1. 1.

BAR OPERATIONS 2014 MERCANTILE LAW UNIVERSITY OF THE CORDILLERAS COLLEGE OF LAW
2. 2. PRIVATE CORPORATIONS
3. 3. How are corporations classified?  Corporations are generally classified as stock or non-stock.  A stock corporation is one which has
capital stock divided into shares and is authorized to distribute to the holders of such shares dividends or allotments of the surplus profits
on the basis of the shares held.  A non stock corporation is one where no part of its income is distributable as dividends to its members,
trustees or officers, and when any profit is obtained as an incident if its operations shall, whenever necessary or proper be used for the
furtherance of the purpose/s for which the corporation was organized.
4. 4. What is the doctrine of separate legal personality?  This doctrine holds that a corporation has a personality separate and distinct from
its individual stockholders or members.  This affects liability for acts or contracts, right to bring actions, acquisition of property, and
changes in the identity of stockholders or members.  Insofar as moral damages, the general rule is that it is not entitled to it. Recognized
exceptions are when the claim for it is based on Article 2219 (7) of the Civil Code in an action for libel or defamation or it claims that its
reputation has been besmirched.
5. 5. Corporate tort liability  Tort liability can be imposed on a corporation because generally speaking, the rules governing liability of a
principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a
corporation. Hence, when a tortuous act is committed by an officer or agent of a corporation under express direction or authority of the
corporation, it would be liable.
6. 6. What is the effect of piercing the veil of corporate fiction?  The effect is to make stockholders or members liable for a corporate
obligation.  The “fraud test” applies when corporate fiction is used to justify a wrong, protect fraud or defend a crime.  The other tests to
determine applicability are: (a) control test (b) alter-ego or instrumentality test, or (c) equity test
7. 7. How is the nationality of a corporation determined?  As a general rule, nationality is determined by place of incorporation.  The “control
test” as a means of determining nationality looks at the nationality of the stockholders or members of the corporation.  The “grandfather
test” as a means of determining nationality looks at the percentage of foreign holdings in a corporation which is a stockholder in a Filipino
corporation to determine whether or not the percentage requirement of Filipino ownership has been met.
8. 8. What is the doctrine of relation?  This refers to the retroactivity of the filing of the amendment to extend the corporate term to the date of
the passage of the appropriate resolutions to extend the term in instances when the failure to file the amended articles is due to the neglect
of the officer with whom it is required to be filed or a wrongful refusal to receive it.  This is also known as the “relating back doctrine.”
9. 9. How are shares classified?  Shares may be classified as common, holders of which are entitled to a pro-rata division of profits, or
preferred, holders of which are entitled to some priority on distribution of profits and assets over common shareholders.  They can also be
classified as with par value, referring to a fixed minimum issue price stated in the articles and the certificate, or with no par value, referring
to the absence of any stated value in the articles and the certificate.  Banks, trust companies, insurance companies, public utilities and
building and loan associations cannot issue no par value shares.
10. 10. What is a redeemable share?  These are shares of stocks issued by a corporation which said corporation can purchase or take up
from their holders upon expiry of the period stated in certificates of stock representing said shares.  After a redemption, it is required that
the corporation should have sufficient assets in its books to cover debts and liabilities, inclusive of capital stock. Redemption, therefore,
may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to
11. 11. What is a treasury share?  A treasury share is a share that has been issued and paid for but subsequently reacquired by purchase,
redemption, donation or any other lawful means.  It may again be disposed of for a reasonable price as determined by the board.  Note
that its acquisition must be always be funded by surplus profits, otherwise it violates the Trust Fund Doctrine as capital is impaired.
12. 12. What are the rules on non-voting shares?  Preferred shares may be deprived of voting rights, together with redeemable shares but if
so, there must be a class/series which shall have full voting rights.  Nevertheless, even if voting rights are not enjoyed, holders of such
shares shall still vote in the following instances: (1) amendment of articles (2) adoption or amendment of by laws (3) sale, lease, exchange,
pledge or other disposition of all or substantially all of corporate property (4) increase/decrease of corporate bonded indebtedness (5)
increase/decrease of capital stock (6) merger/consolidation (7) investment in another corporation or business, and (8) dissolution
13. 13. What is the effect of Gamboa v. Teves?  The ruling in Gamboa v. Teves (652 SCRA 690, June 28, 2011) prescribes that in
determining the meaning of the term “capital” as prescribed in Section 11, Article XII, National Economy and Patrimony of the Constitution it
is deemed to refer to shares of stock that can vote in the election of directors of the corporation.
14. 14. What is a subscription contract?  It is a contract for the acquisition of unissued shares in an existing corporation or one that is to be
formed regardless of the way the contract is denominated.  They can be either be a pre-incorporation or post incorporation subscription
contract.  A pre-incorporation subscription contract is irrevocable for a period of 6 months from date of subscription unless all other
subscribers consent or the corporation fails to materialize within the period. However, it becomes absolutely irrevocable if the articles have
been filed with the SEC.
15. 15. Who is a promoter?  A promoter is one who brings about the formation and organization of a corporation.  He has joint personal
liability for a corporation that was never formed.  When the corporation has been formed, upon ratification by the board of his contracts, he
becomes an agent of the corporation. Liability then is borne by the corporation in its capacity as principal.
16. 16. What are the non-amendable parts of the Articles of Incorporation?  The following items cannot be amended: (a) Names of
incorporators; (b) Names of original subscribers to the capital stock of the corporation and their subscribed and paid up capital; (c) Names
of the original directors; (d) Treasurer elected by the original subscribers; (e) Members who contributed to the initial capital of the non-stock
corporation; and (e) Witnesses to and acknowledgement of the articles.
17. 17. When does a corporation commence to have existence?  A corporation commences to have existence from the issuance by the SEC
of a certificate of incorporation under its official seal. The effect of which is to constitute its stockholders or members and their successors
as a Body Politic and Corporate under the name and for the term stated in the Articles.  It is said to have been given de jure existence or
can be said to be incorporated.  The exception is a Corporation Sole, which is deemed incorporated upon filing of its Articles.
18. 18. What must a corporation do after incorporation?  A corporation has to formally organize and commence transaction of business within
2 years from date of incorporation.  If it fails to do so, its corporate powers cease and it is deemed dissolved.  If it commences, but
becomes continuously inoperative for 5 years, the same is ground for suspension or revocation of the certificate.
19. 19. What are By-Laws? What are its elements?  By-laws are: the rules of action adopted by a corporation for its internal government and
for the government of its stockholders or members and those having the direction, management and control of its affairs in relation to the
corporation and among themselves.  The elements of valid by-laws are: (a) they must not be contrary to the code, it is void if contrary to
the code (b) not be contrary to moral or public policy (c) must not impair obligations of contract – as a general rule (d) they must be general
and uniform in application (e) they must be consistent with the Charter / Articles (f) they must be reasonable or capable of compliance.
20. 20. General Capacity v. Specific Capacity  The general capacity theory maintains that a corporation is said to hold such powers as are not
prohibited or withheld from it by general law.  The specific capacity theory maintains that the corporation cannot exercise powers except
those expressly/impliedly given.
21. 21. What is the doctrine of individuality of subscription? What is the doctrine of equality of shares?  The doctrine of individuality of
subscription holds that a subscription is one entire and indivisible whole contract. It cannot be divided into portions.  The doctrine of
equality of shares holds that where the articles of incorporation do not provide for any distinction of the shares of stock, all shares issued by
the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities.
22. 22. What are pre-emptive rights?  Pre-emptive rights referring to the right to subscribe to all issues or disposition of shares in proportion to
a stockholder’s shareholdings may be denied.  As a general rule, pre-emptive rights exist but may be restricted or denied by the Articles or
an amendment thereto. It will not exist when (a) the shares are issued in compliance with laws requiring stock offerings or minimum stock
ownership (b) the shares are issued in good faith with approval of stockholders representing 2/3 of the outstanding capital stock in
exchange for property needed for corporate purposes or in payment of a previously contracted debt.  If restricted by an amendment, a
stockholder may exercise his appraisal right.
23. 23. How can corporate assets be disposed of?  A corporation can freely dispose of its assets.  However, any sale, lease, exchange,
mortgage, pledge or other disposition of all or substantially all of corporate assets will be required to be undertaken upon a majority vote of
the Board and 2/3 vote of stockholders or members, written notice having been given when the contemplated disposition will rendered it
incapable of continuing the business or accomplishing its purpose.
24. 24. When can the corporation acquire its own shares?  The power to acquire its own shares can only be undertaken if it is for legitimate
corporate purpose/s provided that it has unrestricted retained earnings.  The legitimate corporate purposes for acquisition are (a)
elimination of fractional shares or those less than 1 share (b) to collect or compromise an indebtedness to the corporation arising out of an
unpaid subscription in a delinquency sale and to purchase delinquent shares at the auction (c) to pay dissenting or withdrawing
stockholders entitled to the payment of their shares.
25. 25. What kind of dividends can be declared and when are they given?  Generally dividends may be given in cash or in stock.  The right of
a stockholder to the dividend is immediate if it is a cash dividend. The corporation becomes a debtor of the stockholder. If it is a stock
dividend, it is subject to a stockholder vote and an increase of capital stock, if it comes from a new issuance.  However, that any cash
dividend due on delinquent stock shall first be applied to the unpaid balance, costs, and expenses or if it be a stock dividend, it is withheld
until the unpaid subscription is paid.
26. 26. When and how can dividends be declared?  The Board may declare dividends out of unrestricted retained earnings or total assets less
liabilities and legal capital, they must be accumulated from normal and continuous operations not allocated for any managerial, contractual
or legal purpose and which are free for distribution to stockholders as dividends payable in cash, in property or in stock to all stockholders
on the basis of outstanding stock held by them.
27. 27. Can a declaration of dividends be compelled?  Dividend declaration is generally discretionary but becomes mandatory when its
surplus profits are in excess of 100% of paid in capital stock. However, the mandatory character shall not obtain: (a) when justified by
definite corporate expansion projects or programs approved by the Board (b) when it is prohibited by a loan agreement with any financial
institution or creditor from declaring dividends without its consent and the consent is not yet obtained (c) when it can be shown that such
retention is necessary under special circumstances obtaining in the corporation, as there is a need for a special reserve for probable
contingencies.
28. 28. What are management contracts? How can they be entered into?  It is any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another corporation is a management contract even if called a service or operating
contract.  It can be undertaken with the approval by a majority vote of the Board and majority vote of the stockholders or members of both
the managed and the managing corporation. Provided that, if the stockholder/s representing the same interest of both the managing and
managed corporations own or control more than 1/3 of the outstanding capital stock entitled to vote of the managing corporation or a
majority of the Board of the managing corporation likewise constitute a majority of the board of the managed corporation, the contract must
be approved by 2/3 vote of the outstanding capital stock or of the members of the managed corporation.
29. 29. What are ultra vires acts?  Ultra Vires acts are acts that are in violation of the Code as it provides that: no corporation shall possess or
exercise corporate powers except those conferred by the code, its Articles and except as such are necessary or incidental to the exercise
of the powers so conferred.  A ratification is possible provided the act is not illegal.  If ultra vires in part only and if separable, it is valid as
to the part not ultra vires, invalid as to the other part.
30. 30. What is the trust fund doctrine?  The subscribed capital stock of the corporation is a trust fund for the payment of the debts of the
corporation which the creditors have the right to look up to satisfy their credits, and which the corporation may not dissipate.  The
exceptions are: (a) Reduction of the authorized capital stock; (b) Purchase of redeemable shares; (c) Dissolution and eventual liquidation.
31. 31. What are the management rights of a stockholder?  (a) To attend and vote in person or by proxy at a stockholder’s meetings; (b) To
elect and remove directors; (c) To approve certain corporate acts; (d) To compel the calling of the meetings; (e) To have the corporation
voluntarily dissolved; (f) To enter into a voting trust agreement; and (g) To adopt/amend/appeal the by-laws or adopt new by-laws.
32. 32. What are the proprietary rights of a stockholder?  (a) To transfer stock in the corporate book; (b) To receive dividends when declared;
(c) To the issuance of certificate of stock or other evidence of stock ownership; (d) To participate in the distribution of corporate assets upon
dissolution; and (e) To pre-emption in the issue of shares.
33. 33. What are the remedial rights of a stockholder?  (a) To inspect corporate books; (b) To recover stock unlawfully sold for delinquency;
(c) To demand payment in the exercise of appraisal right; (d) To be furnished recent financial statements or reports of the corporation’s
operation; and (e) To bring suits (derivative suit, individual suit, and representative suit).
34. 34. What is a derivative suit? An individual suit? A representative suit?  A derivative suit is one brought by one or more stockholders or
members in the name and on behalf of the corporation to redress wrongs committed against it or to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue or are the ones to be sued or hold control of the corporation.  An individual suit is
one brought by a stockholder against the corporation for direct violation of his contractual rights.  A representative suit is one brought by a
person in his own behalf and on behalf of all similarly situated.
35. 35. What are the requisites of a derivative suit?  In the case of Hi-Yield Realty, Inc. v. Court of Appeals, 590 SCRA 548 and reiterated in
Lisam Enterprises Inc. v. Banco De Oro Unibank, Inc., 670 SCRA 310, it was held that the requisites of a derivative suit are: (a) the party
bringing the suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material,
(b) he has tried to exhaust intra-corporate remedies, and (c) the cause of action actually devolves on the corporation, the wrongdoing or
harm having been caused the corporation, and not the particular stockholder bringing the suit.
36. 36. What are the primary obligations of a stockholder?  Stockholders have the following obligations: (a) Obligation to pay the corporation
the consideration for his subscription, including interest when required; (b) Obligation to pay the creditors of the corporation to the extent of
their subscription, or beyond, in case the doctrine of piercing the veil of corporate fiction is applicable.
37. 37. What is a proxy?  Proxy is a written authorization, empowering another person (proxy) to represent a shareholder and vote in his
stead in the stockholder’s meeting.
38. 38. What is a voting trust agreement?  It is an agreement whereby one or more stockholders transfer their shares of stocks to a trustee,
who thereby acquires for a period of time the voting rights (and/or any other specific rights) over such shares; and in return, trust certificates
are given to the stockholder/s, which are transferable like stock certificates, subject, to the trust agreement.
39. 39. What powers are reserved only for stockholders or members?  The powers that are expressly reserved by law to stockholders or
members are:(a) removal of directors or trustees (b) granting of compensation, other than per diems, to directors (c) ratification of acts of
self dealing director or trustee, interlocking director/s, disloyal director/s (d) delegation of power to amend by-laws (e) calling of a meeting,
upon good cause, when no person is authorized to call it (f) when management of a close corporation is vested in the stockholders.
40. 40. What are the percentage voting requirements when stockholders or members act?  The required vote is usually 2/3 of the outstanding
capital stock.  In the following, it is a majority: (a) election of members of the Board (b) removal of directors or trustees (c) approval of
 management contracts (d) adoption of by laws/ its amendment or repeal and to revoke power of amendment delegated to the Board (e) fix
issue price of no par value shares (f) fixing compensation of directors. 
41. 41. Why is the board the repository of corporate powers?  The law provides that all corporate powers of all corporations formed under it
shall be exercised, all business conducted and all property held by a Board of Directors or Trustees.  It is the board which determines
corporate policy and prescribes the manner of general management of its business activities.  This is so for the purpose of efficiency in
exchange for profits.
42. 42. How does one become a member of the board?  One must possess the following qualifications: (1)He must own at least 1 share or at
least it should be listed in his name as owner, if it is a non stock corporation, he must be a member; (2) Every director/trustee must
continuously own at least a share during his term or be a member; (3) A majority must be residents of the Philippines; (4) He must not have
been convicted by final judgment of an offense punishable by a period in excess of 6 years or a violation of the code, committed within a
period of 5 years prior to the date of election; (5) Be a Filipino citizen in the instances required by law; (6) Such other qualifications as may
be prescribed in the By-laws.
43. 43. What is meant by independent director?  An Independent Director is a person who, apart from his fees and shareholdings, is
independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially
interfere with his exercise of independent judgment in carrying out his responsibilities as a director.
44. 44. How is the power of removal exercised?  The removal of directors or trustees require that (a) it must take place at a regular meeting of
the corporation or a special meeting called for that purpose (b) there must be previous notice to stockholders or members of the intention to
propose such removal. The notice must be specific and in writing, by publication or sending of a copy the notice (c) the removal is effected
by 2/3 vote of capital stock /members entitled to vote except that a director elected by cumulative voting cannot be removed as its effect is
to deprive minority stockholders or members of their representation.
45. 45. How are vacancies filled?  Vacancies are filled by the stockholders or members if the cause is: (a) removal; (b) expiration; (c) other
causes when the remaining members of the board do not constitute a quorum or leaves the filling up of the vacancy to them; (d) when there
is an increase in the number of directors/trustees.  A vacancy can also be filled by the board if the cause of the vacancy is not removal or
expiration and the remaining members still constitute a quorum. This can only be exercised by the board if they acting within their term.
46. 46. When is a board member considered as disloyal?  A director is disloyal if by virtue of his office, he acquires for himself a business
opportunity which should belong to the corporation, thereby obtaining profit, he must account for it by refunding the same to the corporation,
even if the director risked his own funds in the venture, unless, his act is ratified by a vote of the stockholders owning or representing 2/3 of
outstanding capital stock. This is also known as the Doctrine of Corporate Opportunity. The provision does not apply if: (a) he acts in good
faith, or, (b) the corporation is unable to undertake the opportunity or the same is not essential to the corporation.  The duty of loyalty of a
director precludes the director from acquiring an opportunity that is open to the corporation because that is in effect competing with the
corporation, oftentimes with the advantage of inside information thus depriving it of the profits that it would have otherwise earned.
47. 47. What is the rule on board compensation?  The general rule is board members are not entitled to receive any compensation except
reasonable per diems.  Exceptions are: (a) when the by-laws provide for compensation; (b) when granted by a majority vote of the
stockholders or members subject to the limit that it should not exceed 10% of the net income before income tax during the preceding year;
(c) when board members render service as officers.
48. 48. What is the business judgment rule?  The business judgment rule holds that courts will not interfere in the decisions made by the
board as regards the internal affairs of the corporation, unless such contracts are so unconscionable and oppressive as to amount to a
wanton destruction of rights of the minority.
49. 49. When is there solidary liability imposed upon members of the board?  Solidary liability is imposed when: (a) He willfully and knowingly
votes for and assents to a patently unlawful act of the corporation; (b) There is gross negligence or bad faith in directing the affairs of the
corporation; (c) He acquires any personal or pecuniary interest in conflict of duty; (d) He agrees or stipulates in a contract to hold himself
liable with the corporation; or (e) A specific provision of law requires it.
50. 50. What is the special fact doctrine? What is inside information?  It is a doctrine holding that a corporate officer with superior knowledge
gained by virtue of being an insider owes a limited fiduciary duty to a shareholder in transactions involving transfer of stock.  Information
not known to the public that one has obtained by virtue of being an insider like a director.
51. 51. What is the rule on self dealing directors?  The general rule is that a contract between a self dealing director/trustee or officer and the
corporation is voidable at the option of the corporation. Notwithstanding, the contract shall be valid when: (a) presence of the
director/trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum (b) his vote is not
necessary to approve the contract (c) that the contract is fair and reasonable under the circumstances. In the case of an officer, the contract
has previously been approved by the board. If however, conditions (a) and (b) are absent, the contract may be ratified by 2/3 vote of the
outstanding capital stock in a meeting duly called for such purpose with full disclosure of the adverse interest being made at the meeting
and that the contract is nevertheless fair and reasonable.
52. 52. What is the rule on inter-locking directors?  The rule that obtains as far as contracts between corporations with interlocking directors is
that the contract is valid as long as there is no fraud and the contract is fair and reasonable. However, if a director’s interest in one
corporation is substantial and his interest in the other corporation/s is nominal, the contract shall be subject to the rule on self-dealing
directors insofar as the corporation/s where he has a nominal share as it is as if the corporation is transacting with a self dealing director.
Shareholdings in excess of 20% of the outstanding capital stock shall be considered substantial.
53. 53. What is the rule on abstention during board meetings?  An abstention may have the practical effect of a “no” vote since the motion
may fail for lack of sufficient “yes” votes. Unless a greater number is called for in the articles or by-laws, a matter is deemed “approved” by
the board if at any meeting at which a quorum is present at least a majority of the required quorum of directors votes in favor of the action.
54. 54. What is a certificate of stock? What is its nature? What is an uncertificated share?  A certificate of stock is a paper representation or
tangible evidence of the stock itself and of various interests therein.  The nature of a certificate of stock is that it is a prima facie proof that
the stock described therein is valid and genuine in the absence of an evidence to the contrary.  An uncertificated share is a subscription
duly recorded and paid in the corporate books but has no corresponding certificate of stock yet issued.
55. 55. What is involuntary dealing?  It refers to such writ, order or process issued by a court of record affecting shares of stocks which by law
should be registered to be effective, and also to such instruments which are not the willful acts of the registered owner and which may have
been executed even without his knowledge or against his consent.  An involuntary dealing is required to be registered to constitute
constructive notice.
56. 56. What is the right of appraisal?  The right of appraisal is the right of stockholder to demand payment of the fair value of his shares after
dissenting from a proposed corporate action involving a fundamental change in the corporation in the cases provided for by law.  It is
available when (a) articles are amended and such has the effect of changing or restricting the rights of a shareholder or a class of shares or
authorizing preferences in any respect superior to those outstanding shares of any class (b) extending or shortening the corporate term (c)
in cases of sale, lease, exchange transfer, mortgage, pledge or disposition of all or substantially all of corporate assets or property (d) in
cases of mergers/consolidations (e) investment by the corporation in another corporation or business other than its primary purpose (f) a
stockholder in a close corporation for any reason may compel the said corporation to allow the exercise of his appraisal right.
57. 57. How is the right of appraisal exercised?  After voting against the proposed corporate action, a written demand must be made on the
corporation within 30 days after the date on which the vote was taken for payment of the fair value of his shares.  If no demand is made
within 30 days, he is deemed to have waived the exercise of the right.  The stockholder must submit his certificate of stock within 10 days
 for notation that such shares are dissenting shares.  If the certificate is not submitted for notation within 10 days, the corporation may
consider the exercise of the right terminated at its option.  Upon a demand, all rights accruing to the share are suspended including voting
rights, only the right to receive the fair value is not suspended, he is then paid. But , if there is no payment within 30 days after the award,
he is restored to all his rights.
58. 58. What are the modes of dissolution?  Voluntary dissolution referring to: (a) where no creditors are affected; (b) where creditors are
affected; and (c) by shortening of the corporate term.  Involuntary dissolution referring to: (a) expiration of the corporate term; (b) non-user;
(c) continuous inoperation for a period of at least 5 years; (d) legislative action; and (e) SEC action in cases of violation of the Code.
59. 59. What are the modes of liquidation?  A corporation may liquidate within the statutory period through: (a) By the corporation itself or its
board of directors or trustees; (b) By a trustee to whom the assets of the corporation had been conveyed; and (c) By a management
committee or rehabilitation receiver appointed by the SEC.  A corporation is allowed a 3 year period to enable it to close its business,
collect from debtors and settle with creditors.
60. 60. Can liquidation continue beyond the 3 year period?  Liquidation can continue beyond the 3 year period.  Receivers or trustees can
act as such beyond the 3 year period.  Pending suits upon expiration of the 3 year period may still be prosecuted by the handling lawyer
who will then be constituted as a trustee for such purpose.
61. 61. What are close corporations?  It is one whose articles provide that: (a) All the corporation’s issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a specified number or persons not exceeding 20; (b) All the issued stock of all
classes shall be subject to one or more specified restrictions on transfer; and (c) The corporation shall not list in any stock exchange or
make any public offering of any of its stock of any class.
62. 62. What are some of the characteristics of a closed corporation?  Stockholders may act as directors without need of election, however,
they shall assume all obligations and liabilities of directors.  It may have a greater quorum requirement.  Pre-emptive rights extend to all
stock issues, even treasury shares.  A stockholder may withdraw and avail of his right of appraisal.
63. 63. What is a deadlock?  It is when the directors or stockholders are so divided respecting the management of the business and affairs of
the corporation that the votes required for any corporate action cannot be obtained and as a result, business and affairs can no longer be
conducted to the advantage of the stockholders.
64. 64. When an unlicensed foreign corporation has the capacity to sue  If it is not transacting or doing business in the Philippines, it can sue
under: (a)The isolated business transaction rule, (b) A cause of action that is independent of any business transaction, (c) A cause of action
that arises out of a business transaction that is not entered into in the Philippines, and (d) A cause of action to protect its name, reputation
or goodwill subject to the rule on reciprocity under the IPR.
65. 65. What is a foreign corporation and the basis for our authority over it?  It is a corporation formed, organized or existing under any law
other than those of the Philippines, and whose laws allow Filipino citizens and corporation to do business in its own country or state.  The
basis of authority over it is: (a) consent and (b) doing business in the Philippines.
66. 66. What tests may be applied to determine transacting business in the Philippines?  (a) Continuity test – doing business implies a
continuity of commercial dealings and arrangements, and contemplates to some extent the performance of acts or works or the exercise of
some functions normally incident to and in progressive prosecution of, the purpose and object of its organization; (b) Subsequent test – a
foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was
organized; and (c) Contract test – whether the contracts entered into by the foreign corporation, or by an agent acting under the control and
direction of the foreign corporation, are consummated in the Philippines.
67. 67. Why is there need for a foreign corporation to obtain a license to transact business?  The purpose of the law in requiring that a foreign
corporation doing business in the Philippines to be licensed is to subject it to the jurisdiction of the courts. The object is not to prevent
foreign corporation from performing single acts but to prevent it from acquiring a domicile for the purpose of business without taking steps
necessary to render it amenable to suits in local courts.
68. 68. Does a foreign corporation possess the personality to sue? To be sued?  As a general rule, only foreign corporations that have been
issued a license to operate a business in the Philippines have the personality to sue.  By way of exception, a party is estopped to
challenge the personality of a foreign corporation to sue, even if it has no license, after having acknowledged the same by entering to a
contract with it.  An unlicensed foreign corporation doing business in the country cannot maintain any action but it can be sued.
69. 69. What principles govern a foreign corporation’s right to sue?  The principles governing a foreign corporation’s right to sue are: (a) if it
does business without a license, it cannot sue before Philippine courts (b) if it is not doing business, it needs no license to sue before
Philippine courts on an isolated business transaction or on a cause of action entirely independent of any business transaction or to protect
its name, reputation or goodwill (c) if it does business with the required license, it can sue before Philippine courts on any transaction .
70. 70. When is a dispute with an intra-corporate relationship within the jurisdiction of the NLRC?  In the case of Cosare v. Broadcom Asia,
Inc, G.R. No. 201298, February 5, 2014, the NLRC was held to have jurisdiction over the dismissal of an AVP for Sales, who was also a
stockholder, as he is not a corporate officer whose dismissal is cognizable by the RTC. A corporate officer was defined as one who meets
the following: (a) the creation of the position is under the corporation’s charter or by-laws; and (b) the election of the officer is by the
directors or the stockholders.
71. 71. What are the kinds of corporate insolvency?  There are two kinds of insolvency contemplated in it: (1) actual insolvency, i.e., the
corporation’s assets are not enough to cover its liabilities; and (2) technical insolvency defined under Sec. 3-12, i.e., the corporation has
enough assets but it foresees its inability to pay its obligation for more than one year.
72. 72. SEC supervision over corporations  In the case of United Church of Christ in the Philippines, Inc. v. Bradford United Church of Christ,
Inc., 674 SCRA 92, it was held that the SEC shall have absolute jurisdiction, supervision and control over all corporations. Even with their
religious nature, the SEC may exercise jurisdiction over them in matters that are legal and corporate.
73. 73. Rehabilitation defined  In the case of San Jose Timber Corporation v. SEC, 667 SCRA 13, rehabilitation was defined as “restoration of
the debtor to a position of successful operation and solvency.”  A successful rehabilitation depends on 2 factors: (a) positive change in the
business fortunes of the debtor, and (b) the willingness of the creditors and shareholders to arrive at a compromise agreement on
repayment and the extent of dilution.
74. 74. SECURITIES REGULATION CODE
75. 75. What are securities?  In general, securities are evidences of investment in a common enterprise made with the expectation of deriving
a profit solely from the efforts of others who acquire control over the fund invested.  As defined by law, they are Shares, Participation or
Interest (SPI) in a Corporation or in a Commercial enterprise or Profit-making venture (CCP) and evidenced by a Certificate, Contract;
Instrument, whether written or electronic in character (CCI).
76. 76. What are tender offers?  A Tender Offer is a public offer to purchase a specified number of shares from shareholders usually at a
premium in an attempt to gain control of the issuing company. Note that in some instances, the premium is payable only if the offeror is able
to obtain the required number of shares.  A Tender Offer disclosure will be required if a person, including a partnership, limited
partnership, syndicate, corporation or any other group intends to acquire at least fifteen percent (15%) or at least thirty percent (30%) over
a period of twelve months any class of equity security of a listed corporation or any class of equity security of a corporation with assets of at
least 50 million and having 200 or more stockholders with at least 100 shares each.
77. 77. What are proxy solicitations?  Proxy Solicitations is an action to secure the right to vote of so much a number of shares to ensure the
approval of a proposed corporate action/s.  The principal purpose of regulating proxy solicitations by requiring the filing of a proxy
 statement is to provide shareholders with appropriate information to permit an intelligent decision on whether to permit their shares to be
voted as solicited for a particular matter at a forthcoming stockholders meeting.
78. 78. What is security price manipulation?  Security price manipulation is an artificial control of security prices. It is an attempt to force
securities to sell at prices either above or below those which would exist as a result of the normal operations of supply and demand. The
manipulator hopes to profit by creating fictitious prices at the expense of the general trading public.
79. 79. What is insider trading?  Insider Trading occurs when an insider sells or buys 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: (1) that he disclosed the information to the other party, or (2) that he had reason to believe that the other party otherwise is
also in possession of the information.
80. 80. INSURANCE
81. 81. What is the concept of insurance?  Insurance is a means by which one seeks to be covered against the consequences of an event
that may cause loss or damage.  The concept is that the premiums that are paid are accumulated in a pool from which payment of claims
are to be obtained. As a basis, it is assumed that the people contributing premiums are in excess of those making claims resulting in a
larger pool of money than the amounts being claimed
82. 82. What are pure and speculative risks?  The risks that may be insured against are what are known as pure risks as opposed to
speculative risks.  A pure risk is whether a person will suffer or will not suffer a loss from the occurrence of an event.  A speculative risk
is whether a person will profit or suffer a loss from the occurrence of an event.
83. 83. Insurance is risk distributing  Insurance is a risk distributing device because when the insurer assumes the risk, it is distributing
potential liability, in part, among others.  It is not risk shifting because the entirety of risk of loss is not shifted to another.
84. 84. What is the nature of a health care agreement?  In the case of Fortune Medicare, Inc. v. Amorin, G.R. No. 195872, March 12, 2014, it
was held to be in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or
any other expense arising from sickness, injury or other stipulated contingency, the health care provided must pay for the same to the
extent provided under the contract.  The Court also interpreted an ambiguity in favor of the insured allowing him to recover for his medical
expenses incurred while abroad.
85. 85. In marine insurance, what is meant by perils of the sea and perils of the ship?  Perils of the sea refers to all kinds of marine casualties
and damages done to the ship or goods at sea by the violent action of the winds or waves, one that could not be foreseen and is not
attributable to the fault of anybody.  Perils of the ship are losses or damages that result from (a) natural and inevitable action of the sea
(b) ordinary wear and tear of the ship (c) negligent failure of the ship owner to provide the vessel with the proper equipment to convey the
cargo under ordinary conditions.
86. 86. What matters when concealed, do not vitiate a marine insurance policy?  The concealment of the following matters will not vitiate the
policy but will merely exonerate the insurer in case of a loss are: (a) the national character of the insured (b) the liability of the thing insured
to capture and detention (c) the liability to seizure from breach of foreign laws of trade (d) the want of the necessary documents (e) the use
of false/simulated documents.
87. 87. What are the implied warranties in marine insurance?  In every contract of marine insurance upon a ship or freight, freightage or upon
anything which is the subject of marine insurance, there are implied warranties: (a) that the ship is seaworthy; (b) It shall carry the requisite
documents to show its nationality or neutrality and that it shall not carry any document that will cast reasonable suspicion on the vessel; (c)
That the vessel shall not make any improper deviation; and (d) That the vessel does not or will not engage in any illegal venture.
88. 88. When is the implied warranty of seaworthiness complied with?  The implied warranty of seaworthiness is complied with as a general
rule when it is seaworthy at the time of the commencement of the risk except (a) when the insurance is made for a specified length of time,
it must be seaworthy at the commencement of every voyage it undertakes at that time (b) when the insurance is upon cargo, which by the
terms of the policy, description of the voyage, or established custom of trade, is required to be transshipped at an immediate port, in which
case – each vessel upon which the cargo is shipped or transshipped must be seaworthy at the commencement of each particular voyage
(c) where different portions of the voyage contemplated in the policy differ in respect to the things requisite to make the ship seaworthy, in
which case it must be seaworthy at the commencement of each portion.
89. 89. When is a deviation proper? Improper?  A deviation is proper: (a) When it is caused by circumstances over which neither the master
nor the owner of the ship has any control. (b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
insured against. (c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril. (d) When made in
good faith, for the purpose of saving human life or relieving another vessel in distress  Any deviation that consists of a departure from the
course of the voyage as defined by law or an unreasonable delay in pursuing the voyage or the commencement of an entirely different
voyage is an improper deviation and the insurer will not liable for any loss happening to the thing insured subsequent to it, regardless of
whether the risk was increased or diminished.
90. 90. What constitutes an actual total loss?  An actual total loss occurs when there is : (a) total destruction of the thing insured; (b) an
irretrievable loss of the thing by sinking or by being broken up; (c) any damage to the thing which renders it valueless to the owner for the
purpose that he held it; or (d) any other event which effectively deprives the owner of the possession, at the port of destination, of the thing
insured.
91. 91. What is a constructive total loss?  A constructive total loss occurs when(a) more than ¾ thereof in value is actually lost or would have
to be expended to recover it from the peril (b) if it is injured to such extent as to reduce its value by more than ¾ of value (c) if the thing
injured is a ship, and the contemplated voyage cannot lawfully be performed without incurring either an expense to the insured of more than
¾ the value of the thing abandoned or a risk which a prudent man would not take under the circumstances (d) if the insured is freightage or
cargo and the voyage cannot be performed, nor another ship procured by the master, within a reasonable with reasonable diligence to
forward the cargo without incurring the like expense or risk mentioned in item (c) but freightage cannot be abandoned unless the ship is
also abandoned.
92. 92. When does co-insurance exist?  Co-insurance exists when the subject matter is insured for an amount less than it value. In this case,
the insured is considered as a co-insurer for the portion not covered by insurance.  This will apply only if the loss is partial.  This is also
known as the “average clause.”
93. 93. What is the rule on liability for an average?  As a rule, when it has been agreed that an insurance upon a particular thing or class of
things shall be free from a particular average, a marine insurer is not liable for a particular average loss not depriving the insured at the port
of destination, of the whole such thing, or class of things, even though it becomes entirely worthless, but such insurer is liable for his
proportion of all general average loss assessed upon the thing insured.
94. 94. What is fire insurance?  Is insurance against loss by through a hostile fire.  A fire is hostile when it: (a) burns at a place where it is
not intended to burn (b) is friendly but becomes hostile because it escapes from the place where it is intended to burn and becomes
uncontrollable (c) is a friendly fire which becomes hostile because of the unsuitable material used to light it and it becomes inherently
dangerous and uncontrollable.
95. 95. What is an alteration?  An alteration is a change in the use or condition of a thing insured from that to which it is limited by the policy,
made without the consent of the insurer, by means within the control of the insured, and increasing the risk, which entitles the insurer to
rescind the contract of insurance.
96. 96. What is casualty insurance?  Generally, it is one that covers loss or liability arising from an accident or mishap, excluding those that
fall exclusively within other types of insurance like fire or marine insurance.  It includes employer’s liability, workmen’s compensation,
public liability, motor vehicle liability, plate glass liability, burglary and theft ,personal accident and health insurance as written by non-life
companies, and other substantially similar insurance.
97. 97. Can a CBA provision be interpreted as an insurance contract?  In the case of Mitsubishi Motors Philippines Salaried Employees Union
v. Mitsubishi Motors Philippines Corporation, G.R. No. 175773, June 17, 2013, a CBA provision providing for an MMPC obligation to pay for
the medical expenses of MMPSEU dependents was considered as a non- life insurance contract and interpreted as a contract of indemnity.
 This interpretation barred the application of the “collateral source rule,” which disallows a wrongdoer from claiming a benefit arising from
a contract which the injured party may have with third persons to lessen his liability. In this case, MMPC is not the wrongdoer, rather, it is a
no-fault insurer.
98. 98. What is suretyship?  Suretyship is an agreement whereby a party called the surety guarantees the performance by another party
called the principal or obligor of an obligation or undertaking in favor of a 3rd party called the obligee.  It is deemed to be an insurance
contract when made by a surety who or which, as such, is doing an insurance business as provided by the Insurance Code.  The liability
of the surety is solidary with the obligor but limited to the amount of the bond and determined strictly by the terms of the contract in relation
to the principal contract between obligor and obligee.
99. 99. What is life insurance?  It is insurance on human lives and insurance appertaining thereto or connected therewith. It is payable on: (a)
death of the person, unless excepted or (b) surviving a specified period, or (c) contingently on the continuance or cessation of life.  Suicide
is generally not compensable unless committed after the policy has been in force for a period of two years from date of issue or last
reinstatement or a shorter period if provided, or if committed in a state of insanity.
100. 100. What is covered by compulsory third party motor vehicle liability insurance?  It provides protection or coverage to answer for bodily
injury or property damage that may be sustained by another arising from the use of a motor vehicle.  It is an insurance policy that directly
insures against liability. The insurer’s liability accrues immediately upon the occurrence of the injury upon which liability depends, and does
not depend on the recovery of judgment by the injured party against the insured.
101. 101. What is a “no fault indemnity claim”?  A no fault indemnity claim is a claim for payment for death or injury to a passenger or third party
without necessity of proving fault or negligence.  This is payable by the insurer provided (a) indemnity in respect of one person shall not
exceed PHP 15,000.00, and (b) the necessary proof of loss under oath to substantiate the claim are submitted.  A claim under the no fault
indemnity clause may be made against one motor vehicle insurer only as follows: (a) in case of an occupant of a vehicle- against the
insurer of the vehicle in which the occupant is riding, mounting or dismounting from (b) in any other case, from the insurer of the directly
offending vehicle (c) in all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the
accident shall be maintained.
102. 102. How is the “authorized driver” defined?  The authorized driver clause is interpreted to refer to the insured or any person driving on the
order of the insured or with his permission provided, such person is permitted to operate a motor vehicle in accordance with our licensing
laws or regulations and who is not otherwise disqualified.  When the insured is the one driving the vehicle, a license is not necessary. He
has a right to recover the damage even if he has no driver’s license or that the same had expired at the time of the accident.
103. 103. How can the theft clause be interpreted?  In the case of Paramount Insurance Corporation v. Spouses Yves and Maria Teresa
Remondeulaz, G.R. No. 173773, November 28, 2012 the respondents entrusted possession of their vehicle only to the extent that Sales
will introduce repairs and improvements thereon and not to permanently deprive them of possession thereof. Since theft can also be
committed by misappropriation, the fact that Sales failed to return the subject vehicle to the respondents constitutes Qualified Theft. Hence,
since the respondents’ car is undeniably covered by a Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of
theft, petitioner is liable under the policy for the loss of respondents’ vehicle under the "theft clause.”
104. 104. When is there insurable interest?  Insurable interest will exist when the insured has such a relation or connection with, or concern in,
such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its
destruction, termination, or injury by the happening of the event insured against.
105. 105. What differentiates insurable interest in life from that in property?  Insurable interest in life can be based on consanguinity, affinity,
contract or a pecuniary interest, while insurable interest in property is based on pecuniary interest.  Insurable interest in life must exist only
at the effectivity of the contract except that taken by a creditor on the life of the debtor while insurable interest in property must exist at the
time of effectivity of the contract and when loss occurs, although it may not exist in the meantime.  The value of insurable interest in life is
not limited unless taken by a creditor on the life of the debtor while insurable interest in property is limited to the actual value of the interest
in the property.
106. 106. Who has insurable interest in life?  Himself, his spouse and of his children.  Any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest.  Any person under a legal obligation to him for the payment of money,
respecting property or services, of which death or illness might delay or prevent performance.  Any person upon whose life, any estate or
interest vested in him depends.
107. 107. What does insurable interest in property consist of?  An existing interest.  An inchoate interest founded on an existing interest.  An
expectancy, coupled with an existing interest in that out of which the expectancy arises.  A carrier or depository of any kind has insurable
interest in the thing held by him as such to the extent of his liability but not to exceed the value thereof.
108. 108. What can and cannot be insured against?  Any unknown or contingent event, whether past or future, which may damnify a person
having insurable interest or create a liability against him may be insured against.  Insurance for or against the drawing of any lottery or for
or against any chance or ticket in a lottery drawing a prize cannot be acquired.
109. 109. Who will qualify as an insured?  Anyone except a public enemy or a nation at war with the Philippines and every citizen or subject of
such nation may be insured.
110. 110. Who will qualify as a beneficiary?  In life insurance, anyone, except those who are prohibited by law to receive donations from the
insured.  In property insurance, only the insured with insurable interest will qualify as a beneficiary.  In insurance against liability, the
party in whose favor liability exists is the beneficiary.
111. 111. When is there multiple insurable interest?  Multiple insurable interest exists when more than one insurable interest may exist in the
same property.  Examples are that of: (a) mortgagor and mortgagee (b) a trustor and trustee (c) a lessor and a lessee
112. 112. What is double insurance? Over insurance?  Double insurance exists where the same person is insured by several insurers
separately in respect to same subject and interest.  Its requisites are: (a) same person is insured (b) there are several insurers (c) subject
insured is the same (d) interest insured is the same (e) risk or peril insured against is the same.  Over insurance occurs when property is
insured for an amount in excess of its value.
113. 113. When is an insurance contract perfected?  It is perfected when the assent or consent is manifested by the meeting of the minds of
the offer and acceptance upon the thing and the cause which are to constitute the contract.
114. 114. How is an offer and acceptance made in life or health insurance?  If the premium is not paid when the insurance is applied for, it is an
invitation to the insurer to make an offer which the insured must accept. If a premium is paid with the application, it is considered an offer. 
Acceptance occurs when a policy is issued strictly in accordance with the offer. If otherwise, the insurer is making an offer, which the
insured can accept or reject.  Unreasonable delay in the return of the premium raises a presumption that the offer has been accepted.
115. 115. How is an offer and acceptance made in property and liability insurance?  When the insured applies for the insurance, he is already
making an offer to the insurer, who may now, accept, reject or make a counter-offer.  Acceptance occurs in the same manner as in life
and health insurance.
116. 116. What is meant by the premium and why must it be paid?  The premium is the agreed price for assuming and carrying the risk which
the insurer is entitled to the payment of a premium as soon as the thing insured is exposed to the peril insured against.  The payment of a
premium is essential to the validity of an insurance policy is known as the “cash and carry basis” or “no premium payment no policy” rule.
117. 117. When is insurance effective despite non-payment of the premium?  This occurs: (a) in case of life or industrial life where the premium
is payable monthly or oftener, whenever the grace period applies; (b) when the insurer makes a written acknowledgment of the receipt of
premium, such is conclusive evidence of the payment of the premium to make it binding notwithstanding any stipulation therein that it shall
not be binding until the premium is paid; and (c) where the obligee has accepted the bond or suretyship contract.  It also occurs when the
insurer is estopped from claiming otherwise.
118. 118. What are the non-default options in life insurance?  The non-default options are: (a) grace period (b) cash surrender value (c) paid
up insurance (d) automatic loan clause, and (e) reinstatement
119. 119. How is reinstatement of the policy effected?  Reinstatement can be permitted within 3 years, or a stipulated longer period, from the
date of default.  This is not an absolute right as it is conditioned on insurability of the insured or evidence of good health and the payment
of all overdue premiums and indebtedness, if any.
120. 120. What is concealment and its requisites?  Concealment is a neglect to communicate that which a party knows and ought to
communicate.  Its requisites are: (a) such facts that must be within his knowledge as concealment requires knowledge of the fact
concealed by the party charged with concealment (b) fact/s must be material to the contract as it must be of such nature that had the
insurer known of it, it would not have accepted the risk or demanded a higher premium (c) that the other party had no means of
ascertaining such fact/s (d) that the party with a duty to communicate makes no warranty.
121. 121. When is there a waiver of information?  A waiver takes place either, by the terms of the insurance or by the neglect to make inquiries
as to such facts where they are distinctly implied in other facts of which information is communicated.
122. 122. What is the effect of concealment and when must it take place?  Whether intentional or not, it entitles the injured party to rescind the
contract of insurance.  Generally, concealment requires a party to have knowledge of the fact concealed prior to or at the effectivity of the
policy.  Information acquired after effectivity is not concealment and does not constitute ground to rescind the policy, as after the policy is
issued, information subsequently acquired is no longer material as it will not affect or influence the party to enter into contract. However, in
case of the reinstatement of a lapsed policy, facts known after effectivity but before reinstatement must be disclosed.
123. 123. What are representations? What are the kinds of representations?  A representation is an oral or written statement of a fact or a
condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to take the risk.  Representations
may be oral or written.  They can be affirmative when it is an affirmation of a fact existing when the contract begins or promissory when it
is a statement by the insured concerning what is to happen during the term of the insurance.
124. 124. Is a representation part of the insurance contract?  A representation does not form part of the contract as an express provision
thereof as it is a collateral inducement to the same.  While it does not form part of the contract, it may qualify an implied warranty.
125. 125. To what date does a representation refer to?  It presumed to refer to the date on which the contract goes into effect.  There is no
false representation if it is true at the time the contract takes effect although false at the time it is made.  There is a false representation, if
it is true at the time it is made but false at the time the contract takes effect.
126. 126. When is a representation false and what is its effect?  A representation is said to be false when the facts fail to correspond with its
assertions or stipulations.  If it is false on a material point, whether affirmative or promissory, the injured party is entitled to rescind the
contract from the time the representation becomes false.  However, the right to rescind is considered waived by the acceptance of
premium payments despite knowledge of the ground to rescind.  There is no waiver, if the insurer had no knowledge of the ground at the
time of the acceptance of the premium.
127. 127. How is concealment distinguished from misrepresentation?  Concealment is the neglect of one party to communicate to the other
material facts. The information he gives in compliance with his duty to reveal information is representation.
128. 128. What is the incontestability clause ?  It is a clause in a life insurance policy that is (a)payable on the death of the insured, and (b)
which has been in force during the lifetime of the insured for a period of 2 years from the date of issue or its last reinstatement that would
prevent the insurer from proving that the policy is void ab initio or is subject to rescission by reason of a fraudulent concealment or
misrepresentation of the insured or his agent.
129. 129. What is a warranty? What are the kinds of warranties?  It is a statement or promise stated in the policy or incorporated therein by
reference, whereby the insured, expressly or impliedly contracts as to the past, present or future existence of certain facts conditions or
circumstances, the literal truth of which is essential to the validity of the contract.  Warranties can be affirmative when they refer to to
matters that exist at or before the issuance of the policy or promissory when they refer to promises or undertaking of the insured that certain
matters shall exist or will be done or will be omitted after the policy takes effect.  They can also be express when provided for in the policy
or implied when they are inferred from the nature of the insurance.
130. 130. What is the effect of a violation of a warranty?  The violation of a material warranty, or other material provision of the policy, on the
part of either party thereto, entitles the other to rescind.  However, a breach of a warranty without fraud, merely exonerates an insurer from
the time it occurs, or where it is broken at its inception, prevents the policy from attaching to the risk.
131. 131. When is the non-performance of a warranty excused?  The non-performance of a promissory warranty is excused if before the
arrival of the time for performance: (a) the loss insured against happens;(b) the performance becomes unlawful at the place of the contract;
or (c) the performance becomes impossible.
132. 132. What are the rules on losses?  Loss of which a peril insured against is the proximate cause, although a peril not contemplated by the
contract may have been a remote cause but the insurer is not liable for a loss of which the peril insured against was only a remote cause. 
Loss caused by efforts to rescue the thing insured from a peril insured against that would otherwise have caused a loss, if in the course of
such rescue, the thing is exposed to peril not insured against, which permanently deprives the insured of its possession, in whole or in part,
or where a loss is caused by efforts to rescue the thing insured from a peril insured against.  An insurer is not liable for a loss caused by
the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agent
or others.
133. 133. What is a notice of loss, who and when should it be given?  A notice of loss is the formal notice given by the insured or some person
entitled to the benefit of the insurance without unnecessary delay informing the insurer of the occurrence of the loss insured against.
134. 134. What is meant by proof of loss?  It refers to the evidence given by the insured to the insurer upon the occurrence of the loss by
insured against, stating the particulars and the necessary data to enable the insurer to determine its liability and the extent thereof.
135. 135. What is claim settlement?  This refers to the indemnification of the loss suffered by the insured.  The claimants entitled to the
indemnification may be the insured, the reinsured, the insurer entitled to subrogation, or a third party in an insurance policy providing
indemnity against liability.
136. 136. What is unfair claim settlement?  Knowingly misrepresenting facts or policy provisions.  Failing to acknowledge pertinent
communications with reasonable promptness.  Failing to adopt and implement reasonable standards for prompt investigation of claims. 
 Not attempting to effectuate prompt, fair and equitable settlement of claims in cases where liability is reasonably clear.  Compelling policy
holders to file suit by offering amounts substantially less than that which they are entitled to.
137. 137. What is the effect of a fraudulent claim?  In the case of United Merchants Corporation v. Country Bankers Insurance Corporation,
G.R. No, 198588, July 11 2012, the Supreme Court held that: Where a fire insurance policy provides that “if the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the insured or
anyone acting in his behalf to obtain any benefit under the policy” and the evidence is conclusive that the proof of the claim which the
insured submitted was false and fraudulent as both as to kind, qualify and amount of the goods and their value destroyed by fire, such proof
of claim is a bar against the insured from recovering on the policy even for the amount of his actual loss. It has long been settled that a
false and material statement made with intent to deceive or defraud voids on insurance policy, In Yu Cua v. South British Insurance Co., the
claim was fourteen times bigger than the real loss; In Go Lu v. Yorkshire Insurance Co., eight times; and in Tuason v. North China
Insurance Co., six times. In the present case, the claim is twenty five times the actual claim proved.
138. 138. What is the prescriptive period for the commencement of an action?  The parties can agree on a period provided it is not less than 1
year from the time the cause of action accrues.  If the period prescribed void because it is less than 1 year or there is no period, the
insured can bring the action within 10 years from the time the cause of action accrues.  In a comprehensive motor liability insurance claim,
a written notice of claim must be filed within 6 months from the date of accident, otherwise, the claim is waived, even if an action is
subsequently brought within 1 year from rejection of the claim.
139. 139. When does subrogation take place?  Subrogation inures to the insurer without need of assignment or express stipulation upon
payment made to the insured. The act of payment makes the insurer a subrogee in equity.  However, subrogation occurs only in property
insurance.
140. 140. What is the concept behind subrogation?  In the case of Malayan Insurance Co., Inc. vs Rodelio Alberto and Enrico Alberto Reyes,
GR No. 194320, February 1, 2012 it was held that subrogation is the substitution of one person by another with reference to a lawful claim
or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have
against the third party whose negligence or wrongful act caused the loss.  The right of subrogation is not dependent upon, nor does if
grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim.  It is intended to
make the person who caused the loss legally responsible for it, prevents the insured from recovering twice, and upholds public policy by
preventing tortfeasors from being absolved from liability.
141. 141. NEGOTIABLE INSTRUMENTS
142. 142. When is there an unconditional order or promise to pay?  The promise or order is still unconditional though coupled with:(a)An
indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or(b) A
statement of the transaction which gives rise to the instrument.  The test of negotiability when there is another stipulation is whether or not
the promise would give rise to a cause of action for breach of contract if the additional act is not done. If it does, the instrument is rendered
non-negotiable.
143. 143. What is the fictitious payee rule? When it is payable to the order of a fictitious or non-existing person, the instrument’s being payable
to bearer depends on the intention of the person making it so payable.  An actual, existing, and living payee may also be “fictitious” if the
drawer did not intend for the payee in fact to receive the proceeds of the check. If this is absent, the effect is that the instrument cannot be
considered as payable to bearer.
144. 144. How are conflicts between words and numbers resolved?  In the case of People v. Romero, 306 SCRA 90, the drawer of a check
with a balance of PHP 1,144,760.00 could not be convicted for estafa because of the dishonor of his check for lack of funds where the
check indicated the amount of PHP 1,000,200.00 in words and the amount of PHP 1,200,000.00 in figures as the NIL provides that in
resolving this ambiguity the amount in words should prevail.
145. 145. What is meant by absence of a consideration ?  The meaning of absence or want of consideration means a total lack of any valid
consideration for the contract, in consequence of which the alleged contract must fall. Consequently, if the Maker makes a promissory note
to the Payee in payment for a parcel of land which does not exist. As between the parties, there can be no recovery on the note as there is
absence of consideration. But if the Payee indorses the note to another, who is a holder in due course, there can be recovery from the
Maker because absence of consideration is only a personal defense not available against a holder in due course.
146. 146. Who is an 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. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation
party.  The requisites to be an accommodation party are: (a) The party to the instrument signs as maker, drawer, acceptor or indorser (b)
Without receiving value therefor, and (c) For the purpose of lending his name to some other person.
147. 147. What are the effects of forgeries?  The effects of a forgery are: (a) The instrument is not declared totally void nor are the genuine
signatures thereon rendered inoperative. It is only the forged signature that is declared inoperative. Hence: rights still exist and may be
enforced by virtue of the instrument as between parties whose signatures were not forged, and (b) A forged instrument just prevents any
subsequent party from acquiring any rights as against any party whose name appears prior to the forgery. There is no right to retain the
instrument, or to give discharge or to enforce payment. However, rights will exist and may be enforced as between subsequent parties but
no one can acquire a right as against parties prior to the forgery, who also have rights and may enforce them as against each other.
148. 148. When is the drawer is liable for a forgery?  In the case of Security Bank and Trust Corporation v. Triump Lumber and Construction
Corporation, 301 SCRA 537 it was held that a drawer who discovered the loss of his checkbook and did not notify the bank of the loss
should bear the loss caused by the subsequent payment of the checks in which the signature of the drawer had been forged.
149. 149. Is the payee on a check with a forged endorsement allowed to recover?  The payee of a negotiable instrument acquires no interest
with respect thereto until its delivery to him. When a debtor does not deliver the check to his creditor and a third party was able to collect
the proceeds by forging the endorsement of the payee, the payee has no cause of action against anyone on the basis of the check due to
the absence of delivery. However, in the case of Westmont Bank v. Ong, 375 SCRA 212, the payee of the check can sue the collecting
bank to whom the check was deposited despite absence of delivery to the payee in order to avoid circuitry of suits.
150. 150. What is a material alteration?  A material alteration is 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 of the relations of the parties (e)The medium or currency in which
payment is to be made (f) 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.  Where a negotiable instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers.
151. 151. What is the effect of an alteration of the serial number?  The alteration of the serial number of the check is not material and does not
entitle the drawee bank which paid it to recover the payment. The alteration of the serial number of the check did not change the relations
between the parties nor the effect of the instrument.  The drawee bank has no right to dishonor the check and return it to the collecting
bank.
152. 152. Who is an irregular indorser?  An irregular indorser is one whose signature is out of place. Instead of the expected signature of a
party to the instrument, the signature of the irregular indorser is found in its place.  Where a person, not otherwise a party to an
instrument, places thereon his signature in blank before delivery, he is liable as an indorser, in accordance with the following rules: (a)If the
instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties, (b)If the instrument is payable to
 the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer, (c) If he signs for the
accommodation of the payee, he is liable to all parties subsequent to the payee.
153. 153. What is effect of the crossing or striking out of indorsements?  When a holder strikes out any indorsement which is not necessary to
his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the
instrument.  An instrument payable to bearer can be negotiated by mere delivery. Even if a bearer instrument is indorsed specially, the
same continues to be negotiated by mere delivery. Hence, the special indorsement of a bearer instrument is not necessary to the title of the
holder. Such being the case, the holder may strike out said indorsement at any time.  An instrument payable to order can be negotiated by
indorsement completed by delivery. However, if the only or last indorsement is an indorsement in blank the order instrument is converted to
one which is payable to bearer. All special indorsements subsequent to the blank indorsements may be stricken out by the holder because
they are not necessary to this title.  However, in the case of an instrument payable to order with special indorsements all the way up to the
holder, the later cannot strike out any of the special indorsements because all of them are necessary to his title. This is so because the
holder must be able to trace his title to the instrument through an
154. 154. Who is a holder in due course?  A holder in due course is a holder who has taken the instrument under the following
conditions:(a)That it is complete and regular upon its face;(b)That he became the holder of it before it was overdue, and without notice that
it had been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated
to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.
155. 155. What is meant by good faith?  It means that it is required that at the time the holder purchased the instrument there must be total
absence of knowledge on the part of the holder regarding any infirmity in the instrument or defect of title of the person negotiating it.  If the
instrument was issued for an unlawful consideration, or the indorser was guilty of an illegal act or ill-motive in negotiating the instrument, the
holder must not be aware of any of them at the time he took the instrument.
156. 156. What is meant by defects or infirmities?  The title of a person who negotiates an instrument is defective within the meaning of this Act
when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.  Infirmity in the instrument
means that something is wrong with the instrument itself like a forgery or material alteration.
157. 157. How does the prima facie presumption that one is a holder in due course apply?  Every holder of a negotiable instrument is deemed
prima facie a holder in due course.  The presumption that every holder is deemed prima facie to be a holder in due course, arises only in
favor of a person who is a holder in the sense defined in Section 191 of the NIL, that is, a payee or indorsee who is in possession of the
instrument, or the bearer thereof.  There is no presumption that a person through whose hands an instrument has passed was a holder in
due course.
158. 158. What are the rights of a holder in due course?  A holder in due course holds the instrument free from any defect of title of prior
parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount
thereof against all parties liable thereon.  Specifically: (a) He may sue in his own name (b) He may receive payment, and payment to him
in due course discharges the instrument (c) He holds the instrument free from any defect of title of prior parties and free from defenses
available to prior parties among themselves (d) He may enforce payment of the instrument for the full amount thereof against all parties
liable thereon.
159. 159. When is an instrument is subject to original defenses?  In the hands of any holder other than a holder in due course, a negotiable
instrument is subject to the same defenses as if it were non-negotiable. However, a holder who derives his title through a holder in due
course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of
all parties prior to the latter.  A holder who is not a holder in due course, holds the instrument subject to the defenses that may be raised
against the person who transferred the instrument to him. Hence, it is as if the instrument is non-negotiable because the transferee cannot
acquire rights better than those of the transferor. In this case, the transferee is a mere assignee of the rights of the transferor.
160. 160. What are the warranties of the maker?  His warranties are: (a)He will pay the promissory note according to its tenor (b)He admits the
existence of the payee; and (c) He admits that the payee has the capacity to indorse.  The maker is the one who executed the promissory
note. He is the person primarily liable thereon. His liability is absolute and unconditional in accordance with the terms of the promissory
note that he made. He cannot vary its terms.  The maker cannot deny the existence of the payee. He cannot allege that the payee is
fictitious person.  The maker is estopped from contesting the capacity of the payee to indorse. For instance, he cannot allege that the
payee is a minor, or insane. If the payee is a corporation, he cannot allege that its indorsement is ultra vires.
161. 161. What are the warranties of the drawer?  His warranties are: (a) He admits the existence of the payee and his then capacity to
indorse. Note that this is the same as the maker (b) He engages that, on due presentment, the bill will be accepted or paid, or both,
according to its tenor (c) That if it is dishonored by non-acceptance or non-payment, he will pay to the holder of the bill or to any
subsequent indorser who was compelled to pay it, provided the necessary proceedings on dishonor were duly taken.  To fix the liability of
the drawer, the following steps must be taken: (a)Due presentment of the bill of exchange to the drawee, the person to whom the bill is
addressed. It may be presentment for acceptance, or presentment for payment; whichever is necessary under the premises, (b)If
dishonored, the necessary proceedings on dishonor must be taken. Both steps must concur; otherwise, the drawer will be discharged from
liability.  The drawer may negative or limit his liability to the holder by inserting a provision to that effect in the instrument; e.g., “In case of
dishonor, I am not liable for the amount of this instrument
162. 162. What are the warranties of the acceptor?  The warranties of the acceptor are: (a) He will pay the bill according to the tenor of his
acceptance; (b)He admits the existence of the drawer; (c)He admits that the signature of the drawer is genuine; (d) He admits the capacity
of the drawer; (e) He admits that the drawer has the authority to draw the instrument; and (f)He admits the existence of the payee and his
then capacity to indorse.  The acceptor need not accept according to the tenor of the instrument. He can vary the terms of the instrument
such that he can become liable only according to his own terms. However, he is absolutely required to pay according to the tenor of his
acceptance.
163. 163. What are the warranties of person negotiating by delivery or qualfied indorsement?  Every person negotiating an instrument by
delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be (b) That he has
a good title to it (c) That all prior parties had capacity to contract (d) That he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless.  When the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee. When it is by qualfied indorsement the liability extends to all parties who derive title through his indorsement.
164. 164. What are the warranties of a general indorser?  A general indorser has the same warranties as a qualified indorser except that he
warrants that the instrument is, at the time of his indorsement, valid and subsisting.  In addition, he engages that, on due presentment, it
shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.  A
qualified indorser warrants that he is not aware of any fact which will impair the validity of the instrument or render it valueless; whereas, a
general indorsers warrants that the instrument is valid and subsisting, meaning that there is no fact which will impair the validity of the
instrument or render it valueless, regardless of whether he is aware of it or not.  If the instrument is dishonored, the qualified indorser is
not liable if he did not violate his warranties. In the case of a general indorser, if the instrument is dishonored, he engages to pay the
amount of the instrument to the holder or to whomsoever may be compelled to pay it, provided there is due presentment and the necessary
proceedings on dishonor are duly taken; otherwise, the general indorser will be discharged from liability.
165. 165. When is presentment for acceptance required?  Presentment for acceptance must be made by the holder where: (a) bill is payable
after sight or where presentment is necessary to fix maturity (b) it is expressly stipulated, or (c) the bill is drawn payable elsewhere other
than the residence or place of business of the drawee so that the drawee can make arrangements for payment. In no other case is
presentment for acceptance necessary in order to render a party to the bill liable.  Hence, presentment for acceptance is not necessary for
bills: (a) payable on demand (b) payable at sight (c) payable on a fixed date (d) payable several days after date (e) payable upon
occurrence of an event, or (f) payable several days after occurrence of an event. What is required is simply presentment for payment.
166. 166. When is presentment for payment required?  There is need for presentment for payment upon the proper person as it is necessary
to charge persons secondarily liable on the instrument. Failure to present the instrument for payment to the person primarily liable thereon
will discharge the drawer and indorsers from any liability, unless presentment is excused or dispensed with pursuant to the provisions of
Sections 79, 80, 81 or 82 of the NIL.
167. 167. When is presentment for payment dispensed with or excused?  Presentment is dispensed with when: (a)Presentment for payment is
not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument,(b)
Presentment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has
no reason to expect that the instrument will be paid if presented, (c)Delay in making presentment for payment is excused when the delay is
caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of
delay cases to operate, presentment must be made with reasonable diligence.  Presentment for payment is excused when: (a) after the
exercise of reasonable diligence, presentment, as required by the NIL cannot be made (b) Where the drawee is a fictitious person (3) By
waiver of presentment, express or implied.
168. 168. When is notice of dishonor given?  When a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of
dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.  A
notice of dishonor is necessary in order to fix the liabilities of parties secondarily liable on the instrument. The drawer and the indorser must
be given a notice of dishonor once the instrument is dishonored pursuant to the warranties they made when they affixed their signatures on
the instrument.  The parties primarily liable on the instrument need not be given a notice of dishonor because they were the ones who
dishonored the instrument.  The drawee need not be given a notice of dishonor because he is not party to the instrument until he accepts.
169. 169. What are the exceptions to the rule on failure to give notice of dishonor? Where there is a waiver of notice of dishonor which may
occur either before the time of giving notice has arrived or after the omission to give due notice, and the waiver may be expressed or
implied. Where it is dispensed with, after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to
be charged.
170. 170. When is notice of dishonor not required to be given the drawer?  Notice of dishonor is not required to be given to the drawer in either
of the following cases: (a)Where the drawer and drawee are the same person (b)When the drawee is a fictitious person or a person not
having capacity to contract (c) When the drawer is the person to whom the instrument is presented for payment (d)Where the drawer has
no right to expect or require that the drawee or acceptor will honor the instrument (e)Where the drawer has countermanded payment.  As
a general rule, notice of dishonor need not be given to the drawer in instances where he knows or ought to know that the bill of exchange
has been dishonored or will be dishonored. To put it simply, the drawer is not entitled to be notified about something he already knows. 
Further, if the drawee is a fictitious person or one without capacity to contract, the holder can treat it as a promissory note. Thus, the drawer
is treated as a maker, who as such, is primarily liable.
171. 171. When is notice of dishonor not required to be given to an indorser?  Notice of dishonor is not required to be given to an indorser in
the following cases: (a) When the drawee is a fictitious person or not having capacity to contract, and the indorser was aware of that fact at
the time he indorsed the instrument (b) Where the indorser is the person to whom the instrument is presented for payment (c) Where the
instrument was made or accepted for his accommodation.  The indorser need not be notified where he knows or ought to know that the
instrument will be dishonored.
172. 172. What is the effect of Non- Acceptance?  Where due notice of dishonor by non-acceptance has been given, notice of a subsequent
dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted.  This is so because there is no
reason to expect that the same bill will be paid upon its maturity; hence, there is no need to notify the drawer and indorsers again about the
dishonor of the bill by non-payment.  However, if before its maturity, the bill is accepted but later dishonored by non-payment upon its
maturity, the drawer and the indorsers must be given due notice of dishonor by non-payment; otherwise, they will be discharged from
liability. This is so because the earlier notice of dishonor by non-acceptance given the drawer and indorsers was rendered ineffectual by the
subsequent acceptance of the bill. Hence, the necessity of the notice of dishonor by non-payment that must be given to fix the liability of the
drawer and the indorsers.
173. 173. How is a foreign bill distinguished from an inland bill?  A bill of exchange may be a foreign bill of exchange where the drawer and the
drawee are residents of countries foreign to each other or an inland bill of exchange where the drawer and drawee are residents of the
same country as on its face it purports to be, both drawn and payable within the Philippines and unless the contrary appears on the face of
the bill, the holder may treat it as an inland bill. The distinction is material insofar as determining whether protest is to be given in the case
of non-acceptance or dishonour by non-payment as only foreign bills of exchange is subject to protest.
174. 174. What is the effect of the certification of a check?  A check will operate as an assignment of funds when the bank accepts or certifies
the check.  Certification of the check is equivalent to acceptance and when the holder procures it to be certified, the drawer and all
indorsers are discharged from liability thereon.  When a bank certifies a check it agrees in advance to (a) accept the check when it is
presented for payment (b) pay the check out of the funds set aside for the customer’s account.
175. 175. What is meant by the discharge of the negotiable instrument and how does it occur?  It is the release of all parties, whether primary
or secondary, from their obligation on the instrument.  It occurs: (a) By payment in due course by or on behalf of the principal debtor, (b)
By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation, (c) By the
intentional cancellation thereof by the holder, (d) By any other act which will discharge a simple contract for the payment of money, and (e)
When the principal debtor becomes the holder of the instrument at or after maturity in his own right.