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G.R. No. 170770. January 9, 2013.
(by Gibran Abubakar)
On October 5, 2004, Vitaliano (as subscriber) filed, in his individual capacity and on
behalf of FQB+7, Inc. a complaint for intra-corporate dispute, injunction, inspection of
corporate books and records, and damages against Nathaniel Bacobo, Priscila Bacobo,
and Antonio De Villa, herein respondents.
The complaint alleges that in April 2004, Vitaliano discovered a new General Information
Sheet (GIS) of FQB+7 in the SEC records, which was filed by Nathaniel and Priscila as
heirs of the corporate president, Francisco Bacobo. The GIS provided for a substantial
change in the composition of BOD. It was stated therein an annual meeting held on
September 2002 has elected a new set of BOD, naming Nathaniel and Priscila as
Questioning the validity of the alleged stockholders meeting, Vitaliano wrote a letter to
the "real" BOD. He further asked for the rectification of the erroneous entries in the GIS,
and for the inspection of corporate books and records. However, the BOD did not grant
his request.
Nathaniel, acting as the newly appointed president, appointed Antonio as the
corporation's attorney-in-fact, with the power of administration over the corporation's
farm. Fidel Aguirre, as director, prevented Antonio to take possession of the farm.
Believing that respondents are usurping the management powers of the "real" BOD, the
said complaint for intra-corporate dispute, injunction, inspection of corporate books and
records, and damages was filed.
The RTC issued the writ of preliminary injunction.
Aggrieved, respondents filed a petition for certiorari in the CA questioning the jurisdiction
of Manila RTC. They contended, inter alia, that FQB+7's Certificate of Registration was
already revoked by SEC on September 29, 2003 for failure to comply with the reportorial
requirements; and that, the corporation has been dissolved for that purpose, affecting
the trial court's jurisdiction to hear the intra-corporate dispute.
CA held that the RTC does not have jurisdiction to entertain an intra-corporate dispute
when a corporation is already dissolved, since its juridical personality is lost as a result
thereof. CA reminded the parties to proceed with the liquidation of the dissolved
corporation based on the existing GIS.
Having denied their MR, petitioners elevated this case before the SC.
Whether or not a corporate dissolution renders an existing intra-corporate dispute moot and
academic, and that the trial court has no jurisdiction over it.
Vitaliano's complaint seeks to determine and vindicate an alleged stockholder's right to
the return of his stockholdings and to participate in the election of directors, and a
corporation's right to remove usurpers and strangers from its affairs. These issues
cannot be mooted by the dissolution of the corporation. Corporation's BOD is not
rendered functus officio by its dissolution. Since, Section 122 of the Corporation Code
allows a corporation to continue its existence for a limited purpose, necessarily there
must be a board that will continue acting for and on behalf of the dissolved corporation
for that purpose.
As regards shareholdings in a corporation, dissolution does not extinguish such property
right. A party's stockholdings in a corporation, whether existing or dissolved, is a
property right (Gamboa v. Teves, 2011) which he may vindicate against another party
who has deprived him thereof. Section 145 of the Code ensures the protection of this
To be considered as an intra-corporate dispute, the case: (1) must arise out of intra-
corporate or partnership relations ("relationship test"), and (2) the nature of the question
subject of the controversy must be such that it is intrinsically connected with the
regulation of the corporation or the enforcement of the parties' rights and obligations
under the Corporation Code and the internal regulatory rules of the corporation ("nature
of the controversy test"). So long as these two-criteria are satisfied, the dispute is intra-
corporate and the RTC, acting as a special commercial court, has jurisdiction over it.
The nature of the case as intra-corporate dispute is not affected by the dissolution of the
corporation. Section 145 assures an aggrieved party that the corporation's dissolution
will not impair, much less remove, his/her rights or remedies against the corporation, its
stockholders, directors or officers. It preserves a corporate actor's cause of action and
remedy against another corporate actor. In so doing, Section 145 preserves the nature
of the controversy between the parties as an intra-corporate dispute.
The dissolution of the corporation simply prohibits it from continuing its business.
However, despite such dissolution, the parties involved in the litigation are still corporate
actors. The dissolution does not automatically convert the parties into total strangers and
change their intra-corporate relationships. Neither does it change or terminate existing
cause of action, which arose because of the corporate tie between the parties. Thus, a
cause of action involving an intra-corporate controversy remains and must be filed as an
intra-corporate dispute despite the subsequent dissolution of the corporation.

G.R. No. 177783. January 23, 2013.
( By J ocelyn Alce)
Doctrine: A corporation may only give valid acceptance of an offer of sale through its
authorized officers or agents. Specifically, a counter-offer to repurchase a property will not bind
a corporation by mere acceptance of an agent in the absence of evidence of authority from the
corporations board of directors.
The case sprang from a real estate mortgage of two parcels of land in August 1981.
Fausto C. Ignacio mortgaged the properties to Home Bankers Savings and Trust Company
(Bank) as security for a loan extended by the Bank. After Ignacio defaulted in the payment of
the loan, the property was foreclosed and subsequently sold to the Bank in a public auction.
Ignacio offered to repurchase the property. Universal Properties Inc. (UPI), the banks
collecting agent sent Ignacio a letter on March 22, 1984 which contained the terms of the
repurchase. However, Ignacio annotated in the letter new terms and conditions. He claimed that
these were verbal agreements between himself and the Banks collection agent, UPI. No
repurchase agreement was finalized between Ignacio and the Bank. Thereafter the Bank sold
the property to third parties.
Ignacio then filed an action for specific performance against the Bank for the
reconveyance of the properties after payment of the balance of the purchase price. He argued
that there was implied acceptance of the counter-offer of the sale through the receipt of the
terms by representatives of UPI. The Bank denied that it gave its consent to the counter-offer of
Ignacio. It countered that it did not approve the unilateral amendments placed by Ignacio.
RTC: Render decision in favor of the plaintiff and against the defendant.
CA: REVERSED and SET ASIDE the decision of RTC.
Petitioner file a petition for Certiorari.
Whether a contract for the repurchase of the foreclosed properties was perfected between
petitioner and respondent bank.
Ruling: No.
The Supreme Court declared that the Bank as a corporation can only exercise its powers and
transact business through its board of directors or officers and agents authorized by a board
resolution or its by-laws. A person representing the corporation in negotiations must be
authorized by the corporation to accept the counter-offer to a sale. Since the Bank did not
accede to the counter proposal of Ignacio, there was no valid acceptance of the offer.
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of such director,
are held not binding on the corporation.
Thus, a corporation can only execute its powers and transact its business through its Board of
Directors and through its officers and agents when authorized by a board resolution or its by-
An agent cannot bind a corporation in any contract without delegation of powers from the board.
Mere communication of modified terms to a bank agent who gave his assent has no effect on
the corporation.
A contract of sale is perfected only when there is consent validly given. There is no
consent when a party merely negotiates a qualified acceptance or a counter-offer. An
acceptance must reflect all aspects of the offer to amount to a meeting of the minds between
the parties.
In the absence of conformity or acceptance by properly authorized bank officers of petitioners
counter-proposal, no perfected repurchase contract was born out of the talks or negotiations
between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to
compel respondent bank to accept the P600,000 being tendered by him as payment for the
supposed balance of repurchase price.
G.R. No. 173610/G.R. No. 174132. October 1, 2012
(by Carl Dominic Alpuerto)

Corporate rehabilitation 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,
the purpose being to enable the company to gain a new lease on life and allow its creditors to
be paid their claims out of its earnings.
Town and Country Enterprises, Inc. (TCEI) borrowed P12 million from Metrobank, and said
loan was secured by a mortgage over 20 parcels of land. Unable to pay upon demand, TCEI
lost the properties to Metrobank due to foreclosure and auction. When TCEI held on to the
properties, Metrobank asked the Regional Trial Court (RTC) to issue a writ of possession in the
bank's favor.
Meanwhile, in a separate corporate rehabilitation proceeding, TCEI successfully asked the
Securities and Exchange Commission (SEC) for a stay order on the payment of its obligations.
Based on that stay order, TCEI asked the RTC which is hearing the writ of possession case to
suspend the said proceedings, which the RTC granted. On review by the Court of Appeals, the
latter reversed the decision and ordered the RTC to continue with the writ of possession case.
The RTC later granted Metrobank's petition and issued a writ of possession. On appeal, the
Court of Appeals affirmed the RTC's decision, after which TCEI's land titles were then cancelled
in exchange for new titles in the name of Metrobank. TCEI sought remedy before the SEC, the
rehabilitation court which had earlier issued the stay order, to annul the said cancellation and
transfer of titles, but the SEC denied TCEI's petition. On review, the Court of Appeals agreed
with the SEC.
1.) Is the granting of the Writ of Possession by the RTC in favor of Metrobank valid, in view of
the stay order issued by the SEC in the rehabilitation proceeding?
2.) Can the register of deeds transfer the titles to Metrobank in view of the said stay order?
In response to the following issues, the court ruled that:
1.) Yes, the granting of the Writ of Possession is valid because the subject properties are no
longer within the scope of the corporate rehabilitation proceeding.
The purpose of corporate rehabilitation is to enable an insolvent company to gain a new lease
on life and eventually pay its loans. To allow this to happen, a stay order is issued to defer all
present claims against the company until the time of its projected recovery. In this case,
however, Metrobank had already acquired ownership over the mortgaged parcels of land when
TCEI started its petition for corporate rehabilitation. No doubt Metrobank acquired ownership
over the properties when TCEI failed to redeem these within the three-month period prescribed
by Section 47 of Republic Act 8791.
It does not matter, then, if Metrobank only had the certificate of sale registered before the Deed
of Registry a couple of months later, and had consolidated its ownership over a year later. "The
mortgagor loses all interest over the foreclosed property after the expiration of the redemption
period and the purchaser becomes the absolute owner thereof when no redemption is made."
Thus, having acquired ownership of the said properties, Metrobank can simply file an ex-parte
motion for issuance of the writ of possession - "the issuance of which has been held to be a
ministerial function which cannot be hindered by an injunction or an action for the annulment of
the mortgage or the foreclosure itself." There is an exception to this rule, however, and that is
where the property is held by a third party claiming a right adverse to that of the judgment
debtor. But, on the other hand, the rehabilitation receiver's claim is far from adverse. He is an
officer of the court who is appointed to protect the interests of TCEI's investors and creditors,
not the interests of TCEI per se or its officers and directors.
2.) It follows then that the register of deeds can transfer the titles to Metrobank. "Upon failure to
redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the
auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes
ministerial upon the Register of Deeds."
Finally, proceedings in corporate rehabilitation cases are summary and non-adversarial, and do
not impair the debtor's contracts or diminish the status of preferred creditors. Thus, the stay
order, which only suspends the enforcement of all claims, cannot be held to extend to the period
not within its scope. In this case, there was no more claim by Metrobank to speak of because
the bank had already acquired ownership over the subject properties prior to the issuance of the
stay order.
G.R. No. 168266, March 15, 2010.
(by Tani Angub)
Petitioner Cargill, Inc. is a corporation organized and existing under the laws of the State of
Delaware, United States of America. Petitioner and Northern Mindanao Corporation (NMC)
executed a contract whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of
molasses, to be delivered from 1 January to 30 June 1990 at the price of $44 per metric ton.
The contract provides that petitioner would open a Letter of Credit with the Bank of Philippine
Islands. Under the "red clause" of the Letter of Credit, NMC was permitted to draw up to
$500,000 representing the minimum price of the contract upon presentation of some
The contract was amended three times: first, on 11 January 1990, increasing the purchase price
of the molasses to $47.50 per metric ton; second, on 18 June 1990, reducing the quantity of the
molasses to 10,500 metric tons and increasing the price to $55 per metric ton; and third, on 22
August 1990, providing for the shipment of 5,250 metric tons of molasses on the last half of
December 1990 through the first half of January 1991, and the balance of 5,250 metric tons on
the last half of January 1991 through the first half of February 1991. The third amendment also
required NMC to put up a performance bond equivalent to $451,500, which represents the value
of 10,500 metric tons of molasses computed at $43 per metric ton. The performance bond was
intended to guarantee NMCs performance to deliver the molasses during the prescribed
shipment periods according to the terms of the amended contract.
In compliance with the terms of the third amendment of the contract, respondent Intra Strata
Assurance Corporation (respondent) issued on 10 October 1990 a performance bond in the
sum of P11,287,500 to guarantee NMCs delivery of the 10,500 tons of molasses, and a surety
bond7 in the sum of P9,978,125 to guarantee the repayment of downpayment as provided in the
NMC was only able to deliver 219.551 metric tons of molasses out of the agreed 10,500 metric
tons. Thus, petitioner sent demand letters to respondent claiming payment under the
performance and surety bonds. When respondent refused to pay, petitioner filed a complaint for
sum of money against NMC and respondent.
Petitioner, NMC, and respondent entered into a compromise agreement, which the trial court
approved in its Decision dated 13 December 1991. The compromise agreement provides that
NMC would pay petitionerP3,000,000 upon signing of the compromise agreement and would
deliver to petitioner 6,991 metric tons of molasses from 16-31 December 1991. However, NMC
still failed to comply with its obligation under the compromise agreement. Hence, trial proceeded
against respondent.
On 23 November 1994, the trial court rendered a decision in favor of plaintiff [Cargill, Inc.],
ordering defendant INTRA STRATA ASSURANCE CORPORATION to solidarily pay plaintiff.
The Counterclaim of Intra Strata Assurance Corporation is hereby dismissed for lack of merit.
On appeal, the Court of Appeals reversed the trial courts decision and dismissed the complaint.
Hence, this petition.
Whether petitioner is doing or transacting business in the Philippines in contemplation of the law
and established jurisprudence;
Held: Petition meritorious.
The principal issue in this case is whether petitioner, an unlicensed foreign corporation, has
legal capacity to sue before Philippine courts. Under Article 123 of the Corporation Code, a
foreign corporation must first obtain a license and a certificate from the appropriate government
agency before it can transact business in the Philippines. Where a foreign corporation does
business in the Philippines without the proper license, it cannot maintain any action or
proceeding before Philippine courts as provided under Section 133 of the Corporation Code:
Sec. 133. Doing business without a license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
Thus, the threshold question in this case is whether petitioner was doing business in the
Philippines. The Corporation Code provides no definition for the phrase "doing business."
Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455),14 provides that:
x x x the phrase "doing business" shall include soliciting orders, purchases, service contracts,
opening offices, whether called liaison offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in any calendar year stay in the
Philippines for a period or periods totalling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization. (Emphasis supplied)
This is also the exact definition provided under Article 44 of the Omnibus Investments Code of
Republic Act No. 7042 (RA 7042), otherwise known as the Foreign Investments Act of 1991,
which repealed Articles 44-56 of Book II of the Omnibus Investments Code of 1987, enumerated
not only the acts or activities which constitute "doing business" but also those activities which
are not deemed "doing business." Section 3(d) of RA 7042 states:
[T]he phrase "doing business" shall include "soliciting orders, service contracts, opening offices,
whether called liaison offices or branches; appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay in the country for a period or periods totalling
one hundred eighty (180) days or more; participating in the management, supervision or control
of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase doing business shall not be deemed to
include mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which transacts business in its own name and for its
own account.
Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from
maintaining an action in Philippine courts, respondent bears the burden of proving that
petitioners business activities in the Philippines were not just casual or occasional, but so
systematic and regular as to manifest continuity and permanence of activity to constitute doing
business in the Philippines. In this case, we find that respondent failed to prove that petitioners
activities in the Philippines constitute doing business as would prevent it from bringing an action.
The determination of whether a foreign corporation is doing business in the Philippines must be
based on the facts of each case. In the case of Antam Consolidated, Inc. v. CA, in which a
foreign corporation filed an action for collection of sum of money against petitioners therein for
damages and loss sustained for the latters failure to deliver coconut crude oil, the Court
emphasized the importance of the element of continuity of commercial activities to constitute
doing business in the Philippines. The Court held:
In the case at bar, the transactions entered into by the respondent with the petitioners are not a
series of commercial dealings which signify an intent on the part of the respondent to do
business in the Philippines but constitute an isolated one which does not fall under the category
of "doing business." The records show that the only reason why the respondent entered into the
second and third transactions with the petitioners was because it wanted to recover the loss it
sustained from the failure of the petitioners to deliver the crude coconut oil under the first
transaction and in order to give the latter a chance to make good on their obligation. x x x
x x x The three seemingly different transactions were entered into by the parties only in an effort
to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to
engage in a continuity of transactions with petitioners which will categorize it as a foreign
corporation doing business in the Philippines.
Similarly, in this case, petitioner and NMC amended their contract three times to give a chance
to NMC to deliver to petitioner the molasses, considering that NMC already received the
minimum price of the contract. There is no showing that the transactions between petitioner and
NMC signify the intent of petitioner to establish a continuous business or extend its operations in
the Philippines.
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that
"doing business" does not include the following acts:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered
to do business, and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interests in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transacts
business in the representative's or distributor's own name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the same
processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the
processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a
continuing basis, such as installing in the Philippines machinery it has manufactured or exported
to the Philippines, servicing the same, training domestic workers to operate it, and similar
incidental services.
Most of these activities do not bring any direct receipts or profits to the foreign corporation,
consistent with the ruling of this Court in National Sugar Trading Corp. v. CA that activities
within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do
not constitute doing business in the Philippines. In this case, the contract between petitioner and
NMC involved the purchase of molasses by petitioner from NMC. It was NMC, the domestic
corporation, which derived income from the transaction and not petitioner. To constitute "doing
business," the activity undertaken in the Philippines should involve profit-making. Besides,
under Section 3(d) of RA 7042, "soliciting purchases" has been deleted from the enumeration of
acts or activities which constitute "doing business."
Other factors which support the finding that petitioner is not doing business in the Philippines
are: (1) petitioner does not have an office in the Philippines; (2) petitioner imports products from
the Philippines through its non-exclusive local broker, whose authority to act on behalf of
petitioner is limited to soliciting purchases of products from suppliers engaged in the sugar trade
in the Philippines; and (3) the local broker is an independent contractor and not an agent of
As explained by the Court in B. Van Zuiden Bros., Ltd. v. GTVL Marketing Industries, Inc.:
An exporter in one country may export its products to many foreign importing countries without
performing in the importing countries specific commercial acts that would constitute doing
business in the importing countries. The mere act of exporting from ones own country, without
doing any specific commercial act within the territory of the importing country, cannot be
deemed as doing business in the importing country. The importing country does not require
jurisdiction over the foreign exporter who has not yet performed any specific commercial act
within the territory of the importing country. Without jurisdiction over the foreign exporter, the
importing country cannot compel the foreign exporter to secure a license to do business in the
importing country.

Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be
considered by the importing countries to be doing business in those countries. This will require
Philippine exporters to secure a business license in every foreign country where they usually
export their products, even if they do not perform any specific commercial act within the territory
of such importing countries. Such a legal concept will have deleterious effect not only on
Philippine exports, but also on global trade.1avvphi1
To be doing or "transacting business in the Philippines" for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine territory on a continuing
basis in its own name and for its own account. Actual transaction of business within the
Philippine territory is an essential requisite for the Philippines to acquire jurisdiction over a
foreign corporation and thus require the foreign corporation to secure a Philippine business
license. If a foreign corporation does not transact such kind of business in the Philippines, even
if it exports its products to the Philippines, the Philippines has no jurisdiction to require such
foreign corporation to secure a Philippine business license. (Emphasis supplied)
In the present case, petitioner is a foreign company merely importing molasses from a Philipine
exporter. A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business in the
G.R. No. 189486/G.R. No. 189699. September 5, 2012
(by Leslie Babatuan)
Gilbert G. Guy son of spouses Simny and Francisco Guy, claims to own 80% of their multi-
million family corporation GoodGold Realty Development Inc, stating that he owns 519, 997
shares (fully paid upon incorporation) out of the 650,000 subscribed capital stock. His mother
Simny however contends that it was she and her husband who established the corporation and
only placed the bulk of the shares in Gilberts name because being their son, they had entrusted
to him the future of their corporations. She further claims that during the incorporation of
GoodGold, they were advised by their lawyers to issue the stock certificates with corresponding
blank endorsements signed by Francisco as President and Atty. Paras as Corporate Secretary.;
including Stock Certificate Nos. 004-014 under Gilberts name.
In 1999, Francisco gave instructions to redistribute the shares of the corporation evenly among
his children while maintaining a proportionate share for himself and Simny. Hence, GoodGolds
certificates were cancelled and new ones were issued showing that the 4 siblings had 65,000
shares each while the spouses had 195,000 shares each.
Five years after the redistribution, Gilbert brought an action against his mother Simny and his
sisters for the annulment of the said transfers of shares along with some corporate documents,
alleging fraud and that his signatures at the back of the stock certificates which purportedly
endorsed the same were forged and must be nullified. NBI reports on the examination of
signatures however showed them to be authentic. Gilbert withdrew his complaint. Three years
thereafter, a new action was filed by Gilbert with the caption Intra-corporate Controversy: For
the Declaration of Nullity of Fraudulent Transfers of Shares of Stock Certificates, Fabricated
Shares of Stocks, Falsified General Information Sheets, Minutes of Meetings, etc against his
mother and sisters.
Gilbert claims that he is unaware of any document signed by him that would justify and support
the transfer of his shares to herein petitioners.
Simny and daughters filed their manifestation that the action filed by Gilbert was a mere
nuisance and harassment suit under Sec 1(b), Rule 1 of the Interim Rules of Procedure on
Intra-Corporate Controversies.
RTC dismissed the case as a nuisance and harassment suit, CA reversed RTC.
Allegations of deceit, machination, false pretenses, misrepresentation, and threats are largely
conclusions of law that, without supporting statements of the facts to which the allegations of
fraud refer, do not sufficiently state an effective cause of action.
Tested against established standards, we find that the charges of fraud which Gilbert accuses
his siblings are not supported by the required factual allegations.
Not every allegation of fraud done in a corporate setting or perpetrated by corporate officers will
bring the case within the special commercial courts jurisdiction. To fall within this jurisdiction,
there must be sufficient nexus showing that the corporations nature, structure, or powers, were
used to facilitate the fraudulent device or scheme.
Failure to specifically allege the fraudulent acts in intra-corporate controversies is indicative of a
harassment or nuisance suit and may be dismissed motu proprio.
In ordinary cases, the failure to specifically allege the fraudulent acts does not constitute a
ground for dismissal since such a defect can be cured by a bill of particulars.
A bill of particulars may be ordered as to a defense of fraud or mistake if the circumstances
constituting fraud or mistake are not stated with the particularity required by the rule.
The above-stated rule, however, does not apply to intra-corporate controversies In cases
governed by the Interim Rules of Procedure on Intra-corporate Controversies, a bill of
particulars is a prohibited pleading This is because fraud in intra-corporate controversies must
be based on devises and schemes, employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, or members of any
corporation, partnership, or association, as stated under Rule 1, Section 1 (a)(1) of the Interim
Rules. The act of fraud or misrepresentation complained of becomes a criterion in determining
whether the complaint on its face has merits, or within the jurisdiction of special commercial
court, or merely a nuisance suit.
When a stock certificate is endorsed in blank by the owner thereof, it constitutes what is termed
as a street certificate, so that upon its face the holder is entitled to demand its transfer to his
name from the issuing corporation.
With Gilberts failure to allege specific acts of fraud in his complaint and his failure to rebut the
NBI report, this court pronounces, as a consequence thereof, that the signatures appearing on
the stock certificates, including his blank endorsement thereon were authentic. With the stock
certificates having been endorsed in blank by Gilbert which he himself delivered to his parents,
the same can be cancelled and transferred in the names of herein petitioners.
G.R. No. 171132, August 15, 2012.
(by Romualdo Barloso)
ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in
Pampanga. Between 1991 and 1993, ARCAM applied for and was granted a loan by
respondent PNB. To secure the loan, ARCAM executed a Real Estate Mortgage over a
350,004-square meter parcel of land and a Chattel Mortgage over various personal properties
consisting of machinery, generators, field transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB. Thus, on November 25, 1993, pursuant
to the provisions of the Real Estate Mortgage and Chattel Mortgage, PNB initiated extrajudicial
foreclosure proceedings. The public auction was scheduled on December 29, 1993 for the
mortgaged real properties and December 8, 1993 for the mortgaged personal properties.
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments,
Appointment of a Management or Rehabilitation Committee, and Approval of Rehabilitation
Plan, with application for issuance of a temporary restraining order (TRO) and writ of preliminary
injunction. The SEC issued a TRO and subsequently a writ of preliminary injunction, enjoining
PNB and the Sheriff from proceeding with the foreclosure sale of the mortgaged properties. An
interim management committee was also created.
On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated. Thus, the SEC
decreed that ARCAM be dissolved and placed under liquidation and appointed Atty. Manuel D.
Yngson, Jr. & Associates as Liquidator for ARCAM. With this development, PNB resumed the
proceedings for the extrajudicial foreclosure sale of the mortgaged properties. PNB emerged as
the highest winning bidder in the auction sale. Petitioner filed with the SEC a motion to nullify
the auction sale and posited that all actions against ARCAM are suspended because liquidation
is a continuation of the petition for suspension proceedings. Petitioner argued that the
prohibition against foreclosure subsisted during liquidation because payment of all of ARCAMs
obligations were proscribed except those authorized by the Commission. Moreover, petitioner
asserted that the mortgaged assets should be included in the liquidation and the proceeds
shared with the unsecured creditors.
In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC
rules prohibits secured creditors from foreclosing on their mortgages to satisfy the mortgagors
debt after the termination of the rehabilitation proceedings and during liquidation proceedings.
Consequently, the SEC issued a Resolution denying petitioners motion to nullify the auction
sale. It held that PNB was not legally barred from foreclosing on the mortgages.
Whether or not secured creditor is prohibited from foreclosing a mortgage during liquidation.
Held: No, secured creditor is not prohibited.
In Rizal Commercial Banking Corporation v. Intermediate Appellate Court, the Supreme Court
held that if rehabilitation is no longer feasible and the assets of the corporation are finally
liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the
provisions of the Civil Code on concurrence and preference of credits. Creditors of secured
obligations may pursue their security interest or lien, or they may choose to abandon the
preference and prove their credits as ordinary claims.
Moreover, Section 2248 of the Civil Code provides:
"Those credits which enjoy preference in relation to specific real property or real
rights, exclude all others to the extent of the value of the immovable or real right to
which the preference refers."
In this case, PNB, as a secured creditor, enjoys preference over a specific mortgaged property
and has a right to foreclose the mortgage under Section 2248 of the Civil Code. The creditor-
mortgagee has the right to foreclose the mortgage over a specific real property whether or not
the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such
mortgage is merely suspended upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order by the trial court. However, the
creditor-mortgagee may exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order.
It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce his
lien during liquidation proceedings is retained. Section 114 of said law thus provides:
SEC. 114. Rights of Secured Creditors. The Liquidation Order shall not affect
the right of a secured creditor to enforce his lien in accordance with the applicable
contract or law. A secured creditor may:
(a) waive his rights under the security or lien, prove his claim in the
liquidation proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the
creditor and the liquidator. When the value of the property is less than the claim it
secures, the liquidator may convey the property to the secured creditor and the
latter will be admitted in the liquidation proceedings as a creditor for the balance; if
its value exceeds the claim secured, the liquidator may convey the property to the
creditor and waive the debtors right of redemption upon receiving the excess from
the creditor;
(2) the liquidator may sell the property and satisfy the secured creditors
entire claim from the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property
pursuant to applicable laws.
In the case at bar, PNB elected to maintain its rights under the security or lien; hence, its right to
foreclose the mortgaged properties should be respected.
G.R. No. 199481, December 3, 2012.
(by J ennelyn Bilocura)
Petitioner ILDEFONSO S. CRISOLOGO, as President of Novachemical Industries, Inc.
(Novachem), purchased 1,600

kgs. of amoxicillin trihydrate micronized from Hyundai Chemical
Company based in Seoul, South Korea and glass containers from San Miguel Corporation
To finance the purchase, petitioner applied for commercial letters of credit from private
respondent China Banking Corporation (Chinabank). Subsequently, Chinabank issued two (2)
Letters of Credit in the respective amounts in dollars with a peso equivalent of P2,139,119.80

and P1,712,289.90.
After petitioner received the goods, he executed for and in behalf of Novachem the
corresponding two (2) trust receipt agreements in favor of Chinabank.
Chinabank, through its Staff Assistant, Ms. Maria Rosario De Mesa (Ms. De Mesa), filed before
the City Prosecutor's Office of Manila a Complaint-Affidavit

charging petitioner for violation of
P.D. No. 115 in relation to Article 315 1(b) of the RPC for his purported failure to turn-over the
goods or the proceeds from the sale thereof, despite repeated demands. It averred that the
latter, with intent to defraud, and with unfaithfulness and abuse of confidence, misapplied,
misappropriated and converted the goods subject of the trust agreements, to its damage and
In his defense, petitioner claimed that as a regular client of Chinabank, Novachem was granted
a credit line and letters of credit (L/Cs) secured by trust receipt agreements. The subject L/Cs
were included in the special term-payment arrangement mutually agreed upon by the parties,
and payable in installments. In the payment of its obligations, Novachem would normally give
instructions to Chinabank as to what particular L/C or trust receipt obligation its payments would
be applied. However, the latter deviated from the special arrangement and misapplied payments
intended for the subject L/Cs and exacted unconscionably high interests and penalty charges.
The RTC Ruling
The RTC rendered a Decision acquitting petitioner of the criminal charges for failure of the
prosecution to prove his guilt beyond reasonable doubt. It, however, adjudged him civilly liable
to Chinabank.
The CA Ruling
On appeal of the civil aspect, the CA affirmed

the RTC Decision holding petitioner civilly liable. It
noted that petitioner signed the "Guarantee Clause" of the trust receipt agreements in his
personal capacity and even waived the benefit of excussion against Novachem. As such, he is
personally and solidarily liable with Novachem.
1. Whether or not debts incurred by directors, officers, and employees acting as corporate
agents are their direct liability but of the corporation they represent.
2. Whether or not petitioner is civilly liable personally and solidarily with Novachem for the
obligations secured by the subject trust receipts based on the finding that he signed the
guarantee clauses therein in his personal capacity and even waived the benefit of excussion.
1. Settled is the rule that debts incurred by directors, officers, and employees acting as
corporate agents are not their direct liability but of the corporation they represent, except if they
contractually agree/stipulate or assume to be personally liable for the corporations debts, as in
this case.
(In fine, the genera rule is debts incurred by directors, officers, and employees acting as
corporate agents are not their direct liability but of the corporation they represent, the exception
is if they contractually agree/stipulate or assume to be personally liable for the corporations
debts, as in this case. In the exeption, the contractual agreement/stipulation for the directors,
officers, and employees to be personally liable for the corporations debts must be proven.)
2. No, as regards the Trust Receipt (dated August 31, 1989) and Irrevocable Letter of Credit
(L/C No. DOM-33041) issued to SMC for the glass containers, petitioner lldefonso S. Crisologo
shall be absolved from any civil liability.
Section 13 of the Trust Receipts Law explicitly provides that if the violation or offense is
committed by a corporation, as in this case, the penalty provided for under the law shall be
imposed upon the directors, officers, employees or other officials or person responsible for the
offense, without prejudice to the civil liabilities arising from the criminal offense. In this case,
petitioner was acquitted of the charge for violation of the Trust Receipts Law in relation to Article
315 1(b) of the RPC. As such, he is relieved of the corporate criminal liability as well as the
corresponding civil liability arising therefrom. However, as correctly found by the RTC and the
CA, he may still be held liable for the trust receipts and L/C transactions he had entered into in
behalf of Novachem.
The RTC and the CA adjudged petitioner personally and solidarily liable with Novachem for the
obligations secured by the subject trust receipts based on the finding that he signed the
guarantee clauses therein in his personal capacity and even waived the benefit of excussion.
However, a review of the records shows that petitioner signed only the guarantee clauses of the
Trust Receipt and the corresponding Application and Agreement for Commercial Letter of
Credit. With respect to the Trust Receipt (dated August 31, 1989) and Irrevocable Letter of
Credit (L/C No. DOM-33041) issued to SMC for the glass containers, the second pages of
these documents that would have reflected the guarantee clauses were missing and did not
form part of the prosecution's formal offer of evidence. In relation thereto, Chinabank
stipulated before the CA that the second page of the Trust Receipt attached to the complaint
before the court a quo would serve as the missing page. A perusal of the said page, however,
reveals that the same does not bear the signature of the petitioner in the guarantee clause.
Hence, it was error for the CA to hold petitioner likewise liable for the obligation secured by the
said trust receipt. Neither was sufficient evidence presented to prove that petitioner acted in bad
faith or with gross negligence as regards the transaction that would have held him civilly liable
for his actions in his capacity as President of Novachem.
G.R. No. 180974, June 13, 2012.
(by Donn Serpico Capon)
In 1994, Cento Development Corporation (Centro), by virtue of a Board Resolution duly ratified
by 2/3 of the outstanding Stockholders, authorized Go Eng Uy, the Corporate President, to
execute a Mortgage Trust Indenture [MTI] with BPI Savings, mortgaging its assets including
Lucky 2 Corporations and Lucky 2 Repacking to secure a loan of P84 Million. The mortgage
was later registered. MTI was amended to allow additional loan of P36 Million and to include
San Carlos Milling owned by the Centro. The total loan obtained was P144 Million.

Centro entered into an agreement with Metrobank in 1994 making Metrobank as successor-
trustee of the existing MTI. The amended MTI was further amended to make Metrobank a
successor-trustee of the mortgaged properties but the amount was not amended. This
amendment was approved by the majority of the stockholders [not 2/3].

In 1998, respondents Manuel, Chongking and Quirino all surnamed Kehyengs discovered the
MTI and their subsequent amendments without them being notified about the transactions.
Chongking sits as a director while all of them owned a total of 30% of the stocks.

The loan of San Carlos became due and Centro failed to pay despite repeated demands.
Metrobank foreclosed the San Carlos Milling. The Kehyengs filed for the annulment of the
foreclosure of the San Carlos Milling and filed in the same case for the annullment of the MTI.
RTC dismissed the case holding that the foreclosure was valid and as a matter of right
Metrobank is entitled to foreclose the San Carlos Milling. RTC further ruled that the MTI was
validly entered into since it was approved by the Majority of the Board and duly ratified by 2/3 of
the Stockholders.

CA reversed the RTC rulings holding that MTI was invalid because it was only approved by the
majority of the stockholders not by 2/3. Thus, falling short of the required votes under the
Corporation Code. On the issue of the foreclosure, the CA ruled that Metrobank was duty-bound
to know if Go Eng Uy was duly authorized by the Corporation to execute the MTI.

1. WON the Kehyengs were guilty of laches
2. WON the votes required by Sec 40 of the CCP was conplied
3. WON Metrobank was negligent

The Kehyengs were not guilty of Laches
Metrobank contends that the Kehyengs have slept on their rights for not acting immediately. The
MTI was entered first in 1994 and amended in 1998. It took them 8 years to act on their rights.
SC ruled that laches is not applicable in this case because the respondents Kehyengs were not
aware of the transactions entered into by the Corporation. Laches comes into play only when
the party asserting the rights is aware of what his rights were. In the case at bar, the
respondents were not notified by the Corporation about the transactions it entered with BPI and

Vote Requirements was complied
The Kehyengs argue that the Sec 40 of the Corporation Code was not complied with which
requires 2/3 votes of the Stockholders to ratify a corporate act which disposes all or
substantially all of the corporate assets. This contention is not meritorious. What the
respondents was assailing was the amended MTI which was ratified only by the majority of the
stockholders not by 2/3. It should be noted that the original MTI was duly ratified by 2/3 of the
Stockholders. The subsequent amendments do not require 2/3 votes by the Stcokholders
unless there is a substantial change in the amended MTI. In the present case, the amendment
was not substantial. Therefore, the 2/3 votes is not applicable.

Metrobank is not entitled to the foreclosure
On September 5, 2011, the SC issued an order through a resolution requiring Metrobank to
submit all amendments of the MTI and a financial statement as to the payments advanced by
the Centro and the outstanding balance. The Metrobank failed to submit these documents,
instead, what was submitted were instruments issued by Centro in favor of Metrobank that are
not directly connected with the MTI. The omission of Metrobank violate the Sec 1.13 of the MTI
which requires that a promissory note must be covered by an outstanding and secured by lien in
Thus, the Metrobank failed to prove that they are entitled to the benefits of the MTI.
The foreclosure is declared to have no effect and further declared the MTI to be valid
G.R. No. 171995, April 18, 2012.
(by Chen Catarman)

Philippine Laws and engaged in the furniture business, including distribution.
DISI the right to market, sell, distribute, install and service its products to end-user customers
within the Philippines.
neither party admitting any fault.
and pay for damages.
enjoin Steelcase from selling its products in the Philippines except to DISI, dismissal for lack of
merit, and damages.
cause of action for Steelcase lacks the capacity to sue
in Philippine courts as it was doing business in the country without license.

(1) WON Steelcase is doing business in the Philippines without license; and
(2) WON DISI is estopped from challenging the Steelcases legal capacity to sue.
(1) Court favors the petitioner. Steelcase is an unlicensed foreign corporation NOT doing
business in the Philippines. Under RA 7042 (foreign investments act of 1991) expressly states
that doing business excludes the appointment by a foreign corporation of a local distributor
domiciled in the Philippines which transacts business in its own name and for its own account.
Appointment of a distributor in the Philippines is not sufficient doing business unless it is under
full control of the foreign corporation. In the case at bench, DISI was an independent contractor,
distributing various products of Steelcase and of that of other companies, acting in its own name
and account. As a result, Steelcase cannot be considered to be doing business in the
Philippines by its act of appointing a distributor as it falls under the exemptions under RA No.
(2) Court favors petitioner. DISI is estopped from challenging Steelcases capacity to sue.
Entering into a dealership agreement with Steelcase charged DISI with the knowledge that
Steelcase was not licensed to engage in business activities in the Philippines. DISI only raised
the issue of the
absence of a license with the Steelcase after it was informed that it owed the latter $ 600,000 for
the sale and delivery of its products under their special credit arrangement. By acknowledging
the corporate entity of Steelcase and entering into a dealership agreement with it and even
benefiting from it, DISI is estopped from questioning Steelcases existence and capacity to sue.
A foreign corporation doing business in the Philippines may sue in Philippine courts although
not authorized to do business here against a Philippine citizen or entity who had contracted with
and benefited by said corporation. A party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a contact with it. The doctrine
of estoppel to deny corporate existence applies to a foreign as well as to domestic corporations.

G.R. No. 164301, August 18, 2010.
(by J o-ana Marie Desuyo)
On April 7, 2000 the Articles and Plan of Merger between Bank of the Philippine Islands
(BPI) and Far East Bank and Trust Company (FEBTC) was approved by the Securities and
Exchange Commission (SEC). Pursuant to the Article and Plan of Merger, all the assets and
liabilities of FEBTC were transferred to and absorbed by BPI as the surviving corporation.
FEBTC employees were hired by petitioner as its own employees, with their status and tenure
recognized and salaries and benefits maintained.
Respondent Union is the exclusive bargaining agent of BPIs rank and file employees in
Davao City. The former FEBTC rank-and-file employees in Davao City did not belong to any
labor union at the time of the merger. Prior to the effectivity of the merger, respondent Union
invited said FEBTC employees to a meeting regarding the Union Shop Clause (Article II,
Section 2) of the existing CBA between petitioner BPI and respondent Union.
Section 2, Article II states:
Union Shop - New employees falling within the bargaining unit as defined in
Article I of this Agreement, who may hereafter be regularly employed by the Bank shall,
within thirty (30) days after they become regular employees, join the Union as a
condition of their continued employment
Respondent Union then sent notices to the former FEBTC employees who refused to
join, as well as those who retracted their membership, and called them to a hearing regarding
the matter. When these former FEBTC employees refused to attend the hearing, the president
of the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate
their employment pursuant thereto. When the issue remained unsolved, the parties submitted it
to voluntary arbitration.
The Voluntary Arbitrator ruled in favor of petitioner BPIs interpretation that the former
FEBTC employees were not covered by the Union Security Clause of the CBA on the ground
that the said employees were not new employees who were hired and subsequently
regularized, but were absorbed employees by operation of law because the former
employees of FEBTC can be considered assets and liabilities of the absorbed corporation.
Respondent Union filed a Motion for Reconsideration but it was denied.
Respondent appealed to the Court of Appeals (CA) which ruled in their favor. CA ruled
that new and absorbed employees are similar. Hence, the FEBTC employees are to be
considered as new employees for purposes of applying the provisions of the CBA regarding
the union-shop clause.
Hence, this appeal.
Whether or not the former FEBTC employees that were absorbed by petitioner upon the
merger between FEBTC and BPI should be covered by the Union Shop Clause found in the
existing CBA between petitioner and respondent Union.
Petition is denied. The FEBTC employees are covered by the Union Shop Clause.
The court ruled that Section 2, Article II of the CBA is silent as to how one becomes a
regular employee of the BPI for the first time. However, it must be properly appreciated that
petitioners new regular employees (regardless of the manner by which they became employees
of BPI) are required to join the Union as a condition of their continued employment.
As a general rule, all employees in the bargaining unit covered by a Union Shop Clause in
their CBA with management are subject to its terms. However, under law and jurisprudence,
the following kinds of employees are exempted from its coverage, namely, employees who at
the time the union shop agreement takes effect are bona fide members of a religious
organization which prohibits its members from joining labor unions on religious grounds;
employees already in the service and already members of a union other than the majority at the
time the union shop agreement took effect; confidential employees who are excluded from the
rank and file bargaining unit; and employees excluded from the union shop by express terms of
the agreement. In the case at bar, BPI failed to prove that the situation of the former FEBTC
employees fall to any of these exceptions.
Petitioner argued that as a consequence of the merger, that these absorbed employees
as included in the assets and liabilities of the dissolved corporation.
The court however ruled that the absorbed FEBTC employees are neither assets nor
liabilities. It is contrary to public policy to declare the former FEBTC employees as forming part
of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of
Merger. Assets and liabilities, in this case, should be deemed to refer only to property rights
and obligations of FEBTC and do not include the employment contracts of its personnel. The
Corporation Code (Sec. 80) does not mandate the absorption of the employees of the non-
surviving corporation by the surviving corporation in the case of a merger. Whether or not there
is a stipulation in the Articles of Merger and Plan of Merger with respect to the employment
contracts of existing personnel of the non-surviving entity, it does not follow that the absorbed
employees should not be subject to the terms and conditions of employment obtaining in the
surviving corporation.
Citing American jurisprudence, the court further ruled that on the consequences of
voluntary mergers on the right to employment and seniority rights, it has been recognized in
some cases that the accumulated seniority does not survive and cannot be transferred to the
"new" job, unless stipulated in the contract or agreement (Carver v Brien (1942) 315 Ill App 643,
43 NE2d 597).
The absorption of the dissolved corporations employees or the recognition of the
absorbed employees service with their previous employer may be demanded from the surviving
corporation if required by provision of law or contract.
The lack of a provision in the plan of merger regarding the transfer of employment
contracts to the surviving corporation could have very well been deliberate on the part of the
parties to the merger, in order to grant the surviving corporation the freedom to choose who
among the dissolved corporations employees to retain, in accordance with the surviving
corporations business needs. The surviving corporation is duty-bound to protect the rights of its
own employees who may be affected by the merger in terms of seniority and other conditions of
their employment due to the merger.
With respect to FEBTC employees that BPI chose to employ and who also chose to be
absorbed, then due to BPIs blanket assumption of liabilities and obligations under the articles of
merger, BPI was bound to respect the years of service of these FEBTC employees and to pay
the same, or commensurate salaries and other benefits that these employees previously
enjoyed with FEBTC.
G.R. No. 173349, February 9, 2011.
(by Miguel Esparaguera)

The Case (in brief): This is Petition for Review on Certiorari under Rule 45, petitioners assail
the March 15, 2006 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 79362, which
reversed and set aside the April 21, 2003 Decision of the Regional Trial Court (RTC), Branch 73
in Antipolo City, in Civil Case No. 99-5388, entitled Bangkok Bank Public Company Limited v.
Spouses Samuel U. Lee and Pauline Lee and Asiatrust Development Bank for the Rescission of
Real Estate Mortgage (REM), Annulment of Foreclosure Sale, Cancellation of Titles and
Damages. They assail also the June 29, 2006 CA Resolution denying their motion for

The Facts:

Samuel U. Lee, Thelma U. Lee, Maybelle L. Lim, and Daniel U. Lee owned and controlled five
corporation of which two are: Midas Diversified Export Corporation (MDEC) and Manila Home
Textile, Inc. (MHI).

These 2 corporations entered into two separate Credit Line Agreements (CLAs) with
Respondent Bangkok Bank Public Company, Limited (Bangkok Bank) on November 29, 1995
and April 17, 1996, respectively. Bangkok Bank required guarantees from the Lee family for the
two CLAs. Consequently, the Lee family executed guarantees in favor of Bangkok Bank on
December 1, 1995 for the CLA for MDEC and on April 17, 1996 for the CLA of MHI. Under the
guarantees, the Lee family irrevocably and unconditionally guaranteed, as principal debtors, the
payment of any and all indebtedness of MDEC and MHI with Bangkok Bank. Bangkok Bank,
however, did not require the setting aside, as collateral, of any particular property to answer for
any future unpaid obligation. Subsequently, MDEC and MHI made several availments from the

On July 25, 1996, MDEC was likewise granted a loan facility by Asiatrust Development Bank,
Inc. (Asiatrust). This facility had an available credit line of forty million pesos (PhP 40,000,000)
for letters of credit, advances on bills and export packing; and a separate credit line of two
million dollars (USD 2,000,000) for bills purchase.

In the meantime, in May 1997, Samuel bought several parcels of land in Cupang, Antipolo, and
later entered into a joint venture with Louisville Realty and Development Corporation to develop
the properties into a residential subdivision, called Louisville Subdivision. This has become the
main subject issue of this instant.

For one reason or another, MDEC and MHI defaulted in their payments with the Respondent, as
well as, with AsiaTrust Bank.

In December 1997, the negotiation was concluded when Asiatrust had agreed to Samuels
proposition that he would mortgage the subject Antipolo properties to secure the loan, and
therefore execute a REM over the properties. While the titles of the Antipolo properties had
been delivered by Samuel to Asiatrust and the REM had been executed in January 1998,
spouses Samuel and Pauline Lee were requested to sign a new deed of mortgage on February
23, 1998, and, thus, it was only on that date that the said mortgage was actually notarized,
registered, and annotated at the back of the titles.

On February 16, 1998, MDEC, MHI, and three other corporations owned by the Lee family filed
before the Securities and Exchange Commission (SEC) a Consolidated Petition for the
Declaration of a State of Suspension of Payments and for Appointment of a Management
Committee/Rehabilitation Receiver. Said petition acknowledged, among others, MDEC and
MHIs indebtedness with Bangkok Bank, and admitted that matured and maturing obligations
could not be met due to liquidity problems. The petition likewise had a list of creditors to whom
the corporations remain indebted, which included Asiatrust. The petition stated that the Lee
family and their corporations had more than sufficient properties to cover all liabilities to their
creditors; and presented a list of all their properties including the subject properties located in
Antipolo, Rizal. Notably, the list of properties attached to the petition indicated that the subject
Antipolo properties of the spouses Lee had already been earmarked, or that they had already
served as security, for MDECs unpaid obligation with Asiatrust.

On February 20, 1998, the SEC issued a Suspension Order enjoining the Lee corporations from
disposing of their property in any manner except in the ordinary course of business, and from
making any payments outside the legitimate expenses of their business during the pendency of
the petition.

On March 12, 1998, Bangkok Bank instituted an action before the RTC, Branch 141 in Makati
City to recover the loans extended to MDEC and MHI under the guarantees, docketed as Civil
Case No. 98-628. Bangkok Banks application for the issuance of a writ of preliminary
attachment was granted through the Orders dated March 17 and 18, 1998, covering the
properties of the Lee family in Antipolo, Cavite, Quezon City, and Baguio, among others.

However, the RTC dismissed the case filed by the respondent (Bangkok Bank). In dismissing
the instant case, the trial court found no concrete proof of the alleged fraud committed by the
Lee family and Asiatrust, more so, that of a collusion or conspiracy between them. The RTC
explained that a mortgage contract is an onerous undertaking to secure payment of an
obligation and cannot be considered as a gratuitous alienation. Finally, it held that neither fraud
nor a violation of the SEC suspension order can result from the execution of the REM and the
foreclosure of the subject properties, because according to the testimony of Bangkok Banks
sole witness, the subject properties are not covered by the SEC Suspension Order for which
reason Bangkok Bank filed an action to attach them. As the subject properties are not covered
by the SEC Suspension Order, the RTC held that there is nothing that precludes the spouses
Lee from mortgaging them to Asiatrust.

The Court of Appeals reversed and set aside the RTC Decision. A new judgment is rendered
ordering the: 1. Rescission of the Real Estate Mortgage over Appellees-spouses Lees
Antipolo properties in favor of appellee Asiatrust; 2. Annulment of the Foreclosure Sale
conducted on April 15, 1998; 3. Cancellation of the Transfer Certificate of Titles in the name of
Asiatrust; and 4. Reversion of the titles in favor of appellees-spouses Lee.

The Issues:

1. Bangkok Bank can maintain an action to rescind the REM on the subject Antipolo
properties despite its failure to exhaust all legal remedies to satisfy its claim.
2. Properties owned by private individuals should be covered by a suspension order issued
by the SEC in an action for suspension of payments.
3. A surety or guarantor is guilty of defrauding creditors for executing a REM in favor of one
creditor prior to the filing of a Petition for Suspension of Payments.


The Supreme Court (SC) ruled in favor of the petitioner which set aside the decision of the CA
and upheld/reinstated the RTC. In explain their decision, the Court said:

In the first issue, it can be clearly provisions of the SEC law that in cases of petitions for the
suspension of payments, the SEC has jurisdiction over corporations, partnerships and
associations, which are grantees of primary franchise or license or permit issued by the
government to operate in the Philippines, and their properties. And it is indubitably clear from
Sec. 5(d) of the said law that only corporations, partnerships and associationsNOT private
individualscan file with the SEC, petitions for declaration in a state of suspension of
payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain petitions
for suspension of payments filed by parties other than corporations, partnerships or
associations. Indeed, settled is the rule that it is axiomatic that jurisdiction is the authority to
hear and determine a cause, which is conferred by law and not by the policy of any court or

In the second issue, in consonant of the first issue, the Court said: Private individuals and their
privately owned properties cannot be placed under the jurisdiction of the SEC in a petition for
suspension of payments.

In the third issue, the Supreme Court held, as it said : A careful reading of Art. 1387 of the Civil
Code in conjunction with its Art. 1385 would plainly show that the presumption of fraud in case
of alienations by onerous title only applies to the person who made such alienation, and against
whom some judgment has been rendered in any instance or some writ of attachment has been
issued. A third person is not and should not be automatically presumed to be in fraud or in
collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous
title, the third person who received the property conveyed should likewise be a party to the
fraud. As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession
of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to
the third person in legal possession of the questioned property, good faith is
presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the
burden of proof.

Asiatrust, being a third person in good faith, should not be automatically presumed to have
acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there
being no evidence of fraud or bad faith. Regrettably, in ratiocinating that fraud was committed
by both the spouses Lee and Asiatrust, the CA merely anchored its holding on the presumption
espoused under Art. 1387 of the Code, nothing more.

The alleged fraud on the part of the spouses Lee was not proved and substantiated.

The Court further explained :While prejudice to Bangkok Bank ultimately resulted in the series of
inopportune events that led to the present case, it cannot be denied that no clear, satisfactory
and convincing evidence was presented to show fraud on the part of both the spouses Lee and
Asiatrust. Nor was bad faith on the part of Asiatrust and the 12 other subsequent purchasers
established. Accordingly, the REM annotated on the titles of the subject Antipolo properties and
the subsequent foreclosure of the same properties cannot and should not be rescinded.

The Court Order:

Wherefore, premises considered, the petition is hereby GRANTED. Accordingly, the CAs
March 15, 2006 Decision and June 29, 2006 Resolution in CA-G.R. CV No. 79362 are
REVERSED and SET ASIDE. The RTCs April 21, 2003 Decision in Civil Case No. 99-5388 is
G.R. Nos. 174457-59/G.R. Nos. 175418-20/G.R. No. 177270. December 5, 2012
(by Michelle Liao)
These are seven consolidated petitions for review on certiorari filed in connection with the
corporate rehabilitation of Bayan Telecommunications, Inc. (Bayantel).
Bayantel entered into loan agreements with several creditors, and to secure said loans,
Bayantel executed an Omnibus Agreement. Bayantel executed an Assignment Agreement in
favor of the lenders under the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank
Creditors, or secured creditors).
Foreseeing the impossibility of further meeting its obligations, Bayantel entered in to debt
restructuring agreements with some creditors. But Bayantel still could not fulfil its obligations
under the restructured agreement.
On July 2003, The Bank of New York filed a petition
for the corporate rehabilitation of
On August 8, 2003, the Pasig RTC, Branch 158, issued a Stay Order
which directed, among
others, the suspension of all claims against Bayantel, and appointed Atty. Noval as rehabilitation
On June 28, 2004, the Pasig RTC, Branch 158, acting as a Rehabilitation Court, approved the
Report and Recommendations as follows (among others):
1. XXX the pari passu treatment of all creditors whose claims are subject to restructuring
shall be maintained and shall extend to all payment terms and treatment of past due
2. Due regard shall be given to the rights of the secured creditors and no changes in the
security positions of the creditors shall be granted as a result of the rehabilitation plan as
amended and approved herein.
3. The level of sustainable debt of the rehabilitation plan, as amended, shall be reduced
to the amount of [US]$325,000,000 for a period of 19 years.
4. Unsustainable debt shall be converted into an appropriate instrument that shall not be
a financial burden for Bayantel.
5. All provisions relating to equity in the rehabilitation plan, as approved and amended,
must strictly conform to the requirements of the Constitution limiting foreign ownership to
6. A Monitoring Committee shall be formed composed of representatives from all classes
of the restructured debt. The Rehabilitation Receivers role shall be limited to the powers
of monitoring and oversight as provided in the Interim Rules.
Court of Appeals rulings
The CA upheld all the orders of the Rehabilitation court, except # 6. It declared the orders of
the rehabilitation court void insofar as they defined the powers and functions of the Monitoring

(1) whether the claims of secured and unsecured creditors should be treated pari
passu during rehabilitation (YES) and whether such treatment of creditors during
rehabilitation impairs the Assignment Agreement (NO)
(2) whether the Court of Appeals erred in setting Bayantels sustainable debt at US$325
million, payable in 19 years (NO)
(3) whether a debtor may submit a rehabilitation plan in a creditor-initiated rehabilitation
(4) whether the conversion of debt to equity in excess of 40% of the outstanding capital
stock in favor of petitioners violates the constitutional limit on foreign ownership of a
public utility (YES)
(5) whether the write-off of respondents penalties and default interest and recomputation of
its past due interest violate the pari passuprinciple (NO)
(6) whether petitioners are entitled to costs (NO)
(7) whether the Monitoring Committee in this case may exercise control over Bayantels
operations (NO)

1) In G.R. Nos. 174457-59, petitioners/secured creditors maintain that a "Trigger Event" had
occurred which rendered respondents obligations due and demandable.
Bayantel reasons that enforcing preference in payment at this stage of the rehabilitation would
only disrupt the progress it has made so far. It assures petitioners that their security rights are
adequately protected in case the collateral assets are disposed.
Rehabilitation is an attempt to conserve and administer the assets of an insolvent corporation in
the hope of its eventual return from financial stress to solvency. It contemplates the
continuance of corporate life and activities in an effort to restore and reinstate the corporation to
its former position of successful operation and liquidity. The purpose of rehabilitation
proceedings is precisely to enable the company to gain a new lease on life and thereby allow
creditors to be paid their claims from its earnings.
If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall
issue, not later than five (5) days from the filing of the petition, an Order which includes among
others XXX a stay order staying enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor;The stay order shall be effective from the date of its
issuance until the dismissal of the petition or the termination of the rehabilitation
The justification for suspension of actions for claims is to enable the management committee or
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial
interference that might unduly hinder or prevent the "rescue" of the debtor company. It is
intended to give enough breathing space for the management committee or rehabilitation
receiver to make the business viable again without having to divert attention and resources to
litigation in various fora.
As between the creditors, the key phrase is "equality is equity." When a corporation threatened
by bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not
anyone of them should be given any preference by paying one or some of them ahead of the
others. This is precisely the reason for the suspension of all pending claims against the
corporation under receivership.
Since then, the principle of equality in equity has been cited as the basis for placing secured
and unsecured creditors in equal footing or in pari passu with each other during rehabilitation. In
legal parlance, pari passu is used especially of creditors who, in marshaling assets, are entitled
to receive out of the same fund without any precedence over each other.
In G.R. Nos. 175418-20,
2) In G.R. Nos. 175418-20, Petitioners dispute the fixing of respondents sustainable debt at
US$325 million, spread over 19 years against the Receivers proposal of US$370 million
payable in 15 years saying that Bayantels financial projections as unreliable and contrived;
they believe that the prospective cash flow of Bayantel must be reckoned against industry
The underlying objective is to foster the rehabilitation of the debtor by insulating it against
claims, preserving its assets and taking steps to ensure that the rights of all parties concerned
are adequately protected.
This Court is convinced that the Court of Appeals ruled in accord with this policy when it upheld
the Rehabilitation Courts determination of respondents sustainable debt. We find the
sustainable debt of US$325 million, spread over 19 years, to be a more realistically achievable
amount considering respondents modest revenue projections. Bayantel projected a constant
rise in its revenues at the range of 1.16%-4.91% with periodic reverses every two years. On the
other hand, petitioners proposal of a sustainable debt of US$471 million to be paid in 12 years
and the Receivers proposal of US$370 million to be paid in 15 years betray an over optimism
that could leave Bayantel with nothing to spend for its operations.
3) Petitioners point out that the Interim Rules only allows the debtor, in a creditor-initiated
petition for corporate rehabilitation, to file a comment or opposition but not to submit its own
rehabilitation plan.
We cannot agree.
Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who
between the debtor and the creditor initiated the petition. Nowhere in said Rule is there any
provision that prohibits the debtor in a creditor-initiated petition to file its own rehabilitation plan
for consideration by the court. Quite the reverse, one of the functions and powers of the
rehabilitation receiver under Section 14(m) of said Rule is to study the rehabilitation
plan proposed by the debtor or any rehabilitation plan submitted during the proceedings,
together with any comments made thereon
4) Two steps must be followed in order to determine whether the conversion of debt to equity in
excess of 40% of the outstanding capital stock violates the constitutional limit on foreign
ownership of a public utility: First,identify into which class of shares the debt shall be converted,
whether common shares, preferred shares that have the right to vote in the election of directors
or non-voting preferred shares; Second, determine the number of shares with voting right held
by foreign entities prior to conversion. If upon conversion, the total number of shares held by
foreign entities exceeds 40% of the capital stock with voting rights, the constitutional limit on
foreign ownership is violated. Otherwise, the conversion shall be respected.
In its Rehabilitation Plan, among the material financial commitments made by respondent
Bayantel is that its shareholders shall "relinquish the agreed-upon amount of common stock[s]
as payment to Unsecured Creditors as per the Term Sheet." Evidently, the parties intend to
convert the unsustainable portion of respondent's debt into common stocks, which have voting
rights. If we indulge petitioners on their proposal, the Omnibus Creditors which are foreign
corporations, shall have control over 77.7% of Bayantel, a public utility company. This is
precisely the scenario proscribed by the Filipinization provision of the Constitution. Therefore,
the Court of Appeals acted correctly in sustaining the 40% debt-to-equity ceiling on conversion.
5) The secured creditors, however, join petitioners in protesting the condonation of penalties
and default interest. Rather than observing absolute equality, they insist that the pari
passu principle should be applied such that creditors within the same class are treated alike.
This lacks merit.
Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation plan shall include the
means for the execution of the rehabilitation plan, which may include conversion of the debts or
any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of
the controlling interest.
As applied to this case, the pari passu treatment of claims during rehabilitation entitles all
creditors, whether secured or unsecured, to receive payment out of Bayantels cash flow.
Despite their preferred position, therefore, the secured creditors shall not be paid ahead of the
unsecured creditors but shall receive payment only in the proportion owing to them.
In any event, the debt restructuring schemes complained of shall be implemented among all
creditors regardless of class. Both secured and unsecured creditors shall suffer a write-off of
penalties and default interest and the escalating interest rates shall be equally imposed on
them. We repeat, the commitment embodied in the pari passu principle only goes so far as to
ensure that the assets of the distressed corporation are held in trust for the equal benefit of all
creditors. It does not espouse absolute equality in all aspects of debt restructuring.
6)There is no prevailing party in rehabilitation proceedings which is non-adversarial in nature.
Hence, the Rehabilitation Courts award for costs is not proper.
In G.R. No. 177270
7) The appellate court ruled that the Rehabilitation Court committed grave abuse of discretion in
vesting the Monitoring Committee with powers beyond monitoring and overseeing Bayantels
Petitioner contends that the Rehabilitation Court intended for the Monitoring Committee to
exercise powers greater than those of the Receiver.
We find no merit in petitioners argument.
The Interim Rules prohibit the Rehabilitation Receiver from taking over the management and
control of the company under rehabilitation, and limit his role to merely overseeing and
monitoring the operations of the company. However, the [c]ourt also appreciates that the
Rehabilitation Receiver must oversee the implementation of the rehabilitation plan as approved
by the [c]ourt.
Under Section 14, Rule 4 of the Interim Rules, the Receiver shall not take over the management
and control of the debtor but shall closely oversee and monitor its operations during the
pendency of the rehabilitation proceeding. The Rehabilitation Receiver shall be considered an
officer of the court and his core duty is to assess how best to rehabilitate the debtor and to
preserve its assets pending the determination of whether or not it should be rehabilitated and to
implement the approved plan.
Section 6(d) of PD 902-A empowers the Rehabilitation Court to create and appoint a
management committee to undertake the management of corporations when there is imminent
danger of dissipation, loss, wastage or destruction of assets or other properties or paralyzation
of business operations of such corporations which may be prejudicial to the interest of minority
stockholders, parties-litigants or the general public.
In this case, petitioner neither filed a petition for the appointment of a management committee
nor presented evidence to show any of the above dangers. Unless petitioner satisfies these
requisites, we cannot sanction the exercise by the Monitoring Committee of powers that will
amount to management of respondents operations.
G.R. No. 158805, April 16, 2009.
(by Debbie Samonte)
Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf course. The
members and their guests are entitled to play golf on the said course and avail of the facilities and
privilege. The shareholders are likewise assessed monthly membership dues.
Cong. Fermin Z. Caram, Jr., respondents husband, subscribed and paid in full 1 Golf Share of the
petitioner and was subsequently issued with a stock certificate which indicated a par value of P9,000.00.
It was alleged by the petitioner that Caram stopped paying his monthly dues and that it has sent 5 letters
to Caram concerning his delinquent account. The Golf Share was subsequently sold at public auction for
P25,000.00 after the BOD had authorized the sale and the Notice of Auction Sale was published in the
Philippine Daily Inquirer
Caram thereafter died and hiis wife initiated intestate proceedings before the RTC of
IloIlo. Unaware of the pending controversy over the Golf Share, the Caram family and
the RTC included the Golf Share as part of Carams estate. The RTC approved a project of
partition of Carams estate and the Golf Share was adjudicated to the wife, who paid the
corresponding estate tax due, including that on the golf Share.
It was only through a letter that the heirs of Caram learned of the sale of the Golf Share
following their inquiry with Valley Golf about the Golf Share. After a series of correspondence,
the Caram heirs were subsequently informed in a letter that they were entitled to the refund of
P11,066.52 out of the proceeds of the sale of the Golf Share, which amount had been in the
custody of the petitioner.

Carams wife filed an action for reconveyance of the Golf Share with damages before the SEC
against Valley Golf. The SEC Hearing Officer rendered a decision in favor of the wife, ordering
Valley Golf to convey ownership of the Golf Share, or in the alternative. to issue one fully paid
share of stock of Valley Golf of the same class as the Golf Share to the wife. Damages
totaling P90,000.00 were also awarded to the wife.

The SEC hearing officer ruled that under Section 67, paragraph 2 of the Corporation Code, a
share stock could only be deemed delinquent and sold in an extrajudicial sale at public auction
only upon the failure of the stockholder to pay the unpaid subscription or balance for the share.
However, the section could not have applied in Carams case since he had fully paid for the Golf
Share and he had been assessed not for the share itself but for his delinquent club dues.
Proceeding from the foregoing premises, the SEC hearing officer concluded that the auction
sale had no basis in law and was thus a nullity. The SEC en banc and the Court of Appeals
affirmed the hearing officers decision, and so the petitioner appealed before SC.
WON a non-stock corporation seize and dispose of the membership share of a fully-paid
member on account of its unpaid debts to the corporation when it is authorized to do so
under the corporate by-laws but not by the Articles of Incorporation?
The Supreme Court ruled that there is a specific provision under Title XI on Non-Stock
Corporations of the Corporation Code dealing with the termination of membership in a non-stock
corporation such as Valley Golf.
Section 91 of the Corporation Code provides:
SEC. 91. Termination of membership.Membership shall be terminated in the manner
and for the causes provided in the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a member in the
corporation or in its property, unless otherwise provided in the articles of incorporation or
the by-laws. (Emphasis supplied)
A share can only be deemed delinquent and sold at public auction only upon the failure of the
stockholder to pay the unpaid subscription. Delinquency in monthly club dues was merely an
ordinary debt enforceable by judicial action in a civil case. A provision creating a lien upon
shares of stock for unpaid debts, liabilities, or assessments of stockholders to the corporation,
should be embodied in the Articles of Incorporation, and not merely in the by-laws. Moreover,
the by-laws of petitioner should have provided formal notice and hearing procedure
before a members share may be seized and sold.
The procedure for stock corporations recourse on unpaid subscription is not applicable
in members shares in a non-stock corporation.
SC proceeded to declare the sale as invalid. SC found that Valley Golf acted in bad faith when
it sent the final notice to Caram under the pretense they believed him to be still alive, when in
fact they had very well known that he had already died. The Court stated:
Whatever the reason Caram was unable to respond to the earlier notices, the fact
remains that at the time of the final notice, Valley Golf knew that Caram, having died and
gone, would not be able to settle the obligation himself, yet they persisted in sending him
notice to provide a color of regularity to the resulting sale.
That reason alone, evocative as it is of the absence of substantial justice in the sale of the Golf
Share, is sufficient to nullify the sale and sustain the rulings of the SEC and the Court of
Moreover, the utter and appalling bad faith exhibited by Valley Golf in sending out the final
notice to Caram on the deliberate pretense that he was still alive could bring into operation
Articles 19, 20 and 21 under the Chapter on Human Relations of the Civil Code. These
provisions enunciate a general obligation under law for every person to act fairly and in good
faith towards one another. Non-stock corporations and its officers are not exempt from that

G.R. No. 157802, October 13, 2010.
(by Marc Gabriel Pates)
Ricardo R. Coros filed a complaint for illegal suspension and illegal dismissal in the NLRC,
Iligan City.
against: Matling and some of its corporate officers: Richard K. Spencer, Catherine Spencer,
Alex Mancilla.
Matling, et. al. filed MTD, ground: jurisdiction pertains to SEC for being an intra-corporate
dispute and that Coros was a member of Matlings BOD prior to his termination.
Pursuant to RA 8799: THE SECURITIES REGULATION CODE, effective AUGUST 8, 2000, the
SECs jurisdiction over all intra-corporate disputes was transferred to the RTC.
LA dismissed the case.
NLRC reversed Coros was not a corporate officer. His position was not listed in Matlings
AOI, Constitution and By Laws.
CA dismissed petition; affirmed NLRC. A corporate officer position must if not listed in the by-
laws, have been created by the BOD or SH.
Coros position was an ordinary office.
Matling claims that their President was granted full power to create new offices and appoint the
officers thereto, pursuant to their By-Law No. V: Officers.
ISSUE/S: Who has jurisdiction over the complaint for illegal dismissal filed by a Vice President
for Finance and Administration?
Depends on:
(a.) WON the position is a corporate officer?
(b.) WON Coros as a Director and Stockholder would make the case an intra-corporate
HELD: Properly with the NLRC (LA)
1. He is an employee not a corporate officer. His position was an ordinary office.
First of all: Corporate officers in the context of PD 902-A are exclusively those who are given
that character either by the CORPORATION CODE or by the Corporations By-Laws.
The creation of an office pursuant to a By-Law enabling provision is not enough to make a
position a corporate office.
The criteria for distinguishing between
(a.) Corporate Officers who may be ousted from office at will and
(b.) Ordinary Corporate Employees who may only be terminated for just cause
Depend on: the manner of creation of the office.
Pursuant to SECTION 25 of the CORPORATION CODE :
1) a position must be expressly mentioned in the By-Laws in order to be a corporate
2) the power to elect corporate officers was vested by the law exclusively in the BOD.
cannot be delegated
Matlings By-Law No. III: DIRECTORS AND OFFICERS listed the 4 corporate officers:
(a.) President;
(b.) Vice-President;
(c.) Secretary; and
(d.) Treasurer.
Matlings BODs interpretation can easily leave the way open to circumvent the constitutionally
guaranteed security of tenure of the employee.
Even SEC OPINION 25 NOV, 1993 interpreted SEC 25 to mean that the other positions created
by the BOD without amending its By-Laws are NOT Corporate Offices.
Coros was appointed VP for Nationwide Expansion only by Malonzo, Matlings General
2. No.
SC cited: VIRAY V. CA
To determine whether a dispute constitutes an intra-corporate controversy or not, court
considers 2 elements:
1st: the status or relationship of the parties;
2nd: the nature of the question that is the subject of the controversy.
In this case, Coros was supposedly at once an employee, a SH, and a Director of Matling .
The circumstances surrounding his appointment to office must be fully considered to determine
WHETHER his dismissal constituted an intra-corporate controversy OR a labor termination
Obviously, respondent was not appointed as VP for Finance & Administration because of being
a SH or Director, but rather because he has been employed continuously for 33 years in the
company, first as a bookkeeper, climbing up.
Even though he might have become a SH, it had no relation to his promotion. (subsequent yung
pag-acquire nya ng shares & directorship)
Besides, his status as a SH or Director was not affected by his dismissal from employment.
G.R. No. 172727, September 8, 2010.
(by Madelein Perocillo)
QTCI is a duly licensed broker engaged in trading of commodity futures. Guillermo Mendoza Jr.
together with Oniler Lontoc encouraged Thomas George to invest. George invested with QTCI
and appointed Mendoza as his attorney-in-fact with full authority to trade and to manage his
account. However, sometime on 1996, a Cease-and-Desist Order was issued by SEC to QTCI.
Alarmed, respondent demanded a return of his investment but to no avail. Found out that
Mendoza and Lontoc were not licensed to trade.
Responded filed a complaint for Recovery of Investment with Damages with SEC against QTCI
represented by Collado and its President, Lau. The petitioners, in their answer, denied the
allegations stating that they were not a privy to any arrangement handled by the unlicensed
brokers and even that, the petitioner was estopped from raising the ground after one year.
SEC rendered their decision in favor of the respondent. Petitioners appealed to the Commission
en banc but the same has dismissed due to technical issues. Then the petitioner went to CA via
petition for review under Rule 43.
CA affirmed SEC decision. MR denied. Hence, a petition for review on certiorari was filed.

Whether or not the petitioners knowingly permitted an unlicensed trader to handle the
respondents accounts and if so, can be held solidarily liable for damages and awards.

SC Ruling:
It affirmed the decision with modifications as to the amounts of moral and exemplary damages.
The Special Power of Attorney executed by the respondent in favor of Mendoza formed part of
the Customers Agreement with QTCI. Petitioners did not object to and in fact recognize
Mendozas appointment as respondents attorney-in-fact even if the latter was not a licensed
dealer. Thus, petitioners violated the Revised Rules and Regulations on Commodity Features
prohibiting any unlicensed person to engage in, solicit or accept orders in futures contract.
Furthermore, petitioners shall be liable solidarily liable for the payment of respondents claim.
Doctrine dictates that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it, such that, save for certain exceptions, corporate
officers who entered into contracts in behalf of the corporation cannot be held personally liable
for the liabilities of the latter. Personal liability of a corporate director, trustee, or officer, along
(although not necessarily) with the corporation, may validly attach, as a rule, only when (1) he
assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages to
the corporation, its stockholders, or other persons; (2) he consents to the issuance of watered
down 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 personally
answerable for his corporate action.
In this case, findings contained that there are seven unlicensed investment consultants in QTCI
and the company practice of changing deeds of Special Power of Attorney bearing those who
are licensed. The presence of seven unlicensed investment consultants apart from Mendoza
and Collados participation in the unlawful execution of orders under the account clearly
established the fact that the management of QTCI failed to implement the rules and regulations
against the hiring of, and associating with, unlicensed consultants or traders. How these
unlicensed personnel been able to pursue their unlawful activities is a reflection of how
negligent the management is. Lau, being the chief operating officer, cannot escape the fact that
had he exercised a modicum of care and discretion in supervising the operations of QTCI, he
could have detected and prevented the unlawful acts of Collado and Mendoza.

G.R. No. 159355, August 9, 2010.
(by Marissa Regudo)
This is petition for certiorari seeking to set aside Decision No. 2002-081, dated April 23, 2002, of
the Commission on Audit (COA), which affirmed the Decision No. 2000-008, dated June 1,
2000, and the Resolution in CAO I Decision No. 2000-012, dated August 11, 2000, of the
Corporate Audit Office I, and the COA Resolution No. 2003-115, dated July 31, 2003, which
denied petitioners motion for reconsideration thereof and upheld the disallowance of petitioners
Representation and Transportation Allowance (RATA) in the total amount of P1,565,000.00
under Notice of Disallowance No. 99-001-101 (96-96) dated June 7, 1999.
The Philippine International Convention Center Inc. (PICCI) is a government corporation with
Bangko Sentral ng Pilipinas (BSP) as its sole stockholder. Araceli Villanueva, one of the
petitioners is a member of the BOD and the OIC of PICCI. The other co-petitioners namely:
Gabriel C. Singson, Andre Navato, Edgardo P. Zialcita, and Melpin A. Gonzaga, Alejandra C.
Clemente, Jose Clemente, Jr., Federico Pascual, Albert P. Fenix, Jr., and Tyrone M. Reyes are
also members of the BOD and officials of the BSP. Under PICCI By-Laws, they were authorized
to receive Php. 1,000.00 per diem day for every meeting attended. Pursuant also to Monetary
Board Resolution No. 15 and as amended by Resolution No. 34, the BSP-MB granted additional
monthly Representation and Transporation Allowance (RATA) in the amount of Php. 1, 500.00
to each of the petitioners on their capacity as BOD members of PICCI. Said RATA was given to
the petitioners from January 1996 to December 1998 which totaled in the amount of Php. 1,
565, 000.00.
On June 07, 1999, PICCI Corporate Auditor Adelaida A. Aldocino issued a Notice of
Disallowance No. 99-001-01 (96-98), addressed to petitioner Araceli E. Villanueva, disallowing
in audit the payment of petitioners RATA in the total amount of Php. 1, 565, 000.00 and
directing them to settle immediately the said disallowances.
As to Araceli Villanueva for double payment from PICCI as member of the BOD and OIC of
PICCI as prohibited by the Constitution and by the Compensation Policy Guidelines No. 6. As to
the other petitioners for double payments of RATA being a member of the BOD of PICCI and
officers of the BSP. The reasons are as follows: (a) As to petitioner Araceli E. Villanueva, there
was double payment of RATA to her as member of the PICCI Board and as OIC of PICCI, which
was in violation of Section 8, Article IX-B of the 1987 Constitution and, moreover, Compensation
Policy Guideline No. 6 provides that an official already granted commutable RATA and
designated by competent authority to perform duties in concurrent capacity as OIC of another
position whether or not in the same agency and entitled to similar benefits, shall not be granted
said similar benefits, except where said similar allowances are higher in rates than those of his
regular position, in which case he may be allowed to collect the difference thereof; and (b) As to
other petitioners, there was double payment of RATA to them as members of the PICCI Board
and as officers of BSP, which was in violation of Section 8, Article IX-B of the 1987 Constitution
and PICCI By-laws and, further, the contemplation of the constitutional provisions which
authorized double compensation is construed to mean statutes passed by the national
legislative body and does not include resolutions passed by governing boards, i.e., Section 229
of the Government Accounting and Auditing Manual.
Petitioners sought reconsideration of the Notice of Disallowance which Corporate Auditor
Aldovino denied. Petitioners then filed their Notice of Appeal and Appeal Memorandum.
On June 01, 2000, Director Cresencio S. Sunico, Corporate Audit Office I rendered a decision
affirming the disallowance of the RATA received by the petitioners in CAO Decision No. 2000-
2008 stating that Section 8, of Article III of PICCI By-Laws prohibits the payment of salary to
directors in the form of compensation or reimbursement of expense except per diems and
neither the payment of RATA be legally founded on Section 30 of the Corporation Code. The
PICCI By-Laws allow only the payment of per diems to the directors. Thus, BSP Board
Resolution granting RATA of Php. 1, 500.00 violated PICCI By-Laws.
On petition for review, COA affirmed the CAO I Decision No. 2000-008 dated June 01, 2000 and
Notice of Disallowance No. 99-001-01 (96-98). It directed the Auditor to determine the amounts
to be refunded by the petitioners and ruled that the Php. 1, 500.00 RATA given by the BSP was
not valid.
Hence, this petition for certiorari was filed.
1. Whether or not COA committed grave abuse of discretion in finding that the petitioners
violated its By-Laws when Section 30 of the Corporation Code authorizes the
stockholders to grant compensation to its directors;

2. Whether or not there is Double Compensation made in favor of the petitioners; and

3. Whether or not the respondent committed grave abuse of discretion in directing the
auditor to enforce refund of the payments to the petitioner.


The petition is DISMISSED. Decision No. 2002-081, dated April 23, 2002, of the Commission on
Audit and its Resolution No. 2003-115, dated July 31, 2003, which denied petitioners motion for
reconsideration thereof and upheld the disallowance of petitioners Representation and
Transportation Allowance (RATA) in the total amount of P1,565,000.00 under Notice of
Disallowance No. 99-001-101 (96-96) dated June 7, 1999, are AFFIRMED WITH
MODIFICATION. Petitioners need not refund the Representation and Transportation Allowance
(RATA) they received pursuant to Monetary Board Resolution No. 15 dated January 5, 1994, as
amended by Monetary Board Resolution No. 34 dated January 12, 1994, of the Bangko Sentral
ng Pilipinas granting each of them an additional monthly RATA of P1,500.00, for every meeting
attended, in their capacity as members of the Board of Directors of Philippine International
Convention Center, Inc. (PICCI), or in the total amount ofP1,565,000.00, covering the period
from 1996-1998.

1. In construing the said provision, it bears stressing that the directors of a corporation shall not
receive any compensation for being members of the board of directors, except for
reasonable per diems. The two instances where the directors are to be entitled to compensation
shall be when it is fixed by the corporations by-laws or when the stockholders, representing at
least a majority of the outstanding capital stock, vote to grant the same at a regular or special
stockholders meeting, subject to the qualification that, in any of the two situations, the total
yearly compensation of directors, as such directors, shall in no case exceed ten (10%) percent
of the net income before income tax of the corporation during the preceding year.
Section 8 of the Amended By-Laws of PICCI, in consonance with Section 30 of the Corporation
Code, restricted the scope of petitioners compensation by fixing their per diem at P1,000.00:
The nomenclature for the compensation of the directors used herein is per diems, and not
salary or any other words of similar import. Thus, petitioners are allowed to receive only per
diems of P1,000.00 for every meeting that they actually attended. However, the Board of
Directors may increase or decrease the amount of per diems, when the prevailing
circumstances shall warrant. No other compensation may be given to them, except only when
they serve the corporation in another capacity.
2. MB Resolution No. 15, dated January 5, 1994, as amended by MB Resolution No. 34, dated
January 12, 1994, are valid corporate acts of petitioners that became the bases for granting
them additional monthly RATA of P1,500.00, as members of the Board of Directors of PICCI.
The RATA is distinct from salary (as a form of compensation). Unlike salary which is paid for
services rendered, the RATA is a form of allowance intended to defray expenses deemed
unavoidable in the discharge of office. Hence, the RATA is paid only to certain officials who, by
the nature of their offices, incur representation and transportation expenses. Indeed, aside from
the RATA that they have been receiving from the BSP, the grant ofP1,500.00 RATA to each of
the petitioners for every board meeting they attended, in their capacity as members of the Board
of Directors of PICCI, in addition to their P1,000.00 per diem, does not run afoul the
constitutional proscription against double compensation.
3. SCs ruling in Blaquera applies to the instant case. Petitioners in this case received the
additional allowances and bonuses in good faith under the honest belief that LWUA Board
Resolution No. 313 authorized such payment. Petitioners had no knowledge that such payment
was without legal basis. Thus, being in good faith, petitioners need not refund the allowances
and bonuses they received but disallowed by the COA. In present case, the Court took into
account the good faith of the recipients of the allowances, bonuses, and other benefits
disallowed by respondent and ruled that they need not refund the same.As petitioners believed
in good faith that they are entitled to the RATA of P1,500.00 for every board meeting they
attended, in their capacity as members of the Board of Directors of PICCI, pursuant to MB
Resolution No. 15 dated January 5, 1994, as amended by MB Resolution No. 34 dated January
12, 1994, of the BSP, the Court sees no need for them to refund their RATA respectively, in the
total amount of P1,565,000.00, covering the period from 1996-1998

G.R. No. 168208, June 13, 2012.
(by Mario Rizon)
Respondent Mar Fishing engaged in business of fishing and canning of tuna, sold its
principal assets to Miramar fishing Co. through public bidding. The proceeds of the sale were
paid to the trade and investment corporation of the Philippines.
In view of that transfer of ownership, Mar fishing issued a memorandum informing all its
workers that the company would cease to operate by the end of the month. Two days prior to
the month end, it notified the department of labor of the closure of its business operations.
Thereafter, Mar fishings labor union and Miramar entered into a memorandum of
agreement providing that the acquiring company, Miramar, shall absorb Mar fishings regular
rank and file employees whose performance was satisfactory, without loss of seniority rights
and privileges. Unfortunately, these workers were not absorbed by the acquiring company.
Thus, the petitioners filed a complaint of illegal dismissal w/ money claims before the arbitration
branch of NLRC.
LA rendered a decision contending that Mar fishing had necessarily closed its business
operations, considering that Miramar had already bought the tuna canning plant. By reason of
closure, the petitioners were legally dismissed for authorized cause. LA ordered Mar fishing to
give separation pay to its workers.
Aggrieved by the decision of the LA, the petitioners pursued the action to the NLRC, w/c
modified the decision awarding back wages until the date when the LA upheld the validity of
their dismissal. Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar
fishing and Miramar were one and the same entity, since their officers were the same. Hence,
both companies were ordered to solidarily pay the monetary claims.
On reconsideration, the NLRC modified its ruling by imposing liability only on Mar
Fishing. The labor court held that petitioners had no cause of actions against the transferee in
the absence of any stipulation in the contract that the transferee assumes the obligation of the
The petitioners filed a petition for certiorari under rule 65, contending that Mar fishing
and Miramar should be made liable for their separation pay, and that their back wages should
be up to the time of their actual reinstatement. For lack of verification and certification of non
forum shopping, the CA instantly dismissed the action for certiorari against 225 complainant.

Issue related to Corporation:
WON it is proper to pierce the veil of corporate fiction between Mar fishing and Miramar.
Since the petitioner did not question the judgment of the lower court with regard to the
validity of such dismissal, the only issue in this case is whether or not the piercing of the
corporate fiction is proper for this case.
The Court ruled in a negative. The court sustains the ruling of the LA as affirmed by
NLRC that Miramar and Mar fishing are separate distinct entities, based on the marked
differences in their stock ownership. The fact that Mar fishings officers remained as such in
Miramar does not by itself warrant a conclusion that the two companies are one of the same.
Neither can the veil of corporate fiction between the two companies be pierced by the rest of the
petitioners submission that the alleged takeover by Miramar of Mar fishings operations and
evident similarity of their business. At this point, since the piercing the veil of corporate fiction is
frowned up, those who seek to pierce the veil must clearly establish that the separate and
distinct personalities of the corporations are set up to justify a wrong, protect a fraud, or
perpetuate a deception. Unfortunately, the petitioners have failed to do.
Petition denied.
G.R. No. 173610/G.R. No. 174132. October 1, 2012
(by Chelissa Mae Rojas)
This is a consolidated case.
TCEI executed in favor of Metrobank a Deed of Real Estate Mortgage over 20 parcels of land
registered in its name to secure the payment of its loan. For failure of TCEI to pay after demand,
Metrobank caused the extrajudicial foreclosure of the lots which was later on registered under
its name as the highest bidder. Metrobank filed a petition for issuance of a writ of possession.
On the other hand, TCEI filed a petition for declaration of a state of suspension of payments,
with approval of a proposed rehabilitation plan (as a consequence of Asian financial crisis). With
the issuance of a Stay Order, TCEI filed a motion to suspend the proceeding for the issuance of
writ of possession filed by Metrobank. The court granted the motion. MR denied. Hence, petition
for certiorari was filed by Metrobank with CA.
CA directed the issuance of a writ of possession in favor of Metrobank. But, on the other hand,
the rehabilitation court issued the Order approving the rehabilitation plan and granting a
moratorium of 5 years within which TCEI can make payments to its creditors.
TCEI appealed the decision of CA granting writ of possession saying they were deprived of due
process and that the writ issued was contrary to the rules on corporate rehabilitation. This was
denied by CA saying that Metrobank was entitled to the property as purchaser in the foreclosure
sale. Hence, this petition for review with the SC.
Whether or not the order granting the Writ of Possession in favor of Metrobank is valid and
enforceable considering that the properties of TCEI are now in the possession of the
rehabilitation receiver in view of the earlier judgment of approval of the Petition for Corporate
Whether or not the Register of Deeds can legally transfer the titles subject matter of the Petition
for Rehabilitation in favor of Metrobank on 26 June 2003 in view of the existence of the Stay
Order on 8 October 2002 prohibiting the enforcement of claims and the subsequent judgment
approving the Rehabilitation Plan in favor of Petitioner.
HELD: Yes. Yes.
Corporate rehabilitation 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,
the purpose being to enable the company to gain a new lease on life and allow its creditors to
be paid their claims out of its earnings.
A principal feature of corporate rehabilitation is the
Stay Order which defers all actions or claims against the corporation seeking corporate
rehabilitation from the date of its issuance until the dismissal of the petition or termination of the
rehabilitation proceedings.
Under Section 24, Rule 4 of the Interim Rules of Procedure on
Corporate Rehabilitation which was in force at the time TCEI filed its petition for rehabilitation a
quo, the approval of the rehabilitation plan also produces the following results:
a. The plan and its provisions shall be binding upon the debtor and all persons who may be
affected by it, including the creditors, whether or not such persons have participated in the
proceedings or opposed the plan or whether or not their claims have been scheduled;
b. The debtor shall comply with the provisions of the plan and shall take all actions necessary to
carry out the plan;
c. Payments shall be made to the creditors in accordance with the provisions of the plan;
d. Contracts and other arrangements between the debtor and its creditors shall be interpreted
as continuing to apply to the extent that they do not conflict with the provisions of the plan; and
e. Any compromises on amounts or rescheduling of timing of payments by the debtor shall be
binding on creditors regardless of whether or not the plan is successfully implemented.
Metrobank acquired ownership over the mortgaged properties upon the expiration of the
redemption period on 6 February 2002; hence TCEI is already out on a limb in invoking the
Stay Order issued by the Rehabilitation Court on 8 October 2002 and the approval of its
rehabilitation plan on 29 March 2004. An essential function of corporate rehabilitation is,
admittedly, the Stay Order which is a mechanism of suspension of all actions and claims against
the distressed corporation upon the due appointment of a management committee or
rehabilitation receiver. The Stay Order issued by the Rehabilitation Court in SEC Case No. 023-
02 cannot, however, apply to the mortgage obligations owing to Metrobank which had already
been enforced even before TCEIs filing of its petition for corporate rehabilitation on 1 October
Petition DENIED.

G.R. No. 143264, April 23, 2012.
(by Richard San Miguel)
On August 13, 1999, petitioners filed a Complaint against respondents for Annulment of
Mortgage with Prayer for Temporary Restraining Order & Preliminary Injunction with Damages
with the RTC of Legaspi City. Petitioner Lolita A. Soriano alleged that she is a stockholder of
petitioner Lisam Enterprises, Inc. (LEI) and a member of its Board of Directors, designated as its
Corporate Secretary.
Sometime in 1993, plaintiff LEI, in the course of its business operation, acquired by purchase a
parcel of residential land with improvement situated at Legaspi City. On or about 28 March
1996, defendant Lilian S. Soriano and the late Leandro A. Soriano, Jr., as husband and wife, in
their personal capacity and for their own use and benefit, obtained a loan from defendant PCIB
in the total amount of P20 Million. As security for the payment of the aforesaid credit
accommodation, the late Leandro A. Soriano, Jr. and defendant Lilian S. Soriano, as president
and treasurer, respectively of plaintiff LEI, but without authority and consent of the board of said
plaintiff and with the use of a falsified board resolution, executed a real estate mortgage on 28
March 1996, over the above-described property of plaintiff LEI in favor of defendant PCIB.
Plaintiff alleged that PCIB, knowing fully well that the property being mortgaged by the Spouses
Soriano belongs to plaintiff LEI, a corporation, negligently and miserably failed to exercise due
care and prudence required of a banking institution. Specifically, defendant PCIB failed to
investigate and to delve into the propriety of the issuance of or due execution of subject board
resolution, which is the very foundation of the validity of subject real estate mortgage. Further, it
failed to verify the genuineness of the signatures appearing in said board resolution nor to
confirm the fact of its issuance with plaintiff Lolita A. Soriano, as the corporate secretary of
plaintiff LEI.
Said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A. Soriano,
Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita A.
Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself and
on behalf and for the benefit of plaintiff LEI, made demands upon defendants Lilian S. Soriano
and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from such
mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the principal
sum of P20 Million. On 25 June 1999, plaintiffs commenced a derivative suit against defendants
Lilian S. Soriano and the Estate of Leandro A. Soriano, Jr., before the Securities and Exchange
Commission, docketed as SEC Case No. 06-99-6339 for Fraudulent Scheme and Unlawful
Machination with Damages in order to protect and preserve the rights of plaintiffs.
On September 28, 1999, respondent PCIB filed a Motion to Dismiss the Complaint on grounds
of lack of legal capacity to sue, failure to state cause of action, and litis pendencia. Petitioners
filed an Opposition thereto, while PCIB's co-defendants filed a Motion to Suspend Action.
On November 11, 1999, the RTC issued the first assailed Resolution dismissing petitioners'
Complaint. Petitioners then filed a Motion for Reconsideration of said Resolution. While
awaiting resolution of the motion for reconsideration, petitioners also filed, on January 4, 2000, a
Motion to Admit Amended Complaint, amending paragraph 13 of the original complaint to read
as follows:
That said irregular transactions of defendant Lilian S. Soriano and her husband Leandro A.
Soriano, Jr., on one hand, and defendant PCIB, on the other, were discovered by plaintiff Lolita
A. Soriano sometime in April 1999. That immediately upon discovery, said plaintiff, for herself
and on behalf and for the benefit of plaintiff LEI, made demands upon defendant Lilian S.
Soriano and the Estate of Leandro A. Soriano, Jr., to free subject property of plaintiff LEI from
such mortgage lien, by paying in full their personal indebtedness to defendant PCIB in the
principal sum of P20 Million. However, said defendants, for reason only known to them,
continued and still continue to ignore said demands, to the damage and prejudice of
plaintiffs; that plaintiff Lolita A. Soriano likewise made demands upon the Board of Directors of
Lisam Enterprises, Inc., to make legal steps to protect the interest of the corporation from said
fraudulent transaction, but unfortunately, until now, no such legal step was ever taken by the
Board, hence, this action for the benefit and in behalf of the corporation;
On May 15, 2000, the trial court issued the questioned Order denying both the Motion for
Reconsideration and the Motion to Admit Amended Complaint. The trial court held that no new
argument had been raised by petitioners in their motion for reconsideration to address the fact
of plaintiffs' failure to allege in the complaint that petitioner Lolita A. Soriano made demands
upon the Board of Directors of Lisam Enterprises, Inc. to take steps to protect the interest of the
corporation against the fraudulent acts of the Spouses Soriano and PCIB. The trial court further
ruled that the Amended Complaint can no longer be admitted, because the same absolutely
changed petitioners' cause of action.
Whether or not the amended complaint altering the cause of action should be admitted and
whether or not Lolita Soriano had legal standing to file such the derivative suit.
Pertinent provisions of Rule 10 of the Rules of Court provide as follows:
Sec. 2. Amendments as a matter of right. - A party may amend his pleadings once as a matter
of right at any time before a responsive pleading is served x x x.

Sec. 3. Amendments by leave of court. - Except as provided in the next preceding section,
substantial amendments may be made only upon leave of court. But such leave may be
refused if it appears to the court that the motion was made with intent to delay. x x x
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil Procedure amended the former rule
in such manner that the phrase "or that the cause of action or defense is substantially altered"
was stricken-off and not retained in the new rules. The clear import of such amendment in
Section 3, Rule 10 is that under the new rules, "the amendment may (now) substantially alter
the cause of action or defense." This should only be true, however, when despite a substantial
change or alteration in the cause of action or defense, the amendments sought to be made shall
serve the higher interests of substantial justice, and prevent delay and equally promote the
laudable objective of the rules which is to secure a "just, speedy and inexpensive disposition of
every action and proceeding.
With the amendment stating that plaintiff Lolita A. Soriano likewise made demands upon the
Board of Directors of Lisam Enterprises, Inc., to make legal steps to protect the interest of the
corporation from said fraudulent transaction, but unfortunately, until now, no such legal step was
ever taken by the Board, hence, this action for the benefit and in behalf of the corporation, does
the amended complaint now sufficiently state a cause of action? In Hi-Yield Realty,
Incorporated v. Court of Appeals, the Court enumerated the requisites for filing a derivative suit,
as follows:
a) the party bringing the suit should be a shareholder as of the time of the act or transaction
complained of, the number of his shares not being material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a demand on the board of
directors for the appropriate relief but the latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the wrongdoing or harm having
been, or being caused to the corporation and not to the particular stockholder bringing the suit.

G.R. No. 183050, January 25, 2012
(by Ruby Mary Gold Tamsi)

Petitioner Advent Capital filed a petition for rehabilitation with the RTC of Makati City. The
court appointed Atty. Danilo L. Concepcion as rehabilitation receiver. Upon the latters audit with the
Advents books, Atty. Concepcion found that respondents -Alcantara owed Advent Capital P27,
398,026.59, representing trust fees that it supposedly earned for managing their several trust

Atty. Concepcion requested Belson Securities, Inc. (Belson) to deliver to him, as the
rehabilitation receiver, the P7, 635,597.50 cash dividends that Belson held under the Alcantaras
Trust Account. Belson refused because there was no order from the rehabilitation court. Thus, Atty.
Concepcion filed a motion with the rehabilitation court. The Alcantaras objected that the money in
their trust account belonged to them under the Trust Agreement. Advent Capital could not claim any
right or interest in the dividends generated by their investments since Advent Capital merely held
these in trust for the Alcantaras the trustors-beneficiares. Moreover, the Alcantaras concluded
that the rehabilitation court had no jurisdiction over the subject dividends.

However, the rehabilitation court granted Atty. Concepcions motion. The Alcantara filed a
special civil action of certiorari before the CA to annul the rehabilitation courts order, which was
granted and directed Atty. Concepcion to account for and deliver the dividends to Alcantara. The CA
denied Atty. Concepcion and Advent Capitals motion for reconsideration, hence, this petition for
review under Rule 45.

Whether or not the cash dividends held by Belson and claimed by both the Alcantaras and
Advent Capital constitute corporate assets of the latter that the rehabilitation court may, upon
motion, require to be conveyed to the rehabilitation receiver for his disposition;


The problem in this case is that the trust fees that Advent Capitals receiver was claiming
were for past quarters. Based on the Trust Agreement stipulation, these should have been deducted
as they became due. As it happened, at the time Advent Capital made its move to collect its
supposed management fees, it neither had possession nor control of the money it wanted to apply to
its claim. Belson, a third party, held the money in the Alcantaras names. Whether it should deliver
the same to Advent Capital or to the Alcantaras is not clear. What is clear is that the issue as to
who should get the same has been seriously contested.

The practice in the case of banks is that they automatically collect their management fees
from the funds that their clients entrust to them for investment or lending to others. But the banks
can freely do this since it holds or has control of their clients money and since their trust
agreement authorized the automatic collection. If the depositor contests the deduction, his
remedy is to bring an action to recover the amount he claims to have been illegally deducted
from his account.

Here, Advent Capital does not allege that Belson had already deducted the management
fees owing to it from the Alcantaras portfolio at the end of each calendar quarter. Had this been
done, it may be said that the money in Belsons possession would technically be that of Advent
Capital. Belson would be holding such amount in trust for the latter. And it would be for the
Alcantaras to institute an action in the proper court against Advent Capital and Belson for misuse of
its funds.

But the above did not happen. Advent Capital did not exercise its right to cause the
automatic deduction at the end of every quarter of its supposed management fee when it had full
control of the dividends. That was its fault. For their part, the Alcantaras had the right to presume
that Advent Capital had deducted its fees in the manner stated in the contract. The burden of
proving that the fees were not in fact collected lies with Advent Capital.

Further, Advent Capital or its rehabilitation receiver cannot unilaterally decide to apply
the entire amount of cash dividends retroactively to cover the accumulated trust fees. Advent
Capital merely managed in trust for the benefit of the Alcantaras the latters portfolio, which under
Paragraph 2

of the Trust Agreement, includes not only the principal but also its income or proceeds.
The trust property is only fictitiously attributed by law to the trustee to the extent that the rights and
powers vested in a nominal owner shall be used by him on behalf of the real owner.

The real owner of the trust property is the trustor-beneficiary. In this case, the trustors-
beneficiaries are the Alcantaras. Thus, Advent Capital could not dispose of the Alcantaras portfolio
on its own. The income and principal of the portfolio could only be withdrawn upon the Alcantaras
written instruction or order to Advent Capital. The latter could not also assign or encumber the
portfolio or its income without the written consent of the Alcantaras. All these are stipulated in the
Trust Agreement.

Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting
claims of the parties over the dividends that Belson held in trust for their owners. Certainly, not the
rehabilitation court which has not been given the power to resolve ownership disputes between
Advent Capital and third parties. Neither Belson nor the Alcantaras are its debtors or creditors with
interest in the rehabilitation.

Advent Capital must file a separate action for collection to recover the trust fees that it
allegedly earned and, with the trial courts authorization if warranted, put the money in escrow for
payment to whoever it rightly belongs. Having failed to collect the trust fees at the end of each
calendar quarter as stated in the contract, all it had against the Alcantaras was a claim for payment
which is a proper subject for an ordinary action for collection. It cannot enforce its money claim by
simply filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but
in the possession of a third party.

Rehabilitation proceedings are summary and non-adversarial in nature, and do not
contemplate adjudication of claims that must be threshed out in ordinary court proceedings.
Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature
of a rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the
corporate debtor, its creditors and other interested parties. Thus, the Interim Rules incorporate the
concept of prohibited pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings
instead of the traditional approach of receiving evidence, and the grant of authority to the court to
decide the case, or any incident, on the basis of affidavits and documentary evidence.

Here, Advent Capitals claim is disputed and requires a full trial on the merits. It must be
resolved in a separate action where the Alcantaras claim and defenses may also be presented and
heard. Advent Capital cannot say that the filing of a separate action would defeat the purpose of
corporate rehabilitation. In the first place, the Interim Rules do not exempt a company under
rehabilitation from availing of proper legal procedure for collecting debt that may be due it.
Secondly, Court records show that Advent Capital had in fact sought to recover one of its assets by
filing a separate action for replevin involving a car that was registered in its name.
Hence, petition denied.

G.R. No. 193872. October 19, 2011.
(by Leni Fae Veronilla)
Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing
Corporation, Blue Crest Aqua-Farms, Inc. and Iloilo Property Ventures, Inc. (petitioners) are
domestic corporations of the Siochi family. Petitioners are engaged in various businesses and
have interlocking stockholders and directors.

In the course of their business, petitioners borrowed from respondent Bank of the Philippine
Islands (BPI) and from Ayala Life Assurance, Inc. As of 30 June 2004, petitioners total
obligation amounted to P85,362,262.05. On 15 July 2004, petitioners filed with the RTC a
petition for corporate rehabilitation. Petitioners prayed that the RTC:
(1) issue a stay order;
(2) declare petitioners in a state of suspension of payments;
(3) approve petitioners proposed rehabilitation plan; and
(4) appoint a rehabilitation receiver.

The RTC granted the said petition and appointed Atty. Cesar C. Cruz as the petitioners
rehabilitation receiver. The respondent Bank opposed the petition on the ground among others
that the rehabilitation plan was unfeasible and prejudicial to its interest.
Atty. Cruz, the rehabilitation receiver, prayed before the RTC to issue an order to call for a
meeting between the petitioners and their creditor. RTC denied the motion.
Thereafter, the RTC issued an order of approval of the petitioners rehabilitation plan.

On appeal, the Court of Appeals set aside the RTCs Order on the ground that the lower courts
order of granting the petition was rife with procedural infirmities. Hence, the present petition.

Whether or not the RTC correctly gave due course in granting the petition for corporate

No. The petition is denied. The Court of Appeals decision is affirmed.

In the present case, the RTC hastily approved the rehabilitation plan in the same order giving
due course to the petition.

The RTC confined the initial hearing to the issue of jurisdiction and failed to address other more
important matters relating to the petition and comment. The RTC also failed to refer for
evaluation of the rehabilitation plan to the rehabilitation receiver. Thus, the rehabilitation receiver
was unable to submit his recommendations and make modifications or revisions to the
rehabilitation plan as necessary. Moreover, the RTC denied the rehabilitation receivers motion
to issue an order directing petitioners and their creditors to attend a meeting. In its 20 October
2009 Decision, the Court of Appeals found: The most glaring procedural infirmity committed by
the court a quo, however, is its failure to refer respondent corporations petition for rehabilitation
and Rehabilitation Plan to the rehabilitation receiver despite the explicit and clear mandate of
the Interim Rules that if the court is satisfied that there is merit in the petition, it shall give due
course to the petition and immediately refer the same and its annexes to the rehabilitation
receiver x x x.

It is discernible from the foregoing that there are serious matters which should be determined
before rehabilitation may be had. For this reason, the Interim Rules required the appointment of
a rehabilitation receiver simultaneously with the issuance of the Stay Order and prescribed the
following qualifications: expertise and acumen to manage and operate a business similar in size
and complexity to that of the debtor, knowledge in management, finance, and rehabilitation of
distressed companies, and general familiarity with the rights of creditors in rehabilitation, etc. to
further emphasize the significance of the role of the rehabilitation receiver in rehabilitation
proceedings, the Interim Rules directed the rehabilitation receiver to evaluate the rehabilitation
plan and submit his recommendations to the court. In fact, his recommendation bears much
weight as it is one of the factors which must be considered by the court if it were to approve the
rehabilitation plan. More importantly, it must be emphasized that the purpose of the law in
directing the appointment of receivers is to protect the interests of the corporate investors and
creditors. Thus, the court a quo committed serious error when it failed to refer the petition for
rehabilitation and its annexes to the appointed receiver.

We have likewise observed that the court a quo made an unwarranted procedural shortcut as its
finding that there was merit in respondent corporations petition for rehabilitation was made in
the same Order approving their Rehabilitation Plan.

As an officer of the court and an expert, the rehabilitation receiver plays an important role in
corporate rehabilitation proceedings. In Pryce Corporation v. Court of Appeals, the Court held
that, the purpose of the law in directing the appointment of receivers is to protect the interests
of the corporate investors and creditors.
Section 14 of the Interim Rules of Procedure on Corporate Rehabilitation enumerates the
powers and functions of the rehabilitation receiver:
(1) verify the accuracy of the petition, including its annexes such as the schedule of debts and
liabilities and the inventory of assets submitted in support of the petition;
(2) accept and incorporate, when justified, amendments to the schedule of debts and liabilities;
(3) recommend to the court the disallowance of claims and rejection of amendments to the
schedule of debts and liabilities that lack sufficient proof and justification;
(4) submit to the court and make available for review by the creditors a revised schedule of
debts and liabilities;
(5) investigate the acts, conduct, properties, liabilities, and financial condition of the debtor, the
operation of its business and the desirability of the continuance thereof, and any other matter
relevant to the proceedings or to the formulation of a rehabilitation plan;
(6) examine under oath the directors and officers of the debtor and any other witnesses that he
may deem appropriate;
(7) make available to the creditors documents and notices necessary for them to follow and
participate in the proceedings;
(8) report to the court any fact ascertained by him pertaining to the causes of the debtors
problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement, and
Irregularities committed by the stockholders, directors, management, or any other person;
(9) employ such person or persons such as lawyers, accountants,
appraisers, and staff as are necessary in performing his functions and duties as rehabilitation
(10) monitor the operations of the debtor and to immediately report to the
court any material adverse change in the debtors business;
(11) evaluate the existing assets and liabilities, earnings and operations of the debtor;
(12) determine and recommend to the court the best way to salvage and protect the interests of
the creditors, stockholders, and the general public;
(13) study the rehabilitation plan proposed by the debtor or any rehabilitation
plan submitted during the proceedings, together with any comments made thereon;
(14) prohibit and report to the court any encumbrance, transfer, or disposition of the
debtors property outside of the ordinary course of business or what is allowed by the court; (15)
prohibit and report to the court any payments outside of the ordinary course of business; (16)
have unlimited access to the debtors employees, premises, books, records, and financial
documents during business hours;
(17) inspect,copy, photocopy, or photograph any document, paper, book, account, or letter,
whether in the possession of the debtor or other persons;
(18) gain entry into any property for the purpose of inspecting, measuring, surveying, or
photographing it or any designated relevant object or operation thereon;
(19) take possession, control, and custody of the debtors assets;
(20) notify the parties and the court as to contracts that the debtor has decided to continue to
perform or breach;
(21) be notified of, and to attend all meetings of the board of directors and stockholders of the
(22) recommend any modification of an approved rehabilitation plan as he may deem
(23) bring to the attention of the court any material change affecting the debtors ability to meet
the obligations under the rehabilitation plan;
(24) recommend the appointment of a management committee in the cases provided for under
Presidential Decree No. 902-A, as amended;
(25)recommend the termination of the proceedings and the dissolution of the debtor if he
determines that the continuance in business of such entity is no longer feasible or profitable or
no longer works to the best interest of the stockholders, parties-litigants, creditors, or the
general public; and
(26) apply to the court for any order or directive that he may deem necessary or desirable to aid
him in the exercise of his powers.

The rehabilitation plan is an indispensable requirement in corporate rehabilitation
proceedings. Section 5 of the Rules enumerates the essential requisites of a rehabilitation plan:

The rehabilitation plan shall include:
(a) the desired business targets or goals and the duration and coverage of the rehabilitation;
(b) the terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors;
(c) the material financial commitments to support the rehabilitation plan;
(d) the means for the execution of the rehabilitation plan, which may include conversion of the
debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale
of assets or of the controlling interest;
(e) a liquidation analysis that estimates the proportion of the claims that the creditors and
shareholders would receive if the debtors properties were liquidated; and
(f) such other relevant information to enable a reasonable investor to make an informed decision
on the feasibility of the rehabilitation plan.

The Court notes that petitioners failed to include a liquidation analysis in their rehabilitation plan.
Incidentally, since the time of filing on 15 July 2004 of the petition for corporate rehabilitation,
there has been no showing that petitioners situation has improved or that they have complied
faithfully with the terms of the rehabilitation plan.
Court DENIES the petition and AFFIRMS decision of the CA.

G.R. No. 171050, July 4, 2012.
(by Leah Lara Bardoquillo)
The signatures of respondents, Gregoria Pilares Santos (Gregoria) and Rhoel P.
Santos (Rhoel), President and Treasurer of respondent Tentmakers Group,
Inc. (TGI)respectively, appeared on the three (3) promissory notes for loans contracted with
petitioner Far East Bank and Trust Company (FEBTC), now known as Bank of the Philippine
Islands (BPI). The first two (2) promissory notes were signed by both of them on July 5, 1996,
as evidenced by Promissory Note No. 2-038-965034
for 255,000.00 and Promissory Note
No. 2-038-965040
for 155,000.00. Gregoria and Rhoel alleged that they did sign on blank
promissory notes intended for future use. The sixty (60)-day notes became due and
demandable on September 3, 1996.
FEBTC filed a Complaint
before the RTC for the payment of the principal of the
promissory notes which amounted to a total of 887,613.37 inclusive of interest, penalty
charges and attorneys fees. In the said complaint, Gregoria and Rhoel were impleaded to be
jointly and severally liable with TGI for the unpaid promissory notes. In defense, the
respondents alleged that FEBTC had no right at all to demand from them the amount being
claimed; that records would show the absence of any resolution coming from the Board of
Directors of TGI, authorizing the signatories to receive the proceeds and the FEBTC to release
any loan. FEBTC violated the rules and regulations of the Central Bank as well as its own
policy when it failed to require the respondents to submit the said board resolution, it allegedly
being a condition sine qua non before granting a loan to a corporate entity, for the protection of
the depositors/borrowers. RTC ruled in favor of FEBTC, but was reversed by the CA thus this
Petition for Certiorari.
Whether or not the CA erred in ruling that petitioner did not comply with the guidelines
under the manual of regulation for banks, that there was no board resolution/corporate
secretarys certificate designating the signatories for the corporation.
NO. The SC denied the petition and affirmed the decision of the CA.
FEBTC violated the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP) by its failure to strictly follow the guidelines in the conferment of unsecured loans
set forth under the Manual of Regulations for Banks (MORB)
In this case, although there were promissory notes, there was no proof of receipt by the
respondents of the same amounts reflected in the said promissory notes. There was no Board
Resolution/Corporate Secretarys Certificate either, designating the authorized signatories for
the corporation specifically for the loan covered by the Promissory Notes. Even
granting arguendo that the two Board Resolutions (Exhibits A and B) dated March 3, 1995
and April 11, 1995, respectively, authorizing Gregoria and Rhoel to transact business with
FEBTC, were binding, still the petition would not prosper as there was no evidence of crediting
of the proceeds of the promissory notes. Further, there were no collaterals, real estate
mortgage, chattel mortgage or pledges to ensure the payment of the loan.
On a final note, FEBTC should have been more circumspect in dealing with its
clients. It cannot be over emphasized that the banking business is impressed with public
interest. Of paramount importance is the trust and confidence of the public in general in the
banking industry. Consequently, the diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The highest degree of diligence is
In handling loan transactions, banks are under obligation to ensure compliance by
the clients with all the documentary requirements pertaining to the approval and release of the
loan applications. For failure of its branch manager to exercise the requisite diligence in abiding
by the MORB and the banking rules and practices, FEBTC was negligent in the selection and
supervision of its employees.

G.R. No. 160260. October 24, 2012.

(by Billy Anjo Labradores)


From 1986, respondent Myrna Dela Rosa-Ramos (Dela Rosa-Ramos) maintained a
checking/current account with the United Overseas Bank Philippines

(Bank) at the latters Sto.
Cristo Branch, Binondo, Manila. In her several transactions with the Bank, Dela Rosa-Ramos
got acquainted with its Signature Verifier, respondent Domingo Tan.

In the course of their acquaintance, Tan offered Dela Rosa-Ramos a "special
arrangement" wherein he would finance or place sufficient funds in her checking/current account
whenever there would be an overdraft or when the amount of said checks would exceed the
balance of her current account. It was their arrangement to make sure that the checks she
would issue would not be dishonored. Tan offered the service for a fee of P50.00 a day for every
P40,000.00 he would finance. This financier-debtor relationship started in 1987 and lasted

In order to guarantee payment for such funding, Dela Rosa-Ramos issued postdated
checks covering the principal amount plus interest as computed by Tan on specified date.

Relative to their said agreement, Dela Rosa-Ramos issued and delivered to Tan the
following Associated Bank checks

drawn against her current account and payable to "cash," to

467322(Exh. A)1008-08341-0 May 8, 1988 PhP200,000.00

According to Dela Rosa-Ramos , Check No. 467322 for P200,000.00. was originally
dated August 28, 1987 but was altered to make it appear that it was dated May 8, 1988. Tan
then deposited the check in the account of the other respondent, William Co (Co), despite the
obvious superimposed date. As a result, the amount of P200,00.00 or the value indicated in the
check was eventually charged against her checking account.

Claiming that the four checks mentioned were deposited by Tan without her consent,
Dela Rosa-Ramos instituted a complaint

against Tan and the Bank before the RTC


Whether or not the bank is bound by the negligence committed by its employees thereby
resulting to a breach of its fiduciary obligation to its depositor.


Public interest is intimately carved into the banking industry because the primordial
concern here is the trust and confidence of the public. This fiduciary nature of every banks
relationship with its clients/depositors impels it to exercise the highest degree of care, definitely
more than that of a reasonable man or a good father of a family. It is, therefore, required to treat
the accounts and deposits of these individuals with meticulous care. The rationale behind this is
well expressed in Sandejas v. Ignacio:

The banking system has become an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized society banks have attained a
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and most of all, confidence, and it is for this reason, banks should guard against injury
attributable to negligence or bad faith on its part.

Considering that banks can only act through their officers and employees, the fiduciary
obligation laid down for these institutions necessarily extends to their employees. Thus, banks
must ensure that their employees observe the same high level of integrity and performance for it
is only through this that banks may meet and comply with their own fiduciary duty. It has been
repeatedly held that a banks liability as an obligor is not merely vicarious, but primary since
they are expected to observe an equally high degree of diligence, not only in the selection, but
also in the supervision of its employees. Thus, even if it is their employees who are negligent,
the banks responsibility to its client remains paramount making its liability to the same to be a
direct one.

As regards Check No. 467322, the Bank avers that Dela Rosa- Ramos acquiesced to
the change of the date in the said check. It argues that her continued acts of dealing and
transacting with the Bank like subsequently issuing checks despite her experience with this
check only shows her acquiescence which is tantamount to giving her consent. Obviously, the
Bank has not taken to heart its fiduciary responsibility to its clients. Rather than ask and wonder
why there were indeed subsequent transactions, the more paramount issue is why the Bank
through its several competent employees and officers, did not stop, double check and ascertain
the genuineness of the date of the check which displayed an obvious alteration. This failure on
the part of the Bank makes it liable for that loss.

The defendant-bank is not faultless in the irregularities of its signature-verifier. In the first
place, it should have readily rejected the obviously altered plaintiffs P200,000.00-check, thus,
avoid its unwarranted deposit in defendant-Cos account and its corollary loss from plaintiffs
deposit, had its other employees, even excepting TAN, performed their duties efficiently and


G.R. No. 183774. November 14, 2012.

(by Cristine Lim)
Cipriana was the registered owner of a parcel of land in Barrio Tongkil, Minglanilla, Cebu. She
and her husband, Jose Delgado, sold the property to a certain Cecilia Tan (buyer). It was
agreed that the buyer shall make partial payments from time to time. At that time of sale, the
buyer was already occupying a portion of the property where she operates a noodle (bihon)
factory while the rest were occupied by the tenants.
After paying the balance, buyer demanded the execution of the deed of sale but was refused. It
was found out that the property was sold to the Dys and its subsequent mortgage to Philippine
Bank Corporation (Philbank). Spoused Delgado alleged that the deed of absolute sale in favor
of the Dys were fictitious to enable them to use the property as collateral for their loan
application with Philbank. On the other hand, Philbank asserted that it is an innocent mortgagee
for value without notice of defect in the title of the Dys. Spouses Delgado insisted that Philbank
is not a mortgagee in good faith for having granted the loan and accepted the mortgage despite
knowledge of the simulation sale to the Dys and for failure to verify the nature of the buyers
physical possession of a portion of the lot. Spouses Delgado prayed for the the cancellation of
the mortage in Philbanks favor.
Whether or not Philbank is not considered a mortgagee in good faith for failure to ascertain the
properties acquired and to exercise greater care when it conducted an ocular inspection
Philbank is a mortgagee in good faith.
The doctrine of mortgagee in good faith is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title are not required to go beyond what appears on
the face of the title. In the case of banks and other financial institutions, however, greater care
and due diligence are required since they are imbued with public interest, failure of which
renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard
operating practice for these institutions to conduct an ocular inspection of the property offered
for mortgage and to verify the genuineness of the title to determine the real owners. The
apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as
innocent third parties with a right, interest or claim thereon from a usurper who may have
acquired a fraudulent certificate of title.
In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of
the properties offered for mortgage, its omission did not prejudice any innocent third parties. In
particular, the buyer did not pursue her cause and abandoned her claim on the property. On the
other hand, Sps. Delgadowere parties to the simulated sale in favor of the Dys which was
intended to mislead Philbank into granting the loan application. Thus, no amount of diligence in
the conduct of the ocular inspection could have led to the discovery of the complicity between
the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado).
In fine, Philbank can hardly be deemed negligent under the premises since the ultimate cause
of the mortgagors' (the Dys') defective title was the simulated sale to which Sps. Delgado were
A finding of negligence must always be contextualized in line with the attendant circumstances
of a particular case the diligence with which the law requires the individual or a corporation at all
times to govern a particular conduct varies with the nature of the situation in which one is
placed, and the importance of the act which is to be performed Thus, without diminishing the
time honored principle that nothing short of extraordinary diligence is required of banks whose
business is impressed with public interest, Philbank's inconsequential oversight should not and
cannot serve as a basis for fraud and deceit.
In this light, the Dys' and Sps. Delgado's deliberate simulation of the sale intended to obtain
loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As such,
Sps. Delgado cannot now be allowed to deny the validity of the mortgage executed by the Dys
in favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith to
Philbank's detriment. In this regard, Philbank is entitled to have its mortgage carried over or
annotated on the titles of Cipriana Delgado over the said properties.

G.R. No. 158143, September 21, 2011.
(by Beryl Mantos)
DOCTRINE: The General Banking Law of 2000
requires of banks the highest standards
of integrity and performance. The banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking
industry. Consequently, the diligence required of banks is more than that of a
Romanpater familias or a good father of a family.
The highest degree of diligence is
PCIB filed an action for recovery of sum of money against Balmaceda for allegedly obtaining
and enchashing Managers check, which were all cross checks, through fraud which amounted
to P11, 937,150.
Balmaceda successfully obtained and misappropriated the banks funds by falsifying
several commercial documents and taking advantage of his position as branch manager. He
accomplished this by claiming that he had been instructed by one of the Banks corporate
clients to purchase Managers checks on its behalf, with the value of the checks to be debited
from the clients corporate bank account. First, he would instruct the Bank staff to prepare the
application forms for the purchase of Managers checks, payable to several persons. Then, he
would forge the signature of the clients authorized representative on these forms and sign the
forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue
the Managers checks. Balmaceda would subsequently ask his subordinates to release the
Managers checks to him, claiming that the client had requested that he deliver the
After receiving the Managers checks, he encashed them by forging the signatures of
the payees on the checks.

Ramos, on the other hand, was a depositary of the bank. He was impleaded by the bank in this
case for his alleged receipt of some proceeds from Balmacedas fraud, for after Balmaceda
enchased the checks, he deposited most of the money on Ramos account.
Balmaceda failed to answered and was declared in default. Ramos defense was that he was a
businessman engaged in buying and selling fighting cocks, and Balmaceda was one of his
biggest clients. Ramos admitted receiving money from Balmaceda as payment for the fighting
cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of
Balmacedas money.

RTC granted in favor of the bank, but CA reversed said decision on appeal holding that Ramos
cannot be held liable for payment of the amount held to have received from Balmaceda, for his
participation in the said fraud was not sufficientlyl proven by the prosecution.
ISSUE: WON Ramos is liable to return the amount allegedly received from Balmacedas
One point that cannot be disregarded is the significant role that PCIB played which
contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry
out his fraudulent scheme primarily because other PCIB employees failed to carry out their
assigned tasks flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at
the PCIB, Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke
the Banks protocol when he ordered the Banks employees to fill up the application forms for
the Managers checks, to be debited from the bank account of one of the banks clients, without
providing the necessary Authority to Debit from the client.
PCIB also admitted that these
Managers checks were subsequently released to Balmaceda, and not to the clients
representative, based solely on Balmacedas word that the client had tasked him to deliver
these checks.

Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash
the Managers checks that were plainly crossed checks. The crossing of a check is a warning
that the check should be deposited only in the account of the payee. When a check is
crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the
payees account.
In complete disregard of this duty, PCIBs systems allowed Balmaceda to
encash 26 Managers checks which were all crossed checks, or checks payable to the payees
account only.
The General Banking Law of 2000
requires of banks the highest standards of integrity
and performance. The banking business is impressed with public interest. Of paramount
importance is the trust and confidence of the public in general in the banking industry.
Consequently, the diligence required of banks is more than that of a Romanpater familias or a
good father of a family.
The highest degree of diligence is expected.

G.R. Nos. 173090-91. September 7, 2011
(by Ma. Richam Medina)
On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and
respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit
Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu
credit facilities in such amounts as may be approved
From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans
pursuant to this CLA in the total amount of three million six hundred thirty-two thousand
dollars (US$3,632,000.00), as evidenced by promissory notes.
On June 23, 1998, Union Bank advised the spouses Tiu through a letter that, in
view of the existing currency risks, the loans shall be redenominated to their equivalent
Philippine peso amount on July 15, 1998.
On July 3, 1998, the spouses Tiu wrote to Union Bank authorizing the latter to
redenominate the loans at the rate of US$1=P41.40

with interest of 19% for one year.
On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring
The Restructuring Agreement contains a clause wherein the spouses Tiu confirmed
their debt and waived any action on account thereof.
As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real
Estate Mortgage in favor of Union Bank over their residential property inclusive of lot and
The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00)
via three loan facilities (payment schemes).
The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on
August 3, 1999; and (2) anotherP13,197,546.79 as of May 8, 2001. Adding the amounts paid
under the Deeds of Dation in Payment, the spouses Tiu postulate that their payments added up
to P89,407,546.79.
Asserting that the spouses Tiu failed to comply with the payment schemes set up
in the Restructuring Agreement, Union Bank initiated extrajudicial foreclosure proceedings
on the residential property of the spouses Tiu, covered by TCT No. T-11951.
The property was to be sold at public auction onJuly 18, 2002.
The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T.
Young and Rosenda T. Tiu, filed with the Regional Trial Court (RTC) of Mandaue City a
Complaint seeking to have the Extrajudicial Foreclosure declared null and void
The spouses Tiu claim that from the beginning the loans were in pesos, not in
Their office clerk, Lilia Gutierrez, testified that the spouses Tiu merely received the peso
equivalent of their US$3,632,000.00 loan at the rate of US$1=P26.00.
The spouses Tiu further claim that they were merely forced to sign the Restructuring
Agreement and take up an additional loan ofP5,000,000.00, the proceeds of which they never
saw because this amount was immediately applied by Union Bank to interest payments.
The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid,
as the loans have already been fully paid.
They also allege that they are not the owners of the improvements constructed on the lot
because the real owners thereof are their co-petitioners, Juanita T. Tiu, Rosalinda T. King,
Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.
The spouses Tiu further claim that prior to the signing of the Restructuring Agreement,
they entered into a Memorandum of Agreement with Union Bank whereby the former
deposited with the latter several certificates of shares of stock of various companies and four
certificates of title of various parcels of land located in Cebu.
The spouses Tiu claim that these properties have not been subjected to any lien in favor
of Union Bank, yet the latter continues to hold on to these properties and has not returned the
same to the former.
On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily
and validly entered into by both parties.
Presenting as evidence the Warranties embodied in the Real Estate Mortgage, Union
Bank contends that the foreclosure of the mortgage on the residential property of the spouses
Tiu was valid and that the improvements thereon were absolutely owned by them.
Union Bank denies receiving certificates of shares of stock of various companies or the
four certificates of title of various parcels of land from the spouses Tiu.
However, Union Bank also alleges that even if said certificates were in its possession it
is authorized under the Restructuring Agreement to retain any and all properties of the debtor as
security for the loan.
On December 16, 2004, the RTC rendered its Decision

in Civil Case No. MAN-4363 in
favor of Union Bank.
In upholding the validity of the Restructuring Agreement, the RTC held that the
spouses Tiu failed to present any evidence to prove either fraud or intimidation or any
other act vitiating their consent to the same
The RTC noted that they could not present any detailed accounting as to the total
amount they have paid after the execution of the Restructuring Agreement.
Both the spouses Tiu and Union Bank appealed the case to the Court of Appeals
The Court of Appeals held that the loan transactions were in pesos, since there was
supposedly no stipulation the loans will be paid in dollars and since no dollars ever exchanged
Considering that the loans were in pesos from the beginning, the Court of Appeals
reasoned that there is no need to convert the same.
By making it appear that the loans were originally in dollars, Union Bank overstepped its
rights as creditor, and made unwarranted interpretations of the original loan agreement.
According to the Court of Appeals, the Restructuring Agreement, which purportedly
attempts to create a novation of the original loan, was not clearly authorized by the debtors
and was not supported by any cause or consideration.
Since the Restructuring Agreement is void, the original loan of P94,432,000.00
(representing the amount received by the spouses Tiu of US$3,632,000.00 using the
US$1=P26.00 exchange rate) should subsist.
With regard to the ownership of the improvements on the subject mortgaged
property, the Court of Appeals ruled that it belonged to respondent Rodolfo Tius father,
Jose Tiu, since 1981. According to the Court of Appeals, Union Bank should not have relied on
warranties made by debtors that they are the owners of the property
The Court of Appeals likewise found Union Bank liable to return the certificates of stocks
and titles to real properties of the spouses Tiu in its possession.
The appellate court held that Union Bank made judicial admissions of such possession
in its Reply to Plaintiffs Request for Admission.
Finally, the Court of Appeals took judicial notice that before or during the financial
crisis, banks actively convinced debtors to make dollar loans in the guise of benevolence,
saddling borrowers with loans that ballooned twice or thrice their original loans.
The Court of Appeals, noting the cavalier way with which banks exploited and
manipulated the situation,.
On June 1, 2006, the Court of Appeals rendered the assailed Resolution denying Union
Banks Motion for Reconsideration.

RULING: For the validity of the Restructuring Agreement
As previously discussed, the Court of Appeals declared that the Restructuring
Agreement is void on account of its being a failed novation of the original loan agreements. The
Court of Appeals explained that since there was no stipulation that the loans will be paid in
dollars, and since no dollars ever exchanged hands, the original loan transactions were
in pesos.

Proceeding from this premise, the Court of Appeals held that the Restructuring
Agreement, which was meant to convert the loans into pesos, was unwarranted.
Thus, the Court of Appeals reasoned that: Be that as it may, however, since the loans of
the Tiu spouses from Union Bank were peso loans from the very beginning, there is no need for
conversion thereof. A Restructuring Agreement should merely confirm the loans, not add
thereto. By making it appear in the Restructuring Agreement that the loans were originally dollar
loans, Union Bank overstepped its rights as a creditor and made unwarranted interpretations of
the original loan agreement. This Court is not bound by such interpretations made by Union
Bank. When one party makes an interpretation of a contract, he makes it at his own risk, subject
to a subsequent challenge by the other party and a modification by the courts. In this case, that
party making the interpretation is not just any party, but a well entrenched and highly respected
bank. The matter that was being interpreted was also a financial matter that is within the
profound expertise of the bank. A normal person who does not possess the same financial
proficiency or acumen as that of a bank will most likely defer to the latters esteemed opinion,
representations and interpretations. It has been often stated in our jurisprudence that banks
have a fiduciary duty to their depositors. According to the case of Bank of the Philippine
Islands vs. IAC (G.R. No. 69162, February 21, 1992), as a business affected with public
interest and because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. Such fiduciary relationship should also extend to the banks borrowers who,
more often than not, are also depositors of the bank. Banks are in the business of lending while
most borrowers hardly know the basics of such business. When transacting with a bank, most
borrowers concede to the expertise of the bank and consider their procedures, pronouncements
and representations as unassailable, whether such be true or not. Therefore, when there is a
doubtful banking transaction, this Court will tip the scales in favor of the borrower. Given the
above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union
Bank does not operate to supersede all previous loan documents, as claimed by Union Bank.
But the said Restructuring Agreement, as it was crafted by Union Bank, does not merely confirm
the original loan of the Tiu spouses but attempts to create a novation of the said original loan
that is not clearly authorized by the debtors and that is not supported by any cause or
consideration. According to Article 1292 of the New Civil Code, in order that an obligation may
by extinguished by another which substitutes the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. Such is not the case in this instance. No valid novation of the
original obligation took place. Even granting arguendo that there was a novation, the sudden
change in the original amount of the loan to the new amount declared in the Restructuring
Agreement is not supported by any cause or consideration. Under Article 1352 of the Civil
Code, contracts without cause, or with unlawful cause, produce no effect whatever. A contract
whose cause did not exist at the time of the transaction is void. Accordingly, Article 1297 of the
New Civil Code mandates that, if the new obligation is void, the original one shall subsist, unless
the parties intended that the former relation should be extinguished at any event. Since the
Restructuring Agreement is void and since there was no intention to extinguish the original loan,
the original loan shall subsist.
Union Bank does not dispute that the spouses Tiu received the loaned amount of
US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing exchange rate of
However, Union Bank claims that this (receipt in Phil. Peso) does not change the
true nature of the loan as a foreign currency loan,

and proceeded to illustrate in its
Memorandum that the spouses Tiu obtained favorable interest rates by opting to borrow
in dollars (but receiving the equivalent peso amount) as opposed to borrowing in pesos.
We agree with Union Bank on this point. Although indeed, the spouses Tiu received
peso equivalents of the borrowed amounts, the loan documents presented as evidence, i.e., the
promissory notes,

expressed the amount of the loans in US dollars and not in any other
currency. This clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars,
the amount stipulated in said loan documents.
Thus, before the Restructuring Agreement, the spouses Tiu were bound to pay Union
Bank the amount of US$3,632,000.00 plus the interest stipulated in the promissory notes,
without converting the same to pesos. The spouses Tiu, who are in the construction business
and appear to be dealing primarily in Philippine currency, should therefore purchase the
necessary amount of dollars to pay Union Bank, who could have justly refused payment in any
currency other than that which was stipulated in the promissory notes.
We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez,
which merely attests to the fact that the spouses Tiu received the peso equivalent of their dollar
loan, proves the intention of the parties that such loans should be paid in pesos. If such had
been the intention of the parties, the promissory notes could have easily indicated the
Such stipulation of payment in dollars is not prohibited by any prevailing law or
jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code
Art. 1249.The payment of debts in money shall be made in the currency stipulated, and if
it is not possible to deliver such currency, then in the currency which is legal tender in the
Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld

continued effectivity of Republic Act No. 529 ("An Act to Assure Uniform Value of Philippine
Coin and Currency), which took effect earlier on June 16, 1950. Pursuant to Section 1

Republic Act No. 529, any agreement to pay an obligation (e.g loan/ mutuum) in a currency
other than the Philippine currency is void; the most that could be demanded is to pay said
obligation in Philippine currency to be measured in the prevailing rate of exchange at the time
the obligation was incurred.
OnJune 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by
providing for several exceptions to the nullity of agreements to pay in foreign currency.
On April 13, 1993, Central Bank Circular No. 1389

was issued, lifting foreign exchange
restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign
currency loans, however, prior Bangko Sentral approval was required.On July 5, 1996,
Republic Act No. 8183 took effect,

expressly repealing Republic Act No. 529 in Section 2

thereof. The same statute also explicitly provided that parties may agree that the obligation or
transaction shall be settled in a currency other than Philippine currency at the time of payment.
Although the Credit Line Agreement between the spouses Tiu and Union Bank was
entered into on November 21, 1995,

when the agreement to pay in foreign currency was still
considered void under Republic Act No. 529, the actual loans,

as shown in the promissory
notes, were taken out from September 22, 1997 to March 26, 1998, during which time
Republic Act No. 8183 was already in effect.
In United Coconut Planters Bank v. Beluso,

we held that: [O]pening a credit line does
not create a credit transaction of loan or mutuum, since the former is merely a preparatory
contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged,
for the considerations specified therefor, to lend to the other party amounts not exceeding the
limit provided. The credit transaction (LOAN) thus occurred not when the credit line was
opened, but rather when the credit line was availed of. x x x.
Having established that Union Bank and the spouses Tiu validly entered into dollar
loans, the conclusion of the Court of Appeals that there were no dollar loans to novate
into peso loans must necessarily fail.
Similarly, the Court of Appeals pronouncement that the novation was not supported by
any cause or consideration is likewise incorrect. This conclusion suggests that when the parties
signed the Restructuring Agreement, Union Bank got something out of nothing or that the
spouses Tiu received no benefit from the restructuring of their existing loan and was merely
taken advantage of by the bank. It is important to note at this point that in the determination of
the nullity of a contract based on the lack of consideration, the debtor has the burden to prove
the same. Article 1354 of the Civil Code provides that [a]though the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.
In the case at bar, the Restructuring Agreement was signed at the height of the financial
crisis when the Philippine peso was rapidly depreciating. Since the spouses Tiu were bound to
pay their debt in dollars, the cost of purchasing the required currency was likewise swiftly
increasing. If the parties did not enter into the Restructuring Agreement in December 1999 and
the peso continued to deteriorate, the ability of the spouses Tiu to pay and the ability of Union
Bank to collect would both have immensely suffered. As shown by the evidence presented by
Union Bank, the peso indeed continued to deteriorate, climbing to US$1=P50.01 on December

Hence, in order to ensure the stability of the loan agreement, Union Bank and the
spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at
P150,364,800.00 and the unpaid interest at P5,000,000.00.
Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring
Agreement was vitiated by fraud and mistake.
We have painstakingly perused over the records of this case, but failed to find any
documentary evidence of the alleged payment of P40,447,185.60 before the execution of the
Restructuring Agreement.
As regards the alleged redenomination of the same dollar loans in 1997 at the rate
of US$1=P26.34, the spouses Tiu merely relied on the following direct testimony of
Herbert Hojas, one of the witnesses of Union Bank
Neither party presented any documentary evidence of the alleged redenomination in
1997. Respondent Rodolfo Tiu did not even mention it in his testimony. Furthermore, Hojas was
obviously uncertain in his statement that said redenomination was made in 1997.
As pointed out by the trial court, the Restructuring Agreement, being notarized, is
a public document enjoying a prima faciepresumption of authenticity and due execution.
Clear and convincing evidence must be presented to overcome such legal presumption.

spouses Tiu, who attested before the notary public that the Restructuring Agreement is their
own free and voluntary act and deed,

failed to present sufficient evidence to prove otherwise. It
is difficult to believe that the spouses Tiu, veteran businessmen who operate a multi-million
peso company, would sign a very important document without fully understanding its contents
and consequences.
This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid
and binding novation of loans of the spouses Tiu entered into from September 22, 1997 to
March 26, 1998 which had a total amount of US$3,632,000.00.

G.R. No. 157049, August 11, 2010.
(by Christopher J ohn Menguito)

Carlos Romulo Cruz, the respondent, an architect and businessman, maintained a savings and
checking account at the petitioners Loyola Heights Branch. Due to an oversight by its bank
employee, the savings account of respondent was closed.

Due to the closure, the respondent sustained extreme embarrassment, for the checks he issued
would not be honored although his savings account was sufficiently funded and the accounts
were maintained under the petitioners check-o-matic arrangement.

The respondent sued in the RTC to claim for damages from the petitioner. After the trial, The
RTC ruled in favor of the respondent, and ordered the petitioner to pay him 100,000.00 as
moral damages, 20,000.00 as exemplary damages, and 20,000.00 as attorneys fees. The
RTC found that the petitioner failed to properly supervise its teller in which the respondent
sustained embarassment and humilitation, entitling him to damages.

The petitioner appealed to the CA, arguing the RTC erred in ordering it to pay moral and
exemplary damages. However, the CA affirmed the RTC. The petitioner sought for
reconsideration, but CA denied its motion for reconsideration for lack of merit.


Whether or not the bank is liable for damages caused to the respondent.


Yes. The petition has no merit.

The errors sought to be reviewed focused on the correctness of the factual findings of the CA.
Such review will require the Court to again assess the facts. Yet, the Court is not a trier of facts.
Thus, the appeal is not proper, for only questions of law can be elevated to the Court via petition
for review on certiorari.

The petitioner as a banking institution has the direct obligation to supervise closely its
employees handling its depositors' account. It should always be mindful of the fiduciary nature
of its relationship with the depositors which require it and its employees to record accurately
every single transaction, considering that the depositor's account should always reflect the
amounts of money the depositors could dispose of as they saw fit. If the bank fell short of this
obligation, it should bear the responsibility for the consequences to the depositors, who, like the
herein respondent, suffered embarrassment due to the negligence in the handling of his

In several court decisions, banks are made liable for negligence even without sufficient proof of
malice or bad faith and awarded damages each time to the suing depositors in proper
consideration of their reputation and social standing.

Finally, it is never overemphasized that the public always relies on a bank's profession of
diligence and meticulousness in rendering service. Its failure to exercise such warrants its
liability for exemplary damages and reasonable attorney's fees.

(by J hona Grace Alo)
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank,
in the course of its banking business, from September 30, 1974 to June 30, 1977, received from its head
office and other foreign branches a total of P11,923,163,908.00 in dollars, covered by Certificates of
Dollar Time Deposit that were interest-bearing with corresponding maturity dates. These funds, which
were lodged in the books of Citibank under the account Their Account-Head Office/Branches-Foreign
Currency, were not reported to PDIC as deposit liabilities that were subject to assessment for insurance.
As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of
On the other hand, sometime in 1979, PDIC examined the books of accounts of BA which revealed that
from September 30, 1976 to June 30, 1978, BA received from its head office and its other foreign
branches a total of P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates and lodged in their books under the account Due to
Head Office/Branches. Because BA also excluded these from its deposit liabilities, PDIC wrote to BA on
October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments
for dollar deposits.
Declaratory relief by Citibank and Bank of America
Citibank and BA each filed a petition for declaratory relief before the Court of First Instance (now the
Regional Trial Court) of Rizal on July 19, 1979and December 11, 1979, respectively.
In their petitions, Citibank and BA sought a declaratory judgment stating that the money placements they
received from their head office and other foreign branches were not deposits and did not give rise to
insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a
consequence, the deficiency assessments made by PDIC were improper and erroneous. The cases were
then consolidated.
RTC Decision
The RTC ruled in favour of the banks and stated that the money placements subject of the petitions:
1. Were not assessable for insurance purposes under the PDIC Charter because said placements were
deposits made outside of the Philippines and, under Section 3.05(b) of the PDIC Rules and Regulations,
such deposits are excluded from the computation of deposit liabilities.
2. Section 3(f) of the PDIC Charter likewise excludes from the definition of the term deposit any
obligation of a bank payable at the office of the bank located outside the Philippines.
3. There was no depositor-depository relationship between the respondents and their head office or other
As a result, such deposits were not included as third-party deposits that must be insured. Rather, they
were considered inter-branch deposits which were excluded from the assessment base, in accordance
with the practice of the United States Federal Deposit Insurance Corporation (FDIC) after which PDIC
was patterned.
Appeal by PDIC to CA
CA which affirmed the ruling of the RTC in 2005.
1. CA found that the money placements were received as part of the banks internal dealings by Citibank
and BA as agents of their respective head offices. This showed that the head office and the Philippine
branch were considered as the same entity. Thus, no bank deposit could have arisen from the
transactions between the Philippine branch and the head office because there did not exist two separate
contracting parties to act as depositor and depositary.
2. The CA called attention to the purpose for the creation of PDIC which was to protect the deposits of
depositors in the Philippines and not the deposits of the same bank through its head office or foreign
3. Because there was no law or jurisprudence on the treatment of inter-branch deposits between the
Philippine branch of a foreign bank and its head office and other branches for purposes of insurance, the
CA was guided by the procedure observed by the FDIC which considered inter-branch deposits as non-
4. The CA cited Section 3(f) of R.A. No. 3591, now Section 4, which specifically excludes obligations
payable at the office of the bank located outside the Philippines from the definition of a deposit or an
insured deposit.
PDIC contentions
PDIC argues that the head offices of Citibank and BA and their individual foreign branches are separate
and independent entities. It insists that under American jurisprudence, a banks head office and its
branches have a principal-agent relationship only if they operate in the same jurisdiction.
In the case of foreign branches, however, no such relationship exists because the head office and said
foreign branches are deemed to be two distinct entities.
Under Philippine law, specifically, Section 3(b) now 4 (b) of R.A. No. 3591, which defines the terms bank
and banking institutions, PDIC contends that the law treats a branch of a foreign bank as a separate and
independent banking unit.
No. The Court begins by examining the manner by which a foreign corporation can establish its presence
in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which
case such subsidiary would have its own separate and independent legal personality to conduct business
in the country.
In the alternative, it may create a branch in the Philippines , which would not be a legally independent
unit, and simply obtains a license to do business in the Philippines.
In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic
corporation to represent its business interests in the Philippines.
Their Philippine branches are, as the name implies, merely branches, without a separate legal personality
from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by
the respondents in their respective branches in the Philippines should not be treated as deposits made by
third parties subject to deposit insurance under the PDIC Charter
In addition, Philippine banking laws also support the conclusion that the head office of a foreign
bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The General
Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of Foreign Banks)
both require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its
Philippine branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. In order to provide effective protection of the interests of the
depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches
shall fully guarantee the prompt payment of all liabilities of its Philippine branch.
Residents and citizens of thePhilippineswho are creditors of a branch in thePhilippinesof foreign bank
shall have preferential rights to the assets of such branch in accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall guarantee prompt
payment of all liabilities of its Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as espoused in Section 1 of R.A. No.
3591 (The PDIC Charter) which provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as
the Corporation which shall insure, as herein provided, the deposits of all banks which are entitled to the
benefits of insurance under this Act, and which shall have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the establishment of the
Section 1. Statement of State Policy and Objectives. It is hereby declared to be the policy of the State to
strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain faith and
confidence in the countrys banking system, and protect it from illegal schemes and machinations.

(by Rodelo Martin Damaolao)
-[In the case of Pp. v. Estrada] Special Prosecution Panel (composed of the Ombudsman, the
Special Prosecutor, Deputy Special Prosecutor, Asst. Ombudsman, Special Prosecution III and
SP II), filed before Sandiganbayan are quest for the issuance of subpoena duces tecum
directing the president of Export and Industry Bank (EIB) or his/her representative to produce
documents relating to the acts therein specified.
-The Special Prosecution Panel likewise requested for issuance of Subpoena Duces Tecum /
Ad testificandum directed to the authorized representative of Equitable-PCI Bank to produce
statements of accounts in the name of Jose Velarde and testify thereon.
-Estrada, claiming to have learned from the media that the Special Prosecution Panel had
requested for the issuance of subpoenas the examination of bank accounts belonging to him,
attended the hearing of the case and filed before the Sandiganbayan a letter of opposition and
requested that he be given time to retain the services of a lawyer and prayed that the issuance
of the subpoena be held in abeyance for at least 10 days to enable him to take appropriate legal
-In open court, Associate Justice Sandoval of Sandiganbayan advised Estrada that his remedy
was to file a motion to quash, for which he was given up to 12nn the following day.
-Estrada unassisted by counsel filed a motion to quash claiming that his bank accounts are
covered by RA 1405 and do not fall under any of the exceptions stated therein.
-Other requests for issuance of Subpoenas were filed, and thus issued, hence, motion to quash
was filed by Estrada but was denied by Sandiganbayan. Sandiganbayan further denied Motion
for reconsideration.

1. Whether or not Estradas Account is covered by the term deposit as used in RA
1405.2.Whether or not Estradas Trust and Savings accounts are exempt from the protection of
RA 1405.
-An examination of RA 1405 shows that the term deposits used therein is to be understood
broadly and not limited to accounts which give rise to a creditor-debtor relationship between the
depositor and the bank. If the money deposited under an account may be used by banks for
authorized loans to third persons, then such account, regardless of whether it creates a creditor-
debtor relationship between the depositor and the bank falls under the category of accounts
which the law precisely seeks to protect.
-The phrase of whatever nature proscribes any restrictive interpretation of deposits. RA 1405
applies not only to money which are invested, such as those placed in a trust account.
-These accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two
exceptions applicable in this case namely: (1) the examination of bank accounts is upon order of
a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money
deposited or invested is the subject matter of the litigation.
-Exception 1 applies since the plunder case pending against former President Estrada is
analogous to bribery or dereliction of duty, while exception 2 applies because the money
deposited in Estradas bank accounts is said to form part of the subject matter of the same
plunder case.
GR No. 189206 June 8, 2011
(by Rodelo Martin Damaolao)
The case is an incident to an original civil case filed by the banks (i.e. LBP, Industrial
Bank of Korea, Tong Yang Merchant Bank, First Merchant Banking Corporation and
Westmont Bank) against DOMSAT Holdings and GSIS for damages and for the
collection of sum of money.
The original contract was for the banks to loan out 11million US dollars to DOMSAT
which was secured with a surety by the GSIS.
Subsequently, DOMSAT failed to pay the loan and GSIS refused to comply with its
obligations and alleged that the loan was not used for its purpose but was transferred
and deposited the 11million US dollars to Citibank New York and then to Westmont
Bank in Binondo.
During the pendency of the case, GSIS requested for the issuance of a subpoena duces
tecum for the production of the following documents:
Ledger covering the account of DOMSAT Holdings, Inc. with Westmont Bank;
All applications for cashier's/ manager's checks and bank transfers funded by the
account of DOMSAT Holdings, Inc. with or through the Westmont Bank;
Ledger covering the account of Philippine Agila Satellite, Inc. with Westmont
Bank; and
All applications for cashier's/manager's checks funded by the account of
Philippine Agila Satellite, Inc. with or through the Westmont Bank.
The RTC issued the said subpoena but the banks filed a motion to quash on the
grounds that the said subpoena is in violation of the Law on the Secrecy of Bank
That the law declares bank deposits to be "absolutely confidential" except: x x x (6) In
cases where the money deposited or invested is the subject matter of the litigation.
GSIS on the otherhand argued that it needed such documents so as to prove its
After the CA quashed the issuance of the subpoena, GSIS then raised the issue on
whether DOMSAT and Westmont Banks disclosure of the said documents during trial,
no longer makes the documents secret and confidential and the rights of GSIS to inquire
on such documents should not be suppressed.
GSIS argument is based on the Law on the Secrecy of Bank Deposits which allows the
disclosure of the bank deposits if the money is the subject of the ligation.
Furthermore, GSIS argued that its liability is contingent upon whether DOMSAT indeed
used the money for its intended purpose.
Whether or not the deposit can be disclosed to respondent GSIS?
Whether or not the exception to the law on the secrecy of bank deposits apply in
the case?
The SC ruled that because the deposit involves foreign currency, the applicable law
should be Republic Act No. 6426 and not Republic Act No. 1405.
Under RA 1405, there are 4 exceptions as to when bank deposits can be disclosed:
a) upon written permission of the depositor;
b) in cases of impeachment;
c) upon order of a competent court in the case of bribery or dereliction of duty of
public officials or, when the money deposited or invested is the subject matter of
the litigation; or
d) in cases of violation of the Anti-Money Laundering Act (AMLA), the Anti-Money
Laundering Council (AMLC) may inquire into a bank account upon order of any
competent court.
These two laws both support the confidentiality of bank deposits. There is no conflict
between them. Republic Act No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in banking institutions. It covers all
bank deposits in the Philippines and no distinction was made between domestic and
foreign deposits. Thus, Republic Act No. 1405 is considered a law of general application.
On the other hand, Republic Act No. 6426 was intended to encourage deposits from
foreign lenders and investors. It is a special law designed especially for foreign currency
deposits in the Philippines. A general law does not nullify a specific or special law.
It should be noted that the exception is only applicable if the fund deposited is the
subject of the original complaint and inquiry.
In the case at bar, the original complaint is a simple money claim with damages.

G.R. No. 135882 June 27, 2001
(by Debbie N. Samonte)
Petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto to produce
several bank documents for purposes of inspection in camera relative to various accounts
maintained at Union Bank of the Philippines - Julia Vargas Branch where petitioner was the
branch manager. The accounts to be inspected were involved in a case pending with the
Ombudsman for violation of RA 3019 Sec. 3 (e) and (g) relative to the Joint Venture Agreement
between the Public Estates Authority and AMARI. The Order was grounded on Section 15 of RA
6770 (Ombudsman Act of 1989) which provides, among others, the following powers, functions
and duties of the Ombudsman:
(8) Administer oaths, issue subpoena and subpoena duces tecum and take testimony in
any investigation or inquiry, including the power to examine and have access to bank
accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same
procedure and with the same penalties provided therein.
Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the
Secrecy of Bank Deposits (R.A. 1405) and places the office of the Ombudsman in the
same footing as the courts of law in this regard.
The basis of the Ombudsman in ordering an in camera inspection of the accounts was a trail of
managers checks purchased by one George Trivinio, a respondent in a pending with the office
of the Ombudsman. Trivinio purchased 51 MCs amounting to P272.1 Million at Traders Royal
Bank (TRB). Out of the 51 MCs, eleven 11 MCs amounting to P70.6M were deposited and
credited to an account maintained at the UBP.
The FFIB panel met with Marquez and Atty. Fe B. Macalino for the purpose of allowing
petitioner and Atty. Macalino to view the checks furnished by TRB. Atty. Macalino advised Ms.
Marquez to comply with the order of the Ombudsman. Marquez agreed to an in camera
inspection but after a day, she wrote to the Ombudsman that the accounts in question could not
readily be identified since the checks were issued in cash or bearer, and asked for time to
respond to the order. Marquez said that these accounts had long been dormant, hence were not
covered by the new account number generated by the UB system, thus sought to verify from the
Interbank records archives for the whereabouts of these accounts.
The Ombudsman stated that UBP-Julia Vargas, not Interbank, was the depositary bank of the
subject TRB MCs as shown at its dorsal portion and as cleared by the Philippine Clearing
House. Regardless that the checks were payable to cash or bearer, the name of the
depositor(s) could easily be identified since the account numbers where said checks were
deposited were identified in the order. Even if the accounts were already classified as dormant
accounts, the bank was still required to preserve the records pertaining to the accounts within a
certain period of time as required by existing banking rules and regulations.
The Ombudsman issued an order directing Marquez to produce the bank documents, stating
that her persistent refusal to comply with the order is unjustified, was merely intended to delay
the investigation of the case, constitutes disobedience of or resistance to a lawful order issued
by the office and is punishable as Indirect Contempt under Section 3(b) of R.A. 6770.
Marquez filed a petition for declaratory relief, prohibition and injunction against the Ombudsman
allegedly because the Ombudsman and other persons acting under his authority were
continuously harassing her to produce the bank documents relative to the accounts in question.
The Ombudsman issued another order stating that unless she appeared before the FFIB with
the documents requested, Marquez would be charged with indirect contempt and obstruction of
The lower court denied petitioners prayer for TRO stating that since petitioner failed to show
prima facie evidence that the subject matter of the investigation is outside the jurisdiction of the
Office of the Ombudsman, no writ of injunction may be issued by the RTC to delay the
investigation pursuant to Section 14 of the Ombudsman Act of 1989.
Petitioner filed a motion for reconsideration but was denied.
Petitioner received a copy of the motion to cite her for contempt. She filed with the Ombudsman
an opposition to the motion to cite her in contempt on the ground that the filing thereof was
premature due to the petition pending in the lower court. She also reiterated that she had no
intention to disobey the orders of the Ombudsman, but she wanted to be clarified as to how she
would comply with the orders without her breaking any law, particularly RA 1405.
1. WON Marquez may be cited for indirect contempt for her failure to produce the documents
requested by the Ombudsman.
2. WON the order of the Ombudsman to have an in camera inspection of the questioned
account is allowed as an exception to the law on secrecy of bank deposits (RA 1405).
An examination of the secrecy of bank deposits law (RA 1405) would reveal the following
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as held in the case of PNB vs.
SC ruled that before an in camera inspection may be allowed, there must be a pending case
before a court of competent jurisdiction. The account must be clearly identified, the inspection
limited to the subject matter of the pending case before the court of competent jurisdiction. The
bank personnel and the account holder must be notified to be present during the inspection, and
such inspection may cover only the account identified in the pending case.
In UBP v. CA, SC held that Section 2 of the Law on Secrecy of Bank Deposits, as amended,
declares bank deposits to be absolutely confidential except:
(1) In an examination made in the course of a special or general examination of a bank that is
specifically authorized by the Monetary Board after being satisfied that there is reasonable
ground to believe that a bank fraud or serious irregularity has been or is being committed and
that it is necessary to look into the deposit to establish such fraud or irregularity,
(2) In an examination made by an independent auditor hired by the bank to conduct its regular
audit provided that the examination is for audit purposes only and the results thereof shall be for
the exclusive use of the bank,
(3) Upon written permission of the depositor,
(4) In cases of impeachment,
(5) Upon order of a competent court in cases of bribery or dereliction of duty of public officials,
(6) In cases where the money deposited or invested is the subject matter of the litigation
In the case at bar, there is yet no pending litigation before any court of competent authority.
What is existing is an investigation by the office of the Ombudsman. In short, what the Office of
the Ombudsman would wish to do is to fish for additional evidence to formally charge Amado
Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which
would warrant the opening of the bank account for inspection.
Zones of privacy are recognized and protected in our laws. The Civil Code provides that every
person shall respect the dignity, personality, privacy and peace of mind of his neighbors and
other persons and punishes as actionable torts several acts for meddling and prying into the
privacy of another. It also holds a public officer or employee or any private individual liable for
damages for any violation of the rights and liberties of another person, and recognizes the
privacy of letters and other private communications. The Revised Penal Code makes a crime of
the violation of secrets by an officer, the revelation of trade and industrial secrets, and trespass
to dwelling. Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the
Secrecy of Bank Deposits Act, and the Intellectual Property Code.
Ombudsman is ordered to cease and desist from requiring Union Bank Manager Lourdes T.
Marquez, or anyone in her place to comply with the order dated October 14, 1998, and similar

G.R. No. 166884. June 13, 2012
(By Christine Athena Monsanto)

LBP filed a complaint for estafa or violation of Article 315, paragraph 1(b) of the Revised
Penal Code, in relation to P.D. 115, against the respondents before the City Prosecutors Office
in Makati City. LBP extended a credit accommodation to ACDC through the execution of an
Omnibus Credit Line Agreement between LBP and ACDC. The respondents, as officers and
representatives of ACDC, executed trust receipts in connection with the construction materials,
with a total principal amount of P52,344,096.32. The trust receipts matured, but ACDC failed to
return to LBP the proceeds of the construction projects or the construction materials subject of
the trust receipts. LBP sent ACDC a demand letter,
dated May 4, 1999, for the payment of its
debts, including those under the Trust Receipts Facility in the amount of P66,425,924.39. When
ACDC failed to comply with the demand letter, LBP filed the affidavit-complaint. Makati
Assistant City Prosecutor Amador Y. Pineda dismissed the complaint. LBP MR was also
On appeal, the Secretary of Justice reversed the Resolution of the Assistant City
Prosecution. He pointed out that there was no question that the goods covered by the trust
receipts were received by ACDC. The City Prosecutor of Makati City was directed to file an
information for estafa under Art. 315 (1) (b) of the Revised Penal Code in relation to Section 13,
Presidential Decree No. 115 against respondents Lamberto C. Perez, Nestor C. Kun, [Ma.
Estelita P. Angeles-Panlilio] and Napoleon O. Garcia. The respondents filed a motion for
reconsideration Secretary of Justice denied.
In a petition for review before the Court of Appeals, the CA Applied the doctrine in Colinares, it
ruled that this case did not involve a trust receipt transaction, but a mere loan. It emphasized
that construction materials, the subject of the trust receipt transaction, were delivered to ACDC
even before the trust receipts were executed. It noted that LBP did not offer proof that the
goods were received by ACDC, and that the trust receipts did not contain a description of the
goods, their invoice value, the amount of the draft to be paid, and their maturity dates. It also
adopted ACDCs argument that since no payment for the construction projects had been
received by ACDC, its officers could not have been guilty of misappropriating any payment. The
Petition was granted and decision of the Secretary of Justice was reversed ad set aside. LBP
now files this petition for review on certiorari.
While the case was pending, the respondents filed a motion to dismiss. They informed
the Court that LBP had already assigned to Philippine Opportunities for Growth and Income,
Inc. all of its rights, title and interests in the loans subject of this case in a Deed of Absolute
Sale. The respondents also stated that Avent Holdings Corporation, in behalf of ACDC, had
already settled ACDCs obligation to LBP. However, SC denied the petition.

ISSUE: Whether or not the disputed transactions are not trust receipts?
HELD: The disputed transactions are not trust receipts.

There are two obligations in a trust receipt transaction. The first is covered by the
provision that refers to money under the obligation to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision referring to merchandise received
under the obligation to return it (devolvera) to the owner.
Thus, under the Trust Receipts
Law intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the
sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to
return the goods under trust, if they are not disposed of in accordance with the terms of the trust

In all trust receipt transactions, both obligations on the part of the trustee exist in the
alternative the return of the proceeds of the sale or the return or recovery of the goods,
whether raw or processed. When both parties enter into an agreement knowing that the return
of the goods subject of the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only
obligation actually agreed upon by the parties would be the return of the proceeds of the sale

Section 4 of P.D. 115. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by
and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds
absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's
execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are
unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of
the following:
1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the
purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing
before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has
complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner
preliminary or necessary to their sale[.]

transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the
bank the amount spent for the purchase of the goods.

At the onset of these transactions, LBP knew that ACDC was in the construction
business and that the materials that it sought to buy under the letters of credit were to be used
for the following projects: the Metro Rail Transit Project and the Clark Centennial Exposition
Project. LBP had in fact authorized the delivery of the materials on the construction sites for
these projects, as seen in the letters of credit it attached to its complaint. Clearly, they were
aware of the fact that there was no way they could recover the buildings or constructions for
which the materials subject of the alleged trust receipts had been used. Notably, despite the
allegations in the affidavit-complaint wherein LBP sought the return of the construction
materials, its demand letter dated May 4, 1999 sought the payment of the balance but failed to
ask, as an alternative, for the return of the construction materials or the buildings where these
materials had been used.

Thus, in concluding that the transaction was a loan and not a trust receipt, we noted
in Colinares that the industry or line of work that the borrowers were engaged in was
construction. Goods and the materials that are used for a construction project are often placed
under the control and custody of the clients employing the contractor, who can only be
compelled to return the materials if they fail to pay the contractor and often only after the
requisite legal proceedings. The contractors difficulty and uncertainty in claiming these
materials (or the buildings and structures which they become part of), as soon as the bank
demands them, disqualify them from being covered by trust receipt agreements.

Based on these premises, we cannot consider the agreements between the parties in
this case to be trust receipt transactions because (1) from the start, the parties were aware that
ACDC could not possibly be obligated to reconvey to LBP the materials or the end product for
which they were used; and (2) from the moment the materials were used for the government
projects, they became public, not LBPs, property.

Since these transactions are not trust receipts, an action for estafa should not be
brought against the respondents, who are liable only for a loan.

As the law stands today, violations of Trust Receipts Law are criminally punishable, but
no criminal complaint for violation of Article 315, paragraph 1(b) of the Revised Penal Code, in
relation with P.D. 115, should prosper against a borrower who was not part of a genuine trust
receipt transaction. In this case, the misappropriation could be committed should the entrustee
fail to turn over the proceeds of the sale of the goods covered by the trust receipt transaction or
fail to return the goods themselves. The respondents could not have failed to return the
proceeds since their allegations that the clients of ACDC had not paid for the projects it had
undertaken with them at the time the case was filed had never been questioned or denied by
LBP. What can only be attributed to the respondents would be the failure to return the goods
subject of the trust receipts.
G.R. No. 184122, January 20, 2010.
(by Kristine Nejudne)
Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading,
and Tuanson Builders Corporation (Tuanson Builders) borrowed various sums totaling P75
million from Far East Bank and Trust Company. For collateral, they executed real estate
mortgages over several of their properties,[1] including certain lands in Legazpi City owned by
Tuanson Trading. In 1999, unable to pay their loans, the Yus and Tuanson Builders requested a
loan restructuring, which the bank, now merged with Bank of the Philippine Islands (BPI),
granted. By this time, the Yus' loan balance stood at P33,400,000.00. The restructured loan
used the same collaterals, with the exception of Transfer Certificate of Title 40247 that secured
a loan of P1,600,000. Despite the restructuring, Yus had a difficulty in paying their loan in which
the BPI moved for extrajudicial foreclosure on the mortgaged properties in Legazpi City and Pili,
Camarines Sur, wherein Magnacraft Development Corporation (Magnacraft) won as the highest
bidder. The spouses and Magnacraft entered into a compromise agreement but filed a new
complaint against BPI for recovery of alleged excessive penalty charges, attorney's fees, and
foreclosure expenses that the bank caused to be incorporated in the price of the auctioned
properties. The spouses moved for summary judgment on the following issues: reduction of
penalty alleging that the company (BPI) violated RA 3765 or Truth in Lending Act and reduction
of attorneys fees w/c granted by RTC and affirmed by CA.

1. Whether or not the case presented no genuine issues of fact such as to warrant a
summary judgment by the RTC; and

2. Where summary judgment is proper, whether or not the RTC and the CA a) correctly
deleted the penalty charges because of BPI's alleged failure to comply with the Truth in
Lending Act; b) correctly reduced the attorney's fees to 1% of the judgment debt; and c)
properly dismissed BPI's counterclaims for moral and exemplary damages, attorney's
fees, and litigation expenses.

One, a summary judgment is apt when the essential facts of the case are uncontested or
the parties do not raise any genuine issue of fact. Since the parties admitted not only the
existence, authenticity, and genuine execution of these documents but also what they stated,
the trial court did not need to hold a trial for the reception of the evidence of the parties.

Two, although BPI failed to state the penalty charges in the disclosure statement but the
promissory note that the Yus signed, on the same date as the disclosure statement, contained a
penalty clause. The promissory note is an acknowledgment of a debt and commitment to repay
it on the date and under the conditions that the parties agreed on. It is a valid contract absent
proof of acts which might have vitiated consent. In this case, the promissory notes signed by the
Yus contained data, including penalty charges, required by the Truth in Lending Act.
Nonetheless, the courts have authority to reduce penalty charges when these are
unreasonable and iniquitous, thus, finds the ruling of the RTC in its original decision reasonable
and fair. Thus, the penalty charge of 12% per annum or 1% per month is imposed.
As for the award of attorney's fee, it being part of a party's liquidated damages, the same
may likewise be equitably reduced. The CA correctly affirmed the RTC Order to reduce it from
10% to 1% based on the following reasons: (1) attorney's fee is not essential to the cost of
borrowing, but a mere incident of collection; (2) 1% is just and adequate because BPI had
already charged foreclosure expenses; (3) attorney's fee of 10% of the total amount due is
onerous considering the rote effort that goes into extrajudicial foreclosures

G.R. No. 164197, January 25, 2012.
(by Kara Mae Noveda)
Prosperity.Com, Inc. (PCI), herein respondent, has sold computer software and hosted websites
without providing internet service. What PCI does to accrue earnings is sell a 15-Mega Byte
(MB) capacity website for US$234.00 (later increased to US$294.00), the same company
encourages these buyers to, thereafter, earn commissions, interest in real estate in the
Philippines and in the US, from the former by way of enlisting two other buyers as his/her
down-lines. This scheme, as it appears, is akin to that of the Golconda Ventures, Inc. (GVI), a
company whose operations were ceased due to a cease and desist order (order) issued against
it by the SEC. It should also be noted that PCI has been run by the persons behind the GVI.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging
that the latter had taken over GVIs operations. After hearing, the SEC, through its Compliance
and Enforcement unit, issued a CDO against PCI. The SEC ruled that PCIs scheme
constitutes an Investment contract and, following the Securities Regulations Code, it should
have first registered such contract or securities with the SEC. Instead of asking the SEC to lift its
CDO, PCI filed with the Court of Appeals (CA) a petition for certiorari against the SEC with an
application for a temporary restraining order (TRO) and preliminary injunction in CA-G.R. SP
Does the above scheme violate the SRC? More particulary: Does the scheme by PCI constitute
an investment contract--which makes it a transaction which should be registered with the
No. It is not an investment contract.
Rationale: First of all, what makes an investment contract? The SC, in this decision, was
persuaded by an American case, Securities and Exchange Commission v. W.J. Howey Co.
which defines an investment contract, to be one consisting of the following elements (referred to
as the Howey test):
(1) a contract, transaction, or scheme;
(2) an investment of money;
(3) investment is made in a common enterprise;
(4) expectation of profits; and
(5) profits arising primarily from the efforts of others.

The PCI scheme fails in the fourth and fifth aspect. The commissions, interest and insurance
coverage are but incentives for the down-line accommodations. They are not profits per se.
Likewise, the Court addressed the last element: Evidently, it is PCI that expects profit from the
network marketing of its products. PCI is correct in saying that the US$234 it gets from its
clients is merely a consideration for the sale of the websites that it provides.

G.R. No. 191995, August 3, 2011.
(by Adelaida Paquibot)
Respondent Justina F. Callangan, the Director of the Corporation Finance Department of the
Securities and Exchange Commission (SEC), sent the Bank a letter, informing it that it qualifies
as a "public company" under Section 17.2 of the Securities Regulation Code (SRC) in relation
with Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC. The Bank
is thus required to comply with the reportorial requirements set forth in Section 17.1 of the SRC.
The Bank responded by explaining that it should not be considered a "public company" because
it is a private company whose shares of stock are available only to a limited class or sector, i.e.,
to World War II veterans, and not to the general public.
Respondent rejected the Banks explanation and assessed it a penalty for failing to comply with
the SRC reportorial requirements from 2001 to 2003. The Bank moved for the reconsideration
of the assessment, but respondent denied the motion. SEC en banc and CA affirmed the SECs
ruling. Hence, this petition for review on certiorari.
WON petitioner-bank is a public company under the provisions of SRC.
Yes. A public company is defined as a corporation which is listed on an exchange, or a
corporation with assets exceeding P 50,0000.00 and with 200 or more stockholders at least 200
of them holding not less than 100 shares of such company.
From these provisions, it is clear that a public company, as contemplated by the SRC, is not
limited to a company whose shares of stocks are publicly listed; even companies like the Bank
whose shares are offered only to a specific group of people, are considered a public company,
provided they meet the requirements enumerated above.