ABRC PRE-WEEK REVIEW MATERIALS 2021

JUSTICE LEONEN CASE DIGESTS

COMMERCIAL LAW

Securities Regulation Code

Belina Cancio and Jeremy Pampolina v. Performance Foreign Exchange Corporation,

G.R. No. 182307, June 06, 2018

Facts: Sometime in 2000, Belina Cancio (Cancio) and Jeremy Pampolina's (Pampolina) accepted
Rolando Hipol’s (Hipol) invitation to open a joint account with Performance Foreign Exchange
Corporation (Performance Forex.) They agreed that Cancio and Pampolina would make use of
Performance Forex's credit line to trade in the forex market while Hipol would act as their
commission agent and would deal on their behalf in the forex market.

Cancio instructed Hipol to execute trading currency orders after a 2-week hiatus from trading,
this however was never executed by Hipol. Hipol confessed to her that he made unauthorized
transactions using their joint account from April 5, 2000 to April 12, 2000. The unauthorized
transactions resulted in the loss of all their money, leaving a negative balance of US$35.72 in
their Statement of Account.

Pampolina met with 2 Performance Forex Officers about Hipol’s unauthorized trading on their
account and confronted them about Hipol’s past unauthorized trading. The 2 officers offered to
settle their account, but kept silent about Hipol’s past unauthorized trading. Performance Forex
offered 5,000USD but was rejected, while the demand letters sent to Hipol were unheeded.
Pampolina and Cancio thus filed a complaint for damages against Performance Forex and Hipol
before the Regional Trial Court (RTC.)

Issue:

Whether Performance Forex Exchange Corporation should be held solidarily liable with
petitioners Belina Cancio and Jeremy Pampolina's broker, Hipol, for damages due to the
latter's unauthorized transactions in the foreign currency exchange trading market?

Ruling:

A broker is generally defined as one who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no concern; the negotiator
between other parties. never acting in his own name, but in the name of those who employed
him; he is strictly a middleman and for some purposes the agent of both parties.

When Hipol became petitioners' agent, he had committed only one (1) known prior infraction
against a client of respondent. Respondent might have been construed this as an isolated incident
that did not warrant heightened scrutiny. Hipol's infraction committed against petitioners was his
second known infraction. Respondent cancelled his accreditation when petitioners informed them
of his unauthorized transactions.
It would be different if Hipol committed a series of infractions and respondent continued to
accredit him. In that instance, respondent would have been complicit to Hipol's wrongdoings.
Respondent, not being Hipol's employer, had no power of discipline over him. It could only cancel
his accreditation, which it did after a second incident was reported. This was the extent by which
respondent was obligated to act on Hipol's infractions.

Moreover, petitioners and respondent signed and agreed to absolve respondent from actions,
representations, and warranties of their agent made on their behalf.

Petitioners conferred trading authority to Hipol. Respondent was not obligated to question
whether Hipol exceeded that authority whenever he made purchase orders. Respondent was
likewise not privy on how petitioners instructed Hipol to carry out their orders. It did not assign
Hipol to be petitioners' agent. Hipol was the one who approached petitioners and offered to be
their agent. Petitioners were highly educated and were "[a]lready knowledgeable in playing in
this foreign exchange trading." They would have been aware of the extent of authority they
granted to Hipol when they handed to him 10 pre-signed blank purchase order forms. Under
Article 1900 of the Civil Code: So far as third persons are concerned, an act is deemed to have
been performed within the scope of the agent's authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.

Before a claimant can be entitled to damages, "the claimant should satisfactorily show the
existence of the factual basis of damages and its causal connection to defendant's acts." The acts
of petitioners' agent, Hipol, were the direct cause of their injury. There is no reason to hold
respondent liable for actual and moral damages. Since the basis for moral damages has not been
established, there would likewise be no basis to recover exemplary damages and attorney's fees
from respondent. If there was any fault, the fault remains with petitioners' agent and him alone.

The State has already taken notice of the high risks involved in foreign exchange leverage trading.
In the prior case of Securities and Exchange Commission v. Performance Foreign Exchange
Corporation, the Securities and Exchange Commission tried to issue a cease-and-desist order
against respondent for trading foreign currency futures contracts without the proper license.

This Court invalidated the cease-and-desist order upon finding that it was improperly issued. It
also took note that even the Securities and Exchange Commission was unsure of whether foreign
currency exchange trading constituted futures commodity trading, and that it had to request the
Bangko Sentral ng Pilipinas for its advice.

The advisory is prompted by the complaints of retail investors who lost their moneys to forex
trading.

The public is advised that TRADING OF COMMODITIES FUTURES CONTRACTS IN THE

PHILIPPINES (including Foreign Exchange Trading as consistently held by the Commission) and
the pertinent RULES ARE STILL SUSPENDED pursuant to Paragraph 4 of Rule II of the Amended
Rules and Regulations implementing the Securities Regulation Code.

Based on the reports, huge amount of money has been invested (usually in US dollars) in forex
trading corporations where investors opened margin accounts to enable them to trade in foreign
currency. The so-called "experts" of the forex trading corporations execute foreign trade positions
in behalf of the investors on the representation that investors shall gain profit as in the stock
market.

It has to be reiterated that under Section 11 of the Securities Regulation Code "no person shall
offer, sell or enter into commodity futures contract except in accordance with rules and
regulations and orders of the Commission may prescribe in the public interest".

The investors should also take the cue from the ruling laid down in Onapal v. Court of Appeals
(G.R. No. 90707, February 3, 1993) where the Supreme Court stated in this wise: "xxx The
payments made under said contract were payments of difference in prices arising out of the rise
or fall in the market price above or below the contract price thus making it purely gambling and
declared null and void by law."

The public is encouraged to report to the Commission entities operating Foreign Exchange Trading
and those acting as agents of these operators.

Considering, however, that the legality of foreign exchange leverage trading is not in issue in this
case, this Court will not delve further into the current regulations affecting it. It has been
concluded that foreign exchange leverage trading is known to be risky and may lead to substantial
losses for investors. Petitioners, who were experienced in this kind of trading, should have been
more careful in the conduct of their affairs.

Currency trading adds no new good or service into the market that would be of use to real
persons. Instead, it has the tendency to alter the price of real goods and services to the detriment
of those who manufacture, labor, and consume products. It may alter the real value of goods
and services on the basis of a rumor or anything else that will cause a herd of speculative traders
to move one way or the other. Put in another way, those who participate in it must be charged
with knowledge that getting rich in this way is accompanied with great risk. Given its real effects
on the real economy and on real people, it will be unfair for this Court to provide greater
warranties to the parties in currency trading. They should bear their own risks perhaps to learn
that their capital is better invested more responsibly and for the greater good of society.

Financial Rehabilitation and Investment Act

G.R. No. 184317, January 25, 2017, METROPOLITAN BANK AND TRUST COMPANY, v.
LIBERTY CORRUGATED BOXES MANUFACTURING CORPORATION

Facts:

Liberty Corrugated Boxes Manufacturing Corp. obtained various credit accommodations and loan
facilities from petitioner Metropolitan Bank and Trust Company amounting to ₱19,940,000.00. To
secure its loans, Liberty mortgaged to Metrobank 12 lots in Valenzuela City. Liberty defaulted on
the loans.
On June 21, 2007, Liberty filed a Petition for corporate rehabilitation claiming that it could not
meet its obligations to Metrobank because of the Asian Financial Crisis, which resulted in a drastic
decline in demand for its goods, and the serious sickness of its Founder and President, Ki Kiao
Koc.

Liberty's rehabilitation plan consisted of: (a) a debt moratorium; (b) renewal of marketing efforts;
(c) resumption of operations; and (d) entry into condominium development, a new business.

In its December 21, 2007 Order, 14 the RTC approved the rehabilitation plan. The trial court
found that Liberty was capable of being rehabilitated and that the rehabilitation plan was feasible
and viable.

Issue: Whether respondent, as a debtor in default, is qualified to file a petition for rehabilitation
under Presidential Decree No. 902-A and Rule 4, Section 1 of the Interim Rules.

Ruling:

First Issue: A corporation that may seek corporate rehabilitation is characterized not by its debt
but by its capacity to pay this debt.

Rule 4, Section 1 of the Interim Rules provides:

Debtor-Initiated Rehabilitation

SECTION 1. Who May Petition. - Any debtor who foresees the impossibility of meeting its debts
when they respectively fall due, or any creditor or creditors holding at least twenty-five percent
(25%) of the debtor's total liabilities, may petition the proper Regional Trial Court to have the
debtor placed under rehabilitation.

Petitioner insists that the words of the Interim Rules are clear and must be given their plain and
literal meaning. A better interpretation requires scrutiny of the purpose behind the enactment of
the Interim Rules and its provisions.

Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation reiterates the
purpose of rehabilitation, which is to provide meritorious corporations an opportunity for recovery:

Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a position of
successful operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected in the
plan more if the corporation continues as a going concern that if it is immediately liquidated." It
contemplates a continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency.

In line with this objective, the Interim Rules provide for a liberal construction of its provisions.

To adopt petitioner's interpretation would undermine the purpose of the Interim Rules. There is
no reason why corporations with debts that may have already matured should not be given the
opportunity to recover and pay their debtors in an orderly fashion. The opportunity to rehabilitate
the affairs of an economic entity, regardless of the status of its debts, redounds to the benefit of
its creditors, owners, and to the economy in general. Rehabilitation, rather than collection of
debts from a company already near bankruptcy, is a better use of judicial rewards.

A.M. No. 08-8-1 O-SC53 further describes the remedy initiated by a petition for rehabilitation:
[A] petition for rehabilitation, the procedure for which is provided in the Interim Rules of
Procedure on Corporate Recovery, should be considered as a special proceeding. It is one that
seeks to establish the status of a party or a particular fact. As provided in section 1, Rule 4 of the
Interim Rules on Corporate Recovery, the status or fact sought to be established is the inability
of the corporate debtor to pay its debts when they fall due so that a rehabilitation plan, containing
the formula for the successful recovery of the corporation, may be approved in the end. It does
not seek a relief from an injury caused by another party.

Thus, the condition that triggers rehabilitation proceedings is not the maturation of a corporation's
debts but the inability of the debtor to pay these.

In this case, the phrase "any debtor who foresees the impossibility of meeting its debts when
they respectively fall due" in Rule 4, Section 1 of the Interim Rules need not refer to a specific
period or point in time when the debts mature. It may refer to the debtor corporation's general
realization that it will not be able to fulfill its obligations-a realization that may come before
default.

Construing the phrase "when they respectively fall due" to mean that the debtor must already be
in default defeats the clear purpose of the lawmakers. It unjustly limits rehabilitation to
corporations with matured obligations.

Intellectual Property Law

Divina Palao vs. Florentino International Inc., G.R. No. 186967, January 18, 2017

Facts: Florentino International Inc. (Florentino) filed a petition for cancellation of the letters
Patent secured by Divina Palao (Palao) which pertained to “a ceramic tile installation on non-
concrete substrate base surfaces adapted to form part of furniture, Architectural Components and
the like.” Florentino argues that the subject patent is not patentable because it had been publicly
known or used in the Philippines, and was even subject of several publications. And that he and
many others had been using the utility model well before Palao’s patent.

The Bureau of Legal Affairs of the Intellectual Property Office (IPO) denied Florentino’s petition,
likewise for his motion for reconsideration. Florentino appealed with the office of the Director
General of the IPO, but forgot to attach a secretary’s certificate or board resolution authorizing
Balgos and Perez who signed the verification and certification of non-forum shopping. The Office
of the Director General ordered Florentino to submit proof that Atty. Maximo of Balgos and Perez,
or Balgos and Perez was authorized to sign the said verification and certification. Florentino filed
his compliance, but his appeal was dismissed. The IPO Director General noted that the certificate
failed to establish the authority of Florentino’s counsel to sign the verification and certification at
issue, as of the date of the filing of Florentino’s appeal.
Issue: Whether the Court of Appeals erred in reversing the September 22, 2008 Order of
Intellectual Property Office Director General Adrian S. Cristobal, Jr., and in reinstating respondent
Florentino III International, Inc.' s appeal.

Ruling: Petition denied, the CA decision affirmed.

The need for a certification of non-forum shopping to be attached to respondent's appeal before
the Office of the Director General of the Intellectual Property Office is established.

Section 3 of the Intellectual Property Office's Uniform Rules on Appeal specifies the form through
which appeals may be taken to the Director General:

Section 3. Appeal Memorandum. - The appeal shall be perfected by filing an appeal

memorandum in three (3) legible copies with proof of service to the Bureau Director and
the adverse party, if any, and upon payment of the applicable fee, Reference Code 127
or 128, provided in the IPO Fee Structure.

Section 4(e) specifies the need for a certification of non-forum shopping. Section 4 reads in full:

Section 4. Contents of the Appeal Memorandum. - The appeal memorandum shall:

a) State the full name or names, capacity and address or addresses of the appellant or
appellants;
b) Indicate the material dates showing that it was filed on time;
c) Set forth concisely a statement of the matters involved, the issues raised, the
specification of errors of fact or law, or both, allegedly committed by the Bureau Director
and the reasons or arguments relied upon for the allowance of the appeal;
d) Be accompanied by legible copies of the decision or final order of the Bureau Director
and of the material portions of the record as would support the allegations of the appeal;
and
e) Contain a certification of non-forum-shopping.

These requirements notwithstanding, the Intellectual Property Office's own Regulations on Inter
Partes Proceedings (which governs petitions for cancellations of a mark, patent, utility model,
industrial design, opposition to registration of a mark and compulsory licensing, and which were
in effect when respondent filed its appeal) specify that the Intellectual Property Office "shall not
be bound by the strict technical rules of procedure and evidence. "

Rule 2, Section 6 of these Regulations provides:

Section 6 Rules of Procedure to be Followed in the Conduct of Hearing of Inter Partes Cases

In the conduct of hearing of inter partes cases, the rules of procedure herein contained shall be
primarily applied. The Rules of Court, unless inconsistent with these rules, may be applied in
suppletory character, provided, however, that the Director or Hearing Officer shall not be bound
by the strict technical rules of procedure and evidence therein contained but may adopt, in the
absence of any applicable rule herein, such mode of proceedings which is consistent with the
requirements of fair play and conducive to the just, speedy and inexpensive disposition of cases,
and which will give the Bureau the greatest possibility to focus on the technical grounds or issues
before it.

This rule is in keeping with the general principle that administrative bodies are not strictly bound
by technical rules of procedure:

[A]dministrative bodies are not bound by the technical niceties of law and procedure and
the rules obtaining in courts of law. Administrative tribunals exercising quasi-judicial
powers are unfettered by the rigidity of certain procedural requirements, subject to the
observance of fundamental and essential requirements of due process in justiciable cases
presented before them. In administrative proceedings, technical rules of procedure and
evidence are not strictly applied and administrative due process cannot be fully equated
with due process in its strict judicial sense.

In conformity with this liberality, Section 5(b) of the Intellectual Property Office's Uniform Rules
on Appeal expressly enables appellants, who failed to comply with Section 4' s formal
requirements, to subsequently complete their compliance:

Section 5. Action on the Appeal Memorandum - The Director General shall:

a) Order the adverse party if any, to file comment to the appeal memorandum within thirty (30)
days from notice and/or order the Bureau Director to file comment and/or transmit the records
within thirty (30) days from notice; or
b) Order the appellant/appellants to complete the formal requirements mentioned in Section 4
hereof;
c) Dismiss the appeal for being patently without merit, Provided, that the dismissal shall be
outright if the appeal is not filed within the prescribed period or for failure of the appellant to pay
the required fee within the period of appeal.

Given these premises, it was an error for the Director General of the Intellectual Property Office
to have been so rigid in applying a procedural rule and dismissing respondent's appeal.

Petitioner-in her pleadings before this Court-and Director General Cristobal-in his September 2,
2008 Order-cite Decisions of this Court (namely: Philippine Public School Teachers Association v.
Heirs of lligan and Philippine Airlines, Inc. v. Flight Attendants & Stewards Association of the
Philippines) to emphasize the need for precise compliance with the rule on appending a
certification of non-forum shopping.

Philippine Public School Teachers Association states:

Under Section 3 of the same Rule, failure to comply shall be sufficient ground for the
dismissal of the petition. The rule on certification against forum shopping is intended to
prevent the actual filing of multiple petitions/complaints involving identical causes of
action, subject matter and issues in other tribunals or agencies as a form of forum
shopping. This is rooted in the principle that a party-litigant should not be allowed to
pursue simultaneous remedies in different forums, as this practice is detrimental to orderly
judicial procedure. Although not jurisdictional, the requirement of a certification of non-
forum shopping is mandatory. The rule requires that a certification against forum shopping
 J should be appended to or incorporated in the initiatory pleading filed before the court.
The rule also requires that the party, not counsel, must certify under oath that he has not
commenced any other action involving the same issue in the court or any other tribunal
or agency.

The requirement that the certification of non-forum shopping should be executed and signed by
the plaintiff or principal means that counsel cannot sign said certification unless clothed with
special authority to do so. The reason for this is that the plaintiff or principal knows better than
anyone else whether a petition has previously been filed involving the same case or substantially
the same issues. Hence, a certification signed by counsel alone is defective and constitutes a valid
cause for dismissal of the petition. In the case of natural persons, the Rule requires the parties
themselves to sign the certificate of non-forum shopping. However, in the case of the
corporations, the physical act of signing may be performed, on behalf of the corporate entity,
only by specifically authorized individuals for the simple reason that corporations, as artificial
persons, cannot personally do the task themselves. It cannot be gainsaid that obedience to the
requirements of procedural rules is needed if we are to expect fair results therefrom. Utter
disregard of the rules cannot justly be rationalized by harking on the policy of liberal construction.

xxx

We have reviewed the records, however, and find that a strict application of Rule 42, in relation
to Section 5, Rule 7 of the Revised Rules of Court is not called for. As we held in Huntington Steel
Products, Inc. v. National Labor Relations Commission, while the requirement of strict compliance
underscores the mandatory nature of the rule, it does not necessarily interdict substantial
compliance with its provisions under justifiable circumstances. The rule should not be interpreted
with such absolute literalness as to subvert its own ultimate and legitimate objective which is the
goal of all rules of procedure, that is, to achieve justice as expeditiously as possible. A liberal
application of the rule may be justified where special circumstances or compelling reasons are
present.

Admittedly, the authorization of petitioner PPSTA's corporate secretary was submitted to the
appellate court only after petitioners received the comment of respondents. However, in view of
the peculiar circumstances of the present case and in the interest of substantial justice, and
considering further that petitioners submitted such authorization before the [Court of Appeals]
resolved to dismiss the petition on the technical ground, we hold that, the procedural defect may
be set aside pro hac vice. Technical rules of procedure should be rules enjoined to facilitate the
orderly administration of justice. The liberality in the application of rules of procedure may not be
invoked if it will result in the wanton disregard of the rules or cause needless delay in the
administration of justice. Indeed, it cannot be gainsaid that obedience to the requirements of
procedural rule is needed if we are to expect fair results therefrom.

The "peculiar circumstances" in Philippine Public School Teachers Association pertained to a

finding that the signatory of the verification and certification of non-forum shopping, Ramon G.
Asuncion, Jr., was "the former Acting General Manager" of the Philippine Public School Teachers
Association and was, thus, previously "authorized to sign a verification and certification of non-
forum shopping" on behalf of the Association. By the time the Association actually filed its petition
before the Court of Appeals, however, his authority as the Acting General Manager had ceased,
and the Association's Board of Directors needed to give him specific authority to sign a certification
of non-forum shopping:

We agree with respondents' contention that when they filed their complaint in the MTC, they
impleaded petitioner Asuncion as party defendant in his capacity as the Acting General Manager
of petitioner PPST A. As such officer, he was authorized to sign a verification and certification of
non-forum shopping. However, he was no longer the Acting General Manager when petitioners
filed their petition in the CA, where he was in fact referred to as "the former Acting General
Manager." Thus, at the time the petition was filed before the CA, petitioner Asuncion's authority
to sign the verification and certification of non-forum shopping for and in behalf of petitioner
PPSTA ceased to exist. There was a need for the board of directors of petitioner PPS TA to
authorize him to sign the requisite certification of non-forum shopping, and to append the same
to their petition as Annex thereof.

We find this case to be attended by analogous circumstances. As pointed out by the Court of
Appeals, respondent's counsel, Balgos and Perez, has been representing respondent (and signing
documents for it) "since the [original] Petition for Cancellation of Letter Patent No. UM-7789 was
filed." Thus, its act of signing for respondent, on appeal before the Director General of the
Intellectual Property Office, was not an aberration. It was a mere continuation of what it had
previously done.

It is reasonable, therefore-consistent with the precept of liberally applying procedural rules in

administrative proceedings, and with the room allowed by jurisprudence for substantial
compliance with respect to the rule on certifications of non-forum shopping-to construe the error
committed by respondent as a venial lapse that should not be fatal to its cause. We see here no
"wanton disregard of the rules or [the risk of] caus[ing] needless delay in the administration of
justice." On the contrary, construing it as such will enable a full ventilation of the parties'
competing claims. As with Philippine Public School Teachers Association, we consider it
permissible to set aside, pro hac vice, the procedural defect. Thus, we sustain the ruling of the
Court of Appeals.

Suretyship

G.R. No. 191274, December 06, 2017 - ERMA INDUSTRIES, INC., ERNESTO B.
MARCELO AND FLERIDA O. MARCELO, Petitioners, v. SECURITY BANK CORPORATION
AND SERGIO ORTIZ-LUIS, JR.

Facts: On May 5, 1992, Erma Industries, Inc. obtained from Security Bank Corporation a credit
facility, the conditions for which are embodied in the Credit Agreement executed between the
parties.

On the same date, a Continuing Suretyship agreement was executed in favor of Security Bank,
and signed by Spouses Ernesto and Flerida Marcelo and Spouses Sergio and Margarita Ortiz-Luis.
Under the Continuing Suretyship Agreement, the sureties agreed to be bound by the provisions
of the Credit Agreement and to be jointly and severally liable with Erma in case the latter defaults
in any of its payments with Security Bank.
After defaulting in the payment of the loans, Erma, through its President, Ernesto Marcelo, wrote
a letter11 dated February 2, 1994 to Security Bank, requesting for the restructuring of the whole
of Erma's obligations and converting it into a five-year loan. A certain property valued at P12
million covered by TCT No. M-7021 and registered in the name of petitioner Ernesto Marcelo was
also offered as security. The title was received by Security Bank and has since then remained in
its possession.

In a letter dated April 27, 1994, Security Bank approved the partial restructuring of the loans or
only up to P5 million.

Through a letter dated November 8, 1994, Security Bank demanded payment, from Erma and the
sureties, of Erma's outstanding peso and dollar obligations in the total amounts of P17,995,214.47
and US$289,730.10, respectively, as of October 31, 1994.

On January 10, 1995, Security Bank filed a Complaint with the Regional Trial Court of Makati City,
for payment of Erma's outstanding loan obligation plus interests and penalties.

Upon the filing of said Complaint and as "it became clear that the Bank would agree only to partial
restructuring," Erma requested the return of the TCT in its letter dated June 10, 1996. However,
Security Bank retained possession of TCT M-7021.

Spouses Ortiz, for their part, essentially denied liability. Sergio claimed that he signed the
Suretyship Agreement only as an accommodation party and nominal surety; and his obligation, if
any, was extinguished by novation when the loan was restructured without his knowledge and
consent. Margarita, on the other hand, claimed that she signed the Suretyship Agreement only
to signify her marital consent.

Issues: First, whether the Court of Appeals and the Regional Trial Court erred in finding that
petitioners are liable to pay respondent Bank the amounts of P17,995,214.47 and US$289,730.10,
inclusive of interests and penalty charge as of October 31, 1994;

Second, whether the Court of Appeals and the Regional Trial Court erred in finding that petitioners
are liable to pay respondent Bank legal interest of twelve percent (12%) per annum from October
1994 until full payment is made;

Ruling:

The Regional Trial Court did not delete altogether the 2% monthly penalty charges and stipulated
interests of 7.5% (on the dollar obligations) and 20% (on peso obligations). The trial court, in
fact, adjudged petitioner Erma liable to pay the amounts of P17,995,214.47 and US$289,730.10,
inclusive of the stipulated interest and penalty as of October 31, 1994, on the basis of Article
130849 of the Civil Code and jurisprudential pronouncements on the obligatory force of contracts
- not otherwise contrary to law, morals, good customs or public policy - between contracting
parties.

The stipulated 7.5% or 21% per annum interest constitutes the monetary or conventional interest
for borrowing money and is allowed under Article 1956 of the New Civil Code. On the other hand,
the penalty charge of 2% per month accrues from the time of Erma's default in the payment of
the principal and/or interest on due date. This 2% per month charge is penalty or compensatory
interest for the delay in the payment of a fixed sum of money, which is separate and distinct from
the conventional interest on the principal of the loan. In this connection, this Court, construing
Article 220954 of he Civil Code, held that:

[T]he appropriate measure for damages in case of delay in discharging an obligation consisting
of the payment of a sum or money, is the payment of penalty interest at the rate agreed upon;
and in the absence of a stipulation of a particular rate of penalty interest, then the payment of
additional interest at a rate equal to the regular monetary interest; and if no regular interest had
been agreed upon, then payment of legal interest or six percent (6%) per annum.

Whether a penalty charge is reasonable or iniquitous is addressed to the sound discretion of the
courts and determined according to the circumstances of the case. The reasonableness or
unreasonableness of a penalty would depend on such factors as "the type, extent and purpose
of the penalty, the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties[.]"

For instance, in Palmares v. Court of Appeals,61 the Court eliminated altogether the payment of
the penalty charge of 3% per month for being inequitable and unreasonable. It ruled that the
purpose of the penalty interest - that is to punish the obligor - have been sufficiently served by
the compounded interest of 6% per month on the P30,000 loan.

In Tan v. Court of Appeals, the continued monthly accrual of the 2% penalty on the total amount
due of about P7.996 million was held to be unconscionable. Considering the debtor's partial
payments and offer to settle his outstanding loan in good faith, the Court found it fair and
equitable to reduce the 2% penalty charge, compounded monthly, to a straight twelve (12%) per
annum.

Similarly, in this case, the Regional Trial Court and the Court of Appeals found it reasonable to
reduce the 2% penalty charges, compounded monthly as to interests due and unpaid, to 12%
per annum of the total outstanding obligations, in light of petitioners' partial payments and their
good faith to settle their obligations. This reduction is essentially discretionary with the trial court
and, in the absence of any abuse of discretion will not be disturbed.

Petitioners further assert that they should be awarded at least P50,000.00 as attorney's fees for
having been forced to defend themselves in needless litigation.

The Court is not persuaded.

The award of attorney's fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification. Even when a claimant is compelled to litigate to defend himself/herself,
still attorney's fees may not be awarded where there is no sufficient showing of bad faith of the
other party. It is well within Security Bank's right to institute an action for collection and to claim
full payment. Absent any proof that respondent Bank intended to prejudice or injure petitioners
when it rejected petitioners' offer and filed the action for collection, we find no basis to grant
attorney's fees.
The Court has elucidated on the distinction between an accommodation and a compensated
surety and the reasons for treating them differently:

The law has authorized the formation of corporations for the purpose of conducting surety
business, and the corporate surety differs significantly from the individual private surety. First,
unlike the private surety, the corporate surety signs for cash and not for friendship. The private
surety is regarded as someone doing a rather foolish act for praiseworthy motives; the corporate
surety, to the contrary, is in business to make a profit and charges a premium depending upon
the amount of guaranty and the risk involved. Second, the corporate surety, like an insurance
company, prepares the instrument, which is a type of contract of adhesion whereas the private
surety usually does not prepare the note or bond which he signs. Third, the obligation of the
private surety often is assumed simply on the basis of the debtor's representations and without
legal advice, while the corporate surety does not bind itself until a full investigation has been
made. For these reasons, the courts distinguish between the individual gratuitous surety and the
vocational corporate surety. In the case of the corporate surety, the rule of strictissimi juris is not
applicable, and courts apply the rules of interpretation . . . of appertaining to contracts of
insurance.

Consequently, the rule of strict construction of the surety contract is commonly applied to an
accommodation surety but is not extended to favor a compensated corporate surety.

The rationale of this doctrine is reasonable; an accommodation surety acts without motive of
pecuniary gain and, hence, should be protected against unjust pecuniary impoverishment by
imposing on the principal duties akin to those of a fiduciary. This cannot be said of a compensated
corporate surety which is a business association organized for the purpose of assuming classified
risks in large numbers, for profit and on an impersonal basis, through the medium of standardized
written contractual forms drawn by its own representatives with the primary aim of protecting its
own interests.

The nature and extent of respondent Ortiz's liability are set out in clear and unmistakable terms
in the Continuing Suretyship agreement. Under its express terms, respondent Ortiz, as surety, is
"bound by all the terms and conditions of the credit instruments." His liability is solidary with the
debtor and co-sureties; and the surety contract remains in full force and effect until full payment
of Erma's obligations to the Bank.

Intellectual Property Law

CITIGROUP, INC v. CITYSTATE SAVINGS BANK, INC., G.R. No. 205409, June 13, 2018

FACTS: Citigroup, Inc is a corporation duly organized under the laws of the State of Delaware
engaged in banking and financial Services. The trademark CITICARD, as well as "CITI and arc
design", "CITIBANK", "CITIBANK PAYLINK", "CITIBANK SPEEDCOLLECT", "CITIBANKING",
"CITICARD", "CITICORP", "CITIFINANCIAL", "CITIGOLD", "CITIGROUP", "CITIPHONE
BANKING'', and "CITISERVICE" are their trademark registered with the Philippine Intellectual
Property Office.

Meanwhile, a group of Filipinos and Singaporean companies formed a consortium to establish

Citystate Savings Bank, Inc. It includes established Singaporean companies, specifically Citystate
Insurance Group and Citystate Management Group Holdings Pte, Ltd. It has a registered mark
wherein its name is affixed in a lion's head. In line with the expansion of its branch network, it
filed an application for registration with the Intellectual Property Office of the trademark "CITY
CASH WITH GOLDEN LION'S HEAD" for its ATM service.

Citigroup opposed Citystate’s application. Citigroup claimed that the "CITY CASH WITH GOLDEN
LION'S HEAD" mark is confusingly similar to its own "CITI" marks.

ISSUE/S:

Whether there exists no confusing similarity between Citigroup, Inc.'s and Citystate Savings Bank,
Inc.'s marks?

RULING:

There is no objective test for determining whether the confusion is likely. Likelihood of confusion
must be determined according to the particular circumstances of each case. To aid in determining
the similarity and likelihood of confusion between marks, our jurisprudence has developed two
(2) tests: the dominancy test and the holistic test. The Court explained these tests in Coffee
Partners, Inc. v. San Francisco Coffee & Roastery, Inc:

The dominancy test focuses on the similarity of the prevalent features of the competing
trademarks that might cause confusion and deception, thus constituting infringement. If the
competing trademark contains the main, essential, and dominant features of another, and
confusion or deception is likely to result, infringement occurs. Exact duplication or imitation is not
required. The question is whether the use of the marks involved is likely to cause confusion or
mistake in the mind of the public or to deceive consumers.

In contrast, the holistic test entails a consideration of the entirety of the marks as applied to the
products, including the labels and packaging, in determining confusing similarity. The discerning
eye of the observer must focus not only on the predominant words but also on the other features
appearing on both marks in order that the observer may draw his conclusion whether one is
confusingly similar to the other.

With these guidelines in mind, this Court considered "the main, essential, and dominant features"
of the marks in this case, as well as the contexts in which the marks are to be used. This Court
finds that the use of the "CITY CASH WITH GOLDEN LION'S HEAD" mark will not result in the
likelihood of confusion in the minds of customers.

THE MARKS

This Court agrees with the observation of Director General Cristobal that the most noticeable part
of this mark is the golden lion's head device, and finds that after noticing the image of the lion's
head, the words "CITY" and "CASH" are equally prominent.

Applying the dominancy test, the Court sees that the prevalent feature of
respondent's mark, the golden lion's head device, is not present at all in any of
petitioner's marks. The only similar feature between respondent's mark and
petitioner's collection of marks is the word "CITY" in the former, and the "CITI" prefix
found in the latter. The Court agrees with the findings of the Court of Appeals that
this similarity alone is not enough to create a likelihood of confusion.

The dissimilarities between the two marks are noticeable and substantial. Respondent's mark,
"CITY CASH WITH GOLDEN LION'S HEAD", has an insignia of a golden lion's head at the left side
of the words "CITY CASH", while petitioner's "CITI" mark usually has an arc between the two I's.
A further scrutiny of the other "CITI" marks of petitioner would show that their font type, font
size, and color schemes of the said "CITI" marks vary for each product or service. Most of the
time, petitioner's "CITI" mark is joined with another term to form a single word, with each product
or service having different font types and color schemes. On the contrary, the trademark of
respondent consists of the words "CITY CASH", with a golden lion's head emblem on the left side.
It is, therefore, improbable that the public would immediately and naturally conclude that
respondent's "CITY CASH WITH GOLDEN LION'S HEAD" is but another variation under petitioner's
"CITI" marks.

Verily, the variations in the appearance of the "CITI" marks by petitioner, when conjoined with
other words, would dissolve the alleged similarity between them and the trademark of
respondent. These dissimilarities, and the insignia of a golden lion's head before the words "CITY
CASH" in the mark of the respondent would sufficiently acquaint and apprise the public that
respondent's trademark "CITY CASH WITH GOLDEN LION'S HEAD" is not connected with the
"CITI" marks of petitioner.

AS TO ITS USE

This Court also agrees with the Court of Appeals that the context where respondent's mark is to
be used, namely, for its ATM services, which could only be secured at respondent's premises and
not in an open market of ATM services, further diminishes the possibility of confusion on the part
of prospective customers.

More relevant than the scenario discussed by petitioner is the stage when a bank is trying to
attract customers to avail of its services. Petitioner points out that in advertisements, such as in
radio, newspapers, and the internet, which are shown beyond the bank premises, there may be
no golden lion's head device to disambiguate "CITY CASH" from any of petitioner's own marks
and services. The Court finds this unconvincing. ATM services, like other bank services, are
generally not marketed as independent products. Indeed, as pointed out by petitioner itself, ATM
cards accompany the basic deposit product in most banks. They are generally adjunct to the main
deposit service provided by a bank. Since ATM services must be secured and contracted for at
the offering bank's premises, any marketing campaign for an ATM service must focus first and
foremost on the offering bank. Hence, any effective internet and newspaper advertisement for
respondent would include and emphasize the golden lion's head device. Indeed, a radio
advertisement would not have it. It should not be forgotten, however, that a mark is a question
of visuals, by statutory definition. Thus, the similarity between the sounds of "CITI" and "CITY"
in a radio advertisement alone neither is sufficient for this Court to conclude that there is a
likelihood that a customer would be confused nor can operate to bar respondent from registering
its mark. This Court notes that any confusion that may arise from using "CITY CASH" in a radio
advertisement would be the same confusion that might arise from using respondent's own trade
name. Aurally, respondent's very trade name, which is not questioned, could be mistaken as
"CITISTATE SAVINGS BANK," and all of petitioner's fears of possible confusion would be just as
likely.

This Court agrees with Director General Cristobal's recognition of respondent's

history and of "Citystate" as part of its name. Upon consideration, it notes that it may
have been more aligned with the purpose of trademark protection for respondent to
have chosen the trademark "CITYSTATE CASH" instead of "CITY CASH" to create a
stronger association between its trade name and the service provided. Nonetheless,
there is no law requiring that trademarks match the offeror's trade name precisely to
be registrable. The only relevant issue is the likelihood of confusion.

This Court also recognizes that there could be other situations involving a combination of the
word "city" and another word that could result in confusion among customers. However, it is not
convinced that this is one of those situations.

Thus, having examined the particularities of this case, this Court affirms the Court of Appeals'
finding that Director General Cristobal of the Intellectual Property Office did not commit any grave
abuse of discretion in allowing the registration of respondent's trademark.

Intellectual Property Law

ABS-CBN CORPORATION vs. FELIPE GOZON, GILBERTO R. DUAVIT, JR., MARISSA L.

FLORES, JESSICA A. SORO, GRACE DELA PENA-REYES, JOHN OLIVER T. MANALASTAS,
JOHN DOES AND JANE DOES, G.R. No. 195956, March 11, 2015

FACTS:

OFW Angelo dela Cruz was kidnapped by Iraqi militants. After negotiations, he was released by
his captors and was scheduled to return to the country. ABS-CBN "conducted live audio-video
coverage of and broadcasted the arrival of Angelo dela Cruz at the Ninoy Aquino International
Airport (NAIA) and the subsequent press conference." ABS-CBN allowed Reuters Television
Service (Reuters) to air the footages it had taken earlier under a special embargo agreement.

ABS-CBN alleged that under the special embargo agreement, any of the footages it took would
be for the "use of Reuter’s international subscribers only, and shall be considered and treated by
Reuters under ‘embargo’ against use by other subscribers in the Philippines. . . . [N]o other
Philippine subscriber of Reuters would be allowed to use ABS CBN footage without the latter’s
consent."

GMA-7, to which Gozon, Duavit, Jr., Flores, Soho, Dela Peña-Reyes, and Manalastas are
connected, "assigned and stationed news reporters and technical men at the NAIA for its live
broadcast and non-live news coverage of the arrival of dela Cruz."
GMA-7 subscribes to both Reuters and Cable News Network (CNN). It received a live video feed
of the coverage of Angelo dela Cruz’s arrival from Reuters. GMA-7 immediately carried the live
news feed in its program "Flash Report," together with its live broadcast.
Allegedly, GMA-7 did not receive any notice or was not aware that Reuters was airing footages
of ABS-CBN. GMA-7’s news control room staff saw neither the "No Access Philippines" notice nor
a notice that the video feed was under embargo in favor of ABS-CBN.

ISSUE:

1. Whether there is probable cause to charge respondents with infringement under Republic Act
No. 8293. (YES but, Reyes and Manalastas only)
2. Whether criminal prosecution for infringement of copyrightable material such as live
rebroadcast can be negated by good faith. (NO)

RULING:

1. Copyright protection is not absolute. The Intellectual Property Code provides “fair use
of the broadcast” as one of the limitations on copyright. The Court defined fair use as "a
privilege to use the copyrighted material in a reasonable manner without the consent of the
copyright owner or as copying the theme or ideas rather than their expression." Fair use is an
exception to the copyright owner's monopoly of the use of the work to avoid stifling "the very
creativity which that law is designed to foster."

Determining fair use requires application of the four-factor test. Section 185 of the Intellectual
Property Code lists four (4) factors to determine if there was fair use of a copyrighted work:
a. The purpose and character of the use, including whether such use is of a commercial
nature or is for non-profit educational purposes;
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in relation to the copyrighted work as
a whole; and
d. The effect of the use upon the potential market for or value of the copyrighted work.

In this case, the parties admitted that only five (5) seconds of the news footage was broadcasted
by GMA-7. Whether the alleged five-second footage may be considered fair use is a matter of
defense.

The case involves determination of probable cause at the preliminary investigation stage. Raising
the defense of fair use does not automatically mean that no infringement was
committed. The investigating prosecutor has full discretion to evaluate the facts, allegations,
and evidence during preliminary investigation. Defenses raised during preliminary investigation
are subject to further proof and evaluation before the trial court. Given the insufficiency of
available evidence, determination of whether the dela Cruz footage is subject to fair use is better
left to the trial court where the proceedings are currently pending.

GMA-7's rebroadcast of ABS-CBN's news footage without the latter's consent is not an issue. The
mere act of rebroadcasting without authority from the owner of the broadcast gives rise to the
probability that a crime was committed under the Intellectual Property Code.

Respondents argue that GMA-7's officers and employees cannot be held liable for infringement
under the Intellectual Property Code since it does not expressly provide direct liability of the
corporate officers.
An accused's participation in criminal acts involving violations of intellectual property rights is the
subject of allegation and proof. The showing that the accused did the acts or contributed in a
meaningful way in the commission of the infringements is certainly different from the argument
of lack of intent or good faith. Active participation requires a showing of overt physical acts or
intention to commit such acts. Intent or good faith, on the other hand, are inferences from acts
proven to have been or not been committed.

In this case, only respondents Dela Peña-Reyes and Manalastas committed acts that promoted
infringement of ABS-CBN's footage. They are responsible in airing the dela Cruz footage. They
could have prevented the act of infringement had they been diligent in their functions as Head of
News Operations and Program Manager.

2. Respondents cannot invoke the defense of good faith to argue that no probable
cause exists.

Respondents argue that copyright infringement is malum in se, in that "[c]opying alone is
not what is being prohibited, but its injurious effect which consists in the lifting from the copyright
owners' film or materials, that were the result of the latter's creativity, work and productions and
without authority, reproduced, sold and circulated for commercial use to the detriment of the
latter."

The general rule, however, is that acts punished under a special law are malum
prohibitum. The Intellectual Property Code is a special law, thus, infringement under
the Intellectual Property Code is malum prohibitum. An act which is declared malum
prohibitum, malice or criminal intent is completely immaterial.

Unlike other jurisdictions that require intent for a criminal prosecution of copyright infringement,
the Philippines does not statutorily support good faith as a defense. Moreover, in the Philippines,
the Intellectual Property Code, as amended, provides for the prosecution of criminal actions for
the following violations of intellectual property rights: Repetition of Infringement of Patent
(Section 84); Utility Model (Section 108); Industrial Design (Section 119); Trademark
Infringement (Section 155 in relation to Section 170); Unfair Competition (Section 168 in relation
to Section 170); False Designations of Origin, False Description or Representation (Section 169.1
in relation to Section 170); infringement of copyright, moral rights, performers' rights, producers'
rights, and broadcasting rights (Section 177, 193, 203, 208 and 211 in relation to Section 217);
and other violations of intellectual property rights as may be defined by law.

The law is clear. Inasmuch as there is wisdom in prioritizing the flow and exchange of ideas as
opposed to rewarding the creator, it is the plain reading of the law in conjunction with the actions
of the legislature to which the Court defers.

Respondents argue that live broadcast of news requires a different treatment in terms of good
faith, intent, and knowledge to commit infringement; however, respondents are involved and
experienced in the broadcasting business. They knew that there would be consequences in
carrying ABS-CBN's footage in their broadcast. That is why GMA-7 allegedly cut the feed from
Reuters upon seeing ABS-CBN's logo and reporter. To admit a different treatment for broadcasts
would mean abandonment of a broadcasting organization's minimum rights, including copyright
on the broadcast material and the right against unauthorized rebroadcast of copyrighted material.
The nature of broadcast technology is precisely why related or neighboring rights were created
and developed. Carving out an exception for live broadcasts would go against our commitments
under relevant international treaties and agreements, which provide for the same minimum rights.

Moreover, the lack of knowledge of infringement is not a valid defense. “In cases of
infringement, copying alone is not what is prohibited. The copying must produce an
"injurious effect.”

Doctrine of piercing the veil of corporate fiction

PIONEER INSURANCE SURETY CORPORATION

vs. MORNING STAR TRAVEL & TOURS, INC., ESTELITA CO WONG, BENNY H. WONG,
ARSENIO CHUA, SONNY CHUA, AND WONG YAN TAK, G.R. No. 198436, July 08, 2015

Facts:

Respondent is a travel and tours agency with private respondents as shareholders and members
of the board. It is the accredited travel agent of International Air Transport Association (IATA).
IATA extended a credit arrangement with respondent wherein the latter is allowed to sell tickets
of various airlines provided that all payment for completed sales are recorded and later remitted
back to IATA through a system called Billing and Settlement Plan.

IATA obtained a Credit Insurance Policy from petitioner to assure itself of payments of its
accredited travel agencies such as herein respondent. The policy was made known to respondent.
Additionally, respondent, through its president Benny Wong, declared itself liable in the instance
that petitioner is made to pay by IATA through the fault of respondent.

Between 16 December 2002 and 31 December 2002, respondent had accrued unremitted billings
to IATA. Respondent failed to remit the billings notwithstanding demands made by IATA.
Consequently, IATA filed a claim against petitioner under the Credit Insurance Policy. Thereafter
petitioner paid IATA Php 100,479,171.51 and USD 457,834.14 representing accrued unremitted
billings as of 30 April 2003.

Petitioner filed a claim against respondent for collection of sum of money praying that respondent
corporation as well as private respondent as shareholders and members of the board be held
solidarily liable for the amount due. Both the TC and CA ruled that only respondent corporation
is liable.

Issue:
Whether or not the private respondents, as shareholders and members of the board, may be held
solidarily liable with respondent corporation.
Ruling:
The law vests corporations with a separate and distinct personality from those that represent
these corporations.
The corporate legal structure draws its "economic superiority" from key features such as a
separate corporate personality. Unlike other business associations such as partnerships, the
corporate framework encourages investment by allowing even small capital contributors to be
part of a big business endeavor made possible by the aggregation of their capital funds. The
consequent limited liability feature, since corporate assets will answer for corporate debts, also
proves attractive for investors. However, this legal structure should not be abused.
The separate personality granted by law to corporations shield corporate officers acting in good
faith and within the scope of their authority from personal liability. However, jurisprudence has
provided for exceptions when personal liability may attach to individual officers, to wit:

1. He assents (a) to a patently unlawful act of the corporation, or (b) for

bad faith or gross negligence in directing its affairs, or (c) for conflict of
interest, resulting in damages to the corporation, its stockholders or other
persons (Same as Section 31 of Corporation Code);
2. He consents to the issuance of watered stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written
objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or
4. He is made, by a specific provision of law, to personally answer for his
corporate action.
Petitioner imputes gross negligence on the part of private respondents for incurring the huge
indebtedness to IATA amounting to bad faith or gross negligence. Consequently, they asseverate
that the veil of corporate fiction must be pierced.
To pierce the veil of corporate fiction, the following badges of fraud (due to bad faith or gross
negligence) must be shown to exist:

1. The fact that the consideration of the conveyance is fictitious or is inadequate.

2. A transfer made by a debtor after suit has been begun and while it is pending
against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when
there are present other of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.

Petitioner bases their claim on the existence of badges 4-6. Petitioner argues that respondent
acted in fraud when it incurred a large debt to IATA notwithstanding evidence that it had incurred
serious losses in the years 1998 – 2000. However, the large debt to IATA was incurred in 2002 –
losses in the years 1998 – 2000 are not indicative of losses in 2002. No evidence was shown by
petitioner on the financial position of respondent in the year 2002 or 2003. Therefore badge 4 is
not present. Furthermore, IATA accredited respondent in 1993 – it was not in any financial crises
when it was accredited; thus, it cannot be said that respondent corporation was established to
defraud petitioner.
Badge 5 is likewise insufficiently shown. Petitioner asserts that the space and land where the
offices of respondent corporation stand was not owned by the it. Petitioner asserts that title to
the property was vested in a corporation likewise owned by private respondents. From this,
petitioner made the conclusion that the set-up was made to defraud them. However, petitioner
failed to show that title to the property originally vested with respondent corporation and was
later transferred.

Finally, the existence of badge 6 is beyond review of the court. Petitioner should have impleaded
the travel agency which now operates in place of respondent. Failure to implead such a party is
a fatal error as it offends due process requirements.

Intellectual Property Law; Registration

E.I Dupont De Nemours and Co. vs. Director Emma Francisco, et.al., G.R. No. 174379,
August 31, 2016

Facts: E.I. Dupont Nemours and Company (E.I. Dupont Nemours) is an American corporation
organized under the laws of the State of Delaware. On July 10, 1987, E.I. Dupont Nemours filed
Philippine Patent Application No. 35526 before the Bureau of Patents, Trademarks, and
Technology Transfer. The application covers Angiotensin II Receptor Blocking Imidazole
(losartan), an invention related to the treatment of hypertension and congestive heart failure.
The product was produced and marketed by Merck, Sharpe, and Dohme Corporation (Merck),
E.I. Dupont Nemours’ licensee, under the brand names Cozaar and Hyzaar. The patent application
was handled by Atty. Nicanor D. Mapili (Atty. Mapili), a local resident agent who handled a
majority of E.I. Dupont Nemours’ patent applications in the Philippines from 1972 to 1996.

On December 19, 2000, E.I. Dupont Nemours’ new counsel, Ortega, Del Castillo, Bacorro, Odulio,
Calma, and Carbonell, made a request to the Intellectual Property Office to act on Philippine
Patent Application No. 35526 to which they replied by informing them that the appointed attorney
on record was the late Atty. Nicanor D. Mapili and that the reconstituted documents provided no
official revocation of his Power of Attorney and the appointment of the new applicant is required.
On May 29, 2002, E.I. Dupont Nemours submitted a Power of Attorney executed by Miriam
Meconnahey, authorizing Ortega, Castillo, Del Castillo, Bacorro, Odulio, Calma, and Carbonell to
prosecute and handle its patent applications and also filed a Petition for Revival with Cost of
Philippine Patent Application No. 35526. They argued that Atty. Makapili did not inform them of
the abandonment of their application, that the petitioner was not aware that its agent has already
died.

On April 18, 2002, the Director of Patents denied the Petition for Revival for having been filed out
of time.

ISSUE/S:

1. Whether or not the patent application of losartan by Dupont should be revived?

Ruling:
No, the patent application cannot be revived as it was filed out of time.

An abandoned patent application may only be revived within four (4) months from the date of
abandonment. No extension of this period is provided by the 1962 Revised Rules of Practice.
Section 113 states:

113. Revival of abandoned application. — An application abandoned for failure

to prosecute may be revived as a pending application if it is shown to the
satisfaction of the Director that the delay was unavoidable. An abandoned
application may be revived as a pending application within four months from
the date of abandonment upon good cause shown and upon the payment of the
required fee of P25. An application not revived within the specified period shall
be deemed forfeited.

Petitioner argues that it was not negligent in the prosecution of its patent application since it was
Atty. Mapili or his heirs who failed to inform it of crucial developments with regard to its patent
application. It argues that as a client in a foreign country, it does not have immediate supervision
over its local counsel so it should not be bound by its counsel's negligence. In any case, it complied
with all the requirements for the revival of an abandoned application under Rule 113 of the 1962
Revised Rules of Practice.

Respondents, on the other hand, argue that petitioner was inexcusably and grossly negligent in
the prosecution of its patent application since it allowed eight (8) years to pass before asking for
a status update on its application. Respondent Intellectual Property Office argues that petitioner's
inaction for eight (8) years constitutes actual abandonment. It also points out that from the time
petitioner submitted its new Special Power of Attorney on September 29, 1996, it took them
another four (4) years to request a status update on its application.

Under Chapter VII, Section 111(a) of the 1962 Revised Rules of Practice, a patent application is
deemed abandoned if the applicant fails to prosecute the application within four months from the
date of the mailing of the notice of the last action by the Bureau of Patents, Trademarks, and
Technology Transfer, and not from applicant's actual notice. Section 111 (a) states:

Chapter VII
TIME FOR RESPONSE BY APPLICANT; ABANDONMENT OF APPLICATION

111. Abandonment for failure to respond within the time limit. — (a) If an applicant fails
to prosecute his application within four months after the date when the last official notice
of action by the Office was mailed to him, or within such time as may be fixed (rule 112),
the application will become abandoned.

According to the records of the Bureau of Patents, Trademarks, and Technology Transfer
Chemical Examining Division, petitioner filed Philippine Patent Application No. 35526 on July 10,
1987. It was assigned to an examiner on June 7, 1988. An Office Action was mailed to petitioner's
agent, Atty. Mapili, on July 19, 1988. Because petitioner failed to respond within the allowable
period, the application was deemed abandoned on September 20, 1988.140 Under Section 113,
petitioner had until January 20, 1989 to file for a revival of the patent application. Its Petition for
Revival, however, was filed on May 30, 2002,14113 years after the date of abandonment.
Section 113 has since been superseded by Section 133.4 of the Intellectual Property Code, Rule
930 of the Rules and Regulations on Inventions, and Rule 929 of the Revised Implementing Rules
and Regulations for Patents, Utility Models and Industrial Design. The period of four (4) months
from the date of abandonment, however, remains unchanged. The Intellectual Property Code
even provides for a shorter period of three (3) months within which to file for revival:

SECTION 133. Examination and Publication. —133.4. An abandoned application

may be revived as a pending application within three (3) months from the date
of abandonment, upon good cause shown and the payment of the required fee.

Rule 930 of the Rules and Regulations on Inventions provides:

Rule 930. Revival of application. - An application deemed withdrawn for failure

to prosecute may be revived as a pending application within a period of four
(4) months from the mailing date of the notice of withdrawal if it is shown to
the satisfaction of the Director that the failure was due to fraud, accident,
mistake or excusable negligence.
A petition to revive an application deemed withdrawn must be accompanied by
(1) a showing of the cause of the failure to prosecute,
(2) a complete proposed response, and
(3) the required fee.

An application not revived in accordance with this rule shall be deemed forfeited.
Rule 929 of the Revised Implementing Rules and Regulations for Patents, Utility Models and
Industrial Design provides:

Rule 929. Revival of Application. - An application deemed withdrawn for failure to

prosecute may be revived as a pending application within a period of four (4) months
from the mailing date of the notice of withdrawal if it is shown to the satisfaction of the
Director that the failure was due to fraud, accident, mistake, or excusable negligence.
A petition to revive an application deemed withdrawn shall be accompanied by:
(a) A showing of a justifiable reason for the failure to prosecute;
(b) A complete proposed response; and
(c) Full payment of the required fee.

No revival shall be granted to an application that has been previously revived with cost.

An application not revived in accordance with this Rule shall be deemed forfeited.

Even if the delay was unavoidable, or the failure to prosecute was due to fraud, accident, mistake,
or excusable negligence, or the Petition was accompanied by a complete proposed response, or
all fees were paid, the Petition would still be denied since these regulations only provide a four
(4)-month period within which to file for the revival of the application. The rules do not provide
any exception that could extend this four (4)-month period to 13 years.

Banking Law
G.R. No. 217044, January 16, 2019, SPOUSES RAINIER JOSE M. YULO AND JULIET L.
YULO vs. BANK OF THE PHILIPPINE ISLANDS

Facts: When issuing a pre-screened or pre-approved credit card, the credit card provider must
prove that its client read and consented to the terms and conditions governing the credit card's
use. Failure to prove consent means that the client cannot be bound by the provisions of the
terms and conditions, despite admitted use of the credit card.

On October 9, 2006, the Bank of the Philippine Islands issued Rainier a pre-approved credit card.
His wife, Juliet, was also given a credit card as an extension of his account. Rainier and Juliet
used their respective credit cards by regularly charging goods and services on them.

The Yulo Spouses regularly settled their accounts with the BPI at first, but started to be delinquent
with their payments by July 2008. Their outstanding balance ballooned to ₱264,773.56 by
November 29, 2008. As a result, BPI filed a Complaint for sum of money against the Yulo
Spouses.

The Yulo Spouses admitted that they used the credit cards issued by BPI but claimed that their
total liability was only ₱20,000.00. They also alleged that BPI did not fully disclose to them the
Terms and Conditions on their use of the issued credit cards.

Issue: Whether or not petitioners Rainier Jose M. Yulo and Juliet L. Yulo are bound by the Terms
and Conditions on their use of credit cards issued by respondent.

Ruling: Petition is Partly Granted.

When a credit card provider issues a credit card to a pre-approved or pre-screened client, the
usual screening processes "such as the filing of an application form and submission of other
relevant documents prior to the issuance of a credit card, are dispensed with and the credit card
is issued outright." As the recipient of an unsolicited credit card, the pre-screened client can then
choose to either accept or reject it.

The Regional Trial Court found that the credit card packet from respondent, which contained
petitioner's pre-approved credit card and a copy of its Terms and Conditions, was duly delivered
to petitioner Rainier through his authorized representative, Baitan, as shown in the Delivery
Receipt:

As record shows, [the Bank of the Philippine Islands] presented as evidence the Delivery Receipt
marked in evidence as Exhibit "C". The [Bank of the Philippine Islands] credit card issued in favor
[of] defendantappellant Rainier Jose M. Yulo was received by his duly authorized representative,
one Jessica Baitan. In fact, defendants-appellants admitted having made [use] and availed of the
credits which plaintiff-appellees may have in its member establishments.

This was affirmed by the Court of Appeals, which stated, "The [Bank of the Philippine Islands]
credit card issued to petitioner Rainier was received by his authorized representative, a certain
Jessica Baitan, as evidenced by a Delivery Receipt."
As a pre-screened client, petitioner Rainier did not submit or sign any application form as a
condition for the issuance of a credit card in his account. Unlike a credit card issued through an
application form, with the applicant explicitly consenting to the Terms and Conditions on credit
accommodation use, a pre-screened credit card holder's consent is not immediately apparent.

Thus, respondent, as the credit card provider, had the burden of proving its allegation that
petitioner Rainier consented to the Terms and Conditions surrounding the use of the credit card
issued to him.45

While the Delivery Receipt46 showed that Baitan received the credit card packet for petitioner
Rainier, it failed to indicate Baitan's relationship with him. Respondent also failed to substantiate
its claim that petitioner Rainier authorized Baitan to act on his behalf and receive his pre-approved
credit card. The only evidence presented was the check mark in the box beside "Authorized
Representative" in the Delivery Receipt. This self-serving evidence is obviously insufficient to
sustain respondent's claim.

A contract of agency is created when a person acts for or on behalf of a principal, with the latter's
consent or authority. Unless required by law, an agency does not require a particular form, and
may be express or implied from the acts or silence of the principal. Rallos v. Felix Go Chan & Sons
Realty Corporation lays down the elements of agency:

Out of the above given principles, sprung the creation an acceptance of the relationship of agency
whereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for find (sic) in his behalf in transactions with third persons. The essential
elements of agency are: (1) there is consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the
agents (sic) acts as a representative and not for himself; and (4) the agent acts within the scope
of his authority.50 (Emphasis in the original, citation omitted)

Respondent fell short in establishing an agency relationship between petitioner Rainier and Baitan,
as the evidence presented did not support its claim that petitioner Rainier authorized Baitan to
act on his behalf. Without proof that petitioner Rainier read and agreed to the Terms and
Conditions of his pre-approved credit card, petitioners cannot be bound by it.

Petitioners do not deny receiving and using the credit cards issued to them. They do, however,
insist that respondent failed to establish their liability because the Statements of Account
submitted into evidence "merely reflect [their] alleged incurred transactions[,]" but are not the
source of their obligation or liability.

Petitioners are mistaken. When petitioners accepted respondent's credit card by using it to
purchase goods and services, a contractual relationship was created between them, "governed
by the Terms and Conditions found in the card membership agreement. Such terms and
conditions constitute the law between the parties."

Under Payment of Charges in the Terms and Conditions, petitioners would be furnished monthly
Statements of Account and would have a 20-day period from the statement date to settle their
outstanding balance, or the minimum required payment. However, with respondent's failure to
prove petitioner Rainier's conformity and acceptance of the Terms and Conditions, petitioners
cannot be bound by its provisions.

FRIA; Jurisdiction

Pilipinas Shell Petroleum Corporation vs. Royal Ferry Services, Inc., G.R. No. 188146,
February 01, 2017

Facts: On August 28, 2005, Royal Ferry filed a verified Petition for Voluntary Insolvency before
the Regional Trial Court of Manila. It alleged that in 2000, it suffered serious business losses that
led to heavy debts. Efforts to revive the company's finances failed, and almost all assets were
either foreclosed or sold to satisfy the liabilities incurred.

Royal Ferry ceased its operations on February 28, 2002.

On December 19, 2005, the Regional Trial Court of Manila issued an order, granting the petition
declaring the Royal Ferry Services insolvent. The said order was published in a newspaper of
general circulation for three consecutive weeks furnishing copies to all creditors of the company
in the schedule of creditors.

On December 23, 2005, Pilipinas Shell Petroleum filed before the RTC of Manila a Formal Notice
of Claim and a Motion to Dismiss claiming that the respondent Royal Ferry Services Inc. owes
them the amount of P 2,769,387.67 and the Petition for Insolvency was filed erroneously filed in
a wrong venue.

The petitioners argued that in Insolvency Law, a petition for Insolvency should be filed before he
Court with territorial jurisdiction over the company's residence. In its Article of Incorporation,
respondent's principal business address is situated in Makati City would it be the Petition for
Insolvency should be filed before the Court of Makati.

Issue: Whether the Petition for Insolvency was properly filed.

Ruling: The Petition for Insolvency was properly filed before the Regional Trial Court of Manila.

The first insolvency law, Republic Act No. 1956, was entitled "An Act Providing for the Suspension
of Payments, the Relief of Insolvent Debtors, the Protection of Creditors, and the Punishment of
Fraudulent Debtors (Insolvency Law)". It was derived from the Insolvency Act of California
(1895), with few provisions taken from the United States Bankruptcy Act of 1898. With the
enactment of Republic Act No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act of 2010 (FRIA), the Insolvency Law was expressly repealed on July 18, 2010. The
FRIA is currently the special law that governs insolvency. However, because the relevant
proceedings in this case took place before the enactment of the FRIA, the case needs to be
resolved under the provisions of the Insolvency Law.
Insolvency proceedings are defined as the statutory procedures by which a debtor obtains
financial relief and undergoes judicially supervised reorganization or liquidation of its assets for
the benefit of its creditors.
Respondent argues that the Regional Trial Court of Manila obtained jurisdiction because in its
Petition for Voluntary Insolvency, respondent alleged that its principal office was then found in
Manila. On the other hand, petitioner argues that filing the petition before the Regional Trial Court
of Manila was a patent jurisdictional defect as the Regional Trial Court of Manila did not have
territorial jurisdiction over respondent's residence.
Petitioner confuses the concepts of jurisdiction and venue. In City of Lapu-Lapu v. Phil. Economic
Zone Authority:
On the one hand, jurisdiction is "the power to hear and determine cases of the
general class to which the proceedings in question belong." Jurisdiction is a matter
of substantive law. Thus, an action may be filed only with the court or tribunal where
the Constitution or a statute says it can be brought. Objections to jurisdiction cannot
be waived and may be brought at any stage of the proceedings, even on appeal.
When a case is filed with a court which has no jurisdiction over the action, the court
shall motu proprio dismiss the case.
On the other hand, venue is "the place of trial or geographical location in which an
action or proceeding should be brought." In civil cases, venue is a matter of
procedural law. A party's objections to venue must be brought at the earliest
opportunity either in a motion to dismiss or in the answer; otherwise the objection
shall be deemed waived. When the venue of a civil action is improperly laid, the
court cannot motu proprio dismiss the case.
Wrong venue is merely a procedural infirmity, not a jurisdictional
impediment. Jurisdiction is a matter of substantive law, while venue is a matter of
procedural law. Jurisdiction is conferred by law, and the Insolvency Law vests
jurisdiction in the Court of First Instance-now the Regional Trial Court.
Jurisdiction is acquired based on the allegations in the complaint. The relevant portion of
respondent's Petition for Voluntary Insolvency reads:
Petitioner was incorporated on 18 October 1996 with principal place of business in
2521 A. Bonifacio Street, Bangkal, Makati City. At present and during the past six
months, [Royal Ferry] has held office in Rm. 203 BF Condo Building, Andres Soriano
cor. Solana St., Intramuros, Manila, within the jurisdiction of the Honorable Court,
where its books of accounts and most of its remaining assets are kept.
Section 14 of the Insolvency Law specifies that the proper venue for a petition for voluntary
insolvency is the Regional Trial Court of the province or city where the insolvent debtor has
resided in for six (6) months before the filing of the petition. In this case, the issue of which court
is the proper venue for respondent's Petition for Voluntary Insolvency comes from the confusion
on an insolvent corporation's residence.
Petitioner contends that the residence of a corporation depends on what is stated in its articles
of incorporation, regardless of whether the corporation physically moved to a different location.
On the other hand, respondent posits that the fiction of a corporation's residence must give way
to uncontroverted facts.
In Young Auto Supply Co. v. Court of Appeals:
A corporation has no residence in the same sense in which this term is applied to a
natural person. But for practical purposes, a corporation is in a metaphysical sense
a resident of the place where its principal office is located as stated in the articles
 of incorporation... The Corporation Code precisely requires each corporation to
specify in its articles of incorporation the "place where the principal office of the
corporation is to be located which must be within the Philippines" ... The purpose
of this requirement is to fix the residence of a corporation in a definite place, instead
of allowing it to be ambulatory.
Young Auto Supply dealt with the venue of a corporation's personal action by
applying the provisions of the Rules of Court. Nonetheless, the Rules of Court also
provides for when its provisions on venue do not apply. Rule 4, Section 4 provides:
RULE4
Venue of Actions
....
SECTION 4. When Rule not applicable. - This Rule shall not apply.
(a) In those cases where a specific rule or law provides otherwise; or
(b) Where the parties have validly agreed in writing before the filing of the action
on the exclusive venue thereof.
As there is a specific law that covers the rules on venue, the Rules of Court do not
apply.
The old Insolvency Law provides that in determining the venue for insolvency
proceedings, the insolvent corporation should be considered a resident of the place
where its actual place of business is located six (6) months before the filing of the
petition:
Sec. 14. Application. - An insolvent debtor, owing debts exceeding in amount the
sum of one thousand pesos, may apply to be discharged from his debts and liabilities
by petition to the Court of First Instance of province or city in which he has resided
for six months next preceding the filing of such petition. In his petition he shall set
forth his place of residence, the period of his residence therein immediately prior to
filing said petition, his inability to pay all his debts in full, his willingness to surrender
all his property, estate, and effects not exempt from execution for the benefit of his
creditors, and an application to be adjudged an insolvent. He shall annex to his
petition a schedule and inventory in the form herein-after provided. The filing of
such petition shall be an act of insolvency.
The law places a premium on the place of residence before a petition is filed since venue is a
matter of procedure that looks at the convenience of litigants. In insolvency proceedings, this
Court needs to control the property of the insolvent corporation. In Metropolitan Bank and Trust
Company v. S.F Naguiat Enterprises, Inc.:
Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of
the insolvent debtor completely within the jurisdiction and control of the insolvency
court without the intervention of any other court in the insolvent debtor's concerns
or in the administration of the estate. It was considered to be of prime importance
that the insolvency proceedings follow their course as speedily as possible in order
that a discharge, if the insolvent debtor is entitled to it, should be decreed without
unreasonable delay. "Proceedings of [this] nature cannot proceed properly or with
 due dispatch unless they are controlled absolutely by the court having charge
thereof."
To determine the venue of an insolvency proceeding, the residence of a corporation should be
the actual place where its principal office has been located for six (6) months before the filing of
the petition. If there is a conflict between the place stated in the articles of incorporation and the
physical location of the corporation's main office, the actual place of business should control.
Requiring a corporation to go back to a place it has abandoned just to file a case is the very
definition of inconvenience. There is no reason why an insolvent corporation should be forced to
exert whatever meager resources it has to litigate in a city it has already left.
In any case, the creditors deal with the corporation's agents, officers, and employees in the actual
place of business. To compel a corporation to litigate in a city it has already abandoned would
create more confusion.
Moreover, the six (6)-month qualification of the law's requirement of residence shows intent to
find the most accurate location of the debtor's activities. If the address in a corporation's articles
of incorporation is proven to be no longer accurate, then legal fiction should give way to fact.
Petitioner cites Hyatt Elevators and Escalators Corp. v. Goldstar Elevators Phils. Inc., where this
Court ruled that a corporation's articles of incorporation is the controlling document that
determines the venue of a corporation's action. Thus, abandoning the principal office does not
affect the venue of the corporation's personal action if the corporation's articles of incorporation
were not previously amended to reflect this change.
Two glaring differences between this case and Hyatt make the latter inapplicable.
First, Hyatt found inconclusive the allegation that the petitioner corporation relocated to a
different city. Here, the Regional Trial Court found that respondent had sufficiently shown that it
had been a resident of Manila for six (6) months before it filed its Petition for Voluntary
Insolvency. Second, and more importantly, Hyatt involves a complaint for unfair trade practices
and damages-a personal action governed by the Civil Code and the Rules of Court. This case,
however, involves insolvency, a special proceeding governed by a special law that specifically
qualifies the residence of the petitioner.
We cannot sustain the ruling of the Court of Appeals that the "petition for voluntary insolvency
[was filed] in the proper venue since the cities of Makati and Manila are part of one region." This
is untenable. Section 14 of Batas Pambansa Blg. 129 provides several judges to preside over the
different branches assigned to Manila and Makati. Thus, the two venues are distinct:
(d) One hundred seventy-two Regional Trial Judges shall be commissioned for the
National Capital Judicial Region. There shall be:
Eighty-two branches (Branches I to LXXXII) for the city of Manila, with seats
thereat;
Twenty-five branches (Branches LXXXIII to CVII) for Quezon City, with seats
thereat;
Twelve branches (Branches CVIII to CXIX) for Pasay City, with seats thereat;
Twelve branches (Branches CXX to CXXXI) for Caloocan City, with seats
thereat;
 Thirty-nine branches (Branches CXXXII to CLXX) for the municipalities of
Navotas, Malabon, San Juan, Mandaluyong, Makati, Pasig, Pateros, Taguig,
Marikina, Parafiaque, Las Piñas, and Muntinlupa, Branches CXXXII to CL with
seats at Makati,
Branches CLI to CLXVIII at Pasig, and Branches CLXIX and CLXX at Malabon;
and
Two branches (Branches CLXXI and CLXXII) for the municipality of
Valenzuela, with seats thereat.
Despite being in the same region, Makati and Manila are treated as two distinct venues. To deem
them as interchangeable venues for being in the same region has no basis in law.
Respondent is a resident of Manila. The law should be read to lay the venue of the insolvency
proceeding in the actual location of the debtor's activities. If it is uncontroverted that respondent's
address in its Articles of Incorporation is no longer accurate, legal fiction should give way to fact.
Thus, the Petition was correctly filed before the Regional Trial Court of Manila.

Corporation Law; Intra-corporate controversy

Belo Medical Group, Inc. vs. Santos G.R. No. 185894, August 30, 2017

Facts: Belo Medical Group received a request from Jose Santos for the inspection of corporate
records. Belo objected to this request and wrote Belo Medical Group to repudiate Santos co-
ownership of her shares and his interest in the corporation, claiming that the 25 shares in his
name were merely in trust for her, as she, and not Santos, paid for these shares. Belo Medical
Group then filed a Complaint for Interpleader to compel Belo and Santos to interplead and litigate
their conflicting claims. Said complaints were raffled to the special commercial court, thus
classifying them as intra-corporate.

Belo prayed that the case be tried as a civil case and not as an intra-corporate controversy,
arguing that intra-corporate controversies did not include special civil actions for interpleader and
declaratory relief, and clarified that the issue of ownership of the shares of stock must first be
resolved before the issue on inspection could even be considered ripe for determination.

Instead of filing an answer, Santos filed a Motion to Dismiss. Though a motion to dismiss is a
prohibited pleading under the Interim Rules of Procedure Governing Intra-Corporate
Controversies, the trial court ruled that according to the Rules of Court, motions to dismiss are
allowed in interpleader cases, while the complaint for Declaratory Relief was struck down as
improper. Belo filed her Petition for Review before the CA, which was however, dismissed.

Belo Medical Group, on the other hand, directly filed its Petition for Review with this Court.

Issues:
1. Whether Belo Medical Group, Inc. committed forum shopping;
2. Whether the present controversy is intra-corporate;
3. Wheter Belo Medical Group, Inc. came to this Court using the correct mode of appeal;
and
 4. Whether the trial court had basis in dismissing Belo Medical Group, Inc.'s Complaint for
Declaratory Relief.

Ruling:
I.
Neither Belo nor the Belo Medical Group is guilty of forum shopping.
Forum shopping exists when parties seek multiple judicial remedies simultaneously or
successively, involving the same causes of action, facts, circumstances, and transactions, in the
hopes of obtaining a favorable decision. It may be accomplished by a party defeated in one forum,
in an attempt to obtain a favorable outcome in another, "other than by appeal or a special civil
action for certiorari."
Forum shopping trivializes rulings of courts, abuses their processes, cheapens the administration
of justice, and clogs court dockets.78 In Top Rate Construction & General Services, Inc. v. Paxton
Development Corporation:
What is critical is the vexation brought upon the courts and the litigants by a party
who asks different courts to rule on the same or related causes and grant the same
or substantially the same reliefs and in the process creates the possibility of
conflicting decisions being rendered by the different fora upon the same issues.
Rule 7, Section 5 of the Rules of Court contains the rule against forum shopping:
Section 5. Certification against forum shopping. - The plaintiff or principal party shall
certify under oath in the complaint or other initiatory pleading asserting a claim for
relief, or in a sworn certification annexed thereto and simultaneously filed therewith:
(a) that he has not theretofore commenced any action or filed any claim involving
the same issues in any court, tribunal or quasi-judicial agency and, to the best of
his knowledge, no such other action or claim is pending therein; (b) if there is such
other per ding action or claim, a complete statement of the present status thereof;
and (c) if he should thereafter learn that the same or similar action or claim has
been filed or is pending, he shall report that fact within five (5) days therefrom to
the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice; unless otherwise provided, upon motion and
after hearing. The submission of a false certification or non-compliance with any of
the undertakings therein shall constitute indirect contempt of court, without
prejudice to the corresponding administrative and criminal actions. If the acts of the
party or his counsel clearly constitute willful and deliberate forum shopping, the
same shall be ground for summary dismissal with prejudice and shall constitute
direct contempt, as well as a cause for administrative sanctions.
When willful and deliberate violation is clearly shown, it can be a ground for all pending cases'
summary dismissal with prejudice and direct contempt.
Belo Medical Group filed its Petition for Review on Certiorari under Rule 45 before this Court to
appeal against the Joint Resolution of the trial court. It did not file any other petition related to
the case, as indicated in it verification and certification against forum shopping. It was Belo, a
defendant in Belo Medical Groups Complaint, who filed a separate appeal under Rule 43 with the
Court of Appeals primarily to protect her counterclaims. Belo and Belo Medical Group both filed
their respective Petitions for Review on January 28, 2009, the last day within the period allowed
to do so.83 The Court of Appeals already ruled that litis pendencia was present when Belo and
Belo Medical Group filed their respective petitions on the same date before different fora. The
two petitions involved the same parties, rights and reliefs sought, and causes of action. This is a
decision this Court can no longer disturb.
Neither Belo Medical Group nor Belo can be faulted for willful and deliberate violation of the rule
against forum shopping. Their prompt compliance of the certification against forum shopping
appended to their Petitions negates willful and deliberate intent.
Belo Medical Group was not remiss in its duty to inform this Court of a similar action or proceeding
related to its Petition. It promptly manifested before this Court its receipt of Belo's Petition before
the Court of Appeals. Belo Medical Group and Belo manifested before this Court that Belo filed a
Rule 43 petition to protect her counterclaims and to question the same Joint Resolution issued by
the trial court. Both did so within five (5) days from discovery, as they undertook in their
respective certificates against forum shopping.
The issue of forum shopping has become moot. The appeal under Rule 43 filed by Belo has been
dismissed by the Court of Appeals on the ground of litis pendencia. The purpose of proscribing
forum shopping is the proliferation of contradictory decisions on the same controversy. This
possibility no longer exists in this case.
II.

Belo Medical Group filed a case for interpleader, the proceedings of which are covered by the
Rules of Court. At its core, however, it is an intra-corporate controversy.
A.M. No. 01-2-04-SC, or the Interim Rules of Procedure Governing Intra-Corporate Controversies,
enumerates the cases where the rules will apply:
Section 1. (a) Cases Covered - These Rules shall govern the procedure to be observed
in civil cases involving the following:
1. Devices or 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;
2. Controversies arising out of intra-corporate, partnership, or association
relations, between and among stockholders, members, or associates; and
between, any or all of them and the corporation, partnership, or association
of which they are stockholders, members, or associates, respectively;
3. Controversies in the election or appointment of directors, trustees, officers, or
managers of corporations, partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.
The same rules prohibit the filing of a motion to dismiss:
Section 8. Prohibited Pleadings. -The following pleadings are prohibited:
 (1) Motion to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial or for reconsideration of judgment or order, or for reopening
of trial
(4) Motion for extension of time to file pleadings, affidavits or any other paper,
except those filed due to clearly compelling reasons. Such motion must be verified
and under oath; and
(5) Motion for postponement and other motions of similar intent, except those filed
due to clearly compelling reasons. Such motion must be verified and under oath.
To determine whether an intra-corporate dispute exists and whether this case requires the
application of these rules of procedure, this Court evaluated the relationship of the parties. The
types of intra-corporate relationships were reviewed in Union Glass & Container Corporation v.
Securities and Exchange Commission:
[a] between the corporation, partnership or association and the public; [b] between
the corporation, partnership or association and its stockholders, partners, members,
or officers; [c] between the corporation, partnership or association and the state in
so far as its franchise, permit or license to operate is concerned; and [d] among the
stockholders, partners or associates themselves.
For as long as any of these intra-corporate relationships exist between the parties,
the controversy would be characterized as intra-corporate. This is known as the
"relationship test."

DMRC Enterprises v. Este del Sol Mountain Reserve, Inc. employed what would later
be called as the "nature of controversy test." It became another means to determine
if the dispute should be considered as intra-corporate.

In DMRC Enterprises, Este del Sol leased equipment from DMRC Enterprises. Part
of Este del Sol's payment was shares of stock in the company. When Este del Sol
defaulted, DMRC Enterprises filed a collection case before the Regional Trial Court.
Este del Sol argued that it should have been filed before the Securities and Exchange
Commission as it involved an intra-corporate dispute where a corporation was being
compelled to issue its shares of stock to subscribers. This Court held that it was not
just the relationship of the parties that mattered but also the conflict between them:

The purpose and the wording of the law escapes the respondent. Nowhere in said decree do we
find even so much as an intimidation that absolute jurisdiction and control is vested in the
Securities and Exchange Commission in all matters affecting corporations. To uphold the
respondent's argument would remove without legal imprimatur from the regular courts all
conflicts over matters involving or affecting corporations, regardless of the nature of the
transactions which give rise to such disputes. The courts would then be divested of jurisdiction
not by reason of the nature of the dispute submitted to them for adjudication, but solely for the
reason that the dispute involves a corporation. This cannot be done. To do so would not only be
to encroach on the legislative prerogative to grant and revoke jurisdiction of the courts but such
a sweeping interpretation may suffer constitutional infirmity. Neither can we reduce jurisdiction
of the courts by judicial fiat (Article X, Section 1, The Constitution).
This Court now uses both the relationship test and the nature of the controversy test to determine
if an intra-corporate controversy is present.
Applying the relationship test, this Court notes that both Belo and Santos are named shareholders
in Belo Medical Group's Articles of Incorporation and General Information Sheet for 2007.95 The
conflict is clearly intra-corporate as it involves two (2) shareholders although the ownership of
stocks of one stockholder is questioned. Unless Santos is adjudged as a stranger to the
corporation because he holds his shares only in trust for Belo, then both he and Belo, based on
official records, are stockholders of the corporation. Belo Medical Group argues that the case
should not have been characterized as intra-corporate because it is not between two shareholders
as only Santos or Belo can be the rightful stockholder of the 25 shares of stock. This may be true.
But this finding can only be made after trial where ownership of the shares of stock is decided.

The trial court cannot classify the case based on potentialities. The two defendants in that case
are both stockholders on record. They continue to be stockholders until a decision is rendered on
the true ownership of the 25 shares of stock in Santos' name. If Santos' subscription is declared
fictitious and he still insists on inspecting corporate books and exercising rights incidental to being
a stockholder, then, and only then, shall the case cease to be intra-corporate.
Applying the nature of the controversy test, this is still an intra-corporate dispute. The Complaint
for interpleader seeks a determination of the true owner of the shares of stock registered in
Santos' name. Ultimately, however, the goal is to stop Santos from inspecting corporate books.
This goal is so apparent that, even if Santos is declared the true owner of the shares of stock
upon completion of the interpleader case, Belo Medical Group still seeks his disqualification from
inspecting the corporate books based on bad faith. Therefore, the controversy shifts from a mere
question of ownership over movable property to the exercise of a registered stockholder's
proprietary right to inspect corporate books.
Belo Medical Group argues that to include inspection of corporate books to the controversy is
premature considering that there is still no determination as to who, between Belo and Santos,
is the rightful owner of the 25 shares of stock. Its actions belie its arguments. Belo Medical Group
wants the trial court not to prematurely characterize the dispute as intra-corporate when, in the
same breath, it prospectively seeks Santos' perpetual disqualification from inspecting its books.
This case was never about putting into light the ownership of the shares of stock in Santos' name.
If that was a concern at all, it was merely secondary. The primary aim of Belo and Belo Medical
Group was to defeat his right to inspect the corporate books, as can be seen by the filing of a
Supplemental Complaint for declaratory relief.
The circumstances of the case and the aims of the parties must not be taken in isolation from
one another. The totality of the controversy must be taken into account to improve upon the
existing tests. This Court notes that Belo Medical Group used its Complaint for interpleader as a
subterfuge in order to stop Santos, a registered stockholder, from exercising his right to inspect
corporate books.
Belo made no claims to Santos' shares before he attempted to inspect corporate books and
inquired about the Henares' election as corporate secretary and the conduct of stockholders'
meetings. Even as she claimed Santos' shares as hers, Belo proffered no initial proof that she had
paid for these shares. She failed to produce any document except her bare allegation that she
had done so. Even her Answer Ad Cautelam with Cross-Claim contained bare allegations of
ownership.

According to its Complaint, although Belo Medical Group's records reflect Santos as the registered
stockholder of the 25 shares, they did not show that Santos had made payments to Belo Medical
Group for these shares, "consistent with Bela's claim of ownership over them." The absence of
any document to establish that Santos had paid for his shares does not bolster Belo's claim of
ownership of the same shares. Santos remains a stockholder on record until the contrary is shown.

Belo Medical Group cites Lim v. Continental Development Corporation as its basis for filing its
Complaint for interpleader. In Lim, Benito Gervasio Tan (Tan) appeared as a stockholder of
Continental Development Corporation. He repeatedly requested the corporation to issue
certificates of shares of stock in his name but Continental Development Corporation could not do
this due to the claims of Zoila Co Lim (Lim). Lim alleged that her mother, So Bi, was the actual
owner of the shares that were already registered in the corporate books as Lim's, and she
delivered these in trust to Lim before she died. Lim wanted to have the certificates of shares
cancelled and new ones re-issued in his name. This Court ruled that Continental Development
Corporation was correct in filing a case for interpleader:
Since there is an active conflict of interests between the two defendants, now herein
respondent Benito Gervasio Tan and petitioner Zoila Co Lim, over the disputed
shares of stock, the trial court gravely abused its discretion in dismissing the
complaint for interpleader, which practically decided ownership of the shares of
stock in favor of defendant Benito Gervasio Tan. The two defendants, now
respondents in G.R. No. L-41831, should be given full opportunity to litigate their
respective claims.
Rule 63, Section 1 of the New Rules of Court tells us when a cause of action exists
to support a complaint in interpleader:
Whenever conflicting claims upon the same subject matter are or may be made
against a person, who claims no interest whatever in the subject matter, or an
interest which in whole or in part is not disputed by the claimants, he may bring an
action against the conflicting claimants to compel them to interplead and litigate
their several claims among themselves . . .
This provision only requires as an indispensable requisite:
that conflicting claims upon the same subject matter are or may be made against the plaintiff-in-
interpleader who claims no interest whatever in the subject matter or an interest which in whole
or in part is not disputed by the claimants (Beltran vs. People's Homesite and Housing
Corporation, No. L-25138, 29 SCRA 145).
This ruling, penned by Mr. Justice Teehankee, reiterated the principle in Alvarez vs.
Commonwealth (65 Phil. 302), that
The action of interpleader, under section 120, is a remedy whereby a person who
has personal property in his possession. or an obligation to render wholly or partially,
without claiming any right in both comes to court and asks that the persons who
claim the said personal property or who consider themselves entitled to demand
compliance with the obligation. be required to litigate among themselves, in order
to determine finally who is entitled to one or the other thing. The remedy is afforded
 not to protect a person against a double liability but to protect him against a double
vexation in respect of one liability.
An interpleader merely demands as a sine qua non element
. . . that there be two or more claimants to the fund or thing in dispute through
separate and different interests. The claims must be adverse before relief can be
granted and the parties sought to be interpleaded must be in a position to make
effective claims (33 C.J. 430).
Additionally, the fund thing, or duty over which the parties assert adverse claims
must be one and the same and derived from the same source (33 C.J., 328; Martin,
Rules of Court, 1969 ed., Vol. 3, 133-134; Moran, Rules of Court, 1970 ed., Vol. 3,
134-136).

Indeed, petitioner corporation is placed in the same situation as a lessee who does
not know the person to whom he will pay the rentals due to the conflicting claims
over t[h]e property leased, or a sheriff who finds himself puzzled by conflicting
claims to a property seized by him. In these examples, the lessee (Pangkalinawan
vs. Rodas, 80 Phil. 28) and the sheriff (Sy-Quia vs. Sheriff, 46 Phil. 400) were each
allowed to file a complaint in interpleader to determine the respective rights of the
claimants.
In Lim, the corporation was presented certificates of shares of stock in So Bi's name. This proof
was sufficient for Continental Development Corporation to reasonably conclude that controversy
on ownership of the shares of stock existed.
Furthermore, the controversy in Lim was between a registered stockholder in the books of the
corporation and a stranger who claimed to be the rightful transferee of the shares of stock of her
mother. The relationship of the parties and the circumstances of the case establish the civil nature
of the controversy, which was plainly, ownership of shares of stock. Interpleader was not filed to
evade or defeat a registered stockholder's right to inspect corporate books. It was borne by the
sincere desire of a corporation, not interested in the certificates of stock to be issued to either
claimant, to eliminate its liability should it favor one over the other.
On the other hand, based on the facts of this case and applying the relationship and nature of
the controversy tests, it was understandable how the trial court could classify the interpleader
case as intra-corporate and dismiss it. There was no ostensible debate on the ownership of the
shares that called for an interpleader case. The issues and remedies sought have been muddled
when, ultimately, at the front and center of the controversy is a registered stockholder's right to
inspect corporate books.
As an intra-corporate dispute, Santos should not have been allowed to file a Motion to
Dismiss. The trial court should have continued on with the case as an intra-corporate dispute
considering that it called for the judgments on the relationship between a corporation and its two
warring stockholders and the relationship of these two stockholders with each other.

III.

Rule 45 is the wrong mode of appeal.

A.M. No. 04-9-07-SC promulgated by this Court En Banc on September 14, 2004 laid down the
rules on modes of appeal m cases formerly cognizable by the Securities and Exchange
Commission:
1. All decisions and final orders in cases falling under the Interim Rules of Corporate
Rehabilitation and the Interim Rules of Procedure Governing Intra-Corporate
Controversies under Republic Act No. 8799 shall be appealable to the Court of
Appeals through a petition for review under Rule 43 of the Rules of Court.
2. The petition for review shall be taken within fifteen (15) days from notice of the
decision or final order of the Regional Trial Court. Upon proper motion and the
payment of the full amount of the legal fee prescribed in Rule 141 as amended
before the expiration of the reglementary period, the Court of Appeals may grant
an additional period of fifteen (15) days within which to file the petition for review.
No further extension shall be granted except for the most compelling reasons and
in no case to exceed fifteen (15) days.
On the other hand, Rule 43 of the Rules of Court allows for appeals to the Court of Appeals to
raise questions of fact, of law, or a mix of both. Hence, a party assailing a decision or a final order
of the trial court acting as a special commercial court, purely on questions of law, must raise
these issues before the Court of Appeals through a petition for review. A.M. No. 04-9-07-SC
mandates it. Rule 43 allows it.
Belo Medical Group argues that since it raises only questions of law, the proper mode of appeal
is Rule 45 filed directly to this Court. This is correct assuming there were no rules specific to intra-
corporate disputes. Considering that the controversy was still classified as intra-corporate upon
filing of appeal, special rules, over general ones, must apply.
Based on the policy of judicial economy and for practical considerations, this Court will not dismiss
the case despite the wrong mode of appeal utilized. For one, it would be taxing in time and
resources not just for Belo Medical Group but also for Santos and Belo to dismiss this case and
have them refile their petitions for review before the Court of Appeals. There would be no benefit
to any of the parties to dismiss the case especially since the issues can already be resolved based
n the records before this Court. Also, the Court of Appeals already referred the matter to this
Court when it dismissed Belo's Petition for Review. Remanding this case to the Court of Appeals
would not only be unprecedented, it would further delay its resolution.
IV.

At the outset, this Court notes that two cases were filed by Belo Medical Group: the Complaint
for interpleader and the Supplemental Complaint for Declaratory Relief. Under Rule 2, Section 5
of the Rules of Court, a joinder of cause of action is allowed, provided that it follows the conditions
enumerated below:
Section 5. Joinder of Causes of Action. A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an
opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of
parties;
 (b) The joinder shall not include special civil actions or actions governed
by special rules;
(c) Where the causes of action are between the same parties but pertain to different
venues or jurisdictions, the joinder may be allowed in the Regional Trial Court
provided one of the causes of action falls within the jurisdiction of said court and
the venue lies therein; and
(d) Where the claims in all the causes of action are principally for recovery of money,
the aggregate amount claimed shall be the test of jurisdiction.
Assuming this case continues on as an interpleader, it cannot be joined with the Supplemental
Complaint for declaratory relief as both are special civil actions. However, as the case was
classified and will continue as an intra-corporate dispute, the simultaneous complaint for
declaratory relief becomes superfluous. The right of Santos to inspect the books of Belo Medical
Group and the appreciation for his motives to do so will necessarily be determined by the trial
court together with determining the ownership of the shares of stock under Santos' name.
The trial court may make a declaration first on who owns the shares of stock and suspend its
ruling on whether Santos should be allowed to inspect corporate records. Or, it may rule on
whether Santos has the right to inspect corporate books in the meantime while there has yet to
be a resolution on the ownership of shares. Remedies are available to Belo Medical Group and
Belo at any stage of the proceeding, should they carry on in prohibiting Santos from inspecting
the corporate books.

Real Estate Mortgage

Gotesco Properties, Inc. vs. Solidbank Corporation, G.R. No. 209452, July 26, 2017
Facts: In 1995, Gotesco obtained from Solidbank a ₱300 million loan. This loan was covered by
three promissory notes. To secure the loan, Gotesco was required to execute a Mortgage Trust
Indenture naming Solidbank-Trust Division as Trustee.
The indenture obligated Gotesco to mortgage several parcels of land in favor of Solidbank. One
of which was a property located in San Fernando, Pampanga. Gotesco also agreed to at all times
maintain the Sound Value of the Collateral. Gotesco failed to pay its obligations.
A Notice of Sale was published for public auction on August 31, 2000. Solidbank won as the
highest bidder. Gotesco filed a complaint RTC for Annulment of Foreclosure Proceedings, against
Solidbank, assailing the validity of the foreclosure proceeding claiming that it was premature and
without legal basis and that the jurisdictional requirements prescribed under Act No. 3135 were
not complied with.
Solidbank further claimed that it complied with the publication and posting requirements.
Solidbank then filed an Ex-Parte Petition for the Issuance of a Writ of Possession. The RTC
dismissed the and the CA affirmed the RTC’s decision.
Issue:
1. Whether or not the foreclosure was premature.
2. Whether or not the requirements under Section 3 of Act No. 3135 were complied.
3. Whether or not the Writ of Possession was properly issued.
Ruling: The petition is denied.
I.A
Petitioner defaulted in its obligation. Thus, respondent was within its rights to foreclose the
property.
Section 5 of the Indenture provided:
5.01 Events of Default. Each of the following shall constitute an Event of Default under
this Indenture:
(a) the Company shall fail to pay at stated maturity, by acceleration or
otherwise to any Creditor any amount due and owing under a Secured Principal
Document;
(b) any event of default under the Secured Principal Documents shall occur;
(c) any representation or warranty or statement made or furnished to this Trustee by or
on behalf of the Company in connection with this Indenture shall prove to have been false
in any material respect when made or furnished or deemed made;
(d) the Company shall default in the due performance or observance of any provision
contained herein and such default continues unremedied for thirty (30) days after notice
to the Company by the Trustee; or
(e) the lien created by this Indenture shall be lost or impaired or shall cease to be
a first and preferred lien upon the Collateral.
Petitioner defaulted in its obligation twice. First, when it failed to pay the loan according to the
terms of the promissory note. Second, when it failed to provide the additional collateral demanded
by respondent.
Petitioner never refuted that it defaulted in its payment of the loan. In its Stipulation of
Facts/Admissions and Proposed Marking of Exhibits, petitioner admitted to proposing the loan
restructuring because of its inability to meet the loan payments. The loan restructuring agreement
would have given Petitioner an additional "payment period of seven (7) years with two (2) years
grace period on principal payment."
However, as the Court of Appeals correctly held, that there was no perfected restructuring
agreement between the parties. The Civil Code requires absolute acceptance of the offer before
it can be considered a binding contract:
Article 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offeror except from the time it came to
his knowledge. The contract, in such a case, is presumed to have been entered into in the place
where the offer was made.
Mendoza v. Court of Appeals tells us that "only an absolute and unqualified acceptance of a
definite offer manifests the consent necessary to perfect a contract."
For a proposal to bind a party, there must be proof that it consented to all the terms on offer. To
prove that the original period of payment was extended, petitioner must show that respondent
unequivocally accepted the offer. In this case, petitioner did not present any shred of evidence
which would prove that respondent agreed to restructure the loan. At best, petitioner only alleged
that it sent a letter to respondent to ask for a debt restructuring. However, sending a proposal is
not enough. There must be proof that respondent expressly accepted the offer. Without an
absolute acceptance, there is no concurrence of minds. Thus, this Court cannot bind respondent
to stipulations it never consented to.
Petitioner points to respondent's February 9, 2000 letter claiming that if respondent had not
agreed to the proposal, it would not have asked for additional collateral.
However, respondent's February 9, 2000 letter showed no indication that it extended the loan's
payment period. It did not even mention any restructuring proposal. The demand to address the
deficiency in the loan's security cannot be interpreted as an implied agreement to restructure the
loan.
Notably, petitioner did not offer the alleged restructuring agreement in evidence. As respondent
points out, the theory that the loan was restructured is hinged on the January 24, 2000 letter
from petitioner. However, this letter which allegedly proposed the restructuring of petitioner's
obligation was not offered in evidence. Under the rules, this Court cannot consider any evidence
not formally offered. In Spouses Ong v. Court of Appeals, this Court exonerated a common carrier
from liability because the police report finding it liable was not formally offered in evidence. This
Court explained:
A formal offer is necessary, since judges are required to base their findings of fact
and their judgment solely and strictly upon the evidence offered by the parties at
the trial. To allow parties to attach any document to their pleadings and then expect
the court to consider it as evidence, even without formal offer and admission, may
draw unwarranted consequences. Opposing parties will be deprived of their chance
to examine the document and to object to its admissibility. On the other hand, the
appellate court will have difficulty reviewing documents not previously scrutinized
by the court below.
Since the loan restructuring which Gotesco proposed was not accepted, there is no question that
petitioner defaulted on the payment of its loan.
Petitioner's failure to provide the additional collateral demanded by respondent constituted
another Event of Default under the Indenture.
Under the Indenture, petitioner agreed to maintain the value of the collateral at a level at least
equal to the required collateral cover. Section 4.03 of the Indenture provided:
The Company [Gotesco/appellant] shall at all times maintain the Sound Value of the Collateral at
a level equal to that provided for under Sec. 2.01 of this Indenture and, for such purpose, shall
make such substitutions, replacements, and additions for or to the Collateral.
If at any time, in the opinion of the Trustee [Solidbank-Trust Division] and the Majority Creditors
[Solidbank/appellee], the Sound Value of the Collateral is impaired, or there is substantial and
imminent danger of such impairment, [appellant] shallj upon demand of [Solidbank-Trust
Division], effect the substitution of the Collateral or part thereof with another or others and/or
execute additional mortgages on other properties and/or deposit cash with the [Solidbank-Trust
Division] satisfactory to the [Solidbank-Trust Division] and [Solidbank].
On February 9, 2000, respondent wrote to petitioner claiming that the appraised value of the
mortgaged properties decreased. Respondent then asked petitioner to "address the deficiency in
the required collateral." The letter, in part, provided:
At present, the outstanding secured obligations covered by the [Mortgage Trust
Indenture are] P300 Million, which MPC is held solely by Solidbank Corporation. The
reduction in the collateral values of the properties shall therefore impair the required
collateral to loan ratio of 200%.
In this regard, we urge you to address the deficiency in the required collateral cover
soonest and make the necessary substitution, replacements and/or additions on the
mortgaged properties. Section 4.03 of the [Mortgage Trust Indenture] requires that
[Gotesco Properties, Inc.] shall maintain at all times the Sound Value of the
mortgaged property at a level at least equal to the required collateral cover.
Petitioner chose not to heed this demand and insisted aggregate sound value of the mortgaged
properties was ₱l,076,905,000.00. It added:
42. And even assuming arguendo that the value of the mortgaged properties has vent
down, the fact remains that being a real estate property, it could not go down more
than 50% of the value thereof. Thus, at best the least valuation of these mortgaged
properties would be no less than ₱600 million, which is more than enough to cover the
balance of the loan obligations.
The determination of whether the collateral is impaired lies on respondent. As the Court of
Appeals aptly put, petitioner ignored respondent's demand "to its ruination."
Under the Civil Code, there is default when a party obliged to deliver something fails to do so.
In Social Security System v. Moonwalk Development & Housing Corp., this Court enumerated the
elements of default:
In order that the debtor may be in default it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially and extrajudicially.
Default generally begins from the moment the creditor demands the performance of the
obligation.
When respondent asked to have the mortgaged properties replaced, it was requiring petitioner
to comply with its obligation to sustain the loan's security at an appropriate level. Clearly,
petitioner defaulted when it refused to heed respondent's demand for additional collateral, as
expressed in the February 9, 2000 letter. This gave respondent enough reason to foreclose the
property.
I.B
Petitioner argues that the foreclosure should not have been initiated because it was not notified
that an event of default occurred. It claims that under the Indenture, it should have been notified
that it was in default and that the obligation was due and demandable. After such notice, it should
have been given 10 days to settle the debt. Petitioner avers that the foreclosure proceeding could
only be initiated upon failure to pay after the lapse of the 10-day period.
Petitioner claims it did not receive any demand letter. Gotesco's first witness, Arturo M. Garcia,
testified that Gotesco did not receive any written demand. On the other hand, respondent avers
that it sent a demand letter dated June 7, 2000 to petitioner. As proof, respondent submitted a
return card which indicated that the letter was accepted by the addressee.
This Court rules for respondent.
Documentary evidence will generally prevail over testimonial evidence. As the Court of Appeals
noted, the return card submitted by respondent proves that the demand letter was received by
petitioner. This Court is inclined to give more evidentiary weight to documentary evidence as
opposed to a testimony which can be easily fabricated. In any case, the question of whether the
letter was received is a factual matter better left to the lower courts. Since the factual findings of
appellate courts are conclusive and binding upon this Court when supported by substantial
evidence, this Court sees no reason to disturb the findings of the Court of Appeals.
I.C
The contention that Mr. Go did not have the authority to appoint Solidbank-Trust Division as an
attorney-in-fact for the purpose of selling the mortgaged property is untenable. As the Court of
Appeals correctly pointed out:
Since Mr. Go was authorized to sign the Indenture, and the provision of appointment of the
[respondent] as attorney-in-fact in the event of foreclosure is an integral portion of the terms and
conditions of the Indenture, Mr. Go was, therefore, authorized and invested with the power to
appoint an attorney-in-fact.
In any case, petitioner is not allowed to bring a new issue on appeal. Since the question regarding
Mr. Go's authority was only presented before the Court of Appeals, it deserves scant
consideration.
Canada v. All Commodities Marketing Corporation explained that raising a new argument on
appeal violates due process:
As a rule, no question will be entertained on appeal unless it has been raised in the
court below. Points of law, theories, issues and arguments not brought to the
attention of the lower court ordinarily will not be considered by a reviewing court
because they cannot be raised for the first time at that late stage. Basic
considerations of due process underlie this rule. It would be unfair to the adverse
party who would have no opportunity to present evidence in contra to the new
theory, which it could have done had it been aware of it at the time of the hearing
before the trial court. To permit petitioner at this stage to change his theory would
thus be unfair to respondent, and offend the basic rules of fair play, justice and due
process.
II.A
As to the validity of the foreclosure proceeding, this Court rules in the affirmative.
Section 3 of Act No. 3135 provides:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice shall
also be published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city.
Section 3 of Act No. 3135 requires that the Notice of Sale be a) physically posted in three (3)
public places and b) be published once a week for at least three (3) consecutive weeks in a
newspaper of general circulation in the city where the property is situated.
Petitioner claims that since the foreclosed property was located in Pampanga, the publication of
the Notice of Sale in Remate was not valid. Petitioner suggests that the Notice of Sale could only
be published in a newspaper printed in the city where the property was located. It posits that
because Remate was printed and published in Manila, not in San Fernando, Pampanga, the
publication was defective.
Petitioner is mistaken.
Fortune Motors (Phils.), Inc. v. Metropolitan Bank and Trust Co. already considered this argument
and ruled that this interpretation is too restricting:
Were the interpretation of the trial court (sic) to be followed, even the leading dailies in
the country like the 'Manila Bulletin,' the 'Philippine Daily Inquirer,' or 'The Philippine Star'
which all enjoy a wide circulation throughout the country, cannot publish legal notices
that would be honored outside the place of their publication. But this is not the
interpretation given by the courts. For what is important is that a paper should be in
general circulation in the place where the properties to be foreclosed are located in order
that publication may serve the purpose for which it was intended.
If notices are only published in newspapers printed in the city where the property is located, even
newspapers that are circulated nationwide will be disqualified from announcing auction sales
outside their city of publication. This runs contrary to the spirit of the law which is to attain wide
enough publicity so all parties interested in acquiring the property can be informed of the
upcoming sale. This Court ruled:
We take judicial notice of the fact that newspaper publications have more far-reaching
effects than posting on bulletin boards in public places. There is a greater probability that
an announcement or notice published in a newspaper of general circulation, which is
distributed nationwide, shall have a readership of more people than that posted in a public
bulletin board, no matter how strategic its location may be, which caters only to a limited
few. Hence, the publication of the notice of sale in the newspaper of general circulation
alone is more than sufficient compliance with the notice-posting requirement of the law.
By such publication, a reasonably wide publicity had been effected such that those
interested might attend the public sale, and the purpose of the law had been thereby
subserved.
The crucial factor is not where the newspaper is printed but whether the newspaper is being
circulated in the city where the property is located. Markedly, what the law requires is the
publication of the Notice of Sale in a "newspaper of general circulation," which is defined as:
To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide subscription
list of paying subscribers; that it is published at regular intervals" . . . The newspaper need
not have the largest circulation so long as it is of general circulation.
Verily, there is clear emphasis on the audience reached by the paper; the place of printing is not
even considered.
The Court of Appeals pointed out that Remate is an accredited publication by the Regional Trial
Court of Pampanga. As argued by respondent:
 It merits judicial notice that the newspaper where the Notice of Sale was published
is chosen by raffle among newspaper publications accredited by the Regional Trial
Court with territorial jurisdiction over the real property to be foreclosed. It can be
safely presumed that the RTC in this regard imposed standards and criteria for these
newspapers to qualify for the raffle, among the criteria being that they [are]
newspapers of general circulation in the locality. More so in this instance, when it
merits judicial notice that the Remate, is one of the most widely circulated tabloids
in the country.
II.B
As to the alleged defect with the posting requirement, petitioner argues that the Notice of Sale
was posted less than the required 20 days. Respondent points out that this issue was alleged for
the first time before this Court and should not be considered.
This Court rules for respondent.
Records show that petitioner only raised this argument in the Petition for Review submitted before
this Court. The alleged defect was not raised before the lower courts. Notably, this is not the first
time petitioner raised a new issue on appeal. As previously discussed, it raised Mr. Go's alleged
lack of authority for the first time before the Court of Appeals. This Court reiterates that this
practice cannot stand because raising new issues on appeal violates due process.
In any case, the alleged defect in the posting is superficial. The Notice of Sale was posted on
August 15, 2000, while the auction sale took place on August 31, 2000. The Notice of Sale was
posted for 16 days, only four (4) days less than what the law requires.
The object of a Notice of Sale in an extrajudicial foreclosure proceeding is to inform the public of
the nature and condition of the property to be sold and the time, place, and terms of the auction
sale. Mistakes or omissions that do not impede this objective will not invalidate the Notice of
Sale. Olizon v. Court of Appeals explained:
The object of a notice of sale is to inform the public of the nature and condition of
the property to be sold, and of the time, place and terms of the sale. Notices are
given for the purpose of securing bidders and to prevent a sacrifice of the property.
If these objects are attained, immaterial errors and mistakes will not affect the
sufficiency of the notice; but if mistakes or omissions occur in the notices of sale,
which are calculated to deter or mislead bidders, to depreciate the value of the
property, or to prevent it from bringing a fair price, such mistakes or omissions will
be fatal to the validity of the notice, and also to the sale made pursuant thereto.
III
Generally, the purchaser in a public auction sale of a foreclosed property is entitled to a writ of
possession during the redemption period. Section 7 of Act No. 3135, as amended by Act No.
4118, provides:
Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property or
any part thereof is situated, to give him possession thereof during the redemption
period, furnishing bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under oath and filed in form
 of an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the
Mortgage Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly registered in
the office of any register of deeds in accordance with any existing law, and in each
case the clerk of the court shall, upon the filing of such petition, collect the fees
specified in paragraph eleven of section one hundred and fourteen of Act Numbered
Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred
and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.
It is ministerial upon the trial court to issue such writ upon an ex parte petition of the purchaser.
However, this rule admits an exception.
The last sentence of Rule 39, Section 33 of the Rules of Court is instructive:
Section 33. Deed and possession to be given at expiration of redemption period; by
whom executed or given. - If no redemption be made within one (1) year from the
date of the registration of the certificate of sale, the purchaser is entitled to a
conveyance and possession of the property; or, if so redeemed whenever sixty (60)
days have elapsed and no other redemption has been made, and notice thereof
given, and the time for redemption has expired, the last redemptioner is entitled to
the conveyance and possession; but in all cases the judgment obligor shall have the
entire period of one (1) year from the date of the registration of the sale to redeem
the property. The deed shall be executed by the officer making the sale or by his
successor in office, and in the latter case shall have the same validity as though the
officer making the sale had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted
to and acquire all the rights, title, interest and claim of the judgment obligor to the property as
of the time of the levy. The possession of the property shall be given to the purchaser or last
redemptioner by the same officer unless a third party is actually holding the property adversely
to the judgment obligor.
This is in line with this Court's pronouncement in Saavedra v. Siari Valley Estates, Inc. that:
Where a parcel levied upon on execution is occupied by a party other than a
judgment debtor, the procedure is for the court to order a hearing to determine the
nature of said adverse possession.
This Court in China Banking Corp. v. Spouses Lozada discussed that when the
foreclosed property is in the possession of a third party, the issuance of a writ of
possession in favor of the purchaser ceases to be ministerial and may no longer be
done ex parte. However, for this exception to apply, the property must be held by
the third party adversely to the mortgagor.
The Court of Appeals correctly held that this case does not fall under the exception. Since it is
the petitioner, and not a third party, who is occupying the property, the issuance of the Writ of
Possession is ministerial.
There is also no merit to petitioner's argument that the Writ of Possession should not be issued
while the complaint for the annulment of the foreclosure proceeding is still pending. Fernandez
v. Spouses Espinoza already ruled that a pending case assailing the validity of the foreclosure
proceeding is immaterial:
Any question regarding the validity of the mortgage or its foreclosure cannot be a
legal ground for the refusal to issue a writ of possession. Regardless of whether or
not there is a pending suit for the annulment of the mortgage or the foreclosure
itself, the purchaser is entitled to a writ of possession, without prejudice, of course,
to the eventual outcome of the pending annulment case.
As the winning bidder, respondent is entitled to the Writ of Possession.

Foreclosure of mortgage

MAKILITO B. MAHINAY v. DURA TIRE & RUBBER INDUSTRIES

G.R. No. 194152, June 5, 2017

FACTS:
The subject property was mortgaged to Dura Tire by A&A. Under the mortgage agreement, Dura
Tire was given the express authority to extrajudicially foreclose the property should Move
Overland fail to pay its credit purchases.

On June 5, 1992, A&A Swiss sold the property to Mahinay for the sum of P540,000.00. In the
Deed of Absolute Sale, Mahinay acknowledged that the property had been previously mortgaged
by A&A Swiss to Dura Tire, holding himself liable for any claims that Dura Tire may have against
Move Overland.

On August 21, 1994, Mahinay wrote Dura Tire, requesting a statement of account of Move
Overland's credit purchases. Mahinay sought to pay Move Overland's obligation to release the
property from the mortgage. Dura Tire, however, ignored Mahinay's request.

For Move Overland's failure to pay its credit purchases, Dura Tire applied for extrajudicial
foreclosure of the property on January 6, 1995. Mahinay protested the impending sale and filed
a third-party claim before the Office of the Provincial Sheriff of Cebu.

Despite the protest, Sheriff Romeo Laurel (Sheriff Laurel) proceeded with the sale and issued a
Certificate of Sale in favor of Dura Tire, the highest bidder at the sale. As a result, Mahinay filed
a Complaint for Specific Performance and annulment of auction sale. This did not prosper with
the Regional Trial Court, Court of Appeals, and Supreme Court.

Relying on the CA’s findings, Mahinay filed a Complaint for judicial declaration of right to redeem
on August 24, 2007. The Regional Trial Court of Cebu City dismissed Mahinay's Complaint for
judicial declaration of right to redeem. Hence, Mahinay directly filed a petition for review on
certiorari with the Supreme Court.

ISSUE/S:

Whether the one (1)-year period of redemption was tolled when Mahinay filed his Complaint for
annulment of foreclosure sale?
RULING:

Contrary to Mahinay's claim, his right to redeem the mortgaged property did not arise from the
Court of Appeals' "judicial declaration" that he was a "substitute mortgagor" of A&A Swiss. By
force of law, specifically, Section 6 of Act No. 3135, Mahinay's right to redeem arose when the
mortgaged property was extrajudicially foreclosed and sold at public auction. There is no dispute
that Mahinay had a lien on the property subsequent to the mortgage. Consequently, he had the
right to buy it back from the purchaser at the sale, Dura Tire in this case, "from and at any time
within the term of one year from and after the date of the sale." Section 6 of Act No. 3135
provides:

Section 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any time within the term of one
year from and after the date of the sale; and such redemption shall be governed by the provisions
of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

The "date of the sale" referred to in Section 6 is the date the certificate of sale is
registered with the Register of Deeds. This is because the sale of registered land does
not "'take effect as a conveyance, or bind the land' until it is registered.

The right of redemption being statutory, the mortgagor may compel the purchaser to
sell back the property within the one (1)-year period under Act No. 3135. If the
purchaser refuses to sell back the property, the mortgagor may tender payment to
the Sheriff who conducted the foreclosure sale. Here, Mahinay should have tendered
payment to Sheriff Laurel instead of insisting on directly paying Move Overland's
unpaid credit purchases to Dura Tire.

As early as 1956, this Court held in Mateo v. Court of Appeals, the Court held that Since
the period of redemption is fixed, it cannot be tolled or interrupted by the filing of
cases to annul the foreclosure sale or to enforce the right of redemption. "To rule
otherwise . . . would constitute a dangerous precedent. A likely offshoot of such a ruling
is the institution of frivolous suits for annulment of mortgage intended merely to give the
mortgagor more time to redeem the mortgaged property.

Here, the Certificate of Sale in favor of Dura Tire was registered on February 20, 1995. Mahinay,
as the successor-in-interest of previous owner A&A Swiss, had one (1) year from February 20,
1995, or on February 20, 1996,88 to exercise his right of redemption and buy back the property
from Dura Tire at the bid price of P950,000.00.

With Mahinay failing to redeem the property within the one (1)-year period of
redemption, his right to redeem had already lapsed. The pendency of an action to
annul the foreclosure sale or to enforce the right to redeem does not toll the running
of the period of redemption. The trial court correctly dismissed the Complaint for
judicial declaration of right to redeem.
Mahinay nevertheless cites Consolidated Bank & Trust Corp. v. Intermediate Appellate Court, in
arguing that the one (1)-year period of redemption was tolled when he filed the Complaint for
annulment of foreclosure sale.

Consolidated Bank is not precedent for the present case.

Consolidated Bank cited Ong Chua v. Carr, an inapplicable case, as basis for ruling that "the
pendency of an action tolls the term of the right of redemption." Ong Chua involved a sale
with right to repurchase, and the period of the "right of redemption" referred to in
that case was governed by the provisions of the Civil Code on conventional
redemption, specifically, Articles 1601 and 1606. On the other hand, the present case
involves the redemption of an extrajudicially foreclosed property. The right of
redemption involved in this case is governed by Section 6 of Act No. 3135. The
respondents in Consolidated Bank actively denied the petitioner its right of redemption.101 This
Court, therefore, held that the petitioner in Consolidated Bank was a victim of fraud. No such
fraud exists in the present case.
Moreover, the previously discussed cases of CMS Stock Brokerage103 and Spouses Pahang were
promulgated later than Consolidated Bank. hat the pendency of an action questioning the legality
of the foreclosure sale or enforcing the right of redemption does not toll the running of the period
of redemption must be the controlling doctrine.

All told, the trial court correctly dismissed Mahinay's Complaint for judicial declaration of right to
redeem. To grant the Complaint would have extended the period of redemption for Mahinay, in
contravention of the fixed one (1)-year period provided in Act No. 3135.

Insolvency law; Jurisdiction

Pilipinas Shell Petroleum Corporation vs. Royal Ferry Services, Inc., G.R. No. 188146,
February 01, 2017

Facts: On August 28, 2005, Royal Ferry filed a verified Petition for Voluntary Insolvency before
the Regional Trial Court of Manila. It alleged that in 2000, it suffered serious business losses that
led to heavy debts. Efforts to revive the company's finances failed, and almost all assets were
either foreclosed or sold to satisfy the liabilities incurred.

Royal Ferry ceased its operations on February 28, 2002.

On December 19, 2005, the Regional Trial Court of Manila issued an order, granting the petition
declaring the Royal Ferry Services insolvent. The said order was published in a newspaper of
general circulation for three consecutive weeks furnishing copies to all creditors of the company
in the schedule of creditors.

On December 23, 2005, Pilipinas Shell Petroleum filed before the RTC of Manila a Formal Notice
of Claim and a Motion to Dismiss claiming that the respondent Royal Ferry Services Inc. owes
them the amount of P 2,769,387.67 and the Petition for Insolvency was filed erroneously filed in
a wrong venue.
The petitioners argued that in Insolvency Law, a petition for Insolvency should be filed before he
Court with territorial jurisdiction over the company's residence. In its Article of Incorporation,
respondent's principal business address is situated in Makati City would it be the Petition for
Insolvency should be filed before the Court of Makati.

The Motion was denied by the Court on January 30, 2006 for lack of merit.

Thereafter, Pilipinas Shell moved for a reconsideration on February 24, 2006. On June 15, 2006,
Regional Trial Court reconsidered the denial of Pilipinas Shell Motion to Dismiss and reconsider
its order dated January 30, 2006. The Petition for Voluntary Insolvency was ordered dismissed.
On appeal, CA ruled reinstating the

Insolvency proceedings setting aside the Trial Court order dated June 15, 2006. Hence, this
petition.

Issue: Whether the Petition for Insolvency was properly filed.

Ruling:

The Petition for Insolvency was properly filed before the Regional Trial Court of Manila.
The first insolvency law, Republic Act No. 1956, was entitled "An Act Providing for the Suspension
of Payments, the Relief of Insolvent Debtors, the Protection of Creditors, and the Punishment of
Fraudulent Debtors (Insolvency Law)". It was derived from the Insolvency Act of California
(1895), with few provisions taken from the United States Bankruptcy Act of 1898. With the
enactment of Republic Act No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act of 2010 (FRIA), the Insolvency Law was expressly repealed on July 18, 2010. The
FRIA is currently the special law that governs insolvency. However, because the relevant
proceedings in this case took place before the enactment of the FRIA, the case needs to be
resolved under the provisions of the Insolvency Law.
Insolvency proceedings are defined as the statutory procedures by which a debtor obtains
financial relief and undergoes judicially supervised reorganization or liquidation of its assets for
the benefit of its creditors.
Respondent argues that the Regional Trial Court of Manila obtained jurisdiction because in its
Petition for Voluntary Insolvency, respondent alleged that its principal office was then found in
Manila. On the other hand, petitioner argues that filing the petition before the Regional Trial Court
of Manila was a patent jurisdictional defect as the Regional Trial Court of Manila did not have
territorial jurisdiction over respondent's residence.
Petitioner confuses the concepts of jurisdiction and venue. In City of Lapu-Lapu v. Phil. Economic
Zone Authority:
On the one hand, jurisdiction is "the power to hear and determine cases of the
general class to which the proceedings in question belong." Jurisdiction is a matter
of substantive law. Thus, an action may be filed only with the court or tribunal where
the Constitution or a statute says it can be brought. Objections to jurisdiction cannot
be waived and may be brought at any stage of the proceedings, even on appeal.
When a case is filed with a court which has no jurisdiction over the action, the court
shall motu proprio dismiss the case.
 On the other hand, venue is "the place of trial or geographical location in which an
action or proceeding should be brought." In civil cases, venue is a matter of
procedural law. A party's objections to venue must be brought at the earliest
opportunity either in a motion to dismiss or in the answer; otherwise the objection
shall be deemed waived. When the venue of a civil action is improperly laid, the
court cannot motu proprio dismiss the case.
Wrong venue is merely a procedural infirmity, not a jurisdictional
impediment. Jurisdiction is a matter of substantive law, while venue is a matter of
procedural law. Jurisdiction is conferred by law, and the Insolvency Law vests
jurisdiction in the Court of First Instance-now the Regional Trial Court.
Jurisdiction is acquired based on the allegations in the complaint. The relevant portion of
respondent's Petition for Voluntary Insolvency reads:
Petitioner was incorporated on 18 October 1996 with principal place of business in
2521 A. Bonifacio Street, Bangkal, Makati City. At present and during the past six
months, [Royal Ferry] has held office in Rm. 203 BF Condo Building, Andres Soriano
cor. Solana St., Intramuros, Manila, within the jurisdiction of the Honorable Court,
where its books of accounts and most of its remaining assets are kept.
Section 14 of the Insolvency Law specifies that the proper venue for a petition for voluntary
insolvency is the Regional Trial Court of the province or city where the insolvent debtor has
resided in for six (6) months before the filing of the petition. In this case, the issue of which court
is the proper venue for respondent's Petition for Voluntary Insolvency comes from the confusion
on an insolvent corporation's residence.
Petitioner contends that the residence of a corporation depends on what is stated in its articles
of incorporation, regardless of whether the corporation physically moved to a different location.
On the other hand, respondent posits that the fiction of a corporation's residence must give way
to uncontroverted facts.
In Young Auto Supply Co. v. Court of Appeals:
A corporation has no residence in the same sense in which this term is applied to a
natural person. But for practical purposes, a corporation is in a metaphysical sense
a resident of the place where its principal office is located as stated in the articles
of incorporation... The Corporation Code precisely requires each corporation to
specify in its articles of incorporation the "place where the principal office of the
corporation is to be located which must be within the Philippines" ... The purpose
of this requirement is to fix the residence of a corporation in a definite place, instead
of allowing it to be ambulatory.
Young Auto Supply dealt with the venue of a corporation's personal action by
applying the provisions of the Rules of Court. Nonetheless, the Rules of Court also
provides for when its provisions on venue do not apply. Rule 4, Section 4 provides:
RULE4
Venue of Actions
....
SECTION 4. When Rule not applicable. - This Rule shall not apply.
(a) In those cases where a specific rule or law provides otherwise; or
 (b) Where the parties have validly agreed in writing before the filing of the action
on the exclusive venue thereof.
As there is a specific law that covers the rules on venue, the Rules of Court do not
apply.
The old Insolvency Law provides that in determining the venue for insolvency
proceedings, the insolvent corporation should be considered a resident of the place
where its actual place of business is located six (6) months before the filing of the
petition:
Sec. 14. Application. - An insolvent debtor, owing debts exceeding in amount the
sum of one thousand pesos, may apply to be discharged from his debts and liabilities
by petition to the Court of First Instance of province or city in which he has resided
for six months next preceding the filing of such petition. In his petition he shall set
forth his place of residence, the period of his residence therein immediately prior to
filing said petition, his inability to pay all his debts in full, his willingness to surrender
all his property, estate, and effects not exempt from execution for the benefit of his
creditors, and an application to be adjudged an insolvent. He shall annex to his
petition a schedule and inventory in the form herein-after provided. The filing of
such petition shall be an act of insolvency.
The law places a premium on the place of residence before a petition is filed since venue is a
matter of procedure that looks at the convenience of litigants. In insolvency proceedings, this
Court needs to control the property of the insolvent corporation. In Metropolitan Bank and Trust
Company v. S.F Naguiat Enterprises, Inc.:
Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of
the insolvent debtor completely within the jurisdiction and control of the insolvency
court without the intervention of any other court in the insolvent debtor's concerns
or in the administration of the estate. It was considered to be of prime importance
that the insolvency proceedings follow their course as speedily as possible in order
that a discharge, if the insolvent debtor is entitled to it, should be decreed without
unreasonable delay. "Proceedings of [this] nature cannot proceed properly or with
due dispatch unless they are controlled absolutely by the court having charge
thereof."
To determine the venue of an insolvency proceeding, the residence of a corporation should be
the actual place where its principal office has been located for six (6) months before the filing of
the petition. If there is a conflict between the place stated in the articles of incorporation and the
physical location of the corporation's main office, the actual place of business should control.
Requiring a corporation to go back to a place it has abandoned just to file a case is the very
definition of inconvenience. There is no reason why an insolvent corporation should be forced to
exert whatever meager resources it has to litigate in a city it has already left.
In any case, the creditors deal with the corporation's agents, officers, and employees in the actual
place of business. To compel a corporation to litigate in a city it has already abandoned would
create more confusion.
Moreover, the six (6)-month qualification of the law's requirement of residence shows intent to
find the most accurate location of the debtor's activities. If the address in a corporation's articles
of incorporation is proven to be no longer accurate, then legal fiction should give way to fact.
Petitioner cites Hyatt Elevators and Escalators Corp. v. Goldstar Elevators Phils. Inc., where this
Court ruled that a corporation's articles of incorporation is the controlling document that
determines the venue of a corporation's action. Thus, abandoning the principal office does not
affect the venue of the corporation's personal action if the corporation's articles of incorporation
were not previously amended to reflect this change.
Two glaring differences between this case and Hyatt make the latter inapplicable.
First, Hyatt found inconclusive the allegation that the petitioner corporation relocated to a
different city. Here, the Regional Trial Court found that respondent had sufficiently shown that it
had been a resident of Manila for six (6) months before it filed its Petition for Voluntary
Insolvency. Second, and more importantly, Hyatt involves a complaint for unfair trade practices
and damages-a personal action governed by the Civil Code and the Rules of Court. This case,
however, involves insolvency, a special proceeding governed by a special law that specifically
qualifies the residence of the petitioner.

Jurisdiction

SECURITIES AND EXCHANGE COMMISSION vs. SUBIC BAY GOLF AND COUNTRY
CLUB, INC. AND UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT
CORPORATION, G.R. No. 179047, March 11, 2015

Facts: Subic Bay Golf Course, also known as Binictican Valley Golf Course, was operated by
SBMA. UIG, a Taiwanese corporation, was chosen to implement the plan to privatize the golf
course. On May 25, 1995, SBMA and UIG entered into a Lease and Development Agreement
involving the golf course.

On April 1, 1996, UIGDC executed a Deed of Assignment in favor of Subic Bay Golf and Country
Club, Inc. (SBGCCI). Under the Deed of Assignment, UIGDC assigned all its rights and interests
in the golf course's development, operations, and marketing to SBGCCI. 24 days later, SBGCCI
and UIGDC entered into a Development Agreement. UIGDC agreed to "finance, construct and
develop the [golf course], for and in consideration of the payment by [SBGCCI] of its 1,530
(SBGCCI) shares of stock."

Complainants Regina Filart (Filart) and Margarita Villareal (Villareal) informed the SEC that they
had been asking UIGDC for the refund of their payment for their SBGCCI shares. UIGDC did not
act on their requests. They alleged that they purchased the shares in 1996 based on the promise
of SBGCCI and UIGDC to deliver the world class facilities of golf club. However, these promises
were not delivered.

SBGCCI and UIGDC, on the other hand, averred that they had already substantially complied with
their commitment to provide the members a world-class golf and country club. The construction
of the golf course substantially met international standards. Other proposed project developments
such as the construction of villas and residential condominium-hotels were not included in the
rights purchased with member shares. They also denied that they failed to send monthly billing
statements to Filart and Villareal.

In January 2003, the Securities and Exchange Commission's Corporation Finance Department
conducted an ocular inspection of the project. SEC gave due course to Villareal and Filart's letter-
complaint since SBGCCI and UIGDC failed to comply substantially with their commitment to
complete the project. The Corporation Finance Department found that Filart and Villareal invested
in the golf course because of SBGCCI and UIGDC's representation that a 27-hole, world-class golf
course would be developed. It also found that SBGCCI and UIGDC failed to comply with their
commitments and representations as stated in their prospectus. SBGCCI and UIGDC filed a Motion
for Reconsideration, but was denied.

They subsequently filed a petition for review before the Court of Appeals. They argued that the
letter-complaint filed by Villareal and Filart involved an intra-corporate dispute that was under the
jurisdiction of the Regional Trial Court and not the Securities and Exchange Commission.

The Court of Appeals found that the case involved an intra-corporate controversy. The Securities
and Exchange Commission acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI
to refund Villareal and Filart the amount they paid for SBGCCI shares of stock. The authority to
exercise powers necessary to carry out the objectives of the Securities and Exchange Commission
does not include the authority to refund investments. This power has been transferred to the
Regional Trial Court. The Securities and Exchange Commission should have limited its exercise of
power to issuing an order imposing a fine, to amend the prospectus, and to suspend the
Certificate of Registration and Permit to Sell Securities to the Public. Hence, this petition.

Issue: Whether or not it is the Regional Trial Court which has jurisdiction over the case, and not
the Securities and Exchange Commission.

Ruling: Under Presidential Decree No. 902-A, the Securities and Exchange Commission has
jurisdiction over acts amounting to fraud and misrepresentation by a corporation's board of
directors, business associates, and officers. It also provides that it has jurisdiction over intra-
corporate disputes.

xxxx
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

a. Devices or schemes employed by or any acts, of the board of directors, business

associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholder, partners,
members of associations or organizations registered with the Commission;

b. Controversies arising out of intra-corporate or partnership relations, between and

among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association and
the state insofar as it concerns their individual franchise or right to exist as such entity;

c. Controversies in the election or appointments of directors, trustees, officers or

managers of such corporations, partnerships or associations.
 However, jurisdiction over intra-corporate disputes and all other cases enumerated in
Section 5 of Presidential Decree No. 902-A had already been transferred to designated Regional
Trial Courts. Section 5.2 of Republic Act No. 8799 provides:

5.2.The Commission's jurisdiction over all cases enumerated under Section 5 of

Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction
or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise
of its authority may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases
involving intra-corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June
2000 until fully disposed.

Hence, actions pertaining to intra-corporate disputes should be filed directly before

designated Regional Trial Courts. Intra-corporate disputes brought before other courts or
tribunals are dismissible for lack of jurisdiction.

For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy
tests. The relationship test requires that the dispute be between a
corporation/partnership/association and the public; a corporation/partnership/association and the
state regarding the entity's franchise, permit, or license to operate; a
corporation/partnership/association and its stockholders, partners, members, or officers; and
among stockholders, partners, or associates of the entity. The nature of the controversy test
requires that the action involves the enforcement of corporate rights and obligations. Courts and
tribunals must consider both the parties' relationship and the nature of the controversy to
determine whether they should assume jurisdiction over a case.

This case is an intra-corporate dispute, over which the Regional Trial Court has
jurisdiction. It involves a dispute between the corporation, SBGCCI, and its
shareholders, Villareal and Filart.

This case also involves corporate rights and obligations. The nature of the action — whether it
involves corporate rights and obligations — is determined by the allegations and reliefs in the
complaint.

Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and
UIGDC's alleged failure to abide by their representations in their prospectus. Specifically, Villareal
and Filart alleged in their letter-complaint that the world-class golf course that was promised to
them when they purchased shares did not materialize. This is an intra-corporate matter that is
under the designated Regional Trial Court's jurisdiction. It involves the determination of a
shareholder's rights under the Corporation Code or other intra-corporate rules when the
corporation or association fails to fulfill its obligations.

However, even though the Complaint filed before the Securities and Exchange
Commission contains allegations that are intra-corporate in nature, it does not
necessarily oust the Securities and Exchange Commission of its regulatory and
administrative jurisdiction to determine and act if there were administrative
violations committed.

The Securities and Exchange Commission is organized in line with the policy of encouraging and
protecting investments. It also administers the Securities Regulation Code, which was enacted to
"promote the development of the capital market, protect investors, ensure full and fair disclosure
about securities, [and] minimize if not totally eliminate insider trading and other fraudulent or
manipulative devices and practices which create distortions in the free market." Pursuant to these
policies, the Securities and Exchange Commission is given regulatory powers and "absolute
jurisdiction, supervision and control over all corporations, partnerships' or associations. . . ."

In relation to securities, the Securities and Exchange Commission's regulatory power pertains to
the approval and rejection, and suspension or revocation, of applications for registration of
securities for, among others, violations of the law, fraud, and misrepresentations. To ensure
compliance with the law and the rules, the Securities and Exchange Commission is also given the
power to impose fines and penalties. It may also investigate motu proprio whether corporations
comply with the Corporation Code, Securities Regulation Code, and rules implemented by the
Securities and Exchange Commission.

Any fraud or misrepresentation in the issuance of securities injures the public. The Securities and
Exchange Commission's power to suspend or revoke registrations and to impose fines and other
penalties provides the public with a certain level of assurance that the securities contain
representations that are true, and that misrepresentations if later found, would be detrimental to
the erring corporation. It creates risks to corporations that issue securities and adds cost to errors,
misrepresentations, and violations related to the issuance of those securities. This protects the
public who will rely on representations of corporations and partnerships regarding financial
instruments that they issue. The Securities and Exchange Commission's regulatory power over
securities-related activities is tied to the government's duty to protect the investing public from
illegal and fraudulent instruments.

Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed
misrepresentations in the sale of their shares, nothing prevented the Securities and Exchange
Commission from taking cognizance of it to determine if SBGCCI and UIGDC committed
administrative violations and were liable under the Securities Regulation Code. The Securities and
Exchange Commission may investigate activities of corporations under its jurisdiction to ensure
compliance with the law.

However, the Securities and Exchange Commission's regulatory power does not include the
authority to order the refund of the purchase price of Villareal's and Filart's shares in the golf
club. The issue of refund is intra-corporate or civil in nature. Similar to issues such as the existence
or inexistence of appraisal rights, pre-emptive rights, and the right to inspect books and corporate
records, the issue of refund is an intra-corporate dispute that requires the court to determine and
adjudicate the parties' rights based on law or contract. Injuries, rights, and obligations involved
in intra-corporate disputes are specific to the parties involved. They do not affect the Securities
and Exchange Commission or the public directly.

The Securities and Exchange Commission argues that the power to order a refund is in accordance
with the implementing rules of the Securities Regulation Code. Despite orders from the Securities
and Exchange Commission to amend their prospectus, SBGCCI and UIGDC failed to comply. Thus,
Villareal and Filart were entitled to the refund of the purchase price of their shares.

Neither the provisions of the implementing rules nor the provisions of the Securities Regulation
Code, the law being implemented, give the Securities and Exchange Commission the power to
order a refund. The Securities and Exchange Commission's power when violations of the Securities
Regulation Code are found is limited to issuing regulatory orders such as suspending or revoking
registration statements, providing for the terms and conditions for registration, and imposing
fines and penalties.

The implementing rules cannot be interpreted to give the Securities and Exchange
Commission the power that is more than what is provided under the Securities
Regulation Code. Implementing rules are limited by the laws they implement. The
rules cannot be used to amend, expand, or modify the law being implemented. The
law shall prevail in case of inconsistency between the law and the rules.

Hence, the issue of refund should be litigated in the appropriate Regional Trial Court.
This issue is both intra-corporate and civil in nature, which is under the jurisdiction
of the designated Regional Trial Courts.

NOTHING FOLLOWS