VILLANUEVA-CASTRO COMMERCIAL LAW_new.pdf

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COMMERCIAL LAW REMINDERS Prof. Maria Zarah R. Villanueva-Castro TRUSTRECEIPTS

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Whatisatrustreceipttransaction?

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A trust receipt as “a security transaction ction ion in iintended to aid in financing importers and retail dealerswhodonothavesufficientfundsorresourcestofinancetheimportationorpurchaseof unds o merchandise, and who may not be able to acquire credit except through utilization, as not ot be b collateral,ofthemerchandiseimportedorpurchased.”(ROSARIOTEXTILEMILLSCORP.,ETAL. e impor mpor vs. HOME BANKERS SAVINGS & TRUST CO., G.R. No. 137232, 29 June 2005 citing Samo vs. NGS & People,115Phil.346)

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WhataretheobligationsoftheentrusteeinaTrustReceipttransaction? ligations gations t Receip

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The entrustee to (1) hold the goods, documents or instruments in trust for the eee is is obliged ob ods, s, doc entrusterandshalldisposeofthemstrictlyinaccordancewiththetermsandconditionsofthe and sha sh n accor trustreceipt;(2)receivetheproceedsintrustfortheentrusterandturnoverthesametothe pt; ( trust fo ver er t entrustertotheextentoftheamountowedtotheentrusterorasappearsonthetrustreceipt; owed t arss on th (3) insure the goods for their total value against loss from fire, theft, tal valu heft, pilferage or other casualties;(4)keepsaidgoodsortheproceedstherefromwhetherinmoneyorwhateverform, r the pr p in n mo m n separate and capable of identification as property of the entruster; entificat ntificat ntruster truster (5) return the goods, documentsorinstrumentsintheeventofnonsale orupondemandoftheentruster;and(6) in the he deman observeallothertermsandconditionsofthetrustreceiptnotcontrarytotheprovisionsofthe co t not co the he TrustReceiptsLaw.(METROPOLITAN BANKvs.SEC.GONZALES,etal.,G.R.No.180165,7April ONZALES NZALES 7 April 2009)  If the entrustee were to return the goods to entruster as he was not ablee to sel sell them, o the en se wouldtheobligationsecuredbythetrustreceiptbeextinguished?Isdeficiencyclaimproper eceipt ceipt ency ncy cla inatrustreceipttransaction?  NO. A trust receipt is a security agreement, pursuant to which a ba bank ank aacquires a “security interest”inthegoods.xxxTheinitialrepossessionbythebankofthegoodssubjectofthetrust th goo the receiptdidnotresultinthefullsatisfactionoftheloanobligation.Aclaimfordeficiencywould tion. ion. A c thusbeinorder.(LANDL&COMPANYINC.,VS.METROPOLITANBANK&TRUSTCOMPANYG.R. AN BA No.159622,30July2004)   

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Iftheentrusteeweretocancelthetrustreceiptandtakepossessionofthegoods,wouldthis amounttodacionenpago?  Neithercansaidrepossessionamounttodacionenpago.Dationinpaymenttakesplacewhen propertyisalienatedtothecreditorinsatisfactionofadebtinmoneyandthesameisgoverned by sales.  Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. (Ibid, citingPNBvs.Hon.Pineda,G.R.46658,13May1991)  nt The repossession of the goods by the ent entrustee was merely to secure the payment of its or the obligation to the entrustor and not for for the purpose of transferring ownership thereof in satisfactionoftheobligation.  LETTERSOFCREDIT

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Howdoestheindependenceprincipleapply endence tolettersofcredit? of credit  Thesocalled“independenceprinciple”assuresthesellerorthebeneficiaryofpromptpayment “indepen ndepe he sell sel err independent of aany breach of the main contract nt of ontract and precludes the issuing bank from determiningwhetherthemaincontractisactuallyaccomplishedornot.Underthisprinciple, ng whe actually banks assume m no liability or responsibility ility ty for for the form, sufficiency, accuracy, curacy uracy genuineness, falsification or legal effect of any documents, conditions ocument cument or for the general and/or or particular partic stipulated in the documents or superimposed thereon, nor do they any liability or superimp perimp ey assume assu responsibilityforthedescription,quantity,weight,quality,condition,packing,delivery,valueor n,, quant on, pac pa existence of the goods represented the good faith or acts and/or resented res ented by any documents, or for r the g go omissions,solvency,performanceorstandingoftheconsignor,thecarriers,ortheinsurersof rmance mance gnor, or, the f thegoods,oranyotherpersonwhomsoever.  The independence principle thus liberates the issuing from the duty of ascertaining ssuing uing bank b ce taini cer compliance by the parties in the main contract. The obligation under the letter is t.. The r of of credit cr cre independentoftherelatedandoriginatingcontract.(TRANSFIELDPHILIPPINES,INC.vs.LUZON ontract. INC. NC vs HYDROCORPORATION,G.R.No.146717,22November2004) Novem   Whatisastandbyletterofcredit?Howdoesitdifferfromacommercialletterofcredit? ercial rcial let l

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There are three significant differences between commercial rcia and rcial an standby credit. First, commercial credits involve the payment of money under a a contract co of sale. Such credits become payable upon the presentation by the sellerbeneficiary of documents that show he hastakenaffirmativestepstocomplywiththesalesagreement.Inthestandbytype,thecredit is payable upon certification of a party’s nonperformance of the agreement. The documents thataccompanythebeneficiary’sdrafttendtoshowthattheapplicanthasnotperformedhis obligation. The beneficiary of a commercial credit must demonstrate by documents that he 2 www.chanroblesbar.com : www.chanroblesbar.com.ph

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hasperformedhiscontract.Thebeneficiaryofthestandbycreditmustcertifythathisobligor hasnotperformedthecontract.(Ibid)   Howdoesaletterofcreditdifferfromacontractofguaranty?

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Theconcept ofguaranteevisàvistheconceptofanirrevocableletterofcreditareinconsistent witheachother.Theguaranteetheorydestroystheindependenceofthebank’sresponsibility from the contract upon which it was opened and the nature of both contracts is mutually in off guarantee, g conflict with each other. In contracts of the guarantor’s obligation is merely efault o collateralanditarisesonlyuponthedefaultofthepersonprimarilyliable.Ontheotherhand, e bank inanirrevocableletterofcredit,thebankundertakesaprimaryobligation.Moreover,aletter geme ementt by a bank or other person made at the request of a of credit is defined as an engagement honor onor d customerthattheissuershallhonordraftsorotherdemandsofpaymentuponcompliancewith the he cre theconditionsspecifiedinthecredit.(MWSSvs.HON.REYNALDOB.DAWAY,G.R. No.160732, 21June2004).

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ExplaintheSHELTERRULE.

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INSTRU NSTRU NEGOTIABLEINSTRUMENTS

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Aholderwhoisnotaholderinduecoursebutderiveshistitlethroughaholderinduecourse, due co rough ough and who is not himself a party to any fraud or illegality affecting the instrument, has all the arty to cting ing the th rightsofsuchformerholderinrespectofallpartiespriortothelatter.(Section58,NIL) r in re thee latte 

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Whenthedraweebankpaysamateriallyalteredcheck,canitclaimreimbursementfromthe heck, ck, ca rom the drawer?

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Whenthedraweebankpaysamateriallyalteredcheck,itviolatesthetermsofthecheck,as ered che ch f the ch c well as its duty to charge its client’s account he h had made. ntt only only for bona fide disbursements nts ts he Sincethedraweebankdidnotpayaccordingtotheoriginaltenoroftheinstrument,asdirected strumen by the drawer, then it has no right to claim reimbursement from the drawer drawer, much less, the right to deduct the erroneous payment it made from the drawer’s which it was er’ss account ac acc expectedtotreatwithutmostfidelity.(METROBANKvs.CABILZO,06DECEMBER2006) 06 DECE  Exception:whenthedrawerwastheonewhomadeorauthorizedthealterationorwhenhe orize failedtoexercisereasonablediligencetoavoidit.(ibid)     3 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Distinguishbetween:contractofindorsementand guaranty.  Acontractofindorsementisprimarilythatoftransfer,whileacontractofguarantyisthatof personalsecurity.Theliabilityofaguarantor/suretyisbroaderthanthatofanindorser.Thus, unlessthebillispromptlypresentedforpaymentatmaturityandduenoticeofdishonorgiven totheindorserwithinareasonabletime,hewillbedischargedfromliabilitythereon.Onthe otherhand,exceptwhererequiredbytheprovisionsofthecontractofsuretyship,ademandor noticeofdefaultisnotrequiredtofixthesurety’sliability.Hecannotcomplainthatthecreditor has not notified him in the absence of special agreement to that effect in the contract of suretyship. (ALLIED BANKING CORP. vs. CO COURT OF APPEALS, et al., G.R. No.125851, 11 July 2006)   r from from liability l Will discharge of the drawer due to lack of protest operate to discharge him aking king which w from his letter of undertaking he signed as additional security for the draft (bill of exchange)?  ill be m f unde Thedrawercanstillbemadeliableundertheletterofundertakingevenifheisdischargeddue rotest otest th rafts. fts. xx tofailuretoprotestthenonacceptanceofthedrafts.xxxItbearsstressingthatitisaseparate m the si s e drawe contractfromthesightdraft.Theliabilityofthedrawerundertheletterofundertakingisdirect ary. ry Itt is ility ity und andprimary.Itisindependentfromhisliabilityunderthesightdraft.Liabilitysubsistsoniteven d naccep RODU ODU if the sight dr draft was dishonored for nonacceptance or nonpayment. (PRODUCERS BANK OF NC., G.R THEPHILS.vs.EXCELSAINDUSTRIES,INC.,G.R.No.152071,8May2009)

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 rty? ty? Wh lity? ty? Whoisanaccommodationparty?Whatisthenatureofhisliability?  one equisite tyy Anaccommodationpartyisonewhomeetsallthethreerequisites,viz:(1)hemustbeaparty r, or ceive eive to the instrument, signing as maker, drawer, acceptor, or ind indorser; (2) he must not receive of lendin e other valuetherefor;and(3)hemustsignforthepurposeoflendinghisnameorcredit tosomeother person.

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nstrum ven tho th The accommodation party is liable on the instrum instrument to a holder for value even even though the kne an acco holder,atthetimeoftakingtheinstrument,knewhimorhertobemerelyanaccommodation en an a party,asifthecontractwasnotforaccommodation.Therelationbetweenanaccommodation hee acco partyandtheaccommodatedpartyisoneofprincipalandsurety–theaccommodationparty 511, 11, SEP being thesurety.(ANGvs.ASSOCIATEDBANK,ETAL.,G.R.NO.146511,SEPTEMBER5,2007)   nt without the consent of the The accommodated party was allowed extension of payment accommodationparty.Isthelatterstillliable?  Sincetheliabilityofanaccommodationpartyremainsnot onlyprimarybutalsounconditional toaholderforvalue,eveniftheaccommodatedpartyreceivesanextensionoftheperiodfor

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thepaymentwithouttheconsentoftheaccommodationparty,thelatterisstillliableforthe wholeobligationandsuchextensiondoesnotreleasehimbecauseasfarastheholderforvalue isconcerned,heisasolidarycodebtor.(Ibid.)   Acheck,payabletotheorderofXandYwasdepositedtoabank(collectingbank)withthe lone indorsement of X. X, subsequently withdrew the entire proceeds thereof. State the implications.  rde de Whereaninstrumentispayabletotheorderoftwoormorepayeesorindorseeswhoarenot nee indo partners,allmustindorseunlesstheoneindorsinghasauthoritytoindorsefortheothers.The ssing in paymentofaninstrumentoveramissingindorsementistheequivalentofpaymentonaforged indo nd rse se indorsementoranunauthorizedindorsementinitselfinthecaseofjointpayees.

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check is i Acollectingbank,whereacheckisdepositedandwhichindorsesthecheckuponpresentment s an indo ind dorsin ors withthedraweebank,isanindorser.Thisisbecauseinindorsingachecktothedraweebank,a ps the b phrase collectingbankstampsthebackofthecheckwiththephrase"allpriorendorsementsand/or  ent nt guaranteed" gu gua and, for all intents nts and an purposes, treats the check as a and lack of endorsement negotiable instrument, of an indorser. Without the collecting trument umen hence, assumes the warranty rranty ranty o bank’swarranty,thedraweebankwouldnothavepaidthevalueofthesubjectcheck. anty, the th ave ve paid

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The collecting cting ting bank or last indorser, generally nerally erally suffers the loss because it t has the duty to ascertainthegenuinenessofallpriorindorsementsconsideringthattheactofpresentingthe ndorsem act ct of check for payment to the drawee is an that the party making the presentment has an assertion ass ng the  doneitsdutytoascertainthegenuinenessofpriorindorsements. nuinenes uinene (METROBANKvs.BAFINANCE MET ETROBA CORPORATION,G.R.No.179952,4December2009) 52,, 4 Dec

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  Cantheholdersuethedraweebankifthelatterrefusespaymentofachecknotwithstanding ses es paym nding ding sufficiencyoffunds?

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NO.Acheckofitselfdoesnotoperateasanassignmentofanypartofthefundstothecreditof ssignme ssignmen to o the cr thedrawerwiththebank,andthebankisnotliabletotheholder,unlessanduntilitacceptsor ott liable bl until it certifies the check(Section 189, NIL). Thus, if aa bank refuses to pay a check eckk (notwithstanding (not the sufficiency of funds), the payeeholder cannot sue the bank. The payeeholder should e paye insteadsuethedrawerwhomightinturnsuethebank.Section189isasoundlawbasedon 9 is a so logic and established legal principles; no privity of contract exists the draweebank tss between betw andthepayee.(VILLANUEVAvs.NITE,G.R.No.148211,25July2006) 2006) 2006)  Doesthealterationontheserialnumberofthecheckconstitutematerialalteration?  The alterations on the serial numbers do not constitute material alteration within the contemplationoftheNegotiableInstrumentsLaw.Analterationissaidtobematerialifitalters theeffectoftheinstrument.Itmeansanunauthorizedchangeinaninstrumentthatpurports

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to modify in any respect the obligation of a party or an unauthorized addition of words or numbersorotherchangetoanincompleteinstrumentrelatingtotheobligationofaparty.In other words, a material alteration is one which changes the items which are required to be statedunderSection1oftheNIL.(THEINTERNATIONALCORPORATEBANK,INC.v.COURTOF APPEALS,G.R.No.129910,September5,2006)

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Distinguishbetween:inlandandforeignbillofexchange.  Aninlandbillofexchangeisabillwhichisoronitsfacepurportstobe,bothdrawnandpayable or withinthePhilippines(Sec.129,NIL).Thus,aforeignbillofexchangemaybedrawnoutsidethe Thus, us, a f Philippines, payable outside the Philippines, or both drawn and payable outside of the Philippin Philippines (BANK OF PHILIPPINE ISLANDS E ISL IS AND ND vs. CIR, G.R. No. 137002, 27 July 2006).  Further, a foreign bill of exchange must be be pro protested in case of dishonor to charge the drawer and the indorserswhileaninlandbillofexchangeneednotbeprotested. illl of exc   Whatisamanager’scheck? er’s r’s chec che  Amanager’scheckisonedrawnbythebank’smanageruponthebankitself.Itissimilartoa s check s manag mana cashier’scheckbothastoeffectanduse.Acashier’scheckisacheckofthebank’scashieron check heck b A cashie hisownoranothercheck.Ineffect,itisabillofexchangedrawnbythecashierofabankupon an a bill of shier hie o thebankitself,andacceptedinadvancebytheactofitsissuance.Itisreallythebank’sown nce by s really eally checkandmaybetreatedasapromissorynotewiththebankasamaker.Thecheckbecomes omissory missory maker. ker. T the primary obligation of the bank bank which issues it and constitutes promise to pay ank wh ess its its written w upondemand.Themereissuanceofitisconsideredanacceptancethereof.(EQUITABLEPCIvs. uance o ance nce the th ONG15September2006)  Discusstheeffectsofcertifyingacheck.  Theeffectsare: 1) Itisequivalenttoacceptanceandistheoperativeactthatmakesthebankliable. e opera k liable. liable 2) Itamountstotheassignmentofthefundsofthedrawerinthehandsofthedrawee. unds of the d 3) Ifobtainedbytheholder,personssecondarilyliablearedischarged. d.   Explainthemeaningofcheckkiting.  It refers to the wrongful practice of taking advantage of the the the time that elapses he float, f betweenthedepositofthecheckinonebankanditscollectionatanother.Inanticipationof thedishonorofthecheckthatwasdeposited,theoriginalcheckwillbereplacedwithanother worthless check. (Notes and Cases on Banks, Negotiable Instruments and other Commercial Documents,Aquino,2006ed)  6 www.chanroblesbar.com : www.chanroblesbar.com.ph

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INSURANCE

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Thepolicyreads:“TheinsuranceofanyeligibleLotPurchasershallbeeffectiveonthedatehe contractsaloanwiththeAssured.However,thereshallbenoinsuranceiftheapplicationofthe Lot Purchaser is not approved by the Company.” It would appear that at the time of loss, a loan has been contracted with the Assured but it is not clear whether the Insurer has approvedtheinsuranceapplication.Whenshouldthepolicybedeemedeffective?  While one provision appears to state that the insurance coverage of the clients of Assured alreadybecameeffectiveuponcontractingaloanwiththeAssured,anotherappearstorequire ga theInsurertoapprovetheinsurancecontractbeforethesamecanbecomeeffective. ontract ntract  It must be remembered that an ins insurance contract is a contract of adhesion which must be in ura ra construedliberallyinfavoroftheinsuredandstrictlyagainsttheinsurerinordertosafeguard the he ins ns the latter’s interest. Thus, the the va vague contractual provision must be construed in favor of the insuredandinfavoroftheeffectivityoftheinsurancecontract. hee effec ract ac

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Theseeminglyconflictingprovisionsmust beharmonizedtomeanthatuponaparty’spurchase nflicting flicting ized to of a memorial lot on installment from the Assured, lot ot on ured, red, an a insurance contract covering the lot purchaser is created and the same is effective, s create tive, ve, valid, val and binding until terminated by the Insurer by the insurance application. y disapproving disap plication. cation. The second sentence is in the nature of a resolutory co condition which would lead to to the cessation of the insurance contract. Moreover, o the contr ont themereinactionoftheinsurerontheinsuranceapplicationmustnotworktoprejudicethe the he insu t work t insured;itcannotbeinterpretedasaterminationoftheinsurancecontract.Theterminationof s a term ontract. theinsurancecontractbytheinsurermustbeexplicitandunambiguous. nsurer mbiguou biguo (ETERNALGARDENS MEMORIALPARKvs.PHILAMLIFE,G.R.No.166245,09April2008) MLIFE, G. 08) 8)  Does the buyer have insurable even while the goods are stilll in in b interest over the goods ds even eve transit?  YES.Thebuyer’sinterestisbasedontheperfectedcontractofsale.Theperfectedcontractof cted ed con d contr cont salebetweenhimandtheseller/shipperofthegoodsoperatestovestinhimanequitabletitle he good n equita even before delivery or before he performed The contract of med the conditions of the sale. e. The shipment, whether under “F.O.B.”, “C.I.F.”, or “C & F” is immaterial in the of the determination de det whetherthebuyerhasinsurableinterestornotinthegoodsintransit.(FILIPINOMERCHANTS t. (FILIPI INSURANCECO.vs.CA,28November1989)  Distinguishbetween:LossPayableClauseandStandardorUnionMortgageClause. nion ion Mo  UnderaLossPayableClause,themortgageeismademerelyabeneficiaryunderthecontract. Anydefaultonthepartofthemortgagor,whichbythetermsofthepolicydefeathisrights,will alsodefeatallrightsofthemortgageeunderthecontract,eventhoughthelattermaynothave been in any fault. On the other hand, a Standard or Union Mortgage Clause create collateral independentcontractsbetweentheinsurerandthemortgageeandprovidethattherightsof 7 www.chanroblesbar.com : www.chanroblesbar.com.ph

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themortgageeshallnotbedefeatedbytheactsordefaultsofthemortgagor.(Vance,pp.654 655)  WhatisaMortgageRedemptionInsurance?  A “Mortgage Redemption Insurance” is a group insurance policy of mortgagors which is intendedasadevicefortheprotectionofboththemortgageeandthemortgagor.  On the part of the mortgagee, it has to enter into such contract so that in the event of the urin rin the subsistence of the mortgage contract, the unexpected demise of the mortgagor during applied to the payment of the mortgage debt, thereby proceeds from such insurance will be applied gor from relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample gagor gor suc protectionisgiventothemortgagorsuchthatintheeventofdeath,themortgageobligation e application appl will be extinguished by the of the insurance proceeds to the mortgage tly, y, where whe the mortgagor pays the insurance premium under the indebtedness. Consequently, makin mo mort group insurance policy,, making making the loss payable to the mortgagee, the insurance is on the , and the th e a par mortgagor'sinterest,andthemortgagorcontinuestobeapartytothecontract.Inthistypeof the mor e of th policyinsurance,themortgageeissimplyanappointeeoftheinsurancefund,suchlosspayable t make hee contt clausedoesnotmakethemortgageeapartytothecontract.(GREATPACIFICLIFEASSURANCE A, 316 SC S CORP.vs.CA,316SCRA677)  ct brogatio ogatio Inacontractofinsurance,howdoessubrogationtakeplace?  an inde mage to Uponpaymenttotheconsigneeofanindemnityforthelossofordamagetotheinsuredgoods, brogatio rogatio a caus theinsurer’sentitlementtosubrogationprotantoequipsitwithacauseofactionincaseofa igence. In the exercise of its subrogatory brogator ogato right, an insurer may contractual breach or negligence. carrie oses, ses, it itt stands in the place and in n proceed against an erring carrier.To all intents and purposes, ORP RPORA ORA OME ME substitution of the consignee.(FEDERAL EXPRESS CORPORATION vs. AMERICAN HOME MPANY, PANY, I us 18, ust ASSURANCECOMPANYandPHILAMINSURANCECOMPANY,INC.,G.R.No.150094,August18, 2004)  Statetheexceptionstothesubrogationrule.  Thereisnosubrogationinthefollowingcases:  from rom lia (1) Whentheinsured,byhisownact,releasesthepartyatfaultfromliability. carrier ca rrier (2) Whentheinsurerpaystheinsuredwithoutnotifyingthecarrierwhohasingoodfaith settledtheinsured’sclaimforloss. rom (3) Whentheinsurerpaystheinsuredforalossexceptedfromthepolicy. (4) Whenlifeinsuranceisinvolved.  

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Inwhatcasesisthedesignationofbeneficiaryinlifeinsurancevoidduetodisqualifications underthelaw?  Inthefollowingcases,thedesignationofbeneficiaryisvoid:  (a) Thosemadebetweenpersonswhowereguiltyofadulteryorconcubinageatthetimeof thedonation; (b) Those made between persons found guilty of the same criminal offense, in considerationthereof; sw (c) Thosemadetopublicofficerorhiswife,descendantsandascendants,byreasonofhis office.  plies es to o life insurance (Article 2012, NCC) and the insurance (NOTE: The disqualification applies only nly the contractitselfremainsvalid, onlythedesignationofbeneficiaryisvoid.)  ilities lities w mm Underthepolicy,disabilitieswhichexistedbeforethecommencementoftheagreementare ome ma om m its ef e excludedif theybecomemanifest within one yearfromitseffectivity.The insuredallegedly ntment ment b who w preventedpresentmentbytheinsurerofthedoctorwhowilltestifyonhermedicalcondition e doctor docto urer er thu u becauseofthedoctorpatientprivilege.Theinsurerthusassumedthatthetestimonywould as it wa e insure beadverse asitwaswillfullysuppressedbytheinsured.Decidewhethertheinsurerisliable.  ab b ontracts ntracts that when their terms contain ntai limitations on ntain It is an established rule in insurance contracts rictly ictly ag e contra ontra liability,theyshouldbeconstruedstrictlyagainsttheinsurer.Thesearecontractsofadhesion erpreted preted and enforced stringently aagainst gainst the insurer which the terms of which much be interpreted CROSS HEALTH CARE, INC. vs. OLIVARES, IVARES VARE G.R. No. 169737, 12 prepared the contract.  (BLUE CROSS February2008)

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thee insu nsu pre re Theinsurerneverpresentedanyevidencetoprovethattheinsured’sstrokewasduetoapre octor’s ctor’s report would be adverse to to the the existing condition. It merely speculated that the doctor’s privilege ivilege esu sumptio insuredbasedonherinvocationofdoctorpatientprivilege.Thiswasadisputablepresumption atbest.(Ibid)  e insu victim? Inathirdpartyliabilityinsurance,couldtheinsurerbesueddirectlybythevictim?Couldthe insurerbemadesolidarilyliablewiththeinsuredorthewrongdoer?  The h insu Thevictimmayproceeddirectlyagainsttheinsurerforindemnity.Theinsuranceisintendedto by innocent inno nno provide compensation for death or bodily injuries suffered by third parties or r vehicles. vehicle The victims and their passengers as a result of the negligent operation of motor gard dependentsareassuredofimmediatefinancialassistance,regardlessofthefinancialcapacity ofvehicleowners.  Bethatasitmay,thedirectliabilityoftheinsurerunderindemnitycontractsagainstthirdparty liabilitydoesnotmeanthattheinsurercanbeheldliableinsolidumwiththeinsuredand/or theotherpartiesfoundatfault.Fortheliabilityoftheinsurerisbasedoncontract,thatofthe 9 www.chanroblesbar.com : www.chanroblesbar.com.ph

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insured carrier is based on tort. (WILLIAM TIU AND VIRGILIO TE LAS PIÑAS vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO AND PHIL PHOENIX SURETY AND INSURANCE,INC.[G.R.No.138060,01September2004)Thethirdpartyliabilityoftheinsureris onlyuptotheextentoftheinsurancepolicyandthatrequiredbylaw;anditcannotbeheld solidarily liable for anything beyond that amount. Any award beyond the insurance coverage wouldalreadybethesoleliabilityoftheinsuredand/ortheotherpartiesatfault.(THEHEIRS OFGEORGEPOEvs.MALAYANINSURANCECOMPANY,INC.,G.R.156302,7April2009)  Inwhatcasesisthepolicybindingevenifpremiumisunpaid?  n case ase (1) Whenthegraceperiodappliesincaseoflifeandindustriallifepolicy; gement (2) Whenthereisanacknowledgementinthepolicyofreceiptofpremium; ent nt that at (3) Whenthereisanagreementthatthepremiumshallbepayableoninstallment; extensi (4) Whenthereisacreditextension;and e doctrin (5) Whentheequitabledoctrineofestoppelapplies(SummarybasedontherulinginUCPB ANCE NCE vs NC., GENERALINSURANCEvs.MASAGANATELAMART,INC.,G.R.137172,04April2001)  f premiu Whenisreturnofpremiumwarranted?  remium ngg cases case Returnofpremiumiswarrantedinthefollowingcases:  th ed to the c.. 78, (1) Thethinginsuredwasnotexposedtotheperiodinsuredagainst(Sec.78,ICP) ore the ec. 79, IC (2) Timepolicyissurrenderedbeforethestipulatedperiodlapses(Sec.79,ICP) uee to to fa f the the insurer in (3) The contract is voidable due fault or misrepresentation of or default of ctual fra theinsuredotherthanactualfraud(Sec.81, ICP) veral ins (4) Overinsurancebyseveralinsurers(Sec.82,ICP)  policy? Whatdevicesareusedtopreventlapseoflifeinsurancepolicy?  wing ng de e od; (b) ( To prevent lapse of life insurance policy, the following devices are used: (a) grace per period; idend; dend; and (d) restatement clause. se. e. (Aquino, (A (Aq automatic policy loan; (c) application of dividend; Essentialsof InsuranceLaw,p.80)  Whatisan“AllRisks”insurancepolicy?  n those those due to willful and An “All Risks” insurance policy covers all kinds of loss other than PPEALS, fraudulentactoftheinsured.(MAYERSTEELPIPEvs.COURTOFAPPEALS,274SCRA432)  Whatisanindustriallifeinsurance?  Anindustriallifeinsuranceisonewherethepremiumsarepayableeithermonthlyoroftener,if thefaceamountoftheinsuranceprovidedinanypolicyisnotmorethan500timesthatofthe currentstatutoryminimumdailywageintheCityofManila,andifthewords“industrialpolicy” areprinteduponthepolicyaspartofthedescriptivematter.(Sec.229,ICP) 10 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Whatarecovernotes?Whatarethelimitationsontheissuanceofcovernotes?  Cover notes are interim or preparatory contracts of insurance. An interim coverage may be necessarybecausetheinsurermayneedmoretimetoprocesstheinsuranceapplication.The issuanceofcovernotesissubjecttothefollowing:  (1) IssuanceorrenewalisuponapprovaloftheInsuranceCommission. (2) Durationisnotmorethan60daysfromissuance. n pr p (3) Cancellationbyeitherpartyisuponprior7daynoticetotheother. 60 0 days (4) Mainpolicytobeissuedwithin60daysaftercovernotewasissued. e is subj (5) Extensionof60daycoverageissubjecttoInsuranceCommission’sapproval.  e origina Inreinsurance,whendoestheoriginalinsuredhavedirectrecourseagainstthereinsurer?  ayy direct rein ei Theoriginalinsuredmaydirectlysuethereinsurerifthereinsurancepolicyclearlycontainsa ui in his wever, ever, stipulationpourautruiinhisfavor.Suchstipulation,however,shouldnot,inanyway,affector al insure insur l insure insur curtail,theoriginalinsured’srecoursetotheoriginalinsurerandthelatter’srecourseagainst thereinsurer.  hee Inchm chm nsuranc suranc ExplaintheInchmareeClauseinamarineinsurance.  olicy icy to ugh the This is a clause included in a hull policy to cover loss or damage through the bursting of the ugh h laten y orr equ boiler,breakingofshaftsorthroughlatentdefectsofthemachineryorequipment,hullorits or in n ors f the v appurtenancesandfaultsorerrorsinnavigationormanagementofthevessel.(CEBUSHIPYARD vs. WILL . No. 13 ENGINEERINGWORKS,INC.vs.WILLIAMLINES,INC.,etal.,G.R.No.132607,05May1999)The y provided provi e clause should be expressly for because damage of of this this ssort are not included in the ) term“perilsofthesea.” (Ibid.)

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rance. nce. Statetherequisitesofcoinsuranceinmarineinsurance.  o the fol must be b Coinsuranceinmarineinsuranceissubjecttothefollowingrequisites:(a)theremustbepartial an th ured. red. loss;and(b)theinsurancecoverageislessthanthevalueofthepropertyinsured.  ExplaintheFPAClause.  f the in FPAorFreefromParticularAverage)clauselimitstheliabilityoftheinsurerincaseofpartial loss.(Sec.136,ICP)  Whataretherulesonclaimsunderthe“nofaultindemnity”provision?  Proofoffaultornegligenceisnotnecessaryforpaymentofanyclaimfordeathorinjurytoa thirdpartysubjecttothefollowing:  11 www.chanroblesbar.com : www.chanroblesbar.com.ph

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(1) Aclaimmaybemadeagainstonemotorvehicleonly. (2) If the victim is an occupant of a vehicle, his claim shall lie against the insurer of the vehicleinwhichheisriding,mountingordismountingfrom. (3) If the victim is not an occupant, the claim shall lie against the insurer of the directly offendingvehicle. (4) Inanycase,righttorecoverfromtheowneroftheresponsiblevehicleshallremain. (5) TotalindemnityinrespectofanypersonshallnotexceedP15,000.00.(ICMemoCircular 42006) (6) Proofs of loss shall consist of: (a) police report; (b) death certificate; and (c) medical ho hos reportandevidenceofmedicalorhospitaldisbursement.

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TR TRANSPORTATION

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Isatravelagencyacommoncarrier? on n carrie carri  No.Atravelagencyisnotanentityengagedinthebusinessoftransportingeitherpassengersor s not an ness ss of t goods.Itscovenantwithitscustomersissimplytomaketravelarrangementsintheirbehalf.Its nt with i ake trav tra services include tickets and facilitating travel e procuring proc procu ngg trav tra e permits or visas as well as booking customersfortours.(CRISOSTOMOvs.CA,G.R.No.138334.25August2003) or tours No. 138  Explaintheregisteredownerrule.Whatisthepurposeoftherule? re iss the p  Regardlessofwhotheactualownerisofamotorvehiclemightbe,theregisteredowneristhe err is of he regis operator of the same with respect pect to to the public and third persons, ons, ns, and an as such, directly and primarily responsible for the consequences of its operation.. In contemplation of law, the he cons IIn con co owner/operator of record is the employer of the driver, the operator and employerr is the the he actual act being consideredmerelyashisagent.  Themainpurposeofvehicleregistrationistheeasyidentificationoftheownerwhocanbeheld y identifi dentifi an n bee he responsible for any accident, damage or injury caused by the vehicle. Easy identification uryy caus dentific entifi prevents inconvenience and prejudice to a third injured by one who is or third party p iss unknown unkn unidentified. (NOSTRADAMUS VILLANUEVA vs. R. DOMINGO and LEANDRO LUIS R. vs. PRISCILLA P PR LEAND DOMINGO,G.R.No.144274.September20,2004)  Iftheregisteredownerwasmadeliabletothevictim,canheclaimreimbursementfromthe m reimb actualowner/operatorofthevehicle?  Yes. The registered owner has a right to be indemnified by the the real or actual owner of the amountthathemayberequiredtopayasdamagefortheinjurycausedtothevictim.(Ibid)  Whoisa“shipagent”?Ishisliabilitythesamewhetherheactsasagentoftheshipowneror thecharterer?

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Article 586 of the Code of Commerce states that a ship agent is “the person entrusted with provisioning or representing the vessel in the port in which it may be found.”Hence, whetheractingasagentoftheownerofthevesselorasagentofthecharterer,petitionerwill beconsideredastheshipagentandmaybeheldliableassuch,aslongasthelatteristheone that provisions or represents the vessel. (MACONDRAY vs. PROVIDENT INSURANCE CORPORATION,G.R.No.154305,09December2004)  Does extraordinary diligence require the carrier to vouch for the correctness of the entries madeinthetravelpapersofapassenger?  ass the NO. It may be true that the carrier has the d duty to inspect whether its passengers have the ver, suc necessary travel documents, however, such duty does not extend to checking the veracity of A carrier arr could not vouch for the authenticity of a passport every entry in these documents. A tries ies therein. the and the correctness of the entries The power to admit or not an alien into the country annot b is a sovereign act, which cannot cannot be interfered with even by the carrier.(JAPAN AIRLINES vs. al,l, G.R. N 05) MICHAELASUNCIONetal,G.R.No.161730,28January2005)  could uld no n of a pa p Thus,thecarriercouldnotbefaultedforthedenialofapassenger’sshorepasswhereitwas immigra mmigr ared red sho o discoveredbyimmigrationofficialsthatheappearedshorterthanhisheightasindicatedinhis bid) passport.(Ibid)  wn erated ated u EM re DoestheownerofthevehiclebeingoperatedundertheBOUNDARYSYSTEMremainliableas commoncarrier?  ability bility th t e who wh YES.Indeed,toexemptfromliabilitytheownerofapublicvehiclewhooperatesitunderthe ground t uld be “boundarysystem”onthegroundthatheisamerelessorwouldbenotonlytoabetflagrant vic La vice ding ng pub violationsofthePublicServiceLaw,butalsotoplacetheridingpublicatthemercyofreckless uree of of their t gely ely and irresponsible drivers — reckless because the measure earnings depends largely e; and upon the number of trips they make and, hence,, the the sspeed at which they drive; no o pos hey mig irresponsiblebecausemostifnotallofthemareinnopositiontopaythedamagestheymight uly 2004) 200 cause.(SPOUSESHERNANDEZ et al. vs. SPOUSES DOLOR et al, G.R. No. 160286; 30 July  gee but but it also offers carrying services. rvices. ices. For F liability The defendant’s main business is brokerage mage oc o purposes, may the defendant be sued as common carrier if the damage occurred in the performanceofitscarryingservices?  incipal ncipal business b YES. Article 1732 does not distinguish between one whose principal activity is the n ancilla carryingofgoodsandonewhodoessuchcarryingonlyasanancillaryactivity.Itsufficesthat co petitioner undertakes to deliver the goods for pecuniary consideration. (A.F. SANCHEZ BROKERAGE INC. vs. THE HON.COURT OF APPEALS and FGU INSURANCECORPORATION, G.R. No.147079,21December2004)     13 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Explainthedoctrineoflastclearchance.Whendoesthedoctrineapply?  The doctrine states that where both parties are negligent but the negligent act of one is appreciablylaterthanthatoftheother,orwhereitisimpossibletodeterminewhosefaultor negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failedtodoso,ischargeablewiththeloss.(PHILIPPINENATIONALRAILWAYSvs.BRUNTY,G.R. No.169891,02November2006)Thedoctrineappliestoasuitbetweentheownersanddrivers oftwocollidingvehicles.Itdoesnotapplywhereapassengerdemandsresponsibilityfromthe carrier to enforce its contractual obligations, for it would be inequitable to exempt the att the other driver was guilty of negligence. (TIU vs. negligent driver/owner on the ground that ptember ember ARRIESGADO,etal.,GR138060,01September2004).  off a Bill ExplainthethreefoldcharacterofaBillofLading.  oth h as a Abillofladingoperatesbothasa(1)receiptandasa(2)contract.Itisacontractforthegood to transport tran e as a stipulated. It becomes effective as shipped and a contract to and deliver the same accepte a (3) 3) doc do upondeliverytoandacceptedbytheshipper.Itisalsoa(3)documentoftitle.  f claim clai The consignee failed failed to file a formal notice of claim within 24 hours from receipt of the merchand erchan cle le 366 damagedmerchandiseasrequiredunderArticle366oftheCodeofCommerce.Isthefilingof off claim aim the acc anoticeofclaimaconditionprecedenttotheaccrualofarightofactionagainstthecarrier mag dise? ise? forthedamagescausedtothemerchandise? 

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f loss oss o ott an em Therequirementtogivenoticeoflossordamagetothegoodsisnotanemptyformalism.The ose se of s reliev fundamental reason or purpose of such a stipulation is not to relieve relieve the carrier from just nform it en dama liability,butreasonablytoinformitthattheshipmenthasbeendamagedandthatitischarged to give gi it an opportunity to examine amine mine the t nature and extent of the he with liability therefor, and to ortunity to make an investigation of injury. This protects the carrier by affording it an opportunity of aa tigat ated ed m false claimwhilethematterisstillfreshandeasilyinvestigatedsoastosafeguarditselffromfalse andfraudulentclaims.

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strued a the he acc The24hourclaimrequirementhasbeenconstruedasaconditionprecedenttotheaccrualofa r dam ipper pper o rightofactionagainstacarrierforlossof,ordamageto,thegoods.Theshipperorconsignee t of acti act mustallegeandprovethefulfillmentofthecondition.Otherwise,norightofactionagainstthe CEE vs. vs. ABOITIZ A carrier can accrue in favor of the former. (UCPB GENERAL INSURANCE SHIPPING CORP.,etal.,G.R.No.168433,10February2009)

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 y?? WhataretheclausesthatmaybeincludedinaCharterParty?  Theyareasfollows:  1. JasonClause–aprovisionwhichstatesthatincaseofmaritimeaccidentforwhichthe shipowner is not responsible by law, contract or otherwise, the cargo shippers,

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consigneesorownersshallcontributewiththeshipowneringeneralaverage(Pandect ofCommercialLawandJurisprudence,JusticeJoseVitug,2006ed.)  2. ClauseParamount–aprovisionwhichstatesthatCOGSAshallapply,eventhoughthe transportationisdomestic,subjecttotheextentthatifanytermofthebillofladingis repugnanttotheCOGSAorapplicablelaw,thentotheextentthereof,theprovisionof thebillofladingisvoid(ibid)

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ExplaintheCONCESSIONTHEORY.  Under this theory, a corporation is aa creature without any existence until it has received the tion ion is imprimaturofthestateactingaccordingtolaw. ting ng acco  Distinguishbetweenstockandnonstockcorporation. stock a  A stock corporation is d dividend into shares and authorized to oration ration iis one whose capital stock k is iv distributetotheholdersofsuchsharesdividends.Ontheotherhand,anonstockcorporation o the ho nds. ds. On is one where here e no n part of its income is distributable no ributabl ibutab as dividends to its members, trustees or officers.(MANILAINTERNATIONALAIRPORATAUTHORITYvs.CA,495SCRA591) AN ORAT RAT AU 591) 91)  Whatareessentialfortheexistenceofadefactocorporation? cee of a d  The filing of articles of incorporation of incorporation are rporatio and the issuance of the certificate certific essentialfortheexistenceofadefactocorporation.Ithasbeenheldthatanorganizationnot of a d been een he t registered with the Securities and Exchange Commission (SEC) cannot be considered sion o (S S d aa corporation in any concept, not even as a corporation (SEVENTH DAY ADVENTIST ion on de de facto. f ENTIST CONFERENCECHURCHOFSOUTHERNPHILS.,INC.vs.NORTHEASTERNMINDANAOMISSIONOF vs. NORT NOR ISS S ION ON O SEVENTHDAYADVENTIST,INC.GRNo.150416,21July2006) 21 1 July 2  Whatisasoleproprietorship?Doesitenjoyseparatepersonality? sepa separ

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Asoleproprietorshipistheoldest,simplest,andmostprevalentformof busines businessenterprise. It isanunorganizedbusinessownedbyoneperson.Thesoleproprietorispersonallyliableforall is perso pers thedebtsandobligationsofthebusiness.

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A sole proprietorship does not possess a juridical personality and distinct from the tyy separate sepa separ personalityoftheowneroftheenterprise.Thelawmerelyrecognizestheexistenceofasole ecog proprietorshipasaformofbusinessorganizationconductedforprofitbyasingleindividualand requiresitsproprietororownertosecurelicensesandpermits,registeritsbusinessname,and paytaxestothenationalgovernment.Thelawdoesnotvestaseparatelegalpersonalityonthe sole proprietorship or empower it to file or defend an action in court. (EXCELLENT QUALITY APPAREL,INC.vs.WINMULTIRICHBUILDERS,INC.,G.R.No.175048,10February2009) 15 www.chanroblesbar.com : www.chanroblesbar.com.ph

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ExplainbrieflytheDOCTRINE OFPIERCINGTHEVEILOFCORPORATEENTITY.  Acorporationwillbelookeduponasalegalentityasageneralrule,anduntilsufficientreason to the contrary appears; but when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend a crime, the law will regard the corporationasanassociationofpersons,orincaseoftwocorporations,mergethemintoone. (KOPPEL[PHIL.]INC.vs.YATCO,77Phil496;YUTIVOSONSHARDWARECO.vs.COURTOFTAX APPEALS,1SCRA160)  be WhenshouldtheDOCTRINEOFPIERCINGberaised?  rporate fiction should be raised before the trial court. The The issue of piercing the veil of corporate rst st time issuecannotbetreatedforthefirsttimeonappeal.  pursue Toallowthepetitionertopursuesuchadefensewouldunderminebasicconsiderationsofdue theories heories br brou process.Pointsoflaw,theories,issuesandargumentsnotbroughttotheattentionofthetrial ought n eviewing ewing courtwillnotbeandoughtnottobeconsideredbyareviewingcourt,asthesecannotberaised n ap for the first time on on appeal. It would be unfair to the the aadverse party who would have no presen to o th t e opportunitytopresentfurtherevidencematerialtothenewtheorynotventilatedbeforethe (ALMOC (ALMOCE 2008) 008) trialcourt.(ALMOCERAvs.ONG,18February2008)  c dentity ntity o pierce Citespecificcaseswheretheseparateidentityofthecorporationcouldbepierced.  fiction petuate 1. Whentheveilofcorporatefictionismadeasashieldtoperpetuateafraudorconfuse s the rel ployee oyee legitimateissuessuchastherelationofemployerandemployee(CLAPAROLSvs.CIR,65 SCRA613); eld ld for N & HA 2. Whenusedasashieldfortaxevasion(CIRvs.NORTON&HARRISONCO.,11SCRA714); agains gains forum shopping (FIRST PHIL. HIL. IL. 3. When used to shield violation of the prohibition against INTERNATIONALBANKvs.CA,252SCRA259); ation on is is being utilized to violate intellectual nte t llectu ectu 4. When the separate identity of the corporation VILLANU LLANU nee 2007 200 propertyrightsofathirdperson(UYvs.VILLANUEVA,GRNo.157851,29June2007)  ExplaintheINSTRUMENTALITYRULE.

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conduct Whereonecorporationissoorganizedandcontrolledanditsaffairsareconductedsothatitis, hee corp infact,amereinstrumentalityoradjunctoftheother,thefictionofthecorporateentityofthe voke th ‘instrumentality’maybedisregarded.Thecontrolnecessarytoinvoketheruleisnotmajority s, policie orevencompletestockcontrolbutsuchdominationoffinances,policiesandpracticesthatthe will ill orr controlledcorporationhas,sotospeak,noseparatemind,willorexistenceofitsown,andis co butaconduitforitsprincipal.Itmustbekeptinmindthatthecontrolmustbeshowntohave been exercised at the time the acts complained of took place.  Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made.(CONCEPTBUILDERSvs.NLRC,G.R.No.108734,29May1996)  16 www.chanroblesbar.com : www.chanroblesbar.com.ph

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ExplainbrieflytheDOCTRINE OFRELATION.  Underthisdoctrine,whenthedelayineffectingorfilingtheamendedarticlesofincorporation fortheextensionofcorporatetermisduetoaninsuperableinterferenceoccurringwithoutthe corporation’s intervention which could not have been prevented by prudence, diligence, and care,thesamewillbetreatedashavingbeeneffectedbeforetheexpirationoftheoriginalterm ofthecorporation.  Whatsharescouldbedeprivedofvotingrights?  citly tly pro Section of the Corporation Code explicitly provides that “no share may be deprived of voting rights except those classified and issued issued as “preferred” or “redeemable” shares, unless e”,, an nd d that “there shall always be a class or series of shares otherwise provided in this Code”, and ights. ghts Th whichhavecompletevotingrights.Thereisnothinginthearticlesofincorporationoraniotaof hows ows th evidence on record that shows that class “B” shares were categorized as either preferred or ASTILLO, STILLO, et. al.  vs. ANGELES BALINGHASAY, NGHA GH redeemable shares. (CASTILLO, et. al., GR No. 150976, 18 October2004)

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CTRINE TRINE ExplaintheDOCTRINEOFEQUALITYOFSHARES.  e articles artic tic of incorporation do not t provid Where the provide any distinction of the shares of stock, all ed d umed med to the he sa sharesissuedbyacorporationarepresumedtobeequalandentitledtothesamerightsand bilities. lities. privilegesandsubjecttothesameliabilities.  iption ption m r of th thee Woulddepositonstocksubscriptionmakeapersonastockholderofthecorporation?  ription iption oney ney rec h Thedepositonstocksubscriptionismerelyanamountofmoneyreceivedbyacorporationwith uance nce o vent nt aviewofapplyingthesameaspaymentforadditionalissuanceofsharesinthefuture,anevent a deposit depos on stock subscription does es not not which may or may not happen. The person making a titled to dividends, voting rights so r oth have the standing of a stockholder and he is not entitled entitled or other OMMISS MMISS NUE UE vs. prerogativesandattributesofastockholder.(COMMISSIONEROFINTERNALREVENUEvs.FIRST os. 1720 EXPRESSPAWNSHOPCOMPANY,INC.,G.R.Nos.17204546,16June2009)  inform informa Whichshouldprevailinthedeterminationofshareholders,thegeneralinformationsheetor thecorporatebooks?  o the S will still have to be SE The information in the General Information Sheet submitted to the SEC etween the General Information correlated with the corporate books of the Company. As between g (LA g. (L Sheetandthecorporatebooks,itisthelatterthatiscontrolling.(LAOvs.LAO,G.R.No.170585, 6October2008)   

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Could any stockholder, at his pleasure, pullout the machines and equipment, following the saleofhissharestoathirdparty?  NO.Thepropertyofacorporationisnotthepropertyofitsstockholdersormembers.Under the trust fund doctrine, the capital stock, property, and other assets of a corporation are regardedasequityintrustforthepaymentofcorporatecreditorswhicharepreferredoverthe stockholders in the distribution of corporate assets. The distribution of corporate assets and propertycannotbemadetodependonthewhimsandcapricesofthestockholders,officers,or directors of the corporation unless the indispensable conditions and procedures for the we protectionofcorporatecreditorsarefollowed.(YAMAMOTOvs.NISHINOLEATHERINDUSTRIES, G.R.No.150283,16April2008)

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ayy be a subsidiary of another, it does doe o not necessarily follow that its While a corporation may be a ence can c just be disregarded.  A corporate legal existence A subsi subsidiary has an independent and persona rsona paren parent separatejuridicalpersonality,distinctfromthatofitsparentcompany;hence,anyclaimorsuit ter er does do not bind the former, and doe nd d vvice cee versa. In applying the doctrine, the against the latter quisite must be established: (1) control, quisites control, ontrol, not merely majority or complete stock following requisites 2)) such ch ed by t control;(2)suchcontrolmusthavebeenusedbythedefendanttocommitfraudorwrong,to y or ot r dis d perpetuate th the violation of a statutory or oth other positive legal duty, or dishonest acts in s; and (3 ( d breac contraventionofplaintiff’slegalrights;and(3)theaforesaidcontrolandbreachofdutymust just ust loss AVIS, In I proximatelycausetheinjuryorunjustlosscomplainedof.(JARDINEDAVIS,Inc.vs.JRBREALTY, G.R.No.151438,15July2005)

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 iss rem racter acter th Whenthecorporatemaskisremoved,isthecorporatecharactertherebyabrogated?  rporate porate ation is NO.Thecorporatemaskmayberemovedandthecorporateveilpiercedwhenacorporationis f fraud enie n nce is the mere alter ego of another. Where badges of of fraud exist, where public convenience stified ified thereby, th atee corp cor defeated, where a wrong is sought to be justified or where a separate corporate ns to to em es, s, the the notion of identity is used to evade financial obligations employees or to third parties, the n that ha h separatelegalentityshouldbesetasideandthefactualtruthupheld.Whenthathappens,the legitim legitima corporatecharacterisnotnecessarilyabrogated.Itcontinuesforotherlegitimateobjectives. al., G.R. G.R No. 159121, 03 G.R. (PAMPLONA PLANTATION COMPANY, INC et al.  vs. TINGHIL, et al., February2005)  o the of the members of a nonstock Can a corporation provide limitations on the voting rights of corporation?  YES. Section 89 of the Corporation Code pertaining to nonstock corporations provides that "(t)herightofthemembersofanyclassorclasses(ofanonstockcorporation)tovotemaybe limited,broadenedordeniedtotheextent specified in the articles of incorporation or the by laws."ThisisanexceptiontoSection6ofthesamecodewhereitisprovidedthat"noshare 18 www.chanroblesbar.com : www.chanroblesbar.com.ph

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maybedeprivedofvotingrightsexceptthoseclassifiedandissuedaspreferredorredeemable shares,unlessotherwiseprovidedinthisCode.Hence,thestipulationintheByLawsproviding for the election of the Board of Directors by districts is a form of limitation on the voting rightsofthemembersofanonstockcorporationasrecognizedundertheaforesaidSection 89.Section24oftheCode,whichrequiresthepresenceofamajorityofthemembersentitled tovoteintheelectionoftheboardofdirectors,appliesonlywhenthedirectorsareelectedby themembersatlarge,suchasisalwaysthecaseinstockcorporationsby virtueofSection6. (LUISAOAS,etal.vs.COURTOFAPPEALS,etal.,G.R.No.128464,20June2006).   E.. ExplaintheBUSINESSJUDGMENTRULE.  geme ement are left solely to the honest decisions of officers and Questions of policy or of management d so long lon directorsofacorporation,andsolongastheyactingoodfaith,theirordersarenotreviewable OURT O bythecourts.(SABERvs.COURTOFAPPEALS,G.R.No.132981,August31,2004)  e officer rsonally onally Inwhatinstancesareofficers,directors,ortrusteespersonallyliableforcorporateacts?  are: e: whe wh patent aten ly Theinstancesare:when—1.Heassents(a)toapatentlyunlawfulactofthecorporation,or(b) h or gro s affairs forbadfaithorgrossnegligenceindirectingitsaffairs,or(c)forconflictofinterest,resultingin to o the he rss or ot damagestothecorporation,itsstockholdersorotherpersons;2.Heconsentstotheissuance st edge ge the e with wi ofwateredstocksorwho,havingknowledgethereof,doesnotforthwithfilewiththecorporate eto; o; 3. H agrees to hold himself personal secretary his written objection thereto; 3.He personally and solidarily e is mad f aw, to liablewiththecorporation;or4.Heismade,byaspecificprovisionoflaw,topersonallyanswer BLIC vs ONCERN NCER forhiscorporateaction.(REPUBLICvs.INSTITUTEFORSOCIALCONCERN,FELIPE SUZARAAND 56306 Ja K CORPO CORP RAMONGARCIA,G.R.NO.156306January28,2005;SOLIDBANKCORPORATIONvs.MINDANAO N, et a 2005) 005) FERROALLOYCORPORATION,etal.,G.R.No.153535,28July2005)  ch h make ble for What would constitute apatently unlawful act which makes a director personally liable for theobligationsofthecorporation?  sonally son ally liable for debts of the corporation, orporati rporat For a wrongdoing to make a director personally the e dire nlawful act. Mere wrongdoing approved or assented to by the director must be a patently unlawful closure failuretocomplywiththenoticerequirementoflaborlawsoncompanyclosureordismissalof nlawfu acts are those employees does not amount to a patently unlawful act. Patently unlawfu unlawful off such declaredunlawful bylaw whichimposespenaltiesforcommissionofsuchunlawfulacts.There mustbealawdeclaringtheactunlawfulandpenalizingtheact.  mont Inthiscase,Article283oftheLaborCode,requiringaonemonthpriornoticetoemployees andtheDepartmentofLaborandEmploymentbeforeanypermanentclosureofacompany, doesnotstatethatnoncompliancewiththenoticeisanunlawfulactpunishableunderthe Code. There is no provision in any other Article of the Labor Code declaring failure to give such noticeanunlawfulactandprovidingforitspenalty.(CARAGvs.NATIONALLABORRELATIONS COMMISSION,etal.,G.R.No.147590,April2,2007) 19 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Explain theDOCTRINEOFAPPARENTAUTHORITY.  Whenacorporationknowinglypermitsoneofitsofficers,oranyotheragent,toactwithinthe scope of an apparent authority, itholds him out to the public as possessing the power to do thoseacts;andthus,thecorporationwill,asagainstanyonewhohasingoodfaithdealtwithit through such agent, be estopped from denying the agent’s authority. (LAPULAPU FOUNDATIONvs.CA,29January2004)  ble? e? Isteleconferencingnowlegallypermissible?  ology, the courts may take judicial notice that business YES. In this age of modern technology, y individuals in vid ind transactions may be made by through teleconferencing.  In the Philippines, conferen onfere teleconferencing and videoconferencing of members of board of directors of private n light corporations is a reality, in in light of Republic Act No. 8792.  The Securities and Exchange Memo n No N Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the mplied w ences ces. ( guidelinestobecompliedwithrelatedtosuchconferences.(EXPERTRAVEL&TOURS,INC.vs. 152392 CA,etal.,G.R.No.152392,26May2005)  bylaws by laws the pre Incasethebylawscouldnotbefiledwithintheprescribedperiod,wouldjuridicalexistence cally ally ce automaticallycease?  cto to lose e the re NO.Acorporationwouldnotipsofactoloseitspowersforfailuretofiletherequiredbylaws. ERS RS ASS 681) At (LOYOLAGRANVILLASHOMEOWNERSASSOCIATIONvs.CA,276SCRA681)Attheveryleast,the a de fac t to ex corporationmaybeconsideredadefactocorporationwhoserighttoexistmaynotbeinquired SAWADJ intoinacollateralmanner.(SAWADJAANvs.CA,8June2005)  CT ExplaintheTRUSTFUNDDOCTRINE.  d other regarde Underthisdoctrine,thecapitalstock,propertyandotherassetsofacorporationareregarded orate ate de of cor corp asequityintrustforthepaymentofthecorporatedebts.Hence,nodisposition ofcorporate fundstotheprejudiceofcreditorsisallowed.  Whoareentitledtoreceivedividends?  ate of f the declaration of Dividends are payable to the stockholders of record as of the date date of dividendsorholdersofrecordonacertainfuturedate,asthecasemaybe,unlesstheparties ase se ma m have agreed otherwise. And a transfer of shares which is not ot recorded reco in the books of the corporationisvalidonlyasbetweentheparties,hence,thetransferorhastherighttodividends nsfe asagainstthecorporationwithoutnoticeoftransferbutitservesastrusteeoftherealowner of the dividends, subject to the contract between the transferor and transferee as to who is entitledtoreceivethedividends.(COJUANGCOvs.SANDIGANBAYAN,24April2009)   20 www.chanroblesbar.com : www.chanroblesbar.com.ph

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UnderwhatconditionscouldthePCGGvotesequesteredshares?  Itissettledthatasageneralrule,theregisteredownerofthesharesofacorporation,evenif they are sequestered by the government through the PCGG, exercises the right and the privilegeofvotingonthem.ThePCGGasamereconservatorcannot,asarule,exerciseactsof dominionbyvotingtheseshares.  Theregisteredownerofsequesteredsharesmayonlybedeprivedofthesevotingrights,and thePCGGauthorizedtoexercisethesame,onlyifitisabletoestablishthat(1)thereisprima ess facieevidenceshowingthatthesaidsharesareillgottenandthusbelongtotheState;and(2) ation, tion, th there isanimminentdangerofdissipation,thusnecessitatingthecontinuedsequestrationof reupon thesharesandauthoritytovotethereuponbythePCGGwhilethemainissueispendingbefore DLE LE EAS theSandiganbayan.(TRANSMIDDLEEAST(PHILS.)vs.SANDIGANBAYAN,etal.,G.R.No.172556, 09June2006)

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 ertificate onditio nditi IstheissuanceofacertificateofmergerbytheSECaconditionprecedenttothetransferof bed ed corp cor orporati sharesoftheabsorbedcorporationtothesurvivingcorporation?  s not be ere agr ag Amergerdoesnotbecomeeffectiveuponthemereagreementoftheconstituentcorporations. cally ally provided pro Co As specifically under Section 79 of the the Corporation Code, the merger shall only be upon the issuance of a certificate ficate cate o es and Exchange effective upon of merger by the Securities determ ot inc Commission (SEC), subject to its prior determi determination that the merger is not not inconsistent with party arty to poratio theCodeorexistinglaws.Whereapartytothemergerisaspecialcorporationgovernedbyits ularly arly m e recommendation recom re com own charter, the Code particularly mandates that a favorable of the ncy cy should shou first be obtained. The issuance issuanc ssuanc of the certificate of appropriate government agency ot only roval oval bu mergeriscrucialbecausenotonlydoesitbearoutSEC'sapprovalbutalsomarksthemoment es o oper peratio atio ty whereupontheconsequencesofamergertakeplace.Byoperationoflaw,upontheeffectivity but its ellll ass ofthemerger,theabsorbedcorporationceasestoexistbutitsrights,andpropertiesaswellas o and v ve oration liabilities shall be taken and deemed transferred to and vested in the surviving corporation ELOPME OPM 14 866 143 66 & (POLIAND INDUSTRIAL LTD. vs. NATIONAL DEVELOPMENT CO., et al., G.R. Nos. 143866 143877,22August2005).  diately ately acquire title Determine whether the buyer at execution ssale of shares will immediately thereto.

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sonal onal property, p pr It should be restated that since there is no right to redeem personal the rights of or execution) exec execu ownership are vested to the purchaser at the foreclosure (or sale and are not edempt dempt entangled in any suspensive condition that is implicit in aredemptiveperiod. xxxThere is no r’ shares of stock should be valid reason why the buyers at execution sale of petitioner’s preventedfromobtainingtitletothesame.Thependencyofa caseinvolvingthepartiesdoes not affect the registrability of the shares of stock bought at execution sale, although the registrationiswithoutprejudicetotheproceedingstodeterminetheliabilityofthepartiesas againsteachother.(LEEvs.HON.TROCINO,etal.,G.R.No.164648,19June2009)

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Should dead members of a nonstock corporation be counted for quorum and voting purposes?  Inanonstockcorporation,membershipispersonalandnontransferableunlessthearticlesof incorporation or bylaws states otherwise. Section 91 states that termination extinguishes all the rights of a member of the corporation, unless otherwise stated in the articles of incorporation.Hence,deadmembersarenottobe countedindeterminingtherequisitevotein mi corporatemattersortherequisitequoruminthemembers’meeting.(TANvs.SYCIP,499SCRA 216,17August2006) atio tio of Aretherequirementsforterminationofmembershipinanonstockcorporationrequiredto Incorpor corpo beprovidedintheArticlesofIncorporation?

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SEC. 91. Termination nation of membership.—Membership p shall shall hall be terminated in the mannerandforthecausesprovidedinthearticlesofincorporationorthebylaws. for or the s of inco Termination on of of membership m shall have the effect ffec ec of of extinguishing all rights of a member in th the corporation or in its property, otherwise provided in the err in erty, rty, unless un articlesofincorporationorthebylaws.(Emphasissupplied) cles of in Emphasis mphasis

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Clearly,therightofanonstockcorporationtoexpelamembermaybeestablishedin ation to stablis tablis theby laws alone. It need not be provided GOLF AND d for for in in the articles of incorporation. on (VALLEY on. (VA COUNTRYCLUBvs.VDA.DECARAM,G.R.No.158805,16April2009) M, G.R. N  WhataretheconditionsforthepenalprovisionunderSection144oftheCorporationCodeto the pen n 144 of apply in case of violation of right to inspect of a a stockholder’s s ect ct the the corporate books/records ass providedforunderSection74oftheCorporationCode?

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(1)Adirector,trustee,stockholderormemberhasmadeapriordemandinwritingforacopyof made ade a a copy opy excerptsfromthecorporation’srecordsorminutes; tes; es

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(2) Any officer or agent of the concerned corporation shall refuse to allow the corpora orpora the he said said director, trustee,stockholderormemberofthecorporationtoexamineandcopysaidexcerpts; atio ti d excerp

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(3) If such refusal is made pursuant to a resolution or order of the board of directors or he boar boa trustees,theliabilityunderthissectionforsuchactionshallbeimposeduponthedirectorsor posed osed u trusteeswhovotedforsuchrefusal;and, (4) Where the officer or agent of the corporation sets up the defense that the person p th demanding to examine and copy excerpts from the corporation’s records and minutes has improperly used any information secured through any prior examination of the records or minutesofsuchcorporationorofanyothercorporation,orwasnotactingingoodfaithorfora legitimatepurposeinmakinghisdemand,thecontrarymustbeshown orproved.(ANGABAYA vs.ANG,G.R.No.178511,4December2008) 22 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Whataretherequisitesforfilingaderivativesuit?  Therequisitesforfilingaderivativesuitareasfollows:  a) The party bringing suit should be a shareholder as of the time of the act or transaction complainedof,thenumberofhissharesnotbeingmaterial; b)Thepartyhastriedtoexhaustintracorporateremedies,i.e.,hehasmadeademandonthe boardofdirectorsfortheappropriatereliefbutthelatterhasfailedorrefusedtoheedhis plea; o c)  The cause of action actually devolves on on the corporation, the wrongdoing or harm having oration ation been,orbeingcausedtothecorporationandnottotheparticularstockholderbringingthe NC., et e suit.(FILIPINASPORTSERVICES,INC.,etal.vs.Go,etal.,G.R.No.161886,March16,2007); blee for th d)Noappraisalrightsareavailablefortheact/scomplainedof;and orr harassment hara e) The suit is not a nuisance or suit (Sec.1, Rule 8, Interim Rules of Procedure for versies) IntraCorporateControversies)  of intra ed as a r Whenisexhaustionofintracorporateremediesexcusedasarequirementforderivatesuit?  that hat the th must ust sat Whileitistruethatthecomplainingstockholdermustsatisfactorilyshowthathehasexhausted o redres corpora allmeanstoredresshisgrievanceswithinthecorporation;suchremedyisnolongernecessary e corpo omplete mplete wherethecorporationitselfisunderthecompletecontrolofthepersonagainstwhomthesuit ed d The reason is obvious: a deman itute tut an action and is being filed. demand upon the board to institute d have have been useless and an exercise ise in prosecute the same effectively would in fu futility. (HIYIELD LS, S, G.R. ) Note, REALTY,INC.vs.COURTOFAPPEALS,G.R.No.168863,23June2009)Note,though,thatinYU, hee Sup Su et al. vs. YUKAYGUAN, et al., G.R. G.R. No No. 177549, 18 June 2009, the Supreme Court held that te reme exhaustion of intracorporate remedies cannot be dispensed with with eeven if the company is a iss nothing noth orr rules rules supporting the distinction n family corporation. There is in the pertinent laws or i mily cor ypes es between,andthedifferenceintherequirementsfor,familycorporationsvisàvisothertypes derivat ofcorporations,intheinstitutionbyastockholderofaderivativesuit.  vities ities in nfined fined to: t (1) In an Agreement, the foreign company’s activities in the Philippines were confined purpose ssed ed by maintainingastockofgoodssolelyforthepurposeofhavingthesameprocessedbyanother ntt wit d in the company;and(2)consignmentofequipmentwithsuch companytobeusedintheprocessing Philippin ofproductsforexport.Dotheseactsamountto“doingbusiness”inthePhilippines?  y to to be NO.  By and large, to constitute “doing business”, the activity be undertaken in the f the Philippines is one that is for profitmaking. Under Section 1 of the Im Implementing Rules and ctivities do not constitute doing Regulations of the Foreign Investment Act, the foregoing activities NTEG business.(AGILENTTECHNOLOGIESSINGAPORE(PTE)LTD.vs.INTEGRATEDSILICON,GR154618, 14April2004)   

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Would participation in a bidding for the development and operation of a modern marine container terminal constitute doing business in the Philippines for which a license must be secured?  Participatinginthebiddingprocessconstitutes“doingbusiness”becauseitshowstheforeign corporation’sintentiontoengageinbusinesshere.Thebiddingfortheconcessioncontractis but an exercise of the corporation’s reason for its existence. xxx it is the performance by a foreigncorporationoftheactsforwhichitwascreated,regardlessofthevolumeofbusiness, that determines whether a foreign corporation needs a license or not. (HUTCHISON PORTS 36 31 August 2000; EUROPEAN RESOURCES AND 367 PHILIPPINES LIMITED vs. SBMA, GR 131367, NIEUBUR IEUBUR BIRKHAHN, et al., G.R. No. 159586, 26  July TECHNOLOGIES, INC, et al.  vs. INGENIEUBURO 2004)

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e importation impo impor Petitioner is engaged in the and exportation of lace products.  On several rchased chased lace products from the petitioner with the instruction to occasions, respondent purchased goods oods to t pan pany deliverthepurchasedgoodstoaHongKongbasedcompany.Uponreceiptofthegoodsin ducts w Hong ng Ko HongKong,theproductswereconsideredsold.TheHongKongbasedcompany,inturn,had o delive e Philippines. Phi Phil the obligation to deliver the lace products to the  Determine whether the oing ing bus petitionerisdoingbusinessinthePhilippines.  d ing ng business in the Philippines. nes. es. To It is not do doing To be doing or “transacting business in the stt actua e Phili Philippines”,theforeigncorporationmustactuallytransactbusinessinthePhilippines,thatis, s within a contin performspecificbusinesstransactionswithinthePhilippineterritoryonacontinuingbasisinits unt. nt.  A ess within wit own name and for its own account. Actual transaction of business the Philippine site ite for for the Philippines to acquiree jurisdiction juris territory is an essential requisite over a foreign e the for a Philip Phili corporationandthusrequiretheforeigncorporationtosecureaPhilippinebusinesslicense.If s not iness ess in t a foreign corporation does not transact such kind of business in the Philippines, even if it s has has no n jurisdiction to require such uch ch exports its products to the P Philippines, the Philippines ense nse.. (B. (B . GTVL foreigncorporationtosecureaPhilippinebusinesslicense.(B.VANZUIDENBROS.LTD.vs.GTVL 05, May MANUFACTURINGINDUSTRIES,INC.,G.R.No.147905,May28,2007)  emixed mixed concrete c Does the engagement of a Filipino nationall to to run run a foreign company’s premixed ing ng bu operationsinthePhilippinesamountto“doingbusiness”?  gn n comp com YES.TheactofnegotiatingtoemployaFilipinonationaltorunaforeigncompany’spremixed tional onal aacts in directing and concrete operations in the Philippines are managerial and operational ree not not mere acts of a passive establishing commercial operations in the Philippines. These are . 156848 investor.(PIONEERINTERNATIONALvs.HON.GUADIZ,G.R.No.156848,11October2007)     

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Whatarethegeneral teststodeterminewhetheraforeigncorporationisdoingbusinessin thePhilippines?  Substance Test – whether the foreign corporation is continuing the body of the business or enterpriseforwhichitwasorganizedorwhetherithassubstantiallyretiredfromitandturned itovertoanother.  Continuity Test – continuity of commercial dealings and arrangements, and contemplates, to thatextent,theperformanceofactsorworksortheexerciseofsomeofthefunctionsnormally cu cuti incident to, and in the progressive prosecution of, the purpose and object of its organization (PTE) PTE) LT (AGILENTTECHNOLOGIESSINGAPORE(PTE)LTD.vsINTEGRATEDSILICON,GR154618,14April 2004)

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corpora Do the powers of a foreign corporation’s resident agent include the authority to execute a mshoppi shoppi certificationagainstforumshoppingonbehalfofitsprincipal?  while a re of act ac NO.Thisisbecausewhilearesidentagentmaybeawareofactionsfiledagainsthisprincipal(a on doin es, being be foreign corporation doing business in the Philippines, the one authorized to receive ther er legal leg processes on its behalf), ), such suc resident may not be aware of actions such services and other its ts principal, prin ppines pines againsta a initiated byits whether in the Philippines domesticcorporation or private o in or in the country where such corporation orporati rporat individual, or was organized and registered, against a eg lipino pino ci URS, PhilippineregisteredcorporationoraFilipinocitizen.(EXPERTRAVEL&TOURS,INC.vs.COURT .R. R. No. 1 OFAPPEALSandKOREANAIRLINES,G.R.No.152392,26May2005)  corporat orporat utt licen Wheretheinsured(aforeigncorporationdoingbusinesswithoutlicense)isincapacitatedto ourts, wo rer, er, in ex e suebeforethePhilippinecourts,woulditfollowthatitsinsurer,inexercisingitssubrogation om suc rights,wouldalsosufferfromsuchincapacity?  obligat acity of NO.Rightsinheritedbyasubrogeepertainonlytotheobligationsnottocapacity.Incapacityof er exerc n becau theinsuredwillnotaffectthecapacityoftheinsurerexercisingitsrightofsubrogationbecause ed by by law l s. (LORENZO (LOR capacity is personal to its holder. It is conferred and not by the parties. SHIPPINGvs.CHUBB&SONS,8June2004)  e filing Would a pending intracorporate case against an officer preclude the filing of a criminal actionagainstthesaidofficer?  w RTC) RTC) does not preclude the The filing of the civil/intracorporate case before the SEC (now ree the re simultaneousandconcomitantfilingofacriminalactionbeforetheregularcourts;suchthat,a fraudulent act may give rise to liability for violation of the rules rules and regulations of the SEC cognizablebytheSECitself,aswellascriminalliabilityforviolationoftheRevisedPenalCode cognizable by the regular courts, both charges to be filed and proceeded independently, and maybesimultaneouslywiththeother. 

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A dispute involving the corporation and its stockholders is not necessarily an intracorporate dispute cognizable only by the Securities and Exchange Commission.  Nor does it ipso facto negatethejurisdictionoftheRegionalTrialCourtoverthesubjectcases.Itshouldbeobvious thatnoteveryconflictbetweenacorporationanditsstockholdersinvolvescorporatematters thatonlytheSECcanresolveintheexerciseofitsadjudicatoryorquasijudicialpowers.”The betterpolicyindeterminingwhichbodyhasjurisdictionoveracasewouldbetoconsidernot onlytherelationshipofthepartiesbutalsothenatureofthequestionsraisedinthesubjectof the controversy. (PEOPLE vs. FERNANDEZ and HAJIME UMEZAWA, GR No. 149403, 04 March 2005)  f a mana Statetherequisitesforthecreationofa managementcommittee.  f a man n Therequisitesforthecreationofamanagementcommittee,towit:(1)animminentdangerof dest dissipation, loss, wastage or or destr destruction of assets or other properties of respondent ysis sis of its corporation;and(2)paralysisofitsbusinessoperationswhichmaybeprejudicialtotheinterest petitione etition ofthepartieslitigants,petitioners,orthegeneralpublic.  , the he rec re een no Inthecaseatbar,therecordsshowthattherehasbeennoslackinthebusinessoperationsof on. Furth Furt utt proof proo pro o of abusing corporate positions and the corporation. Further, mere possibility without ass e corporation corpo dissipation of of asse assets and properties of the is not a valid ground for the en of ent /receive receive appointmentofamanagementcommittee/receiver.(SYCHIMvs.SYSIYHO,G.R.No.164958, 20 27January2006)  EST. ST. ExplaintheSERIOUSSITUATIONTEST.  court sh s e compa Inappointingareceiver,thecourtshouldconsiderwhetherthecompany’sfinancialsituationis iss a cle hatt it wi f seriousandwhetherthereisaclearandimminentdangerthatitwillloseitscorporateassetsif P OURT R OF , 04 areceiverisnotappointed.(PRYCECORPORATIONvs.COURTOFAPPEALS,G.R.No.172302,04 February2008)  tify fy the a Doesthemisconductofdirectorsorofficersjustifytheappointmentofareceiver?  offic office appoin Misconduct of corporate directors or other officers is not a ground for the appointment of a fficers, w receiverwherethereareoneormoreadequatelegalactionagainsttheofficers,wheretheyare ing ng corporation corp solvent, or other remedies. The appointment of a receiver for a going is a last medy edy is iis available. Relief by resort remedy, and should not be employed when another remedy f there receivershipisanextraordinaryremedyandisneverexercisedifthereisanadequateremedy estrainin strainin atlaworiftheharmcanbepreventedbyaninjunctionorarestrainingorder.Badjudgmentby com directors,orevenunauthorizeduseandmisapplicationofthecompany’sfunds,willnotjustify the appointment of a receiver for the corporation if appropriate relief can otherwise be had. (AOASvs.CA,G.R.No.128464,20June2006)    26 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Discusstheeffect/softhecreationofamanagementcommittee.  The appointment will result in suspension of all actions against the corporation, the avowed objective of which is to enable such management committee or rehabilitation receiver to effectively exercise its powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the distressed company.(TYSON’S SUPER CONCRETE, INC.,etal.vs.COURTOFAPPEALS,etal.,G.R.No.140081,23June2005)  Are labor claims likewise suspended upon the creation of a management committee or appointmentofareceiver?  n of of aa management committee or the appointment of a The law is clear: upon the creation fo act for ct rehabilitationreceiver,allclaimsforactions“shallbesuspendedaccordingly.”Noexceptionin oned ned in favoroflaborclaimsismentionedinthelaw.(LINGKODMANGGAGAWASARUBBERWORLD,et ILS.) LS.) INC al.VS.RUBBERWORLD(PHILS.)INC.,etal.,G.R.NO.153882,JANUARY29,2007)  ed regar edings? dings Areactionssuspendedregardlessofthestageofproceedings?  n of all a e corp corpo o Thesuspensionofallactionsforclaimsagainstthecorporationembracesallphasesofthesuit, the tria tri before efore t beitbeforethetrialcourtoranytribunalorbeforethisCourt.Nootheractionmaybetaken, th rendition the re g the the state st including the of judgment during of suspension. It must be stressed that ut ended ded are a the proceedings of a suit uit it and a not just the an what are automatically stayed or suspended ion on stag me final paymentofclaimsduringtheexecutionstageafterthecasehadbecomefinalandexecutory. RLINES, INES, I us 29, 20 (GARCIA,ETAL.VS.PHILIPPINEAIRLINES,INC.,G.R.No.164856,August29,2007)  also stayed sta f a a management man Are nonpecuniary claims also with the creation of committee or ? appointmentofareceiver?

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on n receiver, rece recei When a corporation is taken over by a rehabilitation all creditors stand on equal equal y paying A claim Al footing,notanyoneshouldbegivenpreferencebypayingaheadofothercreditors.Allclaims on n Corp e aa cla whether pecuniary or not. The Interim Rules on Corporate Rehabilitation define claim as er natu e debto referring to all claims, demands of whatever nature or character against the debtor or its e The ssing, sing, th properties,whether for money or otherwise. The definition is so encompassing, there are no eptemb eptembe distinctionsorexemptions.(SOBREJUANITEvs.ASB,G.R.No.165675,30September2005)  der? er? Isenforcementofmaritimelienalsoaffectedbythesuspensionorder?  ement committee, rehabilitation PD 902A mandates that upon appointment of a management ons ons, receiver,boardorbody,allactionsforclaimsagainstcorporations,partnershipsorassociations undermanagementorreceivershippendingbeforeanycourt,tribunal,boardorbodyshallbe suspended. PD 902A does not make any distinction as to what claims are covered by the suspension of actions for claims against corporations under rehabilitation. No exception is madethereininfavorofmaritimeclaims.Thus,sincethelawdoesnotmakeanyexemptionsor distinctions,neithershouldwe.Ubilexnondistinguitnecnosdistingueredebemos. 27 www.chanroblesbar.com : www.chanroblesbar.com.ph

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The issuance of the stay order by the rehabilitation court does not impair or in any way diminish a creditor’s preferred status. The enforcement of its claim through court action was merely suspended to give way to the speedy and effective rehabilitation of the distressed shipping company. Upon termination of the rehabilitation proceedings or in the event of the bankruptcy and consequent dissolution of the company, the creditor can still enforce its preferred claim upon the company. (NEGROS NAVIGATION vs. COURT OF APPEALS, 10 December2008) 

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e prior Doesapetitionforrehabilitationrequirepriorfilingofpetitionforsuspensionofpayment?

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e asset asse Acorporationmayhaveconsiderableassetsbutifitforeseestheimpossibilityofmeetingits ear, ar, it s obligationsformorethanoneyear,itisconsideredastechnicallyinsolvent.Thus,atthefirst ilee a pet instance,acorporationmayfileapetitionforrehabilitation—aremedyprovidedunderSec.41 on n Corp oftheRulesofProcedureonCorporateRecovery.

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oned tec te c. 312, 12, itwasreferringtothedefinition WhenSec.41mentionedtechnicalinsolvencyunderSec.312, vency ency in requir requiri oftechnicalinsolvencyinthesaidsection;itwasnotrequiring,therefore,apreviousfilingofa spension ensio URT RT OF OF petitionforsuspensionofpayments.(PNBvs.COURTOFAPPEALS,G.R.No.165571,20January 2009)

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on Plan to o non DoestheapprovaloftheRehabilitationPlanviolatethecreditors’righttononimpairmentof contracts?

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provides rovides off a ma m Section6[c]ofP.D.No.902Aprovidesthat"uponappointmentofamanagementcommittee, d or or body, bo ee, e, all all actions a ac rehabilitation receiver, board pursuant to this Decree, for claims against ent nt or or receivership r corporations, partnerships or or ass associations under management pending before b anycourt,tribunal,boardorbodyshallbesuspended."

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ointmen ntmen mere merely TheapprovaloftheRehabilitationPlanandtheappointmentofarehabilitationreceivermerely ent corporations. corp erred rred status t suspend the actions for claims against respondent A creditor’s preferred mortgage nforcem overtheunsecuredcreditorsrelativetothemortgageliensisretained,buttheenforcementof h en ing ng preference) pref such preference is suspended. Considering that enforcement of loan (including is f contracts, specifically its lien en in in the th mortgaged merely suspended, there is no impairment of properties.(ibid)

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 mplying plying DecidewhetherreceivershipwillexcusetheCompanyfromcomplyingwiththereinstatement orderoftheLaborArbiter. Caselawrecognizesthatunlessthereisarestrainingorder,theimplementationoftheorderof reinstatement is ministerial and mandatory. This injunction or suspension of claims by legislativefiat partakesofthenatureofarestrainingorderthatconstitutesalegaljustification for respondent’s noncompliance with the reinstatement order. The Company’s failure to

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exercisethealternativeoptionsofactualreinstatementandpayrollreinstatementistherefore justified.Suchbeingthecase,theCompany’sobligationtopaythesalariespendingappeal,as thenormaleffectofthenonexerciseoftheoptions,didnotattach. While reinstatement pending appeal aims to avert the continuing threat or danger to the survivaloreventhelifeofthedismissedemployeeandhisfamily,itdoesnotcontemplatethe periodwhentheemployercorporationitselfissimilarlyinajudiciallymonitoredstateofbeing resuscitated in order to survive. (GARCIA vs. PHILIPPINE AIRLINES, INC., G.R. No. 164856, 20 January2009)

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end nd to to the liquidation of a corporation.  While the SEC has SEC’s jurisdiction does not extend olution ution of a corporation, jurisdiction over the liquidation of the jurisdiction to order the dissolution o the ap a corporationnowpertainstotheappropriateregionaltrialcourts.Thisisthecorrectprocedure of a co leme em becausetheliquidationofacorporationrequiresthesettlementofclaimsforandagainstthe clearly early fa f the re corporation,whichclearlyfallsunderthejurisdictionoftheregularcourts.(CONSUELOMETAL PLANT PLANTE .R. No. No CORPORATIONvs.PLANTERSDEVELOPMENTBANK,G.R.No.152580,26June2008)  ha hav Does the SEC SEC have the power to collect fees fees fo for examining and filing of articles of ation tion an incorporationandbylaws?

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d receivefeesasauthorizedbylawisnotinquestion.Its receiv w iss not TheauthorityoftheSECtocollectand ning ing and an ration and bylaws and power to collect fees for examining and filing articles of incorporation es of inc apital pital sto to amendmentsthereto,certificatesofincreaseordecreaseofthecapitalstock,amongothers,is hed is it i D No. 9 D. recognized.LikewiseestablishedisitspowerunderSec.7ofP.D.No.902Atorecommendto stment tment of the charges which it is the President the revision, altera alteration, amendment or adjustment G No. o. 1640 authorizedtocollect.(SECvs.GMANETWORK,INC.,G.R.No.164026,23December2008)

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 ATIO TION NC SECURITIESREGULATIONCODE

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UnderwhatconditionsmaytheSECissueaceaseanddesistorder? ease  There are two essential requirements that must be complied with by by the the SSEC before it may issueaceaseanddesistorder:First,itmustconductproperinvestigationor verification;and stigation gation Second, there must be a finding that the act or practice, unless will operate as a s restrained, restr restra fraudoninvestorsorisotherwiselikelytocausegraveorirreparableinjuryorprejudicetothe eparable parabl investing public. (SECURITIES AND EXCHANGE COMMISSION N vs. PERFORMANCE FOREIGN EXCHANGECORP.G.R.154131,20July2006)  Hence,amereclarificatoryconferenceundertakenbytheSECcannotbeconsideredaproper investigation or verification process to justify the issuance of a CDO. It was merely an initial

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Whatdoestenderoffermean?Whendoesitapply?

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stageofsuchprocessconsideringthataftertheSECissuedtheCDO,itsoughtverificationfrom theBangkoSentralngPilipinasonthenatureoftherespondent’sbusinessactivity.(Ibid.)  IstheCDOvalidevenifsignedbyonlyoneSECcommissioner?  NO.TheSECisacollegialbodycomposedofaChairpersonandfour(4)Commissioners.Inorder toconstituteaquorumtoconductbusiness,thepresenceofatleastthree(3)Commissionersis required.  EC C TheissuanceoftheCDOisanactoftheSECitselfdoneintheexerciseofitsoriginaljurisdiction s.. It to review actual casesor controversies. It sho should be clear now that its power to issue a CDO to an i cannot,undertheSRC,bedelegatedtoanindividualcommissioner.  Out ut Rul ExplaintheMandatoryCloseOutRule.  roker oker o jus just Therulevestsuponabrokerordealer,theobligation,notjusttheright,tocancelorotherwise r’s order, orde if payment is not received ed d within wit with liquidate a customer’s three days from the date of ord d "sha "sh rd "ma "m purchase. The word "shall" as opposed to the word "may," is imperative and operates to , which ABACU BACU USS imposea duty,whichmaybelegallyenforced.(ABACUSSECURITIESCORPORATIONvs.AMPIL, 0016, 27 G.R.No.160016,27February2006)  iol gulation ulation HowmayviolationsoftheSecuritiesRegulationCodebepursued?  hee Secu specializ AcriminalchargeforviolationoftheSecuritiesRegulationCodeis aspecializeddispute.Hence, dministr ministr mpeten peten itmustfirstbereferredtoanadministrativeagencyofspecialcompetence,i.e.,theSEC.Under urisdictio courts will not determine mine ine a a controversy involving a the doctrine of primary jurisdiction, ction tion of o al, where e questionwithinthejurisdictionoftheadministrativetribunal,wherethequestiondemandsthe e specia pecia rtise se exerciseofsoundadministrativediscretionrequiringthespecializedknowledgeandexpertise ical cal and an intricate matters of fact. and t. The of said administrative tribunal to determine technical forceme rceme is particularly vested in tthe hee SE Securities Regulation Code is a special law. Its enforcement SEC. ode de and d regula regu Hence,allcomplaintsforanyviolationoftheCodeanditsimplementingrulesandregulations mplaint EC C shall shouldbefiledwiththeSEC.Wherethecomplaintiscriminalinnature,theSECshallindorse ry investigation in ion. on. (BAVIERA (BA the complaint to the DOJ for preliminary and prosecution. vs. PAGLINAWAN,GRNo.168380,February8,2007)

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ders e of Atenderofferisanofferbytheacquiringpersontostockholdersofapubliccompanyforthem r totendertheirsharesthereinonthetermsspecifiedintheoffer.TheTenderOfferRuleapplies alsoinanindirectacquisitionarisingfromthepurchaseofsharesofaholdingcompanyofthe listed firm. Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to

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exitthecompanyunderreasonableterms,givingthemtheopportunitytoselltheirsharesat thesamepriceasthoseofthemajorityshareholders.  UnderexistingSECRules,the15%and30%thresholdacquisitionofsharesundertheforegoing provision was increased to thirtyfive percent (35%).  It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchasewouldresultinownershipofover51%ofthetotaloutstandingequitysecuritiesofthe public company. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or an indirect means, mandatory INC N vs. NATIONAL LIFE INSURANCE COMPANY, G.R. tender offer applies. (CEMCO HOLDINGS INC. No.171815,August7,2007)

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duct uct of Can the RTC order the conduct of a stockholders’ meeting in connection with an intra s jurisdi corporatedisputeunderitsjurisdiction?

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s the the power p Yes. The RTC now has to hear and decide the the in intracorporate controversy and d power powe is the authority to issue e orders order necessary or incidental to the concomitant to said hee powers pow t. Thus, Thus, hus, the RTC may, in appropriate cases, carrying out of the expressly granted to it. ding ing of a olders ders o ordertheholdingofaspecialmeetingofstockholdersormembersofacorporationinvolvingan orate dis (YUICO YUICO intracorporatedisputeunderitssupervision(YUICOvs.QUIAMBAO,513SCRA208,29January 2007) 

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Whatisanelectioncontest?

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y is one hee follo foll Anintracorporatecontroversyisonewhich"pertainstoanyofthefollowingrelationships:(1) partne th between the corporation, partnership or association and the the p public; (2) between the asso assoc farr as its e corporation,partnershiporassociationandtheStateinsofarasitsfranchise,permitorlicense on, n, partnership part partn d its to operate is concerned; (3) between the corporation, or association and 4)) among amo the stockholders, partners ners or stockholders, partners, members or officers; and (4) or associatesthemselves.

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or claim Anelectioncontestreferstoanycontroversyordisputeinvolvingtitleorclaimtoanyelective thee ma officeinastockornonstockcorporation,thevalidationofproxies,themannerandvalidityof oclamati clamati of winners, to the elections, and the qualifications of candidates, including the proclamation office of director, trustee or other officer directly elected by by the the stockholders in a close ree the corporationorbymembersofanonstockcorporationwherethearticlesofincorporationor bylawssoprovide. 

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CantheSECpassuponthevalidityofproxiesinrelationtoelectioncontroversies? NO.ThispowerhasbeenwithdrawnfromtheSECbytheSRCandtransferredtotheregular courts. Questions relating to the proper solicitation of proxies used in election are now cognizable by the regular courts. However, the power of the SEC to regulate proxies remains extant and could very well be exercised when stockholders vote on matters other than the electionofdirectors.(GSISvs.CA,G.R.No.183905,16April2009)  Statethereasonfortheprohibitionagainstinsidertrading.

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off inve Theintentofthelawistheprotectionofinvestorsagainstfraudcommittedwhenaninsider, ntage o usingsecretinformation,takesadvantageofanuninformedinvestor.Insidersareobligatedto tthe e oth disclose material information to th other party or abstain from trading the shares of his corporation.

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sed ed on on two factors: first, existence of a relationship giving access, The duty to disclose is based informa nforma blee on o directlyorindirectlytoinformationintendedtobeavailableonlyforacorporatepurposesand benefit of anyone and second, the he inher inhe not for the personal benefit inherent unfairness involved when a ntage tage of g t is un partytakesadvantageofsuchinformationknowingitisunavailabletothosewithwhomheis vs. INTERPORT INTE ORATIO RATION N et al., G.R. No. 135808, 6 October dealing. (SEC vs. RESOURCES CORPORATION, 2008)

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for or purp Whatisafactofspecialsignificanceforpurposesofinsidertrading?

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ybe be (a) (a) a material fact which would db e lik A fact of special significance maybe be likely, on being made hee mark mar signifi generally available, to effect the market price of a security to a signific significant extent, or (b) one tant ant in nd which a reasonable person would would consider especially important in determining his course of of sto actionregardtothesharesofstock.(ibid)

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Sincethebankingbusinessisimpressedwithpublicinterest,ofparamountimportancethereto unt nt impo is the trust and confidence of the public in general. Consequently, ly,, the the highest degree of diligenceisexpected,andhighstandardsofintegrityandperformanceareevenrequired,ofit. ance ar Bythenatureofitsfunctions,abankisunderobligationtotreattheaccountsofitsdepositors at the a with meticulous care, always having in mind the fiduciary of their relationship. ary ry nature na (CITIBANK,N.A.vs.SPOUSESLUISANDCARMELITACABAMONGAN,etal.,G.R.No.146918,02 A May2006).  Banks handle daily transactions involving millions of pesos. By the very nature of their works thedegreeofresponsibility,careandtrustworthinessexpectedoftheiremployeesandofficials

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HowdoesDOSRIviolationdifferfromestafa?

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isfargreaterthanthoseofordinaryclerksandemployees.Banksareexpectedtoexercisethe highestdegreeofdiligenceintheselectionandsupervisionoftheiremployees.(ibid)  Thus, the Court held that the bank was negligent when it allowed the pretermination of the account despite noticing the discrepancies in the signature and photograph of the person claiming to be the concerned depositor. Further the required waiver document has not been notarizedcontrarytothestandardproceduredesignedtoprotectthebank.(ibid)  Thebankwasalsofoundnegligentandthuscouldnotbeconsideredamortgageeingoodfaith e re itappearingthatithadknowledgethattherespondentwasintheUnitedStatesatthetimeher did id not not question their due execution.  (CHINA BANKING SPAs wereallegedly executed, yet, it did VS.LAGON11JULY2006)  att bank TheCourtalsoemphasizedthatbankscannotmerelyrelyoncertificatesoftitleinascertaining roperties opertie thestatusofmortgagedproperties;astheirbusinessisimpressedwithpublicinterest,theyare ore re care ings ngs expectedtoexercisemorecareandprudenceintheirdealingsthanprivateindividuals.Indeed, dealing rely ly sole sol therulethatpersonsdealingwithregisteredlandscanrelysolelyonthecertificateoftitledoes s. (URSA Octob Octobe notapplytobanks.(URSALvs.COURTOFAPPEALS14October2005)  e relatio sitor itor and What is the relationship between the depositor and the bank with respect to the amount d by the depositedbytheformerwiththelatter?  s depos visions ThecontractbetweenthebankanditsdepositorisgovernedbytheprovisionsoftheCivilCode creditor editor bank and onsimpleloan.Thereisadebtorcreditorrelationshipbetweenthebankanditsdepositor.The positor ositor is orr lend bankisthedebtorandthedepositoristhecreditor.Thedepositorlendsthebankmoneyand deposito deposit eposit thebankagreestopaythedepositorondemand.Thesavingsdepositagreementbetweenthe he con co rights ghts an s. bankandthedepositoristhecontractthatdeterminestherightsandobligationsoftheparties. 004) Failure Fai the he (BPI vs. FIRST METRO, G.R. N No. 132390, December 8, 2004) of the Bank to honor the r and no n from a timedepositisfailuretopayitsobligationasadebtorandnotabreachoftrustarisingfroma of the the deposit. de ship h being bein depository's failure to return the subject matter of  Thus, the relationship edy dy since o enforc enfor contractual,mandamusisnotanavailableremedysincemandamusdoesnotlietoenforcethe LUCMAN UCMAN vs. MALAWI, et al., G.R. R. No. performance of contractual obligations. (LUCMAN No. 158794, December19,2006) 

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with ith pro ADOSRIviolationconsistsinthefailuretoobserveandcomplywithprocedural,reportorialor to a dire ceilingrequirementsprescribedbylawinthegrantof aloantoadirector,officer,stockholder and other related interests in the bank, i.e. lack of written appr approval of the majority of the directorsofthebankandfailuretoentersuchapprovalinto corporaterecordsandtotransmit acopythereoftotheBSPsupervisingdepartment.Theelementsofabuseofconfidence,deceit, fraudorfalsepretenses,anddamage,whichareessentialtotheprosecutionforestafa,arenot elements of a DOSRI violation. (SORIANO vs. PEOPLE OF THE PHILS., et al., G.R. No. 159517, 30 June2009) 33 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Respondents, as directors and officers of a bank, were accused of engaging in unsafe, unsound, and fraudulent banking practices, more particularly, acts that violate the prohibition on selfdealing. In question was the manner with which the directors have handled the affairs of the bank, in particular, the fraudulent loans and dacion en pago authorizedbythedirectorsinfavorofseveraldummycorporationsknowntohavecloseties and are indirectly controlled by the directors. Decide whether the case is within the jurisdictionoftheBSPorregularcourt.

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he Theallegationcallfortheexaminationoftheallegedlyquestionableloans.Whethertheseloans dealing arecoveredbytheprohibitiononselfdealingisamatterfortheBSPtodetermine.Theseare s; rath rathee notordinaryintracorporatematters;rather,theyinvolvebankingactivitieswhichare,bylaw, BSP SP regulatedandsupervisedbytheBSP.

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and jurisprudence jur It is wellsettled in both law and that the Central Monetary Authority, through ested sted wi w exclusive authoritytoassess,evaluateanddeterminethe theMonetaryBoard,isvestedwith k, and and finding such condition to be condition of any bank, be one of insolvency, or that its ness ess wou to its de continuanceinbusinesswouldinvolveaprobablelosstoitsdepositorsorcreditors,forbidbank ncial cial ins he Philip ornonbankfinancialinstitutiontodobusinessinthePhilippines;andshalldesignateanofficial other ther co err to im i oftheBSPorothercompetentpersonasreceivertoimmediatelytakechargeofitsassetsand liabilities.

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ratio eral ral law pora or TheCorporationCode,however,isagenerallawapplyingtoalltypesofcorporations,whilethe ically ba titutions tutions NewCentralBankActregulatesspecificallybanksandotherfinancialinstitutions,includingthe f. As b cial law dissolution and liquidation thereof. As be between a general and special law, the latter shall non on de d HO N MARELLA, G.R. Nos. prevail – generalia specialibus non derogant. (ARCENAS, JR. vs. HON HON. 9)) 168332/169053,19June2009)

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be inte bank ank Wouldtheperiodtoforeclosearealestatemortgagebeinterruptedifthemortgageebank weretobeplacedunderreceivership?

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receiver' eceiver' nisteri nisterin NO.xxxForeclosureofmortgagesispartofthereceiver's/liquidator'sdutyofadministeringthe s and cr scriptive riptive bank'sassetsforthebenefitofitsdepositorsandcreditors.Thetenyearprescriptiveperiod bank nder der rec wouldnotbeinterruptedifthemortgageebankweretobeplacedunderunderreceivership. strued TheMonetaryBoard'sprohibitionfromdoingbusinessshouldnotbeconstruedasbarringany re e is is not no among those and all business dealings and transactions by the bank. Foreclosure stent nt wi w activities which banks are prevented from doing for it is consistent with the purpose of erve rve the the assets of the bank in receivership proceedings, i.e., to receive collectibles and preserve dissipat substitution of its former management, and prevent the dissipation of its assets to the ETERA TERA BANK, G.R. No. 135706, detriment of the creditors. (SPS. LARROBIS vs. PHILIPPINE VETERANS October1,2004)   TheMonetaryBoardissuedaResolutionorderingtheliquidationofPhilippineVeteransBank. A number of employees accepted their separation pay while the others chose to question 34 www.chanroblesbar.com : www.chanroblesbar.com.ph

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their separation. Subsequently, Congress enacted RA 7169 authorizing the reopening of the bank.TheaffectedemployeesarenowclaimingthatRA7169effectivelynullifiedtheearlier resolutionoftheMonetaryBoardandineffect,alsonullifiedtheirtermination.  Upon implementation of the Monetary Board resolution and prior to the passage of R.A. No. 7169,theBankhadalreadyceasedtoexist.Itssubsequentrehabilitationwasnotanordinary rehabilitation.R.A.No.7169hadtobepassedasalegislativefiattobreathelifeintotheBank. WhileitistruethattheBankuseditsoldname,anewlawhadtobeenactedtorestructureits outstandingliabilities.xxx  d not, The enactment of R.A. No. 7169 did not, ttherefore, nullify the subject resolution of the d the Ba B MonetaryBoardwhichearlierplacedtheBankunderliquidationandcausedtheterminationof Th Ba employment of the petitioners. The The Bank’s subsequent rehabilitation did not, by any test of ready eady adeadrelationshipbetweenthepetitionersandtheBank. a reason,“revive”whatwasalready NLRC, LRC, 17 (CORNISTADOMINGOvs.NLRC,17October2006)

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f RA RA 7653 76 (The New Central Bank nk Act) Does Section 30 of Act) require a current and complete thee bank d placed placed examinationofthebankbeforeitcanbeclosedandplacedunderreceivership?  53 3 no No. From the the wor words used in Sec. 30, RA 7653 no lo longer requires an examination before the of a a closure order. Where the words words of a statute are clear, plain ain and free from issuance of meanin and applied without attempted meaning mpted interpretation. ambiguity, it must be given its literal meaning anothe port” o TheCourtcannotlookfororimposeanothermeaningontheterm“report”ortoconstrueitas synonymouswith“examination.”  ation tion be did not no Theabsenceofanexaminationbeforetheclosureofabankdidnotmeanthattherewasno r N on n of tthe Monetary Board and the hee basis for the closure order. Needless to say, the decision of th have som so nd d its ts CentralBank,likeanyotheradministrativebody,musthavesomethingtosupportitselfandits vidence. ence 53 that findingsoffactmustbesupportedbysubstantialevidence.ButitisclearunderRA7653that equired uired thebasisneednotarisefromanexaminationasrequiredintheoldlaw.  ure re off a itious tious in Thepurposeofthelawistomaketheclosureofabanksummaryandexpeditiousinorderto no nger ger req protectpublicinterest.Thisisalsowhypriornoticeandhearingarenolongerrequiredbefore TARY BO a bank can be closed. (RURAL BANK OF SAN MIGUEL, INC. vs. MONETARY BOARD, G.R. No. 150886,16February2007)  Discusstheeffectsofabankclosure.  The bank’s closure did not diminish the authority and powers o of the designated liquidator to effectuate and carry on the administration of the bank. The bank liquidator is allowed to continue receiving collectibles and receivables or to pay off creditor’s claims and other transactions pertaining to the normal operations of the bank. Among these transactions are the prosecutionofsuitsagainstdebtorsforcollectionandtheforeclosureofmortgages.Thebankis

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allowedtocollectinterestsonitsloanswhileunderliquidation,providedthattheinterestsare legal.Infine,theinterestrateontheloanagreeduponbetweenthepartiesisnotexcessiveor unconscionable; and that during the closure of respondent bank, it could still function as a bondinginstitution,hence,couldcontinuecollectinginterestsfrompetitioners.(BACOLORvs. BANCOFILIPINOSAVINGSANDMORTGAGEBANK,G.R.No.148491,08February2007)  Doestheliquidationofabankrequireapriortaxclearance?  No.TheliquidationofabankisundertakenaccordingtoSec.30oftheNewCentralBankAct. din for receivership and liquidation of a bank. It is ding The said provision lays down the proceedings clearanc earanc silentasregardsthesecuringofataxclearancefromtheBIR.Theomissioncannotcompelthe learanc CourttoapplybyanalogythetaxclearancerequirementoftheSECsincethedissolutionofa diffe iff ren en corporationbytheSECistotallydifferentfromthereceivershipandliquidationofabankbythe BSP.  fference ference olunta un Therearesubstantialdifferencesintheprocedureforinvoluntarydissolutionandliquidationof the Cor f a bank ban acorporationundertheCorporationCode,andthatofabankingcorporationundertheNew so that annot s CentralBankAct,sothattherequirementsinonecannotsimplybeimposedintheother.(IN OR A DATION OF THE RURAL BANK OF BOKOD RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION INC. (RBBI), (R NSURAN SURAN CORPORATION (PDIC) vs. BUREAU OF (BENGUET), INC. PHILIPINE DEPOSIT INSURANCE L REVEN 18 Dece INTERNALREVENUE(BIR),G.R.No.158261,18December18,2006)

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der RA May tr AretrustaccountsalsoprotectedunderRA1405(BankSecrecyLaw)?Maytrustaccountsbe under der ca w? examinedinconnectionwithaplundercasewithoutviolatingthelaw?  o cover e term RA 1405 is broad enough to cover trust accounts because the term “deposit” as used in RA roadly oadly counts unts w 1405istobeunderstoodbroadlyandnotlimitedonlytoaccountswhich giverisetoacreditor nk.. If f th debtor relationship between the depositor and the bank. If the money deposited under an an nss to to th ccount, account may be used by banks for authorized loans third persons, then such account, relation lation or and nd th regardlessofwhetheritcreatesacreditordebtorrelationshipbetweenthedepositorandthe ich ch the otect tect for f the fo bank, falls under the category of accounts which the law precisely seeks to protect ent of th purposeofboostingtheeconomicdevelopmentofthecountry.  examin examina However,thereareexceptionsontheprotectionunderRA1405:(1)theexaminationsofbank eliction liction accountsisuponorderofacompetentcourtincasesofbriberyorderelictionofdutyofpublic matter atter of of litigation. The first officials, and (2) the money deposited or invested is the subjectmatter titioner itioner exceptionappliessincetheplundercasependingagainstthepetitionerisanalogoustobribery y deposited depos or dereliction of duty and the second, because the money in petitioner’s bank e plunder p pl accounts form part of the subject matter of the same case. (EJERCITO vs. SANDIGANBAYANANDPEOPLEOFTHEPHILIPPINES,G.R.No.15729495,30November2006)   

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Whenacodepositorinquiresintothedeposit,doesheneedthewrittenconsentoftheother depositor?  A copayee in a check deposited in a bank is likewise a codepositor. No written consent thereforeoftheothercopayeeisneededinaninquiryofthedepositsbythe saidcodepositor. (CHINABANKINGCORPORATIONvs.COURTOFAPPEALS,G.R.No.140687,18December2006)  Canaforeignerowncapitalstockinaruralbank?  rov No. Section 4, Republic Act No. 7353, prov provides that with the exception of shareholdings of old d equi corporationsorganizedprimarilytoholdequitiesinruralbanksasprovidedforunderSection 12C of Republic Act No. 337, as amende amended, and of Filipinocontrolled domestic banks, the hall all be f capitalstockofanyruralbankshallbefullyownedandhelddirectlyorindirectlybycitizensof ns, s, assoc thePhilippinesorcorporations,associationsorcooperativesqualifiedunderPhilippine lawsto stock. tock. (B ownandholdsuchcapitalstock.(BULOS,JR.vs.KOJIYASUMA,G.R.No.164159,July17,2007)  clause o ?  Explainthedragnetclauseorblanketmortgageclause?

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iss one one which is specifically phrased ed to to subsume su A dragnet clause is all debts of past and future d and origins. Such clauses clauses are "carefully scrutinized and strictly construed." Mortgages of this enable t nuous uous de d characterenablethepartiestoprovidecontinuousdealings,thenatureorextentofwhichmay nown own or anticipated at the time,, and and th not be known they avoid the expense and iinconvenience of new transaction. t tra use" se" operates o executing a new security on each new A "dragnet clause" as a to o the the borrowers b ailable additional funds convenience and accommodation to as it makes available dditiona itiona eby by savi withouttheirhavingtoexecuteadditionalsecuritydocuments,therebysavingtime,travel,loan gal al servi ra a. (PRO (PR closingcosts,costsofextralegalservices,recordingfees,etcetera.(PRODUCERSBANKOFTHE RIES, IES Inc 009) PHILS.vs.EXCELSAINDUSTRIES,Inc.,G.R.No.152071,8May2009)

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 Machang Realty was incorporated to hold and purchase Pigue chase hase real re properties in trust for Pigue gue Bank. This was conceived by Pigue Bank in view of the limit on a bank’s allowable ew w of owabl investments in real estate to 50% of its capital al assets. asset In the implementation of assets of the the trust t agreement, Pigue Bank sold to Machang Realty of its real properties while while the latter ealty some so som hile the simultaneously leased to the former the properties for 20 years. Eventually, e prope prop ntually, ually, Machang repudiatedthetrust,claimedthetitlesforitselfanddemandedpaymentofrentals,deposits se t of rent and goodwill, with a threat to eject Pigue Bank. Pigue Bank filed filed a a complaint for reconveyanceofthepropertiesagainstMachangRealty.Willthecaseprosper? see prosp

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The agreement between the parties adverted to as an implied ed trust trust rus is contrary to law. Thus, whilethesaleandleaseofthesubjectpropertyisgenuineandbindinguponthe parties,the nd b implied trust cannot be enforced even assuming the parties intended to create it. xxx "the courtswillnotassistthepayorinachievinghisimproperpurposebyenforcingaresultanttrust for him in accordance with the ‘clean hands’ doctrine." Pigue Bank cannot thus demand reconveyance of the property based on its alleged implied trust relationship with Machang Realty. 37 www.chanroblesbar.com : www.chanroblesbar.com.ph

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Thepartiesbeinginparidelicto,thus,noaffirmativereliefshouldbegiventooneagainstthe other.PigueBankshouldnotbeallowedtodisputethesaleofitslandstoMachangRealtynor should Machang Realty be allowed to further collect rent from Pigue Bank. The clean hands doctrinewillnotallowthecreationnortheuseofajuridicalrelationsuchasatrusttosubvert, directlyorindirectly,thelaw.Neitherpartycametocourtwithcleanhands;neitherwillobtain relief from the court asthe one who seeks equity and justice must come to court with clean hands.(TALAREALTY,etal.vs.COURTOFAPPEALS,7April2009)

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INTELLECTUALPROPERTY

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ExplaintheDOCTRINEOFSECONDARYMEANING. Y MEAN  Awordorphraseoriginallyincapableofexclusiveappropriationwithreferencetoanarticleon apable pable the market, because geographically aphically phically or otherwise descriptive, might nevertheless have been usedsolongandsoexclusivelybyoneproducerwithreferencetohisarticlethat,inthattrade sively vely by and to that branch of the the public, the word or or phra phrase has come to mean that the he purchasing pur articlewashisproduct.(LYCEUMOFTHEPHILS.vs.CA,219SCRA610) uct. ct. (L (LYC Y 219 SCR  If the mark “GALLO “GALLO” GALLO has been registered for r wine wine products, would its use on cigarette productsconstituteaninfringementoftrademark? onstitut emark? mark?  NO. The goods are different from each There are (1) substantial differences on the ch other. oth othe al diffe trademarkitselfapplyingthedominancyandholistictest,(2)theyareofdifferentchannelsof ancy ncy an of diffe trade, (3) they have different qualities marked ualities alities and purpose, (4) there is a m arked rke difference on the priceofgoods.   Itiswellsettledbyjurisprudencethatatrademarkregistrationcanonlyextendtothoseitems denc ation tion ca ms that are included in the certificate. (MIGHTY CORPORATION ATION and LA CAMPANA FABRICA A DE DE TABACO,INC.vs.E.&J.GALLOWINERYandTHEANDRESONSGROUP,INC.,G.R. No.154342. NDRESO DRESO 154342. July14,2004citingSterlingProductsInternationalInc.vs.FarbenfabrikenBayer(27SCRA1214 l Inc. vs v SCRA CRA 12 [1969])  ExplaintheDOCTRINEOFEQUIVALENTS.  The doctrine of equivalents provides that an infringement also takes kess place plac when a device appropriatesapriorinventionbyincorporatingitsinnovativeconceptand,althoughwithsome ept and, and modification and change, performs substantially the same function in substantially the same ction tion in waytoachievesubstantiallythesameresult.(SMITHKLINEBECKMANCORPORATIONvs.CA,et ECKMA al.,G.R.No.126627,14August2003)    

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Statetheelementsofunfaircompetition.  The essential elements of an action for unfair competition are (1) confusing similarity in the generalappearanceofthegoodsand(2)intenttodeceivethepublicanddefraudacompetitor. Theconfusingsimilaritymayormaynotresultfromsimilarityinthemarks,butmayresultfrom otherexternalfactorsinthepackagingorpresentationofthegoods.Theintenttodeceiveand defraudmaybeinferredfromthesimilarityoftheappearanceofthegoodsasofferedforsale to the public. Actual fraudulent intent need not be shown. (INNOUT BURGER, INC. vs. SEHWANI,INC.,G.R.No.179127,24December2008)  a prejud Doesaninfringementcaseconstituteaprejudicialquestiontoanunfaircompetitioncase?  ion on s nce NO.Thereisnoprejudicialquestionsincethetwoactionsanactionforinfringementandunfair nt of eac competition–areindependentofeachofother.Thebasisofanactionforunfaircompetitionis ement, ment, t fraud,whilethatofinfringement,thefactofregistration.  s no no prejudicial pr ivilil (infringement) (inf At any rate, there is question if the civil and criminal (unfair on can, can, according to law, proceed independently indepe competition) action of each other. Under Rule of the R roced ocedurr 111,Section3oftheRevisedRulesonCriminalProcedure,inthecasesprovidedinArticles32, 2176 of ndent dent civ 33,34and2176oftheCivilCode,theindependentcivilactionmaybebroughtbytheoffended t shall shall all proceed independently off the party.  It the criminal action and shall require only a nc s. HON. l.,, G.R G preponderanceofevidence.(SAMSONvs.HON.REYNALDOB.DAWAY,etal.,G.R.Nos.160054 55.21July2004)  onfusion nfusion arising from the use of similar imilar milar or colorable imitation What are the two types of confusion marks?  sion n of “in Section22,IPCcoverstwotypesofconfusion:a)confusionofgoods(productconfusion),“in e induce induc in the whicheventtheordinarilyprudentpurchaserwouldbeinducedtopurchaseoneproductinthe belief that he was purchasing the other” and b) b) confu confusion of business (source o or orig origin e differe differ uct ct is su s confusion),“thoughthegoodsof thepartiesaredifferent,thedefendant’sproductissuchas might reasonably be assumed to originate with with the the plaintiff, and the public would would then be ction tion be deceived either into that belief or into the belief belief that there is some connection between the ORPORAT RPORA plaintiffanddefendant,which,infact,doesnotexist.”(MCDONALD’SCORPORATION,etal.vs. L.C.BIGMAKBURGER,INC.,etal.,G.R.No.143993,August18,2004)  e manuf manu DoestheexemptionprovidedbyRA623applyeventolargescalemanufacturing? ate the Use of Duly Stamped or YES. RA 623, as amended by R.A. 5700 or “An Act to Regulate Marked Bottles, Casks, Kegs, Barrels and other similar Containers” was meant to protect the intellectualpropertyrightsoftheregistrantsofthecontainersandpreventunfairpracticesand fraud on the public. However, Section 6 of the said Act specifically allows the reuse of such bottlesascontainersfor“sisi”,“patis”,“bagoong”,andothernativeproducts.  39 www.chanroblesbar.com : www.chanroblesbar.com.ph

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The law did not distinguish between small scale and large scale manufacturing. Hence, notwithstandingthatthenativeproductsareproducedonalargescale,thereuseofregistered bottlesstillcomeswithintheexceptionprovidedbythelaw.(TWINACEHOLDINGSCORP.vs. RUFINAANDCOMPANY(G.R.No.160191,08June2006)           

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