2019 Commercial

06/2020

A.1.

Define the following terms:

(a) Trust fund doctrine (2%)
(b) Unfair competition (2%)
(c) Insurable interest in property (2%)
(d) Splitting of deposits (2%)

 

(a)
The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for satisfaction

(PLDT vs. NTC G.R. NO. 152685 December 04, 2007)

(b)
168.2. Any person who shall employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor. (Intellectual Property Code of the Philippines)

(c)
In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. (Lalican vs. Insular Life G.R. No. 183526 August 25, 2009)

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

 

A.2.

In May 2018, ABC Corp. entered into a merchandising contract which terms and conditions were totally lopsided in favor of the counterparty, XYZ, Inc. As a result, ABC Corp. suffered tremendous financial losses.

A year after, or in May 2019, Mr. X became a stockholder of ABC Corp. Learning about the circumstances surrounding the merchandising contract, Mr. X filed a derivative suit against ABC Corp. 's directors to claim damages on behalf of ABC Corp. due to their mismanagement.

(a) What is a derivative suit? (2%)
(b) Was Mr. X's filing of a derivative suit proper? Explain. (3%)

(a) An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. A derivative action is a suit by a shareholder to enforce a corporate cause of action. (Yu vs. Yukayguan G.R. No. 177549 June 18, 2009)

(b) No, it was not proper. One of the requisites of filing a derivative suit is one is a stockholder at the time the acts or transactions subject of the action occurred. In this case, Mr. X only became a stockholder on May 2019 which is a year after the act complained of occurred in May 2018. Hence, it was not proper.

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;
2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

(Yu vs. Yukayguan G.R. No. 177549 June 18, 2009)


A.3.

In June 2018, DEF Corp. sent notices to its stockholders informing them of the corporation's issuance of new shares of stock. The notice included a reminder that, pursuant to DEF Corp.' s Articles of Incorporation, any stockholder who fails to exercise his or her pre-emptive right within three (3) weeks from receipt of notice would be considered to have waived the same.

Ms. Z, a stockholder of DEF Corp., failed to exercise her pre-emptive right within the said period. However, she claimed that she did not validly waive her right to do so because a waiver must be expressed in writing.

(a) Explain the concept of pre-emptive right under the Corporation Code. (2 %)
(b) Is Ms. Z's contention correct? Explain. (3%)

(a) SEC. 38. Power to Deny Preemptive Right . - All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings , unless such right is denied by the articles of incorporation or an amendment thereto. (Revised Corporation Code)

(b) No, Z is not correct. She was given 3 weeks which is a reasonable period to exercise her preemptive rights. Her failure to do means she is deemed to have waived it.

The stockholder must be given a reasonable time within which to exercise their preemptive rights. Upon the expiration of said period, any stockholder who has not exercised such right will be deemed to have waived it. (Majority Stockholders vs. Lim G.R. No.  165887 June 06, 2011)

A.4.

In 2016, X Corp. obtained a loan worth 50,000,000.00 from J Bank, which was secured by a third-party mortgage executed by Y, Inc. in favor of X Corp. Since X Corp. was not able to settle its loan obligation to J Bank when it fell due, and despite numerous demands, J Bank foreclosed the mortgaged properties. The properties were sold in a foreclosure sale for 35,000,000.00, thereby leaving a 15,000,000.00 deficiency. For failure of X Corp. to pay said deficiency, J Bank filed a complaint for sum of money against X Corp., its President, Mr. P, and Y, Inc.

With respect to Mr. P, J Bank argued that he should be held solidarily liable together with X Corp. because he signed the loan document on behalf of X Corp. in his capacity as President. On the other hand, J Bank contended that Y, Inc. should also be held solidarily liable because the shareholdings of both corporations are identically owned and their operations are controlled by the same people; hence, Y, Inc. is a mere alter ego of X Corp.

(a) Should Mr. P be held liable? Explain. (2.5%)
(b) Should Y, Inc. be held liable? Explain. (2.5%)

(a) No, Mr. P should not be held liable as he signed as an officer of the X corporation. The debts of the S corporation are not his debts under the doctrine of separate juridical personality.

We thus apply the general doctrine of separate juridical personality, which provides that a corporation has a legal personality separate and distinct from that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the corporate debt is not the debt of the stockholder.[20] Thus, being an officer or a stockholder of a corporation does not make one's property the property also of the corporation. (Hernbustos vs. Millians Shoe G.R. No. 185024 April 24, 2017)

(b) No, Y Inc. should not be held liable. It is not enough that the corporations are identically owned and operations are controlled by the same people. There must be such domination of finances, policies, and practices that X has no separate existence of its own.

"Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the "instrumentality" may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have 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. (Rehouse vs. Ca G.R. No. 199687 March 24, 2014)

 

A.5.

Mr. Y filed a case captioned as "Injunction with Prayer for Status Quo Order, Temporary Restraining Order and Damages" against Z Company to prohibit the latter from selling shares which Mr. Y purportedly bought from Z Company. Mr. Y alleged that the subscription for the said shares was already partly paid by him, but the subject shares were nonetheless being offered for sale by Z Company to the corporation's other stockholders.

(a) Is the case filed by Mr. Y against Z Company considered an intra-corporate dispute? Explain. (2.5%)
(b) Assuming that it was Z Company which instead filed a case against Mr. Y in order to collect the unpaid balance of his stock subscriptions, is the case considered an intra-corporate dispute? Explain. (2.5%)

(a) Yes, it is an intra-corporate controversy as it satisfies the two tests required by jurisprudence. It satisfies the relationship test as the parties involved are the stockholder Mr. Y and the corporation Z Company. It satisfies the controversy test as the rights to the shares involve rights under the Corporation Code.

To determine if a case involves an intra-corporate controversy, the courts have applied two tests: the relationship test and the nature of the controversy test.

Under the relationship test, the existence of any of the following relationships makes the conflict intra-corporate: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.

On the other hand, the nature of the controversy test dictates that "the controversy must not only be rooted in the existence of an intra- corporate relationship, but must as well pertain to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation."

A combined application of the relationship test and the nature of the controversy test has become the norm in determining whether a case is an intra-corporate controversy (Philippine Communications vs. Sandiganbayan G.R. No. 203023 June 17, 2015)

(b) Yes, it is still an intra-corporate controversy as it satisfies the two tests required by jurisprudence. It satisfies the relationship test as the parties involved are the stockholder Mr. Y and the corporation Z Company. It satisfies the controversy test as the rights to collect unpaid shareholder subscriptions involve rights under the Corporation Code.

A.6.

In January 2016, Mr. H was issued a life insurance policy by XYZ Insurance Co., wherein his wife, Mrs. W, was designated as the sole beneficiary. Unbeknownst to XYZ Insurance Co., however, Mr. H had been previously diagnosed with colon cancer, the fact of which Mr. H had concealed during the entire time his insurance policy was being processed.

In January 2019, Mr. H unfortunately committed suicide. Due to her husband's death, Mrs. W, as beneficiary, filed a claim with XYZ Insurance Co. to recover the proceeds of the late Mr. H's life insurance policy. However, XYZ Insurance Co. resisted the claim, contending that: 1. the policy is void ab initio because Mr. H fraudulently concealed or misrepresented his medical condition, i.e., his colon cancer; and 2. as an insurer in a life insurance policy, it cannot be held liable in case of suicide. Rule on each of XYZ Insurance Co.'s contentions. (5%)

Rule on each of XYZ Insurance Co.'s contentions. (5%)

I would rule against both XYZ’s contentions.

The Insurance Code provides for incontestability after 2 years.

It likewise provides for a suicide exemption period which can only apply for 2 years.

Section 227. In the case of individual life or endowment insurance, the policy shall contain in substance the following conditions:

A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of two years from its date of issue as shown in the policy, or date of approval of last reinstatement, except for non-payment of premium and except for violation of the conditions of the policy relating to military or naval service in time of war (Insurance Code)

A.7.

Ms. J offered to sell her car to Ms. K, an interested buyer. Consequently, Ms. J emailed Ms. K a copy of the proposed Deed of Sale covering the same. After agreeing to its terms, Ms. K printed and then signed the emailed copy of the Deed of Sale. She then faxed it to Ms. J who signed the faxed copy.

Is the copy of the Deed of Sale faxed by Ms. K to Ms. J considered an electronic document under the Electronic Commerce Act? Explain. (2%)

No, facsimile documents have been held by the Supreme Court to not be electronic documents.

Since a facsimile transmission is not an "electronic data message" or an "electronic document," and cannot be considered as electronic evidence by the Court, with greater reason is a photocopy of such a fax transmission not electronic evidence. (MCC Industrial vs. Corporation G.R. No. 170633 October 17, 2007)

(f) "Electronic Document" refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be prove and affirmed, which is receive, recorded, transmitted, stored, processed, retrieved or produced electronically. (Electronic Commerce Act)

A.8.

KLM Printers, Inc. operated a small outlet located at the ground floor of a university building in Quezon City. It possessed soft copies of certain textbooks on file, and would print "book-alikes" of these textbooks (or in other words, reproduced the entire textbooks) upon order and for a fee. It would even display samples of such "book-alikes" in its stall for sale to the public.

Upon learning of KLM Printers, Inc.'s activities, the authors of the textbooks filed a suit against it for copyright infringement. In its defense, KLM Printers, Inc. invoked the doctrine of fair use, contending that the "book-alikes" are being used for educational purposes by those who avail of them.

(a) What is the doctrine of fair use? (2%)
(b) Is KLM Printers, Inc.'s invocation of the doctrine of fair use proper in this case? Explain. (3%)


(a) Fair use is an exception to copyright.

Section 185. Fair Use of a Copyrighted Work. - 185.1. The fair use of a copyrighted work for criticism, comment, news reporting, teaching including multiple copies for classroom use, scholarship, research, and similar purposes is not an infringement of copyright. Decompilation, which is understood here to be the reproduction of the code and translation of the forms of the computer program to achieve the inter-operability of an independently created computer program with other programs may also constitute fair use. In determining whether the use made of a work in any particular case is fair use, the factors to be considered shall include:

(a) The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes;
(b) The nature of the copyrighted work;
(c) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(d) The effect of the use upon the potential market for or value of the copyrighted work.

(Intellectual Property Code)

(b) No, it is not a fair invocation as it violates the 1st, 3rd, and 4th elements. It violates the1st element as the character of the use is for commercial use as it is for profit. It violates the 3rd element as there was reproductionof the entire copyrighted work. It violates the 4th element as the sale of book-alikes would reduce the market for the original books.

A.9.

X Pharmaceuticals, Inc. has been manufacturing the antibiotic ointment Marvelopis, which is covered by a patent expiring in the year 2020. In January 2019, the company filed an application for a new patent for Disilopis, which, although constituting the same substance as Marvelopis, is no longer treated as an antibiotic but is targeted and marketed for a new use, i.e., skin whitening.

(a) What are the three (3) requisites of patentability under the Intellectual Property Code? (3%)
(b) Should X Pharmaceuticals, Inc.'s patent application for Disilopis be granted? Explain. (2%)


(a) The 3 requisites of patentability are that it should be new, involve an inventive step, and is industrially applicable.

It is new if it does not form part of prior art. It involves an inventive step if it is not obvious to a person skilled in the art at the time of the filing date. It is industrially applicable if it can be produced and used in any industry.

Section 21. Patentable Inventions. - Any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable shall be Patentable. It may be, or may relate to, a product, or process, or an improvement of any of the foregoing.

Section 23. Novelty. . - An invention shall not be considered new if it forms part of a prior art. (Sec. 9, R.A. No. 165a)

Section 26. Inventive Step. - An invention involves an inventive step if, having regard to prior art, it is not obvious to a person skilled in the art at the time of the filing date or priority date of the application claiming the invention. (n)

Section 27. Industrial Applicability. - An invention that can be produced and used in any industry shall be industrially applicable. (n)

(Intellectual Property Code)

(b) No, it should no longer be granted as it would lack the first requisite of patentability  as it is no longer new. Disilopis is still the same substance as Marvelopis.

A.10.

In 2005, W Hotels, Inc., a multinational corporation engaged in the hospitality business, applied for and was able to register its trademark "W" with the Intellectual Property Office of the Philippines (IPO) in connection with its hotels found in different parts of the world.

In 2009, a Filipino corporation, RST Corp., filed before the IPO a petition for cancellation of W Hotels, Inc.'s "W" trademark on the ground of non-use, claiming that W Hotels, Inc. failed to use its mark in the Philippines because it is not operating any hotel in the country which bears the "W" trademark.

In its defense, W Hotels, Inc. maintained that it has used its "W" trademark in Philippine commerce, pointing out that while it did not have any hotel establishment in the Philippines, it should still be considered as conducting its business herein because its hotel reservation services, albeit for its hotels abroad, are made accessible to Philippine residents through its interactive websites prominently displaying the "W" trademark. W Hotels, Inc. also presented proof of actual booking transactions made by Philippine residents through such websites.

Is W Hotels, Inc.'s defense against the petition for cancellation of trademark tenable? Explain. (5%)

Yes, it is tenable as the Supreme Court has resolved a similar case in jurisprudence.

In this case, Starwood has proven that it owns Philippine registered domain names, i.e., www.whotels.phwww.wreservations.phwww.whotel.phwww.wreservation.ph, for its website that showcase its mark. The website is readily accessible to Philippine citizens and residents, where they can avail and book amenities and other services in any of Starwood's W Hotels worldwide. Its website also readily provides a phone number75 for Philippine consumers to call for information or other concerns. The website further uses the English language76 - considered as an official language in this country77 - which the relevant market in the Philippines understands and often uses in the daily conduct of affairs. In addition, the prices for its hotel accommodations and/or services can be converted into the local currency or the Philippine Peso.78 Amidst all of these features, Starwood's "W" mark is prominently displayed in the website through which consumers in the Philippines can instantaneously book and pay for their accommodations, with immediate confirmation, in any of its W Hotels. Furthermore, it has presented data showing a considerably growing number of internet users in the Philippines visiting its website since 2003, which is enough to conclude that Starwood has established commercially-motivated relationships with Philippine consumers. (W Land Holding, Inc. v. Starwood Hotels and Resorts Worldwide, Inc. G.R. No. 222366; Dec. 04, 2017)

B.11.

W Medical, Inc. operated a full-service hospital named WMed. Using its stockholders' advances and a mortgage loan from Bank X, W Medical, Inc. commenced the construction of a new 11-storey WMed Annex Building. Unfortunately, due to financial constraints, only seven (7) floors were constructed and the WMed Annex Building remained unfinished.

Despite the non-completion of the WMed Annex Building, W Medical, Inc. continued its operations and earned modest revenues. While W Medical, Inc.'s assets are more than its liabilities and it is able to turn a monthly profit, it could not pay its loan installments to Bank X as they fall due.

(a) What is the concept of "insolvency" under the Financial Rehabilitation and Insolvency Act (FRIA)? May W Medical, Inc. be considered "insolvent" under the FRIA? Explain. (3%)
(b) Assuming that W Medical, Inc. is considered "insolvent", may it file a petition for suspension of payments under the FRIA? Explain. (2%)
(c) Assuming that W Medical, Inc. is considered "insolvent", what are the legally recognized modes of rehabilitation it may opt to avail of?
(d) If W Medical, Inc. files a petition for rehabilitation before the court, is it possible for the rehabilitation proceedings to be converted into one for liquidation? Explain. (2%)

(a) Insolvent is defined as when a party is generally unable to pay its liabilities as they fall due in the ordinary course of business or has liabilities that are granter than its assets. Yes, W Medical, Inc is considered insolvent under FRIA as it cannot pay its liabilities which are loan installments in this case as they fall due.

Section 4. Definition of Terms. - As used in this Act, the term:

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets. (FRIA Law)

(b) No, it may not as only individuals may file for suspension of payments under the FRIA Law.

Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when they respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the province or city in which he has resides for six (6) months prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c) a proposed agreement with his creditors. (FRIA Law)

FRIA recognizes three forms of rehabilitation. Court-supervised rehabilitation, pre-negotiated rehabilitation, and out-of-court rehabilitation.

CHAPTER II

COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided. The petition shall be verified to establish the insolvency of the debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as a minimum the following:

CHAPTER III

PRE-NEGOTIATED REHABILITATION

Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include as a minimum:

CHAPTER IV

OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS

Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-court or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.

(FRIA Law)

(d) Yes, it may be converted into liquidation if it is found that the debtor is insolvent or there is no substantial likelihood for a successful rehabilitation.

Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof the court may:

(c) convert the proceedings into one for the liquidation of the debtor upon a finding that:
(1) the debtor is insolvent; and
(2) there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules to be promulgated by the Supreme Court.

(FRIA Law)

B.12.

EFG, Inc. is indebted to Bank Y in the amount of 50,000,000.00. The loan was secured by a suretyship agreement issued by Z Insurance Co.

Due to EFG, Inc's default, Bank Y filed a case against Z Insurance Co. as surety. There is also a pending criminal case for violation of the Bouncing Checks Law against the President of EFG, Inc., Mr. P, who signed the check as signatory for the company.

Unable to meet its obligations as they fell due, EFG, Inc. filed a petition for rehabilitation. Finding the petition sufficient in form and substance, the court issued a Commencement Order, which was thereafter published.

(a) Should the case filed against Z Insurance Co. be suspended in light of the Commencement Order? Explain. (2.5%)
(b) Should the criminal case filed against Mr. P be suspended in light of the Commencement Order? Explain. (2.5%)

(a) Yes, the Commencement Order shall include a suspension order that suspends all actions for claims against the debtor.

Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which shall:

(q) includes Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;

(FRIA Law)

(b)No, it should not be suspend as one of the exceptions to a Suspension Order is when a criminal action is filed against an individual.

Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:

(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commend under this Act.

(FRIA Law)

B.13.

Enumerate at least two (2) rights of a data subject under the Data Privacy Act. (2%)”

Section 16. Rights of the Data Subject. – The data subject is entitled to:

(a) Be informed whether personal information pertaining to him or her shall be, are being or have been processed;
(b) Be furnished the information indicated hereunder before the entry of his or her personal information into the processing system of the personal information controller, or at the next practical opportunity:

(x)

(c) Reasonable access to, upon demand, the following:

(x)

(d) Dispute the inaccuracy or error in the personal information and have the personal information controller correct it immediately and accordingly, unless the request is vexatious or otherwise unreasonable. If the personal information have been corrected, the personal information controller shall ensure the accessibility of both the new and the retracted information and the simultaneous receipt of the new and the retracted information by recipients thereof: Provided, That the third parties who have previously received such processed personal information shall he informed of its inaccuracy and its rectification upon reasonable request of the data subject;
(e) Suspend, withdraw or order the blocking, removal or destruction of his or her personal information from the personal information controller’s filing system upon discovery and substantial proof that the personal information are incomplete, outdated, false, unlawfully obtained, used for unauthorized purposes or are no longer necessary for the purposes for which they were collected. In this case, the personal information controller may notify third parties who have previously received such processed personal information; and
(f) Be indemnified for any damages sustained due to such inaccurate, incomplete, outdated, false, unlawfully obtained or unauthorized use of personal information.

(Data Privacy Act)

B.14.

ABC Corp. is a company which shares are listed in the Philippine Stock Exchange. In 2015, 25% of ABC Corp.'s shareholdings were acquired by XYZ, Inc., while 40% of the same were acquired by RST, Inc., both of which are non-listed private corporations. Meanwhile, the remaining 35% of ABC Corp.'s shareholdings are held by the public.

In 2018, or three years (3) after it acquired its 25% stake in ABC Corp., XYZ, Inc. sought to obtain an additional 12% shareholding in ABC Corp. by purchasing some of the shares owned by RST, Inc. therein. The new acquisition will not, however, result in XYZ, Inc. gaining majority control of ABC Corp.'s Board.

Is XYZ, Inc. required to conduct a tender offer? Explain. (3%)

No, XYZ is not required to conduct a tender offer. The Securities Regulation Code only requires a tender offer when the person intends to acquire 15% shares of a publicly listed corporation or 30% shares over a 12 month period. In this instance, XYZ is only acquiring 12% which happened 3 years after the initial 25% was acquired making it outside the coverage of the period. There is also no mention of the amount of assets or number of stockholders of ABC Corp.

Section 19. Tender Offers. Any person or group of persons acting in concert who intends to acquire at least 15% of any class of any equity security of a listed corporation of any class of any equity security of a corporation with assets of at least fifty million pesos (50,000,000.00) and having two hundred(200) or more stockholders at least one hundred shares each or who intends to acquire at least thirty percent(30%) of such equity over a period of twelve months(12) shall make a tender offer to stockholders by filling with the Commission a declaration to that effect; and furnish the issuer, a statement containing such of the information required in Section 17 of this Code as the Commission may prescribe. Such person or group of persons shall publish all request or invitations or tender offer or requesting such tender offers subsequent to the initial solicitation or request shall contain such information as the Commission may prescribe, and shall be filed with the Commission and sent to the issuer not alter than the time copies of such materials are first published or sent or given to security holders. (Securities Regulation Code)

B.15.

Mr. P, the President of JKL, Inc. which shares are listed in the Philippine Stock Exchange, was notified that the corporation has just been awarded a 5,000,000,000.00 construction contract by a reputable private company. Before this information could be disclosed to the public, Mr. P called his stockbroker to purchase 20,000 shares of JKL, Inc. He also mentioned the transaction to his brother, Mr. B. Mr. B, who was not involved at all in the business of JKL, Inc., also bought 50,000 shares of JKL, Inc. because of the tip disclosed to him by Mr. P.

(a) Is the information disclosed by Mr. P to Mr. B considered as material nonpublic information for purposes of insider trading? Explain. (2%)
(b) Should Mr. P and Mr. B be held liable for insider trading? Explain. (3%)


(a) Yes, it is material non-public information as it has not been disclosed to the public and the news of the P5 billion construction contract would likely affect the market price of the security.

Section 27. Insiders Duty to Disclose When Trading

27.2. For purposes of this Section, information is "material nonpublic" if: (a) It has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or (b) would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security. (Securities Regulation Code)

(b) Yes, Mr. B P should be held for insider trading as the definition of insider include officers that have access to material information about the issuer or security not generally available to the public. Mr. B is likewise liable even if he is not involved in the business as the law also considers as insider any person who learns such information from any of the other insiders. The law penalizes for insider trader any insider who buys or sells a security because of access to material information not generally available to the public except in certain instances. As none of the exemptions apply, Mr. P and Mr. B should be held liable for insider trading.

Section 3. Definition of Terms.

3.8. "Insider" means (a) the issuer; (b) a director or officer (or any person performing similar functions) of, or a person controlling the issuer; gives or gave him access to material information about the issuer or the security that is not generally available to the public; (d) A government employee, director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or (e) a person who learns such information by a communication from any forgoing insiders.

Section 27. Insiders Duty to Disclose When Trading.

27.1. It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public, unless: (a) The insider proves that the information was not gained from such relationship; or (b) If the other party selling to or buying from the insider (or his agent) is identified, the insider proves: (I) that he disclosed the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also in possession of the information. A purchase or sale of a security of the issuer made by an insider defined in Subsection 3.8, or such insiders spouse or relatives by affinity or consanguinity within the second degree, legitimate or common-law, shall be presumed to have been effected while in possession of material nonpublic information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for market to absorb such information: Provided, however, That this presumption shall be rebutted upon a showing by the purchaser or seller that he was aware of the material nonpublic information at the time of the purchase or sale. (Securities Regulation Code)

B.16.

Mayor J has two (2) bank accounts: 1. a Peso savings account with Bank P; and 2. a U.S. Dollar savings account with Bank D.

In 2018, Mayor J's former business partner, Mr. K, filed a civil case for collection of sum of money against him.

In the same year, a criminal case for Direct Bribery under the Revised Penal Code was filed against Mayor J. It was alleged in the Information that in exchange for the expeditious approval of various permits and licenses, Mayor J received kickbacks which amounts were deposited to his bank accounts.

(a) In the event Mayor J is held ultimately liable in the civil case filed by Mr. K, may Mayor J's bank accounts in Bank P and Bank D be subject to garnishment? Explain. (2.5%)
(b) Assuming that the prosecution in the criminal case sought from the court an inquiry of Mayor J's bank accounts in Bank P and Bank D, may a bank inquiry order be issued? Explain. (2.5%)


(a) Only the peso accounts in Bank P may be garnished. The dollar accounts in Bank D are exempt under the Foreign Currency Deposit Act.

Section 8. Secrecy of foreign currency deposits. – All foreign currency deposits authorized under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative, or any other entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.) (Foreign Currency Deposit Act)

Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation. (Bank Secrecy Law)

(b) Only the peso deposits in Bank P may be looked into as the law allows examination upon order of a competent court in cases of bribery which is applicable in this instance. However, a bank inquiry is not allowed for dollar deposits in Bank D as under the law, dollar deposits are absolutely exempt unless there is written permission of the depositor.

Section 8. Secrecy of foreign currency deposits. – All foreign currency deposits authorized under this Act, as amended by PD No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby declared as and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative or legislative, or any other entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21, 1977.)

(Bank Secrecy Law)

(Foreign Currency Deposit Act)

B.17.

Several public officials were charged before the Sandiganbayan for violation of the Anti-Graft and Corrupt Practices Act involving the anomalous award of a multi-billion contract to Corporation Z. The Information alleged that each of the accused received kickbacks from Corporation Z in exchange for the dispensation of certain bidding requirements, and that the said kickbacks were deposited to the accused's respective bank accounts in the Philippines. Upon request of the Office of the Ombudsman, the Compliance and Investigation Staff of the Anti-Money Laundering Council (AMLC) conducted an intelligence database search. The search revealed that there were remittances to the bank accounts of the accused with six (6) different banks.

(a) May the AMLC examine the bank accounts of the accused-public officials even without seeking a prior court order? Explain.(2.5%)
(b) May a court order be issued ex parte for the freezing of the bank accounts of the accused-public officials upon application of the AMLC? If so, in what instance may this be done and which court can issue such order? Explain. (2.5%)

(a) Yes, in certain instances such as kidnapping for ransom, violation of the Dangerous Drugs Act, hijacking, destructive arson, murder and violations of RA 6235.

"SEC. 11. Authority to Inquire into Bank Deposits. Notwithstanding the provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791; and other laws, the AMLC may inquire into or examine any particular deposit or investment, including related accounts, with any banking institution or non-bank financial institution upon order of any competent court based on an ex parte application in cases of violations of this Act, when it has been established that there is probable cause that the deposits or investments, including related accounts involved, are related to an unlawful activity as defined in Section 3(i) hereof or a money laundering offense under Section 4 hereof; except that no court order shall be required in cases involving activities defined in Section 3(i)(1), (2), and (12) hereof, and felonies or offenses of a nature similar to those mentioned in Section 3(i)(1), (2), and (12), which are Punishable under the penal laws of other countries, and terrorism and conspiracy to commit terrorism as defined and penalized under Republic Act No. 9372." (Amended Anti Money Laundering Law)

(b) Yes, the Amended Anti Monetary Law allows freezing of bank accounts upon ex parte motion. It is the Court of Appeals which may issue it upon determination of probable cause that the monetary instrument is related to an unlawful activity under the Anti Money Laundering law.

SEC. 10. Freezing of Monetary Instrument or Property. Upon a verified ex parte petition by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(i) hereof, the Court of Appeals may issue a freeze order which shall be effective immediately, and which shall not exceed six (6) months depending upon the circumstances of the case: Provided, That if there is no case filed against a person whose account has been frozen within the period determined by the court, the freeze order shall be deemed ipso facto lifted: Provided, further, That this new rule shall not apply to pending cases in the courts. In any case, the court should act on the petition to freeze within twenty-four (24) hours from filing of the petition. If the application is filed a day before a nonworking day, the computation of the twenty-four (24)-hour period shall exclude the nonworking days.

A person whose account has been frozen may file a motion to lift the freeze order and the court must resolve this motion before the expiration of the freeze order.

No court shall issue a temporary restraining order or a writ of injunction against any freeze order, except the Supreme Court.

(Further Strengthening the Anti Money Laundering Law)

B.18.

Mrs. T maintained a checking account with Bank U. While Mrs. T was abroad, she left her checkbook inside her office drawer, which she kept under lock and key. However, Mrs. T's long-time secretary, Ms. S, knew where the checkbook was hidden. Ms. S then broke the lock on the office drawer, took one of Mrs. T's blank checks, and succeeded to encash 200,000.00 from Bank U by imitating Mrs. T's signature. As soon as Mrs. T returned from abroad and discovered the incident, she immediately reported the matter to Bank U, seeking that the transaction be reversed. However, the bank refused, contending that Mrs. T should bear the loss arising from the forgery.

(a) Is the imitation of Mrs. T's signature considered as a material alteration under the Negotiable Instruments Law? Explain. (2.5%)
(b) Is Bank U's contention tenable? Explain. (2.5%)


(a) No, it is not a material alteration as the Negotiable Instruments Law enumerates what is considered a material alteration which does not include imitated signatures. This case falls within the provision on forged signature.

SEC 125. What constitutes a material alteration.— Any alteration which changes—

(a) The date;
(b) The sum payable, either for principal or interest;
(c)   The time or place of payment;
(d)   The number or the relations of the parties;
(e)   The medium or currency in which payment is to be made; Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

SEC. 23. Forged signature; effect of.—When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority

(Negotiable Instruments Law)

(b) No. Jurisprudence has provided that the bank should shoulder the loss if it pays on a forged check.

Consequently, if a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check (Samsung Construction vs. Far East Bank G.R. No. 129015 August 13, 2004)

B.19.

LMN, Inc. operates a beach resort in a secluded island off the coast of Puerto Princesa City, Palawan. It operates three (3) motorized boats to ferry its guests from the city proper to the island resort and vice-versa. During one rainy morning, the guests were informed that the ferry services for that day were cancelled due to a storm forecast. In order to appease the apparent dismay of most of the guests who will miss their flight back to Manila, the boat captain of one of LMN, Inc.'s motorized boats decided to push through with its trip back to the city. Shortly after the boat sailed, the storm hit and the winds and waves became stronger, causing engine trouble to the boat. Unfortunately, the boat capsized and sank, resulting in the death of one of the passengers, Mr. X.

This prompted Mr. X's heirs to file a complaint for damages against LMN, Inc., which they alleged to be a common carrier. In its defense, LMN, Inc. maintained that it is not a common carrier because its boats are not available to the general public but only ferry resort guests and employees.

(a) May LMN, Inc. be considered a common carrier? Explain. (3%)
(b) Assuming LMN, Inc. is a common carrier, may it be absolved from liability on the ground of fortuitous event? Explain. (2%)

(a) Yes, as the Supreme Court has ruled on a similar case in jurisprudence.

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly considered ancillary thereto. The constancy of respondent’s ferry services in its resort operations is underscored by its having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be availed of by anyone who can afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators offering tour packages to factor the transportation fee in arriving at the tour package price. That guests who opt not to avail of respondent’s ferry services pay the same amount is likewise inconsequential. These guests may only be deemed to have overpaid. (Cruz vs. Sun Holidays G.R. No.  186312 June 29, 2010)

(b) No, it is not absolved. To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only cause of the loss. And it should have exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the fortuitous event. (Cruz vs. Sun Holidays G.R. No.  186312 June 29, 2010) In this case, there was no due diligence from LMN as their captain still pushed through with the trip despite the stormy forecast. Hence the loss of life was not only due to the storm but due to the actions of the employees of the corporation. (Cruz vs. Sun Holidays G.R. No.  186312 June 29, 2010)

B.20.

F Corp., a corporation engaged in the export of fertilizers, entered into a sale of its products with Mr. P. In this relation, Bank C, F Corp.'s bank, received an irrevocable letter of credit, payable on sight, issued by Bank I for the account of its client, Mr. P, in the amount of 1,000,000.00 to cover the purchase price of the sale. In the letter of credit, Bank C was designated as the confirming bank.

After being presented the required documents under the letter of credit, Bank C issued in favor of F Corp. a cashier's check in the amount of 1,000,000.00.

Bank C then informed Bank I of the payment made pursuant to the letter of credit. Thereafter, Bank C transmitted the documents presented by F Corp. to Bank I and sought to be reimbursed for the amount it paid to F Corp.

Bank I, however, refused to reimburse Bank C for the reason that it received an e-mail coming from Mr. P that the latter will not make any payment to Bank I in relation to the letter of credit because the products shipped to him by F Corp. were of substandard quality.

(a) Is Bank I's refusal to reimburse Bank C warranted? Explain. (3%)
(b) Assuming that the documents submitted by F Corp. were proven to be actually forged but were nonetheless accepted by Bank C as sufficient, may Bank I refuse Bank C's claim for reimbursement? Explain. (2%)

(a) No, it is not warranted. Under the independence principle, the issuing bank's obligation to pay under the letter of credit is separate from the compliance of the parties in the main contract. (Hongkong vs. Bpi G.R. No. 183486 February 24, 2016) Hence it is immaterial to Bank I’s obligation whether the products shipped were of substandard quality. (HSBC vs. BPI G.R. No. 183486 February 24, 2016)

(b) Yes, Bank I can refuse as fraud is an accepted exception to the independence principle.

Most writers agree that fraud is an exception to the independence principle. Professor Dolan opines that the untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as fraud sufficient to support an Injunction against payment. The remedy for fraudulent abuse is an Injunction. However, Injunction should not be granted unless: (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if Injunction is not granted or the recovery of damages would be seriously damaged (Transfield Philippines vs. Luzon Hydro G.R. No. 146717 November 22, 2004)

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