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LAST MINUTE NOTES IN COMMERCIAL LAW

(BASED ON THE PONENCIAS OF JUSTICE HERNANDO)

1. DOCTRINE OF PIERCING THE CORPORATE VEIL

▪ The doctrine of piercing the corporate veil applies only in three basic instances, namely:
(a) when the separate distinct corporate personality defeats public convenience, as when
the corporate fiction is used as a vehicle for the evasion of an existing obligation; (b) in
fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or (c) is used in alter ego cases, i.e., where a corporation is essentially a
farce, since it is a mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.

We find that the application of the doctrine of piercing the corporate veil is unwarranted
in the present case. First, no evidence was presented to prove that CyberOne PH was
organized for the purpose of defeating public convenience or evading an existing
obligation. Second, petitioners failed to allege any fraudulent acts committed by
CyberOne PH in order to justify a wrong, protect a fraud, or defend a crime. Lastly, the
mere fact that CyberOne PH's major stockholders are CyberOne AU and respondent
Mikrut does not prove that CyberOne PH was organized and controlled and its affairs
conducted in a manner that made it merely an instrumentality, agency, conduit or adjunct
of CyberOne AU. In order to disregard the separate corporate personality of a
corporation, the wrongdoing must be clearly and convincingly established.

Moreover, petitioners failed to prove that CyberOne AU and Mikrut, acting as the
Managing Director of both corporations, had absolute control over CyberOne PH. Even
granting that CyberOne AU and Mikrut exercised a certain degree of control over the
finances, policies and practices of CyberOne PH, such control does not necessarily
warrant piercing the veil of corporate fiction since there was not a single proof that
CyberOne PH was formed to defraud petitioners or that CyberOne PH was guilty of bad
faith or fraud.

2. ULTRA VIRES; DOCTRINE OF APPARENT AUTHORITY

▪ It bears stressing that the existence of apparent authority may be ascertained not
only through the "general manner in which the corporation holds out an officer or agent
as having the apparent authority to act in general", but also through the corporation's
"acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary powers".

Here, it is easy to see that Agro, reasonably appearing to have knowledge of the
amendments, acquiesced to the same. Indeed, Agro never contested nor protested the
amendments; on the contrary, it even accepted the benefits arising therefrom. "When a
corporation intentionally or negligently clothes its officer with apparent authority to act
in its behalf, it is estopped from denying its officer's apparent authority as to innocent
third parties who dealt with this officer in good faith."

3. FOREIGN CORPORATION; PERSONALITY TO SUE; DOING BUSINESS

▪ The number of the transactions entered into is not determinative whether a foreign
corporation is doing business in the Philippines; the intention to continue the body of its
business prevails. The number or quantity is merely an evidence of such intention. A

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single act or transaction may then be considered as doing business when a corporation
performs acts for which it was created or exercises some of the functions for which it
was organized.

As an exception, a foreign corporation may sue without a license on the basis of an

isolated transaction. A single act may be considered as either doing business or an isolated
transaction depending on its nature. It may be considered as doing business if it implies
a continuity of commercial dealings and contemplates the performance of acts or the
exercise of functions normally incidental to and in the progressive pursuit of its purpose.
Contrarily, it may be considered as an isolated transaction if it is different from or not
related to the common business of the foreign corporation in the sense that there is no
objective to increasingly pursue its purpose or object. And as stated, a license is not
required if the foreign corporation is suing on an isolated transaction.

Though it was a single transaction, ANDERSEN's act of entering into a contract with
MAGNA constitutes doing business in the Philippines. It cannot be considered as an
isolated transaction because the act is related to ANDERSEN's specific business purpose.
Thus, in doing business without a license, ANDERSEN had no legal capacity to sue in
the Philippines.

However, the Court agrees that MAGNA is already estopped from challenging
ANDERSEN's legal capacity to sue. The doctrine of estoppel states that the other
contracting party may no longer challenge the foreign corporation's personality after
acknowledging the same by entering into a contract with it. This principle is applied in
order to "prevent a person (or another corporation) contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the contract." In this case, MAGNA
is already estopped from challenging ANDERSEN's legal capacity to sue due to its prior
dealing with the latter, that is, entering into a contract with it.

4. DILIGENCE REQUIRED OF BANKS

▪ In the normal course of things, case law provides that in cases of unauthorized payments
to a person other than the payee or his order, the drawee bank is liable for the amount of
the checks; in turn, the drawee bank may seek reimbursement from the collecting bank.

The drawee bank becomes liable pursuant to its breach of obligation as regards its
depositor (drawer) in paying the amount of the check to a person other than the payee or
his order. The drawee bank is under strict liability to pay the check only to the payee or
his order. On the other hand, a collecting bank xxx binds itself to "credit the amount in
[the depositor's] account or infuse value thereon only after the drawee bank shall have
paid the amount of the check or [after] the check [is] cleared for deposit." The collecting
bank assumes the liabilities of a general indorser when it presents a check to the drawee
bank for payment. Thus, if any of these warranties turn out to be false, the collecting bank
becomes liable to the drawee bank for any payments made on the check by virtue of the
false warranties. Pursuant to the rule, the drawee bank should reimburse the amount to
the drawer; subsequently, the drawee bank may seek reimbursement from the collecting
bank.

As Metrobank's non-liability has become final, the Court cannot disturb the pronouncement and impose
upon the bank. But assuming that Metrobank's non-liability is not yet final and considering
the above principles on liability of banks, the Court finds that, considering the
circumstances, Metrobank is still not liable. Metrobank in fact strictly complied with the
drawer's instructions. The bank released payment to the named payee in the checks,

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although the name was misspelled. There is no indication that Metrobank knew of the
typographical error in the name of the stated payee. Thus, Metrobank cannot be faulted
in the performance of its duty to the drawer.

Notwithstanding Metrobank's non-liability, Maningas can still recover the amount of the
checks from Real Bank, the collecting bank. Real Bank guaranteed that the checks were
genuine and in all respects what they purport to be, and that the indorser (payee) had
good title to them which Metrobank relied on for the release of payment. As it turned
out, the impostor had no good title to the checks as he was not the intended payee; it was
proven that Rosaria (through his sister) did not receive the checks. Real Bank's guarantees
thus turned out to be false, making it liable to reimburse the drawee the amount of the
checks. Further, Real Bank's own negligence contributed to the improper payment when
it failed to detect the impostor in opening the account. The banking industry is imbued
with public interest; banks are thus expected to always observe the highest degree of care
and diligence in their transactions. Real Bank should have detected the irregularities in
the documents of the impostor and prevented the unauthorized payment had it exercised
extraordinary diligence.

5. SECRECY OF BANK DEPOSITS

▪ Inquiry will be allowed if the money deposited in the account is itself the subject matter
of litigation. In this case, it is clear that Maningas seeks to recover the money that was
deposited and encashed by the impostor in Real Bank. Maningas' action, however, was
directed against the banks, and not against the impostor who opened an account with
Real Bank. Thus, it is apparent that Maningas is seeking to recover the mere money
equivalent of the checks erroneously paid by the banks, and not the money itself that is
already long gone in the hands of the impostor. For this reason, the money deposited is
not the subject matter of the litigation. The exception provided in the law is not present
in this case, thus, the inquiry ordered by the RTC is improper. After all, "[s]hould there
be doubts in upholding the absolutely confidential nature of bank deposits against
affirming the authority to inquire into such accounts, then such doubts must be resolved
in favor of the former."

6. FIRE INSURANCE

▪ Policy Condition No. 3 is clear that it obligates petitioner, as insured, to notify the insurer
of any insurance effected to cover the insured items which involve any of its property or
stocks in trade, goods in process and/or inventories and that non-disclosure by the
insured of other insurance policies obtained covering these items would result in the
forfeiture of all the benefits under the policy. To be regarded as a violation of Policy
Condition No. 3, the other existing but undisclosed policies must be upon the same
matter and with the same interest and risk.

The records of this case show that petitioner obtained fire insurance policies from Cibeles
Insurance simultaneously with Western Guaranty and Prudential Guarantee covering the
same matter and the same risk, i.e., the policies uniformly cover fire losses of petitioner's
machinery and equipment. Although Policy Condition No. 3 does not specifically state
"machinery and equipment" as among the subject of disclosure, it is apparent that the
disclosure extends to pieces of machinery and equipment as well since Policy Condition
No. 3 speaks of disclosure of other insurance obtained covering "any of the property".
Inasmuch as machinery and equipment are included under the term "property", petitioner
must give notice to the insurer of any other fire insurance policies on said machinery and
equipment. Petitioner did not notify Cibeles Insurance and Western Guaranty that it had
procured other fire insurance policies covering its property consisting of the same
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machinery and equipment. Consequently, the insurers could validly deny the insurance
claim of petitioner for violation of Policy Condition No. 3.

Where the insurance policy specifies as a condition the disclosure of existing co-insurers,
non-disclosure thereof is a violation that entitles the insurer to avoid the policy.

7. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

▪ The Court ruled that the Schedule of Indemnities does not restrict the kinds of damages
that petitioner (in Western Guaranty case) may be made to pay as long as liability is shown
to have arisen and the requisites for each kind of damages are present. The schedule is
not an enumeration of the specific kinds of damages that may be awarded. Its purpose
was to set limits to the amounts the insurance company would be liable for in cases of
"claims for death, bodily injuries of, professional services and hospital charges, for
services rendered to traffic accident victims"; it does not limit or exclude claims for other
kinds of damages.

In other words, Western Guaranty clarifies the applicability of the limits provided in the
Schedule of Indemnities to injuries listed therein and allows claims for other kinds of
damages not otherwise indicated in the schedule against CMVLI policy providers, as long
as liability is established and the requisites for the kind of damages claimed are present.

As the appellate court have held, the limit of liability with regard to the items listed in the
Schedule of Indemnities is the amount provided therein; the limit of liability with regard
to other kinds of damages not listed in the same Schedule of Indemnities is the total
amount of insurance coverage. It then follows that the amounts in excess of the limits of
liability in the schedule for items listed therein are not covered by the total coverage. Such
excess is already for the personal account of the insured or an excess coverage provider.
This interpretation upholds the purpose of indicating limits of liability on the specific
injuries listed in the schedule.

Therefore, Stronghold's liability with regard to injuries provided in its policy's Schedule
of Indemnities is subject to the limits provided therein. Any excess will not be for its
account, and will be for the account of the excess coverage provider Malayan in this case.

8. CONTRACT OF CARRIAGE; DILIGENCE REQUIRED OF COMMON CARRIERS

▪ Considering that a contract of carriage is vested with public interest, a common carrier is
presumed to have been at fault or to have acted negligently in case of lost or damaged
goods unless they prove that they observed extraordinary diligence. Hence, in an action
based on a breach of contract of carriage, the aggrieved party does not need to prove that
the common carrier was at fault or was negligent. He or she is only required to prove the
existence of the contract and its non-performance by the carrier.

There is no dispute that KLM and Dr. Tiongco entered into a contract of carriage. Dr.
Tiongco purchased tickets from the airline for his trip to Almaty, Kazakhstan. KLM,
however, breached its contract with Dr. Tiongco when it failed to deliver his checked-in
suitcase at the designated place and time. The suitcase contained his clothing for the
conference where he was a guest speaker, a copy of his speech, and his resource materials.
Worse, Dr. Tiongco's suitcase was never returned to him even after he arrived in Manila
from Almaty. Thus, KLM's liability for the lost suitcase was sufficiently established as it
failed to overcome the presumption of negligence.

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9. TRADEMARKS

▪ It is beyond cavil that KECI, having been issued Certificate of Registration No. 4-2007-
005421, is the registered owner of the "KOLIN" mark under Class 35, specifically for
"the business of manufacturing, importing, assembling, or selling electronic equipment
or apparatus". Significantly, the list of services in the said certificate is identical to the list
of services of KECI's application for "www.kolin.ph". This certificate of registration vests
KECI the exclusive right to use the "KOLIN" mark in relation to the services covered
by the registration. Unless and until the said registration of KECI is nullified or cancelled
through the proper proceeding, the rights emanating from the said registration should be
respected.

Having been granted the right to exclusively use the "KOLIN" mark for the business of
manufacturing, importing, assembling, or selling electronic equipment or apparatus,
KECI's application for registration of its domain name containing the "KOLIN" mark
for the same goods and services as its Class 35 registration for "KOLIN" is merely an
exercise of its right under its Class 35 registration.

Courts in the United States have held that the use of a trademark of another company or
person within the domain name of a web address can constitute a trademark violation.
To protect the goodwill and reputation of their business and products in the online
sphere, it is but logical for companies to register their trademarks in the form of domain
names under the IP Code.

In fine, the owner of a registered trademark, absent any legal obstacle or compelling
reason to the contrary, should be allowed to register, in its favor, a domain name
containing its registered trademark as a dominant feature. KECI's application to register
and use the mark "www.kolin.ph", presumably as its domain name and platform to sell
its products in the internet, is merely in exercise of and consistent with its exclusive right
to use "KOLIN" on the business of manufacturing, importing, assembling or selling
electronic equipment or apparatus. KECI's exclusive right to use the "KOLIN" mark for
the business of manufacturing, importing, assembling, or selling electronic equipment or
apparatus is entitled to protection, whether such use is exercised online or through a
physical market – and whether the mark is printed on product packaging or included in
the domain name of its website. Indeed, to preclude KECI from safeguarding its right to
protect the name of its domain name containing its registered mark would unduly limit
the scope of selling and antiquate the concept in relation to the current times.

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