CHINA BANKING CORPORATION, petitioner, vs.

THE HONORABLE COURT OF APPEALS and JOSE

"JOSEPH" GOTIANUY as substituted by ELIZABETH GOTIANUY LO, respondents.
G.R. No. 140687
December 18, 2006

FACTS

Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other properties, US dollar
deposits with Citibank N.A. amounting to not less than P35,000,000.00 and US$864,000.00. Mary Margaret Dee
received these amounts from Citibank N.A. through checks which she allegedly deposited at China Banking
Corporation (China Bank). He likewise accused his son-in-law, George Dee, husband of his daughter, Mary
Margaret, of transferring his real properties and shares of stock in George Dee's name without any consideration.
Jose Gotianuy, died during the pendency of the case before the trial court. He was substituted by his daughter,
Elizabeth Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary Margaret Dee from his US
dollar placement with Citibank.

The trial court issued a subpoena to Cristota Labios and Isabel Yap, employees of China Bank, to testify on the
case. China Bank moved for reconsideration. The trial court issued an Order and held:

The Court is of the view that as the foreign currency fund is deposited with the movant China Banking
Corporation, Cebu Main Branch, Cebu City, the disclosure only as to the name or in whose name the said
fund is deposited is not violative of the law. Justice will be better served if the name or names of the depositor
of said fund shall be disclosed because such a disclosure is material and important to the issues between the
parties in the case at bar.

The motion for reconsideration is denied partly and granted partly, in the sense that Isabel Yap and/or Cristuta
Labios are directed to appear before this Court and to testify at the trial of this case only for the purpose of
disclosing in whose name or names is the foreign currency fund deposited with the movant Bank and not to other
matters material and relevant to the issues in the case at bar.

From this Order, China Bank filed a Petition for Certiorari with the Court of Appeals. The Court of Appeals denied
the petition of China Bank and affirmed the Order of the RTC:

The contention of petitioner that the [prescription] on absolute confidentiality under the law in question covers
even the name of the depositor and is beyond the compulsive process of the courts is palpably untenable as the
law protects only the deposits itself but not the name of the depositor.

To uphold the theory of petitioner CBC is reading into the statute "something that is not within the manifest
intention of the legislature as gathered from the statute itself, for to depart from the meaning expressed
by the words, is to alter the statute, to legislate and not to interpret, and judicial legislation should be
avoided. Maledicta expositio quae corrumpit textum – It is a dangerous construction which is against the
words. Expressing the same principle is the maxim: Ubi lex non distinguit nec nos distinguere debemos,
which simply means that where the law does not distinguish, we should not make any distinction."

ISSUES

I. The Honorable Court Of Appeals Has Interpreted The Provision Of Section 8 Of R.A. 6426, As Amended,
Otherwise Known As The Foreign Currency Deposit Act, In A Manner Contrary To The Legislative
Purpose, That Is, To Provide Absolute Confidentiality Of Whatever Information Relative To The Foreign
Currency Deposit.

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 II. Private Respondent (Elizabeth Gotianuy Lo) Is Not The Owner Of The Questioned Foreign Currency
Deposit. Thus, He Cannot Invoke The Aid Of The Court In Compelling The Disclosure Of Someone Else's
Foreign Currency Deposit On The Flimsy Pretext That The Checks (In Foreign Currency) He Had Issued
May Have Ended Up Therein.

III. Petitioner Can Rightly Invoke The Provision Of Sec. 8, R.A. 6426, In Behalf Of The Foreign Currency
Depositor, Owing To Its Solemn Obligation To Its Client To Exercise Extraordinary Diligence In The
Handling Of The Account.

RULING

It is in this light that the court in the case of Salvacion v. Central Bank of the Philippines, allowed the inquiry of
the foreign currency deposit in question mainly due to the peculiar circumstances of the case such that a strict
interpretation of the letter of the law would result to rank injustice. Therein, Greg Bartelli y Northcott, an American
tourist, was charged with criminal cases for serious illegal detention and rape committed against then 12 year-old
Karen Salvacion. A separate civil case for damages with preliminary attachment was filed against Greg Bartelli.
The trial court issued an Order granting the Salvacions' application for the issuance of a writ of preliminary
attachment. A notice of garnishment was then served on China Bank where Bartelli held a dollar account. China
Bank refused, invoking the secrecy of bank deposits. The Supreme Court ruled: "In fine, the application of the
law depends on the extent of its justice x x x It would be unthinkable, that the questioned law exempting
foreign currency deposits from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever would be used as a device
by an accused x x x for wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.

The following facts are established:

(1) Jose Gotianuy and Mary Margaret Dee are co-payees of various Citibank checks;

(2) Mary Margaret Dee withdrew these checks from Citibank;

(3) Mary Margaret Dee admitted in her Answer to the Request for Admissions by the Adverse Party sent to her
by Jose Gotianuy that she withdrew the funds from Citibank upon the instruction of her father Jose
Gotianuy and that the funds belonged exclusively to the latter (Jose);

(4) These checks were endorsed by Mary Margaret Dee at the dorsal portion; and

(5) Jose Gotianuy discovered that these checks were deposited with China Bank as shown by the stamp of China
Bank at the dorsal side of the checks.

There is no issue as to the source of the funds. Mary Margaret Dee declared the source to be Jose Gotianuy.
There is likewise no dispute that these funds in the form of Citibank US dollar Checks are now deposited with
China Bank. As the owner of the funds unlawfully taken and which are undisputably now deposited with China
Bank, Jose Gotianuy has the right to inquire into the said deposits.

A depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of business, to
be placed to his credit and subject to his check or the beneficiary of the funds held by the bank as trustee.

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It is indubitable that the Citibank checks were drawn against the foreign currency account with Citibank, NA. The
monies subject of said checks originally came from the late Jose, the owner of the account. Thus, he also has
legal rights and interests in the CBC account where said monies were deposited. More importantly, the Citibank
checks readily demonstrate that the late Jose Gotianuy is one of the payees of said checks. Being a co-payee
thereof, then he or his estate can be considered as a co-depositor of said checks. Ergo, since the late Jose
Gotianuy is a co-depositor of the CBC account, then his request for the assailed subpoena is tantamount to an
express permission of a depositor for the disclosure of the name of the account holder.

It must be remembered that in the complaint of Jose Gotianuy, he alleged that his US dollar deposits with Citibank
were illegally taken from him. On the other hand, China Bank employee Cristuta Labios testified that Mary
Margaret Dee came to China Bank and deposited the money of Jose Gotianuy in Citibank US dollar checks to the
dollar account of her sister Adrienne Chu. This fortifies our conclusion that an inquiry into the said deposit at
China Bank is justified. At the very least, Jose Gotianuy as the owner of these funds is entitled to a hearing on the
whereabouts of these funds.

All things considered and in view of the distinctive circumstances attendant to the present case, we are
constrained to render a limited pro hac vice ruling. Clearly it was not the intent of the legislature when it enacted
the law on secrecy on foreign currency deposits to perpetuate injustice. This Court is of the view that the
allowance of the inquiry would be in accord with the rudiments of fair play, the upholding of fairness in
our judicial system and would be an avoidance of delay and time-wasteful and circuitous way of
administering justice.

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 BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. SARABIA MANOR HOTEL CORPORATION,
Respondent.

FACTS

Sarabia is a corporation duly organized and existing under Philippine laws, with principal place of business at 101
General Luna Street, Iloilo City. It was incorporated on February 22, 1982, with an authorized capital stock of
₱10,000,000.00, fully subscribed and paid-up, for the primary purpose of owning, leasing, managing and/or
operating hotels, restaurants, barber shops, beauty parlors, sauna and steam baths, massage parlors and such
other businesses incident to or necessary in the management or operation of hotels.

In 1997, Sarabia obtained a ₱150,000,000.00 special loan package from Far East Bank and Trust Company
(FEBTC) in order to finance the construction of a five-storey hotel building (New Building) for the purpose of
expanding its hotel business. An additional ₱20,000,000.00 stand-by credit line was approved by FEBTC in the
same year.

The foregoing debts were secured by real estate mortgages over several parcels of land8 owned by Sarabia and
a comprehensive surety agreement dated September 1, 1997 signed by its stockholders. By virtue of a merger,
Bank of the Philippine Islands (BPI) assumed all of FEBTC’s rights against Sarabia.

Sarabia started to pay interests on its loans. However, because of the delayed completion of the New Building,
Sarabia incurred various cash flow problems. Thus, despite the fact that it had more assets than liabilities at that
time, it nevertheless, filed, on July 26, 2002, a Petition for corporate rehabilitation (rehabilitation petition) with
prayer for the issuance of a stay order before the RTC as it foresaw the impossibility to meet its maturing
obligations to its creditors when they fall due.

Sarabia claimed that its cash position suffered when it was forced to take-over the construction of the New
Building due to the

1. Recurring default of its contractor, Santa Ana – AJ Construction Corporation (contractor), and its
subsequent abandonment of the said project.
2. The New Building was completed only two years past the original target date thereby skewing Sarabia’s
projected revenues.
3. It was compelled to divert some of its funds in order to cover cost overruns. The situation became even
more difficult when the grace period for the payment of the principal loan amounts ended in 2000 which
resulted in higher amortizations. Moreover, external events adversely affecting the hotel industry, the
September 11, 2001 terrorist attacks and the Abu Sayyaf issue, also contributed to Sarabia’s financial
difficult

Sarabia failed to generate enough cash flow to service its maturing obligations to its creditors. In its proposed
rehabilitation plan, Sarabia sought for the

1. Restructuring of all its outstanding loans, submitting that the interest payments on the same be pegged at
a uniform escalating rate.
2. Annual payments on the principal loans starting in 2004, also in escalating amounts depending on cash
flow. Further, it proposed that it should pay off its outstanding obligations to the government and its
suppliers on their respective due dates, for the sake of its day to day operations.

In a Recommendation (Receiver’s Report), the Receiver found that Sarabia may be rehabilitated. Finding
Sarabia’s rehabilitation petition sufficient in form and substance, the RTC issued a Stay Order. It also appointed

4
Liberty B. Valderrama as Sarabia’s rehabilitation receiver (Receiver). Thereafter, BPI filed its Opposition. The
RTC gave due course to the rehabilitation petition.

The rehabilitation plan was realistic since, based on Sarabia’s financial history, it was shown that it has the
inherent capacity to generate funds to pay its loan obligations given the proper perspective. The recommended
rehabilitation plan was also practical in terms of the interest rate pegged at 6.75% p.a. since it is based on
Sarabia’s ability to pay and the creditors’ perceived cost of money. It was likewise found to be viable since, based
on the extrapolations made by the Receiver, Sarabia’s revenue projections, albeit projected to slow down,
remained to have a positive business/profit outlook altogether.36

While it may be true that Sarabia has been unable to comply with its existing terms with BPI, it has nonetheless
complied with its obligations to its employees and suppliers and pay its taxes to both local and national
government without disrupting the day-to-day operations of its business as an on-going concern.

The RTC did not give credence to BPI’s opposition to the Receiver’s recommended rehabilitation plan as neither
BPI nor the Receiver was able to substantiate the claim that BPI’s cost of funds was at the 10% p.a. threshold. In
this regard, the RTC gave more credence to the Receiver’s determination of fixing the interest rate at 6.75% p.a.,
taking into consideration not only Sarabia’s ability to pay based on its proposed interest rates, i.e., 7% to 14%
p.a., but also BPI’s perceived cost of money based on its own published interest rates for deposits, i.e., 1% to
4.75% p.a., as well as the rates for treasury bills, i.e., 5.498% p.a. and CB overnight borrowings, i.e., 7.094%. p.a.

The CA affirmed the RTC’s ruling with the modification of reinstating the surety obligations of Sarabia’s
stockholders to BPI as an additional safeguard for the effective implementation of the approved rehabilitation
plan.

BPI moved for reconsideration which was, however, denied.

ISSUE

Whether or not the CA correctly affirmed Sarabia’s rehabilitation plan as approved by the RTC, with the
modification on the reinstatement of the surety obligations of Sarabia’s stockholders

RULING

The petition has no merit.

A. Propriety of BPI’s petition; procedural considerations.

It is fundamental that a petition for review on certiorari filed under Rule 45 of the Rules of Court
covers only questions of law. In this relation, questions of fact are not reviewable and cannot be
passed upon by the Court unless, the following exceptions are found to exist: (a) when the findings are
grounded entirely on speculations, surmises, or conjectures; (b) when the inference made is manifestly
mistaken, absurd, or impossible; (c) when there is a grave abuse of discretion; (d) when the judgment is
based on misappreciation of facts; (e) when the findings of fact are conflicting; (f) when in making its
findings, the same are contrary to the admissions of both parties; (g) when the findings are contrary to
those of the trial court; (h) when the findings are conclusions without citation of specific evidence on
which they are based; (i) when the facts set forth in the petition as well as in the petitioner’s main and
reply briefs are not disputed by the respondent; and (j) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record.

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 A question of law exists when the doubt or difference centers on what the law is on a certain state of
facts. A question of fact, on the other hand, exists if the doubt centers on the truth or falsity of the
alleged facts.

The determination of whether or not due regard was given to the interests of BPI as a secured
creditor in the approved rehabilitation plan partakes of a “question of fact” since it will require a
review of the sufficiency and weight of evidence presented by the parties – among others, the various
financial documents and data showing Sarabia’s capacity to pay and BPI’s perceived cost of money –
and not merely an application of law.

The Court finds BPI’s petition to be improper – and hence, dismissible – as the issues raised therein
involve questions of fact which are beyond the ambit of a Rule 45 petition for review. This being so, the
findings of fact of the CA are final and conclusive and the Court will not review them on appeal.

B. Approval of Sarabia’s rehabilitation plan; substantive considerations.

Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted
in order to give companies sufficient leeway to deal with debilitating financial predicaments in the hope of
restoring or reaching a sustainable operating form if only to best accommodate the various interests of all
its stakeholders, may it be the corporation’s stockholders, its creditors and even the general public.

Case law has defined corporate rehabilitation as an attempt to conserve and administer the assets of
an insolvent corporation in the hope of its eventual return from financial stress to solvency. It
contemplates the continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and liquidity. The purpose of rehabilitation
proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid
their claims from its earnings. Thus, rehabilitation shall be undertaken when it is shown that the continued
operation of the corporation is economically more feasible and its creditors can recover, by way of the
present value of payments projected in the plan, more, if the corporation continues as a going concern
than if it is immediately liquidated.

Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (INTERIM RULES)
states that a rehabilitation plan may be approved even over the opposition of the creditors holding
a majority of the corporation’s total liabilities if there is a showing that 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’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due
regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to
accept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but
incomplete recovery.

The Court thus observed that:

First, Sarabia has the financial capability to undergo rehabilitation.

The Court’s pronouncement in Wonder Book Corporation v. Philippine Bank of Communications proves
instructive:

Rehabilitation is available to a corporation [which], while illiquid, has assets that can generate more cash if used
in its daily operations than sold. Its liquidity issues can be addressed by a practicable business plan that will

6
generate enough cash to sustain daily operations, has a definite source of financing for its proper and full
implementation, and anchored on realistic assumptions and goals.

This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole
purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by the
following [REHABILITATION NOT GRANTED]:

(a) the absence of a sound and workable business plan;

(b) baseless and unexplained assumptions, targets and goals;

(c) speculative capital infusion or complete lack thereof for the execution of the business plan;

(d) cash flow cannot sustain daily operations; and

(e) negative net worth and the assets are near full depreciation or fully depreciated.

Second, Sarabia has the ability to have sustainable profits over a long period of time.

Third, the interests of Sarabia’s creditors are well-protected.

The Court finds BPI’s opposition on the approved interest rate to be manifestly unreasonable considering that: (a)
the 6.75% p.a. interest rate already constitutes a reasonable rate of interest which is concordant with
Sarabia’s projected rehabilitation; and (b) on the contrary, BPI’s proposed escalating interest rates remain
hinged on the theoretical assumption of future fluctuations in the market, this notwithstanding the fact that
its interests as a secured creditor remain well-preserved.

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 GOLDEN CANE FURNITURE MANUFACTURING CORPORATION, Petitioner, v. STEELPRO PHILIPPINES,
INC., SOCIAL SECURITY SYSTEM, AIR LIQUIDE PHILIPPINES, INC., CLARK DEVELOPMENT
CORPORATION, PHILIPPINE NATIONAL BANK, BUREAU OF INTERNAL REVENUE, UP-TOWN
INDUSTRIES SALES, INC., Respondents.

GR No.198222
April 04, 2016

FACTS

On November 3, 2008, Golden Cane filed a Petition for Corporate Rehabilitation with the RTC of San Fernando,
Pampanga. RTC issued a Stay Order.

In 2009, the RTC denied due course to the petition because of: (1) litis pendentia and forum shopping due to the
pendency of a separate Petition for Suspension of Payments involving the same parties filed by Golden Cane in
2007; (2) the consistent failure of the rehabilitation receiver to fulfill her duties; (3) the receiver's failure to file her
bond on time; and (4) the receiver's failure to submit Golden Cane's interim financial statements. The RTC
dismissed the petition and lifted the Stay Order.

Golden Cane moved for reconsideration of the dismissal. The RTC denied the motion for reconsideration.

Golden Cane elevated the case to the CA via a petition for certiorari. The CA dismissed the petition
outright for being the wrong mode of appeal. The CA held that the correct remedy is a petition for review
under Rule 43 of the Rules of Court pursuant to A.M. No. 04-9-07-SC.

Golden Cane moved to reconsider the dismissal but the CA denied the motion. Hence, on 2011, Golden Cane
filed the present petition for review on certiorari.

Golden Cane argues:

(1) that A.M. No. 08-10-SC, or the 2008 Rules of Procedure on Corporate Rehabilitation (the 2008 Rules) took
effect on January 16, 2009, and superseded A.M. No. 04-9-07-SC;

(2) that under Rule 8 of the 2008 Rules, an order denying due course to the petition for rehabilitation
rendered before the approval or disapproval of the rehabilitation plan is not appealable to the CA under
Rule 43;

(3) that the remedy against such an order is a petition for certiorari under Rule 65 of the Rules of Court.

ISSUE

Whether the correct remedy to challenge the outright dismissal of Golden Cane's petition for rehabilitation is a
petition for review under Rule 43 or a petition for certiorari under Rule 65, both of the Rules of Court

RULING

A corporate rehabilitation case is a special proceeding in rem wherein the petitioner seeks to establish the status
of a party or a particular fact, i.e., the inability of the corporate debtor to pay its debts when they fall due. It is
summary and non-adversarial in nature. Its end goal is to secure the approval of a rehabilitation plan to facilitate
the successful recovery of the corporate debtor. It does not seek relief from an injury caused by another party.

8
Jurisdiction over corporate rehabilitation cases originally fell within the jurisdiction of the Securities and
Exchange Commission (SEC) which had absolute jurisdiction, control, and supervision over all Philippine
corporations. With the enactment of the Securities Regulation Code in 2000, this jurisdiction was transferred to
the Regional Trial Courts.

This Court enacted A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation
(Interim Rules) which took effect on December 15, 2000. Under the Interim Rules, a motion for reconsideration
was a prohibited pleading. Orders issued by the rehabilitation court were also immediately executory
unless restrained by the appellate court.

The Interim Rules, however, did not specifically indicate the mode of appeal that governed corporate rehabilitation
cases. Thus, in 2004, the Court enacted A.M. No. 04-9-07-SC to clarify the proper mode of appeal from decisions
and final orders of Rehabilitation Courts:

All decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation and the
Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No. 8799 shall be
appealable to the Court of Appeals through a petition for review under Rule 43 of the Rules of Court.

In 2008, this Court enacted the Rules of Procedure on Corporate Rehabilitation (2008 Rules). The 2008 Rules:

 Included motions for reconsideration as a relief from any order of the court prior to the approval of
the rehabilitation plan
 Allowed a petition for certiorari under Rule 65 of the Rules of Court as a recourse, but only against
an order issued after the approval of the rehabilitation plan.
 Adopted the mode of appeal prescribed in A.M. No. 04-9-07-SC against an order approving or
disapproving the rehabilitation plan

In 2010, Congress enacted the FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA) which updated
the existing laws on corporate rehabilitation. The Court promulgated A.M. No. 12-12-11-SC, or the Financial
Rehabilitation Rules of Procedure (2013 Rules) on August 27, 2013. It adopted the same remedies as the
2008 Rules against interlocutory orders of the rehabilitation court. However, the 2013 Rules eliminated the
remedy of appeal from the rehabilitation court's approval or disapproval of the rehabilitation plan.

Under the 2013 Rules, the Rehabilitation Court's final order approving or disapproving a rehabilitation plan
is no longer subject to appeal; it can only be reviewed through a petition for certiorari. The 2013 Rules
narrowed the scope of appellate review from errors of law and fact under Rule 43, to errors of jurisdiction or
abuse of discretion under Rule 65. It effectively lends more credence to the factual findings and the judgment of
rehabilitation courts.

GOLDEN CANE'S PETITION FOR CORPORATE REHABILITATION falls under the regime of THE INTERIM
RULES (AM 008-10-SC) NOT 2008 RULES (AM 08-10-SC).

Pursuant to A.M. No. 04-9-07-SC, the correct remedy against all decisions and final orders of the rehabilitation
courts in proceedings governed by the Interim Rules is a PETITION FOR REVIEW to the CA under Rule 43 of
the Rules of Court. A petition for certiorari under Rule 65 of the Rules of Court is evidently the wrong mode of
appeal.

Even if Golden Cane's petition were under the regime of the 2008 Rules, the correct remedy would still have been
a petition for review to the Court of Appeals under Rule 43. The outright dismissal of the petition can be seen
as equivalent to the disapproval of the rehabilitation plan. Ultimately, the result is the failure of rehabilitation.

9
The result would have been different if Golden Cane's petition had been filed under the regime of the 2013 Rules.
The 2013 Rules eliminated appeals from the dismissal of the petition or the approval/disapproval of the
rehabilitation plan and specifically indicated certiorari as the correct remedy.

10
JOHN GOKONGWEI, JR., vs. SECURITIES AND EXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE
M. SORIANO,ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIO BUNAO, WALTHRODE B. CONDE, MIGUEL
ORTIGAS, ANTONIO PRIETO,SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO, SR., and EDUARDO
R. VISAYA
G.R. No. L-45911 April 11, 1979

FACTS

Petitioner (a) seeks to declare null and void the amended by-laws of respondent corporation which
disqualifies any stockholder engaged in any business that competes with or is antagonistic to that of the
corporation from being nominated or elected to the Board of Directors; (b) assails the order of the Securities
and Exchange Commission denying his right to inspect the books of a wholly-owned subsidiary of
respondent corporation; (c) assails the act of the Securities and Exchange Commission in allowing the
stockholders of respondent corporation to ratify the investment of corporate funds in a foreign corporation.

He alleges that: (1) the amendment in 1976 was based on a resolution in 1961 when the capital stock was still
P70million compared to P301million in 1976. (2) the resolution has been exercised in 1962 and 1963, (3) the
amendment deprived him of his right to be elected as director. Petitioner alleges that respondent corporation has
been investing corporate funds in other corporations and businesses outside of the primary purpose clause of the
corporation, in violation of section 17 of the Corporation Law.

In connection with the same case, petitioner filed with the Securities and Exchange Commission an "Urgent
Motion for Production and Inspection of Documents", alleging that the Secretary of respondent corporation
refused to allow him to inspect its records despite request made by petitioner for production of certain documents
enumerated in the request, and that respondent corporation had been attempting to suppress information from its
stockholders despite a negative reply by the SEC to its query regarding their authority to do so.

ISSUES

i. Whether or not the amended by-laws of SMC disqualifying a competitor from nomination or election
to the Board of Directors of SMC are valid and reasonable
ii. Whether or not respondent SEC gravely abused its discretion in denying petitioner’s request for an
examination of the records of San Miguel International, Inc., a fully owned subsidiary of San Miguel
Corporation

RULING

As to I, YES. The exclusion of a competitor from the Board is legitimate corporate purpose, considering that being
a competitor, petitioner cannot devote an unselfish and undivided Loyalty to the corporation. Petitioner is the
president and substantial stockholder of Universal Robina Corporation and CFC Corporation while engaged in
businesses directly and substantially competing with the businesses of San Miguel Corporation.

It cannot be said that petitioner has a vested right to be elected director, in the face of the fact that the law at the
time such right as stockholder was acquired contained the prescription that the corporate charter and the by-law
shall be subject to amendment, alteration and modification. Although in the strict and technical sense, directors
are not regarded as trustees, their character is that of a fiduciary insofar as the corporation is concerned.
It springs from the fact that directors have the control and guidance of corporate affairs and property and
hence of the property interests of the stockholders.

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An amendment which renders ineligible, or if elected, subjects to removal, a director if he be also a
director in a corporation whose business is in competition with or is antagonistic to the other corporation
is valid. This is based upon the principle that where the director is so employed in the service of a rival
company, he cannot serve both, but must betray one or the other (CONFLICT OF INTEREST). A member of
the Board of Directors of the San Miguel Corporation has access to sensitive and highly confidential information,
such as:

(a) marketing strategies and pricing structure;

(b) budget for expansion and diversification;

(c) research and development; and (d) sources of funding, availability of personnel, proposals of mergers or tie-
ups with other firms.

DOCTRINE OF CORPORATE OPPORTUNITY

Corporate officers are not permitted to the use their position of trust and confidence to further their
interests. The doctrine of "corporate opportunity" is precisely a recognition by the courts that the fiduciary
standards could not be upheld where the fiduciary was acting for two entities with competing interests. This
doctrine rests fundamentally of the unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for
protection.

As to II, YES. The stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of ownership of the corporate
property, whether this ownership or interest be termed an equitable ownership, a beneficial ownership, or a
ownership. This right is predicated upon the necessity of self-protection.

In Grey v. Insular Lumber, this Court held that "the right to examine the books of the corporation must be
exercised in good faith, for specific and honest purpose, and not to gratify curiosity, or for specific and honest
purpose, and not to gratify curiosity, or for speculative or vexatious purposes. In other words, the specific
provisions take from the stockholder the burden of showing propriety of purpose and place upon the corporation
the burden of showing impropriety of purpose or motive. It appears to be the general rule that stockholders are
entitled to full information as to the management of the corporation and the manner of expenditure of its
funds, and to inspection to obtain such information, especially where it appears that the company is
being mismanaged or that it is being managed for the personal benefit of officers or directors or certain
of the stockholders to the exclusion of others."

While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is
a matter of law, the right of such stockholder to examine the books and records of a wholly-owned
subsidiary of the corporation in which he is a stockholder is a different thing.

CESAR V. AREZA and LOLITA B. AREZA, Petitioners, vs.

EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondents.

G.R. No. 176697

September 10, 2014

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Doctrines: A depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an
endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title
to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid
and subsisting.”

It is well-settled that the relationship of the depositors and the Bank or similar institution is that of creditor-debtor.
Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loans. The bank is the debtor and the depositor
is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.

FACTS Petitioners received an order for the purchase of a motor vehicle from Gerry Mambuay where the latter
paid petitioners with nine (9) Philippine Veterans Affairs Office (PVAO) checks payable to different payees and
drawn against the Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos
(₱200,000.00). Petitioners deposited the said checks in their savings account with the Express Savings Bank
which, in turn, deposited the checks with its depositary bank, Equitable-PCI Bank and the latter presented the
checks to the drawee, the Philippine Veterans Bank, which honored the checks. However, the subject checks
were returned by PVAO to the drawee on the ground that the amount on the face of the checks was altered from
the original amount of ₱4,000.00 to ₱200,000.00. After informing Express Savings Bank that the drawee
dishonored the checks, Equitable-PCI Bank debited the deposit account of ESB in the amount of P1.8M. Express
Savings Bank then withdrew the amount of P1.8M representing the returned checks from petitioners saving
account.

ISSUE Whether or not Express Savings Bank had the right to debit ₱1,800,000.00 from petitioners’ accounts.

RULING No, Express Savings Bank cannot debit the savings account of petitioners. A depositary/collecting bank
where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an
endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is
genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his endorsement valid and subsisting.” As collecting bank,
Express Savings Bank is liable for the amount of the materially altered checks. It cannot further pass the liability
back to the petitioners absent any showing in the negligence on the part of the petitioners which substantially
contributed to the loss from alteration.

Q: A client indorsed a check with a forged indorsement. The collecting bank indorsed the check with the
drawee bank. What are the liabilities of the parties?

The collecting bank is bound by its warranties as an indorser and cannot set up the defense of forgery as against
the drawee bank.

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The drawee bank is under strict liability to pay the check to the order of the payee. Payment under a forged
indorsement is not to the drawer's order. Since the drawee bank did not pay a holder or other person entitled to
receive payment, it has no right to reimbursement from the drawer. (ASSOCIATED BANK V. CA, G.R. No.
107382, Jan. 31, 1996)

Q: What is the remedy of the drawee bank?

The drawee bank may not debit the account of the drawer but may generally pass liability back through the
collection chain to the party who took from the forger (collecting bank) and, of course, to the forger himself, if
available. If the forgery is that of the payee's or holder's indorsement, the collecting bank is held liable, without
prejudice to the latter proceeding against the forger. Since a forged indorsement is inoperative, the collecting
bank had no right to be paid by the drawee bank. The former must necessarily return the money paid by the latter
because it was paid wrongfully. (ASSOCIATED BANK V. CA, G.R. No. 107382, Jan. 31, 1996)

Q: Can a drawer‐depositor who entrusted his check books, credit cards, passbooks, bank statements and
cancelled checks to his secretary and who had introduced the secretary to the bank for purposes of
reconciliation of his accounts hold the drawee bank liable for the amounts withdrawn by the secretary by
forging his signature on the checks?

A: No, he is precluded from setting up the forgery due to his own negligence in entrusting to his secretary his
credit cards and check book including the verification of his statements of account. (ILUSORIO V. CA, G.R. No.
139130, Nov. 27, 2002)

Q: Can a drawer, from whom checks were stolen but failed to report the same to the authorities or the
drawee bank, recover the value of the checks paid by the drawee bank on the forged checks which was
stolen from the drawer?

A: No, the drawer cannot recover. He is the one which stands to be blamed for its negligence/predicament.
(SECURITY BANK AND TRUST COMPANY V TRIUMPH LUMBER AND CONSTRUCTION CORP., G.R. No.
126696, Jan. 21, 1999)

FORGERY (ANALYSIS FOR BAR EXAM)

The most common way is for the examiner to establish a fact pattern where the signature of the maker is
forged. If the maker’s signature is forged, the maker can never be held liable on the instrument because as to
him, the instrument is inoperative (sec23 NIL). From the point of view of Civil Law, the maker whose signature is
forged is not a party to the instrument. One who is not a party to a contract cannot be liable. The same analysis
happens when the signatures of the drawee/acceptor or drawer are forged. They cannot be held liable on the
instrument.

Illustration: M makes a note payable to the order of P. P indorsed it to A. While the note is in A’s possession, F
obtains possession of the note illegally. F forges the signature of A and indorsed it to himself. He then indorses
and delivers the instrument to C and C to H.

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Note: Remember that a holder is presumed to be a holder in due course under sec 59. If nothing in the problem
indicates whether or not he is a holder in due course, consider him as a holder in due course.

M-------------P--------------A-----------F-----------C-----------H

Maker Payee

Genuine Genuine Forged by F Genuine Genuine Holder

1. The person whose signature is forged is not liable on the instrument. In this illustration, this person is A.
He could not be liable to anyone (including HIDC) under the forged signature because as to him the instrument is
totally inoperative.

2. The persons prior to A are M and P. Notice that their signatures were not forged. However, even if their
signatures were not forged, the holder cannot collect from them or cannot enforce the instrument against them.
Their liability on the instrument was cut-off when A’s signature was forged. The rule is that parties prior to the
party whose signature was forged are not liable. The reason is simple. When an indorsement was forged,
prior parties cease to be parties to the instrument in relation to persons receiving the instrument after the forgery.

3. Notice that H obtained the instrument through the endorsement of C whose signature is genuine. C is clearly
an indorser. Under Sec 65/66 NIL, endorsers warrant that the instrument is genuine, valid and subsisting at
the time of their endorsement. This warranty exists even if C is totally innocent of the previous act of
forgery. H, therefore could hold C liable on the instrument.

* Despite the forgery of a signature in the instrument, it is not accurate to say that the entire instrument is totally
inoperative. there may be parties precluded from setting up forgery as a defense like the indorser or an acceptor
who accepts the instrument despite the forgery of the signature of the drawer and even if he is not aware of the
forgery, those parties who have ratified the forgery, expressly or impliedly or those whose negligence facilitated
the forgery are likewise barred from using forgery as a defense.

*Another way by which forgery may be asked is through the following fact pattern. the drawer’s signature was
forged without negligence on his part. the forger made it appear that the check was made payable to his order. He
then encashed the check. The drawee bank paid the forger. May the drawer recover from the bank the amount
debited from his account? The drawer can recover from the bank. the forgery of his signature clearly shows that
he is not a party to the check and is therefore, totally inoperative as to him. further, the bank is negligent. the bank
is charged with knowledge of the signature of its clients and should not honor a check with the forged signature of
the drawer.

Illustration:

D draws a check for P1 M payable to the order of P and drawn against National Bank. the check was in
payment of a car bought by D from P. without anyone’s negligence, the check fell into the hands of F who forged
the indorsement of P who never received the check, making it appear that it was indorsed to him. F deposited the

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check in City Bank who indorsed the check for clearing. Later, the amount was credited to the account of F when
the check was cleared. He withdrew the amount, closed his account and disappeared.

D-----------------P---------------F================City Bank (collecting Bank)

Drawer Payee Holder

genuine forged by F

clearing

To: National Bank (drawee bank)

1. Q: May P recover P1M from D?

Answer: Yes, but under the contract of sale, not under the check. P has not been paid and thus, D’s obligation to
pay has not yet been extinguished. He cannot recover under the check because although he is the payee, he
never came into possession of the check. He thus, never become a holder. As far as the check is concerned,
there is no privity of contract between D and P.

Where a debtor draws a check in favor of his creditor as payee but the latter never received the check
because it illegally fell into the hands of a third person, the creditor has no cause of action under the check
against anyone (drawer, collecting bank, or drawee bank) because not having received the check, he is not a
holder and thus, acquires no interest therein. (Development Bank of Rizal V Sim Wei, 219 SCRA 736)

2. Q: If National Bank deducts the amount of the check from the account of D, may the latter recover from the
bank even if his signature is genuine?

Answer: Yes. The drawee bank is bound by the duty to pay strictly to the payee or to anyone authorized by the
payee or drawer. The instructions of the drawer involve not paying the amount to anyone else. Paying to F is a
breach of this duty and payment under a forged indorsement is not payment to the drawer’s or payee’s orders.
Since the drawee bank did not pay a person entitled to receive payment, it has no right to seek reimbursement by
debiting from its client’s account.

Note: The drawer however, is precluded from recovery if the bank can prove the drawer’s negligence.

3. Q: May the National Bank recover from City Bank.

Answer: Yes. City Bank has become an indorser when it indorsed the check for clearing. As an indorser, it
warrants that the instrument is genuine in all respect what it purports to be. It cannot set up the defense of forgery
as against National Bank, the drawee bank.

Note: Drawee bank may not recover if it has been found to be negligent. So if before the check is cleared, the
drawee bank was notified of the forgery and did nothing it cannot collect.

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ASSOCIATED BANK VS. CA GR 107382, 31 January 1996 Second Division, Romero (J)

FACTS: The Province of Tarlac maintains a current account with the Philippine National Bank (PNB Tarlac
Branch) where the provincial funds are deposited. Portions of the funds were allocated to the Concepcion
Emergency Hospital. Checks were issued to it and were received by the hospital’s administrative officer and
cashier (Fausto Pangilinan). Pangilinan, through the help of Associated Bank but after forging the signature of the
hospital’s chief (Adena Canlas), was able to deposit the checks in his personal account. All the checks bore the
stamp “All prior endorsement guaranteed Associated Bank.” Through post-audit, the province discovered that the
hospital did not receive several allotted checks, and sought the restoration of the debited amounts from PNB. In
turn, PNB demanded reimbursement from Associated Bank. Both banks resisted payment. Hence, the present
action.

ISSUE: Who shall bear the loss resulting from the forged checks.

RULING: PNB is not negligent as it is not required to return the check to the collecting bank within 24 hours as
the banks involved are covered by Central Bank Circular 580 and not the rules of the Philippine Clearing House.
Associated Bank, and not PNB, is the one duty-bound to warrant the instrument as genuine, valid and subsisting
at the time of indorsement pursuant to Section 66 of the Negotiable Instruments Law. The stamp guaranteeing
prior indorsement is not an empty rubric; the collecting bank is held accountable for checks deposited by its
customers. However, due to the fact that the Province of Tarlac is equally negligent in permitting Pangilinan to
collect the checks when he was no longer connected with the hospital, it shares the burden of loss from the
checks bearing a forged indorsement. Therefore, the Province can only recover 50% of the amount from the
drawee bank (PNB), and the collecting bank (Associated Bank) is liable to PNB for 50% of the same amount.

GEMPESAW VS. CA GR 92244, 9 February 1993 Second Division, Campos Jr. (J)

FACTS: Natividad Gempesaw issued checks, prepared by her bookkeeper, a total of 82 checks in favor of
several supplies. Most of the checks for amounts in excess of actual obligations as shown in their corresponding
invoices. It was only after the lapse of more than 2 years did she discovered the fraudulent manipulations of her
bookkeeper. It was also learned that the indorsements of the payee were forged, and the checks were brought to
the chief accountant of Philippine Bank of Commerce (the Drawee Bank, Buendia Branch) who deposited them in
the accounts of Alfredo Romero and Benito Lam. Gempesaw made demand upon the bank to credit the amount
charged due the checks. The bank refused. Hence, the present action.

ISSUE: Who shall bear the loss resulting from the forged indorsements.

HELD: As a rule, a drawee bank who has paid a check on which an indorsement has been forged cannot charge
the drawer’s account for the amount of said check. An exception to the rule is where the drawer is guilty of such
negligence which causes the bank to honor such checks. Gempesaw did not exercise prudence in taking steps
that a careful and prudent businessman would take in circumstances to discover discrepancies in her account.
Her negligence was the proximate cause of her loss, and under Section 23 of the Negotiable Instruments Law, is
precluded from using forgery as a defense. On the other hand, the banking rule banning acceptance of checks for
deposit or cash payment with more than one indorsement unless cleared by some bank officials does not
invalidate the instrument; neither does it invalidate the negotiation or transfer of said checks. The only kind of
indorsement which stops the further negotiation of an instrument is a restrictive indorsement which prohibits the
further negotiation thereof, pursuant to Section 36 of the Negotiable Instruments Law. In light of any case not
provided for in the Act that is to be governed by the provisions of existing legislation, pursuant to Section 196 of
the Negotiable Instruments Law, the bank may be held liable for damages in accordance with Article 1170 of the
Civil Code. The drawee bank, in its failure to discover the fraud committed by its employee and in contravention

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banking rules in allowing a chief accountant to deposit the checks bearing second indorsements, was adjudged
liable to share the loss with Gempesaw on a 50:50 ratio.

Much of the distinction between a "COMMON OR PUBLIC CARRIER" and a "PRIVATE OR SPECIAL
CARRIER" lies in the character of the business, such that if the undertaking is an isolated transaction, not a
part of the business or occupation, and the carrier does not hold itself out to carry the goods for the
general public or to a limited clientele, although involving the carriage of goods for a fee, the person or
corporation providing such service could very well be just a private carrier. A typical case is that of a
charter party which includes both the vessel and its crew, such as in a bareboat or demise, where the charterer
obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages and gets the
control of the vessel and its crew.

DOCTRINE OF APPARENT AUTHORITY

If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public possessing the power to do those acts; and thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s
authority.

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