2014 Mercantile Law Quick Reviewer Covers 81 Specific Topics
Corporation Law (BP 68) 6 questions
1. By-laws; validity; qualifications of BOD members
By-laws
are rules and ordinances made by a corporation for its own government; to regulate the conduct and define the duties of the stockholders or members towards the corporation and among themselves. They are rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or member and directors and officers with relation thereto and among themselves in their relation to it.
Validity;
If adopted subsequent to incorporation:
It must be adopted within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the SEC; with an affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a majority of the members in case of non-stock corporations.
A copy thereof, duly certified to by a majority of the directors or trustees countersigned by the secretary of the corporation, must be filed with the SEC which shall be attached to the original articles of incorporation.
Certification of the appropriate government agency concerned to the effect that such by-laws or amendments are in accordance with law.
Directors & Trustees; qualifications
Directors must own at least one (1) share. Trustees must be members majority of whom must be residents.
Disqualifications:
Conviction by final judgment of an offense punishable period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of election or appointment. Other disqualifications under applicable special laws.
Those which may be included in the by-laws
2. Separate juridical personality of Corporations Corporate Entity
The corporation is possessed with a personality separate and distinct from the individual stockholders or members.
3. Piercing the corporate veil
Control must have been used by the defendant to commit fraud or wrong.
5 questions
1. Intra-corporate Controversy
INTRA-CORPORATE CONTROVERSIES (Sec. 5 [b] of PD 902-A)
Intra-corporate controversies include those of corporations, partnerships and associations.
Elements of intra-corporate controversies: 1. An intra-corporate relationship:
a. Between and among the stockholders, members, associates of a corporation, partnership or association;
b. Between them and the corporation, partnership or association; or
c. Between the corporation, partnership or association and the State.
The dispute among the parties must be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character necessarily the case does not involve an intra-corporate controversy.
The factor which decides whether the action is within the jurisdiction of the Special Commercial Courts is that the controversy arose out of an intra-corporate relation between and among the parties.
The filing of the civil/intra-corporate case before the SEC does not preclude the simultaneous and concomitant filing of a criminal action before the regular courts; such that, a fraudulent act may give rise to liability for violation of the rules and regulations of the SEC cognizable by the SEC itself, as well as criminal liability for violation of the Revised Penal Code cognizable by the regular courts, both charges to be filed and proceeded independently, and may be simultaneously, with the other.
2. Declaration of Dividends
Dividends can only be declared out of unrestricted retained earnings.
General rule: Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock.
Exceptions:
1. When justified by definite corporate expansion projects or programs approved by the board of directors; or
2. When the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured; or
3. When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies.
The judgment of the board of directors in the matter of declaring dividends is conclusive except when they act in bad faith, or for a dishonest purpose or act fraudulently, oppressively, unreasonably or unjustly or abuse of discretion can be shown so as to impair the rights of the complaining stockholders to their just proportion of corporate profits.
Directors are not liable for declaration of dividend contrary to law, unless attended with bad faith, gross negligence or willful and knowing assent.
The essential test of bad faith is to determine if the policy of the directors is dictated by their personal interest rather than the corporate welfare.
3. Sale and Transfer of Certificates of Stock
SALE AND TRANSFER OF CERTIFICATES OF STOCKS
Only Close Corporations are required to subject their shares to specified restrictions.
General rule: Restrictions or preferences must be contained in the articles of incorporation and in all stock certificates to be issued by the corporation.
Exception: In close corporations, such restrictions and preferences must also be embodied in the by-laws.
NO TRANSFER CLAUSE
No transfer of stock or interest which will reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws shall be allowed or permitted to be recorded in the books of the corporation and this restriction shall be indicated in all of the stock certificates to be issued by the corporation.
GROUNDS FOR DISAPPROVAL
Only substantial (not strict) compliance is required for disapproval. Grounds for disapproval: Not exclusive
1. The articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed;
2. The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations;
3. The Treasurer‟s Affidavit concerning the amount of capital stock subscribed and/or paid is false;
4. The percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution,
5. The articles of incorporation of corporations subject to government supervision are not accompanied by a favorable recommendation from the appropriate government agency.
3 questions
1. Interlocking Directors
Sec. 33. Contracts between corporations with interlocking directors. -Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. A director who owns a substantial interest in one corporation dealing with another where he has a nominal interest is a regarded as a self-dealing director in so far as the latter corporation is concerned.
2. Incorporation requirements Process of incorporation:
1. Drafting the articles of incorporation
2. Preparation and submission of additional and supporting documents 3. Filing with the SEC
4. Subsequent issuance of certificate of incorporation Contents of the articles of incorporation
1. Name 2. Purpose 3. Principal office 4. Term 5. Incorporators 6. Number of directors/trustees
7. Names, nationalities and residences of directors/trustees
8. If a stock corporation, amount of authorized capital stock, number of shares, par value, original subscribers
10. Such other matters not inconsistent with law and which the incorporator may deem necessary and convenient
11. Treasurer’s certificate CORPORATE NAME
A corporation has an exclusive right to the use of its name, which may be protected by injunction upon a principle similar to that upon which persons are protected in the use of trademarks and trade names.
In determining the existence of confusing similarity in corporate names, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination. Proof of actual confusion need not be shown. It suffices that confusion is probably or likely to occur.
PURPOSE CLAUSE
General limitations on the purpose clause: must be: 1. lawful
2. specific or stated concisely although in broad or general terms. 3. If there is more than one purpose, the primary as well as the secondary ones must be specified.
4. capable of being lawfully combined. THE PRINCIPAL OFFICE
The residence of the corporation is the place of its principal office as may be indicated in its articles of incorporation and may, therefore, be sued only at that place.
TERM OF EXISTENCE
A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities and Exchange Commission.
INCORPORATORS
Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private corporation for any lawful purpose or purposes. Each of the incorporators of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock of the corporation. General rule: Only natural persons can be incorporators.
Exception: Cooperatives and corporations primarily organized to hold equities in rural banks.
THE DIRECTORS/TRUSTEES
General rule: There must be at least 5 but not more than 15 directors or trustees in a private corporation.
Exceptions:
1. Educational corporations registered as a non-stock corporation whose number of trustees, though not less than 5 and not more than 15 should be divisible by 5;
2. In close corporations where all the stockholders are considered as members of the board of directors thereby effectively allowing 20 members in the board; and
3. Corporation sole.
The by-laws may provide for additional qualifications and disqualifications. However, it may not do away with the minimum disqualifications laid down by the Code.
Qualifications:
1. Directors must own at least one (1) share of the capital stock of the corporation. Trustees must be members.
2. A majority of the directors or trustees must be residents of the Philippines.
Disqualifications:
1. Conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of
this Code committed within five (5) years prior to the date of election or appointment.
2. Other disqualifications under applicable special laws.
A by-laws may validly provide that no person may be elected as director unless he owns a specified number of shares required for the directorate qualification.
It may likewise disqualify a stockholder from being elected into office if he has a substantial interest in a competitor corporation to avoid any possible adverse effects of conflicting interest of a director.
In order to be eligible as a director, what is material is the legal title to, not beneficial ownership, of the stock as appearing on the books of the corporation.
If no election is conducted or no qualified candidate is elected, the incumbent director shall continue to act as such in a hold over capacity until the election is held and a qualified candidate is so elected.
CAPITALIZATION
Authorized capital – the maximum amount fixed in the articles to be subscribed and paid-in or secured to be paid by the subscribers.
Subscribed capital stock – the total number of shares and its total value for which there are contracts for their acquisition or subscription.
Stocks shall not be issued for a consideration less than the par or issued price thereof.
Stocks shall not be issued in exchange of promissory notes or future services.
Shares of stock and their classification
Shares of stock designate the interest or right which the stockholder has in the management of the corporation, and in the surplus profits and, in case of distribution, in all assets remaining after the payment of its debts.
Stock certificate is a document or instrument evidencing the interest of a stockholder in the corporation.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.
Purpose of classification:
1. To specify and define the rights and privileges of the stockholders.
2. For regulation and control of the issuance of sale of corporate securities for the protection of purchasers and stockholders.
3. As a management control device.
4. To comply with statutory requirements.
5. To better insure return on investment.
6. For flexibility in price.
Common and preferred shares
Common stock – a stock which entitles its owner to an equal pro-rata division of profits, if there be any, but without any preference or advantage in that respect over any other stockholder or class of stockholders.
Preferred stock – a stock that gives the holder a preference over the holder of common stocks with respect to the payment of dividends and/or with respect to distribution of capital upon liquidation.
Limitations on preferred stock:
1. Must be issued with a stated par value; and
2. The preferences must be stated in the articles of incorporation and in the certificate of stock, otherwise, each share shall be, in all respect, equal to every other share.
Participating preferred shares – the holders thereof are still given the right to participate with the common stockholders in dividends beyond their stated preference.
Cumulative preferred share – those that entitle the owner thereof to payment not only of current dividends but also back dividends not previously paid whether or not, during the past years, dividends were declared or paid. In absence of express stipulation, preferred shares are presumed to be non-cumulative.
Non-cumulative preferred shares – those which grant the holders of such shares only to the payment of current dividends but not back dividends, when and if dividends are paid, to the extent agreed upon before any other stockholders are paid the same.
Types:
1. Discretionary dividend type – gives the holder of such shares the right to have dividends paid thereon in a particular year depending on the judgment or discretion of the board of directors.
2. Mandatory if earned type – impose a positive duty on directors to declare dividends every year when profits are earned.
3. Earned cumulative or dividend credit – gives the holder thereof the right to arrears in dividends if there were profits earned during the previous years but dividends were not declared.
Par and no par value shares - those whose values are fixed in the articles of incorporation which cannot be issued nor sold by the corporation at less than par.
No par value shares – those whose issued price are not stated in the certificate of stock but which may be fixed in the articles of incorporation, or by the board of directors when so authorized by the said articles or by the by-laws, or in the absence thereof, by the stockholders themselves.
Limitations of no par value shares:
1. Such shares, once issued, are deemed fully paid and thus, non assessable;
2. The consideration for its issuance should not be less than P5.00; 3. The entire consideration for its issuance constitutes capital, hence, not available for dividend declaration;
4. They cannot be issued as preferred stock; and
5. They cannot be issued by banks, trust companies, insurance companies, public utilities and building and loan associations.
Voting and non-voting shares
Voting shares – gives the holder thereof the right to vote and participate in the management of the corporation through the exercise of such right, either at the election of the board of directors, or in any manner requiring the stockholder‟s approval.
Non-voting shares – do not grant the holder thereof the right to vote except under the penultimate paragraph of Sec. 6.
Non-voting shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Only preferred and redeemable shares may be denied the right to vote. There must always be a class or series of shares which have complete voting rights.
Founders’ shares - Sec. 7. - classified as such in the articles of incorporation may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the aforesaid approval by the Securities and Exchange Commission. Redeemable shares - may be issued by the corporation when expressly so provided in the articles of incorporation.
They may be purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions as may be stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing said shares.
Treasury shares - are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors. Treasury shares may again be issued for a price less than par.
Treasury shares have no voting and dividend rights. Such rights are only granted to outstanding shares of stock.
Sec. 12. Minimum capital stock required of stock corporations. - Stock corporations incorporated under this Code shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by special law, and subject to the provisions of the following section. Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least twenty-five percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.
3. Derivative Suits, requisites
Suits that stockholders may bring against erring directors or officers:
1. Individual or personal suit – one brought by the shareholders for direct injury to his rights, such as denial of his right to inspect corporate books and records or pre-emptive right;
2. Representative of class suit - ; and
3. Derivative suit – an action based on injury to the corporation – to enforce a corporate right – wherein the corporation is joined as a necessary party, and recovery is in favor of the corporation.
In a derivative suit, the injury complained of is primarily to the corporation, so that the suit for the damages claimed should be by the corporation rather than by the stockholders. The stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities. Rules, requirements and procedure so that a derivative suit may proceed or prosper:
1. The party bringing the action should be a stockholder as of the time the act or transaction complained of took place, or whose shares have evolved upon him since by operation of law. This rule, however, does not apply if such act or transaction continues and is injurious to the
stockholder or affects him specifically in some other way. The number of shares is immaterial.
2. He has tried to exhaust intra-corporate remedies, i.e. he has made a demand on the board of directors for the appropriate relief but the latter had failed or refused to heed his plea. Demand, however, is not required if the company is under the complete control of the directors who are the very ones to be sued (or where it becomes obvious that a demand upon them would have been futile and useless) since the law does not require a litigant to perform useless acts.
3. The stockholder bringing the suit must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated, otherwise, the case is dismissible.
4. The corporation should be made a party, either as party-plaintiff or defendant, in order to make the court’s judgment binding upon it.
5. Any benefit or damages recovered shall pertain to the corporation.
4. Doing business in the Philippines of Foreign Corporation
General rule: Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class.
Exceptions:
1. Laws which provide for the creation, formation, organization or dissolution of corporations; or
2. Laws which fix the relations, liabilities, responsibilities, or duties of stockholders, members or officers of a corporation to each other or to the corporation.
Intra-corporate or internal matters not affecting creditors or the public in general are governed not by Philippine laws but the law under which the foreign corporation was formed or organized.
Requirements and procedure for the withdrawal of foreign corporations:
1. Filing of a petition for withdrawal of license;
2. All claims which have accrued in the Philippines have been paid, compromised or settled;
3. All taxes, imposts, assessments and penalties, if any, lawfully due to the Philippine Government or any of its agencies or political subdivisions have been paid;
4. Publication of the petition for withdrawal once a week for 3 consecutive weeks in a newspaper of general circulation in the Philippines; and
5. Issuance of the certificate of withdrawal by the SEC.
2 questions
1. Sole Proprietorship - Where the business enterprise is not endowed with a separate juridical personality, is less saddled with the many requirements and regulations to which corporations are often subjected to by law, rules and regulations.
2. Bulk Sales – Sale, transfer, mortgage or assignment of All, or substantially all goods, business , or fixtures and equipment used in the business of the vendor, mortgage, transferor, or assignor otherwise than in the ordinary course of trade.
Exempted transaction
o When accompanied with written waiver by all the seller/mortgagor’s creditors
o The law does not apply to executors, administrators, receivers, assignees in insolvency, or public officers, acting under legal process.
o Sale or mortgage is made in the ordinary course of business. o Sale by assignee in insolvency or those beyond the right of
creditors
o Sale of properties exempt from the attachment or execution.
1. De Facto Corporation - those which exist by virtue of an irregularity or defect in the organization or constitution or from some other omission to comply with the conditions precedent by which corporations de jure are created, but there was colorable compliance with the requirements of the law under which they might be lawfully incorporated for the purposes and powers assumed, and user of the rights claimed to be conferred by law.
3. Power to invest corporate funds for other purpose
A corporation may invest its fund in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the Board and ratified by the 2/3 of the outstanding stockholders at a stockholders’ or members’ meeting duly called for the purpose.
Written notice of the purposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place or residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.
4. Validity of Corporate Acts
a. General rule: To have a valid corporate act, the decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum is required.
b. Exception: The election of corporate officers requires the vote of a majority of all the members.
c. General rule: Individual directors cannot bind the corporation by their individual acts.
Exceptions:
i. By delegation of authority; ii. Where expressly conferred; or
iii. Where the officer or agent is clothed with actual or apparent authority.
5. Voluntary Dissolution
Dissolution signifies the extinguishment of a corporation’s franchise and the termination of its corporate existence for business purpose. Types of voluntary dissolutions:
Voluntary Dissolution Where No Creditors Affected – when no
creditors are involved or would not be prejudiced by the dissolution of a corporation, and thereby the tenets of the trust fund doctrine would not be adversely affected, only a SEC application for
dissolution is required.
Voluntary Dissolution Where Creditors Affected – If there are
creditors involved or who may be prejudiced, there is a need to file a formal petition for dissolution with the SEC. The proceedings are quasi-judicial in nature and conducted to ensure that the rights of the creditors are fully protected. In such proceedings, the SEC is not mandated to dissolve the corporation, especially when it would be detrimental to the interests of the creditors, who may wish to rehabilitate the operations of the corporation to ensure that it would be able to pay-off all of its debts.
Dissolution by Shortening Corporate Term - A voluntary dissolution may be effected by amending the articles of incorporation to
shorten the corporate term. Therefor, the procedure outlined under the law for the amendment of the articles of incorporation should also be complied with, and the application filed with SEC.
Dissolution by Expiration of Corporate Term – When the corporate life of the corporation as stated in its articles of incorporation is allowed to expire, without extension. The corporation is deemed dissolved by such expiration without need of further action on the part of the corporation or the State.
6. Winding up period of a Corporation
d. General rule: When a corporation is dissolved, it ceases to be a juridical entity and can no longer pursue the business for which it is incorporated.
e. Exception: The corporation will continue as a body corporate for another period of 3 years from the time it is dissolved for the purpose of winding up its affairs and the liquidation of its assets. 7. BOD – liabilities and corporate acts
To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. 8. Liabilities of Stockholders, Directors, Officers
To pay the corporation the balance of his unpaid subscriptions;
To pay interest on his unpaid subscription if required by the by-laws or by the contract of subscription;
To answer to creditors for the unpaid portion of their subscription; To answer the “water” in their stocks;
To be liable, as general partners, for all debts, liabilities and damages of ostensible corporations; and
In case of a close corporation, to be personally liable for corporate torts when they actively participate in the management of the corporation.
9. Delinquent Stockholder
General rule: No delinquent stock shall not be entitled to: 1. Be voted for or to vote;
2. Representation at any stockholder's meeting; or 3. Any of the rights of a stockholder.
Exception: Delinquent stocks are entitled to the right to dividends (any cash dividends due on delinquent stockholders shall first be applied to the unpaid balance on his subscription plus cost and expenses, while stock dividends shall be withheld until his unpaid subscription is paid in full).
10. Unpaid subscription - are not due and payable until a call is made by the corporation for payment.
11. Appraisal Right of Stockholders
Appraisal right – the method of paying a shareholder for the taking of his property; the statutory means whereby a stockholder can avoid the conversion of his property into another property not of his own choosing. The purpose of the right is to protect the property rights of dissenting stockholders from actions by the majority shareholders which alters the nature and character of their investment. It is a right granted to dissenting stockholders on certain corporate or business decisions to demand payment of the fair market value of their shares.
12. Trust Fund Doctrine - Is the rule that the capital stock of a
corporation constitutes a trust fund for the benefit of its creditors as its capital is the basis of its credit, but the trust does not arise until the corporation becomes insolvent.
Securities Regulation Code (RA 8799) 1. Securities required to be registered
a. Exempt Securities (Sec. 9):
1. Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said Government.
2. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity: Provided, That the Commission may require compliance with the form and content of disclosures the Commission may prescribe.
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body.
4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, HLURB, or BIR.
5. Any security issued by a bank except its own shares of stock.
a. Exempt Transactions
1. Any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy.
2. By or for the account of a pledge holder, or mortgagee or any other similar lien holder selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions the SRC, to liquidate a bona fide debt, a security pledged in good faith as security for such debt.
3. An isolated transaction in which any security is sold, offered for sale, subscription or delivery by the owner thereof, or by his representative for the owner’s account, such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transactions of a like character by such
owner, or on his account by such representative and such owner or representative not being the underwriter of such security. 4. The distribution by a corporation, actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus.
5. The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.
6. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.
7. The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the security so surrendered has been registered under the SRC or was, when sold, exempt from the provisions of the SRC, and that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the class of securities entitled to registration under the SRC. Upon such conversion the par value of the security surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.
8. Broker’s transactions, executed upon customer’s orders, on any registered Exchange or other trading market.
9. Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock under the Corporation Code, when no expense is incurred, or no commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and only when the purpose for soliciting, giving or taking of such subscriptions is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can
be registered and duly incorporated, or its authorized capital increased.
10. The exchange of securities by the issuer with its existing security holders exclusively, where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.
11. The sale of securities by an issuer to fewer than 20 persons in the Philippines during any twelve-month period.
12. The sale of securities to any number of the following qualified buyers:
a. Bank;
b. Registered investment house; c. Insurance company;
d. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
e. Investment company; or
f. Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management.
2. Prohibitions on Fraud, Manipulation and Insider Trading a. Manipulation of Security Prices
b. Short Sales - sale of securities which the vendor does not own (illegal unless done in accordance with the rules and regulations of the SEC) (T3 rule).
c. Insider Trading - The act of an insider of buying or selling securities of the issuer while in possession of material
information with respect thereto that is not generally available to the public (illegal unless exempted).
3. Protection of Investors 4. Tender Offer Rule
Tender Offers – a publicly announced intention by the purchaser to acquire a certain block of equities of a company through open market purchases or private negotiations.
A tender offer is required of any person or group of persons acting in concert who intend to acquire:
1. At least 15% of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least P50M and having 200 or more stockholders with at least 100 shares each; or
2. At least 30% of such equity over a period of 12 months.
Negotiable Instruments Law (Act 2031) 7 questions
1. Accommodation Party
An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.
2. Holder in Due Course
A holder in due course is a holder who has taken the instrument under the following conditions:
1. That the instrument is complete and regular upon its face.
2. That he has become a holder of it before it was overdue and without notice that it had been previously dishonored, if such were the case.
3. That he has taken it in good faith and for value.
4. That at the time of its negotiation to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
6 questions
1. Crossed Check
A check which in addition to the usual contents of an ordinary check contains also the name of a certain banker or business entity through whom it must be presented for payment.
3 questions
1. Liabilities of Prior and Subsequent Parties in Forgery
Primary Liable – maker, drawee, acceptor, and certifier of checks. Secondary Liable – drawer, indorsers, and acceptors for honor. Not liable – drawee (until he accepts it).
2. Incomplete and Delivered Instruments
Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.
3. Negotiable Instruments, Requisites
It is a written contract for the payment of money which by its form and and on its face, is intended as a substitute for money and passes from hand to hand as money, so as to give the holder in due course the right to hold the instrument free from personal defenses available to prior parties.
Requisites:
1. It must be in writing and signed by the maker or drawer.
2. Must contain an unconditional promise or order to pay a sum certain in money.
3. Must be payable on demand, or at a fixed or determinable future time.
4. Must be payable to order or to bearer.
5. When the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
2 questions
1. Liability of Drawee Bank in Checks
A drawee does not become liable until he accepts the bill or unless he certifies the check. It is only from the moment the drawee accepts the bill or certifies the check that the drawee becomes primarily liable. He becomes liable to the holder by his unconditional acceptance.
2. Bearer Instrument
A negotiable instrument payable “to bearer” or to “cash,” rather than to an identifiable payee.
3. Liabilities of maker and indorsers
Irregular Indorser: He is liable as a general indorser because he indorses without qualification.
General Indorser:
1. The matters and things mentioned in Sec. 65.
2. That the instrument is, at the time of his indorsement, valid and subsisting.
Insurance Law 5 questions
1. Concealment
Concealment is a neglect to communicate that which a party knows and ought to communicate. (Sec. 26)
Requisites:
1. A party knows a fact (a material fact) which he neglects to communicate or disclose to the other party;
2. Such party concealing is duty bound to disclose such fact to the other;
3. Such party concealing makes no warranty as to the fact concealed and;
4. The other party has no means of ascertaining the fact concealed. 5. The fact must be material
2. Material Concealment
Matters that must be disclosed even in the absence of inquiry: 1. Those material to the contract
2. Those which the other has no means of ascertaining 3. Those as to which the party with the duty to
communicate makes no warranty
"It is well settled that the insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his nondisclosure misled the insurer in forming his estimate of the risks of the proposed
3. Incontestability Clause
The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie.
Requisites:
1. It must be a Life insurance policy'
2. It must be Payable on the death of the insured; and
3. It must be in force during the life time of the insured for at least 2 years from its date of issue or of its last reinstatement. The period of two years may be shortened but it cannot be
extended by stipulation.
3 questions
1. Insurable Interest : Life vs Property Insurance Life Insurance:
1. It is a contract of investment. 2. Always regarded as valued policy
3. May be transferred or assigned to any person even if he has no insurable interest.
4. The consent of the insurer is not essential to the validity of the assignment of a life policy unless expressly required.
5. Insurable interest in the life or health of the person insured need not exist after the insurance takes effect or when loss occurs. 6. Insurable interest need not have any legal basis.
7. Contingency that is contemplated is a certain event, the only uncertainty being the time when it will take place.
8. The liability of the insurer to make payment is certain, the only uncertain element being when such payment must be made. 9. May be terminated by the insured but cannot be cancelled by the
insurer and is usually a long term contract.
10. The “loss” to the beneficiary caused by the death of the insured can seldom be measured accurately in terms of cash value.
11. The beneficiary is under no obligation to prove actual
financial loss as a result of the death of the insured in order to collect the insurance.
Property Insurance
1. It is a contract of indemnity. 2. May be open or valued.
3. The transferee or assignee must have an insurable interest in the thing insured.
4. Consent, in the absence of waiver by the insurer, is essential in the assignment of the policy
5. Insurable interest in the property insured must exist not only when the insurance takes effect but also when the loss occurs. 6. Insurable interest must have a legal basis
7. The contingency insured against may or may not occur.
8. Liability is uncertain because the happening of the peril insured against is uncertain
9. May be cancelled by either party and is usually for a term of one year
10. The reverse is generally true of the loss of property, i.e., it is capable of pecuniary estimation
11. The insured is required to submit proof of his actual pecuniary loss as a condition precedent to collecting the insurance.
2. Double Insurance
Double insurance exists where the same person is insured by several insurers separately, in respect to the same subject and interest. (Sec. 93)
Requisites:
1. Person insured is the same
2. Two or more insurers insuring separately 3. Subject matter is the same
4. Interest insured is the same
3. Accident vs Suicide Accident vs. Suicide Accident
That which happens by chance or fortuitously, without intention or design which is unexpected, unusual and unforeseen.
Suicide
Willful exposure to needless peril which are excepted risk. It is
intentional and implies the exercise of reasoning faculties, consciousness and volition.
Insurer liable in case of suicide:
1. The suicide is committed after the policy has been in force for a period of 2 years from the date of its issue or of its last
reinstatement.
2. The suicide is committed after a shorter period provided in the policy although within the 2 year period
3. The suicide is committed in the state of insanity regardless of the date of commission, unless suicide is an excepted risk. (Sec. 180‐A)
The insurer is not liable if it can show that the policy was obtained with the intention to commit suicide even in the absence of any suicide exclusion in the policy.
2 questions
1. Irrevocable Beneficiary
A person who insures his own life may designate his beneficiary revocable or irrevocably. For the designation to be irrevocable, the insured should expressly state the irrevocable designation in the policy itself (Sec. 11, Insurance Code).
If the designation of the beneficiary is irrevocable, Insured cannot: 1. Assign the policy
2. Take the cash surrender value of the policy
3. Allow his creditors to attach or execute on the policy; 4. Add new beneficiary; or
5. Change the irrevocable designation to revocable, even though the change is just and reasonable.
2. Public Enemy
A public enemy cannot be insured. By public enemy is meant any citizen or juridical entity of the country with which the Philippines may be at war.
3. Payment of Premium
General Rule: NO insurance policy issued or renewal is valid and binding until actual payment of the premium. Any agreement to the contrary is void [Sec. 77].
Exceptions:
1. In case of life and industrial life whenever the grace period provision applies.
2. Where there is an acknowledgment in the contract or policy of insurance that the premium has already been paid.
3. Where there is an agreement to grant the insured credit extension for the payment of the premium despite full awareness of Sec. 77 4. Where there is an agreement allowing the insured to pay premium in installment and partial payment has been made at the time of the loss.
4. Assignment of Policy in Life Insurance
In those instances where the insured can assign his policy, his assignee may be any person, whether or not he (the assignee) has an insurable interest in the life of the insured. A life insurance is a property right within the capacity of its owner to dispose of, like his other properties.
5. 3rd Party Liability
Claimants/ victims may be a “passenger” or a “3rd party”. The insured
may be the party at fault as against claims of third parties or the victim of the contingent event.
Third Party- any person other than a passenger as defined in this sections and shall also exclude a member of the household, or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death, bodily injury, or damage to property arising out of and in the course of employment. (Sec. 373, [c], Insurance Code)
6. Authorized Driver Clause
It indemnifies the insured owner against loss or damage to the car but limits the use of the insured vehicle to:
1. The insured himself; or
2. Any person who drives on his order or with his permission.
7. Marine Insurance : Peril of the Sea vs Peril of the Ship includes only those casualties due to the:
1. Unusual violence; or
2. Extraordinary action of wind and wave; or
Perils of the Ship, a loss which in the ordinary course of events, results from the:
1. Natural and inevitable action of the sea; 2. Ordinary wear and tear of the ship; or
3. Negligent failure of the ship’s owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions.
Banking Laws 7 questions
1. Secrecy of Bank Deposit: exceptions, garnishment Peso Deposits
The following are the deposits covered by RA 1405:
1. All deposits of whatever nature with banks or banking institutions found in the Philippines; or
2. Investments in bonds issued by the Philippine government, its branches, and institutions. (Sec. 2, R.A. 1405)
3. Trust accounts are included in the scope of the law.
GR: They are considered absolutely confidential and may not be examined, inquired or looked into by any person, government official, bureau or office (Ibid.).
Exceptions:
1. Upon written consent of the depositor. (Sec. 2, RA 1405)
2. In cases of impeachment. (ibid.)
3. Upon order of competent court in cases of bribery or dereliction of duty of public officials. (ibid.)
4. Upon order of competent court in cases where the money deposited or invested is the subject matter of the litigation. (ibid.)
5. Upon order of the Commissioner of Internal Revenue in respect of the bank deposits of a decedent for the purpose of determining such decedent’s gross estate. (Sec. 6[F][1], NIRC)
6. Upon the order of the Commissioner of Internal
Revenue in respect of bank deposits of a taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. (ibid.)
7. The Commissioner of Internal Revenue is authorized to inquire into bank deposits of a specific taxpayer upon request for tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a party. (ibid.)
8. In case of dormant accounts/deposits for at least 10 years under the Unclaimed Balances Act. (Sec. 2, Act No. 3936).
9. Presidential Commission on Good Government may require the production of bank records material to its investigation. (Opinion of the Secretary of Justice, Feb. 27, 1987.)
10. Report of banks to Anti-Money Laundering Council (AMLC) of covered and/or suspicious transactions (Sec. 9, R.A. No. 9160 as amended).
11. Upon order of the Court of Appeals, examination by law enforcement officers in terrorism cases under the Human Security Act of 2007 (Secs. 27 and 28, R.A. 8372).
12. With court order:
a. In cases of unexplained wealth under Sec. 8 of the Anti-Graft and Corrupt Practices Act (PNB v. Gancayco, L-18343, Sept. 30, 1965)
b. In cases filed by the Ombudsman and upon the latter’s authority to examine and have access to bank accounts and records (Marquez v. Desierto, GR 138569, Sept. 11, 2003)
13. Without court order: If the AMLC determines that a particular deposit or investment with any banking institution is related to the following: HK-MADS
a. Hijacking, b. Kidnapping, c. Murder,
d. Destructive Arson, and
e. Violation of the Dangerous Drugs Act.
f. Acts of Terrorism or in violation of Human Security Act.
Foreign Currency Deposits (RA 6426)
GR: All foreign currency deposits are absolutely confidential. (Sec. 8, RA 6426.)
Exceptions:
1. The depositor has given his written permission (ibid.) 2. Under Section 11 of the Anti-Money Laundering Act; and 3. Under Sections 27 and 28 of the Human Security Act. Garnishment
The prohibition against examination or inquiry does not preclude its being garnished for satisfaction of judgment. The disclosure is purely incidental to the execution process and it was not the intention of the legislature to place bank deposits beyond the reach of judgment creditor. (PCIB v. CA, G.R. No. 84526, Jan. 28, 1991)
GR: Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. (Sec 8. R.A. 6426)
XPN: The application of Section 8 of R.A. 6426 depends on the extent of its justice. The garnishment of a foreign currency deposit should be allowed to prevent injustice and for equitable grounds, otherwise, it would negate Article 10 of the New Civil Code which provides that “in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. (Salvacion vs. Central Bank of the Philippines, G.R. 94723, August 21, 1997)
3 questions
1. Restrictions on Loan Accommodations
GR: Single borrower’s limit – The total amount of loans, credit accommodations and guarantees that the bank could grant should at no time exceed 25% of the bank’s net worth. (Sec 35.1, GBL)
XPN:
a. As the Monetary Board may otherwise prescribe for reasons of national interest
b. Deposits of rural banks with government-owned or controlled financial institutions like LBP, DBP, and PNB.
The total amount of loans, credit accommodations and guarantees prescribed in (a) may be increased by an additional 10% of the net worth of such bank provided that additional liabilities are adequately secured by trust receipt, shipping documents, warehouse receipts and other similar documents which must be fully covered by an insurance. (Sec. 35.2, GBL)
Loans and other credit accommodations secured by REM shall not exceed 75% of the appraised value of the real estate security plus 60% of the appraised value of the insured improvements (Sec. 37, GBL)
CM/intangible property such as patents, trademarks, etc. shall not exceed 75% of the appraised value of the security (Sec. 38, GBL) Loans being contractual, the period of payment may be subject to
stipulation by the parties. In the case of amortization, the amortization schedule has no fixed period as it depends on the project to be financed such that if it was capable of raising revenues, it should be at least once a year with a grace period of 3 years if the project to be financed is not that profitable which could be deferred up to 5 years if the project was not capable of raising revenues. (Sec. 44, GBL)
Loans granted to DOSRI: a. Director
b. Officer
c. Stockholder, having at least 1% ownership over the bank d. Related Interests, such as DOS’s spouses, their relatives within the first degree whether by consanguinity or affinity, partnership whereby DOS is a partner or a corporation where DOS owns at least 20%.
2 questions
1. Classification of Banks
1. Universal banks - Primarily governed by the General Banking Law (GBL). They can exercise the powers of an investment house and invest in non-allied enterprises and have the highest capitalization.
2. Commercial banks - Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and can neither exercise the powers of an investment house nor invest in non-allied enterprises.
3. Thrift banks – These are a) Savings and mortgage banks; b) Stock savings and loan associations; and c) Private development banks, which are primarily governed by the Thrift Banks Act (R.A. 7906). 4. Rural banks – these are mandated to make needed credit available
and readily accessible in the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of 1992 (RA 7353).
5. Cooperative banks – banks whose majority shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code (RA 6938).
6. Islamic banks – Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari’ a, such as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848.
7. Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.
2. Liability of Banks in Safety Deposit Box
The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and 53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it receives duly separate from the bank's own assets and liabilities. (The General Banking Law of 2000, Sec. 53, par. 2)
The contract for the use of a safety deposit box should be governed by the law on lease. Under the old banking law, a safety deposit box is a special deposit. However, the new General Banking Law, while retaining the renting of safe deposit box as one of the services that the bank may render, deleted reference to depository function (Divina, Handbook on Philippine Commercial Law).
3. BSP Jurisdiction
The BSP is a government-owned and controlled corporation that is invested by law with corporate powers (Sec. 1, NCBA). Its functions are:
1. Banker of the government – the BSP shall be the official depository of the Government and shall represent it in all monetary fund dealings (Secs. 110- 116, NCBA)
2. Custodian of Reserves. (Secs. 64-66, 94, 103, NCBA)
3. Financial Advisor of the government (Secs. 123-124) – Under Article VII, Sec. 20 of the 1987 Constitution, the President may contract or guarantee foreign loans but with the prior concurrence of the Monetary Board.
4. Government agent (Secs. 117-122, NCBA)
5. Source of credit (Secs. 61-63, 81-89, 109, NCBA) 6. Issuer of Currency. (Sec. 49-60, NCBA)
7. Clearing channel or House; especially where the PCHC does not operate. (Sec. 102, NCBA)
8. Supervisor of the Banking system (Sec. 25, NCBA) – shall include the power to:
a. Examine, which power extends to enterprises wholly or majority-owned or controlled by the bank (Sec. 7, General Banking Law [GBL]); this power may not be restrained by a writ of injunction unless there is convincing proof that the action of the BSP is plainly arbitrary (Sec. 25, NCBA)
b. Place a bank under receivership or liquidation (Sec. 30, NCBA) c. Initiate criminal prosecution of erring officers of banks
The Monetary Board is the body through which the powers and functions of the Bangko Sentral are exercised. (Sec 6, NCBA)
4. Receivership
A receiver is appointed if the bank is already insolvent which means that its liabilities are greater than its assets.
Note: For banks, it would be the Philippine Deposit Insurance Corporation; for quasi-banks, it could be any person of recognized competence in banking or finance. (Sec. 30, NCBA)
The duties of the receiver are the following:
1. The receiver shall immediately gather and take charge of all the assets and liabilities of the institution;
2. Administer the same for the benefit of the creditors, and exercise the general powers of a receiver under the Revised Rules of Court;
3. Shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided that the receiver may deposit or place the funds of the institution in non-speculative investments;
4. Within 90 days from the take-over, the receiver shall determine whether the institution may be rehabilitated or otherwise placed in such a condition that it may be permitted to resume business with safety to its depositors and creditors and the general public;
5. If the receiver determines that the institution cannot be rehabilitated or permitted to resume business, then the Monetary Board shall notify in writing the board of directors of the institution of its findings and direct the receiver to proceed with liquidation of the institution. (Sec 30, NCBA).
5. Truth in Lending Act Disclosure Requirement
The law assures full responsibility by requiring the lender to give the borrower all the details regarding the transaction. Under Sec. 4, any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information:
1. The cash price or delivered price of the property or service to be acquired;
2. The amounts, if any, to be credited as down payment and/or trade-in;
3. The difference between the amounts set forth under clauses (1) and (2);
4. The charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit;
5. The total amount to be financed;
6. The finance charge expressed in terms of pesos and centavos; and 7. The percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. (Reviewer on Commercial Law, 2013 ed., Sundiang, Sr. and Aquino, pp.350-351)
Rationale: To protect users of credit from lack of awareness of the true cost thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like (United Coconut Planters Bank v. Spouses Beluso, G.R. No. 159912, Aug. 17, 2007).
Intellectual Property Law 5 questions
Infringement of Copyright is the use of works protected by copyright law without permission, infringing certain exclusive rights granted to the copyright holder, such as the right to reproduce, distribute, display or perform the protected work, or to make derivative works
4 questions
Copyright of Commissioned Artist In the case of a work-commissioned by a person other than an employer of the author and who pays for it and the work is made pursuance of the commissioned the work shall have ownership of work, but the copyright, thereto shall remain with the creator, unless there is a written stipulation to the contrary.
3 questions
1. Trademark Infringement
The person without the owner’s consent, use in commerce any reproduction, counterfeit, copy or colorable imitation of a registered mark or the same container or a dominant feature thereof in connection with the sale, offering for sale of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake or to deceive.
2 questions
1. Copyright is an intangible incorporeal right to certain literary,
scholarly, scientific and artistic productions granted by statute to the author or creator of the work, and giving him, his heirs and assigns copyright or economic rights, which shall consist of the exclusive right to carry out, authorize or prevent the following acts:
a.) Reproduction of the work or substantial portion of the work; b.) Dramatization, translation, adaptation, abridgment, arrangement
or other transformation of the work;
c.) The first public distribution of the original and each copy of the work by sale or other forms or transfer of ownership;
d.) Rental of the original or a copy of an audio visual or
cinematographic work, a work embodied in a sound recording, a computer program, a compilation of data and other materials or a musical work in graphic form, irrespective of the ownership of the original or the copy which is the subject of the rental;
e.) Public display of the original or a copy of the work; f.) Public performance of the work; and
g.) Other communication to the public of the work. (Sec. 177, RA8293)
2. Infringement of Patents
The tests to determine infringement are (a) Literal infringement, and
(b) The doctrine of equivalents.
In using literal infringement as a test, resort must be had, in the first instance, to the words of the claim. If accused matter clearly falls under the claim, infringement is made out and that is the end
of it. To determine whether the particular item falls within the literal meaning of the patent claims, the Court must juxtapose the claims of the patent and the accused determine whether there is exact identity of all material elements (Godines vs. CA, 226 SCRA 338).
The reason for the doctrine of equivalents is that to permit the imitation of a patented invention which does not copy any literal detail would be to convert the protection of the patent grant into a hollow and useless thing. Thus, according to this doctrine, an infringement also occurs when a device appropriates a prior invention by incorporating its innovative concept and, albeit with some modifications and change, performs substantially the same function in substantially the same way to achieve substantially the same result (Ibid.).
a. Literal Infringement
The making, using, offering for sale, selling or importing of a patented product obtained directly or indirectly from a patented process, or the use of a patented process without the
authorization of the patentee constitutes patent infringement (Sec 76)
A patentee shall have the exclusive right to make, use and sell the patented machine, article or product for the purpose of industry or commerce, throughout the territory of the Philippines for the term of the patent, and such making, using or selling by any person without authorization of the patentee constitutes infringement of his patent (Del Rosario vs. CA, 255 SCRA 152) If infringement is repeated by the infringer or by anyone in connivance with him after finality of the judgment of the court against the infringer, the offenders shall, without prejudice to the institution of a civil action for damages, be criminally liable (Sec 84)
b. Doctrine of Equivalents
The doctrine of equivalents provides that an infringement also takes place when a device appropriates a prior invention by incorporating its innovative concept and, although with some modification and change, performs substantially the same
