MidTerms(2015)

Atty. Maria Zarah R. Villanueva-Castro

NEGOTIABLE INSTRUMENTS
Explain the presumption of consideration in negotiable instruments.
Under the Negotiable Instruments Law, it is presumed that every party to an
instrument acquires the same for a consideration or for value. It devolved upon
the party who claims that there is no consideration to present convincing
evidence to overthrow the presumption and prove that the checks were in fact
issued without valuable consideration. (Engr. Jose E. Cayanan v. North Star
International Travel, Inc. G.R. No. 172954, October 5, 2011)
Who is an accommodation party? What is his liability to the holder?
An accommodation party is one who meets all the three requisites, viz: (1) he
must be a party to the instrument, signing as maker, drawer, acceptor, or
indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other person. An accommodation
party lends his name to enable the accommodated party to obtain credit or to
raise money; he receives no part of the consideration for the instrument but
assumes liability to the other party/ies thereto. The accommodation party is liable
on the instrument to a holder for value even though the holder, at the time of
taking the instrument, knew him or her to be merely an accommodation party, as
if the contract was not for accommodation. (Eusebio Gonzales v. Philippine
Commercial & International Bank, et al., G.R. No. 180257, February 23,
2011)

CORPORATION LAW
Is the Boy Scouts of the Philippines a public corporation?
As presently constituted, the Boy Scouts of the Philippines still remains an
instrumentality of the national government. It is a public corporation created by
law for a public purpose, attached to the DECS pursuant to its Charter and the
Administrative Code of 1987. It is not a private corporation which is required to
be owned or controlled by the government and be economically viable to justify
its existence under a special law. Thus, the test of economic viability clearly does
not apply to public corporations dealing with governmental functions, to which
category the BSP belongs. (Boy Scouts of the Philippines v. Commission on
Audit, G.R. No. 177131, June 7, 2011)
What does the term capital
Constitution mean?

in Section 11, Article

XII of the

The term capital in Section 11, Article XII of the Constitution refers only to
shares of stock entitled to vote in the election of directors, and thus in this case
only to common shares, and not to the total outstanding capital stock comprising
both common and non-voting preferred shares.

Indisputably, one of the rights of a stockholder is the right to participate in the

control or management of the corporation. This is exercised through his vote in
the election of directors because it is the board of directors that controls or
manages the corporation. Considering that common shares have voting rights
which translate to control, as opposed to preferred shares which usually have no
voting rights, the term capital in Section 11, Article XII of the Constitution refers
only to common shares. However, if the preferred shares also have the right to
vote in the election of directors, then the term capital shall include such
preferred shares because the right to participate in the control or management of
the corporation is exercised through the right to vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution
to place in the hands of Filipino citizens the control and management of public
utilities.
(Note: As of April 2012, the Motion for Reconsideration of this case is still pending
before the Supreme Court) (Wilson P. Gamboa v. Finance Secretary
Margarito B. Teves, et al.; Pablito V. Sanidad, et al., Petitioners-inintervention, G.R. No. 176579, June 28, 2011)
Explain the Trust Fund Doctrine? What is the extent of the doctrine?
The trust fund doctrine enunciates a rule that the property of a corporation is a
trust fund for the payment of creditors. As between the corporation itself and its
creditors it is a simple debtor, and as between its creditors and stockholders its
assets are in equity a fund for the payment of its debts. It is established doctrine
that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee
in insolvency can maintain an action upon any unpaid stock subscription in order
to realize assets for the payment of its debts.
The trust fund doctrine is not limited to reaching the stockholders unpaid
subscriptions. 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. All assets and property belonging to the corporation held in
trust for the benefit of creditors that were distributed or in the possession of the
stockholders, regardless of full payment of their subscriptions, may be reached by
the creditor in satisfaction of its claim.
Also, under the trust fund doctrine, a corporation has no legal capacity to release
an original subscriber to its capital stock from the obligation of paying for his
shares, in whole or in part, without a valuable consideration, or fraudulently, to
the prejudice of creditors. The creditor is allowed to maintain an action upon any
unpaid subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt. (Donnina C. Halley v. Printwell Inc., G.R. No. 157549,
May 30, 2011)
Who owns the shares purchased with the use of coconut levy funds?
It is fairly established that the coconut levy funds are special public funds.
Consequently, any property purchased by means of the coconut levy funds should
likewise be treated as public funds or public property, subject to burdens and
restrictions attached by law to such property. Being government properties, they
are accordingly owned by the Government, for the coconut industry pursuant to
existing laws. (Philippine Coconut Producers Federation, Inc. [COCOFED],
et al. Vs. Republic of the Philippines, respondent; Wigberto E. Tanada, et

al., Intervenors/Danilo S. Ursua Vs. Republic of the Philippines, G.R. Nos.

177857-58/178193, January 24, 2012)
When may the Board create additional positions for corporate office?
Though the board of directors may create appointive positions other than the
positions of corporate officers, the persons occupying such positions cannot be
viewed as corporate officers under Section 25 of the Corporation Code. Unless and
until the corporation's by-laws is amended for the inclusion of General Manager in
the list of its corporate officers, such position cannot be considered as a corporate
office within the realm of Section 25 of the Corporation Code. (March II
Marketing, Inc. and Lucila V. Joson v. Alfredo M. Joson, G.R. No. 171993,
December 12, 2011)
What makes a controversy intra-corporate?
To reiterate, not all conflicts between the stockholders and the corporation are
classified as intra-corporate. Other factors such as the status or relationship of
the parties and the nature of the question that is the subject of the controversy
must be considered in determining whether the dispute involves corporate
matters so as to regard them as intra-corporate controversies.
(March II
Marketing, Inc. and Lucila V. Joson v. Alfredo M. Joson, G.R. No. 171993,
December 12, 2011)
When is an officer personally liable for the dismissal of an employee?
Even if the company has a valid cause for dismissing an employee due to
cessation of business operations, however, if the latter's dismissal was done
abruptly and where he was not given the required one-month prior written notice
that the company will already cease its business operations, bad faith is clearly
present on the part of the responsible officers. (March II Marketing, Inc. and
Lucila V. Joson v. Alfredo M. Joson, G.R. No. 171993, December 12, 2011)
When is the officer deemed to have acted in bad faith?
When an officer modified the initial result of the technical evaluation of the
computers by imposing an irrelevant grading system that was intended to favor
one of the bidders, after the bids had been opened, he is deemed to have acted in
bad faith. PD 1445 states that expenditures of government funds or uses of
government property in violation of law or regulations shall be a personal liability
of the official or employee found to be directly responsible therefor. (Candelario
L. Verzosa, Jr. v. Guillermo N. Caraque, et al., G.R. No. 157838, March 8,
2011)
A lawyer entered his appearance accompanied by the companys
director and general manager who himself attended several court
hearings, and sent a letter to the RTC asking for the status of the case.
There is no board resolution for the representations made before the
court. Is the company bound by the representations of the lawyer?
A corporation may be held in estoppel from denying as against innocent third
persons the authority of its officers or agents who have been clothed by it with
ostensible or apparent authority. Its lawyer may not have been armed with a
board resolution, but the appearance of the director and general manager made
the parties assume that the company had knowledge of its lawyers actions and,

thus, clothed the latter with apparent authority such that the parties were made
to believe that the proper person and entity to address was such lawyer.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency, imposes liability, not as
the result of the reality of a contractual relationship, but rather because
of the actions of a principal or an employer in somehow misleading the
public into believing that the relationship or the authority exists. This is
especially true since the company never repudiated the authority of its lawyer
when all the motions, pleadings and court orders were sent not to the office of the
latter but to the office of the company, who in turn, would forward all of the same
to the lawyer. (Megan Sugar Corporation v. Regional Trial Court of Iloilo,
Br. 68, Dumangas, Iloilo; New Frontier Sugar Corp., et al., G.R. No.
170352, June 1, 2011)
How should the Rules on Corporation Rehabilitation be construed?
The Court promulgated the Rules in order to provide a remedy for summary and
non-adversarial rehabilitation proceedings of distressed but viable corporations.
These Rules are to be construed liberally to obtain for the parties a just,
expeditious, and inexpensive disposition of the case. Rehabilitation proceedings in
our jurisdiction have equitable and rehabilitative purposes. They attempt to
provide for the efficient and equitable distribution of an insolvent debtors
remaining assets to its creditors; and to provide debtors with a fresh start by
relieving them of the weight of their outstanding debts and permitting them to
reorganize their affairs. The purpose of rehabilitation proceedings is to enable the
company to gain a new Lease on life and thereby allow creditors to be paid their
claims from its earnings.
The determination of the true and correct amount due a creditor is important in
assessing whether the company may be successfully rehabilitated. It is thus
necessary that the creditor be given the opportunity to be heard by the
rehabilitation court. Hence, even if belated filed, opposition or comment to
rehabilitation should be accepted. (Asia Trust Development Bank v. First
Aikka Development, Inc. and Univac Development, Inc., G.R. No. 179558,
June 1, 2011)
Where should a petition for corporate rehabilitation be filed?
Petitions for rehabilitation pursuant to these Rules shall be filed in the Regional
Trial Court having jurisdiction over the territory where the debtors principal office
is located. (Asia Trust Development Bank v. First Aikka Development, Inc.
and Univac Development, Inc., G.R. No. 179558, June 1, 2011)
When a company has secured a suspension order, is foreclosure of
properties belonging to its stockholders/officers which were mortgaged
to secure the debt of the company also suspended?
NO. These properties are not under the purview of the SEC Suspension Order. PD
902-A vested the SEC with jurisdiction on petitions for suspension of payments
only on corporations, partnerships and associations; not on individual persons.
Private individuals and their privately owned properties cannot be placed under
the jurisdiction of the SEC in a petition for suspension of payments. The SEC has
no jurisdiction over private individuals relative to any petition for suspension of
payments, whether the private individual is a petitioner or a co-petitioner. The
SECs jurisdiction is limited only to corporations and corporate assets; it has no
jurisdiction over the properties of private individuals or natural persons, even if

they are the corporations officers or sureties. (Samuel U. Lee, et al. v.

Bangkok Bank Public Company, Limited, G.R. No. 173349, February 9,
2011)
Is the rehabilitation plan an indispensable requirement in a corporate
rehabilitation case?
The rehabilitation plan is an indispensable requirement in corporate rehabilitation
proceedings. Section 5 of the Rules enumerates the essential requisites of a
rehabilitation plan: The rehabilitation plan shall include (a) the desired business
targets or goals and the duration and coverage of the rehabilitation; (b) the terms
and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors; (c) the
material financial commitments to support the rehabilitation plan; (d) the means
for the execution of the rehabilitation plan, which may include conversion of the
debts or any portion thereof to equity, restructuring of the debts, dacion en pago,
or sale of assets or of the controlling interest; (e) a liquidation analysis that
estimates the proportion of the claims that the creditors and shareholders would
receive if the debtors properties were liquidated; and (f) such other relevant
information to enable a reasonable investor to make an informed decision on the
feasibility of the rehabilitation plan. Failure to include a liquidation analysis is fatal
to the rehabilitation plan. (Siochi Fishery Enterprises, Inc., et al. v. Bank of
the Philippine Islands, G.R. No. 193872, October 19, 2011)
Can a corporate officer (duly authorized by the Board of Directors) file a
suit to recover an unlawfully detained corporate property despite the
corporations pending rehabilitation?
The rehabilitation receiver is tasked only to monitor the successful
implementation of the rehabilitation plan. There is nothing in the concept of
corporate rehabilitation that would ipso facto deprive the Board of Directors and
corporate officers of a debtor corporation, of control such that it can no longer
enforce its right to recover its property from an errant lessee. The rules
enumerate the prohibited corporate actions and transactions during the pendency
of the rehabilitation proceedings but none of which touch on the debtor
corporations right to sue. The implication therefore is that our concept of
rehabilitation does not restrict this particular power, save for the caveat that all its
actions are monitored closely by the receiver, who can seek an annulment of any
prohibited or anomalous transaction or agreement entered into by the officers of
the debtor corporation. (Leonardo S. Umale (deceased), represented by
Clarissa Victoria, et al. all surnamed Umale Vs. ASB Realty Corp., G.R.
No. 181126, June 15, 2011)
Are sureties of the debtor corporation affected by the Stay Order?
The Rules of Procedure of Corporate Rehabilitation provides that a stay order does
not apply to sureties who are solidarily liable with the debtor. (JAPRL
Development Corp., et al. v. Security Bank Corporation, G.R. No. 190107,
June 6, 2011)
Does the stay order apply to pending criminal cases against the officers
of the corporation?
The rehabilitation of the corporation is not a legal ground for the extinction of its
officers criminal liabilities. There is no reason why criminal proceedings should be

suspended during corporate rehabilitation, more so, since the prime purpose of
the criminal action is to punish the offender in order to deter him and others from
committing the same or similar offense, to isolate him from society, reform and
rehabilitate him or, in general, to maintain social order. It would be absurd for one
who has engaged in criminal conduct could escape punishment by the mere filing
of a petition for rehabilitation by the corporation of which he is an officer. The
prosecution of the officers of the corporation has no bearing on the pending
rehabilitation of the corporation, especially since they are charged in their
individual capacities. (Jose Marcel Panlilio, et al. v. Regional Trial Court,
etc., People of the Philippines and Social Security System, G.R. No.
173846, February 2, 2011)
Is execution of judgment against the corporation also covered by a stay
order?
All pending actions, including the execution of the judgment against the
corporation, should be suspended pending termination of the rehabilitation
proceedings. Jurisprudence is settled that the suspension of proceedings referred
to in the law uniformly applies to all actions for claims filed against a
corporation, partnership or association under management or receivership,
without distinction, except only those expenses incurred in the ordinary course of
business. (Agripino V. Molina v. Pacific Plans, Inc., G.R. No. 165476,
August 15, 2011)
A stockholder demands accounting of association dues from a
condominium corporation. Is this intra-corporate in nature? Will
foreclosure sale prevent such stockholder from questioning the
assessments?
Yes, this case involves an intra-corporate dispute. Just because the property has
already been sold extra-judicially does not mean that the questioned assessments
have now become legal and valid or that they have become immaterial. In fact,
the validity of the foreclosure depends on the legality of the assessments and the
issue must be determined by the court if only to insure that the owner was not
deprived of her property without having been heard. (Chateu de Baie
Condominium Corp. v. Sps. Raymond and Ma. Rosario Moreno, G.R. No.
186271, February 23, 2011)
What is the applicable term of office of the trustees of an educational
stock corporation?
Section 108 of the Corporation Code determines the membership and number of
trustees in an educational corporation. The second paragraph of the provision,
although setting the term of the members of the Board of Trustees at five years,
contains a proviso expressly subjecting the duration to what is otherwise provided
in the articles of incorporation or by-laws of the educational corporation. Hence, if
the by-laws of such corporation provide for a term of two years, such term shall
prevail. It follows that the officers appointed by the trustees should also serve for
the same term. (Petronilo J. Barayuga v. Adventist University of the
Philippines, et al., G.R. No. 168008, August 17, 2011)
Are employment contracts automatically assumed by the surviving
corporation in a merger, even in the absence of an express stipulation in
the articles of merger or the merger plan?

Yes but only after the SEC has approved the merger. However, nothing in this
Resolution shall impair the right of an employer to terminate the employment of
the absorbed employees for a lawful or authorized cause or the right of such an
employee to resign, retire or otherwise sever his employment, whether before or
after the merger, subject to existing contractual obligations. (Bank of the
Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of
Unions in BPI Unibank, G.R. No. 164301, October 19, 2011)
SECURITIES REGULATION CODE
What is a public company under the Securities Regulation Code? Is this
limited to companies whose shares of stock are publicly listed?
Subsections 17.1 and 17.2 of the SRC and Rule 3(1)(m) of the Amended
Implementing Rules and Regulations of the SRC, it is clear that 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 enumerated in the SRC such as existence of (i) assets exceeding
P50,000,000.00 and (ii) 395,998 shareholders. (Philippine Veterans Bank v.
Justina Callangan, etc. and/or the Securities and Exchange Commission,
G.R. No. 191995, August 03, 2011)
What is an investment contract?
An investment contract is a contract, transaction, or scheme where a person
invests his money in a common enterprise and is led to expect profits primarily
from the efforts of others. The United States Supreme Court held in Securities and
Exchange Commission v. W.J. Howey Co. that, for an investment contract to exist,
the following elements, referred to as the Howey test must concur: (1) a contract,
transaction, or scheme; (2) an investment of money; (3) investment is made in a
common enterprise; (4) expectation of profits; and (5) profits arising primarily
from the efforts of others.
Sale of internet website does not fall under investment contract as the buyers do
not invest money in the company that it could use for running some business that
would generate profits for the investors. (Securities and Exchange
Commission v. Prosperity.Com Inc., G.R. No. 164197, January 25, 2012)
GENERAL BONDED WAREHOUSE ACT
What is a Continuing Bond?
A continuing bond is one that has no fixed expiration date and may be cancelled
only by the obligee, by the Insurance Commission and by the court.
(Country Bankers Insurance Corporation v. Antonio Lagman, G.R.
No. 165487, July 13, 2011)