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. ABBOT LABORATORIES VS. ALCARAZ,  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. NUCCIO SAVERIOS  VS. PUYAT,  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 firmdirecting 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. ANG, FOR AND IN BEHALF OF SUNRISE MARKETING (BACOLOD), INC. V. SPS. ANG.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 Chapter627 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 possessionprocured by the mortgagee despite the subsequent issuance of a stay order inthe 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 possessionprocured by the creditor
despite the subsequent issuance of a stay order inthe 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. PRYCE CORPORATION V. CHINA BANKING CORPORATION. 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 thecomplaint to show
on its face what are claimed to be the fraudulentcorporate acts if the complainant wishes to invoke the
court’s specialcommercial 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. MEDICAL PLAZA MAKATI
CONDOMINIUM CORPORATION V. ROBERT H. CULLEN 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. HUR TIN YANG V.
PEOPLE OF THE PHILIPPINES. 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 PilipinasG.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 cigarettesdid 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 remotesince 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 11th 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. (PHIL. BRANCH). 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.