RECENT JURISPRUDENCE IN COMMERCIAL LAW

July 2009- March 31, 2014

Dean Nilo T. Divina



CORPORATION LAW

Doctrine of separate legal entity

In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable,
such corporate officer cannot be made personally liable for corporate liabilities. Furthermore, Article
212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts
of the corporation. The governing law on personal liability of directors for debts of the corporation is
still Section 31 of the Corporation Code. - Alert Security and Investigation Agency, Inc. vs. Balmace-
da , G .R. No. 182397 September 14, 2011

Solidary liability will attach to the directors, officers or employees of the corporation in certain cir-
cumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote
for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross
negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
3. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.

Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, the following requisites must concur:

(1) the complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and
(2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

Thus, the President of the corporation can not be held personally liable if the complaint merely
averred that he signed as a surety to secure the obligation of the corporation but which surety turned
out to be spurious. Heirs of Fe Tan Uy vs. International Exchange Bank, Feb 13, 2013

The personality of a corporation is distinct and separate from the personalities of its stockholders.
Hence, its stockholders are not themselves the real parties in interest to claim and recover compen-
sation for the damages arising from the wrongful attachment of corporate assets. Only the corpora-
tion is the real party in interest for that purpose. Stronghold Insurance Company, Inc. v. Cuenca,G.R.
No. 173297, March 6, 2013


In order for the Court to hold the officer of the corporation personally liable alone for the debts of
the corporation and thus pierce the veil of corporate fiction, the Court has required that the bad
faith of the officer must first be established clearly and convincingly. Petitioner, however, has failed
to include any submission pertaining to any wrongdoing of the general manager. Necessarily, it


would be unjust to hold the latter personally liable. Moreso, if the general manager was never im-
pleaded as a party to the case. Mercy Vda. de Roxas, represented by Arlene C. Roxas-Cruz, in her ca-
pacity as substitute appellant-petitioner v. Our Lady's Foundation, Inc. G.R. No. 182378, March 6,
2013.

Where two banks foreclosed mortgages on certain properties of a mining company and resumed
business operations thereof by organizing a different company to which the banks transferred the
foreclosed assets, the banks are not liable to a contractor which was engaged by the re-organized
mining company even though the latter is wholly-owned by the two banks and they have interlocking
directors, officers and stockholders. While ownership by one corporation of all or a great majority of
stocks of another corporation and their interlocking directorates may serve as indicia of control, by
themselves and without more, however, these circumstances are insufficient to establish an alter ego
relationship or connection between the two banks and the new mining company on the other hand,
that will justify the puncturing of the latters corporate cover. Mere ownership by a single stockhold-
er or by another corporation of all or nearly all of the capital stock of a corporation is not of itself suf-
ficient ground for disregarding the separate corporate personality. Likewise, the existence of inter-
locking directors, corporate officers and shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy considerations. Development Bank of
the Philippines vs. Hydro Resources Contractors Corporation, GR. No. 167603, March 13, 2013

The fact that an employee of the corporation was made to resign and not allowed to enter the work-
place does not necessarily indicate bad faith on the part of the employer corporation if a sufficient
ground existed for the latter to actually proceed with the termination. ABBOT LABORATORIES VS. AL-
CARAZ, G.R. No. 192571, July 23, 2013

Other than mere ownership of capital stock, circumstances showing that the corporation is being
used to commit fraud or proof of existence of absolute control over the corporation has to be prov-
en. In short, before the corporate fiction can be disregarded, alter-ego elements must first be suffi-
ciently established. The mere fact that the same controlling stockholder/officer signed the loan doc-
ument on behalf of the corporation does not prove that he exercised control over the finances of the
corporation. Neither is the absence of a board resolution authorizing him to contract the loan nor
the Corporations failure to object thereto support this conclusion. While he is the signatory of the
loan and the money was delivered to him, the proceeds of the loan were intended for the business
plan of the corporation. That the business plan did not materialize is also not a sufficient proof to jus-
tify a piercing, in the absence of proof that the business plan was a fraudulent scheme geared to se-
cure funds from the lender. NUCCIO SAVERIOS VS. PUYAT, G.R. No. 186433, November 27, 2013

Doctrine of Piercing the veil of corporate fiction

When the corporation ( BB Sportswear, Inc. ) which the plaintiff erroneously impleaded in a collec-
tion case was not the party to the actionable agreement and turned out to be not registered with the
Securities and Exchange Commission, the judgment may still be enforced against the corporation (
BB Footwear, Inc. ) which filed the answer and participated in the proceedings, as well as its control-
ling shareholder who signed the actionable agreement in his personal capacity and as a single pro-
prietorship doing business under the trade name and style of BB Sportswear Enterprises. Benny Hung
vs BPI Finance Corporation . G.R. No. 182398, 20 July 2010

The court must first acquire jurisdiction over the corporation or corporations involved before its or
their separate personalities are disregarded; and the doctrine of piercing the veil of corporate entity
can only be raised during a full-blown trial over a cause of action duly commenced involving parties
duly brought under the authority of the court by way of service of summons or what passes as such
service. Kukan International Corporation vs. Hon. Judge Amor Reyes, G.R. No. 182729, 29 Septem-
ber 2010



However, in another case involving an action for breach of contract of carriage resulting to the death
of one of the passengers , Supreme Court ruled that if the RTC had sufficient factual basis to con-
clude that the two corporations are one and the same entity as when they have the same President
and controlling shareholder and it is generally known in the place where they do business that both
transportation companies are one, the third party claim filed by the other corporation was set aside
and the levy on its property held valid even though the latter was not made a party to the case . The
judgment may be enforced against the other corporation to prevent multiplicity of suits and save
the parties unnecessary expenses and delay. Gold Line Tours vs. Heirs of Maria Concepcion Lacsa, GR
No. 159108, 18 June 2012

The doctrine of piercing the veil of corporate fiction is applicable not only to corporations but also to
a single proprietorship as when the corporation transferred its employees to the company owned by
the controlling stockholder of the corporation and yet despite the transfer, the employees daily time
records, reports, daily income remittances and schedule of work were all made, performed, filed and
kept in the corporation. The corporation is clearly hiding behind the supposed separate and distinct
personality of the company. As such, the corporation and the company should be solidarily liable for
the claims of the illegally dismissed employees. Prince Transport, Inc. vs. Garcia, GR No. 167291,
January 12, 2011

Although the corporate veil between two corporations can not be pierced for lack of legal basis, it
does not necessarily mean that the corporate officers of such corporations are exempt from liability.
Section 31 of the Corporation Code makes a director or officer personally liable if he is guilty of bad
faith or gross negligence in directing the affairs of the corporation. In this case, the officers of the
corporation who maliciously terminated the employment of certain employees without any valid
ground and in order to suppress their right to self-organization, having acted in bad faith in directing
the affairs of the corporation, are solidarily liable with the corporation for the unlawful dismissal.
Park Hotel vs. Soriano, GR No. 171118, September 10, 2012

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so organized and controlled and its af-
fairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

In this connection, case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:

1. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in contra-
vention of plaintiffs legal right; and
3. The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of.

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be com-
pletely under the control and domination of the parent. It inquires whether a subsidiary corporation
is so organized and controlled and its affairs are so conducted as to make it a mere instrumentality or
agent of the parent corporation such that its separate existence as a distinct corporate entity will be


ignored. In addition, the control must be shown to have been exercised at the time the acts com-
plained of took place.

The second prong is the "fraud" test. This test requires that the parent corporations conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the
plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an el-
ement of injustice or fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the defendants con-
trol, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered.
A causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the
defendants exercise of control and improper use of the corporate form and, thereby, suffer damag-
es. Development Bank of the Philippines vs. Hydro Resources Contractors Corporation, GR. No.
167603, March 13, 2013

Piercing the veil of corporate fiction is warranted when a corporation ceased to exist only in name as
it re-emerged in the person of another corporation, for the purpose of evading its unfulfilled finan-
cial obligation under a compromise agreement. Thus, if the judgment for money claim could not be
enforced against the employer corporation, an alias writ may be obtained against the other corpora-
tion considering the indubitable link between the closure of the first corporation and incorporation
of the other. Livesey vs. Binswanger Philippines, GR No. 177493, March 19, 2014

Where the court rendered judgment against a stock brokerage firm directing the latter to return
shares of stock which it sold without authority, but the writ of execution was returned unsatisfied, an
alias writ of execution could not be enforced against its parent company because the court has not
acquired jurisdiction over the latter and while the parent company owns and controls the brokerage
firm, there is no showing that the control was used to violate the rights of the plaintiff. Pacific Re-
house Corporation vs. Court of Appeals, GR. No. 199687, March 24, 2014

NB. There appears to be a lack of conclusive yardstick as to when the court may pierce the veil of
corporate fiction of a corporation which has not been brought to its jurisdiction by summons, volun-
tary appearance or other recognized modes of acquiring jurisdiction. To be safe, any bar question
should be answered based on similarity with the facts of each case.

Government Corporation

Although the Philippine National Red Cross was created by a special charter, it can not be consid-
ered a government-owned and controlled corporation in the absence of the essential elements of
ownership and control by the government. It does not have government assets and does not receive
any appropriation from the Philippine Congress. It is a non-profit, donor-funded, voluntary organiza-
tion, whose mission is to bring timely, effective and compassionate humanitarian assistance for the
most vulnerable without consideration of nationality, race, religion, gender, social status or political
affiliation. This does not mean however that the charter of PNRC is unconstitutional. PNRC has a sui
generis status. Although it is neither a subdivision, agency, or instrumentality of the government, nor
a government-owned or -controlled corporation or a subsidiary thereof, so much so that Gordon was
correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator,
such a conclusion does not ipso facto imply that the PNRC is a private corporation within the con-
templation of the provision of the Constitution, that must be organized under the Corporation
Code. The PNRC enjoys a special status as an important ally and auxiliary of the government in the
humanitarian field in accordance with its commitments under international law. This Court cannot
all of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of


the PNRC Charter was never raised by the parties. Liban vs. Gordon, GR No. 175352, January 10,
2011


A governmentowned or controlled corporation refers to any agency organized as a stock or non-
stock corporation vested with functions relating to public needs whether governmental or proprie-
tary in nature and owned by the government through its instrumentalities either wholly or where ap-
plicable as in the case of stock corporation to the extent of at least 51% of its capital stock. When a
stockholder ceded to the government shares representing 72.4 % of the voting stock of the corpora-
tion but subsequently clarified that it should be reduced to 32.4%, the corporation shall not be con-
sidered government-owned and controlled until the quantification of shares is resolved with finali-
ty. Carandang vs. Desierto, GR No. 148076, January 12, 2011

GOCCs are stock or non-stock corporations vested with functions relating to public needs that are
owned by the government directly or through its instrumentalities. By definition, three attributes
thus make an entity a GOCC: first, its organization as stock or non-stock corporation; second, the
public character of its function; and third, government ownership over the same. Possession of all
three attributes is necessary to deem an entity a GOCC. The Manila Economic Council and Cultural
Office ( MECO ) is not a GOCC because it is not owned by the government. It was organized as a non-
stock non profit corporation. However, despite its non-governmental character, it handles govern-
ment funds in the form of verification fees it collects on behalf of DOLE and the consular fees it col-
lects. Hence, these accounts of MECO should be audited by COA. Dennis A.B vs Manila Economic
and Cultural Office, GR. No. 193462, February 4, 2014

Capital

Considering that common shares have voting rights which translate to control, as opposed to pre-
ferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to
vote in the election of directors, then the term "capital" shall include such preferred shares because
the right to participate in the control or management of the corporation is exercised through the
right to vote in the election of directors. In short, the term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors. To construe
broadly the term capital as the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the Constitution that the State
shall develop a self-reliant and independent national economy effectively controlled by Filipinos. A
broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily
equates to control of the public utility. Gamboa v. Teves, et al.,G.R. No. 176579, June 28, 2011.

If a corporation is engaged in a partially nationalized industry, issues a mixture of common and pre-
ferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a corporation issues only a sin-
gle class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos. In short,
the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class of
shares, whether common, preferred non-voting, preferred voting or any other class of shares. Heirs
of Wilson P. Gamboa vs. Teves, 682 SCRA 397(2012)

Corporation by estoppel

Corporation by estoppel results when a corporation represented itself to the public as such despite
its not being incorporated. A corporation by estoppel may be impleaded as a party defendant con-
sidering that it possesses attributes of a juridical person, otherwise, it can not be held liable for dam-
ages and injuries it may inflict to other persons. Macasaet vs. Francisco, GR No. 156759, June 5, 2013



NB This case involves the legality of a court order denying a motion to dismiss to drop as a party de-
fendant Abantetonight for not being a corporation registered with the SEC. There is no ruling yet on
the liability of such corporation. It will be interesting to see how the SC will eventually rule on how to
enforce a judgment against a corporation by estoppel ( independently of those who represented
themselves as a corporation who, under the law, are liable as general partners ).

Corporate name

The mere change in the corporate name is not considered under the law as the creation of a new
corporation; hence, the renamed corporation remains liable for the illegal dismissal of its employee
separated under that guise. Verily, the amendments of the articles of incorporation for change of
corporate name did not produce the dissolution of the corporation. For sure, the Corporation Code
defined and delineated the different modes of dissolving a corporation and amendment of the arti-
cles of incorporation was not one of such modes. Zuellig Freight and Cargo Systems vs. NLRC, GR No.
157900, July 22, 2013

Board of Directors/Corporate Officers


The lawyer who signed the pleading, verification and certification against non-forum shopping must
be specifically authorized by the Board of Directors of the Corporation to make his actions binding
on his principal. Maranaw Hotels and Resort Corporation v. Court of Appeals, 576 SCRA 463 (2009)

If the real party in interest is a corporate body, an officer of the corporation can sign the certification
against forum shopping so long as he has been duly authorized by a resolution of its board of direc-
tors. The court did not commit grave abuse of discretion in dismissing the petition for lack of authori-
ty of authority of the officer who signed the certification of non-forum shopping in representation of
petitioner corporation. San Miguel Bukid Homeowners Association, Inc. vs City of Mandaluyong, et
al, GR no.153653, October 2, 2009; Republic of the Philippines vs. Coalbrine International Philip-
pines, et al GR No. 161838, April 7, 2010

The following officers may sign the verification and certification against non-forum shopping on be-
half of the corporation even in the absence of board resolution,

a)Chairperson of the Board of Directors;
b)President,
c)General Manager,
d) Personnel Officer,
e) Employment Specialist in labor case.

These officers are in the position to verify the truthfulness and correctness of the allegations in the
petition. Mid Pasig Land and Development Corporation v. Tablante, G.R. No. 162924, February 4,
2010; PNCC Skyway Traffic Management and Security Division Workers Organization vs PNCC Sky-
way Corporation, GR No. 171231, February 17, 2010

The Board of Directors of a corporation can not validly delegate the power to create a corporate of-
fice to the President, in the light of Section 25 of the Corporation Code requiring the Board of Direc-
tors itself to elect the corporate officers. Verily, the power to elect the corporate officers is a discre-
tionary power that the law exclusively vested in the Board of Directors, and can not be delegated to
subordinate officers or agents. The office of Vice President for Finance and Administration created
by the President of the Corporation pursuant to the pertinent provision in the by-laws of the corpo-
ration was an ordinary, not a corporate, office. In case of dismissal or removal from office, the labor
arbiter, not the RTC special commercial court, that has jurisdiction. Matling Industrial and Commer-
cial Corporation vs. Coros , G.R. No. 157802, 13 October 2010



The conditions for the application of Section 31 of the Corporation Code ( that a director or trustee
willfully and knowingly voted or assented to a patently unlawful acts of the corporation, among oth-
ers ) require factual foundations to be laid out in appropriate judicial proceedings. Concluding that
an officer and a member of the Board of Directors breached fiduciary duties without competent evi-
dence thereon would be unwarranted and unreasonable. Republic vs Sandiganbayan, GR No.
166859, April 12, 2011

The execution of a document by a bank manager called pagares which guaranteed purchases on
credit by a client is contrary to the General Banking law which prohibits bank officers from guaran-
teeing loans of bank clients. United Coconut Planters Bank vs. Planters Products Inc. GR No. 179015,
13 June 2012.

Absent any evidence that they have exceeded their authority, corporate officers are not personally
liable for their official acts. The lack of valid cause of the dismissal of an employee does not ipso fac-
to mean that the corporate officers acted with malice or bad faith. Torres vs. Rural Bank of San Juan
G.R. No. 184520, March 13, 2013


The general rule is that a corporation can only exercise its powers and transact its business through
its board of directors and through its officers and agents when authorized by a board resolution or its
bylaws. The power of a corporation to sue and be sued is exercised by the board of directors. The
physical acts of the corporation, like the signing of documents, can be performed only by natural
persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. Absent
the said board resolution, a petition may not be given due course. Esguerra vs. Holcim Philippines
G.R. No. 182571, September 2, 2013

In a complaint for nullification of mortgage and foreclosure with damages against the mortgagee-
bank, the plaintiff can not compel the officers of the bank to appear and testify as plaintiffs initial
witnesses unless written interrogatories are first served upon the bank officers. This is in line with
the Rules of Court provision that calling the adverse party to the witness stand is not allowed unless
written interrogatories are first served upon the latter. This is because the officers of a corporation
are considered adverse parties as well in a case against the corporation itself based on the principle
that corporations act only through their officers and duly authorized agents. Spouses Afulugencia vs.
Metropolitan Bank and Trust Co. G.R. No. 185145, February 05, 2014

Obligations incurred as a result of the directors and officers acts as corporate agents, are not their
personal liability but the direct responsibility of the corporation they represent. As a rule, they are
only solidarily liable with the corporation for the illegal termination of services of employees if they
acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must concur:
(1) it must be alleged in the complaint that the director or officer assented to patently unlawful acts
of the corporation or that the officer was guilty of gross negligence or bad faith; and (2) there must
be proof that the officer acted in bad faith. The fact that the corporation ceased its operations the
day after the promulgation of the SC resolution finding the corporation liable does not prove bad
faith on the part of the incorporator of the corporation. Polymer Rubber Corporation vs. Ang, G.R.
No. 185160. July 24, 2013


Doctrine of Apparent Authority

Although a branch manager, within his field and as to third persons, is the general agent and is in
general charge of the corporation, with apparent authority commensurate with the ordinary business


entrusted him and the usual course and conduct thereof, yet the power to modify or nullify corporate
contracts remains generally in the board of directors. Being a mere branch manager alone is insuffi-
cient to support the conclusion that he has been clothed with apparent authority to verbally alter
terms of written contracts, especially when viewed against the telling circumstances of this case: the
unequivocal provision in the mortgage contract; the corporations vigorous denial that any agree-
ment to release the mortgage was ever entered into by it; and, the fact that the purported agree-
ment was not even reduced into writing considering its legal effects on the parties interests. Banate
vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., G.R. No. 163825, July 13, 2010

A corporation can not deny the authority of lawyer when they clothed him with apparent authority
to act in their behalf such as when he entered his appearance accompanied by the corporations
general manager and the corporation never questioned his acts and even took time and effort to
forward all the court documents to him. The lawyer may not have been armed with a board resolu-
tion but the doctrine of apparent authority imposes liability not as a result of contractual relationship
but rather because of the actions of the principal or an employer in somehow misleading the public
that the relationship or the authority exists. Megan Sugar Corporation vs. RTC of Ilo-ilo Br. 68, GR no.
170352, June 1, 2011

The doctrine of apparent authority provides that a corporation will be estopped from denying the
agents authority if it knowingly permits one of its officers or any other agent to act within the scope
of an apparent authority, and it holds him out to the public as possessing the power to do those acts.

Apparent authority is derived not merely from practice. Its existence may be ascertained through (1)
the general manner in which the corporation holds out an officer or agent as having the power to act
or, in other words the apparent authority to act in general, with which it clothes him; or (2) the ac-
quiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers. It is not the quantity of similar acts which establishes ap-
parent authority, but the vesting of a corporate officer with the power to bind the corporation.
When the sole management of the corporation was entrusted to two of its officers/incorporators
with the other officers never had dealings with the corporation for 14 years and that the board and
the stockholders never had its meeting, the corporation is now estopped from denying the officers
authority to obtain loan from the lender on behalf of the corporation under the doctrine of apparent
authority. Advance Paper Corporation vs Arma Traders Corporation , G.R. No 176897, December
11, 2013.

Vacancy in the Board of Directors

The stockholders, and not the directors, shall elect those who will fill in the vacancy created by the
resignation of the hold-over board members. This is because in this case the ground for the vacancy
is expiration of term of the hold-over directors and not resignation. Valle Verde Country Club v. Afri-
ca, September 4, 2009

Derivative suit

The stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust all rem-
edies available under the articles of incorporation, by-laws, laws or rules governing the corporation
to obtain the relief he desires and to allege such fact with particularity in the complaint. The allega-
tion that the suing stockholder talked to the other stockholder regarding the dispute hardly consti-
tutes all reasonable efforts to exhaust all remedies available . The complaint should also allege the
fact that there was no appraisal right available under for the acts complained of and that the suit was
not a nuisance or harassment suit. The fact that the corporation involved is a family corporation
should not in any way exempt the suing stockholder from the requirements and formalities for filing
a derivative suit. Yu vs. Yukayguan, 588 SCRA 589 ( 2009 )



Petitioners seek the nullification of the election of the Board of Directors composed of herein re-
spondents, who pushed through with the election even if petitioners had adjourned the meeting al-
legedly due to lack of quorum. Petitioners are the injured party, whose rights to vote and to be vot-
ed upon were directly affected by the election of the new set of board of directors. The party-in-
interest are the petitioners as stockholders, who wield such right to vote. The cause of action de-
volves on petitioners, not the condominium corporation, which did not have the right to vote. Hence,
the complaint for nullification of the election is a direct action by petitioners, who were the members
of the Board of Directors of the corporation before the election, against respondents, who are the
newly-elected Board of Directors. Under the circumstances, the derivative suit filed by petitioners in
behalf of the condominium corporation is improper. Legaspi Towers 300, Inc., vs. Muer G.R. No.
170783, June 18, 2012.

A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce corpo-
rate rights against the corporations directors, officers or other insiders. Under Sections 23 and 36 of
the Corporation Code, the directors or officers, as provided under the by-laws, have the right to de-
cide whether or not a corporation should sue. Since these directors or officers will never be willing to
sue themselves or impugn their wrongful and fraudulent decisions, stockholders are permitted by law
to bring an action in the name of the corporation to hold these directors and officers accountable. In
derivative suits, the real party in interest is the corporation while the stockholder is only a nominal
party.

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:
(1) The person filing the suit must be a stockholder or member at the time the acts or transac-
tions subject of the action occurred and the time the action was filed;
(2) He must have exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws
or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

The complaint filed by a stockholder to compel another stockholder to settle his share of the loan
because this will affect the financial viability of the corporation can not be considered as a derivative
suit because the loan was not a corporate obligation but a personal debt of the stockholders. The
fact that the stockholders attempted to constitute a mortgage over their share in a corporate as-
set can not affect the corporation where the wordings of the mortgage agreement reveal that it was
signed by the stockholders in their personal capacity as the owners of the pro-indiviso share in the
corporate property and not on behalf of the corporation. ANG, FOR AND IN BEHALF OF SUNRISE MARKET-
ING (BACOLOD), INC. V. SPS. ANG.G.R. No. 201675, June 19, 2013


Trust fund doctrine

The creditor is allowed to maintain an action upon any unpaid subscriptions ( in the same collection
suit against the corporation ) and thereby steps into the shoes of the corporation for the satisfaction
of the debt. To make out a prima facie case in a suit against stockholders of an insolvent corporation
to compel them to contribute to the payment of its debts by making good the balances upon their
subscriptions, it is only necessary to establish that the stockholders have not in good faith paid the
par value of the stocks of the corporation. Subscriptions to the capital stock of a corporation consti-
tute a fund to which creditors have the right to look for satisfaction of their claims. The scope of the
doctrine when the corporation is insolvent encompasses not only the capital stock, but also other
property and assets generally regarded in equity as a trust fund for the payment of corporate debts.
Halley vs. Printwell, Inc., GR No. 157549, May 30, 2011

Shares



Upon the death of the stockholder, his heirs do not automatically become the stockholders of the
corporation. The heirs acquire standing in the corporation only upon registration of the transfer of
the ownership of the shares in the books of the corporation. Puno v. Puno Enterprises, September
11, 2009


The arrangement provided for in the by-laws of the Corporation whereby a lien is constituted on the
membership share to answer for dues, assessments and subsequent obligations to the corporation
cannot be upheld unless coupled by a corresponding pledge or chattel mortgage agreement . Valley
Golf and Country Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)

A stock corporation is expressly granted the power to issue or sell stocks. The power to issue stocks is
lodged with the Board of Directors and no stockholders meeting is required to consider it because
additional issuances of stock ( unlike increase in capital stock ) does not need approval of the stock-
holders. What is only required is the board resolution approving the additional issuance of shares.
The corporation shall also file the necessary application with the SEC to exempt these from the regis-
tration requirements under the SRC. Majority of Stockholders of Ruby Industrial Corporation vs Lim,
GR No. 165887, June 6, 2011


Section 63 of the Corporation Code provides that shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer. The failure of the stockholder to de-
liver the stock certificate to the buyer within a reasonable time the shares covered by the stock cer-
tificate should have been delivered is a substantial breach that entitles the buyer to rescind the sale
under Article 1191 of the Corporation Code . It is not entirely correct to say the sale had already
been consummated as the buyer already enjoyed the rights a shareholder can exercise. The enjoy-
ment of these rights will not suffice where the law, by its express terms, requires a specific form to
transfer ownership. Fil-Estate Golf and Development vs. Vertex Sales and Trading Inc., G.R. No.
202079, June 10, 2013

The Corporation whose shares of stock are the subject of a transfer transaction (through sale, as-
signment, donation, or any other mode of conveyance) need not be a party to the transaction, as may
be inferred from the terms of Section 63 of the Corporation Code. However, to bind the corporation
as well as third parties, it is necessary that the transfer is recorded in the books of the corporation. In
a share purchase transaction, the parties are the seller and buyer of the shares. Not being a party to
the sale, the Corporation is in no position to appeal the ruling rescinding the sale of the shares. If
the Seller of the shares filed no appeal against the court decision declaring the rescission of the sale,
then the rescission is deemed final despite any appeal by the corporation whose shares of stock are
the subject of the transfer transaction. Forest Hills Golf & Country Club vs. Vertex Sales and Trad-
ing Inc.G.R. No. 202205, March 6, 2013.

Under the two-tiered test, the government, thru PCGG, may vote sequestered shares if there is a
prima facie evidence that the shares are ill-gotten and there is imminent danger of dissipation of as-
sets while the case is pending. However, the two- tiered test contemplates a situation where the reg-
istered stockholders were in control and had been dissipating company assets and the PCGG wanted
to vote the sequestered shares to save the company. It does not apply when the PCGG had voted the
shares and is in control of the sequestered corporation . Africa vs. Hon. Sandiganbayan , G.R. Nos.
172222/G.R. No. 174493/ G.R. No. 184636, November 11, 2013

Since the law does not prescribe a period for registration of shares in the books of the corporation,
the action to enforce the right to have it done does not begin until a demand for it had been made
and was refused. Africa vs. Hon. Sandiganbayan, ibid.



Pre-emptive right

Even if pre-emptive right does not exist either because the issue comes within the exceptions in Sec-
tion 39 of the Corporation Code or because it is denied in the articles of incorporation, an issue of
shares may still be objectionable if the directors acted in breach of trust and their primary purpose is
to perpetuate or shift control of the corporation or to freeze out the minority interest. The issu-
ance of unissued shares out of the original authorized capital stock pursuant to a rehabilitation plan
the propriety and validity of which was on question by the minority stockholders and subsequently
disapproved by the court amounts to unlawful dilution of the minority shareholdings. Majority of
Stockholders of Ruby Industrial Corporation vs Lim, GR No. 165887, June 6, 2011


Merger

Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized the mer-
ger of two banks, the merger is still incomplete without the certificate of merger duly issued by the
SEC. The issuance of the certificate of merger is crucial because not only does it bear out SECs ap-
proval but it also marks the moment when the consequences of a merger take place. By operation of
law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving
corporation. Mindanao Savings and Loan Association vs. Willkom, G.R. No. 178618, 11 October 2010

It is contrary to public policy to declare the former employees of the absorbed corporation as form-
ing part of its assets or liabilities that were transferred to and absorbed by the surviving corpora-
tion in the Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only
to property rights and obligations and do not include the employment contracts of its personnel. A
corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if
the surviving corporation as an employer had the right to choose who to retain among the employees
of the absorbed corporation, the latter employees had the concomitant right to choose not to be ab-
sorbed by the corporation. Even though the employees of the absorbed corporation had no choice
or control over the merger of their employer, they had a choice whether or not they would allow
themselves to be absorbed by the surviving corporation. Certainly nothing prevented the employees
of the absorbed corporation from resigning or retiring and seeking employment elsewhere instead of
going along with the proposed absorption. Bank of the Philippine Islands v. BPI Employees Union
Davao Chapter 627 SCRA 590

On motion for reconsideration, however, the Supreme Court ruled that it is more in keeping with so-
cial justice that the employees of the absorbed corporation be considered employees of the surviving
corporation without break in the continuity of their employment even without express stipulation in
the Articles of Merger. Bank of the Philippine Islands v. BPI Employees Union Davao Chapter, G.R.
No. 164301, October 19, 2011

Through the service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a
"forced intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to com-
pliance with all orders and processes of the trial court with a view to the complete satisfaction of the
judgment of the court.

Citytrust, therefore, upon service of the notice of garnishment and its acknowledgment that it was in
possession of defendants' deposit accounts became a "virtual party" to or a "forced intervenor" in the
civil case. As such, it became bound by the orders and processes issued by the trial court despite not
having been properly impleaded therein. Consequently, by virtue of its merger with BPI , the latter,
as the surviving corporation, effectively became the garnishee, thus the "virtual party" to the civil
case. Bank of Philippine Islands v. Lee, G.R. No. 190144, August 1, 2012



There are two types of corporate acquisitions: asset sales and stock sales. In asset sales, the corporate
entity sells all or substantially all of its assets to another entity. In stock sales, the individual or corpo-
rate shareholders sell a controlling block of stock to new or existing shareholders.

In asset sales, the rule is that the seller in good faith is authorized to dismiss the affected employees,
but is liable for the payment of separation pay under the law. The buyer in good faith, on the other
hand, is not obliged to absorb the employees affected by the sale, nor is it liable for the payment of
their claims. The most that it may do, for reasons of public policy and social justice, is to give prefer-
ence to the qualified separated personnel of the selling firm.

In contrast with asset sales, in which the assets of the selling corporation are transferred to another
entity, the transaction in stock sales takes place at the shareholder level. Because the corporation
possesses a personality separate and distinct from that of its shareholders, a shift in the composition
of its shareholders will not affect its existence and continuity.

Thus, notwithstanding the stock sale, the corporation continues to be the employer of its people and
continues to be liable for the payment of their just claims. Furthermore, the corporation or its new
majority shareholders are not entitled to lawfully dismiss corporate employees absent a just or au-
thorized cause.

The fact that there was a change in the composition of its shareholders did not affect the employer-
employee relationship between the employees and the corporation, because an equity transfer af-
fects neither the existence nor the liabilities of a corporation. Thus, the corporation continued to be
the employer of the corporations employees notwithstanding the equity change in the corporation.
This outcome is in line with the rule that a corporation has a personality separate and distinct from
that of its individual shareholders or members, such that a change in the composition of its share-
holders or members would not affect its corporate liabilities.

In this case, the corporate officers and directors who induced the employees to resign with the assur-
ance that they would be rehired by the new management are personally liable to the employees who
were not actually rehired. However, the officer who did not participate in the termination of em-
ployment and persons who participated in the unlawful termination of employment but are not di-
rectors and officers of the corporation are not personally liable. SME BANK INC, vs. GASPAR, G.R.
No. 186641, October 8, 2013

Where the purchase and sale of identified assets between two companies under a Purchase and Sale
Agreement does not constitute a merger, the seller and the purchaser are considered entities differ-
ent from one another. Thus, the purchaser company can not be held liable for the payment of defi-
ciency documentary stamp tax against the seller company. Commission of Internal Revenue vs, Bank
of Commerce, GR No. 180529, November 25, 2013


Appraisal Right

In order to give rise to any obligation to pay on the part of the corporation, the dissenting stockhold-
er should first make a valid demand that the corporation refused to pay despite having unrestricted
retained earnings. Otherwise, the corporation could not be said to be guilty of any actionable omis-
sion that could sustain the action to collect. The collection suit filed by the dissenting stockholder to
enforce payment of the fair value of his shares is premature if at the time of demand for payment, the
corporation had no surplus profit. The fact that the Corporation subsequent to the demand for pay-
ment and during the pendency of the collection case posted surplus profit did not cure the prema-
turity of the cause of action. Turner vs. Lorenzo Shipping Corporation, G.R. No. 157479, November
24, 2010




Dissolution

An action to correct entries in the General Information Sheet of the Corporation; to be recognized as
a stockholder and to inspect corporate documents is an intra-corporate dispute which does not con-
stitute a continuation of corporate business. As such, pursuant to Section 145 of the Corporation
Code, this action is not affected by the subsequent dissolution of the corporation. The dissolution of
the corporation simply prohibits it from continuing its business. However, despite such dissolution,
the parties involved in the litigation are still corporate actors. The dissolution does not automatically
convert the parties into total strangers or change their intra-corporate relationships. Neither does it
change or terminate existing causes of action, which arose because of the corporate ties between
the parties. Thus, a cause of action involving an intra-corporate controversy remains and must be
filed as an intra-corporate dispute despite the subsequent dissolution of the corporation. Aguirre vs.
FQB +7, Inc, GR No. 170770, January 9 2013.


The executed releases, waivers and quitclaims are valid and binding upon the parties notwithstand-
ing the fact that these documents were signed six years after the Corporations revocation of the
Certificate of Incorporation. These documents are thus proof that the employees had received their
claims from their employer-corporation in whose favor the release and quitclaim were issued. The
revocation of the corporation does not mean the termination of its liabilities to these employees.
Section 122 of the Corporation Code provides for a three-year winding up period for a corporation
whose charter is annulled by forfeiture or otherwise to continue as a body corporate for the purpose,
among others, of settling and closing its affairs As such, these liabilities are obligations of the dis-
solved corporation and not of the corporation who contracted the services of the dissolved corpora-
tion. Vigilla vs. Philippine College of Criminology, GR No. 200094, June 10, 2013


Liquidation

To allow a creditors case to proceed independently of the liquidation case, a possibility of favorable
judgment and execution thereof against the assets of the distressed corporation would not only
prejudice the other creditors and depositors but would defeat the very purpose for which a liquida-
tion court was constituted as well. Barrameda v. Rural Bank of Canaman , Inc., G.R. No. 176260, 24
November 2010

Corporate Rehabilitation

The prevailing rule now categorically provides that awards for moral damages, exemplary damages,
and attorneys fees in intra-corporate controversies are not immediately executory. Heirs of Santiago
Divinagracia vs. Ruiz, G.R. No. 172023, 7 July 2010

The suspension of claims in corporate rehabilitation does not extend to criminal actions against the
distressed corporations or its directors and officers. It would be absurd for one who has engaged in
criminal conduct to escape punishment simply because the corporation of which he is director or of-
ficer filed a petition for rehabilitation. The prosecution of the officers of the corporation has no bear-
ing on the pending rehabilitation of the corporation. Panlilio vs. Regional Trial Court , Branch 51,
City of Manila, GR No. 173846, February 2, 2011

The return of the car subject of the writ of replevin is correct notwithstanding the pendency of the
rehabilitation proceedings. This is the necessary consequence of the dismissal of the replevin case for
failure to prosecute without prejudice. Upon the dismissal of the replevin case, the writ of seizure,
which is merely ancillary in nature, became functus officio and should have been lifted. There was no


adjudication on the merits, which means that there was no determination of the issue who has the
better right to possess the subject car. Returning the seized vehicle is not an enforcement of a claim
against the distressed corporation which must be suspended by virtue of the stay order issued by the
rehabilitation court. The issue in a replevin case is who has a better right of possession. So long as
the respondent is not interposing a MONETARY CLAIM, respondents prayer for the return of the car
subject of the replevin suit is not in anyway violative of the Rules on Corporate Rehabilitation. Advent
Capital and Medical Corporation v. Young, G.R. No. 183018, August 3, 2011

The suspension of all actions and/or claims against a corporation under rehabilitation does not only
cover cases which are pending in court. The AUTOMATIC SUSPENSION of an action for claims em-
braces ALL PHASES of the suit, that is, the ENTIRE PROCEEDINGS of an action or suit and not just the
payment of the claims.

The actions that were suspended cover all claims against a distressed corporation whether for dam-
ages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of a
pecuniary nature. A claim arising from illegal dismissal is a claim covered by the suspension order is-
sued by the SEC, as it is one for pecuniary consideration.

Furthermore, jurisprudence is settled that the suspension of proceedings referred to in the law uni-
formly applies to all actions for claims filed against a corporation xxx under management or re-
ceivership, without distinction, except only those expenses incurred in the ordinary course of busi-
ness. Molina v. Pacific Plans, Inc.,G.R. No. 165476, August 15, 2011

Since the foreclosure of the mortgage and the issuance of the certificate of sale in favor of the mort-
gagee were done prior to the appointment of a Rehabilitation Receiver and the issuance of the Stay
Order, all the actions taken with respect to the foreclosed mortgage property which were subse-
quent to the issuance of the Stay Order were not affected by the Stay Order. Thus, after the redemp-
tion period expired without the mortgagor redeeming the foreclosed property, the mortgagee be-
comes the absolute owner of the property and it was within its right to ask for the consolidation of
title and the issuance of new title in its favor. The writ of possession procured by the mortgagee de-
spite the subsequent issuance of a stay order in the rehabilitation proceedings instituted is also valid.
Equitable PCI Bank, Inc. vs. DNG Realty and Development Corporation, 627 SCRA 125(2010)] reiter-
ated in Town and Country Enterprises Inc v. Honorable Quisumbing, G.R. No. 173610, 01 October
2012


The creditor-mortgagee has the right to foreclose the mortgage over a specific real property wheth-
er 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 rehabili-
tation 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 rehabilita-
tion proceedings or upon the lifting of the stay order. Yngson, Jr. (in his capacity as Liquidator of Ar-
cam & Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August 15, 2012.

The actions to be suspended cover all claims against a distressed corporation whether for damages
founded on a breach of contract of carriage, labor cases, collection suits or any other claims of pecu-
niary nature. Jurisprudence is settled that the suspension of proceedings referred to in the law uni-
formly applies to "all actions for claims" filed against the corporation, partnership or association un-
der management or receivership, without distinction, except only those expenses incurred in the or-
dinary course of business. The stay order is effective on all creditors of the corporation without dis-
tinction, whether secured or unsecured. Veterans Philippine Scout Security Agency, Inc. v. First Do-
minion Prime Holdings, Inc., G.R. No. 190907, August 23, 2012.



The Stay Order cannot suspend foreclosure proceedings already commenced over properties be-
longing to third party mortgagors. The Stay Order can only cover those claims directed against peti-
tioner corporations or their properties, against petitioners guarantors, or against petitioners sure-
ties who are not solidarily liable with them.

Likewise, the enforcement of the mortgage lien cannot be considered as a claim against a guarantor
or a surety not solidarily liable with the debtor corporations. While the third party mortgagors also
executed Continuing Guaranty and Comprehensive Surety undertakings in favor of the bank, the lat-
ter did not proceed against them as individual guarantors or sureties. Rather, by initiating extrajudi-
cial foreclosure proceedings, the bank was directly proceeding against the property mortgaged to
them by the spouses as security. Situs Development Corporation et al v. Asia Trust Bank et al., G.R.
No. 180036, July 25, 2012.


The court has already settled and upheld the right of the secured creditor to foreclose the mortgages
in its favor during the liquidation of a debtor corporation.

The creditor-mortgagee has the right to foreclose the mortgage over a specific real property wheth-
er 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 rehabili-
tation 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 rehabilita-
tion proceedings or upon the lifting of the stay order. Yngson, Jr. (in his capacity as Liquidator of Ar-
cam & Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August 15, 2012.

Considering that Metrobank acquired ownership over the mortgaged properties upon the expiration
of the redemption period on 6 February 2002, TCEI is also out on a limb in invoking the Stay Order
issued by the Rehabilitation Court on 8 October 2002 and the approval of its rehabilitation plan. An
essential function of corporate rehabilitation is, admittedly, the Stay Order which is a mechanism of
suspension of all actions and claims against the distressed corporation upon the due appointment of
a management committee or rehabilitation receiver. The Stay Order issued by the Rehabilitation
Court cannot, however, apply to the mortgage obligations owing to Metrobank which had already
been enforced even before TCEIs filing of its petition for corporate rehabilitation on 1 October
2002. In Equitable PCI Bank, Inc v. DNG Realty and Development Corporation, the Court upheld the
validity of the writ of possession procured by the creditor despite the subsequent issuance of a stay
order in the rehabilitation proceedings instituted by the debtor. Town and Country Enterprises Inc v.
Honorable Quisumbing, G.R. No. 173610, 01 October 2012.


Sec. 146 of the FRIA, which makes it applicable to all further proceedings in insolvency, suspension
of payments and rehabilitation cases x x x except to the extent that in the opinion of the court their
application would not be feasible or would work injustice, still presupposes a prospective applica-
tion. The wording of the law clearly shows that it is applicable to all further proceedings. In no way
could it be made retrospectively applicable to the Stay Order issued by the rehabilitation court in
2002. At the time of the issuance of the Stay Order, the rules in force were the 2000 Interim Rules of
Procedure on Corporate Rehabilitation. Under those rules, one of the effects of a Stay Order is the
stay of the "enforcement of all claims, whether for money or otherwise and whether such enforce-
ment is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily lia-
ble with the debtor. Nowhere in the Interim Rules is the rehabilitation court authorized to suspend
foreclosure proceedings against properties of third-party mortgagors. Situs Development vs. Asia
Trust Bank January 16, 2013

Under the rules on corporate rehabilitation, a rehabilitation plan may be approved even over the
opposition of the majority creditors if there is a showing that the rehabilitation is feasible and the


opposition of the creditors is manifestly unreasonable. Also known as the cram- down clause, this
provision which is currently incorporated in the FRIA is necessary to curb the majority creditors ten-
dency to dictate their own terms and conditions to the rehabilitation absent due regard to the great-
er long term benefit of all stakeholders. Bank of the Philippine Islands vs. SarabiaManor Hotel Cor-
poration, GR. No. 175844, July 29, 2013


Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in ordinary court proceedings.

The jurisdiction of the rehabilitation court is over claims against the debtor that is under
rehabilitation, not over claims by the debtor against its own debtors or against third parties.

The corporation under rehabilitation must file a separate action against its debtors/insurers to re-
cover whatever claim it may have against them. Steel Corporation vs. Mapfre Insular Insurance
Corporation, G.R. No. 201199, October 16, 2013

Under Section 6 (c) of PD 902-A, receivers may be appointed whenever: (1) necessary in order to
preserve the rights of the parties-litigants; and/or (2) protect the interest of the investing public and
creditors.

The stay order and appointment of a rehabilitation receiver is an "extraordinary, preliminary, ex
parte remed[y]." The effectivity period of a stay order is only "from the date of its issuance until dis-
missal of the petition or termination of the rehabilitation proceedings." It is not a final disposition of
the case. It is an interlocutory order defined as one that "does not finally dispose of the case, and
does not end the Courts task of adjudicating the parties contentions and determining their rights
and liabilities as regards each other, but obviously indicates that other things remain to be done by
the Court."

The Interim Rules does not require a hearing before the issuance of a stay order. What it requires is
an initial hearing before it can give due course to or dismiss a petition. Nevertheless, while the Inter-
im Rules does not require the holding of a hearing before the issuance of a stay order, neither does it
prohibit the holding of one. Thus, the trial court has ample discretion to call a hearing when it is not
confident that the allegations in the petition are sufficient in form and substance, for so long as this
hearing is held within the five (5)-day period from the filing of the petition the period within
which a stay order may issue as provided in the Interim Rules. PRYCE CORPORATION V. CHINA BANKING
CORPORATION. G.R. No. 172302, February 18, 2014.

NB. The foregoing jurisprudence should now be read in conjunction with the FRIA law. The FRIA law
is not covered in the 2014 Bar Examinations

Corporation Sole

Any corporation sole may purchase and hold real estate and personal property for its church, chari-
table, benevolent or educational purposes, and may receive bequests or gifts for such purposes. Such
corporation may mortgage or sell real property held by it upon obtaining an order for that purpose
from the Court of First Instance of the province where the property is situated; x x x Provided, That in
cases where the rules, regulations and discipline of the religious denomination, sect or church, reli-
gious society or order concerned represented by such corporation sole regulate the method of ac-
quiring, holding, selling and mortgaging real estate and personal property, such rules, regulations
and discipline shall control, and the intervention of the courts shall not be necessary. Iglesia Filipina
Independiente vs. Heirs of Bernardino Taeza G.R. No. 179597, February 3, 2014

Foreign Corporation



A foreign company that merely imports goods from a Philippine exporter, without opening an office
or appointing an agent in the Philippines, is not doing business in the Philippines. Cargill, Inc. vs. In-
tra Strata Assurance Corporation, G.R. No. 168266, March 15, 2010


A foreign corporation doing business in the Philippines without license may sue in Philippine courts a
Filipino citizen or a Philippine entity that had contracted with and benefited from it. A party is es-
topped from challenging the personality of a corporation after having acknowledged the same by
entering into a contract with it. The principle is applied to prevent a person contracting with a for-
eign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract. Global Business Holdings, Inc. Vs.
Surecomp Software B.V., G.R. No. 173463, October 13, 2010

The appointment of a distributor in the Philippine is not sufficient to constitute doing business unless
it is under the full control of the foreign corporation. If the distributor is an independent entity
which buys and distributes products, other than those of the foreign corporation, for its own name
and its own account, the latter can not be considered doing business. SteelCase vs. Design Interna-
tional Selections, GR no. 171995, April 18, 2012

Non-stock Corporation

Although Sec. 108 of the Corporation Code sets the term of the members of the Board of Trustees at
five years, it likewise contains a proviso expressly subjecting the duration to what is otherwise pro-
vided in the articles of incorporation or by-laws of the educational corporation. That contrary provi-
sion controls on the term of office. Thus, at the time of petitioners removal, he was already occupy-
ing the office in a hold-over capacity, and could be removed at any time, without cause, upon the
election or appointment of his successor. Barayuga v. Adventist University of the Philippines,G.R. No.
168008, August 17, 2011

SECURITIES AND REGULATION CODE

When it is mentioned in paragraph 4 (c) of A.M. No. 04-9-07-SC (RE: Mode of Appeal in Cases For-
merly Cognizable by the SEC) that in case a petition appealing or assailing the decision and/or final
order is filed directly with the Court of Appeals within the reglementary period, such petition shall be
considered a petition for review under Rule 43, it is presumed that the mode of appeal resorted to
was an ordinary appeal and not a special civil action. Otherwise, the Resolution should have categor-
ically included certiorari under Rule 65 as among those that should be considered as a petition for
review under Rule 43 of the Rules of Court. China Banking Corporation vs. Cebu Printing and Packag-
ing Corporation, G.R. No. 172880, 11 August 2010


A public company, as contemplated by the SRC is not limited to a company whose shares of stock
are publicly listed; even companies whose shares are offered only to a specific group of people, are
considered a public company, provided they meet the requirements provided for under Subsec. 17.2
of the SRC, that is: any corporation with a class of equity securities listed on an Exchange or with as-
sets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders,
at least two hundred (200) of which are holding at least one hundred (100) shares of a class of its eq-
uity securities.Philippine Veterans Bank v. Callangan, in her capacity Director of the Corporation
Finance Department of the Securities and Exchange Commission and/or the Securities and Ex-
change Commission, G.R. No. 191995, August 3, 2011

NB. Under Subsection 17.2 of the SRC, it is not in excess of P 50m but at least P 50m asset value
which characterizes a public company



Under Section 62 of the SRC, no action shall be maintained to enforce any liability created under
Section 56 of the SRC ( False registration statement ) and Section 57 ( sale of unregistered security
and liabilities arising in connection with prospectus, communication and other reports ) unless
brought within two ( 2 ) years after discovery of the untrue statement or omission or after the viola-
tion upon which it is based but not more than five ( 5 ) years after the security was bona fide offered
to the public or more than 5 years after the sale, respectively. However, it should be noted that the
civil liabilities provided in the SRC are not limited to Sections 56 and 57. Clearly, the intent is to en-
compass in Section 62 the prescriptive periods only of the civil liability in cases of violations of the
SRC. Given the absence of prescriptive period for the enforcement of criminal liability in violations of
SRC, ACT No. 3326, the law applicable to offenses under special laws, applies. Under Section 73 of
the SRC, violation of its provisions is punishable by imprisonment of not less than seven years nor
more than 21 years. Applying ACT no. 3326, criminal prosecution for violations of SRC prescribes in
12 years. Citibank N.A. vs. TANCO-GABALDON, et al. G.R. No. 198444, September 4, 2013

Civil suits falling under the SRC ( like liability for selling unregistered securities ) are under the exclu-
sive original jurisdiction of the RTC and hence, need not be first filed before the SEC, unlike criminal
cases wherein the latter body exercises primary jurisdiction. Pua vs. Citibank, N. A. G.R. No. 180064,
September 16, 2013

The violation of Section 28 of the SRC has the following elements : a ) engaging in the business of
buying or selling securities as a broker or dealer; or b ) acting as salesman; or c) acting as associated
person of any broker or dealer unless registered as such with the SEC. Thus, a person is liable for vio-
lating Section 28 of the SRC where acting as a broker, dealer or salesman, is in the employ of a cor-
poration which sold or offered for sale unregistered securities in the Philippines. Securities and Ex-
change Commission vs Santos, GR. No. 195542, March 19, 2014

Intra-corporate controversy

Respondent was not a corporate officer of the corporation because his position as General Manager
was not specifically mentioned in the roster of corporate officers in its corporate by-laws. The ena-
bling clause in the corporations by-laws empowering its Board of Directors to create additional of-
ficers, i.e., General Manager and the subsequent passage of a board resolution to that effect can not
make such position a corporate office. The Board of Directors has no power to create other corpo-
rate offices without first amending the corporate by-laws so as to include therein the newly created
corporate office. Though the Board may create appointive positions other than the positions of cor-
porate officers, the persons occupying such positions can not be viewed as corporate officers under
Section 25 of the Corporation Code. Therefore, the termination of the respondent was not an intra-
corporate controversy but a labor dispute falling within the jurisdiction of the labor arbiter. March II
Marketing vs Joson, GR No. 171993, December 12, 2011


Although the extrajudicial sale of the condominium unit ( for non-payment of condominium dues
and assessment ) has been fully effected and that the petition of the owner questioning the sale has
been dismissed with finality, the completion of the sale does not bar the condominium unit owner
from questioning the amount of the unpaid dues that gave rise to the foreclosure and to the subse-
quent sale of the property. The propriety and legality of the sale of the condominium unit is different
from the propriety and legality of the unpaid assessment dues. The latter partakes of the nature of an
intra-corporate dispute. Chateau De Baie Condominium Corporation vs. Spouses Moreno, GR No.
186271, February 23, 2011

SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction
to order the dissolution of a corporation, jurisdiction over the liquidation of the corporation now
pertains to the appropriate regional trial courts. This is the correct procedure because the liquidation


of a corporation requires the settlement of claims for and against the corporation, which clearly falls
under the jurisdiction of the regular courts. The trial court is in the best position to convene all the
creditors of the corporation, ascertain their claims, and determine their preferences. BANK OF THE
PHILIPPINE ISLANDS, as successor-in-interest of Far East Bank and Trust Company, v. EDUARDO
HONG, doing business under the name and style "SUPER LINE PRINTING PRESS," G.R. No. 161771,
February 15, 2012

A controversy between the condominium corporation and its members-unit owners for alleged un-
sound business practices and violation of the master deed of restriction does not fall within the juris-
diction of the HLRUB despite its expansive jurisdiction. It is considered an intra-corporate controver-
sy falling within the jurisdiction of the Regional Trial Court designated as special commercial court.
Lim vs. Distinction Properties Development and Construction, GR no. 194024, April 25, 2012

In order to limit the broad definition of intra corporate dispute, the Supreme Court applied the rela-
tionship and nature of the controversy test. Under the Relationship Test, no doubt exists that the par-
ties were members of the same association, but this conclusion must still be supplemented by the
controversy test before it may be considered as an intra-corporate dispute. Relationship alone does
not ipso facto make the dispute intra-corporate; the mere existence of an intra-corporate relation-
ship does not always give rise to an intra-corporate controversy. The incidents of that relationship
must be considered to ascertain whether the controversy itself is intra-corporate. This is where the
Controversy Test becomes material.
Under the controversy test, the dispute must be rooted in the existence of an intra-corporate rela-
tionship, and must refer to the enforcement of the parties' correlative rights and obligations under
the Corporation Code, as well as the internal and intra-corporate regulatory rules of the corporation,
in order to be an intra-corporate dispute. These are essentially determined through the allegations in
the complaint which determine the nature of the action. A complaint for damages filed by a member
of the subdivision homeowners association for the harm he suffered when another member mali-
ciously closed a portion of the plaintiffs drainage pipe which led to the overflowing of his septic tank
is not an intra corporate controversy following nature of the controversy test. Gulfo v. Ancheta, G.R.
No. 175301, August 15, 2012

In Reyes, the Court pronounced that in cases governed by the Interim Rules of Procedure on Intra-
Corporate Controversies a bill of particulars is a prohibited pleading. It is essential, therefore, for the
complaint to show on its face what are claimed to be the fraudulent corporate acts if the complain-
ant wishes to invoke the courts special commercial jurisdiction. This is because fraud in intra-
corporate controversies must be based on devises and schemes employed by, or any act of, the
board of directors, business associates, officers or partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public and/or of the stockholders, partners, or mem-
bers 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 determin-
ing whether the complaint on its face has merits, or within the jurisdiction of special commercial
court, or merely a nuisance suit. GUY vs. GUY, G.R. No. 189486.September 5, 2012

A college dean is not a corporate officer if his position is not provided for in the by-laws. Barba vs.
Liceo de Cagayan University, GR. No. 193857, November 28, 2012

An intra-corporate dispute involving a corporation under sequestration of the Presidential Commis-
sion on Good Government (PCGG) falls under the jurisdiction of the Regional Trial Court (RTC), not
the Sandiganbayan. Philippine Overseas Telecommunications Corporation vs. Africa, et al. G.R. No.
184622, July 3, 2013

Where a member of the condominium corporation was denied the right to vote for alleged non-
payment of condominium dues and assessment, the action although denominated as one for damag-


es is an intra-corporate controversy and therefore, falling within the jurisdiction of the regional trial
court designated as a special commercial court. In determining whether a dispute constitutes an in-
tra-corporate controversy, the Court uses two tests, namely, the relationship test and the nature of
the controversy test. Applying these two tests, the present case is indeed an intra-corporate contro-
versy.

Anent the first test, it is admitted that petitioner is a condominium corporation. On the other hand,
respondent is a member of the condominium corporation.

As regards the second test, the case principally dwells on the propriety of the assessment made by
petitioner against respondent as well as the validity of petitioners act in preventing respondent from
participating in the election of the corporations Board of Directors. To be sure, this action partakes
of the nature of an intra-corporate controversy. While the CA may be correct that the RTC has juris-
diction, the case should have been filed not with the regular court but with the branch of the RTC
designated as a special commercial court. The CA, therefore, gravely erred in remanding the case to
the RTC for further proceedings. Also, while Republic Act (RA) No. 9904, or the Magna Carta for
Homeowners and Homeowners Associations empowers the HLURB to hear and decide inter-
association and/or intra-association controversies or conflicts concerning homeowners associations,
the same can not be applied in the present case as it involves a controversy between a condominium
unit owner and a condominium corporation. While the term association as defined in the law covers
homeowners associations of other residential real property which is broad enough to cover a con-
dominium corporation, it does not seem to be the legislative intent. MEDICAL PLAZA MAKATI CONDO-
MINIUM CORPORATION V. ROBERT H. CULLEN G.R. No. 181416, November 11, 2013

When the officer claiming to have been illegally dismissed is an ordinary employee of the corpora-
tion, jurisdiction over the same lies with the labor arbiter. It is only when the officer claiming to have
been illegally dismissed is classified as a corporate officer that the issue is deemed intra-corporate
dispute which falls within the jurisdiction of the trial court designated as special commercial court.
Cosare vs. Bradcom Asia, GR. No. 201298, February 5, 2014


SPECIAL COMMERCIAL LAWS

Letter of Credit

Where the trial court rendered a decision finding the buyer solely liable to pay the seller and omit-
ted by inadvertence to insert in its decision the phrase without prejudice to the decision that will be
made against the issuing bank , the bank can not evade responsibility based on this ground. The
seller who is entitled to draw on the credit line of the buyer from a bank against the presentation of
sales invoices and official receipts of the purchases and who obtained a court judgment solely
against the buyer even though the suit is against the bank and the buyer may still enforce the liability
of the same bank under a letter of credit issued to secure the credit line. The so-called "independ-
ence principle" in a letter of credit assures the seller or the beneficiary of prompt payment inde-
pendent of any breach of the main contract and precludes the issuing bank from determining wheth-
er the main contract is actually accomplished or not. Philippine National Bank vs. San Miguel Corpo-
ration. No. 186063, January 15, 2014.

Trust receipt

A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster
the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster.
Considering that the goods in this case ( chemicals and metal plates ) were never intended for sale
but for use in the fabrication of steel communication towers, the agreement is not a trust receipt


transaction but a simple loan. Anthony L. Ng v People of the Philippines, G.R. No. 173905, April 23,
2010

There are two obligations in a trust receipt transaction. The first is covered by the provision that re-
fers 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 re-
ceipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts.

In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative
the return of the proceeds of the sale or the return or recovery of the goods, whether raw or pro-
cessed. 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 re-
ceipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by
the parties would be the return of the proceeds of the sale transaction. This transaction becomes a
mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the
goods. Land Bank of the Philippines vs. Perez, GR no. 166884, 13 June 2102

The officer of the entrustee corporation who signed a guaranty agreement in his personal capacity
and waived the benefit of excussion is solidarily liable with the corporation despite his acquittal in
the criminal case. Crisologo vs. People of the Philippines, GR No. 199481, December 3, 2012

The sale of goods by a person in the business of selling goods, for profit, who at the outset of the
transaction, has as against the buyer, general property rights in such goods, or who sells goods to the
buyer on credit, retaining title or other interest as security for the payment of the purchase price,
does not constitute a trust receipt transaction. There is no trust receipt, notwithstanding the label, if
goods offered as security for a loan accommodation are goods sold to the debtor under a supposed
trust receipt transaction. Sps. Dela Cruz vs Dela Cruz, GR No. 158649, February 18, 2013

[A] trust receipt is considered a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of mer-
chandise, and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased. Similarly, American Jurisprudence demonstrates that trust re-
ceipt transactions always refer to a method of financing importations or financing sales. The prin-
ciple is of course not limited in its application to financing importations, since the principle is equally
applicable to domestic transactions. Regardless of whether the transaction is foreign or domestic, it
is important to note that the transactions discussed in relation to trust receipts mainly involved sales.

The fact that the entruster knew even before the execution of the alleged trust receipt agreements
that the covered construction materials were never intended by the entrustee for resale or for the
manufacture of items to be sold would take the transaction outside the ambit of the Trust Receipts
Law. HUR TIN YANG V. PEOPLE OF THE PHILIPPINES. G.R. No. 195117, August 14, 2013


Banking Laws

The close now, hear later doctrine justifies BSP in ordering bank closures even without prior hear-
ing. Thus, injunction does not lie against BSP in the exercise of this power and function. A contrary
rule may lead to dissipation of corporate assets and trigger bank run. Judicial review comes in only
after action of the Monetary Board if the same was attended by bad faith and grave abuse of discre-
tion amounting to lack or excess of jurisdiction . Bangko Sentral ng Pilipinas vs. Valenzuela, G.R. No.
184778,October 2, 2009



The rule on DOSRI transaction covers loan obtained or guaranteed by the director, officer, stock-
holder or their related interest and not to loans both obtained and guaranteed by them. The rule in
fact covers any transaction where the DOSRI may incur contractual obligation with their bank. DOSRI
transactions are subject to approval, reportorial and ceiling requirements. Approval requirement
means that the DOSRI transaction must be approved by at least majority of the directors excluding
the director concerned. Reportorial requirement means that the transaction must be recorded in the
books of the bank and reported to BSP. Ceiling requirement means that the amount of the loan shall
not exceed the book value of the paid-in contribution and the amount of unencumbered deposits.
Three different offenses are committed by those who fail to observe the board approval, reporting
and ceiling requirements. Go v. BSP, October 23, 2009

The three percent (3%) per month [and higher] interest rate and penalty charge for credit card
charges is excessive, inequitable and exorbitant Macalinao v. Bank of the Philippine Islands, GR No.
175490, September 17, 2009


Section 78 of the ( old ) General Banking Act requires payment of the amount fixed by the court in
the order of execution, with interest thereon at the rate specified in the mortgage contract, and all
the costs and other judicial expenses incurred by the bank or institution concerned by reason of the
execution and sale and as a result of the custody of said property less the income received from the
property. The rate of interest specified in the mortgage contract shall be applied for the one-year
period reckoned from the date of registration of the certificate of sale in accordance with the Gen-
eral Banking Act. However, since petitioners effectively had more than one year to exercise the right
of redemption, justice, fairness and equity require that they pay 12% p.a. interest beyond the one-
year period. Heirs of Estelita Burgos-Lipat. vs. Heirs of Eugenio D. Trinidad, et al., G.R. No. 185644,
March 2, 2010

NB. Under Section 47 of the General Banking Law, the redemption period is three months after fore-
closure or registration of the sale, whichever comes earlier, if the following requisites are present: a )
the mortgagor is a juridical person; b ) the mortgagee is a bank, quasi-bank or trust entity and c ) the
mode of foreclosure is extra-judicial.

A bank officer violates the DOSRI law when he acquires bank funds for his personal benefit, even if
such acquisition was facilitated by a fraudulent loan application. Directors, officers, stockholders,
and their related interests cannot be allowed to interpose the fraudulent nature of the loan as a de-
fense to escape culpability for their circumvention of the law. The prohibition under the law covers
loans by a bank director or officer which are made either directly, indirectly, for himself or as the rep-
resentative or agent of others. At the same time, he is liable for estafa through falsification of com-
mercial documents. The bank money which came to his possession as a result of the fraudulent loan
application was not his. He remained the banks fiduciary with respect to that money, which makes it
capable of misappropriation or conversion in his hands. Soriano vs. People of the Philippines, et al.,
G.R. No. 162336, February 1, 2010

The bank does not have the unilateral right to freeze the accounts of its clients on mere suspicion
that the depositor does not have a right over them. Philippine Commercial Bank vs. Balmaceda, Sep-
tember 12, 2011

Interbranch deposits refer to funds of one branch deposited in another branch and both branches are
part of the same bank. As such, they are excluded from a banks total liabilities and did not give rise
to insurable deposit liabilities. PDIC vs. Citibank, GR No. 170290, April 11, 2012

The General Banking Law, a special and subsequent legislation shall apply in case of foreclosure pro-
ceedings involving banks. The right of redemption of foreclosed properties was a statutory privilege


the mortgagor enjoys. Redemption is by force of law, and the purchaser at public auction is bound to
accept it
.
Thus, it is the law that provides the terms of the right; the mortgagee cannot dictate them.
Consequently, the bank cannot alter that right by imposing additional charges and including other
loans. Asia Trust Development Bank v. Carmelo H. Tuble, G.R. No. 183987, July 25, 2012.

Section 47 did not divest juridical persons of the right to redeem their foreclosed properties but only
modified the time for the exercise of such right by reducing the one-year period originally provided
in Act No. 3135. The new redemption period commences from the date of foreclosure sale, and ex-
pires upon registration of the certificate of sale or three months after foreclosure, whichever is earli-
er. There is likewise no retroactive application of the new redemption period because Section 47 ex-
empts from its operation those properties foreclosed prior to its effectivity and whose owners shall
retain their redemption rights under Act No. 3135. Section 47 does not infringe on the equal protec-
tion clause nor discriminate mortgagors/property owners who are juridical persons. One class may
be treated differently from another where the groupings are based on reasonable and real distinc-
tions. The difference in the treatment of juridical persons and natural persons was based on the na-
ture of the properties foreclosed whether these are used as residence, for which the more liberal
one-year redemption period is retained, or used for industrial or commercial purposes, in which case
a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property
and enable mortgagee-banks to dispose sooner of these acquired assets. In this context, the amend-
ment introduced by Section 47 embodied one of such safe and sound practices aimed at ensuring
the solvency and liquidity of our banks. It cannot therefore be disputed that the said provision
amending the redemption period in Act 3135 was based on a reasonable classification and germane
to the purpose of the law. This legitimate public interest pursued by the legislature further enfeebles
petitioners impairment of contract theory. The right of redemption being statutory, it must be exer-
cised in the manner prescribed by the statute, and within the prescribed time limit, to make it effec-
tive. Furthermore, as with other individual rights to contract and to property, it has to give way to po-
lice power exercised for public welfare. Golden Way Merchandising vs. Equitable PCI Bank. G.R. No.
195540, March 13, 2013

Under R.A .No. 7653, the power of the Monetary Board (MB) over banks, including rural banks, was
increased and expanded. The Court, in several cases, upheld the power of the MB to take over banks
without need for prior hearing. It is not necessary inasmuch as the law entrusts to the MB the appre-
ciation and determination of whether any or all of the statutory grounds for the closure and receiver-
ship of the erring bank are present. The MB, under R.A. No. 7653, has been invested with more power
of closure and placement of a bank under receivership for insolvency or illiquidity, or because the
banks continuance in business would probably result in the loss to depositors or creditors.

The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation of
the banks assets and as a valid exercise of police power to protect the depositors, creditors, stock-
holders, and the general public. Swift, adequate and determined actions must be taken against fi-
nancially distressed and mismanaged banks by government agencies lest the public faith in the bank-
ing system deteriorate to the prejudice of the national economy. Vivas vs. Monetary Board of the
Bangko Sentral ng Pilipinas G.R. No. 191424, August 07, 2013.

A banking institution serving as an originating bank for the Unified Home Lending Program (UHLP)
of the Government owes a duty to observe the highest degree of diligence and a high standard of
integrity and performance in all its transactions with its clients because its business is imbued with
public interest. Comsavings Bank vs Sps Capistrano. G.R. No. 170942, August 28, 2013.

The bank failed in its duty to exercise the highest degree of diligence by prematurely foreclosing the
mortgages and unwarrantedly causing the foreclosure sale of the mortgaged properties despite the
mortgagor not being yet in default. Development Bank of the Philippines vs. Guarina Agricultural
and Realty Development Corporation. G.R. No. 160758, January 15, 2014.



Laws on Secrecy of Bank Deposits

The inquiry into bank deposits allowable under RA 1405 must be premised on the fact that the mon-
ey deposited in the account is itself the subject of the action. Where the information filed in court
charged respondent with qualified theft, the subject matter of litigation is the money alleged to have
been stolen by the respondent. Thus, where the subject matter of the testimonial and documentary
evidence is not at all relevant to the case, the suppression of such testimony is valid, otherwise, it
constitutes an attempt by the prosecution at an impermissible inquiry into a bank deposit account,
the privacy and confidentiality of which is protected by law. BSB Group Inc vs. Go, GR No. 168644,
February 16, 2010

Republic Act 6426 is a special law designed especially for foreign currency deposits in the Philip-
pines. RA 1405 which covers all bank deposits in the Philippines is the general law which does not
nullify the special law on foreign currency deposits. The surety which issued a bond to secure the ob-
ligation of the principal debtor can not inquire into the foreign currency deposits of the debtor even
if its purpose is to determine whether or not the loan proceeds were used for the purpose specified
in the surety agreement. The foreign currency deposits can not be examined without the consent of
the depositor. The subpoena issued by the bank should be quashed because foreign currency depos-
its are not subject to court order except for violation of the anti-money laundering law. GSIS vs.
Court of Appeals GR 189206, June 8, 2011

NB. Foreign currency deposits may also be examined in the following cases : a ) if the foreign cur-
rency account is used to commit or facilitate terrorism in which case, the AMLC may look into foreign
currency deposit even without a court order ( RA 10168 ); b ) if the owner of the account is a foreign
transient who committed a crime to prevent injustice and for equitable grounds ( Salvacion vs. Cen-
tral Bank 278 SCRA 27 ); when a foreign currency account is co-owned by two payees one of who
withdrew funds exclusively owned by another ( China Bank vs. Court of Appeals 511 SCRA 110 )

PDIC LAW

Monetary Board approval is not required for PDIC to conduct an investigation of banks. Philippine
Deposit Insurance Corporation vs Philippine Countryside Rural Bank, Inc. et al, GR No. 176438, Janu-
ary 24, 2011


INTELLECTUAL PROPERTY

Trademark


Comparing Berris mark D-10 80 WP with Abyadangs mark NS D-10 PLUS, as appearing on their
respective packages, one cannot but notice that both have a common component which is D-
10. On Berris package, the D-10 is written with a bigger font than the 80 WP. Admittedly, the
D-10 is the dominant feature of the mark. The D-10, being at the beginning of the mark, is what
is most remembered of it. Although, it appears in Berris certificate of registration in the same font
size as the 80 WP, its dominancy in the D-10 80 WP mark stands since the difference in the form
does not alter its distinctive character. Berris Agricultural Co., Inc. Vs. Norvy Abyadang,G.R. No.
183404, October 13, 2010


Court Administrative Matter A.M. 02-1-06-SC (The Rule on Search and Seizure in Civil Actions for
Infringement of Intellectual Property Rights) governs the issuance of a writ of search and seizure in a
civil action for infringement filed by an intellectual property right owner against the supposed in-


fringer of his trademark or name. Under this rule, the claim for damages should be filed with the
same court that issued the writ of search and seizure. However, Philip Morris, the manufacturer of
Marlboro cigarettes did not go by this route. Philip Morris did not file a civil action for infringement
of its trademark against the Del Rosarios before the RTC of Angeles City. Instead, Philip Morris
sought assistance from the NBI for the apprehension and criminal prosecution of those reportedly
appropriating its trademark and selling fake Marlboro cigarettes. In turn, the NBI instituted a police
action that included applying for a search and seizure warrant under Sections 3, 4, 5 and 6 of Rule
126 of the Rules of Criminal Procedure (not under the provisions of A.M. 02-1-06-SC) against the Del
Rosarios upon the belief that they were storing and selling fake Marlboro cigarettes in violation of
the penal provisions of the intellectual property law. The proceeding under Rule 126, a limited crim-
inal one, does not provide for the filing of counterclaims for damages against those who may have
improperly sought the issuance of the search warrant. Consequently, the Del Rosarios had the right
to seek damages, if the circumstances warranted, by separate civil action for the wrong inflicted on
them by an improperly obtained or enforced search warrant. Del Rosario, et al. Vs. Doanto, Jr. et al.,
G.R. No. 180595, March 4, 2010

Applying the dominancy test, the trademark Dermaline Dermaline, Inc. is confusingly similar with
the registered trademark Dermalin . Dermalines stance that its product belongs to a separate and
different classification from Myras products with the registered trademark does not eradicate the
possibility of mistake on the part of the purchasing public to associate the former with the latter, es-
pecially considering that both classifications pertain to treatments for the skin. Dermaline, Inc. Vs.
Myra Phamaceuticals, Inc., G.R. No. 190065, August 1, 2010

Under this provision [Sec 123.1(d) of RA 8293], the registration of a mark is prevented with the filing
of an earlier application for registration. This must not, however, be interpreted to mean that owner-
ship should be based upon an earlier filing date. While RA 8293 removed the previous requirement
of proof of actual use prior to the filing of an application for registration of a mark, proof of prior and
continuous use is necessary to establish ownership of a mark. Such ownership constitutes sufficient
evidence to oppose the registration of a mark. - E.Y. Industrial Sales vs. Shien Dar Electricity and Ma-
chinery Co. , G.R. No. 184850, 20 October 2010

Applying the dominancy test in the present case, the Court finds that NANNY is confusingly similar
to NAN. NAN is the prevalent feature of Nestles line of infant powdered milk products. It is
written in bold letters and used in all products. The line consists of PRE-NAN, NAN-H.A., NAN-1,
and NAN-2. Clearly, NANNY contains the prevalent feature NAN. The first three letters of
NANNY are exactly the same as the letters of NAN. When NAN and NANNY are pro-
nounced, the aural effect is confusingly similar. - Soceite Des Produits Nestle, S.A. vs. Dy, Jr., G.R.
No. 172276, August 8, 2010

Applying the dominancy test, there is confusing similarity between Sketchers rubber shoes and
Strong rubber shoes. The use of the stylized S by the respondent in its Strong Shoes infringes on
the trademark Sketchers already registered by petitioner with the IPO. While it is undisputed that
petitioners stylized S is within an oval design, the dominant feature of the trademark is stylized
S as it is precisely the stylized S which catches the eye of the purchaser. Sketchers USA vs. Inter
Pacific Industrial Trading Corporation, GR No. 164321, March 28, 2011

Fredcos use of the mark Harvard, for jeans coupled with its claimed origin in Cambridge, Massa-
chusetts, obviously suggests a false connection with Harvard University. Fredcos registration of the
mark Harvard should not have been allowed because the law prohibits the registration of a mark
which may disparage or falsely suggest a connection with persons, living or dead, institutions, be-
liefs Second, the Philippines and the United States of America are both signatories to the Paris Con-
vention for the Protection of Intellectual Property (Paris Convention). The Philippines is obligated to
assure nationals of countries of the Paris Convention that they are afforded an effective protection


against violation of their intellectual property rights in the Philippines in the same way that their own
countries are obligated to accord similar protection to Philippine nationals. Thus, under Philippine
law, a trade name of a national of a State that is a party to the Paris Convention, whether or not the
trade name forms part of a trademark, is protected without the obligation of filing or registration.
Harvard is the trade name of the world famous Harvard University, and it is also a trademark of
Harvard University. Under the Paris Convention, Harvard University is entitled to protection in the
Philippines of its trade name Harvard even without registration of such trade name in the Philip-
pines. This means that no educational entity in the Philippines can use the trade name Harvard
without the consent of Harvard University. The essential requirement under the Paris Convention (
and the Intellectual Property Code ) is that the trademark to be protected must be well-known in
the country where protection is sought. The power to determine whether a trademark is well-known
lies in the competent authority of the country of registration or use. The competent authority would
either be the registering authority if it has the power to decide this, or the courts of the country in
question if the issue comes before the courts. Harvard is a well-known name and mark not only in
the United States but also internationally, including the Philippines. It is internationally known as
one of the leading educational institutions in the world. As such, even before Harvard University ap-
plied for registration of the mark Harvard in the Philippines, the mark was already protected under
the Paris Convention. Again, even without applying the Paris Convention, Harvard University can in-
voke the law which prohibits the registration of a mark which may disparage or falsely suggest a
connection with persons, living or dead, institutions, beliefs. Fredco Manufacturing Corporation vs.
President and Fellows of Harvard College, GR No. 185917, June 1, 2011

The trademark Marlboro is not only valid for being neither generic nor descriptive, it was also ex-
clusively owned by PMPI, as evidenced by the certificate of registration issued by the Intellectual
Property Office. Infringement of trademark clearly lies since the counterfeit cigarettes were intend-
ed to confuse and deceive the public as to the origin of the cigarettes intended to be sold, as they
not only bore PMPIs trademark but they were packaged almost exactly as PMPIs products. Ong vs.
People of the Philippines, GR No. 169440, November 23, 2011.

There are distinct visual and aural differences between Great White Shark Greg Norman Logo and
Caraldes Shark and Logo mark. There being no confusing similarity between the subject marks, the
matter of Great White Sharks mark has gained recognition becomes unnecessary. Great White
Shark Enterprises vs. Caralde, GR No. 192294, November 21, 2012

The elements of infringement of trademark are the following:

(1) The trademark being infringed is registered in the Intellectual Property Office; (2)
The trademark is reproduced, counterfeited, copied, or colorably imitated by the in-
fringer; (3) The infringing mark is used in connection with the sale, offering for sale, or
advertising of any goods, business or services; or the infringing mark is applied to la-
bels, signs, prints, packages, wrappers, receptacles or advertisements intended to be
used upon or in connection with such goods, business or services; (4) The use or appli-
cation of the infringing mark is likely to cause confusion or mistake or to deceive pur-
chasers or others as to the goods or services themselves or as to the source or origin of
such goods or services or the identity of such business; and (5)The use or application
of the infringing mark is without the consent of the trademark owner or the assignee
thereof.

The likelihood of confusion is the gravamen of the offense of trademark infringement. There
are two tests to determine likelihood of confusion, namely: the dominancy test, and the holistic test.
As to what test should be applied depends entirely on the set of facts availing in each case. That is
the reason why in trademark cases, jurisprudential precedents should be applied only to a case if
they are specifically in point.



The jeans trademarks of Levis Philippines and Diaz must be considered as a whole in deter-
mining the likelihood of confusion between them. The consuming public could easily discern if the
jeans were original or fake or were manufactured by other brands of jeans. Confusion and deception
were remote since maong jeans are expensive and the casual buyer is predisposed to be more cau-
tious and discriminating in and would prefer to mull over his purchase. Further, Diaz used the trade-
mark LS JEANS TAILORING for the jeans he produced and sold. His trademark was visually and au-
rally different from the trademark LEVI STRAUSS & CO appearing on the patch of original jeans.
Diaz also aptly noted that the design used by LEVIS was an image of two horses but the evidence will
show that there was no such design in the seized jeans, instead, what is shown is buffalo design.
Moreover, based on the certificate issued by the Intellectual Property Office, LS JEANS TAILORING
was a registered trademark of Diaz. He had registered his trademark prior to the filing of the present
cases. The Intellectual Property Office would certainly not have allowed the registration had Diazs
trademark been confusingly similar with the registered trademark for LEVIS 501 jeans. Diaz vs Peo-
ple of the Philippines and Levi Strauss ( Phil. ), GR N0. 180677, February 18, 2013

Tradename


Petitioners argument that San Francisco is just a proper name referring to the famous city in Cali-
fornia and that coffee is simply a generic term, is untenable. Respondent has acquired an exclusive
right to the use of the trade name SAN FRANCISCO COFFEE & ROASTERY, INC. since the registra-
tion of the business name with the DTI in 1995. Thus, respondents use of its trade name from then on
must be free from any infringement by similarity. Of course, this does not mean that respondent has
exclusive use of the geographic word San Francisco or the generic word coffee. Geographic or
generic words are not, per se, subject to exclusive appropriation. It is only the combination of the
words SAN FRANCISCO COFFEE, which is respondents trade name in its coffee business, that is
protected against infringement on matters related to the coffee business to avoid confusing or de-
ceiving the public. Coffee Partners vs. San Francisco Coffee and Roastery, Inc., G.R. No. 169504, 3
March 2010.

The mere unauthorized use of a container bearing a registered trademark in connection with the
sale, distribution or advertising of goods or services which is likely to cause confusion, mistake or de-
ception among the buyers or consumers can be considered as trademark infringement. Here, peti-
tioners have actually committed trademark infringement when they refilled, without the respond-
ents consent, the LPG containers bearing the registered marks of the respondents. Petitioners acts
will inevitably confuse the consuming public, since they have no way of knowing that the gas con-
tained in the LPG tanks bearing respondents marks is in reality not the latters LPG product after the
same had been illegally refilled. The public will then be led to believe that petitioners are authorized
refillers and distributors of respondents LPG products, considering that they are accepting empty
containers of respondents and refilling them for resale.

Unfair competition has been defined as the passing off (or palming off) or attempting to pass off up-
on the public of the goods or business of one person as the goods or business of another with the end
and probable effect of deceiving the public. Passing off (or palming off) takes place where the de-
fendant, by imitative devices on the general appearance of the goods, misleads prospective purchas-
ers into buying his merchandise under the impression that they are buying that of his competitors.
Thus, the defendant gives his goods the general appearance of the goods of his competitor with the
intention of deceiving the public that the goods are those of his competitor.

In the present case, respondents pertinently observed that by refilling and selling LPG cylinders bear-
ing their registered marks, petitioners are selling goods by giving them the general appearance of
goods of another manufacturer. Obviously, the mere use of those LPG cylinders bearing the trade-
marks "GASUL" and "SHELLANE" will give the LPGs sold by REGASCO the general appearance of the


products of the petitioners. Republic Gas Corporation vs. Petron Corporation. G.R. No. 194062, June
17, 2013

The registration of trademark, by itself, is not a mode of acquiring ownership. It is the ownership of a
trademark that confers the right to register the same. A trademark is an industrial property over
which its owner is entitled to property rights which cannot be appropriated by unscrupulous entities
that, in one way or another, happen to register such trademark ahead of its true and lawful owner. If
the applicant is not the owner of the trademark, he has no right to apply for registration. Registration
merely creates a prima facie presumption of the validity of the registration, of the registrants owner-
ship of the trademark and the exclusive right to the use thereof. The presumption of ownership ac-
corded to a registrant is rebuttable and must necessarily yield to evidence to the contrary.
Birkenstock Orthopaedie GMBH vs Philippine Shoe Expo Marketing Corporation G.R. No. 194307,
November 20, 2013.


Violations

The Rules on the Issuance of the Search and Seizure in Civil Actions for Infringement of Intellectual
Property Rights are not applicable in this case as the search warrants were not applied based there-
on, but in anticipation of criminal actions for violation of intellectual property rights under RA 8293.
It was established that respondent had asked the NBI for assistance to conduct investigation and
search warrant implementation for possible apprehension of several drugstore owners selling imita-
tion or counterfeit TOP GEL T.G. & DEVICE OF A LEAF papaya whitening soap. What is applicable is
Rule 126 of the Rules of Criminal Procedure. A core requisite before a warrant shall validly issue is
the existence of probable cause. The pendency of a similar action for infringement of trademark and
unfair competition against the very person who applied for search warrant does not bar the issuance
of the warrant if it is based on probable cause. Century Chinese Medicine Co vs People of the Philip-
pines, G.R. No. 188526, November 11, 2013.


In view of the foregoing obligations under the Paris Convention, the Philippines is obligated to as-
sure nationals of the signatory-countries that they are afforded an effective protection against viola-
tion of their intellectual property rights in the Philippines in the same way that their own countries
are obligated to accord similar protection to Philippine nationals. "Thus, under Philippine law, a
trade name of a national of a State that is a party to the Paris Convention, whether or not the trade
name forms part of a trademark, is protected "without the obligation of filing or registration. Thus,
the applicant for registration of trademark is not the lawful owner thereof and is not entitled to reg-
istration if the trademark has been in prior use by a national of a country which is a signatory to the
Paris Convention. Ecole De Cuisine Manille Inc. vs Renaud Cointreu & CIE and Le Condron Bleu GR
185830, June 5, 2013

Patent


A patentee shall have the exclusive right to make, use and sell the patented machine, article or prod-
uct and to use the patented process for the purpose of industry or commerce throughout the territo-
ry of the Philippines for the term of the patent; and such making, using or selling by any person with-
out the authorization of the patentee constitutes infringement of the patent. The exclusive rights of
a patentee exist only during the term of the patent. After the lapse of such period as allowed by law,
the right also ceases. RA 8293 and the IPO rules are as regards the available remedy to question an
interlocutory order issued by the BLA-IPO pending final resolution of a case filed with them. Hence,,
the provisions of the Rules of Court shall apply in a suppletory manner. Under the Rules, a petition for
certiorari to the Court of Appeals is the proper remedy to question the assailed Orders of the BLA-


IPO, as there is no appeal therefrom and there is no other plain, speedy and adequate remedy in the
ordinary course of law.Philippine Pharmawealth vs. Pfizer Inc., G.R. No. 167715, 17 November 2010


TRANSPORTATION

When a bus hit a tree and house due to the fast and reckless driving of the bus driver resulting in in-
jury to one of its passengers, the bus owner is liable and such liability does not cease even upon proof
that he exercised all the diligence of a good father of family in the selection and supervision of its
employees. R Transport Corporation vs. Pante, GR No. 162104, September 15, 2009

Being the custodian of the goods discharged from a vessel, an arrastre operators duty is to take care
of the goods and to turn them over to the party entitled to their possession. In a claim for loss filed by
the consignee or the insurer, the burden of proof to show compliance with the obligation to deliver
the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the
goods is its responsibility, it must prove that the losses were not due to its negligence or that of its
employees. Asian Terminals vs Daehan Fire and Marine Insurance, GR No. 171194, February 4, 2010

Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of deliv-
ery. Under the same provision, however, a failure to file a notice of claim within three days will not
bar recovery if a suit is nonetheless filed within one year from delivery of the goods or from the date
when the goods should have been delivered. The filing of an amended pleading does not retroact to
the date of the filing of the original. It is true that, as an exception, an amendment which merely
supplements and amplifies facts originally alleged in the complaint relates back to the commence-
ment of the action and is not barred by the statute of limitations which expired after the service of
the original complaint. The exception, however, would not apply to the party impleaded for the first
time after the service of the amended complaint. In this case, petitioner was not impleaded as a de-
fendant in the original complaint filed on March 11, 1993. It was only on June 7, 1993 that the
Amended Complaint, impleading petitioner as defendant, was filed. Considering this circumstances,
clearly, the suit against the petitioner was filed beyond the prescriptive period of the filing of claims
as provided in the COGSA. Wallem Philippines Shipping vs SR Farms, GR No. 161849, July 9, 2010

Under Article 28 ( 1 ) of the Warsaw Convention, the plaintiff may bring the action for damages be-
fore: 1) the court where carrier is domiciled; 2 ) the court where the carrier has its principal place of
business; 3 ) the court where the carrier has an establishment by which the contract has been made;
or 4 ) the court of the place of destination. In this case, it is not disputed that respondent is a British
corporation domiciled in London, United Kingdom with London as its principal place of busi-
ness. Hence, under the first and second jurisdictional rules, the petitioner may bring her case before
the courts of London in the United Kingdom. In the passenger ticket and baggage check presented
by both the petitioner and respondent, it appears that the ticket was issued in Rome, Italy. Conse-
quently, under the third jurisdictional rule, the petitioner has the option to bring her case before the
courts of Rome in Italy. Finally, both the petitioner and respondent aver that the place of destination
is Rome, Italy, which is properly designated given the routing presented in the said passenger ticket
and baggage check. Accordingly, petitioner may bring her action before the courts of Rome, Ita-
ly. Thus, the RTC of Makati correctly ruled that it does not have jurisdiction over the case filed by the
petitioner even though it was based on tort and not on breach of contract. Lhuillier vs British Air-
ways, G.R. No. 171092, March 15, 2010.

A freight forwarders liability is limited to damages arising from its own negligence, including negli-
gence in choosing the carrier; however, where the forwarder contracts to deliver goods to their des-
tination instead of merely arranging for their transportation, it becomes liable as a common carrier
for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actual-
ly executes the transport, even though the forwarder does not carry the merchandise itself.
Unsworth Transport International ( Phils. vs. Court of Appeals ,G.R. No. 166250, 26 July 2010



The Rules of Air Control which governs the specific traffic management of aircrafts at an airport pro-
vides that when one aircraft is taxing and the other aircraft is about to take off, the former aircraft
must give way to the latter. GSIS vs. Pacific Airways, GR. No. 170414, August 25, 2010

A customs broker whose services were engaged for the release and withdrawal of the cargoes from
the pier and their subsequent delivery to the consignees warehouse and the owner of the delivery
truck whom the customs broker contracted to transport the cargoes to the warehouse are both
common carriers. The latter is considered a common carrier in the absence of indication that it solely
and exclusively rendered services to the customs broker. Thus, when the truck failed to deliver one of
the cargoes, both the broker and owner of the truck are liable. Being both common carriers, they are
mandated from the nature of their business and for reasons of public policy, to observe the extraor-
dinary diligence in the vigilance over the goods transported by them according to all the circum-
stances of such case. Thus, in case of loss of the goods, the common carrier is presumed to have been
at fault or to have acted negligently. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corpo-
ration, GR No. 179446, January 10, 2011

Where the agreement executed by the parties was a time charter where the possession and control
of the barge was retained by the owner, the latter is, therefore, a common carrier legally charged
with extraordinary diligence in the vigilance over the goods transported by him. The sinking of the
vessel created a presumption of negligence and/or unseaworthiness which the barge owner failed to
overcome and gave rise to his liability for the charterer lost cargo despite the latters failure to insure
the same. Oceaneering Contractrors (Phils), Inc. v. Nestor Barreto, doing business as NNB Lighter-
age , GR No. 184215, February 9, 2011

The LIMITED LIABILITY RULE cannot be availed of by the charterers/sub-charterer in order to escape
from their liability. The Code of Commerce is clear on which indemnities may be confined or restrict-
ed to the value of the vessel and these are the indemnities in favor of third persons which may
arise from the conduct of the captain in the care of the goods which he loaded on the vessel. Thus,
what is contemplated is the liability to third persons who may have dealt with the SHIPOWNER, the
AGENT or even the CHARTERER in case of demise or bareboat charter.

The Charterer cannot use the said Rule because the it does not completely and absolutely step into
the shoes of the shipowner or even the ship agent because there remains conflicting rights between
the former and the real shipowner as derived from their charter agreement. Therefore, even if the
contract is for a bareboat or demise charter where possession, free administration and even naviga-
tion are temporarily surrendered to the charterer, dominion over the vessel remains with the ship-
owner. Ergo, the charterer or the sub-charterer, whose rights cannot rise above that of the former,
can never set up the Limited Liability Rule against the very owner of the vessel. Dela Torre vs. Court
of Appeals, GR No. 160088, July 13, 2011

It was established that the primary cause of the death of the passenger of the jeepney was the negli-
gence of the driver of the truck which collided with the passenger jeepney. Thus, the truck owner is
liable for this failure to rebut the presumption of negligence in hiring and supervision of his employ-
ee. Whenever an employees negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the se-
lection or supervision of his employee. Thus, in the selection of prospective employees, employers
are required to examine them as to their qualification, experience and service record. With respect
to the supervision of employees, employers must formulate standard operating procedures, monitor
their implementation, and impose disciplinary measures for breaches thereof. These facts must be
shown by concrete proof. The Heirs of the late Ruben Reinoso, Sr. vs. Court of Appeals, GR No.
116121, July 18, 2011



Notwithstanding the fact that the case was filed beyond the one-year prescriptive period provided
under the COGSA, the suit ( against the insurer ) will not be dismissed of the delay was not due the
claimants fault. Had the insurer processed and examined the claim promptly, the claimant or the
insurer itself, as subrogee, could have taken the judicial action on time. By making an unreasonable
demand for an itemized list of damages which caused delay, the insurer should bear the loss with in-
terest, New World International Development Corporation vs NYK-FilJapan Shipping Corporation,
GR No. 171468, August 24, 2011

The term carriage of goods covers the period from the time when the goods are loaded to the
time when they are discharged from the ship; thus, it can be inferred that the period of time when
the goods have been discharged from the ship and given to the custody of the arrastre operator is
not covered by the COGSA. Under the COGSA, the carrier and the ship may put up the defense of
prescription if the action for damages is not brought within one year after delivery of the goods or
the date when the goods should have been delivered. However, the COGSA does not mention than
an arrastre operator may invoke the prescriptive period; hence, it does not cover the arrastre opera-
tor. The arrastre operators responsibility and liability for losses and damages are set forth in the con-
tract for cargo handling services executed between the Philippine Ports Authority and Marina Port
Services. Insurance Company of North America vs. Asian Terminals, Inc. GR No. 180784, February 15,
2012

In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a pas-
senger dies or is injured. In fact, there is even no need for the court to make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may only be over-
come by evidence that the carrier exercised extraordinary diligence. Unfortunately, the common
carrier miserably failed to overcome this presumption as the accident which led to the passengers
death was due to the reckless driving and gross negligence of its driver. Heirs of Josemaria Ochoa vs.
G&S Transport Corporation, March 19, as affirmed in the July 16, 2012 decision

Persons engaged in the business of transporting students from their respective residences to their
school and back are considered common carrier. Despite catering to a limited clientele, they operat-
ed as a common carrier because they held themselves out as a ready transportation indiscriminately
to the students of a particular school living within or near where they operated the service and for a
fee. Spouses Perena vs Spouses Nicolas, GR No. 157917, August 29, 2012

Though it is true that common carriers are presumed to have been at fault or to have acted negli-
gently if the goods transported by them are lost, destroyed, or deteriorated, and that the common
carrier must prove that it exercised extraordinary diligence in order to overcome the presumption,
the plaintiff must still, before the burden is shifted to the defendant, prove that the subject shipment
suffered actual shortage. This can only be done if the weight of the shipment at the port of origin and
its subsequent weight at the port of arrival have been proven by a preponderance of evidence, and it
can be seen that the former weight is considerably greater than the latter weight, taking into consid-
eration the exceptions provided in Article 1734 of the Civil Code. Asian Terminals, Inc vs. Simon En-
terprises, Inc. GR No. 177116, February 27, 2013

After payment by the insurer to the insured, it is subrogated to the rights of the latter. Its right of
subrogation under Article 2207 of the Civil Code in relation to Article 1144 gives rise to a cause of
action created by law. The prescriptive period for cause of action based on law ( such as subrogation
) is ten years. Thus, the insurer has 10 years from the date it indemnified the insured to file the action
against the wrongdoer. Vector Shipping Corporation vs. American Home Assurance Company, G.R.
No. 159213, July 3, 2013.

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should


have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of the goods or the date when the goods should have
been delivered. Asian Terminals Inc., v. Philam Insurance Co. G.R. NO. 181262 , July 24, 2013

The liability of a common carrier does not cease by mere transfer of custody of the cargo to the ar-
rastre operator. Like the duty of seaworthiness, the duty of care of the cargo is non-delegable and
the carrier is accordingly responsible for the acts of the master, the crew, the stevedore and his other
agents. The fact that a consignee is required to furnish persons to assist in unloading a shipment may
not relieve the carrier of its duty as to such unloading. It is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of the carrier. Since the damage
to the cargo was incurred during the discharge of the shipment and while under the supervision of
the carrier, the latter is liable for the damage caused to the cargo.

The arrastre operator is likewise liable. The functions of an arrastre operator involve the handling of
cargo deposited on the wharf or between the establishment of the consignee or shipper and the
ships tackle. Being the custodian of the goods discharged from a vessel, an arrastre operators duty is
to take good care of the goods and to turn them over to the party entitled to their possession. While
it is true that an arrastre operator and a carrier may not be held solidarily liable at all times, the facts
of these cases show that apart from the stevedores of the arrastre operator being directly in charge
of the physical unloading of the cargo, its foreman picked the cable sling that was used to hoist the
packages for transfer to the dock. Moreover, the fact that the packages were unloaded with the
same sling unharmed is telling of the inadequate care with which the stevedore handled and dis-
charged the cargo.Westwind Shipping Corporation vs. UCPB General Insurance Co., GR no.
2002289, November 25, 2013

NEGOTIABLE INSTRUMENTS LAW

The premature debiting of the postdated check by the bank which resulted to insufficiency of funds
that brought about the dishonor of two checks causing the electric supply to be cut-off and affected
business operations indicates the negligence of the bank. For its failure to exercise extra-ordinary
diligence, it should be made liable in the case. Equitable PCI Bank vs Tan, GR No. 165339, August 23,
2010

If the post-dated check was given to the payee in payment of an obligation, the purpose of giving
effect to the instrument is evident, thus title or ownership the check was transferred to the payee.
However, if the PDC was not given as payment, then there was no intent to give effect to the instru-
ment and ownership was not transferred. The evidence proves that the check was accepted, not as
payment, but in accordance with the policy of the payee to cover the transaction ( purchase of beer
products ) and in the meantime the drawer was to pay for the transaction by some other means other
than the check. This being so, title to the check did not transfer to the payee; it remained with the
drawer. The second element of the felony of theft was therefore not established. Hence, there is no
probable cause for theft.- San Miguel Corporation vs. Puzon, Jr. G.R. No. 167567, 22 September
2010

While Section 119 of the Negotiable Instrument Law in relation to Article 1231 of the Civil Code
provides that one of the modes of discharging a negotiable instrument is by any other act which will
discharge a simple contract for the payment of money, such as novation, the acceptance by the hold-
er of another check which replaced the dishonored bank check did not result to novation.

There are only two ways which indicate the presence of novation and thereby produce the ef-
fect of extinguishing an obligation by another which substitutes the same. First, novation must be


explicitly stated and declared in unequivocal terms as novation is never presumed. Secondly, the old
and the new obligations must be incompatible on every point.

In the instant case, there was no express agreement that the holders acceptance of the re-
placement check will discharge the drawer and endorser from liability. Neither is there incompatibil-
ity because both checks were given precisely to terminate a single obligation arising from the same
transaction. Anamer Salazar vs. JY Brothers Marketing Corporation, GR no. 171998, October 20,
2010

While a maker who signed a promissory note for the benefit of his co-maker ( who received the loan
proceeds ) is considered an accommodation party, he is, nevertheless, entitled to a written notice on
the default and the outstanding obligation of the party accommodated. There being no such written
notice, the Bank is grossly negligent in terminating the credit line of the accommodation party for
the unpaid interest dues from the loans of the party accommodated and in dishonoring a check
drawn against the such credit line. Gonzales vs Phillippine Commercial and International Bank, GR
No. 180257, February 23, 2011

A certificate of deposit is defined as a written acknowledgement by a bank of the receipt of a sum of
money on deposit which the bank promise to pay to the depositor or the order of the depositor or to
some other person or his order whereby the relation of debtor and creditor between the bank and
the depositor is created. A document to be considered a certificate of deposit need not be in a spe-
cific form. Thus, a passbook of an interest-earning deposit account issued by a bank is a certificate of
deposit drawing interest because it is considered a written acknowledgment by a bank that it has ac-
cepted a deposit of a sum of money from a depositor. Thus, it is subject to documentary stamp tax.
Prudential Bank v. Commissioner of Internal Revenue (CIR) G.R. No. 180390, July 27, 2011

As between a bank and its depositor, where the banks negligence is the proximate cause of the loss
and the depositor is guilty of contributory negligence, the greater proportion of the loss shall be
borne by the bank. The bank was negligent because it did not properly verify the genuineness of the
signatures in the applications for managers checks while the depositor was negligent because it
clothed its accountant/bookkeeper with apparent authority to transact business with the Bank and it
did not examine its monthly statement of account and report the discrepancy to the Bank. the court
allocated the damages between the bank and the depositor on a 60-40 ratio.Philippine National
Bank vs. FF Cruz and Company, G.R. No. 173259, July 25, 2011


While its manager forged the signature of the authorized signatories of clients in the application for
managers checks and forged the signatures of the payees thereof, the drawee bank also failed to
exercise the highest degree of diligence required of banks in the case at bar. It allowed its manager
to encash the Managers checks that were plainly crossed checks. A crossed check is one where two
parallel lines are drawn across its face or across its corner. Based on jurisprudence, the crossing of a
check has the following effects: (a) the check may not be encashed but only deposited in the bank;
(b) the check may be negotiated only once to the one who has an account with the bank; and (c)
the act of crossing the check serves as a warning to the holder that the check has been issued for a
definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he
is not a holder in due course. In other words, the crossing of a check is a warning that the check
should be deposited only in the account of the payee. When a check is crossed,it is the duty of the
collecting bank to ascertain that the check is only deposited to the payees account. Philippine
Commercial International Bank vs. Balmaceda,G.R. No. 158143, September 21, 2011

Upon issuance of a negotiable check, in the absence of evidence to the contrary, it is presumed that
the same was issued for valuable consideration which may consist either in some right, interest, profit
or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or
some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Un-


der the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the
same for a consideration or for value. As petitioner alleged that there was no consideration for the
issuance of the subject checks, it devolved upon him to present convincing evidence to overthrow
the presumption and prove that the checks were in fact issued without valuable considera-
tion. Petitioner, however, has not presented any credible evidence to rebut the presumption, as well
as North Stars assertion, that the checks were issued as payment for the US$85,000 petitioner owed
to the corporation and not to the manager who facilitate the fund transfer. - Cayanan v. North Star
International Travel Inc.,G.R. No. 172954, October 5, 2011

The collecting bank which accepted a post-dated check for deposit and sent it for clearing and the
drawee bank which cleared and honored the check are both liable to the drawer for the entire face
value of the check. Allied Banking Corporation vs. Bank of the Philippine Islands, GR. 188363, Febru-
ary 27, 2013

The fact that a person, other than the named payee of the crossed check, was presenting it for de-
posit should have put the bank on guard. It should have verified if the payee authorized the holder to
present the same in its behalf or indorsed it to him. The banks reliance on the holders assurance that
he had good title to the three checks constitutes gross negligence even though the holder was relat-
ed to the majority stockholder of the payee. While the check was not delivered to the payee, the suit
may still prosper because the payee did not assert a right based on the undelivered check but on
quasi-delict. Equitable Banking Corporation vs Special Steel Products, June 13, 2012

Under the Negotiable Instruments Law, a check made payable to cash is payable to the bearer and
could be negotiated by mere delivery without the need of an indorsement. However, the drawer of
the post-dated check can not be liable for estafa to the person who did not acquire the instrument
directly from drawer but through negotiation of another by mere delivery. This is because the drawer
did not use the check to defraud the holder/private complainant. PEOPLE OF THE PHILIPPINES VS.
GILBERT REYES WAGAS. G.R. No. 157943, September 4, 2013

A check constitutes an evidence of indebtedness and is a veritable proof of an obligation. Under Sec-
tion 24 of the Negotiable Instruments Law, Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party for value. Thus, checks completed and delivered to a person by another are
sufficient by themselves to prove the existence of the loan obligation obtained by the latter from the
former. Ting Ting Pua vs. Spouses Benito, GR No. 198660, October 23, 2013

INSURANCE

The legitimate heirs of the insured who were not designated as beneficiaries in the life insurance
policies are considered third parties to the insurance contracts and, thus are not entitled to the pro-
ceeds thereof. The insurance companies have no legal obligation to turn over the insurance pro-
ceeds to them. The revocation of the common law spouse of the insured as a beneficiary in one poli-
cy and her disqualification as such in another are of no moment considering that the designation of
the illegitimate children as beneficiaries in the Insurance Policies remains valid. Because no legal
proscription exists in naming as beneficiaries children of illicit relationships by the insured, the
shares of the common-law spouse in the insurance proceeds, whether forfeited by the Court in view
of the prohibition on donation under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of the legitimate heirs. It is only in cases where the in-
sured has not designated any beneficiary, or when the designated beneficiary is disqualified by law
to receive the proceeds, that the insurance policy proceeds shall redound to the benefit of the es-
tate of the insured. Heirs of Loreto C. Maramag vs. Maramag, GR No. 181132, June 5, 2009



The insurer, upon the happening of the risk insured against and after payment to the insured is sub-
rogated to the rights and cause of action of the latter. As such, the insurer has the right to seek re-
imbursement for all the expenses paid. Eastern Shipping Lines vs. Prudential Guarantee and Assur-
ance, Inc., GR No. 174116, September 1, 2009

HMOs are not insurance business. One test that they have applied is whether the assumption of risk
and indemnification of loss (which are elements of an insurance business) are the principal object
and purpose of the organization or whether they are merely incidental to its business. If these are
the principal objectives, the business is that of insurance. But if they are merely incidental and ser-
vice is the principal purpose, then the business is not insurance. Philippine Health Care Providers vs.
Commissioner of Internal Revenue, G.R. No. 167330, September 18, 2009.

As a general rule, the marine insurance policy needs to be presented in evidence before the trial
court or even belatedly before the appellate court. However, as in every general rule, there are ad-
mitted exceptions. The policy can still be considered in court as long as it has been properly identi-
fied by testimony duly recorded and has been incorporated in the records of the case. Asian Termi-
nals vs. Malayan Insurance, GR No. 171406, April 4, 2011

By law and by the specific contract involved in this case, the effectivity of the bond required for the
obtention of a license to engage in the business of receiving rice for storage is determined not
alone by the payment of premiums but principally by the Administrator of the NFA. A continuing
bond, as in this case where, there is no fixed expiration date, may be cancelled only by the obligee,
which is the NFA, by the Insurance Commissioner, and by the court. . - Country Bankers Insurance
Corporation v Lagman, G.R. No. 165487, July 13, 2011.

Notwithstanding the fact that the case was filed beyond the one-year prescriptive period provided
for under COGSA, the suit will not be dismissed if the delay was not due to the claimants fault. Had
the insurer processed and examined (petitioners) claim promptly either rejecting or paying it, the
petitioner [or it, as insurer-subrogee] could have taken judicial action on time. But as in this case,
the insurer made an unreasonable demand for an itemized list of damages which caused the delay.
The insurer therefore should bear the loss with interest on account of such delay. New World Inter-
national Development Phils. Inc. v. NYK-FILJAPAN Shipping Corp., G.R. No. 171468,August 24,
2011.

The extent of the suretys liability is determined by the language of the suretyship contract or bond
itself. It can not be extended by implications beyond the terms of the contract. Having accepted the
bond, the creditor is bound by the recital in the surety bond that the terms and conditions of its dis-
tributorship contract be reduced in writing or at the very least communicated in writing to the sure-
ty. Such non-compliance by the creditor impacts not on the validity or legality of the surety contract
but on the creditors right to demand performance. First Lepanto-Taisho Insurance Corporation vs
Chevron Philippines, GR No. 177839, January 18, 2012

The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. When it is not disputed that the insurance company indeed paid, then there is valid subroga-
tion in its favor. Malayan Insurance Co vs Alberto, GR No. 194320, February 1, 2012

The incontestability clause precludes the insurer from disowning liability under the policy it issued
on the ground of concealment or misrepresentation regarding the health of the insured after a year
of its issuance. Since insured died on the 11
th
month following the issuance of his plan, the incon-
testability period has not yet set in. Consequently, the insurer was not barred from questioning the
beneficiarys entitlement to the benefits of the pension plan. Florendo vs. Philam Plans, GR. No
186983, February 22, 2012



Double insurance exists where the same person is insured by several insurers separately in respect to
the same subject and interest. The requisites in order for double insurance to arise are as follows: 1.)
The person insured is the same; 2.) two or more insurers insuring separately; 3.) there is identity of
subject matter; 4.) there is identity of subject interest insured; and 5.) There is identity of the risk or
peril insured against. In this case, Wyeth procured. There is no double insurance even though two
policies were both issued over the same subject matter and both covered the same peril insured
against if the two policies were issued to two different entities. Malayan Insurance Co vs. Philippine
First Insurance Co. G.R. NO. 184300, July 11, 2012

The Insurance Code provides that a policy may declare that a violation of specified provisions
thereof shall avoid it. Thus, in fire insurance policies, which contain provisions that if the claim be in
any respect fraudulent, or if any false declaration be made or used in support thereof, all the bene-
fits under the policy shall be forfeited , a fraudulent discrepancy between the actual loss and that
claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the
insurer. United Merchants Corporation vs. Country Bankers Insurance Corporation, GR. N0. 198588,
July 11, 2012

The theft clause of a comprehensive motor vehicle insurance policy has been interpreted by the
Court in several cases to cover situations like (1) when one takes the motor vehicle of another with-
out the latters consent even if the motor vehicle is later returned, there is theft there being intent
to gain as the use of the thing unlawfully taken constitutes gain or (2) when there is taking of a vehi-
cle by another person without the permission or authority from the owner thereof. Paramount Insur-
ance Corporation vs. Spouses Remondeulaz, GR No. 173773, November 28, 2012

Under the collateral source rule, if an injured person receives compensation for his injuries from a
source wholly independent of the tortfeasor, the payment should not be deducted from the damag-
es which he would otherwise collect from the tortfeasor. It finds no application to cases involving
no-fault insurances under which the insured is indemnified for losses by insurance companies, re-
gardless of who was at fault in the incident generating the losses. Here, it is clear that MMPC is a
no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents
of its employees which had already been paid by separate health insurance providers of said de-
pendents.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law. Being in the
nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees medical expenses incurred by their depend-
ents but only up to the extent of the expenses actually incurred. This is consistent with the principle
of indemnity which proscribes the insured from recovering greater than the loss. Indeed, to profit
from a loss will lead to unjust enrichment and therefore should not be countenanced. Mitsubishi
Motors Philippines Salaried Employees Union vs. Mitsubishi Motors Corporation G.R. No. 175773,
June 17, 2013

The "Incontestability Clause" under Section 48 of the Insurance Code provides that an insurer is giv-
en two years from the effectivity of a life insurance contract and while the insured is alive to dis-
cover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent conceal-
ment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy, even though the policy was
obtained by fraud, concealment, or misrepresentation, as in this case, when the insured did not per-
sonally apply for the policy as she was illiterate and that it was the beneficiary who filled up the in-
surance application designating herself as beneficiary. Section 48 regulates both the actions of the
insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the
policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns
scheming individuals that their attempts at insurance fraud would be timely uncovered thus deter-


ring them from venturing into such nefarious enterprise. Manila Bankers Life Insurance Corporation
vs Cresencia Aban. G.R. No. 175666, July 29, 2013.

With the transfer of the location of the subject properties, without notice and without the insurers
consent, after the renewal of the policy, the insured clearly committed concealment, misrepresenta-
tion and a breach of a material warranty. Section 26 of the Insurance Code provides that a neglect
to communicate that which a party knows and ought to communicate, is called a concealment.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a con-
tract of insurance. Moreover, under Section 168 of the Insurance Code, the insurer is entitled to re-
scind the insurance contract in case of an alteration in the use or condition of the thing insured. Sec-
tion 168 of the Insurance Code provides, as follows: An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made without the consent of the insurer, by
means within the control of the insured, and increasing the risks, entitles an insurer to rescind a con-
tract of fire insurance. Malayan Insurance Company vs. PAP Co. (PHIL. BRANCH). G.R. No. 200784,
August 07, 2013.

Contracts of insurance, like other contracts, are to be construed according to the sense and meaning
of the terms which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting
the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to
be given their meaning as understood in common speech. A contract of insurance is a contract of ad-
hesion. So, when the terms of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his obligation. Al-
pha Insurance and Surety Co. vs. Castor, GR No. 198174, September 2, 2013

When the goods were damaged even before they were turned over to the stevedore and such dam-
age was even compounded by the negligent acts of the common carrier and stevedore when both
mishandled the goods during the discharging operation, the common carrier cannot deny its liability.
From the nature of their business and for reasons of public policy, common carriers are bound to ob-
serve extraordinary diligence in the vigilance over the goods transported by them. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them. East-
ern Shipping Lines vs. BPI/MS Insurance Corp and Mitsui Sum Tomo, GR No. 193986, January 15,
2014

For purposes of determining the liability of a health care provider to its members, a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent agreed upon under the con-
tract. Limitations as to liability must be distinctly specified and clearly reflected in the extent of cov-
erage which the company voluntary assume, otherwise, any ambiguity arising therein shall be con-
strued in favor of the member. Being a contract of adhesion, the terms of an insurance contract are
to be construed strictly against the party which prepared the contract - the insurer. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital service con-
tracts, such as standard charges , must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import should be strictly construed against the pro-
vider. Thus, if the member, while on vacation, underwent a procedure in the USA, the standard
charges referred to in the contract should mean standard charges in USA and not the cost had the
procedure been conducted in the Philippines. Fortune Medicare Inc. vs Amorin. G.R. No. 195872,
March 12, 2014.