RECENT JURISPRUDENCE IN COMMERCIAL LAW

July 2009- March 31, 2014

Dean Nilo T. Divina

CORPORATION LAW

Doctrine of separate legal entity

In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable for corporate liabilities. Furthermore, Article
212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts
of the corporation. The governing law on personal liability of directors for debts of the corporation is
still Section 31 of the Corporation Code. - Alert Security and Investigation Agency, Inc. vs.
Balmaceda , G .R. No. 182397 September 14, 2011

Solidary liability will attach to the directors, officers or employees of the corporation in certain
circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote
for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross
negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.

Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, the following requisites must concur:

(1) the complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and
(2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

Thus, the President of the corporation can not be held personally liable if the complaint merely
averred that he signed as a surety to secure the obligation of the corporation but which surety turned
out to be spurious. Heirs of Fe Tan Uy vs. International Exchange Bank, Feb 13, 2013

The personality of a corporation is distinct and separate from the personalities of its stockholders.
Hence, its stockholders are not themselves the real parties in interest to claim and recover
compensation for the damages arising from the wrongful attachment of corporate assets. Only the
corporation is the real party in interest for that purpose. Stronghold Insurance Company, Inc. v.
Cuenca,G.R. No. 173297, March 6, 2013

In order for the Court to hold the officer of the corporation personally liable alone for the debts of
the corporation and thus pierce the veil of corporate fiction, the Court has required that the bad
faith of the officer must first be established clearly and convincingly. Petitioner, however, has failed
to include any submission pertaining to any wrongdoing of the general manager. Necessarily, it
would be unjust to hold the latter personally liable. Moreso, if the general manager was never
impleaded as a party to the case. Mercy Vda. de Roxas, represented by Arlene C. Roxas-Cruz,
in her capacity as substitute appellant-petitioner v. Our Lady's Foundation, Inc. G.R. No.
182378, March 6, 2013.

Where two banks foreclosed mortgages on certain properties of a mining company and resumed
business operations thereof by organizing a different company to which the banks transferred the
foreclosed assets, the banks are not liable to a contractor which was engaged by the re-organized
mining company even though the latter is wholly-owned by the two banks and they have interlocking
directors, officers and stockholders. While ownership by one corporation of all or a great majority of
stocks of another corporation and their interlocking directorates may serve as indicia of control, by
themselves and without more, however, these circumstances are insufficient to establish an alter ego
relationship or connection between the two banks and the new mining company on the other hand,
that will justify the puncturing of the latter’s corporate cover. Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate corporate personality. Likewise, the existence
of interlocking directors, corporate officers and shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or other public policy considerations. Development
Bank of the Philippines vs. Hydro Resources Contractors Corporation, GR. No. 167603,
March 13, 2013

The fact that an employee of the corporation was made to resign and not allowed to enter the
workplace does not necessarily indicate bad faith on the part of the employer corporation if a
sufficient ground existed for the latter to actually proceed with the termination. A BBOT
L ABORATORIES VS . A LCARAZ , G.R. No. 192571, July 23, 2013

Other than mere ownership of capital stock, circumstances showing that the corporation is being
used to commit fraud or proof of existence of absolute control over the corporation has to be
proven. In short, before the corporate fiction can be disregarded, alter-ego elements must first be
sufficiently established. The mere fact that the same controlling stockholder/officer signed the loan
document on behalf of the corporation does not prove that he exercised control over the finances of
the corporation. Neither is the absence of a board resolution authorizing him to contract the loan
nor the Corporation’s failure to object thereto support this conclusion. While he is the signatory of
the loan and the money was delivered to him, the proceeds of the loan were intended for the
business plan of the corporation. That the business plan did not materialize is also not a sufficient
proof to justify a piercing, in the absence of proof that the business plan was a fraudulent scheme
geared to secure funds from the lender. N UCCIO S AVERIOS VS . P UYAT , G.R. No. 186433,
November 27, 2013

Doctrine of Piercing the veil of corporate fiction

When the corporation ( BB Sportswear, Inc. ) which the plaintiff erroneously impleaded in a
collection case was not the party to the actionable agreement and turned out to be not registered
with the Securities and Exchange Commission, the judgment may still be enforced against the
corporation ( BB Footwear, Inc. ) which filed the answer and participated in the proceedings, as well
as its controlling shareholder who signed the actionable agreement in his personal capacity and as a
single proprietorship doing business under the trade name and style of BB Sportswear Enterprises.
Benny Hung vs BPI Finance Corporation . G.R. No. 182398, 20 July 2010

The court must first acquire jurisdiction over the corporation or corporations involved before its or
their separate personalities are disregarded; and the doctrine of piercing the veil of corporate entity
can only be raised during a full-blown trial over a cause of action duly commenced involving parties
duly brought under the authority of the court by way of service of summons or what passes as such
service. Kukan International Corporation vs. Hon. Judge Amor Reyes, G.R. No. 182729, 29
September 2010

However, in another case involving an action for breach of contract of carriage resulting to the death
of one of the passengers , Supreme Court ruled that if the RTC had sufficient factual basis to
conclude that the two corporations are one and the same entity as when they have the same
President and controlling shareholder and it is generally known in the place where they do business
that both transportation companies are one, the third party claim filed by the other corporation was
set aside and the levy on its property held valid even though the latter was not made a party to the
case . The judgment may be enforced against the other corporation to prevent multiplicity of suits
and save the parties unnecessary expenses and delay. Gold Line Tours vs. Heirs of Maria
Concepcion Lacsa, GR No. 159108, 18 June 2012

The doctrine of piercing the veil of corporate fiction is applicable not only to corporations but also to
a single proprietorship as when the corporation transferred its employees to the company owned by
the controlling stockholder of the corporation and yet despite the transfer, the employees’ daily time
records, reports, daily income remittances and schedule of work were all made, performed, filed and
kept in the corporation. The corporation is clearly hiding behind the supposed separate and distinct
personality of the company. As such, the corporation and the company should be solidarily liable for
the claims of the illegally dismissed employees. Prince Transport, Inc. vs. Garcia, GR No.
167291, January 12, 2011

Although the corporate veil between two corporations can not be pierced for lack of legal basis, it
does not necessarily mean that the corporate officers of such corporations are exempt from liability.
Section 31 of the Corporation Code makes a director or officer personally liable if he is guilty of bad
faith or gross negligence in directing the affairs of the corporation. In this case, the officers of the
corporation who maliciously terminated the employment of certain employees without any valid
ground and in order to suppress their right to self-organization, having acted in bad faith in directing
the affairs of the corporation, are solidarily liable with the corporation for the unlawful dismissal.
Park Hotel vs. Soriano, GR No. 171118, September 10, 2012

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.

In this connection, case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiff’s legal right; and
3. The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.
The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent. It inquires whether a subsidiary
corporation is so organized and controlled and its affairs are so conducted as to make it a mere
instrumentality or agent of the parent corporation such that its separate existence as a distinct
corporate entity will be ignored. In addition, the control must be shown to have been exercised at
the time the acts complained of took place.

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an
element of injustice or fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have
been treated unjustly by the defendant’s exercise of control and improper use of the corporate form
and, thereby, suffer damages. Development Bank of the Philippines vs. Hydro Resources
Contractors Corporation, GR. No. 167603, March 13, 2013

Piercing the veil of corporate fiction is warranted when a corporation ceased to exist only in name as
it re-emerged in the person of another corporation, for the purpose of evading its unfulfilled
financial obligation under a compromise agreement. Thus, if the judgment for money claim could
not be enforced against the employer corporation, an alias writ may be obtained against the other
corporation considering the indubitable link between the closure of the first corporation and
incorporation of the other. Livesey vs. Binswanger Philippines, GR No. 177493, March 19,
2014

Where the court rendered judgment against a stock brokerage firm directing the latter to return
shares of stock which it sold without authority, but the writ of execution was returned unsatisfied, an
alias writ of execution could not be enforced against its parent company because the court has not
acquired jurisdiction over the latter and while the parent company owns and controls the brokerage
firm, there is no showing that the control was used to violate the rights of the plaintiff. Pacific
Rehouse Corporation vs. Court of Appeals, GR. No. 199687, March 24, 2014

NB. There appears to be a lack of conclusive yardstick as to when the court may pierce the veil of
corporate fiction of a corporation which has not been brought to its jurisdiction by summons,
voluntary appearance or other recognized modes of acquiring jurisdiction. To be safe, any bar
question should be answered based on similarity with the facts of each case.

Government Corporation

Although the Philippine National Red Cross was created by a special charter, it can not be
considered a government-owned and controlled corporation in the absence of the essential
elements of ownership and control by the government. It does not have government assets and does
not receive any appropriation from the Philippine Congress. It is a non-profit, donor-funded,
voluntary organization, whose mission is to bring timely, effective and compassionate humanitarian
assistance for the most vulnerable without consideration of nationality, race, religion, gender, social
status or political affiliation. This does not mean however that the charter of PNRC is
unconstitutional. PNRC has a sui generis status. Although it is neither a subdivision, agency, or
instrumentality of the government, nor a government-owned or -controlled corporation or a
subsidiary thereof, so much so that Gordon was correctly allowed to hold his position as Chairman
thereof concurrently while he served as a Senator, such a conclusion does not ipso facto imply that
the PNRC is a “private corporation” within the contemplation of the provision of the Constitution,
that must be organized under the Corporation Code. The PNRC enjoys a special status as an
important ally and auxiliary of the government in the humanitarian field in accordance with its
commitments under international law. This Court cannot all of a sudden refuse to recognize its
existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by
the parties. Liban vs. Gordon, GR No. 175352, January 10, 2011

A government–owned or controlled corporation refers to any agency organized as a stock or non-

stock corporation vested with functions relating to public needs whether governmental or
proprietary in nature and owned by the government through its instrumentalities either wholly or
where applicable as in the case of stock corporation to the extent of at least 51% of its capital stock.
When a stockholder ceded to the government shares representing 72.4 % of the voting stock of the
corporation but subsequently clarified that it should be reduced to 32.4%, the corporation shall not
be considered government-owned and controlled until the quantification of shares is resolved with
finality. Carandang vs. Desierto, GR No. 148076, January 12, 2011

GOCCs are “ stock or non-stock corporations “ vested with functions relating to public needs that are
owned by the government directly or through its instrumentalities. By definition, three attributes
thus make an entity a GOCC: first, its organization as stock or non-stock corporation; second, the
public character of its function; and third, government ownership over the same. Possession of all
three attributes is necessary to deem an entity a GOCC. The Manila Economic Council and Cultural
Office ( MECO ) is not a GOCC because it is not owned by the government. It was organized as a non-
stock non profit corporation. However, despite its non-governmental character, it handles
government funds in the form of verification fees it collects on behalf of DOLE and the consular fees
it collects. Hence, these accounts of MECO should be audited by COA. Dennis A.B vs Manila
Economic and Cultural Office, GR. No. 193462, February 4, 2014

Capital

Considering that common shares have voting rights which translate to control, as opposed to
preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of
the Constitution refers only to common shares. However, if the preferred shares also have the right
to vote in the election of directors, then the term "capital" shall include such preferred shares
because the right to participate in the control or management of the corporation is exercised
through the right to vote in the election of directors. In short, the term "capital" in Section 11, Article
XII of the Constitution refers only to shares of stock that can vote in the election of directors. To
construe broadly the term “capital” as the total outstanding capital stock, including both common
and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that
the “State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.” A broad definition unjustifiably disregards who owns the all-important voting stock, which
necessarily equates to control of the public utility. Gamboa v. Teves, et al.,G.R. No. 176579, June
28, 2011.

If a corporation is engaged in a partially nationalized industry, issues a mixture of common and

preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a
single class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In
short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each
class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.
Heirs of Wilson P. Gamboa vs. Teves, 682 SCRA 397(2012)

Corporation by estoppel
Corporation by estoppel results when a corporation represented itself to the public as such despite
its not being incorporated. A corporation by estoppel may be impleaded as a party defendant
considering that it possesses attributes of a juridical person, otherwise, it can not be held liable for
damages and injuries it may inflict to other persons. Macasaet vs. Francisco, GR No. 156759,
June 5, 2013

NB This case involves the legality of a court order denying a motion to dismiss to drop as a
party defendant Abantetonight for not being a corporation registered with the SEC. There
is no ruling yet on the liability of such corporation. It will be interesting to see how the SC
will eventually rule on how to enforce a judgment against a corporation by estoppel
( independently of those who represented themselves as a corporation who, under the law,
are liable as general partners ).

Corporate name

The mere change in the corporate name is not considered under the law as the creation of a new
corporation; hence, the renamed corporation remains liable for the illegal dismissal of its employee
separated under that guise. Verily, the amendments of the articles of incorporation for change of
corporate name did not produce the dissolution of the corporation. For sure, the Corporation Code
defined and delineated the different modes of dissolving a corporation and amendment of the
articles of incorporation was not one of such modes. Zuellig Freight and Cargo Systems vs.
NLRC, GR No. 157900, July 22, 2013

Board of Directors/Corporate Officers

The lawyer who signed the pleading, verification and certification against non-forum shopping must
be specifically authorized by the Board of Directors of the Corporation to make his actions binding
on his principal. Maranaw Hotels and Resort Corporation v. Court of Appeals, 576 SCRA 463
(2009)

If the real party in interest is a corporate body, an officer of the corporation can sign the certification
against forum shopping so long as he has been duly authorized by a resolution of its board of
directors. The court did not commit grave abuse of discretion in dismissing the petition for lack of
authority of authority of the officer who signed the certification of non-forum shopping in
representation of petitioner corporation. San Miguel Bukid Homeowners Association, Inc. vs
City of Mandaluyong, et al, GR no.153653, October 2, 2009; Republic of the Philippines vs.
Coalbrine International Philippines, et al GR No. 161838, April 7, 2010

The following officers may sign the verification and certification against non-forum shopping on
behalf of the corporation even in the absence of board resolution,

a)Chairperson of the Board of Directors;

b)President,
c)General Manager,
d) Personnel Officer,
e) Employment Specialist in labor case.

These officers are in the position to verify the truthfulness and correctness of the allegations in the
petition. Mid Pasig Land and Development Corporation v. Tablante, G.R. No. 162924,
February 4, 2010; PNCC Skyway Traffic Management and Security Division Workers
Organization vs PNCC Skyway Corporation, GR No. 171231, February 17, 2010
The Board of Directors of a corporation can not validly delegate the power to create a corporate
office to the President, in the light of Section 25 of the Corporation Code requiring the Board of
Directors itself to elect the corporate officers. Verily, the power to elect the corporate officers is a
discretionary power that the law exclusively vested in the Board of Directors, and can not be
delegated to subordinate officers or agents. The office of Vice President for Finance and
Administration created by the President of the Corporation pursuant to the pertinent provision in the
by-laws of the corporation was an ordinary, not a corporate, office. In case of dismissal or removal
from office, the labor arbiter, not the RTC special commercial court, that has jurisdiction. Matling
Industrial and Commercial Corporation vs. Coros , G.R. No. 157802, 13 October 2010

The conditions for the application of Section 31 of the Corporation Code ( that a director or trustee
willfully and knowingly voted or assented to a patently unlawful acts of the corporation, among
others ) require factual foundations to be laid out in appropriate judicial proceedings. Concluding
that an officer and a member of the Board of Directors breached fiduciary duties without competent
evidence thereon would be unwarranted and unreasonable. Republic vs Sandiganbayan, GR No.
166859, April 12, 2011

The execution of a document by a bank manager called “ pagares “ which guaranteed purchases on
credit by a client is contrary to the General Banking law which prohibits bank officers from
guaranteeing loans of bank clients. United Coconut Planters Bank vs. Planters Products Inc. GR
No. 179015, 13 June 2012.

Absent any evidence that they have exceeded their authority, corporate officers are not personally
liable for their official acts. The lack of valid cause of the dismissal of an employee does not ipso
facto mean that the corporate officers acted with malice or bad faith. Torres vs. Rural Bank of San
Juan G.R. No. 184520, March 13, 2013

The general rule is that a corporation can only exercise its powers and transact its business through
its board of directors and through its officers and agents when authorized by a board resolution or its
bylaws. The power of a corporation to sue and be sued is exercised by the board of directors. The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. Absent
the said board resolution, a petition may not be given due course. Esguerra vs. Holcim Philippines
G.R. No. 182571, September 2, 2013

In a complaint for nullification of mortgage and foreclosure with damages against the mortgagee-
bank, the plaintiff can not compel the officers of the bank to appear and testify as plaintiff’s initial
witnesses unless written interrogatories are first served upon the bank officers. This is in line with
the Rules of Court provision that calling the adverse party to the witness stand is not allowed unless
written interrogatories are first served upon the latter. This is because the officers of a corporation
are considered adverse parties as well in a case against the corporation itself based on the principle
that corporations act only through their officers and duly authorized agents. Spouses Afulugencia
vs. Metropolitan Bank and Trust Co. G.R. No. 185145, February 05, 2014

Obligations incurred as a result of the directors’ and officers’ acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent. As a rule, they are
only solidarily liable with the corporation for the illegal termination of services of employees if they
acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must concur:
(1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts
of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must
be proof that the officer acted in bad faith. The fact that the corporation ceased its operations the
day after the promulgation of the SC resolution finding the corporation liable does not prove bad
faith on the part of the incorporator of the corporation. Polymer Rubber Corporation vs. Ang,
G.R. No. 185160. July 24, 2013

Doctrine of Apparent Authority

Although a branch manager, within his field and as to third persons, is the general agent and is in
general charge of the corporation, with apparent authority commensurate with the ordinary business
entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate
contracts remains generally in the board of directors. Being a mere branch manager alone is
insufficient to support the conclusion that he has been clothed with “apparent authority” to verbally
alter terms of written contracts, especially when viewed against the telling circumstances of this
case: the unequivocal provision in the mortgage contract; the corporation’s vigorous denial that any
agreement to release the mortgage was ever entered into by it; and, the fact that the purported
agreement was not even reduced into writing considering its legal effects on the parties’ interests.
Banate vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., G.R. No. 163825, July 13,
2010

A corporation can not deny the authority of lawyer when they clothed him with apparent authority
to act in their behalf such as when he entered his appearance accompanied by the corporation’s
general manager and the corporation never questioned his acts and even took time and effort to
forward all the court documents to him. The lawyer may not have been armed with a board
resolution but the doctrine of apparent authority imposes liability not as a result of contractual
relationship but rather because of the actions of the principal or an employer in somehow misleading
the public that the relationship or the authority exists. Megan Sugar Corporation vs. RTC of Ilo-
ilo Br. 68, GR no. 170352, June 1, 2011

The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those acts.

Apparent authority is derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as having the power to act
or, in other words the apparent authority to act in general, with which it clothes him; or (2) the
acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within
or beyond the scope of his ordinary powers. It is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate officer with the power to bind the corporation.
When the sole management of the corporation was entrusted to two of its officers/incorporators
with the other officers never had dealings with the corporation for 14 years and that the board and
the stockholders never had its meeting, the corporation is now estopped from denying the officers’
authority to obtain loan from the lender on behalf of the corporation under the doctrine of apparent
authority. Advance Paper Corporation vs Arma Traders Corporation , G.R. No 176897,
December 11, 2013.

Vacancy in the Board of Directors

The stockholders, and not the directors, shall elect those who will fill in the vacancy created by the
resignation of the hold-over board members. This is because in this case the ground for the vacancy
is expiration of term of the hold-over directors and not resignation. Valle Verde Country Club v.
Africa, September 4, 2009

Derivative suit
The stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, by-laws, laws or rules governing the
corporation to obtain the relief he desires and to allege such fact with particularity in the complaint.
The allegation that the suing stockholder talked to the other stockholder regarding the dispute
hardly constitutes “ all reasonable efforts to exhaust all remedies available “. The complaint should
also allege the fact that there was no appraisal right available under for the acts complained of and
that the suit was not a nuisance or harassment suit. The fact that the corporation involved is a family
corporation should not in any way exempt the suing stockholder from the requirements and
formalities for filing a derivative suit. Yu vs. Yukayguan, 588 SCRA 589 ( 2009 )

Petitioners seek the nullification of the election of the Board of Directors composed of herein
respondents, who pushed through with the election even if petitioners had adjourned the meeting
allegedly due to lack of quorum. Petitioners are the injured party, whose rights to vote and to be
voted upon were directly affected by the election of the new set of board of directors. The party-in-
interest are the petitioners as stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did not have the right to
vote. Hence, the complaint for nullification of the election is a direct action by petitioners, who
were the members of the Board of Directors of the corporation before the election, against
respondents, who are the newly-elected Board of Directors. Under the circumstances, the derivative
suit filed by petitioners in behalf of the condominium corporation is improper. Legaspi Towers 300,
Inc., vs. Muer G.R. No. 170783, June 18, 2012.

A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce

corporate rights against the corporation’s directors, officers or other insiders. Under Sections 23 and
36 of the Corporation Code, the directors or officers, as provided under the by-laws, have the right to
decide whether or not a corporation should sue. Since these directors or officers will never be willing
to sue themselves or impugn their wrongful and fraudulent decisions, stockholders are permitted by
law to bring an action in the name of the corporation to hold these directors and officers
accountable. In derivative suits, the real party in interest is the corporation while the stockholder is
only a nominal party.

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:
(1) The person filing the suit must be a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the action was filed;
(2) He must have exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws
or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

The complaint filed by a stockholder to compel another stockholder to settle his share of the loan
because this will affect the financial viability of the corporation can not be considered as a derivative
suit because the loan was not a corporate obligation but a personal debt of the stockholders. The
fact that the stockholders attempted to constitute a mortgage over “ their “ share in a corporate
asset can not affect the corporation where the wordings of the mortgage agreement reveal that it
was signed by the stockholders in their personal capacity as the owners of the pro-indiviso share in
the corporate property and not on behalf of the corporation. A NG , FOR AND IN BEHALF OF S UNRISE
M ARKETING (B ACOLOD ), I NC . V . S PS . A NG .G.R. No. 201675, June 19, 2013

Trust fund doctrine

The creditor is allowed to maintain an action upon any unpaid subscriptions ( in the same collection
suit against the corporation ) and thereby steps into the shoes of the corporation for the satisfaction
of the debt. To make out a prima facie case in a suit against stockholders of an insolvent corporation
to compel them to contribute to the payment of its debts by making good the balances upon their
subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the
par value of the stocks of the corporation. Subscriptions to the capital stock of a corporation
constitute a fund to which creditors have the right to look for satisfaction of their claims. The scope
of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also
other property and assets generally regarded in equity as a trust fund for the payment of corporate
debts. Halley vs. Printwell, Inc., GR No. 157549, May 30, 2011

Shares

Upon the death of the stockholder, his heirs do not automatically become the stockholders of the
corporation. The heirs acquire standing in the corporation only upon registration of the transfer of
the ownership of the shares in the books of the corporation. Puno v. Puno Enterprises, September
11, 2009

The arrangement provided for in the by-laws of the Corporation whereby a lien is constituted on the
membership share to answer for dues, assessments and subsequent obligations to the corporation
cannot be upheld unless coupled by a corresponding pledge or chattel mortgage agreement . Valley
Golf and Country Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)

A stock corporation is expressly granted the power to issue or sell stocks. The power to issue stocks is
lodged with the Board of Directors and no stockholders meeting is required to consider it because
additional issuances of stock ( unlike increase in capital stock ) does not need approval of the
stockholders. What is only required is the board resolution approving the additional issuance of
shares. The corporation shall also file the necessary application with the SEC to exempt these from
the registration requirements under the SRC. Majority of Stockholders of Ruby Industrial
Corporation vs Lim, GR No. 165887, June 6, 2011

Section 63 of the Corporation Code provides that shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer. The failure of the stockholder to
deliver the stock certificate to the buyer within a reasonable time the shares covered by the stock
certificate should have been delivered is a substantial breach that entitles the buyer to rescind the
sale under Article 1191 of the Corporation Code . It is not entirely correct to say the sale had already
been consummated as the buyer already enjoyed the rights a shareholder can exercise. The
enjoyment of these rights will not suffice where the law, by its express terms, requires a specific form
to transfer ownership. Fil-Estate Golf and Development vs. Vertex Sales and Trading Inc., G.R.
No. 202079, June 10, 2013

The Corporation whose shares of stock are the subject of a transfer transaction (through sale,
assignment, donation, or any other mode of conveyance) need not be a party to the transaction, as
may be inferred from the terms of Section 63 of the Corporation Code. However, to bind the
corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation. In a share purchase transaction, the parties are the seller and buyer of the shares. Not
being a party to the sale, the Corporation is in no position to appeal the ruling rescinding the sale of
the shares. If the Seller of the shares filed no appeal against the court decision declaring the
rescission of the sale, then the rescission is deemed final despite any appeal by the corporation
whose shares of stock are the subject of the transfer transaction. Forest Hills Golf & Country
Club vs. Vertex Sales and Trading Inc.G.R. No. 202205, March 6, 2013.
Under the two-tiered test, the government, thru PCGG, may vote sequestered shares if there is a
prima facie evidence that the shares are ill-gotten and there is imminent danger of dissipation of
assets while the case is pending. However, the two- tiered test contemplates a situation where the
registered stockholders were in control and had been dissipating company assets and the PCGG
wanted to vote the sequestered shares to save the company. It does not apply when the PCGG had
voted the shares and is in control of the sequestered corporation . Africa vs. Hon. Sandiganbayan ,
G.R. Nos. 172222/G.R. No. 174493/ G.R. No. 184636, November 11, 2013

Since the law does not prescribe a period for registration of shares in the books of the corporation,
the action to enforce the right to have it done does not begin until a demand for it had been made
and was refused. Africa vs. Hon. Sandiganbayan, ibid.

Pre-emptive right

Even if pre-emptive right does not exist either because the issue comes within the exceptions in
Section 39 of the Corporation Code or because it is denied in the articles of incorporation, an issue
of shares may still be objectionable if the directors acted in breach of trust and their primary purpose
is to perpetuate or shift control of the corporation or to “ freeze out” the minority interest. The
issuance of unissued shares out of the original authorized capital stock pursuant to a rehabilitation
plan the propriety and validity of which was on question by the minority stockholders and
subsequently disapproved by the court amounts to unlawful dilution of the minority shareholdings.
Majority of Stockholders of Ruby Industrial Corporation vs Lim, GR No. 165887, June 6,
2011

Merger

Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized the
merger of two banks, the merger is still incomplete without the certificate of merger duly issued by
the SEC. The issuance of the certificate of merger is crucial because not only does it bear out SEC’s
approval but it also marks the moment when the consequences of a merger take place. By operation
of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving
corporation. Mindanao Savings and Loan Association vs. Willkom, G.R. No. 178618, 11
October 2010

It is contrary to public policy to declare the former employees of the absorbed corporation as
forming part of its assets or liabilities that were transferred to and absorbed by the surviving
corporation in the Articles of Merger. Assets and liabilities, in this instance, should be deemed to
refer only to property rights and obligations and do not include the employment contracts of its
personnel. A corporation cannot unilaterally transfer its employees to another employer like
chattel. Certainly, if the surviving corporation as an employer had the right to choose who to retain
among the employees of the absorbed corporation, the latter employees had the concomitant right
to choose not to be absorbed by the corporation. Even though the employees of the absorbed
corporation had no choice or control over the merger of their employer, they had a choice whether
or not they would allow themselves to be absorbed by the surviving corporation. Certainly nothing
prevented the employees of the absorbed corporation from resigning or retiring and seeking
employment elsewhere instead of going along with the proposed absorption. Bank of the
Philippine Islands v. BPI Employees Union – Davao Chapter 627 SCRA 590

On motion for reconsideration, however, the Supreme Court ruled that it is more in keeping with
social justice that the employees of the absorbed corporation be considered employees of the
surviving corporation without break in the continuity of their employment even without express
stipulation in the Articles of Merger. Bank of the Philippine Islands v. BPI Employees Union –
Davao Chapter, G.R. No. 164301, October 19, 2011

Through the service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a
"forced intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to
compliance with all orders and processes of the trial court with a view to the complete satisfaction of
the judgment of the court.

Citytrust, therefore, upon service of the notice of garnishment and its acknowledgment that it was in
possession of defendants' deposit accounts became a "virtual party" to or a "forced intervenor" in the
civil case. As such, it became bound by the orders and processes issued by the trial court despite not
having been properly impleaded therein. Consequently, by virtue of its merger with BPI , the latter,
as the surviving corporation, effectively became the garnishee, thus the "virtual party" to the civil
case. Bank of Philippine Islands v. Lee, G.R. No. 190144, August 1, 2012

There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the corporate
entity sells all or substantially all of its assets to another entity. In stock sales, the individual or
corporate shareholders sell a controlling block of stock to new or existing shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees,
but is liable for the payment of separation pay under the law. The buyer in good faith, on the other
hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the payment of
their claims. The most that it may do, for reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the selling firm.

In contrast with asset sales, in which the assets of the selling corporation are transferred to another
entity, the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the composition
of its shareholders will not affect its existence and continuity.

Thus, notwithstanding the stock sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims. Furthermore, the corporation or its new
majority shareholders are not entitled to lawfully dismiss corporate employees absent a just or
authorized cause.

The fact that there was a change in the composition of its shareholders did not affect the employer-
employee relationship between the employees and the corporation, because an equity transfer
affects neither the existence nor the liabilities of a corporation. Thus, the corporation continued to
be the employer of the corporation’s employees notwithstanding the equity change in the
corporation. This outcome is in line with the rule that a corporation has a personality separate and
distinct from that of its individual shareholders or members, such that a change in the composition of
its shareholders or members would not affect its corporate liabilities.

In this case, the corporate officers and directors who induced the employees to resign with the
assurance that they would be rehired by the new management are personally liable to the employees
who were not actually rehired. However, the officer who did not participate in the termination of
employment and persons who participated in the unlawful termination of employment but are not
directors and officers of the corporation are not personally liable. SME BANK INC, vs.
GASPAR, G.R. No. 186641, October 8, 2013

Where the purchase and sale of identified assets between two companies under a Purchase and Sale
Agreement does not constitute a merger, the seller and the purchaser are considered entities
different from one another. Thus, the purchaser company can not be held liable for the payment of
deficiency documentary stamp tax against the seller company. Commission of Internal Revenue
vs, Bank of Commerce, GR No. 180529, November 25, 2013
Appraisal Right

In order to give rise to any obligation to pay on the part of the corporation, the dissenting
stockholder should first make a valid demand that the corporation refused to pay despite having
unrestricted retained earnings. Otherwise, the corporation could not be said to be guilty of any
actionable omission that could sustain the action to collect. The collection suit filed by the dissenting
stockholder to enforce payment of the fair value of his shares is premature if at the time of demand
for payment, the corporation had no surplus profit. The fact that the Corporation subsequent to the
demand for payment and during the pendency of the collection case posted surplus profit did not
cure the prematurity of the cause of action. Turner vs. Lorenzo Shipping Corporation, G.R. No.
157479, November 24, 2010

Dissolution

An action to correct entries in the General Information Sheet of the Corporation; to be recognized as
a stockholder and to inspect corporate documents is an intra-corporate dispute which does not
constitute a continuation of corporate business. As such, pursuant to Section 145 of the Corporation
Code, this action is not affected by the subsequent dissolution of the corporation. The dissolution of
the corporation simply prohibits it from continuing its business. However, despite such dissolution,
the parties involved in the litigation are still corporate actors. The dissolution does not automatically
convert the parties into total strangers or change their intra-corporate relationships. Neither does it
change or terminate existing causes of action, which arose because of the corporate ties between the
parties. Thus, a cause of action involving an intra-corporate controversy remains and must be filed as
an intra-corporate dispute despite the subsequent dissolution of the corporation.“ Aguirre vs. FQB
+7, Inc, GR No. 170770, January 9 2013.

The executed releases, waivers and quitclaims are valid and binding upon the parties
notwithstanding the fact that these documents were signed six years after the Corporation’s
revocation of the Certificate of Incorporation. These documents are thus proof that the employees
had received their claims from their employer-corporation in whose favor the release and quitclaim
were issued. The revocation of the corporation does not mean the termination of its liabilities to
these employees. Section 122 of the Corporation Code provides for a three-year winding up period
for a corporation whose charter is annulled by forfeiture or otherwise to continue as a body
corporate for the purpose, among others, of settling and closing its affairs As such, these liabilities
are obligations of the dissolved corporation and not of the corporation who contracted the services
of the dissolved corporation. Vigilla vs. Philippine College of Criminology, GR No. 200094,
June 10, 2013

Liquidation

To allow a creditor’s case to proceed independently of the liquidation case, a possibility of favorable
judgment and execution thereof against the assets of the distressed corporation would not only
prejudice the other creditors and depositors but would defeat the very purpose for which a
liquidation court was constituted as well. Barrameda v. Rural Bank of Canaman , Inc., G.R. No.
176260, 24 November 2010

Corporate Rehabilitation
The prevailing rule now categorically provides that awards for moral damages, exemplary damages,
and attorney’s fees in intra-corporate controversies are not immediately executory. Heirs of
Santiago Divinagracia vs. Ruiz, G.R. No. 172023, 7 July 2010

The suspension of claims in corporate rehabilitation does not extend to criminal actions against the
distressed corporations or its directors and officers. It would be absurd for one who has engaged in
criminal conduct to escape punishment simply because the corporation of which he is director or
officer filed a petition for rehabilitation. The prosecution of the officers of the corporation has no
bearing on the pending rehabilitation of the corporation. Panlilio vs. Regional Trial Court ,
Branch 51, City of Manila, GR No. 173846, February 2, 2011

The return of the car subject of the writ of replevin is correct notwithstanding the pendency of the
rehabilitation proceedings. This is the necessary consequence of the dismissal of the replevin case for
failure to prosecute without prejudice. Upon the dismissal of the replevin case, the writ of seizure,
which is merely ancillary in nature, became functus officio and should have been lifted. There was no
adjudication on the merits, which means that there was no determination of the issue who has the
better right to possess the subject car. Returning the seized vehicle is not an enforcement of a claim
against the distressed corporation which must be suspended by virtue of the stay order issued by the
rehabilitation court. The issue in a replevin case is who has a better right of possession. So long as
the respondent is not interposing a MONETARY CLAIM, respondent’s prayer for the return of the car
subject of the replevin suit is not in anyway violative of the Rules on Corporate Rehabilitation.
Advent Capital and Medical Corporation v. Young, G.R. No. 183018, August 3, 2011

The suspension of all actions and/or claims against a corporation under rehabilitation does not only
cover cases which are pending in court. The AUTOMATIC SUSPENSION of an action for claims
embraces ALL PHASES of the suit, that is, the ENTIRE PROCEEDINGS of an action or suit and not just
the payment of the claims.

The actions that were suspended cover all claims against a distressed corporation whether for
damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims
of a pecuniary nature. A claim arising from illegal dismissal is a claim covered by the suspension order
issued by the SEC, as it is one for pecuniary consideration.

Furthermore, jurisprudence is settled that the suspension of proceedings referred to in the law
uniformly applies to “all actions for claims” filed against a corporation xxx under management or
receivership, without distinction, except only those expenses incurred in the ordinary course of
business. Molina v. Pacific Plans, Inc.,G.R. No. 165476, August 15, 2011

Since the foreclosure of the mortgage and the issuance of the certificate of sale in favor of the
mortgagee were done prior to the appointment of a Rehabilitation Receiver and the issuance of the
Stay Order, all the actions taken with respect to the foreclosed mortgage property which were
subsequent to the issuance of the Stay Order were not affected by the Stay Order. Thus, after the
redemption period expired without the mortgagor redeeming the foreclosed property, the
mortgagee becomes the absolute owner of the property and it was within its right to ask for the
consolidation of title and the issuance of new title in its favor. The writ of possession procured by the
mortgagee despite the subsequent issuance of a stay order in the rehabilitation proceedings
instituted is also valid. Equitable PCI Bank, Inc. vs. DNG Realty and Development
Corporation, 627 SCRA 125(2010)] reiterated in Town and Country Enterprises Inc v.
Honorable Quisumbing, G.R. No. 173610, 01 October 2012

The creditor-mortgagee has the right to foreclose the mortgage over a specific real property
whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to
foreclose such mortgage is merely suspended upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the creditor-
mortgagee may exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order. Yngson, Jr. (in his capacity as
Liquidator of Arcam & Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August
15, 2012.
The actions to be suspended cover all claims against a distressed corporation whether for damages
founded on a breach of contract of carriage, labor cases, collection suits or any other claims of
pecuniary nature. Jurisprudence is settled that the suspension of proceedings referred to in the law
uniformly applies to "all actions for claims" filed against the corporation, partnership or association
under management or receivership, without distinction, except only those expenses incurred in the
ordinary course of business. The stay order is effective on all creditors of the corporation without
distinction, whether secured or unsecured. Veterans Philippine Scout Security Agency, Inc. v.
First Dominion Prime Holdings, Inc., G.R. No. 190907, August 23, 2012.

The Stay Order cannot suspend foreclosure proceedings already commenced over properties
belonging to third party mortgagors. The Stay Order can only cover those claims directed against
petitioner corporations or their properties, against petitioners’ guarantors, or against petitioners’
sureties who are not solidarily liable with them.

Likewise, the enforcement of the mortgage lien cannot be considered as a claim against a guarantor
or a surety not solidarily liable with the debtor corporations. While the third party mortgagors also
executed Continuing Guaranty and Comprehensive Surety undertakings in favor of the bank, the
latter did not proceed against them as individual guarantors or sureties. Rather, by initiating
extrajudicial foreclosure proceedings, the bank was directly proceeding against the property
mortgaged to them by the spouses as security. Situs Development Corporation et al v. Asia Trust
Bank et al., G.R. No. 180036, July 25, 2012.
The court has already settled and upheld the right of the secured creditor to foreclose the mortgages
in its favor during the liquidation of a debtor corporation.

The creditor-mortgagee has the right to foreclose the mortgage over a specific real property
whether or not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to
foreclose such mortgage is merely suspended upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the creditor-
mortgagee may exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order. Yngson, Jr. (in his capacity as
Liquidator of Arcam & Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August
15, 2012.

Considering that Metrobank acquired ownership over the mortgaged properties upon the expiration
of the redemption period on 6 February 2002, TCEI is also out on a limb in invoking the Stay Order
issued by the Rehabilitation Court on 8 October 2002 and the approval of its rehabilitation plan. An
essential function of corporate rehabilitation is, admittedly, the Stay Order which is a mechanism of
suspension of all actions and claims against the distressed corporation upon the due appointment of
a management committee or rehabilitation receiver. The Stay Order issued by the Rehabilitation
Court cannot, however, apply to the mortgage obligations owing to Metrobank which had already
been enforced even before TCEI’s filing of its petition for corporate rehabilitation on 1 October
2002. In Equitable PCI Bank, Inc v. DNG Realty and Development Corporation , the Court upheld the
validity of the writ of possession procured by the creditor despite the subsequent issuance of a stay
order in the rehabilitation proceedings instituted by the debtor. Town and Country Enterprises
Inc v. Honorable Quisumbing, G.R. No. 173610, 01 October 2012.

Sec. 146 of the FRIA, which makes it applicable to “all further proceedings in insolvency, suspension
of payments and rehabilitation cases x x x except to the extent that in the opinion of the court their
application would not be feasible or would work injustice,” still presupposes a prospective
application. The wording of the law clearly shows that it is applicable to all further proceedings. In
no way could it be made retrospectively applicable to the Stay Order issued by the rehabilitation
court in 2002. At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim
Rules of Procedure on Corporate Rehabilitation. Under those rules, one of the effects of a Stay Order
is the stay of the "enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not
solidarily liable with the debtor. Nowhere in the Interim Rules is the rehabilitation court authorized
to suspend foreclosure proceedings against properties of third-party mortgagors. Situs
Development vs. Asia Trust Bank January 16, 2013

Under the rules on corporate rehabilitation, a rehabilitation plan may be approved even over the
opposition of the majority creditors if there is a showing that the rehabilitation is feasible and the
opposition of the creditors is manifestly unreasonable. Also known as the “ cram- down clause, this
provision which is currently incorporated in the FRIA is necessary to curb the majority creditors’
tendency to dictate their own terms and conditions to the rehabilitation absent due regard to the
greater long term benefit of all stakeholders. Bank of the Philippine Islands vs. SarabiaManor
Hotel Corporation, GR. No. 175844, July 29, 2013
Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in ordinary court proceedings.

The jurisdiction of the rehabilitation court is over claims against the debtor that is under
rehabilitation, not over claims by the debtor against its own debtors or against third parties.

The corporation under rehabilitation must file a separate action against its debtors/insurers to
recover whatever claim it may have against them. Steel Corporation vs. Mapfre Insular
Insurance Corporation, G.R. No. 201199, October 16, 2013

Under Section 6 (c) of PD 902-A, receivers may be appointed whenever: (1) necessary in order to
preserve the rights of the parties-litigants; and/or (2) protect the interest of the investing public and
creditors.

The stay order and appointment of a rehabilitation receiver is an "extraordinary, preliminary, ex

parte remed[y]." The effectivity period of a stay order is only "from the date of its issuance until
dismissal of the petition or termination of the rehabilitation proceedings." It is not a final disposition
of the case. It is an interlocutory order defined as one that "does not finally dispose of the case, and
does not end the Court’s task of adjudicating the parties’ contentions and determining their rights
and liabilities as regards each other, but obviously indicates that other things remain to be done by
the Court."

The Interim Rules does not require a hearing before the issuance of a stay order. What it requires is
an initial hearing before it can give due course to or dismiss a petition. Nevertheless, while the
Interim Rules does not require the holding of a hearing before the issuance of a stay order, neither
does it prohibit the holding of one. Thus, the trial court has ample discretion to call a hearing when it
is not confident that the allegations in the petition are sufficient in form and substance, for so long as
this hearing is held within the five (5)-day period from the filing of the petition — the period within
which a stay order may issue as provided in the Interim Rules. P RYCE C ORPORATION V . C HINA
B ANKING C ORPORATION . G.R. No. 172302, February 18, 2014.

NB. The foregoing jurisprudence should now be read in conjunction with the FRIA law. The
FRIA law is not covered in the 2014 Bar Examinations

Corporation Sole
Any corporation sole may purchase and hold real estate and personal property for its church,
charitable, benevolent or educational purposes, and may receive bequests or gifts for such purposes.
Such corporation may mortgage or sell real property held by it upon obtaining an order for that
purpose from the Court of First Instance of the province where the property is situated; x x x
Provided, That in cases where the rules, regulations and discipline of the religious denomination, sect
or church, religious society or order concerned represented by such corporation sole regulate the
method of acquiring, holding, selling and mortgaging real estate and personal property, such rules,
regulations and discipline shall control, and the intervention of the courts shall not be necessary.
Iglesia Filipina Independiente vs. Heirs of Bernardino Taeza G.R. No. 179597, February 3,
2014

Foreign Corporation

A foreign company that merely imports goods from a Philippine exporter, without opening an office
or appointing an agent in the Philippines, is not doing business in the Philippines. Cargill, Inc. vs.
Intra Strata Assurance Corporation, G.R. No. 168266, March 15, 2010

A foreign corporation doing business in the Philippines without license may sue in Philippine courts a
Filipino citizen or a Philippine entity that had contracted with and benefited from it. A party is
estopped from challenging the personality of a corporation after having acknowledged the same by
entering into a contract with it. The principle is applied to prevent a person contracting with a
foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the contract. Global Business Holdings, Inc.
Vs. Surecomp Software B.V., G.R. No. 173463, October 13, 2010

The appointment of a distributor in the Philippine is not sufficient to constitute doing business unless
it is under the full control of the foreign corporation. If the distributor is an independent entity
which buys and distributes products, other than those of the foreign corporation, for its own name
and its own account, the latter can not be considered doing business. SteelCase vs. Design
International Selections, GR no. 171995, April 18, 2012

Non-stock Corporation

Although Sec. 108 of the Corporation Code sets the term of the members of the Board of Trustees at
five years, it likewise contains a proviso expressly subjecting the duration to what is otherwise
provided in the articles of incorporation or by-laws of the educational corporation. That contrary
provision controls on the term of office. Thus, at the time of petitioner’s removal, he was already
occupying the office in a hold-over capacity, and could be removed at any time, without cause, upon
the election or appointment of his successor. Barayuga v. Adventist University of the
Philippines,G.R. No. 168008, August 17, 2011

SECURITIES AND REGULATION CODE

When it is mentioned in paragraph 4 (c) of A.M. No. 04-9-07-SC (RE: Mode of Appeal in Cases
Formerly Cognizable by the SEC) that in case a petition appealing or assailing the decision and/or
final order is filed directly with the Court of Appeals within the reglementary period, such petition
shall be considered a petition for review under Rule 43, it is presumed that the mode of appeal
resorted to was an ordinary appeal and not a special civil action. Otherwise, the Resolution should
have categorically included certiorari under Rule 65 as among those that should be considered as a
petition for review under Rule 43 of the Rules of Court. China Banking Corporation vs. Cebu
Printing and Packaging Corporation, G.R. No. 172880, 11 August 2010
 A “public company,” as contemplated by the SRC is not limited to a company whose shares of stock
are publicly listed; even companies whose shares are offered only to a specific group of people, are
considered a public company, provided they meet the requirements provided for under Subsec. 17.2
of the SRC, that is: “any corporation with a class of equity securities listed on an Exchange or with
assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more
holders, at least two hundred (200) of which are holding at least one hundred (100) shares of a class
of its equity securities.”Philippine Veterans Bank v. Callangan, in her capacity Director of the
Corporation Finance Department of the Securities and Exchange Commission and/or the
Securities and Exchange Commission, G.R. No. 191995, August 3, 2011

NB. Under Subsection 17.2 of the SRC, it is not in excess of P 50m but at least P 50m asset
value which characterizes a public company

Under Section 62 of the SRC, no action shall be maintained to enforce any liability created under
Section 56 of the SRC ( False registration statement ) and Section 57 ( sale of unregistered security
and liabilities arising in connection with prospectus, communication and other reports ) unless
brought within two ( 2 ) years after discovery of the untrue statement or omission or after the
violation upon which it is based but not more than five ( 5 ) years after the security was bona fide
offered to the public or more than 5 years after the sale, respectively. However, it should be noted
that the civil liabilities provided in the SRC are not limited to Sections 56 and 57. Clearly, the intent is
to encompass in Section 62 the prescriptive periods only of the civil liability in cases of violations of
the SRC. Given the absence of prescriptive period for the enforcement of criminal liability in
violations of SRC, ACT No. 3326, the law applicable to offenses under special laws, applies. Under
Section 73 of the SRC, violation of its provisions is punishable by imprisonment of not less than seven
years nor more than 21 years. Applying ACT no. 3326, criminal prosecution for violations of SRC
prescribes in 12 years. Citibank N.A. vs. TANCO-GABALDON, et al. G.R. No. 198444,
September 4, 2013

Civil suits falling under the SRC ( like liability for selling unregistered securities ) are under the
exclusive original jurisdiction of the RTC and hence, need not be first filed before the SEC, unlike
criminal cases wherein the latter body exercises primary jurisdiction. Pua vs. Citibank, N. A. G.R.
No. 180064, September 16, 2013

The violation of Section 28 of the SRC has the following elements : a ) engaging in the business of
buying or selling securities as a broker or dealer; or b ) acting as salesman; or c) acting as associated
person of any broker or dealer unless registered as such with the SEC. Thus, a person is liable for
violating Section 28 of the SRC where acting as a broker, dealer or salesman, is in the employ of a
corporation which sold or offered for sale unregistered securities in the Philippines. Securities and
Exchange Commission vs Santos, GR. No. 195542, March 19, 2014

Intra-corporate controversy

Respondent was not a corporate officer of the corporation because his position as General Manager
was not specifically mentioned in the roster of corporate officers in its corporate by-laws. The
enabling clause in the corporation’s by-laws empowering its Board of Directors to create additional
officers, i.e., General Manager and the subsequent passage of a board resolution to that effect can
not make such position a corporate office. The Board of Directors has no power to create other
corporate offices without first amending the corporate by-laws so as to include therein the newly
created corporate office. Though the Board may create appointive positions other than the positions
of corporate officers, the persons occupying such positions can not be viewed as corporate officers
under Section 25 of the Corporation Code. Therefore, the termination of the respondent was not an
intra-corporate controversy but a labor dispute falling within the jurisdiction of the labor arbiter.
March II Marketing vs Joson, GR No. 171993, December 12, 2011
Although the extrajudicial sale of the condominium unit ( for non-payment of condominium dues
and assessment ) has been fully effected and that the petition of the owner questioning the sale has
been dismissed with finality, the completion of the sale does not bar the condominium unit owner
from questioning the amount of the unpaid dues that gave rise to the foreclosure and to the
subsequent sale of the property. The propriety and legality of the sale of the condominium unit is
different from the propriety and legality of the unpaid assessment dues. The latter partakes of the
nature of an intra-corporate dispute. Chateau De Baie Condominium Corporation vs. Spouses
Moreno, GR No. 186271, February 23, 2011

SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction
to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now
pertains to the appropriate regional trial courts. This is the correct procedure because the liquidation
of a corporation requires the settlement of claims for and against the corporation, which clearly falls
under the jurisdiction of the regular courts. The trial court is in the best position to convene all the
creditors of the corporation, ascertain their claims, and determine their preferences. BANK OF THE
PHILIPPINE ISLANDS, as successor-in-interest of Far East Bank and Trust Company, v.
EDUARDO HONG, doing business under the name and style "SUPER LINE PRINTING
PRESS," G.R. No. 161771, February 15, 2012

A controversy between the condominium corporation and its members-unit owners for alleged
unsound business practices and violation of the master deed of restriction does not fall within the
jurisdiction of the HLRUB despite its expansive jurisdiction. It is considered an intra-corporate
controversy falling within the jurisdiction of the Regional Trial Court designated as special
commercial court. Lim vs. Distinction Properties Development and Construction, GR no.
194024, April 25, 2012

In order to limit the broad definition of intra corporate dispute, the Supreme Court applied the
relationship and nature of the controversy test. Under the Relationship Test, no doubt exists that the
parties were members of the same association, but this conclusion must still be supplemented by the
controversy test before it may be considered as an intra-corporate dispute. Relationship alone does
not ipso facto make the dispute intra-corporate; the mere existence of an intra-corporate
relationship does not always give rise to an intra-corporate controversy. The incidents of that
relationship must be considered to ascertain whether the controversy itself is intra-corporate. This is
where the Controversy Test becomes material.
Under the controversy test, the dispute must be rooted in the existence of an intra-corporate
relationship, and must refer to the enforcement of the parties' correlative rights and obligations
under the Corporation Code, as well as the internal and intra-corporate regulatory rules of the
corporation, in order to be an intra-corporate dispute. These are essentially determined through the
allegations in the complaint which determine the nature of the action. A complaint for damages filed
by a member of the subdivision homeowners association for the harm he suffered when another
member maliciously closed a portion of the plaintiff’s drainage pipe which led to the overflowing of
his septic tank is not an intra corporate controversy following nature of the controversy test. Gulfo v.
Ancheta, G.R. No. 175301, August 15, 2012

In Reyes, the Court pronounced that “in cases governed by the Interim Rules of Procedure on Intra-
Corporate Controversies a bill of particulars is a prohibited pleading. It is essential, therefore, for the
complaint to show on its face what are claimed to be the fraudulent corporate acts if the
complainant wishes to invoke the court’s special commercial jurisdiction.” This is because fraud in
intra-corporate controversies must be based on “devises and schemes employed by, or any act of, the
board of directors, business associates, officers or partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public and/or of the stockholders, partners, or
members of any corporation, partnership, or association,” as stated under Rule 1, Section 1 (a)(1) of
the Interim Rules. The act of fraud or misrepresentation complained of becomes a criterion in
determining whether the complaint on its face has merits, or within the jurisdiction of special
commercial court, or merely a nuisance suit. GUY vs. GUY, G.R. No. 189486.September 5, 2012

A college dean is not a corporate officer if his position is not provided for in the by-laws. Barba vs.
Liceo de Cagayan University, GR. No. 193857, November 28, 2012

An intra-corporate dispute involving a corporation under sequestration of the Presidential

Commission on Good Government (PCGG) falls under the jurisdiction of the Regional Trial Court
(RTC), not the Sandiganbayan. Philippine Overseas Telecommunications Corporation vs.
Africa, et al. G.R. No. 184622, July 3, 2013

Where a member of the condominium corporation was denied the right to vote for alleged non-
payment of condominium dues and assessment, the action although denominated as one for
damages is an intra-corporate controversy and therefore, falling within the jurisdiction of the
regional trial court designated as a special commercial court. In determining whether a dispute
constitutes an intra-corporate controversy, the Court uses two tests, namely, the relationship test and
the nature of the controversy test. Applying these two tests, the present case is indeed an intra-
corporate controversy.

Anent the first test, it is admitted that petitioner is a condominium corporation. On the other hand,
respondent is a member of the condominium corporation.

As regards the second test, the case principally dwells on the propriety of the assessment made by
petitioner against respondent as well as the validity of petitioner’s act in preventing respondent from
participating in the election of the corporation’s Board of Directors. To be sure, this action partakes
of the nature of an intra-corporate controversy. While the CA may be correct that the RTC has
jurisdiction, the case should have been filed not with the regular court but with the branch of the RTC
designated as a special commercial court. The CA, therefore, gravely erred in remanding the case to
the RTC for further proceedings. Also, while Republic Act (RA) No. 9904, or the Magna Carta for
Homeowners and Homeowners’ Associations empowers the HLURB to hear and decide inter-
association and/or intra-association controversies or conflicts concerning homeowners’ associations,
the same can not be applied in the present case as it involves a controversy between a condominium
unit owner and a condominium corporation. While the term association as defined in the law covers
homeowners’ associations of other residential real property which is broad enough to cover a
condominium corporation, it does not seem to be the legislative intent. M EDICAL P LAZA M AKATI
C ONDOMINIUM C ORPORATION V . R OBERT H. C ULLEN G.R. No. 181416, November 11, 2013

When the officer claiming to have been illegally dismissed is an ordinary employee of the
corporation, jurisdiction over the same lies with the labor arbiter. It is only when the officer claiming
to have been illegally dismissed is classified as a corporate officer that the issue is deemed intra-
corporate dispute which falls within the jurisdiction of the trial court designated as special
commercial court. Cosare vs. Bradcom Asia, GR. No. 201298, February 5, 2014
SPECIAL COMMERCIAL LAWS

Letter of Credit

Where the trial court rendered a decision finding the buyer solely liable to pay the seller and omitted
by inadvertence to insert in its decision the phrase “ without prejudice to the decision that will be
made against the issuing bank “ , the bank can not evade responsibility based on this ground. The
seller who is entitled to draw on the credit line of the buyer from a bank against the presentation of
sales invoices and official receipts of the purchases and who obtained a court judgment solely
against the buyer even though the suit is against the bank and the buyer may still enforce the liability
of the same bank under a letter of credit issued to secure the credit line. The so-called
"independence principle" in a letter of credit assures the seller or the beneficiary of prompt payment
independent of any breach of the main contract and precludes the issuing bank from determining
whether the main contract is actually accomplished or not. Philippine National Bank vs. San
Miguel Corporation. No. 186063, January 15, 2014.

Trust receipt

A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster
the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster.
Considering that the goods in this case ( chemicals and metal plates ) were never intended for sale
but for use in the fabrication of steel communication towers, the agreement is not a trust receipt
transaction but a simple loan. Anthony L. Ng v People of the Philippines, G.R. No. 173905,
April 23, 2010

There are two obligations in a trust receipt transaction. The first is covered by the provision that
refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold.
The second is covered by the provision referring to merchandise received under the obligation to
return it (devolvera) to the owner. Thus, under the Trust Receipts Law, intent to defraud is presumed
when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust
receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts.

In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative –
the return of the proceeds of the sale or the return or recovery of the goods, whether raw or
processed. When both parties enter into an agreement knowing that the return of the goods subject
of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust
receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon
by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a
mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the
goods. Land Bank of the Philippines vs. Perez, GR no. 166884, 13 June 2102

The officer of the entrustee corporation who signed a guaranty agreement in his personal capacity
and waived the benefit of excussion is solidarily liable with the corporation despite his acquittal in
the criminal case. Crisologo vs. People of the Philippines, GR No. 199481, December 3, 2012

The sale of goods by a person in the business of selling goods, for profit, who at the outset of the
transaction, has as against the buyer, general property rights in such goods, or who sells goods to the
buyer on credit, retaining title or other interest as security for the payment of the purchase price,
does not constitute a trust receipt transaction. There is no trust receipt, notwithstanding the label, if
goods offered as security for a loan accommodation are goods sold to the debtor under a supposed
trust receipt transaction. Sps. Dela Cruz vs Dela Cruz, GR No. 158649, February 18, 2013

[A] trust receipt is considered a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral, of
the merchandise imported or purchased. Similarly, American Jurisprudence demonstrates that trust
receipt transactions always refer to a method of “financing importations or financing sales.” The
principle is of course not limited in its application to financing importations, since the principle is
equally applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts mainly
involved sales.
The fact that the entruster knew even before the execution of the alleged trust receipt agreements
that the covered construction materials were never intended by the entrustee for resale or for the
manufacture of items to be sold would take the transaction outside the ambit of the Trust Receipts
Law. H UR T IN Y ANG V . P EOPLE OF THE P HILIPPINES . G.R. No. 195117, August 14, 2013

Banking Laws

The “close now, hear later doctrine” justifies BSP in ordering bank closures even without prior
hearing. Thus, injunction does not lie against BSP in the exercise of this power and function. A
contrary rule may lead to dissipation of corporate assets and trigger bank run. Judicial review comes
in only after action of the Monetary Board if the same was attended by bad faith and grave abuse of
discretion amounting to lack or excess of jurisdiction . Bangko Sentral ng Pilipinas vs.
Valenzuela, G.R. No. 184778,October 2, 2009

The rule on DOSRI transaction covers loan obtained or guaranteed by the director, officer,
stockholder or their related interest and not to loans both obtained and guaranteed by them. The
rule in fact covers any transaction where the DOSRI may incur contractual obligation with their bank.
DOSRI transactions are subject to approval, reportorial and ceiling requirements. Approval
requirement means that the DOSRI transaction must be approved by at least majority of the directors
excluding the director concerned. Reportorial requirement means that the transaction must be
recorded in the books of the bank and reported to BSP. Ceiling requirement means that the amount
of the loan shall not exceed the book value of the paid-in contribution and the amount of
unencumbered deposits. Three different offenses are committed by those who fail to observe the
board approval, reporting and ceiling requirements. Go v. BSP, October 23, 2009

The three percent (3%) per month [and higher] interest rate and penalty charge for credit card
charges is excessive, inequitable and exorbitant Macalinao v. Bank of the Philippine Islands, GR
No. 175490, September 17, 2009

Section 78 of the ( old ) General Banking Act requires payment of the amount fixed by the court in
the order of execution, with interest thereon at the rate specified in the mortgage contract, and all
the costs and other judicial expenses incurred by the bank or institution concerned by reason of the
execution and sale and as a result of the custody of said property less the income received from the
property. The rate of interest specified in the mortgage contract shall be applied for the one-year
period reckoned from the date of registration of the certificate of sale in accordance with the
General Banking Act. However, since petitioners effectively had more than one year to exercise the
right of redemption, justice, fairness and equity require that they pay 12% p.a. interest beyond the
one-year period. Heirs of Estelita Burgos-Lipat. vs. Heirs of Eugenio D. Trinidad, et al., G.R.
No. 185644, March 2, 2010

NB. Under Section 47 of the General Banking Law, the redemption period is three months
after foreclosure or registration of the sale, whichever comes earlier, if the following
requisites are present: a ) the mortgagor is a juridical person; b ) the mortgagee is a bank,
quasi-bank or trust entity and c ) the mode of foreclosure is extra-judicial.

A bank officer violates the DOSRI law when he acquires bank funds for his personal benefit, even if
such acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders,
and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a
defense to escape culpability for their circumvention of the law. The prohibition under the law covers
loans by a bank director or officer which are made either directly, indirectly, for himself or as the
representative or agent of others. At the same time, he is liable for estafa through falsification of
commercial documents. The bank money which came to his possession as a result of the fraudulent
loan application was not his. He remained the bank’s fiduciary with respect to that money, which
makes it capable of misappropriation or conversion in his hands. Soriano vs. People of the
Philippines, et al., G.R. No. 162336, February 1, 2010

The bank does not have the unilateral right to freeze the accounts of its clients on mere suspicion
that the depositor does not have a right over them. Philippine Commercial Bank vs. Balmaceda,
September 12, 2011

Interbranch deposits refer to funds of one branch deposited in another branch and both branches are
part of the same bank. As such, they are excluded from a bank’s total liabilities and did not give rise
to insurable deposit liabilities. PDIC vs. Citibank, GR No. 170290, April 11, 2012

The General Banking Law, a special and subsequent legislation shall apply in case of foreclosure
proceedings involving banks. The right of redemption of foreclosed properties was a statutory
privilege the mortgagor enjoys. Redemption is by force of law, and the purchaser at public auction is
bound to accept it. Thus, it is the law that provides the terms of the right; the mortgagee cannot
dictate them. Consequently, the bank cannot alter that right by imposing additional charges and
including other loans. Asia Trust Development Bank v. Carmelo H. Tuble, G.R. No. 183987,
July 25, 2012.

Section 47 did not divest juridical persons of the right to redeem their foreclosed properties but only
modified the time for the exercise of such right by reducing the one-year period originally provided
in Act No. 3135. The new redemption period commences from the date of foreclosure sale, and
expires upon registration of the certificate of sale or three months after foreclosure, whichever is
earlier. There is likewise no retroactive application of the new redemption period because Section 47
exempts from its operation those properties foreclosed prior to its effectivity and whose owners shall
retain their redemption rights under Act No. 3135. Section 47 does not infringe on the equal
protection clause nor discriminate mortgagors/property owners who are juridical persons. One class
may be treated differently from another where the groupings are based on reasonable and real
distinctions. The difference in the treatment of juridical persons and natural persons was based on
the nature of the properties foreclosed – whether these are used as residence, for which the more
liberal one-year redemption period is retained, or used for industrial or commercial purposes, in
which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership
of property and enable mortgagee-banks to dispose sooner of these acquired assets. In this context,
the amendment introduced by Section 47 embodied one of such safe and sound practices aimed at
ensuring the solvency and liquidity of our banks. It cannot therefore be disputed that the said
provision amending the redemption period in Act 3135 was based on a reasonable classification and
germane to the purpose of the law. This legitimate public interest pursued by the legislature further
enfeebles petitioner’s impairment of contract theory. The right of redemption being statutory, it
must be exercised in the manner prescribed by the statute, and within the prescribed time limit, to
make it effective. Furthermore, as with other individual rights to contract and to property, it has to
give way to police power exercised for public welfare. Golden Way Merchandising vs. Equitable
PCI Bank. G.R. No. 195540, March 13, 2013

Under R.A .No. 7653, the power of the Monetary Board (MB) over banks, including rural banks, was
increased and expanded. The Court, in several cases, upheld the power of the MB to take over banks
without need for prior hearing. It is not necessary inasmuch as the law entrusts to the MB the
appreciation and determination of whether any or all of the statutory grounds for the closure and
receivership of the erring bank are present. The MB, under R.A. No. 7653, has been invested with
more power of closure and placement of a bank under receivership for insolvency or illiquidity, or
because the bank’s continuance in business would probably result in the loss to depositors or
creditors.
The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation of
the bank’s assets and as a valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public. Swift, adequate and determined actions must be taken against
financially distressed and mismanaged banks by government agencies lest the public faith in the
banking system deteriorate to the prejudice of the national economy. Vivas vs. Monetary Board of
the Bangko Sentral ng Pilipinas G.R. No. 191424, August 07, 2013.

A banking institution serving as an originating bank for the Unified Home Lending Program (UHLP)
of the Government owes a duty to observe the highest degree of diligence and a high standard of
integrity and performance in all its transactions with its clients because its business is imbued with
public interest. Comsavings Bank vs Sps Capistrano. G.R. No. 170942, August 28, 2013.

The bank failed in its duty to exercise the highest degree of diligence by prematurely foreclosing the
mortgages and unwarrantedly causing the foreclosure sale of the mortgaged properties despite the
mortgagor not being yet in default. Development Bank of the Philippines vs. Guarina
Agricultural and Realty Development Corporation . G.R. No. 160758, January 15, 2014.

Laws on Secrecy of Bank Deposits

The inquiry into bank deposits allowable under RA 1405 must be premised on the fact that the
money deposited in the account is itself the subject of the action. Where the information filed in
court charged respondent with qualified theft, the subject matter of litigation is the money alleged
to have been stolen by the respondent. Thus, where the subject matter of the testimonial and
documentary evidence is not at all relevant to the case, the suppression of such testimony is valid,
otherwise, it constitutes an attempt by the prosecution at an impermissible inquiry into a bank
deposit account, the privacy and confidentiality of which is protected by law. BSB Group Inc vs. Go,
GR No. 168644, February 16, 2010

Republic Act 6426 is a special law designed especially for foreign currency deposits in the
Philippines. RA 1405 which covers all bank deposits in the Philippines is the general law which does
not nullify the special law on foreign currency deposits. The surety which issued a bond to secure the
obligation of the principal debtor can not inquire into the foreign currency deposits of the debtor
even if its purpose is to determine whether or not the loan proceeds were used for the purpose
specified in the surety agreement. The foreign currency deposits can not be examined without the
consent of the depositor. The subpoena issued by the bank should be quashed because foreign
currency deposits are not subject to court order except for violation of the anti-money laundering
law. GSIS vs. Court of Appeals GR 189206, June 8, 2011

NB. Foreign currency deposits may also be examined in the following cases : a ) if the
foreign currency account is used to commit or facilitate terrorism in which case, the AMLC
may look into foreign currency deposit even without a court order ( RA 10168 ); b ) if the
owner of the account is a foreign transient who committed a crime to prevent injustice and
for equitable grounds ( Salvacion vs. Central Bank 278 SCRA 27 ); when a foreign currency
account is co-owned by two payees one of who withdrew funds exclusively owned by
another ( China Bank vs. Court of Appeals 511 SCRA 110 )

PDIC LAW

Monetary Board approval is not required for PDIC to conduct an investigation of banks. Philippine
Deposit Insurance Corporation vs Philippine Countryside Rural Bank, Inc. et al, GR No.
176438, January 24, 2011
INTELLECTUAL PROPERTY

Trademark

Comparing Berris’ mark “D-10 80 WP” with Abyadang’s mark “NS D-10 PLUS,” as appearing on their
respective packages, one cannot but notice that both have a common component which is “D-10.”
On Berris’ package, the “D-10” is written with a bigger font than the “80 WP.” Admittedly, the “D-
10” is the dominant feature of the mark. The “D-10,” being at the beginning of the mark, is what is
most remembered of it. Although, it appears in Berris’ certificate of registration in the same font size
as the “80 WP,” its dominancy in the “D-10 80 WP” mark stands since the difference in the form does
not alter its distinctive character. Berris Agricultural Co., Inc. Vs. Norvy Abyadang,G.R. No.
183404, October 13, 2010

Court Administrative Matter A.M. 02-1-06-SC (The Rule on Search and Seizure in Civil Actions for
Infringement of Intellectual Property Rights) governs the issuance of a writ of search and seizure in a
civil action for infringement filed by an intellectual property right owner against the supposed
infringer of his trademark or name. Under this rule, the claim for damages should be filed with the
same court that issued the writ of search and seizure. However, Philip Morris, the manufacturer of
Marlboro cigarettes did not go by this route. Philip Morris did not file a civil action for infringement
of its trademark against the Del Rosarios before the RTC of Angeles City. Instead, Philip Morris
sought assistance from the NBI for the apprehension and criminal prosecution of those reportedly
appropriating its trademark and selling fake Marlboro cigarettes. In turn, the NBI instituted a police
action that included applying for a search and seizure warrant under Sections 3, 4, 5 and 6 of Rule
126 of the Rules of Criminal Procedure (not under the provisions of A.M. 02-1-06-SC) against the Del
Rosarios upon the belief that they were storing and selling fake Marlboro cigarettes in violation of
the penal provisions of the intellectual property law. The proceeding under Rule 126, a limited
criminal one, does not provide for the filing of counterclaims for damages against those who may
have improperly sought the issuance of the search warrant. Consequently, the Del Rosarios had the
right to seek damages, if the circumstances warranted, by separate civil action for the wrong inflicted
on them by an improperly obtained or enforced search warrant. Del Rosario, et al. Vs. Doanto,
Jr. et al., G.R. No. 180595, March 4, 2010

Applying the dominancy test, the trademark “ Dermaline Dermaline, Inc. is confusingly similar with
the registered trademark “ Dermalin “. Dermaline’s stance that its product belongs to a separate and
different classification from Myra’s products with the registered trademark does not eradicate the
possibility of mistake on the part of the purchasing public to associate the former with the latter,
especially considering that both classifications pertain to treatments for the skin. Dermaline, Inc.
Vs. Myra Phamaceuticals, Inc., G.R. No. 190065, August 1, 2010

Under this provision [Sec 123.1(d) of RA 8293], the registration of a mark is prevented with the filing
of an earlier application for registration. This must not, however, be interpreted to mean that
ownership should be based upon an earlier filing date. While RA 8293 removed the previous
requirement of proof of actual use prior to the filing of an application for registration of a mark,
proof of prior and continuous use is necessary to establish ownership of a mark. Such ownership
constitutes sufficient evidence to oppose the registration of a mark. - E.Y. Industrial Sales vs.
Shien Dar Electricity and Machinery Co. , G.R. No. 184850, 20 October 2010

Applying the dominancy test in the present case, the Court finds that “NANNY” is confusingly similar
to “NAN.” “NAN” is the prevalent feature of Nestle’s line of infant powdered milk products. It is
written in bold letters and used in all products. The line consists of PRE-NAN, NAN-H.A., NAN-1,
and NAN-2. Clearly, “NANNY” contains the prevalent feature “NAN.” The first three letters of
“NANNY” are exactly the same as the letters of “NAN.” When “NAN” and “NANNY” are
pronounced, the aural effect is confusingly similar. - Soceite Des Produits Nestle, S.A. vs. Dy, Jr.,
G.R. No. 172276, August 8, 2010

Applying the dominancy test, there is confusing similarity between “ Sketchers “ rubber shoes and “
Strong “ rubber shoes. The use of the stylized “ S “ by the respondent in its Strong Shoes infringes on
the trademark “ Sketchers “ already registered by petitioner with the IPO. While it is undisputed that
petitioner’s stylized “ S “ is within an oval design, the dominant feature of the trademark is stylized “
S “ as it is precisely the stylized “ S “ which catches the eye of the purchaser. Sketchers USA vs.
Inter Pacific Industrial Trading Corporation, GR No. 164321, March 28, 2011

Fredco’s use of the mark “Harvard,” for jeans coupled with its claimed origin in Cambridge,
Massachusetts, obviously suggests a false connection with Harvard University. Fredco’s registration
of the mark “Harvard” should not have been allowed because the law prohibits the registration of a
mark “which may disparage or falsely suggest a connection with persons, living or dead, institutions,
beliefs “Second, the Philippines and the United States of America are both signatories to the Paris
Convention for the Protection of Intellectual Property (Paris Convention). The Philippines is
obligated to assure nationals of countries of the Paris Convention that they are afforded an effective
protection against violation of their intellectual property rights in the Philippines in the same way
that their own countries are obligated to accord similar protection to Philippine nationals. Thus,
under Philippine law, a trade name of a national of a State that is a party to the Paris Convention,
whether or not the trade name forms part of a trademark, is protected “without the obligation of
filing or registration.”
“Harvard” is the trade name of the world famous Harvard University, and it is also a trademark of
Harvard University. Under the Paris Convention, Harvard University is entitled to protection in the
Philippines of its trade name “Harvard” even without registration of such trade name in the
Philippines. This means that no educational entity in the Philippines can use the trade name
“Harvard” without the consent of Harvard University. The essential requirement under the Paris
Convention ( and the Intellectual Property Code ) is that the trademark to be protected must be
“well-known” in the country where protection is sought. The power to determine whether a
trademark is well-known lies in the competent authority of the country of registration or use. The
competent authority would either be the registering authority if it has the power to decide this, or
the courts of the country in question if the issue comes before the courts. “Harvard” is a well-known
name and mark not only in the United States but also internationally, including the Philippines. It is
internationally known as one of the leading educational institutions in the world. As such, even
before Harvard University applied for registration of the mark “Harvard” in the Philippines, the mark
was already protected under the Paris Convention. Again, even without applying the Paris
Convention, Harvard University can invoke the law which prohibits the registration of a mark “which
may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs.
Fredco Manufacturing Corporation vs. President and Fellows of Harvard College, GR No.
185917, June 1, 2011

The trademark “ Marlboro “ is not only valid for being neither generic nor descriptive, it was also
exclusively owned by PMPI, as evidenced by the certificate of registration issued by the Intellectual
Property Office. Infringement of trademark clearly lies since the counterfeit cigarettes were
intended to confuse and deceive the public as to the origin of the cigarettes intended to be sold, as
they not only bore PMPI’s trademark but they were packaged almost exactly as PMPI’s products. Ong
vs. People of the Philippines, GR No. 169440, November 23, 2011.

There are distinct visual and aural differences between Great White Shark’ Greg Norman Logo and
Caralde’s Shark and Logo mark. There being no confusing similarity between the subject marks, the
matter of Great White Shark’s mark has gained recognition becomes unnecessary. Great White
Shark Enterprises vs. Caralde, GR No. 192294, November 21, 2012
 The elements of infringement of trademark are the following:

(1) The trademark being infringed is registered in the Intellectual Property Office; (2)
The trademark is reproduced, counterfeited, copied, or colorably imitated by the
infringer; (3) The infringing mark is used in connection with the sale, offering for sale,
or advertising of any goods, business or services; or the infringing mark is applied to
labels, signs, prints, packages, wrappers, receptacles or advertisements intended to
be used upon or in connection with such goods, business or services; (4) The use or
application of the infringing mark is likely to cause confusion or mistake or to deceive
purchasers or others as to the goods or services themselves or as to the source or
origin of such goods or services or the identity of such business; and (5) The use or
application of the infringing mark is without the consent of the trademark owner or
the assignee thereof.

The likelihood of confusion is the gravamen of the offense of trademark infringement. There
are two tests to determine likelihood of confusion, namely: the dominancy test, and the holistic test.
As to what test should be applied depends entirely on the set of facts availing in each case. That is
the reason why in trademark cases, jurisprudential precedents should be applied only to a case if they
are specifically in point.

The jeans trademarks of Levi’s Philippines and Diaz must be considered as a whole in
determining the likelihood of confusion between them. The consuming public could easily discern if
the jeans were original or fake or were manufactured by other brands of jeans. Confusion and
deception were remote since maong jeans are expensive and the casual buyer is predisposed to be
more cautious and discriminating in and would prefer to mull over his purchase. Further, Diaz used
the trademark “LS JEANS TAILORING” for the jeans he produced and sold. His trademark was visually
and aurally different from the trademark “LEVI STRAUSS & CO” appearing on the patch of original
jeans. Diaz also aptly noted that the design used by LEVIS was an image of two horses but the
evidence will show that there was no such design in the seized jeans, instead, what is shown is
“buffalo design.” Moreover, based on the certificate issued by the Intellectual Property Office, “LS
JEANS TAILORING” was a registered trademark of Diaz. He had registered his trademark prior to the
filing of the present cases. The Intellectual Property Office would certainly not have allowed the
registration had Diaz’s trademark been confusingly similar with the registered trademark for LEVI’S
501 jeans. Diaz vs People of the Philippines and Levi Strauss ( Phil. ), GR N0. 180677,
February 18, 2013

Tradename

Petitioner’s argument that “San Francisco” is just a proper name referring to the famous city in
California and that “coffee” is simply a generic term, is untenable. Respondent has acquired an
exclusive right to the use of the trade name “SAN FRANCISCO COFFEE & ROASTERY, INC.” since the
registration of the business name with the DTI in 1995. Thus, respondent’s use of its trade name from
then on must be free from any infringement by similarity. Of course, this does not mean that
respondent has exclusive use of the geographic word “San Francisco” or the generic word “coffee.”
Geographic or generic words are not, per se, subject to exclusive appropriation. It is only the
combination of the words “SAN FRANCISCO COFFEE,” which is respondent’s trade name in its coffee
business, that is protected against infringement on matters related to the coffee business to avoid
confusing or deceiving the public. Coffee Partners vs. San Francisco Coffee and Roastery, Inc.,
G.R. No. 169504, 3 March 2010.

The mere unauthorized use of a container bearing a registered trademark in connection with the
sale, distribution or advertising of goods or services which is likely to cause confusion, mistake or
deception among the buyers or consumers can be considered as trademark infringement. Here,
petitioners have actually committed trademark infringement when they refilled, without the
respondents’ consent, the LPG containers bearing the registered marks of the respondents.
Petitioners’ acts will inevitably confuse the consuming public, since they have no way of knowing that
the gas contained in the LPG tanks bearing respondents’ marks is in reality not the latter’s LPG
product after the same had been illegally refilled. The public will then be led to believe that
petitioners are authorized refillers and distributors of respondents’ LPG products, considering that
they are accepting empty containers of respondents and refilling them for resale.

Unfair competition has been defined as the passing off (or palming off) or attempting to pass off
upon the public of the goods or business of one person as the goods or business of another with the
end and probable effect of deceiving the public. Passing off (or palming off) takes place where the
defendant, by imitative devices on the general appearance of the goods, misleads prospective
purchasers into buying his merchandise under the impression that they are buying that of his
competitors. Thus, the defendant gives his goods the general appearance of the goods of his
competitor with the intention of deceiving the public that the goods are those of his competitor.

In the present case, respondents pertinently observed that by refilling and selling LPG cylinders
bearing their registered marks, petitioners are selling goods by giving them the general appearance
of goods of another manufacturer. Obviously, the mere use of those LPG cylinders bearing the
trademarks "GASUL" and "SHELLANE" will give the LPGs sold by REGASCO the general appearance
of the products of the petitioners. Republic Gas Corporation vs. Petron Corporation. G.R. No.
194062, June 17, 2013

The registration of trademark, by itself, is not a mode of acquiring ownership. It is the ownership of a
trademark that confers the right to register the same. A trademark is an industrial property over
which its owner is entitled to property rights which cannot be appropriated by unscrupulous entities
that, in one way or another, happen to register such trademark ahead of its true and lawful owner. If
the applicant is not the owner of the trademark, he has no right to apply for registration. Registration
merely creates a prima facie presumption of the validity of the registration, of the registrant’s
ownership of the trademark and the exclusive right to the use thereof. The presumption of ownership
accorded to a registrant is rebuttable and must necessarily yield to evidence to the contrary.
Birkenstock Orthopaedie GMBH vs Philippine Shoe Expo Marketing Corporation G.R. No.
194307, November 20, 2013.

Violations

The Rules on the Issuance of the Search and Seizure in Civil Actions for Infringement of Intellectual
Property Rights are not applicable in this case as the search warrants were not applied based
thereon, but in anticipation of criminal actions for violation of intellectual property rights under RA
8293. It was established that respondent had asked the NBI for assistance to conduct investigation
and search warrant implementation for possible apprehension of several drugstore owners selling
imitation or counterfeit TOP GEL T.G. & DEVICE OF A LEAF papaya whitening soap. What is
applicable is Rule 126 of the Rules of Criminal Procedure. A core requisite before a warrant shall
validly issue is the existence of probable cause. The pendency of a similar action for infringement of
trademark and unfair competition against the very person who applied for search warrant does not
bar the issuance of the warrant if it is based on probable cause. Century Chinese Medicine Co vs
People of the Philippines, G.R. No. 188526, November 11, 2013.

In view of the foregoing obligations under the Paris Convention, the Philippines is obligated to
assure nationals of the signatory-countries that they are afforded an effective protection against
violation of their intellectual property rights in the Philippines in the same way that their own
countries are obligated to accord similar protection to Philippine nationals. "Thus, under Philippine
law, a trade name of a national of a State that is a party to the Paris Convention, whether or not the
trade name forms part of a trademark, is protected "without the obligation of filing or registration.
Thus, the applicant for registration of trademark is not the lawful owner thereof and is not entitled to
registration if the trademark has been in prior use by a national of a country which is a signatory to
the Paris Convention. Ecole De Cuisine Manille Inc. vs Renaud Cointreu & CIE and Le
Condron Bleu GR 185830, June 5, 2013

Patent

A patentee shall have the exclusive right to make, use and sell the patented machine, article or
product and to use the patented process for the purpose of industry or commerce throughout the
territory of the Philippines for the term of the patent; and such making, using or selling by any person
without the authorization of the patentee constitutes infringement of the patent. The exclusive
rights of a patentee exist only during the term of the patent. After the lapse of such period as
allowed by law, the right also ceases. RA 8293 and the IPO rules are as regards the available remedy
to question an interlocutory order issued by the BLA-IPO pending final resolution of a case filed with
them. Hence,, the provisions of the Rules of Court shall apply in a suppletory manner. Under the
Rules, a petition for certiorari to the Court of Appeals is the proper remedy to question the assailed
Orders of the BLA-IPO, as there is no appeal therefrom and there is no other plain, speedy and
adequate remedy in the ordinary course of law.–Philippine Pharmawealth vs. Pfizer Inc., G.R.
No. 167715, 17 November 2010

TRANSPORTATION

When a bus hit a tree and house due to the fast and reckless driving of the bus driver resulting in
injury to one of its passengers, the bus owner is liable and such liability does not cease even upon
proof that he exercised all the diligence of a good father of family in the selection and supervision of
its employees. R Transport Corporation vs. Pante, GR No. 162104, September 15, 2009

Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take care
of the goods and to turn them over to the party entitled to their possession. In a claim for loss filed by
the consignee or the insurer, the burden of proof to show compliance with the obligation to deliver
the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the
goods is its responsibility, it must prove that the losses were not due to its negligence or that of its
employees. Asian Terminals vs Daehan Fire and Marine Insurance, GR No. 171194, February
4, 2010

Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of
delivery. Under the same provision, however, a failure to file a notice of claim within three days will
not bar recovery if a suit is nonetheless filed within one year from delivery of the goods or from the
date when the goods should have been delivered. The filing of an amended pleading does not
retroact to the date of the filing of the original. It is true that, as an exception, an amendment which
merely supplements and amplifies facts originally alleged in the complaint relates back to the
commencement of the action and is not barred by the statute of limitations which expired after the
service of the original complaint. The exception, however, would not apply to the party impleaded
for the first time after the service of the amended complaint. In this case, petitioner was not
impleaded as a defendant in the original complaint filed on March 11, 1993. It was only on June 7,
1993 that the Amended Complaint, impleading petitioner as defendant, was filed. Considering this
circumstances, clearly, the suit against the petitioner was filed beyond the prescriptive period of the
filing of claims as provided in the COGSA. Wallem Philippines Shipping vs SR Farms, GR No.
161849, July 9, 2010
Under Article 28 ( 1 ) of the Warsaw Convention, the plaintiff may bring the action for damages
before: 1) the court where carrier is domiciled; 2 ) the court where the carrier has its principal place
of business; 3 ) the court where the carrier has an establishment by which the contract has been
made; or 4 ) the court of the place of destination. In this case, it is not disputed that respondent is a
British corporation domiciled in London, United Kingdom with London as its principal place of
business. Hence, under the first and second jurisdictional rules, the petitioner may bring her case
before the courts of London in the United Kingdom. In the passenger ticket and baggage check
presented by both the petitioner and respondent, it appears that the ticket was issued in Rome, Italy.
Consequently, under the third jurisdictional rule, the petitioner has the option to bring her case
before the courts of Rome in Italy. Finally, both the petitioner and respondent aver that the place of
destination is Rome, Italy, which is properly designated given the routing presented in the said
passenger ticket and baggage check. Accordingly, petitioner may bring her action before the courts
of Rome, Italy. Thus, the RTC of Makati correctly ruled that it does not have jurisdiction over the case
filed by the petitioner even though it was based on tort and not on breach of contract. Lhuillier vs
British Airways, G.R. No. 171092, March 15, 2010.

A freight forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their
destination instead of merely arranging for their transportation, it becomes liable as a common
carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which
actually executes the transport, even though the forwarder does not carry the merchandise itself.–
Unsworth Transport International ( Phils. vs. Court of Appeals ,G.R. No. 166250, 26 July
2010

The Rules of Air Control which governs the specific traffic management of aircrafts at an airport
provides that when one aircraft is taxing and the other aircraft is about to take off, the former aircraft
must give way to the latter. GSIS vs. Pacific Airways, GR. No. 170414, August 25, 2010

A customs broker whose services were engaged for the release and withdrawal of the cargoes from
the pier and their subsequent delivery to the consignee’s warehouse and the owner of the delivery
truck whom the customs broker contracted to transport the cargoes to the warehouse are both
common carriers. The latter is considered a common carrier in the absence of indication that it solely
and exclusively rendered services to the customs broker. Thus, when the truck failed to deliver one of
the cargoes, both the broker and owner of the truck are liable. Being both common carriers, they are
mandated from the nature of their business and for reasons of public policy, to observe the
extraordinary diligence in the vigilance over the goods transported by them according to all the
circumstances of such case. Thus, in case of loss of the goods, the common carrier is presumed to
have been at fault or to have acted negligently. Loadmasters Customs Services, Inc. vs. Glodel
Brokerage Corporation, GR No. 179446, January 10, 2011

Where the agreement executed by the parties was a time charter where the possession and control
of the barge was retained by the owner, the latter is, therefore, a common carrier legally charged
with extraordinary diligence in the vigilance over the goods transported by him. The sinking of the
vessel created a presumption of negligence and/or unseaworthiness which the barge owner failed to
overcome and gave rise to his liability for the charterer lost cargo despite the latter’s failure to insure
the same. Oceaneering Contractrors (Phils), Inc. v. Nestor Barreto, doing business as NNB
Lighterage , GR No. 184215, February 9, 2011

The LIMITED LIABILITY RULE cannot be availed of by the charterers/sub-charterer in order to escape
from their liability. The Code of Commerce is clear on which indemnities may be confined or
restricted to the value of the vessel and these are the – “indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which he loaded on the vessel.”
Thus, what is contemplated is the liability to third persons who may have dealt with the SHIPOWNER,
the AGENT or even the CHARTERER in case of demise or bareboat charter.
The Charterer cannot use the said Rule because the it does not completely and absolutely step into
the shoes of the shipowner or even the ship agent because there remains conflicting rights between
the former and the real shipowner as derived from their charter agreement. Therefore, even if the
contract is for a bareboat or demise charter where possession, free administration and even
navigation are temporarily surrendered to the charterer, dominion over the vessel remains with the
shipowner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the
former, can never set up the Limited Liability Rule against the very owner of the vessel. Dela Torre
vs. Court of Appeals, GR No. 160088, July 13, 2011

It was established that the primary cause of the death of the passenger of the jeepney was the
negligence of the driver of the truck which collided with the passenger jeepney. Thus, the truck
owner is liable for this failure to rebut the presumption of negligence in hiring and supervision of his
employee. Whenever an employee’s negligence causes damage or injury to another, there instantly
arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in
the selection or supervision of his employee. Thus, in the selection of prospective employees,
employers are required to examine them as to their qualification, experience and service record.
With respect to the supervision of employees, employers must formulate standard operating
procedures, monitor their implementation, and impose disciplinary measures for breaches thereof.
These facts must be shown by concrete proof. The Heirs of the late Ruben Reinoso, Sr. vs. Court
of Appeals, GR No. 116121, July 18, 2011

Notwithstanding the fact that the case was filed beyond the one-year prescriptive period provided
under the COGSA, the suit ( against the insurer ) will not be dismissed of the delay was not due the
claimant’s fault. Had the insurer processed and examined the claim promptly, the claimant or the
insurer itself, as subrogee, could have taken the judicial action on time. By making an unreasonable
demand for an itemized list of damages which caused delay, the insurer should bear the loss with
interest, New World International Development Corporation vs NYK-FilJapan Shipping
Corporation, GR No. 171468, August 24, 2011

The term “ carriage of goods “ covers the period from the time when the goods are loaded to the
time when they are discharged from the ship; thus, it can be inferred that the period of time when
the goods have been discharged from the ship and given to the custody of the arrastre operator is
not covered by the COGSA. Under the COGSA, the carrier and the ship may put up the defense of
prescription if the action for damages is not brought within one year after delivery of the goods or
the date when the goods should have been delivered. However, the COGSA does not mention than
an arrastre operator may invoke the prescriptive period; hence, it does not cover the arrastre
operator. The arrastre operator’s responsibility and liability for losses and damages are set forth in
the contract for cargo handling services executed between the Philippine Ports Authority and Marina
Port Services. Insurance Company of North America vs. Asian Terminals, Inc. GR No. 180784,
February 15, 2012

In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a
passenger dies or is injured. In fact, there is even no need for the court to make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may only be
overcome by evidence that the carrier exercised extraordinary diligence. Unfortunately, the common
carrier miserably failed to overcome this presumption as the accident which led to the passenger’s
death was due to the reckless driving and gross negligence of its driver. Heirs of Josemaria Ochoa
vs. G&S Transport Corporation, March 19, as affirmed in the July 16, 2012 decision

Persons engaged in the business of transporting students from their respective residences to their
school and back are considered common carrier. Despite catering to a limited clientele, they
operated as a common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near where they operated the
service and for a fee. Spouses Perena vs Spouses Nicolas, GR No. 157917, August 29, 2012

Though it is true that common carriers are presumed to have been at fault or to have acted
negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the
common carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption, the plaintiff must still, before the burden is shifted to the defendant, prove that the
subject shipment suffered actual shortage. This can only be done if the weight of the shipment at the
port of origin and its subsequent weight at the port of arrival have been proven by a preponderance
of evidence, and it can be seen that the former weight is considerably greater than the latter weight,
taking into consideration the exceptions provided in Article 1734 of the Civil Code. Asian
Terminals, Inc vs. Simon Enterprises, Inc. GR No. 177116, February 27, 2013

After payment by the insurer to the insured, it is subrogated to the rights of the latter. Its right of
subrogation under Article 2207 of the Civil Code in relation to Article 1144 gives rise to a cause of
action created by law. The prescriptive period for cause of action based on law ( such as subrogation )
is ten years. Thus, the insurer has 10 years from the date it indemnified the insured to file the action
against the wrongdoer. Vector Shipping Corporation vs. American Home Assurance Company,
G.R. No. 159213, July 3, 2013.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should
have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of the goods or the date when the goods should have
been delivered. Asian Terminals Inc., v . Philam Insurance Co. G.R. NO. 181262 , July 24, 2013

The liability of a common carrier does not cease by mere transfer of custody of the cargo to the
arrastre operator. Like the duty of seaworthiness, the duty of care of the cargo is non-delegable and
the carrier is accordingly responsible for the acts of the master, the crew, the stevedore and his other
agents. The fact that a consignee is required to furnish persons to assist in unloading a shipment may
not relieve the carrier of its duty as to such unloading. It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of the carrier. Since the damage
to the cargo was incurred during the discharge of the shipment and while under the supervision of
the carrier, the latter is liable for the damage caused to the cargo.

The arrastre operator is likewise liable. The functions of an arrastre operator involve the handling of
cargo deposited on the wharf or between the establishment of the consignee or shipper and the
ship’s tackle. Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is
to take good care of the goods and to turn them over to the party entitled to their possession. While
it is true that an arrastre operator and a carrier may not be held solidarily liable at all times, the facts
of these cases show that apart from the stevedores of the arrastre operator being directly in charge
of the physical unloading of the cargo, its foreman picked the cable sling that was used to hoist the
packages for transfer to the dock. Moreover, the fact that the packages were unloaded with the
same sling unharmed is telling of the inadequate care with which the stevedore handled and
discharged the cargo.Westwind Shipping Corporation vs. UCPB General Insurance Co., GR
no. 2002289, November 25, 2013

NEGOTIABLE INSTRUMENTS LAW

The premature debiting of the postdated check by the bank which resulted to insufficiency of funds
that brought about the dishonor of two checks causing the electric supply to be cut-off and affected
business operations indicates the negligence of the bank. For its failure to exercise extra-ordinary
diligence, it should be made liable in the case. Equitable PCI Bank vs Tan, GR No. 165339,
August 23, 2010

If the post-dated check was given to the payee in payment of an obligation, the purpose of giving
effect to the instrument is evident, thus title or ownership the check was transferred to the payee.
However, if the PDC was not given as payment, then there was no intent to give effect to the
instrument and ownership was not transferred. The evidence proves that the check was accepted, not
as payment, but in accordance with the policy of the payee to cover the transaction ( purchase of
beer products ) and in the meantime the drawer was to pay for the transaction by some other means
other than the check. This being so, title to the check did not transfer to the payee; it remained with
the drawer. The second element of the felony of theft was therefore not established. Hence, there is
no probable cause for theft.- San Miguel Corporation vs. Puzon, Jr. G.R. No. 167567, 22
September 2010

While Section 119 of the Negotiable Instrument Law in relation to Article 1231 of the Civil Code
provides that one of the modes of discharging a negotiable instrument is by any other act which will
discharge a simple contract for the payment of money, such as novation, the acceptance by the
holder of another check which replaced the dishonored bank check did not result to novation.

There are only two ways which indicate the presence of novation and thereby produce the
effect of extinguishing an obligation by another which substitutes the same. First, novation must be
explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old
and the new obligations must be incompatible on every point.

In the instant case, there was no express agreement that the holder’s acceptance of the
replacement check will discharge the drawer and endorser from liability. Neither is there
incompatibility because both checks were given precisely to terminate a single obligation arising
from the same transaction. Anamer Salazar vs. JY Brothers Marketing Corporation, GR no.
171998, October 20, 2010

While a maker who signed a promissory note for the benefit of his co-maker ( who received the loan
proceeds ) is considered an accommodation party, he is, nevertheless, entitled to a written notice on
the default and the outstanding obligation of the party accommodated. There being no such written
notice, the Bank is grossly negligent in terminating the credit line of the accommodation party for
the unpaid interest dues from the loans of the party accommodated and in dishonoring a check
drawn against the such credit line. Gonzales vs Phillippine Commercial and International Bank,
GR No. 180257, February 23, 2011

A certificate of deposit is defined as a written acknowledgement by a bank of the receipt of a sum of

money on deposit which the bank promise to pay to the depositor or the order of the depositor or to
some other person or his order whereby the relation of debtor and creditor between the bank and
the depositor is created. A document to be considered a certificate of deposit need not be in a
specific form. Thus, a passbook of an interest-earning deposit account issued by a bank is a
certificate of deposit drawing interest because it is considered a written acknowledgment by a bank
that it has accepted a deposit of a sum of money from a depositor. Thus, it is subject to documentary
stamp tax. Prudential Bank v. Commissioner of Internal Revenue (CIR) G.R. No. 180390, July
27, 2011

As between a bank and its depositor, where the bank’s negligence is the proximate cause of the loss
and the depositor is guilty of contributory negligence, the greater proportion of the loss shall be
borne by the bank. The bank was negligent because it did not properly verify the genuineness of the
signatures in the applications for manager’s checks while the depositor was negligent because it
clothed its accountant/bookkeeper with apparent authority to transact business with the Bank and it
did not examine its monthly statement of account and report the discrepancy to the Bank. the court
allocated the damages between the bank and the depositor on a 60-40 ratio.–Philippine National
Bank vs. FF Cruz and Company, G.R. No. 173259, July 25, 2011

While its manager forged the signature of the authorized signatories of clients in the application for
manager’s checks and forged the signatures of the payees thereof, the drawee bank also failed to
exercise the highest degree of diligence required of banks in the case at bar. It allowed its manager
to encash the Manager’s checks that were plainly crossed checks. A crossed check is one where two
parallel lines are drawn across its face or across its corner. Based on jurisprudence, the crossing of a
check has the following effects: (a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once — to the one who has an account with the bank; and (c)
the act of crossing the check serves as a warning to the holder that the check has been issued for a
definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he
is not a holder in due course. In other words, the crossing of a check is a warning that the check
should be deposited only in the account of the payee. When a check is crossed,it is the duty of the
collecting bank to ascertain that the check is only deposited to the payee’s account. Philippine
Commercial International Bank vs. Balmaceda,G.R. No. 158143, September 21, 2011

Upon issuance of a negotiable check, in the absence of evidence to the contrary, it is presumed that
the same was issued for valuable consideration which may consist either in some right, interest, profit
or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or
some responsibility, to act, or labor, or service given, suffered or undertaken by the other side.
Under the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the
same for a consideration or for value. As petitioner alleged that there was no consideration for the
issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow
the presumption and prove that the checks were in fact issued without valuable
consideration. Petitioner, however, has not presented any credible evidence to rebut the
presumption, as well as North Star’s assertion, that the checks were issued as payment for the
US$85,000 petitioner owed to the corporation and not to the manager who facilitate the fund
transfer. - Cayanan v. North Star International Travel Inc.,G.R. No. 172954, October 5, 2011

The collecting bank which accepted a post-dated check for deposit and sent it for clearing and the
drawee bank which cleared and honored the check are both liable to the drawer for the entire face
value of the check. Allied Banking Corporation vs. Bank of the Philippine Islands, GR. 188363,
February 27, 2013

The fact that a person, other than the named payee of the crossed check, was presenting it for
deposit should have put the bank on guard. It should have verified if the payee authorized the holder
to present the same in its behalf or indorsed it to him. The bank’s reliance on the holder’s assurance
that he had good title to the three checks constitutes gross negligence even though the holder was
related to the majority stockholder of the payee. While the check was not delivered to the payee, the
suit may still prosper because the payee did not assert a right based on the undelivered check but on
quasi-delict. Equitable Banking Corporation vs Special Steel Products, June 13, 2012

Under the Negotiable Instruments Law, a check made payable to cash is payable to the bearer and
could be negotiated by mere delivery without the need of an indorsement. However, the drawer of
the post-dated check can not be liable for estafa to the person who did not acquire the instrument
directly from drawer but through negotiation of another by mere delivery. This is because the drawer
did not use the check to defraud the holder/private complainant. PEOPLE OF THE PHILIPPINES
VS. GILBERT REYES WAGAS. G.R. No. 157943, September 4, 2013

A check constitutes an evidence of indebtedness and is a veritable proof of an obligation. Under

Section 24 of the Negotiable Instruments Law, “Every negotiable instrument is deemed prima facie
to have been issued for a valuable consideration; and every person whose signature appears thereon
to have become a party for value.” Thus, checks completed and delivered to a person by another are
sufficient by themselves to prove the existence of the loan obligation obtained by the latter from the
former. Ting Ting Pua vs. Spouses Benito, GR No. 198660, October 23, 2013

INSURANCE

The legitimate heirs of the insured who were not designated as beneficiaries in the life insurance
policies are considered third parties to the insurance contracts and, thus are not entitled to the
proceeds thereof. The insurance companies have no legal obligation to turn over the insurance
proceeds to them. The revocation of the common law spouse of the insured as a beneficiary in one
policy and her disqualification as such in another are of no moment considering that the designation
of the illegitimate children as beneficiaries in the Insurance Policies remains valid. Because no legal
proscription exists in naming as beneficiaries children of illicit relationships by the insured, the
shares of the common-law spouse in the insurance proceeds, whether forfeited by the Court in view
of the prohibition on donation under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of the legitimate heirs. It is only in cases where the
insured has not designated any beneficiary, or when the designated beneficiary is disqualified by
law to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the
estate of the insured. Heirs of Loreto C. Maramag vs. Maramag, GR No. 181132, June 5, 2009

The insurer, upon the happening of the risk insured against and after payment to the insured is
subrogated to the rights and cause of action of the latter. As such, the insurer has the right to seek
reimbursement for all the expenses paid. Eastern Shipping Lines vs. Prudential Guarantee and
Assurance, Inc., GR No. 174116, September 1, 2009

HMOs are not insurance business. One test that they have applied is whether the assumption of risk
and indemnification of loss (which are elements of an insurance business) are the principal object
and purpose of the organization or whether they are merely incidental to its business. If these are
the principal objectives, the business is that of insurance. But if they are merely incidental and
service is the principal purpose, then the business is not insurance. Philippine Health Care
Providers vs. Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009.

As a general rule, the marine insurance policy needs to be presented in evidence before the trial
court or even belatedly before the appellate court. However, as in every general rule, there are
admitted exceptions. The policy can still be considered in court as long as it has been properly
identified by testimony duly recorded and has been incorporated in the records of the case. Asian
Terminals vs. Malayan Insurance, GR No. 171406, April 4, 2011

By law and by the specific contract involved in this case, the effectivity of the bond required for the
obtention of a license to engage in the business of receiving rice for storage is determined not alone
by the payment of premiums but principally by the Administrator of the NFA. A continuing bond, as
in this case where, there is no fixed expiration date, may be cancelled only by the obligee, which is
the NFA, by the Insurance Commissioner, and by the court. . - Country Bankers Insurance
Corporation v Lagman, G.R. No. 165487, July 13, 2011.

Notwithstanding the fact that the case was filed beyond the one-year prescriptive period provided
for under COGSA, the suit will not be dismissed if the delay was not due to the claimant’s fault. Had
the insurer processed and examined (petitioner’s) claim promptly – either rejecting or paying it, the
petitioner [or it, as insurer-subrogee] could have taken judicial action on time. But as in this case,
the insurer made an unreasonable demand for an itemized list of damages which caused the delay.
The insurer therefore should bear the loss with interest on account of such delay. New World
International Development Phils. Inc. v. NYK-FILJAPAN Shipping Corp., G.R. No.
171468,August 24, 2011.
 The extent of the surety’s liability is determined by the language of the suretyship contract or bond
itself. It can not be extended by implications beyond the terms of the contract. Having accepted the
bond, the creditor is bound by the recital in the surety bond that the terms and conditions of its
distributorship contract be reduced in writing or at the very least communicated in writing to the
surety. Such non-compliance by the creditor impacts not on the validity or legality of the surety
contract but on the creditor’s right to demand performance. First Lepanto-Taisho Insurance
Corporation vs Chevron Philippines, GR No. 177839, January 18, 2012

The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. When it is not disputed that the insurance company indeed paid, then there is valid
subrogation in its favor. Malayan Insurance Co vs Alberto, GR No. 194320, February 1, 2012

The incontestability clause precludes the insurer from disowning liability under the policy it issued
on the ground of concealment or misrepresentation regarding the health of the insured after a year
of its issuance. Since insured died on the 11 th month following the issuance of his plan, the
incontestability period has not yet set in. Consequently, the insurer was not barred from questioning
the beneficiary’s entitlement to the benefits of the pension plan. Florendo vs. Philam Plans, GR.
No 186983, February 22, 2012

Double insurance exists where the same person is insured by several insurers separately in respect to
the same subject and interest. The requisites in order for double insurance to arise are as follows: 1.)
The person insured is the same; 2.) two or more insurers insuring separately; 3.) there is identity of
subject matter; 4.) there is identity of subject interest insured; and 5.) There is identity of the risk or
peril insured against. In this case, Wyeth procured. There is no double insurance even though two
policies were both issued over the same subject matter and both covered the same peril insured
against if the two policies were issued to two different entities. Malayan Insurance Co vs.
Philippine First Insurance Co. G.R. NO. 184300, July 11, 2012

The Insurance Code provides that a policy may declare that a violation of specified provisions
thereof shall avoid it. Thus, in fire insurance policies, which contain provisions that if the claim be in
any respect fraudulent, or if any false declaration be made or used in support thereof, all the
benefits under the policy shall be forfeited , a fraudulent discrepancy between the actual loss and
that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will
exonerate the insurer. United Merchants Corporation vs. Country Bankers Insurance
Corporation, GR. N0. 198588, July 11, 2012

The “theft clause” of a comprehensive motor vehicle insurance policy has been interpreted by the
Court in several cases to cover situations like (1) when one takes the motor vehicle of another
without the latter’s consent even if the motor vehicle is later returned, there is theft – there being
intent to gain as the use of the thing unlawfully taken constitutes gain or (2) when there is taking of a
vehicle by another person without the permission or authority from the owner thereof. Paramount
Insurance Corporation vs. Spouses Remondeulaz, GR No. 173773, November 28, 2012

Under the collateral source rule, if an injured person receives compensation for his injuries from a
source wholly independent of the tortfeasor, the payment should not be deducted from the
damages which he would otherwise collect from the tortfeasor. It finds no application to cases
involving no-fault insurances under which the insured is indemnified for losses by insurance
companies, regardless of who was at fault in the incident generating the losses. Here, it is clear that
MMPC is a no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the
dependents of its employees which had already been paid by separate health insurance providers of
said dependents.
Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law. Being in the
nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees’ medical expenses incurred by their
dependents but only up to the extent of the expenses actually incurred. This is consistent with the
principle of indemnity which proscribes the insured from recovering greater than the loss. Indeed,
to profit from a loss will lead to unjust enrichment and therefore should not be countenanced.
Mitsubishi Motors Philippines Salaried Employees Union vs. Mitsubishi Motors Corporation
G.R. No. 175773, June 17, 2013

The "Incontestability Clause" under Section 48 of the Insurance Code provides that an insurer is
given two years – from the effectivity of a life insurance contract and while the insured is alive – to
discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or
when the insured dies within the period, the insurer must make good on the policy, even though the
policy was obtained by fraud, concealment, or misrepresentation, as in this case, when the insured
did not personally apply for the policy as she was illiterate and that it was the beneficiary who filled
up the insurance application designating herself as beneficiary. Section 48 regulates both the actions
of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire
whether the policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it
forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered –
thus deterring them from venturing into such nefarious enterprise. Manila Bankers Life Insurance
Corporation vs Cresencia Aban. G.R. No. 175666, July 29, 2013.

With the transfer of the location of the subject properties, without notice and without the insurer’s
consent, after the renewal of the policy, the insured clearly committed concealment,
misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides
that a neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind a
contract of insurance.” Moreover, under Section 168 of the Insurance Code, the insurer is entitled to
rescind the insurance contract in case of an alteration in the use or condition of the thing insured.
Section 168 of the Insurance Code provides, as follows: An alteration 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 risks, entitles an insurer to rescind a
contract of fire insurance. Malayan Insurance Company vs. PAP Co. (P HIL . B RANCH ). G.R. No.
200784, August 07, 2013.

Contracts of insurance, like other contracts, are to be construed according to the sense and meaning
of the terms which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting
the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to
be given their meaning as understood in common speech. A contract of insurance is a contract of
adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his obligation.
Alpha Insurance and Surety Co. vs. Castor, GR No. 198174, September 2, 2013

When the goods were damaged even before they were turned over to the stevedore and such
damage was even compounded by the negligent acts of the common carrier and stevedore when
both mishandled the goods during the discharging operation, the common carrier cannot deny its
liability. From the nature of their business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence in the vigilance over the goods transported by them. The
extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right
to receive them. Eastern Shipping Lines vs. BPI/MS Insurance Corp and Mitsui Sum Tomo, GR
No. 193986, January 15, 2014

For purposes of determining the liability of a health care provider to its members, a health care
agreement is 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
contingent, the health care provider must pay for the same to the extent agreed upon under the
contract. Limitations as to liability must be distinctly specified and clearly reflected in the extent of
coverage which the company voluntary assume, otherwise, any ambiguity arising therein shall be
construed in favor of the member. Being a contract of adhesion, the terms of an insurance contract
are to be construed strictly against the party which prepared the contract - the insurer. This is
equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as “ standard charges “, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import should be strictly construed against the
provider. Thus, if the member, while on vacation, underwent a procedure in the USA, the standard
charges referred to in the contract should mean standard charges in USA and not the cost had the
procedure been conducted in the Philippines. Fortune Medicare Inc. vs Amorin. G.R. No.
195872, March 12, 2014.