Elarfoods, Inc., February 17, 2021); (b) Levi
Strauss & Co.’ “LEVI’S” and Sevilla’s “LIVE’S.” The marks are confusingly similar. While both
marks are neither spelled identically nor pronounced in the same way, nor possess the same
meaning, they both begin with the same letter and are in the possessive form as denoted by the
apostrophe before the letter "S" at the end, with only the second and fourth letters re-arranged.
Simply put, the LIVE’S mark is but a mere anagram of the "LEVI’S" marks. It would not be far-
fetched to imagine that a buyer, when confronted with such striking similarity would be led to
confuse one over the other. Even applying the abandoned Holistic Test, the likelihood of confusion
tends to be more highlighted by the undisputed fact that the products are competing goods, and
that their marks as used in actual product labels are very much similar with one another. (Levi
Strauss & Co. v. Sevilla, March 1, 2021); (c) Suyen’s “AGENT BOND” is non-registrable because
it nearly resembles the registered mark Danjaq’s “JAMES BOND” and is likely to deceive or cause

Lopez, Geoffrey S.
confusion. The fact that Suyen’s marketed its products carrying the AGENT BOND mark with the
BENCH or FIX brand does not change the fact that using the combination of the words “agent” and
“bond” in that particular order may lead the purchaser to believe that the product is related to JAMES
BOND. It is not actual confusion that is required in trademark infringement cases but only a
likelihood of confusion (Suyen Corporation v. Danjaq, LLC, July 6, 2021); (d) Tanduay Distillers,
Inc.’s “GINEBRA KAPITAN” and GSMI’s “GINEBRA SAN MIGUEL.” Applying the Dominancy Test,
the word ‘GINEBRA’ is the dominant feature of these marks. The term “GINEBRA” has been so deeply
ingrained in the general psyche of the Filipinos that it is conveniently and exceptionally associated
with GSMI’s “GINEBRA SAN MIGUEL” gin products, more particularly, “GINEBRA S.
MIGUEL.” Thus, an ordinary purchaser, even one accustomed to drinking gin, may likely be
confused into buying a “GINEBRA KAPITAN” thinking it is a “GINEBRA” product of GSMI;
(Ginebra San Miguel, Inc. v. Director of the Bureau of Trademarks, August 9, 2022) and (e)
Lacoste’s “Crocodile Device” mark and Crocodile’s “Crocodile and Device” mark have pronounced
differences which resultantly, make them distinguishable from one another, such as (i) Lacoste's
figure is facing to the right, meaning the head is at the right side while the tail is at the left side, and
is aligned horizontally, while Crocodile's figure, is facing to the left, meaning the head is at the left
side while the tail is at the right side, and that both the figure and the word "Crocodile" in stylized
format on top of it are tilted in that the right side's alignment is higher than the left side and (ii) in
Lacoste's mark, the figure is solid, except for the crocodile scutes found on the body and the base
of the tail which are depicted in white inverted triangles, while the figure in Crocodile's mark is not
solid, but rather, more like a drawing. (Lacoste S.A. v. Crocodile International PTE, Ltd., November
6, 2023)

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Trademark infringement differs from unfair competition. The distinctions are (i) the former is the
unauthorized use of a trademark, whereas the latter is the passing off one’s goods as those of
another, (ii) fraudulent intent is unnecessary in the former, while it is essential in the latter, and (iii)
in the former, prior registration of the trademark is a pre-requisite to the action, while it is not
necessary in the latter. (Co v. Yeung, September 10, 2014) Passing off (or palming off) takes place
where the defendant, by imitative devices on the general appearance of the goods, misleads
prospective purchasers into buying his merchandise under the impression that they are buying that
of his competitors. (Petron Corporation v. Yao, March 18, 2021) The essential elements of an action
for unfair competition are (1) confusing similarity in the general appearance of the goods and (2) intent
to deceive the public and defraud a competitor. (Ginebra San Miguel, Inc. v. Director of the Bureau
of Trademarks, August 9, 2022)

Examples of unfair competition. (a) There is unfair competition when Tanduay Distillers, Inc.
uses “GINEBRA KAPITAN” which is confusingly similar to GSMI’s “GINEBRA SAN MIGUEL.” The
second element of unfair competition was also satisfied. Tanduay Distillers, Inc. knew fully well that
GSMI has been using the mark/word “GINEBRA” in its gin products and that GSMI’s “GINEBRA

Lopez, Geoffrey S.
SAN MIGUEL” had already obtained, over the years, a considerable number of loyal consumers
who associate the mark “GINEBRA” with San Miguel. Yet, it chose to use the same mark/word
in launching the same gin product. (Ginebra San Miguel, Inc. v. Director of the Bureau of
Trademarks, August 9, 2022) (b) There is unfair competition when Foodsphere, Inc.’s “PISTA”
ham switched from its old box packaging to the same paper ham bag packaging used by San
Miguel’s “PUREFOODS FIESTA HAM” and used the same layout design printed on the same.
(San Miguel Corporation v. Foodsphere, Inc., June 28, 2018) (c) There is unfair competition
between “PAPER ONE” brand of Asia Pacific, which is engaged in the production, marketing,
and sale of pulp and premium wood free paper, and PAPERONE, Inc., which is engaged in paper
conversion such as manufacture of table napkins, notebooks, and intermediate/collegiate writing.
There is confusion of business because the use of PAPERONE by PAPERONE, Inc. would likely
cause confusion or deceive the ordinary purchaser, exercising ordinary care, into believing that the
goods bearing the mark are products of one and the same enterprise. (Asia Pacific Resources
International Holdings, Ltd. v. Paperone, Inc., December 10, 2018) (d) There is unfair competition
where petitioners’ product which is a medicated facial cream sold to the public is contained in the
same pink oval-shaped container which had the mark “Chin Chun Su,” as that of respondent. While
petitioners indicated in their product the manufacturer’s name, the same does not change the fact that
it is confusingly similar to respondent’s product in the eyes of the public. (Kho v. Summerville
General Merchandising & Co, August 4, 2021)

DATA PRIVACY ACT

The Data Privacy Act, the provisions of the Civil Code, and other pertinent laws govern the
violation of the right to privacy between individuals. Admissibility shall be governed by the
rules on relevance, materiality, authentication of documents, and the exclusionary rules under the
Rules on Evidence. Meanwhile, the Bill of Rights offers protection against the State. The Bill of
Rights governs the relationship between the individual and the state. What the Bill of Rights does
is to declare some forbidden zones in the private sphere inaccessible to any power holder.
(Cadajas v. People, November 16, 2021)

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Outside the scope of the law is the processing of information necessary to carry out the
functions of public authority which includes the processing of personal data for the performance
by the Bangko Sentral ng Pilipinas and law enforcement and regulatory agencies of their
constitutionally and statutorily mandated functions. Thus, the processing of Tax Identification
Number, a sensitive personal information, under the Bureau of Internal Revenue’s Revenue Regulation
No. 1-2014, which sought to create a taxpayer database for “establishing simulation model, formulating
analytical framework for policy analysis, and institutionalizing appropriate enforcement activities”
purportedly to ensure the effective assessment and collection of national taxes, is not necessary, and
thus violates the Data Privacy Act, if collection of information is not necessary for the Bureau of Internal
Revenue to carry out its functions. There was no showing that there was a problem or inefficacy with the
system prior to the issuance of the regulation. Thus, the requirement of necessity is not met. (The
Philippine Stock Exchange, Inc. v. Secretary of Finance, July 5, 2022). But the Ombudsman can process
the mobile phone number of a public official, which was obtained through his Personnel Data Sheet,
pursuant to its mandate, subject to the general data privacy principles. (Zoleta v. Investigating Staff,
Internal Affairs Board, Office of the Ombudsman, 8 April 2024).

Lopez, Geoffrey S.
While sensitive personal information cannot be processed, it can be processed, among others,
where the processing concerns such personal information as is necessary for the protection of
lawful rights and interests of natural or legal persons in court proceedings, or the establishment,
exercise or defense of legal claims, or when provided to government or public authority. Thus,
absent any violation of Philippine Statistics Authority rules and regulations, a lawyer lawfully processed
sensitive personal information, e.g., marital status, when he requested and obtained a marriage certificate
of a counterparty from the Philippine Statistics Authority for use in a guardianship case. (Azarraga v. Atty.
Jalbuna, February 22, 2023)

ELECTRONIC COMMERCE ACT

The original printout of a facsimile transmission is not an electronic document or electronic

data message. An electronic document refers to information or the representation of information,
data, figures, symbols, or other modes of written expression, described or however represented,
by which a right is established, or an obligation extinguished, or by which a fact may be proved and
affirmed, which is received, recorded, transmitted, stored, processed, retrieved, or produced
electronically. The law focuses on “paperless” transactions. Facsimile transmissions are not
“paperless,” but are paper based. In an ordinary facsimile transmission, there exists an
original paper-based information or data that is scanned, sent through a phone line, and re-printed at
the receiving end. (MCC Industrial Sales Corporation v. Ssangyong Corporation, October 17, 2007)

The photocopies of documents submitted to the court where not all of the contents therein,
such as the signatures of the persons who purportedly signed the documents, are
recorded or produced electronically cannot be considered as electronic documents. What
differentiates an electronic document from a paper-based document is how the information is
processed. The information contained in an electronic document is received, recorded, transmitted,
stored, processed, retrieved, or produced electronically. By no stretch of the imagination can a person’s
signature affixed manually be considered as information electronically received, recorded,
transmitted, stored, processed, retrieved, or produced. Having thus declared that the offered
photocopies are not tantamount to electronic documents, it is consequential that the same may not

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be considered as the functional equivalent of their original. (National Power Corporation v. Codilla Jr.,
April 3, 2007)

FINANCIAL REHABILITATION AND INSOLVENCY ACT

The proceedings are conducted in a summary and non-adversarial manner. Thus, a corporate
debtor cannot seek adjudication of insurance claims against its insurers in the rehabilitation court. (Steel
Corporation v. Mapre, October 16, 2013) Similarly, a claim for execution of deed of sale of
condominium unit in favor of the claimant is not allowed during rehabilitation proceedings since the
same is not only covered by the stay order but also requires full adjudication on the merits especially
that the full payment of the purchase price is disputed. (Dela Torre v. Cabrieto Jr., February 14, 2018).

All actions for claims against corporations undergoing rehabilitation are ipso jure suspended
upon the effectivity of the suspension or stay order whether or not the case has reached the
execution stage. Decisions show that the tribunals or courts were properly informed of the issuance
of suspension of payment/commencement order while the case was pending before them, and yet

Lopez, Geoffrey S.
they still proceeded with rendition of judgment, and accordingly, such decisions are void. There is thus
the necessity of properly informing courts of any pending rehabilitation proceeding involving the parties.
Notwithstanding the in rem nature of rehabilitation proceedings under FRIA, in addition to publication,
the FRIA and the rules also require personal notice to certain creditors and entities. Nowhere in FRIA
is it stated that any action taken on pending actions against the debtor, including rendition of judgment,
is automatically voided on the ground that it was rendered or issued after the issuance of a
commencement order. Indeed, a stay order simply suspends all actions for claims against a
corporation undergoing rehabilitation; it does not work to oust a court of its jurisdiction over a case
properly filed before it. Nonetheless, the doctrine remains that the stay order incorporated in a
commencement order shall suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor. Practically, however, other courts and tribunals must of
course first be apprised of the rehabilitation proceedings and the issuance of the stay order so that they
may suspend their own proceedings. As such, upon appointing a rehabilitation receiver, the
rehabilitation court shall direct the receiver to notify all courts or tribunals handling cases involving the
debtor of the rehabilitation petition, its filing details, and the issuance of commencement orders. (Pacific
Cement Company v. Oil and Natural Gas Commission, July 11, 2023).

The effects of a commencement order retroact to the date that the petition for rehabilitation
was filed and renders void any attempt to collect on or enforce a claim against the debtor or to
set off any debt by the debtor’s creditors, after the commencement date. Hence, the offsetting
on the deposits done by a bank with the liabilities of the debtor three days after the petition was filed
may be invalidated, even if the bank and the debtor had a contract authorizing the bank to offset and
even if the bank was not yet notified of the commencement order at the time offsetting. There is no
impairment of contract since the commencement order did not eliminate or reduce the debtor’s
obligations to the bank, but merely suspended its enforcement while rehabilitation is being undertaken.
There is no violation of due process; the immediate effectivity of the stay order is consistent with the
publication requirement. Once due notice by publication is made, the rehabilitation court may nullify
actions inconsistent with the stay order, but which may have been taken prior to publication, precisely
because prior to publication, creditors may not yet be aware that they are to desist from pursuing claims
against the insolvent debtor. (In the Matter of the Petition to Have Steel Corporation of the Philippines
Placed Under Corporate Rehabilitation, March 14, 2018)

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Stay order does not enjoin the enforcement of claims against other persons solidarily liable
with the debtor. Being solidary, the claims against them can be pursued separately from and
independently of the rehabilitation. Thus, claims against sureties and banks on their liability under a
letter of credit may proceed. (Metropolitan Waterworks and Sewerage System v. Daway, June 21,
2004) Thus, when a stay order is issued, the rehabilitation court is only empowered to suspend claims
against the debtor, its guarantors, and sureties who are not solidarily liable with the debtor. (Trade and
Investment Development Corporation v. Philippine Veterans Bank, July 1, 2019).

Criminal proceedings against corporate officers are not suspended pending corporate
rehabilitation. It would be absurd for one who has engaged in criminal conduct could escape
punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer.
(Panlilio v. Regional Trial Court, 2 February 2011)

The cram down clause provides that rehabilitation plan may be approved even over the
opposition of the creditors holding a majority of the corporation’s total liabilities if there is a

Lopez, Geoffrey S.
showing that rehabilitation is feasible, and the opposition of the creditors is manifestly
unreasonable. This provision is necessary to curb the majority creditors’ natural tendency to dictate
their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit
of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but incomplete recovery. This is
incorporated under Section 64 of the FRIA. (Bank of the Philippine Islands v. Sarabia Manor Hotel
Corporation, July 29, 2013).

One of the consequences of the exercise of the “cram-down” power is the impairment of
contracts. The creditor cannot expect to receive the contracted amount owed by respondent because
a modification of the terms and conditions of the contract is certainly foreseeable and reasonable in a
rehabilitation case. The legal principle of non-impairment of contracts does not apply to judicial
decisions which examine whether contracts are unconscionable or contrary to public policy, public
order or morals. Necessarily, with this judicial power, contracts would have to be impaired for the
greater good by judicial decisions. Thus, a rehabilitation plan already approved and upheld by the
Supreme Court with finality in another case must be duly observed and complied with vis-à-vis and in
accordance with the “cram down” principle. As stipulated in the rehabilitation plan, the secured creditors
have two (2) options by which the loans owing them can be settled: (1) through dacion en pago wherein
all penalties shall be waived; or (2) if the secured creditors do not consent to dacion en pago, through
the disposition or sale of the mortgaged properties at selling prices, but without interest, penalties, and
other related charges accruing after the date of the initial suspension order. As the secured creditors
refused to avail the dacion en pago, the only remaining option to pay off the loans was through the
disposition or sale of the mortgaged properties, without accrual of interest, penalties, and other related
charges following the issuance of the stay order. There is thus nothing unlawful with the directive of the
Court of Appeals to release the mortgaged properties from mortgage. It cannot be considered as an
infringement of the secured creditor’s alleged right to due process. For the modification of the mortgage
contracts in fact is part and parcel of the Rehabilitation Plan itself. (China Banking Corporation v. St.
Francis Square Realty Corporation, July 27, 2022 [J. Lazaro-Javier])

PUBLIC SERVICE ACT

2025 Handouts in Mercantile Law Jurisprudence by Prof. Ronel U. Buenaventura. Copying, dissemination, storage,
use, modification, uploading, and downloading without the express written consent of Jurists Review Center Inc. is
strictly prohibited and shall be subjected to criminal prosecution and administrative charges, including the appropriate
complaint with the Bar Confidant’s Office and IBP.
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Prior to Republic Act No. 11659, public utility has no constitutional or statutory definition,
which led the Supreme Court to interpret what the term means. In JG Summit Holdings, Inc. v.
Court of Appeals, G.R. No. 124293, 24 September 2003, the Supreme Court explained that a public
utility is “a business or service engaged in regularly supplying the public with some commodity or
service of public consequence such as electricity, gas, water, transportation, telephone, or telegraph
service. To constitute a public utility, the facility must be necessary for the maintenance of life and
occupation of the residents. However, the fact that a business offers services or goods that promote
public good and serve the interest of the public does not automatically make it a public utility.” In
Republic v. Manila Electric Company, G.R. No. 141314, 9 April 2003, the Supreme Court expounded:
“The business and operations of a public utility are imbued with public interest. In a very real sense, a
public utility is engaged in public service – providing basic commodities and services indispensable to
the interest of the general public.” Similarly, in Maynilad Water Services, Inc. v. National Water and
Resources Board, G.R. No. 181764, December 7, 2021, the Supreme Court held that the term "public
utility" implies public use and public service. With the signing into law of Republic Act No. 11659 on 21
March 2022 and its effectivity on 12 April 2022, the coverage of public utility is limited to specific sectors
enumerated in Section 4 ([a] Distribution of Electricity; [b] Transmission of Electricity; [c] Petroleum and

Lopez, Geoffrey S.
Petroleum Products Pipeline Transmission Systems; [d] Water Pipeline Distribution Systems and
Wastewater Pipeline Systems, including sewerage pipeline systems; [e] Seaports; and [f] Public Utility
Vehicles). Public utility is no longer synonymous with public service.

Telecommunications is a national government infrastructure and is considered as critical

infrastructure. (NOW Telecom Company, Inc. v. National Telecommunications Commission,
January 31, 2024).

2025 Handouts in Mercantile Law Jurisprudence by Prof. Ronel U. Buenaventura. Copying, dissemination, storage,
use, modification, uploading, and downloading without the express written consent of Jurists Review Center Inc. is
strictly prohibited and shall be subjected to criminal prosecution and administrative charges, including the appropriate
complaint with the Bar Confidant’s Office and IBP.
Page 32 of 32