1 | COMMERCIAL LAW

COMMERCIAL LAW
General Principles

Q: What are the tests used in determining the Nationality of Corporations?

A:
1.​ Place of Incorporation Test - Under this test, the nationality of the corporation is determined by the
State where a corporation is incorporated. This is applied if the corporation is not engaged in activities
reserved for Filipinos.
2.​ Control Test - This is the test used IF a corporation is engaged in nationalized areas of activities
provided for under the Constitution and other laws. In such test, the corporation’s nationality is
determined by the citizenship of its controlling stockholders.

Note: If in doubt, the Grandfather Rule supplements the Control Test by considering both direct and indirect
Filipino ownership in a corporation. (Narra Nickel Mining v. Redmont Consolidated Mines Corp., G.R. No.
195580, Apr. 21, 2014) (2024, 2022, 2013 Bar)

Q: What is the doctrine of separate juridical personality?

A: A corporation has a personality separate and distinct from that of its stockholders and members and is not
affected by the personal rights, obligations, and transactions of the latter. Due to the corporation's separate
juridical personality, a stockholder may not be made to answer for acts or liabilities of said corporation, and
vice-versa. (Land Bank of the Philippines vs. CA, G.R. No. 127181, Sept. 4, 2001)

EXCs: The corporation's separate juridical personality cannot be invoked to escape liability when:
1.​ This legal fiction is used for ends subversive to the policy and purpose behind its creation or which
could not have been intended by law to which it owes its being (i.e. to defeat public convenience,
justify wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, used as a vehicle
for the evasion of an existing obligation, perpetrate deception or otherwise circumvent the law).
2.​ The corporate entity is a mere alter ego, adjunct, or business conduit for the sole benefit of the
stockholders or of another corporate entity (Land Bank of the Philippines vs. CA, G.R. No. 127181, Sept.
4, 2001). The corporation is merely a farce, as it 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
(Lanuza et al vs. BF Corporation, et al, G.R. No. 174938, Oct. 1, 2014).

Note: A corporation, being an artificial entity, can only act through its representatives. These representatives are
not personally liable for corporate actions unless they acted in bad faith, were grossly negligent, or are solidarily
liable with the corporation. (2024, 2018, 2014, 2008 Bar)

Q: What is the doctrine of piercing the corporate veil?

A: Under this doctrine, although a corporation has a juridical personality separate and distinct from that of its
stockholders, when the corporation is used merely as an alter ego or controlled for the benefit of a stockholder,
or when it is necessary to render justice, then the courts have the right to pierce the veil of corporate fiction to
hold the controlling stockholder­ officer personally liable for the corporate tort or wrong committed. (PNB vs.
Ritratto Group, G.R. No. 142616, Jul. 31, 2001). In this connection, case law lays down a three- pronged test to
determine the application of the alter ego theory, which is also known as the instrumentality theory, namely:

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 1.​ Control Test - not mere majority or complete stock control, but complete domination, not only of
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;
2.​ Fraud Test - 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 plaintiffs legal right; and
3.​ Harm Test - The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of. (Roquet vs. PNB, G.R. No. 246270, June 30, 2021) (2019, 2014, 2008 Bar)

Q: What is the trust fund doctrine?

A: By the trust fund doctrine, subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have the right to look for satisfaction of their claims. The scope of the doctrine encompasses not only
the capital stock but also other property and assets generally regarded in equity as a trust fund for the payment
of corporate debts. (Halley vs. Printwell, G.R. No. 157549, May 30, 2011) (2015 Bar)

Q: In what instances would the Trust Fund Doctrine be violated?

A: The Trust Fund Doctrine is violated in the following instances:
1.​ Where the corporation has distributed its Capital among the stockholders without providing for the
payment of creditors;
2.​ When there is payment of Dividends without unrestricted retained earnings;
3.​ Where it has Released the subscribers to the capital stock from their subscriptions;
4.​ Where it has Transferred the corporate property in fraud of its creditors; and
5.​ If the corporation is Insolvent (Steinberg v. Velasco, G.R. No. L-30460, Mar. 12, 1929) (2024, 2007 Bar)

Incorporation and Organization

Q: Petitioner X charged respondent corporation Y with illegal dismissal. In his Position Paper, petitioner
essentially alleged: On May 20, 2012, he was employed by Z Corporation as a helper. In less than a year, he got
promoted to machine operator. In 2014, Z corporation changed its trade name to Y Corporation. In March 2014,
petitioner was prevented from reporting for work because of his participation in the illegal dismissal case of his
brother against Y Corporation. When Y learned of his participation in his brother's illegal dismissal case, it
refused to give him any further assignment which consequently equated to constructive termination. For its
part, Y countered that it commenced operations just a month before the alleged dismissal. It asserted that it is a
separate and distinct entity from Z corporation. The LA found that petitioner X was an employee of Y
corporation. During the interregnum of change from Z corporation to Y corporation, petitioner was not
separated from his employment. NLRC affirmed. CA, however, reversed. Petitioner asserts that the
employer-employee relationship between him and Y corporation was satisfactorily established. He claims that Y
corporation is merely a continuation of Z corporation, hence, PVC is liable for the debts and liabilities of the
latter. Is Y corporation liable for illegal dismissal?
A: Yes, Y Corporation is liable for illegal dismissal. Its change of trade name from Z corporation to Y
corporation did not entail the creation of a new corporation. In Zuellig Freight and Cargo Systems v. National
Labor Relations Commission, the Court held that the mere change in the corporate name is not considered
under the law as the creation of a new corporation. Hence, the renamed corporation remains liable for the
illegal dismissal of its employee separated under that guise. Likewise, in P.C. Javier & Sons Inc. v. Court of
Appeals, the Court ruled that 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

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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. Its character has
in no respect changed. After a corporation has effected a change in its name it should sue and be sued in its new
name. (Bantogon v. PVC Master Mfg. Corp, G.R. No. 239433, September 16, 2020, J. Javier)

Q: What is the rule on corporations by estoppel? When is it not applicable?

A: All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however,
that when any such corporation is sued on any transaction entered by it as a corporation or on any tort
committed by it, it shall not be allowed to use its lack of corporate personality as a defense. Anyone who
assumes an obligation to such corporation as such cannot resist performance thereof on the ground that there
was in fact no corporation. It is not applicable where there is no third person involved and the conflict arises
only among those assuming the form of a corporation who know that the corporation has not been registered,
there is NO corporation by estoppel. (Lozano v. Santos, G.R. No. 125221, Jun. 19, 1997) (2024 Bar)

Q: Is the inclusion of a dead person as an incorporator of a close corporation considered fraud in procuring a
certificate of registration?
A: No. Fraud in procuring a certificate of registration contemplates two (2) situations:
1.​ A company was incorporated with the specific and dominant intention of pursuing a fraudulent
business purpose; and
2.​ Misrepresentations in the Articles of Incorporation to meet the minimum qualifications for
incorporation.

Note: Including a deceased person as an incorporator does not constitute the type of fraud under the
Corporation Code that warrants dissolution. While this error does not justify immediate dissolution, it does not
legitimize the inclusion either, as a deceased person has no legal capacity. The corporation should be given
reasonable time to correct the error. (SEC v. AZ 1731 Realty, G.R. No. 239010, Jul. 6, 2022, J. Javier)

Directors, Trustees, and Officers

Q: What is the rule on the personal liability of directors and officers of a corporation?
A: Directors and officers have no personal liability for actions taken on behalf of the corporation they represent.

EXCs: Personal liability, however, will attach in the following cases:

1.​ Voting for or assenting to a patently unlawful act of the corporation;
2.​ When they acted with gross negligence or in bad faith in directing the affairs of the corporation;
3.​ When they acquire any personal or pecuniary interest in conflict with their duty as directors, which
acts result in damages to the corporation, its stockholders or other persons;
4.​ When they consented to the issuance of watered stocks or who, having knowledge thereof, did not
forthwith file their written objection with the corporate secretary;
5.​ When they contractually agreed to hold themselves personally and solidarily liable with the
corporation; or
6.​ When they are made, by a specific provision of law, to personally be liable for the corporate action.
(Heirs of Fe Tan Uy vs. International Exchange Bank, G.R. Nos. 166282, Feb. 13, 2013) (2022, 2012 Bar)

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Q: What is the rule on filling up vacancies?​
A:
Cause of Vacancy Procedure

Expiration of term The election by stockholders shall be held no later than the day of such
expiration at a meeting called for that purpose.

Removal The election may be held on the same day of the meeting authorizing the
removal and this fact must be so stated in the agenda and notice of said
meeting.

Other grounds, but the The election must be held no later than forty-five (45) days from the time the
remaining directors can vacancy arose.
constitute a quorum

Other grounds, but the 1.​ The vacancy must be filled by the stockholders or members in a regular
remaining directors or special meeting for that purpose; or
CANNOT constitute a 2.​ In case of the necessity of emergency action, the vacancy may be
quorum temporarily filled from among the officers of the corporation by
unanimous vote of the remaining directors or trustees.

By reason of an increase Shall be filled only by an election at a regular or at a special meeting of

in the number of directors stockholders duly called for the purpose, or in the same meeting authorizing
or trustees the increase of directors or trustees if so stated in the notice of the meeting.
(2023, 2013 Bar)

Q: Explain the doctrine of corporate opportunity.

A: The doctrine of corporate opportunity governs the legal responsibility of directors, officers and controlling
shareholders in a corporation, under the duty of loyalty, not to take such opportunities for themselves, without
first disclosing the opportunity to the board of directors of the corporation and giving the board the option to
decline the opportunity on behalf of the corporation. If the procedure is violated and a corporate fiduciary takes
the corporate opportunity anyway, the fiduciary violates its duty of loyalty and the corporation will be entitled
to a constructive trust of all profits obtained from the wrongful transaction The requisites are:
1.​ The corporation is financially able to exploit the opportunity;
2.​ The opportunity is within the corporation's line of business;
3.​ The corporation has an interest or expectancy in the opportunity; and
4.​ By taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position
inimical to his duties to the corporation. (TOPROS v. Chang, G.R. No. 200070-71, Dec. 7, 2021)

Q: What is the doctrine of apparent authority?

A: Apparent authority is determined by the acts of the principal and not by the acts of the agent. As applied to
corporations, the doctrine of apparent authority provides that a corporation is estopped from denying the
officer's authority if it knowingly permits such officer to act within the scope of an apparent authority, and it
holds him out to the public as possessing the power to do those acts. (Agro Food and Processing Corp. v.
Vitarich Corp., G.R. No. 217454, January 11, 2021)

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Stockholders and Members

Q: What are the requirements before dividends may be declared?

A:
1.​ Unrestricted retained earnings;
2.​ Resolution of the board;
3.​ In the case of declaration of stock dividends, the approval of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the
purpose. (Sec. 42, RCC) (2009 Bar)

Q: What is the effect of delinquency of a stockholder to his/her right to dividends?

A: The delinquent stockholder is still entitled to dividends, subject to the following conditions;
1.​ Cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription
plus costs and expenses;
2.​ Stock dividends shall be withheld until their unpaid subscription is fully paid. (Sec. 42, RCC)

Q: What are the conditions for the exercise of the right to inspect corporate books and records?
A: The following conditions must be complied with:
1.​ The right must be exercised at Reasonable hours on business days;
2.​ The director, trustee, stockholder, or member has not Improperly used any information he secured
through any previous examination;
3.​ Demand is made in Good faith or for a legitimate purpose;
4.​ The inspecting or reproducing party must respect and is bound by Confidentiality rules under
prevailing laws; and
5.​ The inspecting or reproducing party is not a competitor, director, officer, controlling stockholder or
otherwise represents the interest of a Competitor (Sec. 73, RCC). (2022 Bar)

Note: Right to inspect subsists even after dissolution of the corporation during the three-year liquidation period
(Roque v. People of the Philippines, G.R. No. 211108, Jun. 7, 2017).

Q: When can a stockholder exercise his pre-emptive right?

A: The following are the instances when pre-emptive right is available:
1.​ Original issuance of unissued shares forming part of the original authorized capital stock;
2.​ Original issuance of new shares resulting from increase of authorized capital stock (Dee v. CA, G.R. No.
L-60502, Jul. 16, 1991); and
3.​ Disposition ofTreasury Shares (SEC Opinion, Jan. 14, 1993) (2019 Bar)

Q: What are the conditions for exercise of the appraisal right?

A: The conditions are the following:
1.​ Dissenting stockholder must have voted Against the proposed action;
2.​ Any of the instances set forth by law must be present;
3.​ Demand for payment must be made within 30 days from the date vote is taken thereon;
4.​ Submission by withdrawing stockholder of his shares to the corporation for notation of being
dissenting stockholder within 10 days from written demand;
5.​ Price must be based on .Eair value as of the day prior to date on which vote was taken;
6.​ Payment must be made only when the corporation has unrestricted retained earnings in its books; and

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 7.​ Stockholder must Transfer his shares to the corporation upon payment by the corporation (Secs. 81,
82, 85, RCC). (2018, 2017 Bar)

Q: What are the requisites for filing a derivative suit?

A: The requisites for a derivative suit are as follows:
1.​ Plaintiff was a Stockholder or member at the time the acts or transactions subject of the action was
filed;
2.​ He exerted all Reasonable efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
3.​ He has tried to Exhaust intra-corporate remedies, i.e., has made a demand on the board of directors for
the appropriate relief but the latter has failed or refused to heed his plea
4.​ No Appraisal rights are available for the act or acts complained of; and
5.​ The suit is not a Nuisance or harassment suit. (San Miguel Corporation v. Khan, G.R. No. 85339, Aug.
11, 1989) (2019, 2016, 2014, 2013, 2009 Bar)

Q: What is the Business Judgment Rule?

A: The board of directors or trustees has the sole authority to determine policies, enter into contracts, and
conduct the ordinary business of the corporation within the scope of its charter. “Questions of policy and
management are left to the honest decision of the officers and directors of a corporation; and the courts are
without authority to substitute their judgment for that of the BOD, unless said judgment had been attended
with bad faith.” (PSE vs. Hon. Court of Appeals, et al. G.R. No. 125469, Oct. 27, 1997)

Mergers, Consolidations, and Acquisitions

Q: What is the Nell Doctrine?

A: Where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor.

EXCs: The transferee of corporate assets or property is liable for the debts of the transferor in case of:
1.​ Express assumption of liability - where the purchaser expressly or impliedly agrees to assume such
debts;
2.​ Transaction amounts to a consolidation or merger of the corporations - The surviving or the
consolidated corporation shall possess all the rights, privileges, immunities and franchises of each
constituent corporation; and all real or personal property, all receivables due on whatever account,
including subscriptions to shares and other choses in action, and every other interest of, belonging to,
or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed; (Sec. 79 (d), RCC)
3.​ Business Enterprise Transfer – where the purchasing corporation is merely a continuation of the
selling corporation; and
4.​ Entered Fraudulently - Where the transaction is entered into fraudulently in order to escape liability
for such debts. (Nell v. Pacific Farms, G.R. No. L-20850, Nov. 29, 1965) (2022, 2017 Bar)

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Foreign Corporations

Q: What is the meaning of “doing business” under Philippine law?

A: The phrase "doing business in the Philippines" under the Foreign Investments Act of 1991 include soliciting
orders, service contracts; opening offices whether called liaison officers or branches' 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; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or acts that imply continuity of
commercial dealings or arrangements, and contemplate to that extent the 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 or object of the business organization. (Sec. 3 (d), R.A. No. 7042) (2023, 2018, 2016, 2015 Bar)

Q: What are the principles on the personality of a foreign corporation to sue?

A: The principles regarding the right of a foreign corporation to bring suit in Philippine courts are:
1.​ If a foreign corporation does business in the Philippines without a license, it cannot sue before the
Philippine courts;
2.​ If a foreign corporation is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of any
business transaction;
3.​ If a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity
which has contracted with said corporation may be estopped from challenging the foreign
corporation’s corporate personality in a suit brought before Philippine courts; and
4.​ If a foreign corporation does business in the Philippines with the required license, it can sue before
Philippine courts on any transaction. (Agilent v. Silicon Corp., G.R. No. 154618, April 14, 2004)

Partnerships

Q: What are the essential elements of a partnership?

A:
1.​ Agreement to contribute money, property, or industry to a common fund (mutual contribution to a
common stock); and
2.​ Intention to divide the profits among the contracting parties (joint interest in the profits). (Jarantilla,
Jr. v. Jarantilla,. G.R No. 154486, Dec. 1, 2010)

Note: An oral contract of partnership is valid even though not in writing. However, if it involves contribution of
an immovable property or a real right, an oral contract of partnership is void. In such a case, the contract of
partnership to be valid, must be in a public instrument (Art. 1771, Civil Code), and the inventory of said
property signed by the parties must be attached to said public instrument. (Art. 1773, Civil Code; Litonjua, Jr. v.
Litonjua, Sr., G.R. Nos. 166299-300, Dec. 13, 2005) (2014, 2009 Bar)

Obligations of Partners among Themselves

Q: Distinguish an industrial partner and a capitalist partner as to their obligation not to engage in other
business for himself.
A: The obligation not to engage in other business for himself for Industrial Partner and Capitalist Partner differ
as follows:

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 Industrial Partner Capitalist Partner

Cannot engage in any business for himself, unless Cannot engage for their own account in any operation
the partnership expressly permits him to do so; which is of the kind of business in which the
and if he should do so, the capitalist partners may partnership is engaged, unless there is a stipulation to
either exclude him from the firm, or avail the contrary (Art. 1808, Civil Code)
themselves of the benefits which he may have
obtained in violation of this provision, with a right
to damages in either case (Art. 1789, Civil Code)
The death of an industrial partner has the effect of
dissolving the partnership. (Art. 1830, Civil Code)
(2024, 2015 Bar)

Obligations of Partnership; Obligations of Partners to Third Persons

Q: What are the obligations of partnership/partners to third persons?​

A: The following are obligations of partnership/partners to third persons:
1.​ Every partnership shall operate under a firm name.
2.​ All partners shall be liable for contractual obligations of the partnership with their property, after all
partnership assets have been exhausted:
a.​ Pro rata; and
b.​ Subsidiary.
EXC: All partners shall be liable solidarily with the partnership for everything chargeable to the
partnership under Art. 1822 and 1823.
Note: Any stipulation against the liability laid down in Art. 1816 shall be void except as among the
partners.

3.​ Partner as an agent of the partnership;

4.​ Conveyance of real property belonging to the partnership;
5.​ Admission or representation made by any partner concerning partnership affairs within the scope of
his authority is evidence against the partnership;
6.​ Notice to partner of any matter relating to partnership affairs operates as notice to partnership except
in case of fraud:
a.​ Knowledge of partner acting in the particular matter acquired while a partner;
b.​ Knowledge of the partner acting in the particular matter then present to his mind;
c.​ Knowledge of any other partner who reasonably could and should have communicated it to
the acting partner.

7.​ Partners and the partnership are solidarily liable to 3rd persons for the partner's tort or breach of trust;
8.​ Liability of incoming partner is limited to:
a.​ His share in the partnership property for existing obligations; and
b.​ His separate property for subsequent obligations.

9.​ Creditors of partnership are preferred in partnership property and may attach partner's share in
partnership assets. (Arts, 1815-1827, Civil Code) (2019, 2010 Bar)

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Concept of Insurance

Q: What is the Cognition Theory?

A: Mere submission of the application without the corresponding approval of the policy does not result in the
perfection of the contract of insurance. Insurance contracts through correspondence follow the “cognition
theory” wherein an acceptance made by letter shall not bind the person making the offer except from the time
it came to his knowledge. (Enriquez vs. Sun Life Co., G.R. No. L-15895, November 29, 1920) (2016 Bar)

Q: What are the limitations in the appointment of beneficiaries?

A: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a
life insurance policy by the person who cannot make any donation to him, according to said article. (Art. 2012,
Civil Code) (2018, 2014, 2012 Bar)

Q: What is the liability of the insurer in case of suicide?

A: The insurer shall be liable in case of suicide by the insured if:
1.​ The suicide is committed after the policy has been in force for a period of two (2) years from the date
of its issue or of its last reinstatement.
Note: Any stipulation extending the 2-year period is null and void.
2.​ The suicide is committed in the state of insanity regardless of the date of commission.
3.​ The suicide is committed within a shorter period as provided in the policy. (Sec. 183, Insurance Code)
(2020/21, 2019, 2018 Bar)

Insurable Interest

Q: Distinguish between Insurable Interest in Life Insurance vs. Insurable Interest in Property Insurance
A:
Life Insurance Property Insurance
As to extent
GR: Every person has an unlimited insurable interest Limited to the actual value of the property.
in his own life.

EXC: Where life insurance is taken out by a creditor

on the life of the debtor, insurable interest is limited
to the amount of debt.

As to when must insurable Interest exists

Must exist at the time the policy takes effect and GR: Must exist twice, i.e., both at the time the policy
need not exist thereafter. (Sec. 19, Insurance Code) takes effect and the time of loss but need not exist in
the period in between.

EXC:
1.​ A change in interest in a thing insured, after
the occurrence of an injury which results in
loss, does not affect the right of the insured
to indemnity for the loss.

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 2.​ A change of interest in one or more several
distinct things, separately insured by one
policy, does not avoid the insurance as to the
others.
3.​ A change of interest, by will or succession, on
the death of the insured, does not avoid an
insurance; and his interest in the insurance
passes to the person taking his interest in the
thing insured.
4.​ A transfer of interest by one of several
partners, joint owners, or owners in common,
who are jointly insured, to the others, does not
avoid an insurance even though it has been
agreed that the insurance shall cease upon an
alienation of the thing insured.
5.​ Every stipulation in a policy of insurance for
the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering,
is void. (Secs. 19–25, Insurance Code)

As to the beneficiary’s interest

GR: The beneficiary need not have insurable The beneficiary must have insurable interest over the
interest over the life of the insured if the insured thing insured.
himself secured the policy.
Note: Insurable interest is an indispensable
EXC: However, if the life insurance was obtained requirement.
by the beneficiary, the latter must have insurable
interest over the life of the insured.

As to the Insurable Interest

a.​ Of himself, of his spouse, and of his a.​ Property itself;
children; b.​ Any relation thereto; or
b.​ Of any person on whom he depends c.​ Liability in respect thereof.
wholly or in part for education or support,
or in whom he has a pecuniary interest; It may consist of:
c.​ Of any person under a legal obligation to a.​ An existing interest;
him for the payment of money, or b.​ An inchoate interest founded on an existing
respecting property or services, of which interest; or
death or illness might delay or prevent the c.​ An expectancy, coupled with an existing
performance; and interest in that out of which the expectancy
d.​ Of any person upon whose life any estate arises.
or interest vested in him depends.
(2023, 2019, 2018, 2015, 2014, 2009, 1997, 1991 Bar)

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Concealment

Q: Discuss the rule on concealment.

A: Concealment vitiates the contract and entitles the insurer to rescind, even if the death or loss is due to a
cause not related to the concealed matter. (Sec. 27, ICP; Sunlife vs. CA, G.R. No. 105135, June 22, 1995)

EXCs:
1.​ Concealment after the contract has become effective, because concealment must take place at the time
the contract is entered into in order that the policy may be avoided;
2.​ Waiver or estoppel;
3.​ In marine insurance, where concealment of the following matters does not vitiate the entire contract
but merely exonerates the insurer from a loss resulting from the risk concealed:
a.​ The national character of the insured;
b.​ The liability of the thing insured to capture and detention;
c.​ The liability to seizure from breach of foreign laws or trade;
d.​ The want of necessary documents; and
e.​ The user of false and simulated paper. (Sec. 112, ICP)
4.​ Incontestability clause (Sec. 233(b) and Sec. 48, Insurance Code) (2018, 2016, 2014, 2013 Bar)

Note: Materiality is to be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries. (Sec. 31, ICP)

Representation

Q: What is the Incontestability Clause?​

A: In Tan v. Court of Appeals, the Supreme Court ruled that the so-called "incontestability clause" precludes the
insurer from raising the defenses of false representations or concealment of material facts insofar as health and
previous diseases are concerned if the insurance has been in force for at least two (2) years during the insured's
lifetime. The phrase "during the lifetime" found in Section 48 of the Insurance Law simply means that the policy
is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section
48 is "for a period of two years". Considering that the insured died before the two-year period has lapsed, the
insurer is not, therefore, barred from proving that the policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation. (2023, 2022, 2019, 2014 Bar)

Notice and Proof of Loss​

Q: What are the requisites of subrogation?

A:
1.​ The insurance involved is Property Insurance;
2.​ There is a loss Arising from the risk insured against;
3.​ The insured Received indemnity from the insurer for the loss; and
4.​ The indemnity is Covered by the face value of the policy (AQUINO)

Note: The insurer is subrogated only to the extent of the amount paid. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury. (Art. 2207, Civil Code)

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Premium

Q: What is the "Cash and Carry” Rule?

A: No policy or contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid. Any agreement to the contrary is void.

EXCs: A policy is valid and binding even when there is non-payment of premium:
1.​ When there is an agreement allowing the insured to pay the premium in Installments and partial
payment has been made at the time of loss. (Makati Tuscany Condominium Corp. vs. CA, G.R. No.
95546, November 6, 1992)
2.​ When there is an agreement to grant the insured credit extension for the payment of the premium and
loss occurs before the expiration of the credit term. (Art. 1306, Civil Code)
3.​ When estoppel bars the insurer to invoke non- recovery on the policy.
4.​ In case of life or industrial life policy whenever the grace period provision applies, or whenever under
the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension
is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date
of issuance of the policy. (Sec. 77, ICP)
5.​ When there is acknowledgment in a policy of a receipt of premium, which the law declares to be
conclusive evidence of payment, even if there is stipulation therein that it shall not be binding until the
premium is actually paid. This is without prejudice however to right of insurer to collect corresponding
premium. (Sec. 77, ICP)
6.​ When the public interest so requires, as determined by the Insurance Commissioner. (2024, 2015 Bar)

Q: What is the effect of the payment of premium by post-dated checks?

A: The payment of a premium by a post-dated check at a stated maturity subsequent to the loss is insufficient to
put the insurance into effect if there is no credit agreement. (Gaisano vs. Development Insurance and Surety
Corp., G.R. No. 190702, February 27, 2017) However, even if there is no credit agreement, payment by means of
a check or a note, accepted by the insurer, bearing a date prior to the loss, assuming an availability of the funds
thereof, would be sufficient even if it remains unencashed at the time of the loss. The subsequent effects of
encashment would retroact to the date of the instrument and its acceptance by the creditor. (2015, 2010 Bar)

Double Insurance; Overinsurance

Q: What are the requisites of double insurance?

A: The requisites in order for double insurance to arise are as follows:
1.​ Two or more insurers insuring separately;
2.​ Same Insured person;
3.​ Same Risk or peril insured against;
4.​ Same Interest insured; and
5.​ Same Subject matter (Malayan Insurance Co., Inc., v. Philippine First Insurance Co., Inc., G.R. No.
184300, Jul. 11, 2012).

Note: Double insurance only applies to property insurance. (2017 Bar)

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Common Carrier vs. Private Carrier

Q: What are the requisites for an entity to be classified as a Common Carrier?​

A:
1.​ Must be a person, corporation, firm, or association;
2.​ Engaged in the business of carrying or transporting passengers or goods or both;
3.​ The carriage or transport must either be by land, water or air;
4.​ The service is for a fee; and
5.​ The service is offered to the public. (Art. 1732, Civil Code) (2023, 2022 Bar)

Q: Are common carriers liable for injuries to passengers even if they have observed ordinary diligence and care?
Explain.
A: Yes, common carriers are liable to injuries to passengers even if the carriers observed ordinary diligence and
care because the obligation imposed upon them by law is to exercise extraordinary diligence. Common carriers
are bound to carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons with a due regard for all the circumstances. (2022, 2019, 2015 Bar)

Vigilance over Goods

Q: What are the causes which exempt a common carrier from responsibility for the loss, destruction, or
deterioration of goods?
A: Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:
1.​ Flood, storm, earthquake, lightning, or other natural disaster or calamity;
2.​ Act of the public enemy in war, whether international or civil;
3.​ Act or omission of the Shipper or owner of the goods;
4.​ The Character of the goods or defects in the packing or in the containers;
5.​ Order or act of competent public authority (Art. 1734, Civil Code); and
6.​ Exercise of Extraordinary Diligence (Art. 1735, Civil Code).

Note: No other defense may be raised by the common carrier in the carriage of goods. The above enumeration
which exempts the common carrier for the loss or damage to the cargo is a closed list. If not one of those
enumerated is present, the carrier is liable. (AQUINO & HERNANDO)

Safety of Passengers

Q: What is the extent of liability of common carriers for acts of co-passengers or strangers?
A: A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or
negligence of other passengers or of strangers, if the carrier’s employees through the exercise of the diligence of
a good father of a family could have prevented or stopped the act or omission. (Art. 1763, Civil Code) (GV
Florida Transport vs. Heirs of Romeo Battung, Jr., G.R. No. 208802, October 14, 2015) (2018 Bar)

Q: What are the defenses available to common carriers?

A: The only defenses available to common carriers are (1) proof that they observed extraordinary diligence as
prescribed in Article 1756, and (2) following Article 1174 of the Civil Code, proof that the injury or death was
brought about by an event which "could not be foreseen, or which, though foreseen, were inevitable," or a
fortuitous event. (Sanico v. Colipano, G.R. No. 209969, September 27, 2017)

14 | COMMERCIAL LAW
Note: A stipulation diminishing or dispensing with the common carrier’s liability for acts committed by thieves
or robbers who do not act with grave or irresistible threat, violence, or force is void under Article 1745 of the
Civil Code for being contrary to public policy. (Torres-Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance
Co., Inc., G.R. No. 194121, July 11, 2016)

Secrecy of Bank Deposits (R.A. No. 1405 and R.A. No. 6426, as amended)

Q: What are the prohibited acts under R.A. No. 1405?

A:
1.​ Examination/inquiry/looking into all deposits of whatever nature with banks or banking institutions in
the Philippines (including investment in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities) by any person, government official, bureau, or office.
(Sec. 2, R.A. No. 1405)
2.​ Disclosure by any official or employee of any banking institution to any unauthorized person of any
information concerning said deposit. (Sec. 3, R.A. No. 1405) (2023, 2018, 2015, 2013 Bar)

Exceptions from Coverage

Q: What are the instances where examination or disclosure of information about deposits can be allowed?​
A:
1.​ Upon written consent of the depositor;
2.​ In cases of impeachment;
3.​ Upon order of Competent court in cases of bribery or dereliction of duty of public officials; and
4.​ In cases where the money deposited or invested is the subject matter of the litigation (Sec. 2, R.A. No.
1405) (2024, 2019 Bar)

Garnishment of Deposits, including Foreign Deposits

Q: What is the rule on garnishment of foreign currency deposits?

A: Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of
any court, legislative body, government agency or any administrative body whatsoever. (Sec. 8, R.A. No. 6426)

EXC: The exemption from garnishment of foreign currency deposits under R.A. No. 6426 cannot be invoked to
escape liability for the damages to the victim. The garnishment of the transient foreigner’s foreign currency
deposit should be allowed to prevent injustice and for equitable grounds. The law was enacted to encourage
foreign currency deposit and not to benefit a wrongdoer. The application of Sec. 8 of R.A. No. 6426 depends on
the extent of its justice. The garnishment of a foreign currency deposit should be allowed to prevent injustice
and for equitable grounds, otherwise, it would negate Article 10 of the New Civil Code which provides that “in
case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended
right and justice to prevail." (Salvacion vs. Central Bank, G.R. 94723, August 21, 1997) (2019, 2015 Bar)

General Banking Law (R.A. No. 8791)

Q: What are the restrictions imposed by law on DOSRI transactions

A: The restrictions are as follows:
1.​ The transactions must be approved by at least majority of the entire board excluding the director\
concerned;

15 | COMMERCIAL LAW
 2.​ The required approval shall be entered upon the records of the bank and copy of such entry shall be
submitted to the BSP;
3.​ Unless the loan is non-risk, the loan must not exceed the book value of the paid-up shares of the
borrowing DOSRI and the amount of unencumbered deposits. (Sec. 36, R.A. No. 8791) (2017 Bar)

Philippine Deposit Insurance Corporation (R.A. No. 3591, as amended by R.A. Nos. 9576, 10846, and 11840)

Q: Petitioner X filed a claim for deposit insurance with PDIC. She essentially alleged that she lent Y
P500,000.00 for the repair of the latter's bus units. That petitioner X met with Y at the Rural Bank of Z to
receive the latter's loan payment. For this purpose, the petitioner opened a time deposit account with the bank
under Special Savings Deposit. Per his agreement with Y, the latter's name was used as the account holder since
she was a preferred bank client. A few years later, however, the bank was closed down. Consequently, petitioner
filed with PDIC her claim for deposit insurance, together with certain documents. PDIC, through its Claims
Deposit Department, denied petitioner's claim for deposit insurance, citing as ground the absence of any bank
records/ documents indicating that petitioner, not Gutierrez, owned the account. Ultimately, Petitioner filed a
petition for certiorari with the RTC, imputing grave abuse of discretion on PDIC for denying her claim for
deposit insurance, albeit she submitted the necessary documents in support of her claim. PDIC claimed that the
RTC has no jurisdiction over the subject matter of the petition as the same fell exclusively within its
quasi-judicial jurisdiction. RTC dismissed the petition for lack of jurisdiction. The trial court recognized that
since PDIC is a quasi-judicial agency which performed the assailed quasi-judicial action, the case should have
been brought up to the Court of Appeals. Where should a petition for certiorari questioning the PDIC's denial
of a deposit insurance claim be filed?
A: A petition for certiorari, questioning the PDIC's denial of a deposit insurance claim should be filed before
the CA, not the RTC. PDIC's Charter under RA 10846, specifically Section 5(g) thereof confirms such
conclusion, viz: The actions of the Corporation taken under Section 5(g) shall be final and executory, and may
only be restrained or set aside by the Court of Appeals, upon appropriate petition for certiorari on the ground
that the action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack
or excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of
denial of claim for deposit insurance. (Servo v. PDIC, G.R. No. 234401, Nov. 28, 2019, J. Javier).

Splitting of Deposits

Q: Define Splitting of deposits.

A: Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the
statutory maximum amount of insured deposit maintained under the name of natural or juridical persons is
broken down and transferred into two or more accounts in the name/s of natural or juridical persons or entities
who have no beneficial ownership on transferred deposits in their names within 120 days immediately
preceding or during a bank declared holiday or immediately preceding a closure order by the BSP for the
purpose of availing of the maximum deposit insurance coverage. (Section 11, PDIC Charter) (2019 Bar)

Anti-Money Laundering Act (R.A. No. 9160, as amended by R.A. Nos. 9194, 10167, 10365, 10927, and 11521)

Q: What are the elements of money laundering?

A: The following are the elements of money laundering:
1.​ There is an unlawful activity—any act or omission, or a series or combination of acts or omissions,
involving or directly related to offenses enumerated under Section 3 of the law;
2.​ The proceeds of the unlawful activity are transacted by the accused;

16 | COMMERCIAL LAW
 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 vs. People of the
Philippines, G.R. No. 224459, October 11, 2022)

Q: Discuss the rule on the AMLC’s authority to inquire.

A: The AMLC may inquire into or examine any particular deposit or investment, including related accounts,
with any banking institution or non-bank financial institution provided:
1.​ It is upon order of any competent court;
2.​ Based on an ex parte application; and
3.​ In cases of violations of this Act, when it has been established that there is probable cause that the
deposits or investments, including related accounts involved, are related to an unlawful activity or a
money laundering offense. (2019, 2018, 2013 Bar)

Q: What is the difference between covered transactions and suspicious transactions under the Anti-Money
Laundering Act (AMLA)?
A:
Covered Transactions Suspicious Transactions

Refers to a single, series, or combination of Transactions with covered institutions, regardless of

transactions involving a total amount in excess of amount, when any of the following exist:
₱4 million (or equivalent in foreign currency) a.​ No underlying legal/trade obligation, purpose,
which has no credible purpose, origin, or or economic justification;
underlying trade obligation or contract. It also b.​ Client not properly identified;
includes: c.​ Amount not commensurate with client’s
a.​ Cash/monetary instrument transaction business or financial capacity;
exceeding ₱500,000 within one banking d.​ Transaction structured to avoid AMLA
day; reporting;
b.​ Jewelry/precious stone dealers: e.​ Transaction deviates from client profile or past
cash/monetary instrument transaction transactions;
exceeding ₱1,000,000 (single or multiple); f.​ Related to unlawful activity or offense under
c.​ Real estate developers/brokers: single cash AMLA (about to be, is being, or has been
transaction exceeding ₱7,500,000 (or committed);
equivalent); g.​ Any transaction similar or analogous to the
d.​ Casinos: single transaction exceeding ₱5 foregoing.
million (or equivalent).
(Republic vs. Sandiganbayan, G.R. Nos. 232724-27, February 15, 2021)

Q: Section 9 (c) of the AMLA details how covered and suspicious transactions will be reported. Under this
provision, covered institutions and their officers and employees are prohibited from communicating that a
covered or suspicious transaction report was made, its contents, or any information related to the reports. By
the said provision, can the Anti-Money Laundering Council (AMLC) claim that it is a covered institution and
cannot be forced to disclose prohibited information?
A: No. First, AMLC is not one of the covered institutions under Section 3(a) that are prohibited from disclosing
information on covered and suspicious transactions. Second, covered institutions are precluded from disclosing
the reports or the fact that they are reported to the AMLC, because it will impede the possible investigation
into the covered and suspicious transactions. Unlike covered institutions, the AMLC is mandated to investigate
and use the information it has to institute cases against violators. Third, the prohibition and confidentiality
provisions cannot apply to the AMLC; otherwise, it would contravene its direct mandate under Section 7 of the

17 | COMMERCIAL LAW
AMLA. The AMLC is not merely a repository of reports and information on covered and suspicious
transactions. It is created precisely to investigate and institute charges against the offenders. Section 7 clearly
states that it is tasked to institute civil forfeiture proceedings and other remedial proceedings, and to file
complaints with the Department of Justice or the Office of the Ombudsman for anti-money laundering
offenses. In addition, the criminal prosecution of anti-money laundering offenses would be unduly hampered if
the AMLC were prohibited from disclosing information regarding covered and suspicious transactions. It would
be antithetical to its own functions if the AMLC were to refuse to participate in prosecuting anti-money
laundering offenses by taking shelter in the confidentiality provisions of the AMLA. (Republic vs.
Sandiganbayan, G.R. Nos. 232724-27, February 15, 2021)

Q: 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. A case for money laundering
was filed against Person B. Person B argues that the case should be dismissed for failure to prove beyond
reasonable doubt that the money forms proceeds from an unlawful activity. Is Person B's contention tenable?
A: Yes. While the criminal action for the unlawful activity may proceed independently of the money laundering
charge, and the guilt of the person who committed the unlawful activity need not be determined first, it must
still be proven that the money or property in the money laundering offense proceeds from an unlawful activity.
This entails proving beyond reasonable doubt particular elements of that unlawful activity. Before Person B can
be found guilty of money laundering, the prosecution must prove beyond reasonable doubt that the money are
proceeds 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 an unlawful activity. Otherwise, an element of the
offense of money laundering is missing. The act cannot constitute money laundering. (Girlie J. Lingad vs. People
of the Philippines, G.R. No. 224459, October 11, 2022)

Q: Can Person A and Person B be both charged with Kidnapping and Money Laundering?
A: No. Only Person A may be charged with kidnapping and money laundering. Person B, however, may be
charged with money laundering, but not kidnapping. Section 4 of the AMLA provides that one commits money
laundering when they transact the proceeds knowing that this came from an unlawful activity. It does not
require that the money launderer should have committed the unlawful activity. It only states that the money
launderer should have known that the proceeds came from an unlawful activity. In this case, both Person A and
B are liable for money laundering, both having known that the proceeds were from kidnapping, which is an
unlawful activity under the AMLA. However, only Person A can be charged of kidnapping, having been the one
who committed the unlawful activity. (Lingad vs. People of the Philippines, G.R. No. 224459, October 11, 2022)

Q: What are the requisites of a freeze order?

A:
1.​ The application ex-parte by the AMLC;
2.​ The determination of probable cause by the CA. Probable cause refers to the sufficiency of the relation
between an unlawful activity and the property or monetary instrument which is the focal point of Sec.
10 of R.A. No. 9160, as amended. (Yambao v. Republic of the Philippines, G.R. No. 171054, Jan. 26 2021)

Q: When can the AMLC issue a freeze order ex parte?

A: For purposes of implementing targeted financial sanctions in relation to proliferation of weapons of mass
destruction and its financing, the AMLC shall have the power to issue, ex parte, an order to freeze without

18 | COMMERCIAL LAW
delay. The freeze order shall be effective until the basis for its issuance shall have been lifted. During the
effectivity of the freeze order, the aggrieved party may, within twenty 20 days from issuance, file with the Court
of Appeals a petition to determine the basis of the freeze order according to the principle of effective judicial
protection: Provided, That the person whose property or funds have been frozen may withdraw such sums as
the AMLC determines to be reasonably needed for monthly family needs and sustenance including the services
of counsel and the family medical needs of such person (AMLA, Sec. 10).

Patents

Q: What are the essential differences between copyright, trademark and patents?
A: Copyright, Trademark and Patents are distinguished as follows:
Distinctions Patent Copyright Trademark

As to nature Granted to provide rights Confined to literary and artistic Any visible sign
and protection to the works which are original capable of
inventor after an invention intellectual creations in the literary distinguishing an
is disclosed to the public. and artistic domain protected from enterprise. (Sec. 121.1,
(E.I. Duport De Nemours the moment of their creation IP Code)
and Co. v. Francisco, G.R. (Ching v. Salinas Sr., G.R. No.
No. 174379, August 31, 2016) 161295)

As to what Any technical solution of a 1.​ Original Works (Sec. 172, Marks may be
may be problem in any field of IP Code); and registered as long as it
registered and human activity which is 2.​ Derivative Works (Sec. is not under
protected new, involves an inventive 173, IP Code) non-registrable marks
step and is industrially (Sec.123, IP Code)
applicable shall be
patentable. It may be, or
may relate to a product, or
process, or an improvement
of any of the foregoing (Sec.
21, IP Code)

As to The person who In the case of a work N/A

ownership in commissions the work shall commissioned by a person other
case of own the patent, unless than an employer of the author
commissioned otherwise provided in the and who pays for it and the work is
works contract (Sec. 30.1, IP Code) made in pursuance of the
commission, the person who so
commissioned the work shall have
ownership of the work, but the
copyright thereto shall remain with
the creator, unless there is a
written stipulation to the contrary.

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 As to The invention belongs to The copyright shall belong to: N/A
ownership the employee if the
when made inventive activity is not a The employee, if the creation of
during part of his regular duties the object of copyright is not a part
employment even if the employee uses of his regular duties even if the
the time, facilities and employee uses the time, facilities
materials of the employer; and materials of the employer.

OR The employer, if the work is the

result of the performance of his
The invention belongs to regularly-assigned duties, unless
the employer if the there is an agreement, express or
invention is the result of the implied, to the contrary.
performance of his
regularly-assigned duties,
unless there is an
agreement, express or
implied, to the contrary
(Sec. 30.2, IP Code)

As to term of 20 years (Sec. 145, IP Code) Copyright in works under Sections 10 years (Sec. 145, IP
protection 172 and 173 of the IPC shall be Code)
protected during the life of the
author and for fifty (50) years after
his death. The Moral right to
paternity shall last during the
lifetime of the author and in
perpetuity after his death.

Q: Differentiate patentable and non-patentable inventions.

A:
Patentable Inventions Non-Patentable Inventions

Any technical solution of a problem in any field of The following are non-patentable inventions:
human activity which is: 1.​ Methods for Treatment of the human or
1.​ Novelty - An invention shall not be animal body by surgery or therapy and
considered new if it forms part of a prior art. diagnostic methods practiced on the
Prior art shall consist of: human or animal body. This provision shall
a.​ Everything which has been made not apply to products and composition for
available to the public anywhere in use in any of these methods
the world, before the filing date or 2.​ Aesthetic creations
the priority date of the application 3.​ Plant varieties or animal breeds or
claiming the invention; and essentially biological process for the
b.​ The whole contents of a published production of plants or animals. This shall
application for a patent, utility not apply to micro-organisms and
model, or industrial design non-biological and microbiological
registration, filed or effective in the processes
Philippines, with a filing or priority 4.​ Schemes, rules and methods of performing
date that is earlier than the filing or mental acts, playing games or doing
priority date of the application. business, and programs for computers
2.​ Involves an Inventive step - An invention

20 | COMMERCIAL LAW
 involves an inventive step if, having regard to 5.​ Anything which is contrary to public order
prior art, it is not obvious to a person skilled or morality
in the art at the time of the filing date or 6.​ In the case of Drugs and medicines, mere
priority date of the application claiming the discovery of a new form or new property of
invention; and a known substance which does not result
3.​ Is Industrially applicable - An invention that in the enhancement of the efficacy of that
can be produced and used in any industry substance or the new use for a known
shall be industrially applicable.(Manzano v. substance, or the mere use of a known
CA, G.R. No. 113388, Sept. 5, 1997) process unless such known process results
in a new product that employs at least one
new reactant; and
7.​ Discoveries, scientific theories and
mathematical methods. (Sec. 22, IP Code)
(2019, 2010 Bar)

Patent Infringement

Q: What is Patent Infringement and what are the tests in determining patent infringement?​
A: Infringement is the making, using, offering for sale, selling, or importing a patented product or a product
obtained directly or indirectly from a patented process, or the use of a patented process without the
authorization of the patentee. (Sec. 76.1, IP Code) The following are the two tests in determining patent
infringement:
1.​ Literal Infringement - Resort must be had to the words of the claim. If accused matter clearly falls
within the claim, infringement is made out and that is the end of it. To determine whether the
particular 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 exactly identity of all material elements.
2.​ Doctrine of Equivalents - Infringement of patent occurs when a device appropriates a prior invention
by incorporating its innovative concept and albeit with some modifications and change performs the
same function in substantially the same way to achieve the same result. (Godines vs. Court of Appeals,
G.R. No. 97343, September 13, 1993) (2015 Bar)

Ownership, Registration, and Duration

Q: What is the Dominancy Test?

A: The dominancy test considers the dominant features in the competing marks in determining whether they
are confusingly similar. Under the dominancy test:
1.​ Greater weight is given to the similarity of the appearance of the product arising from the adoption of
the dominant features of the registered mark.
2.​ Minor differences between the registered mark and the mark in question are disregarded.
3.​ The aural and visual impressions created by the marks in the public mind are considered.
4.​ Little weight is given to factors like prices, quality, sales outlets and market segments. (McDonald’s
Corporation v. L.C. Big Mak Burger, Inc., et al., G.R. No. 143993, August 18, 2004) (2016, 2014 Bar)

Note: It is now the controlling test, as the holistic test has been abandoned since the case of Kolin Electronics
Co., Inc. v. Kolin Philippines International, Inc. (G.R. No. 228165, February 9, 2021).

21 | COMMERCIAL LAW
Q: What is the First-to-File Rule?
A: If two (2) or more persons have made the invention separately and independently of each other, the right to
the patent shall belong to the person who filed an application for such invention, or where two or more
applications are filed for the same invention, to the applicant who has the earliest filing date or, the earliest
priority date. (Sec. 29, R. A. No. 8293)

Q: Why is prior use of the mark no longer required for the filing of a trademark registration?
A: The requirement of prior use of the mark before filing of trademark registration has been dispensed with.
Hence, it is no longer a condition for ownership (Sec. 122, IP Code). The present law now requires that the
applicant or registrant shall file regularly a declaration of actual use of the mark within:
1.​ Three (3) years from the filing date of the application (Sec. 124.2, IP Code); and
2.​ One (1) year from the fifth anniversary of the date of the registration of the mark (Sec. 145, IP Code)).

Note: Prior use is no longer the basis for acquiring ownership of a mark. Under the Intellectual Property Code,
ownership is acquired through valid registration made in good faith, not by prior use. (Zuneca Pharmaceutical
v. Natrapharm, Inc., G.R. No. 211850, Sept. 8, 2020) (2022, 2018, 2015 Bar)

Copyrights

Q: What are Copyrightable Works?

A:
1.​ Original Literary or Artistic Works
2.​ Derivative Works

Note: For a work to enjoy copyright protection, it must be an original creation. It should be stressed, however,
that copyright is not concerned with the originality of ideas, but with the expression of thought. Thus, the
originality which is required relates to the expression of the thought.

Non-Copyrightable Works

Q: What are Non-Copyrightable Works

A:
1.​ Idea, procedure, system, method or operation, concept, principle, discovery, or mere data as such, even
if they are expressed, explained, illustrated or embodied in a work (2024, 2011 Bar);
2.​ News of the day and other items of press information;
3.​ Any official text of a legislative, administrative, or legal nature, as well as any official translation
thereof; (Sec. 175, IP Code)
4.​ Any work of the Government of the Philippines;

Q: What is the Doctrine of Secondary Meaning?

A: Acquiring secondary meaning is when "a mark that is initially nondistinctive and thus not protectible may
acquire distinctiveness and become a trademark through use (FUNA). Specific requirements have to be met in
order to conclude that a mark has acquired secondary meaning, to wit:
1.​ The secondary meaning must have arisen as a result of substantial commercial use of a mark in the
Philippines;
2.​ Such use must result in the distinctiveness of the mark insofar as the goods or the products are
concerned; and

22 | COMMERCIAL LAW
 3.​ Proof of substantially exclusive and continuous commercial use in the Philippines for five (5) years
before the date on which the claim of distinctiveness is made (Shang Properties Realty Co. and Shang
Properties, Inc. v. St. Francis Dev't Co., G.R. No. 190706, Jul. 21, 2014).

Ownership of a Copyright

Q: What are the rules on determining copyright ownership?

A: The following are the rules on determining copyright ownership:
Type of Work Owner

Original and Copyright shall belong to the author of the work

Literary
and Artistic works
(Sec. 178.1 IP Code)
Joint Authorship Co-authors shall be the original owners of the copyright and in the absence of
(Sec. 178.2 IP Code) agreement, their rights shall be governed by the rules on co-ownership.

Note: In cases where a work of joint authorship consists of parts that can be used
separately, each author shall be the original owner of the copyright in the part that he
has created.

Audiovisual Work GR: The copyright shall belong to the producer, the author of the scenario, the
(Sec. 178.5 IP Code) composer of the music, the film director, and the author of the work so adapted.

EXC: The producers shall exercise the copyright to an extent required for the
exhibition of the work in any manner.

Anonymous and GR: Publishers shall be deemed to represent the authors of articles and other writings
Pseudonymous published without the names of the authors or under pseudonyms.
Works
(Sec. 179 IP Code) EXC: When the contrary appears, or the pseudonyms or adopted name leaves no
doubts as to the author’s identity, or if the author of the anonymous works discloses
his identity.

Commissioned GR: The person who so commissioned the work shall have ownership of the work,
(Sec. 178.4 IP Code) but the copyright thereto shall remain with the creator.

EXC: When there is a written stipulation to the contrary.

Collective GR: An author’s right is deemed waived.
(Sec. 196 IP Code)
EXC: When he expressly reserves it.
In the course of The copyright shall belong to:
employment a.​ The employee if the creation of the object of copyright is not a part of his
(Sec. 178.3 IP Code) regular duties even if the employee uses the time, facilities, and materials of
the employer.
b.​ The employer, if the work is the result of the performance of his regularly
assigned duties, unless there is an agreement, express or implied, to the
contrary.

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 Letters The copyright shall belong to the writer subject to the provisions of Article 723 of the
(Sec. 178.6 IP Code) Civil Code.

(2018, 2013, 2010, 2007 Bar)

Q: Does the registration of a copyright based on a forged Deed of Assignment constitute a valid transfer of
copyright to the assignee?
A: No. Copyright registration does not vest ownership of the copyright. Registration of copyright only serves as
a notice, but it does not confer rights. Further, a contract with a forged signature is a fictitious contract, and
"conveyances by virtue of a forged signature or a fictitious deed of sale are void ab initio." Thus, a forged Deed of
Assignment does not confer rights to the assignee for lack of consent of the copyright owner. (M.Y.
Intercontinental Trading Corporation vs. St. Mary's Publishing Corporation, G.R. No. 249715, April 12, 2023)

Limitations on Copyright

Q: What is the Doctrine of Fair Use?

A: The fair use of a copyrighted work for criticism, comment, news reporting, teaching including limited
number of copies for classroom use, scholarship, research, and similar purposes is not an infringement of
copyright. (Sec. 185, IP Code, as amended by Sec. 12 of R.A. No. 10372) “Fair use” permits a secondary use that
“serves the copyright objective of stimulating productive thought and public instruction without excessively
diminishing the incentives for creativity." (2024, 2020/21, 2017 Bar)

Q: What is the Doctrine of Multiple Performances?

A: The doctrine of multiple performances provides that a radio (or television) transmission or broadcast can
create multiple performances at once. The reproduction of the radio waves into audible sound waves is also a
performance, hence 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. (Filipino Society of
Composers, Authors and Publishers v. Anrey, Inc., G.R. No. 233918, August 9, 2022)

Copyright Infringement
Q: What are the elements of copyright infringement?
A: Before copyright holders may claim for infringement, two elements must be proven:
a.​ They must show ownership of a valid copyright; and
b.​ They must demonstrate that the alleged infringers violate at least one economic right granted to
copyright holders under Sec. 177 of the IPC. (Filipino Society of Composers, Authors and Publishers v.
Anrey, Inc., G.R. No. 233918, August 9, 2022)

R.A. No. 11057 or the Personal Property Security Act

Q: What is a security interest?

A: Security Interest is a property right in collateral that secures payment or other performance of an obligation,
regardless of whether the parties have denominated it as a security interest, and regardless of the type of asset,
the status of the grantor or secured creditor, or the nature of the secured obligation; including the right of a
buyer of accounts receivable and a lessor under an operating lease for not less than one (1) year; (Sec. 3 (j),
PPSA).

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Q: What is a security agreement?
A: The Security Agreement is the written contract signed by the parties that expresses the intent of the parties
to create a security interest over the collateral to secure the payment of the obligation of the grantor to the
secured creditor. (AQUINO & AQUINO)

Creation of Security Interest

Q: What are the requisites of a Security Agreement?

A: The following are the requisites of a security agreement based on the PPSA and its IRR:
1.​ The debtor must have an existing obligation to the creditor;
2.​ There is intent by the parties, including the grantor, to create a security interest to secure performance
of the principal obligation;
3.​ The agreement to create a security interest must be in writing;
4.​ The parties must sign the security agreement;
5.​ The security agreement must identify the secured obligation; and
6.​ The security agreement must identify the property that will serve as the collateral.

Q: What is the “transferee exception rule”?

A: Any party who obtains any movable property containing a security interest shall take the same free of such
security interest provided he was in good faith. No such good faith shall exist if the security interest in the
movable property was registered prior to his obtaining the property. (PPSA, Sec. 21)

Perfection of Security Interest

Q: What are the means by which a security interest may be perfected?

A: A security interest may be perfected by:
1.​ Registration of a notice with the Registry;
2.​ Possession of the collateral by the secured creditor; and
3.​ Control of investment property and deposit account (PPSA, Sec. 12).

Q: What is the notice of security interest that perfects the security interest?
A: The notice of security interest that perfects the security interest is the notice to the Registry established in an
administered by the Land Registration Authority. (AQUINO & AQUINO).

Q: How long is the effectivity of a Notice?

A: A notice shall be effective for the duration of the term indicated in the notice unless a continuation notice is
registered before the term lapses. (Id., (b)).

Note: A continuation notice continues the period of effectiveness of a notice, which is done by registering an
amendment notice that identifies the initial notice by its registration number. Continuation of notice may be
registered only within six (6) months before the expiration of the effective period of the notice. (Id., Sec. 33).

R.A. No. 10142 or the Financial Rehabilitation and Insolvency Act

Q: Explain the "cram-down" principle.

A: A 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 showing that rehabilitation is feasible and the opposition of the
creditors is manifestly unreasonable. Also known as the "cram-down" clause, this provision, which is currently

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incorporated in the Financial Rehabilitation and Insolvency Act (FRIA), 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. (China Banking v. St. Francis Square Realty, G.R. Nos. 232600-04, Jul. 27, 2022, J. Javier)

Q: What is a commencement order?

A: If the petition for rehabilitation is deficient in form and substance, the court may give a reasonable period to
amend or supplement the petition. If such deficiency is not complied with, the court may dismiss the petition. If
the petition for rehabilitation is sufficient in form and substance, it shall issue a Commencement Order within
five (5) working days from the filing of the petition. The rehabilitation proceedings shall commence upon the
issuance of the Commencement Order. (2017 Bar)

Q: What is a stay or suspension order?

A: An order included in the Commencement Order that has the following effects:
1.​ Suspending all actions or proceedings, in court or otherwise, for the enforcement of claims against the
debtor;
2.​ Suspending all actions to enforce any judgment, attachment or provisional remedies against the debtor;
3.​ Prohibiting the debtor from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business; and
4.​ Prohibiting the debtor from making any payment of its liabilities outstanding as of the commencement
date except as may be provided herein (Sec. 16, R.A. 10142)

Q: What are the exceptions to the Stay or Suspension Order?

A:
1.​ Cases already pending appeal in the Supreme Court as of commencement date. Provided, That any
final and executory judgment arising from such appeal shall be referred to the court for appropriate
action;
2.​ Subject to the discretion of the court, cases pending or filed at a specialized court or quasi-judicial
agency which, upon determination by the court is capable of resolving the claim more quickly, fairly
and efficiently than the court: Provided, That any final and executory judgment of such court or agency
shall be referred to the court and shall be treated as a non- disputed claim;
3.​ Enforcement of claims against sureties and other persons solidarily liable with the debtor, and third
party or accommodation mortgagors as well as issuers of letters of credit, unless the property subject of
the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver; (2019, 2018 Bar)
4.​ Any form of action of customers or clients of a securities market participant to recover or otherwise
claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well
as any action of such securities market participant or the appropriate regulatory agency or
self-regulatory organization to pay or settle such claims or liabilities;
5.​ Actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of securities transactions in accordance with the
provisions of the Securities Regulation Code and its implementing rules and regulations;
6.​ Clearing and settlement of financial transactions through the facilities of a clearing agency or similar
entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the

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 BSP and the SEC as well as any form of actions of such agencies or entities to reimburse themselves for
any transactions settled for the debtor; and
7.​ Criminal action against an individual debtor or owner, partner, director or officer of a debtor. (Sec. 18,
R.A. 10142) (2019, 2017 Bar)

R.A. No. 10173 or the Data Privacy Act

Q: Distinguish between Personal vs. Sensitive Personal Information

A:
Personal Information Sensitive Personal Information
Any information, whether recorded in a material Personal information that:
form or not, from which: 1.​ Relates to an individual’s race, ethnic origin,
1.​ The identity of an individual is apparent or marital status, age, color, religious,
can be reasonably and directly ascertained philosophical, or political affiliations;
by the entity holding the information; or 2.​ Relates to an individual’s health, education,
2.​ When combined with other information, genetic or sexual life, or to any proceeding
would directly and certainly identify an for any offense committed/alleged, the
individual. (Sec. 3(g), Data Privacy Act) disposal of such proceedings, or the sentence
of any court;
3.​ Is issued by government agencies peculiar to
an individual (e.g., SSS number, health
records, licenses, tax returns);
4.​ Is specifically classified by executive order or
act of Congress. (Sec. 3(l), Data Privacy Act)
(2020/21 Bar)

Processing of Personal and Sensitive Personal Information; Lawful Basis

Q: When is processing of personal information permitted?​

A: The processing of personal information shall be permitted only if not otherwise prohibited by law, and when
at least one of the following conditions exists:
1.​ The data subject has given his or her consent;
2.​ The processing:
a.​ is necessary and is related to the fulfillment of a contract with the data subject or in order to
take steps at the request of the data subject prior to entering into a contract;
b.​ is necessary for compliance with a legal obligation to which the personal information
controller is subject;
c.​ is necessary to protect vitally important interests of the data subject, including life and health;
d.​ is necessary in order to respond to national emergency, to comply with the requirements of
public order and safety, or to fulfill functions of public authority which necessarily includes
the processing of personal data for the fulfillment of its mandate; or
e.​ is necessary for the purposes of the legitimate interests pursued by the personal information
controller or by a third party or parties to whom the data is disclosed, except where such
interests are overridden by fundamental rights and freedoms of the data subject which require
protection under the Philippine Constitution. (Sec. 12, DPA) (2024 Bar)

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Note: Consent of the data subject is required for a lawful processing of personal information. The existence of
any one of the foregoing provisions (Sec. 12 (b-f), DPA) also makes the processing of personal information
lawful.

Rights of Data Subject

Q: What are the rights of a data subject?

A: The data subject is entitled to the following rights:
1.​ Right to be informed; Right to object;
2.​ Right to-access;
3.​ Right to rectification;
4.​ Right to erasure or blocking:
5.​ Right to damages (IRR of R.A. No-10173, Rule VII, Sec: 34) (2019 Bar)

R.A. No. 8792 or the Electronic Commerce Act

Q: What are the rules for Electronic Data Messages?

A: This refers to information generated, sent, received, or stored by electronic, optical, or similar means. (Sec.
5(c), R.A. No. 8792) The Supreme Court has already ruled that a facsimile transmission cannot be considered as
electronic evidence. It is not the functional equivalent of an original under the Best Evidence Rule and is not
admissible as electronic evidence. (MCC Industrial Sales Corp. vs. Sangyong Corp., G.R. No. 170633, October 17,
2007) (2019 Bar)

Note: Subject to authentication, the screenshot of the message proves the perfection of the sale contract. Except
as otherwise agreed by the parties, an offer, the acceptance of the offer and such other elements required under
existing laws for the formation of contracts may be expressed in, and demonstrated and proved by means of
electronic data messages or electronic documents. (Section 16 of RA 8792) Screenshot of a Facebook message is
considered an electronic data message since it pertains to an information sent, received or stored by electronic
and optical means. (2022 Bar)

Commonwealth Act No. 146 as amended by R.A. No. 11659 or the Public Service Act

Q: China Telecommunication Company (CTC), a Chinese state-owned enterprise, sought to acquire 40%
equity in Duon Telecommunication Corporation (DTC), a telecommunications company in the Philippines.
When questioned by the two major telecommunication companies in the Philippines, Cheng, the president of
DTC, defended the proposed acquisition by saying that CTC is allowed to own 40% equity pursuant to the
nationality requirement under the 1987 Constitution. Is the argument of Cheng correct? Discuss your answer.
A: Under the Public Service Act, as amended, an entity controlled by or acting on behalf of the foreign
government or foreign state-owned enterprises is prohibited from owning capital in any public service classified
as public utility or critical infrastructure. Critical infrastructure, on the other hand, refers to any public service
which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the
Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on
national security, including telecommunications and other such vital services as may be declared by the
President of the Philippines. CT is a foreign state-owned enterprise that wants to invest in the equity of DTC
telecommunication company, which, by law, is considered critical infrastructure. The proposed equity
investment will therefore violate the Public Service Act. (2023 Bar)

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