1|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

Justice Presbitero Velasco, Jr.

Case Doctrines
(2006 2016)

COMMERCIAL LAW
NEGOTIABLE INSTRUMENTS LAW
INSURANCE LAW
TRANSPORTATION LAW
BANKING LAW
SPECIAL LAWS
CORPORATION LAW
LAW ON INTELLECTUAL PROPERTY

CONTROL NO: A-0001A

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

2|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

COMMERCIAL LAW
NEGOTIABLE INSTRUMENTS LAW
HOLDERS IN DUE COURSE (SECTION 52)
In the hands of one other than a holder in due course, a negotiable instrument is
subject to the same defenses as if it were non-negotiable. A holder in due course,
however, holds the instrument free from any defect of title of prior parties and from
defenses available to prior parties among themselves, and may enforce payment of
the instrument for the full amount thereof. Since BA Finance is a holder in due course,
petitioners cannot raise the defense of non-delivery of the object and nullity of the
sale against the corporation. The NIL considers every negotiable instrument prima
facie to have been issued for a valuable consideration. In Salas, we held that a party
holding an instrument may enforce payment of the instrument for the full amount
thereof. As such, the maker cannot set up the defense of nullity of the contract of
sale. Thus, petitioners are liable to respondent corporation for the payment of the
amount stated in the instrument. (Spouses Violago v. BA Finance Corp., G.R. No.
158262, [July 21, 2008], 581 PHIL 62-77)
WARRANTY WHERE NEGOTIATION BY DELIVERY (SECTION 65)
The warranty "that the instrument is genuine and in all respects what it purports to
be" covers all the defects in the instrument affecting the validity thereof, including a
forged indorsement. Thus, the last indorser will be liable for the amount indicated in
the negotiable instrument even if a previous indorsement was forged. We held in a
line of cases that "a collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held liable therefor."
However, this general rule is subject to exceptions. One such exception is when the
issuance of the check itself was attended with negligence. Thus, in the cases cited
above where the collecting bank is generally held liable, in two of the cases where the
checks were negligently issued, this Court held the institution issuing the check just
as liable as or more liable than the collecting bank. (Allied Banking Corp. v. Lim Sio
Wan, G.R. No. 133179, [March 27, 2008], 573 PHIL 89-111)

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

3|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

ACCOMMODATION PARTY

As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio

for the loans. In Ang v. Associated Bank, quoting the definition of an accommodation
party under Section 29 of the Negotiable Instruments Law, the Court cited that an
accommodation party is a person who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. (Eusebio Gonzales v. Philippine Commercial &
International Bank, et al.; G.R. No. 180257. February 23, 2011.)
INSURANCE LAW
It must be remembered that an insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly against the insurer in
order to safeguard the latters interest. Indemnity and liability insurance policies are
construed in accordance with the general rule of resolving any ambiguity therein in
favor of the insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be construed liberally
in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude
the insurer from noncompliance with its obligations. When the terms of 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. 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. By reason of the exclusive control of
the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture. Clearly, the vague contractual provision, in
Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed
in favor of the insured and in favor of the effectivity of the insurance contract. (Eternal
Gardens Memorial Park Corp. v. Philippine American Life Insurance Co., G.R.
No. 166245)

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

4|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

To characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast
amounts of experience in the industry purposefully used to its advantage. More often
than not, insurance contracts are contracts of adhesion containing technical terms
and conditions of the industry, confusing if at all understandable to laypersons, that
are imposed on those who wish to avail of insurance. As such, insurance contracts
are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to
protect the interest of insurance applicants, insurance companies must be obligated
to act with haste upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and effective
insurance contract.(Eternal Gardens Memorial Park Corp. v. Philippine American
Life Insurance Co., G.R. No. 166245)
BANKING LAWS
NATURE OF BANK TRANSACTIONS
Fundamental and familiar is the doctrine that the relationship between a bank and a
client is one of debtor-creditor and a bank deposit is in the nature of a simple loan or
mutuum. Moreover, a money market placement is a simple loan or mutuum. It is a
market dealing in standardized short-term credit instruments (involving large
amounts) where lenders and borrowers do not deal directly with each other but
through a middle man or dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through a middleman or
dealer. (Allied Banking Corp. v. Lim Sio Wan, G.R. No. 133179, [March 27, 2008],
573 PHIL 89-111)
CLOSE NOW HEAR LATER SCHEME (Section 29, National Central Bank Act)
(Related topic: Receivership)
This close now, hear later scheme is grounded on practical and legal considerations
to prevent unwarranted dissipation of the bank assets and as a valid exercise of
police power to protect the depositors, creditors, stockholders, and the general
public. It is well-settled that the closure of a bank may be considered as an exercise

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

5|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

of police power. The action of the Monetary Board on this matter is final and
executory. Such exercise may nonetheless be subject to judicial inquiry and can be
set aside if found to be in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The respondent banks cannot through
seeking a writ of preliminary injunction by appealing to lack of due process, in a
roundabout manner prevent their closure by the Monetary Board. Their remedy, as
stated, is a subsequent one, which will determine whether the closure of the bank was
attended by grave abuse of discretion. Judicial review enters the picture only after the
MB has taken action; it cannot prevent such action by the Monetary Board. The threat
of the imposition of sanctions, even that of closure, does not violate their right to due
process, and cannot be the basis for a writ of preliminary injunction.
The close now, hear later doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when
it finds that a bank is in dire straits. Unless adequate and determined efforts are taken
by the government against distressed and mismanaged banks, public faith in the
banking system is certain to deteriorate to the prejudice of the national economy itself,
not to mention the losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the government. (Bangko Sentral Ng
Pilipinas Monetary Board and Chuchi Fonacier vs. Hon. Nina G. AntonioValenzuela, in her capacity as Regional Trial Court Judge of Manila, Branch 28;
RURAL BANK OF PARAAQUE, INC., et.al., G.R. No. 184778, October 2, 2009)
SPECIAL LAWS
Trust Receipts Law
(PD 115)
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.
There are, therefore, two obligations in a trust receipt transaction: the first refers to
money received under the obligation involving the duty to turn it over (entregarla) to
the owner of the merchandise sold, while the second refers to the merchandise
received under the obligation to return it (devolvera) to the owner.
EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

6|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

A violation of any of these undertakings constitutes estafa. Nonetheless, when both

parties enter into an agreement knowing fully well 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 Sec. 13 of PD 115 in relation to Art.
315, par. 1(b) of the RPC, as 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 (Hur Tin Yang v. People, G.R. No. 195117, August 14, 2013)

Financial Rehabilitation and Insolvency Act of 2010 (FRIA)

Topic: Suspension of Payments
It can be clearly gleaned from the Secs. 3 and 5 of D 902-A provisions that in cases
of petitions for the suspension of payments, the SEC has jurisdiction over
corporations, partnerships and associations, which are grantees of primary franchise
or license or permit issued by the government to operate in the Philippines, and their
properties. And it is indubitably clear from the aforequoted Section 5(d) that only
corporations, partnerships and associations-NOT private individuals-can file with the
SEC, petitions for declaration in a state of suspension of payments. Thus, it logically
follows that the SEC does not have jurisdiction to entertain petitions for suspension of
payments filed by parties other than corporations, partnerships or associations.
(SAMUEL U. LEE and PAULINE LEE and ASIATRUST DEVELOPMENT BANK,
INC., v. BANGKOK BANK PUBLIC COMPANY, LIMITED, GR. No. 173349,
February 9, 2011)

Under Sec. 18 of Act No. 1956, the issuance of an order declaring the petitioner
insolvent after the insolvency court finds the corresponding petition for insolvency to
be meritorious shall stay all pending civil actions against the petitioner's property.
Complementing Sec. 18 which appropriately comes into play "upon the granting of the
order" of insolvency is the succeeding Sec. 60 which properly applies to the period
"after the commencement of proceedings in insolvency."
The two provisions may be harmonized as follows: Upon the filing of the petition for
EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

7|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

insolvency, pending civil actions against the property of the petitioner are not ipso
facto stayed, but the insolvent may apply with the court in which the actions are
pending for a stay of the actions against the insolvents property. If the court grants
such application, pending civil actions against the petitioners property shall be
stayed; otherwise, they shall continue. Once an order of insolvency nevertheless
issues, all civil proceedings against the petitioners property are, by statutory
command, automatically stayed. (Gateway Electronics Corp. v. Asianbank Corp.,
G.R. No. 172041. December 18, 2008)

CORPORATION LAW
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION
The test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows:
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 acts in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of. (Spouses Violago v. BA Finance Corp., G.R. No.
158262, [July 21, 2008], 581 PHIL 62-77)

The principle of piercing the veil of corporate fiction, and the resulting treatment of two
related corporations as one and the same juridical person with respect to a given
transaction, is basically applied only to determine established liability, it is not
available to confer on the court a jurisdiction it has not acquired, in the first place, over
a party not impleaded in a case.
Elsewise put, a corporation not impleaded in a suit cannot be subject to the
courts process of piercing the veil of its corporate fiction. In that situation, the court
EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

8|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

has not acquired jurisdiction over the corporation and, hence, any proceedings taken
against that corporation and its property would infringe on its right to due process.
This is so because the doctrine of piercing the veil of corporate fiction comes to
play only during the trial of the case after the court has already acquired jurisdiction
over the corporation. Hence, before this doctrine can be applied, based on the
evidence presented, it is imperative that the court must first have jurisdiction over the
corporation. (Kukan International v Reyes, GR No: 182729, 29 September 2010)

REHABILITATION / SUSPENSION OF PAYMENT

A reading of Sec. 4-1, Rule IV of the Rules of Procedure on Corporate Recovery,
shows that there are two kinds of insolvency contemplated in it: (1) actual insolvency,
i.e., the corporation's assets are not enough to cover its liabilities; and (2) technical
insolvency defined under Sec. 3-12, i.e., the corporation has enough assets but it
foresees its inability to pay its obligations for more than one year. A corporation may
have considerable assets but if it foresees the impossibility of meeting its obligations
for more than one year, it is considered as technically insolvent. Thus, at the first
instance, a corporation may file a petition for rehabilitation a remedy provided
under Sec. 4-1.When Sec. 4-1 mentioned technical insolvency under Sec. 3-12, it
was referring to the definition of technical insolvency in the said section; it was not
requiring a previous filing of a petition for suspension of payments. Moreover, The
period mentioned under Sec. 3-12, "longer than one year from the filing of the
petition", does not refer to a year-long waiting period when the SEC can finally say
that the ailing corporation is technically insolvent to qualify for rehabilitation. The
period referred to the corporation's inability to pay its obligations; when such inability
extends beyond one year, the corporation is considered technically insolvent. Said
inability may be established from the start by way of a petition for rehabilitation, or it
may be proved during the proceedings for suspension of payments, if the latter was
the first remedy chosen by the ailing corporation. If the corporation opts for a direct
petition for rehabilitation on the ground of technical insolvency, it should show in its
petition and later prove during the proceedings that it will not be able to meet its
obligations for longer than one year from the filing of the petition. (Philippine
EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

9|Page

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL LAW

National Bank v. Court of Appeals, G.R. No. 165571, [January 20, 2009], 596
PHIL 586-613)

The purpose of rehabilitation proceedings is to enable the company to gain new

lease on life and thereby allows creditors to be paid their claims from its
earnings. Rehabilitation contemplates a continuance of corporate life and activities in
an effort to restore and reinstate the financially distressed corporation to its former
position of successful operation and solvency. This is in consonance with the States
objective to promote a wider and more meaningful equitable distribution of wealth to
protect investments and the general public. (PNB v. Court of Appeals; G.R. No.
165571)
SHARES OF STOCK (Section 6 of the Corporation Code)
By their very nature, shares of common stock, while giving the stockholder the right
to vote, do not guarantee that the vote of the stockholder will prevail. Since the
subject sequestered SMC shares are under custodia legis, the Court has certain
control over them and their fruits. Nonetheless, the PCGG, having administrative
control over the subject sequestered shares pending resolution of the actual
ownership thereof, possesses discretion, taking into account the greater interest of
the government and the farmers, to decide on where to deposit on escrow the net
dividend earnings of, and/or redemption proceeds from, the Series 1 Preferred
Shares of SMC.
The coconut levy funds are not only affected with public interest; they are, in fact,
prima facie public funds. Public funds are those moneys belonging to the State or to
any political subdivision of the State; more specifically, taxes, customs duties and
moneys raised by operation of law for the support of the government or for the
discharge of its obligations. (COCOFED v Republic, GR No: 177857-58, 11
February 2010)

VOTING SHARES (Section 6 of the Corporation Code)

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

10 | P a g e

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL

LAW

The registered owner of the shares of a corporation exercises the right and the
privilege of voting. This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a general rule,
exercise acts of dominion. On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and acquired with
allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the
Court in Cojuangco v. Calpo and PCGG v. Cojuangco Jr.
Two clear public character exceptions under which the government is granted the
authority to vote the shares exist (1) Where government shares are taken over by
private persons or entities who/which registered them in their own names, and (2)
Where the capitalization or shares that were acquired with public funds somehow
landed in private hands.

The exceptions are based on the common-sense principle that legal fiction must
yield to truth; that public property registered in the names of non-owners is affected
with trust relations; and that the prima facie beneficial owner should be given the
privilege of enjoying the rights flowing from the prima facie fact of ownership.
In short, when sequestered shares registered in the names of private individuals or
entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered
test is applied. However, when the sequestered shares in the name of private
individuals or entities are shown, prima facie, to have been (1) originally government
shares, or (2) purchased with public funds or those affected with public interest, then
the two-tiered test does not apply. Rather, the public character exceptions in Baseco
v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the
shares. (COCOFED vs. Republic, G.R. No. 177857-58, 178193, September 4,
2012)
DOCTRINE OF CENTRALIZED MANAGEMENT
(Section 23 of the Corporation Code)
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code,

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

11 | P a g e

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL

LAW

clearly enunciates that all corporate powers are exercised, all business conducted,
and all properties controlled by the board of directors. A corporation has a separate
and distinct personality from its directors and officers and can only exercise its
corporate powers through the board of directors. Thus, it is clear that an individual
corporate officer cannot solely exercise any corporate power pertaining to the
corporation without authority from the board of directors. This has been our constant
holding in cases instituted by a corporation.
The following officials or employees of the company can sign the verification and
certification without need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager or Acting
General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor
case.
While the above cases do not provide a complete listing of authorized signatories to
the verification and certification required by the rules, the determination of the
sufficiency of the authority was done on a case to case basis.
The rationale applied in the foregoing cases is to justify the authority of corporate
officers or representatives of the corporation to sign the verification or certificate
against forum shopping, being in a position to verify the truthfulness and correctness
of the allegations in the petition. (Cagayan Valley Drug Corp. v. Commissioner of
Internal Revenue, G.R. No. 151413)

HOLDOVER DOCTRINE
The holdover doctrine under Section 23 of the Corporation Code has, to be sure, a
purpose which is at once legal as it is practical. It accords validity to what would
otherwise be deemed as dubious corporate acts and gives continuity to a corporate
enterprise in its relation to outsiders. Authorities are almost unanimous that one who
continues with the discharge of the functions of an office after the expiration of his or
her legal term no successor having, in the meantime, been appointed or chosen
is commonly regarded as a de facto officer, even where no provision is made by law
for his holding over and there is nothing to indicate the contrary. By fiction of law, the

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

12 | P a g e

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL

LAW

acts of such de facto officer are considered valid and effective. (Seeres v.
Commission on Elections, G.R. No. 178678, [April 16, 2009], 603 PHIL 552-570)

CORPORATE OFFICER
(Section 25 of the Corporation Code)
The corporate powers of a corporation are reposed in the board of directors under
the first paragraph of Sec. 23 of the Corporation Code, it is of common knowledge
and practice that the board of directors is not directly engaged or charged with the
running of the recurring business affairs of the corporation. Depending on the powers
granted to them by the Articles of Incorporation, the members of the board generally
do not concern themselves with the day-to-day affairs of the corporation, except those
corporate officers who are charged with running the business of the corporation and
are concomitantly members of the board, like the President.
Section 25 of the Corporation Code requires the president of a corporation to be
also a member of the board of directors. As to the other petitioners, unless otherwise
shown that they are situated under the catch-all "such other officer charged with the
management of the business affairs," they may not be held liable under BP 33, as
amended, for probable violations. Also, under BP 33 (which regulates the production
and sale of LPG), Directors are not among those enumerated as criminally liable for
the acts of the corporation. (Ty v. De Jemil, G.R. No. 182147, December 15, 2010)
LAW ON INTELLECTUAL PROPERTY
TRADEMARK
The Court has ruled that the prior and continuous use of a mark may
overcome the presumptive ownership of the registrant and be held as the
owner of the mark. E v i d e n c e o f p r i o r a n d c o n t i n u o u s u s e o f t h e m a r k
and trade name by another can overcome the presumptive
ownership of the registrant and may very well entitle the former to
be declared owner in appropriate case.
Actual use in commerce or business is a pre -requisite to the
acquisition of the right of ownership. By itself, registration is not a
mode of acquiring ownership. W hen the applicant is not the owner
of the trademark being applied for, he has no right to apply for the
s a m e . ( E.Y. Industrial Sales, Inc. v. Shen Dar Electricity and Machinery Co.,
Ltd., G.R. No. 184850, October 20, 2010)
EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY

13 | P a g e

VELASCO CASE DOCTRINES (2006-2016)-COMMERCIAL

LAW

EXCLUSIVE PROPERTY OF THE LAMBDA RHO BETA FRATERNITY AND THE LAMBDA RHO SIGMA SORORITY