MAGIC AREAS IN COMMERCIAL LAWS By; Dean ED VINCENT S. ALBANO and Prof. ED VINCENT A. ALBANO III CORPORATION LAW and CORPORATE REHABILITATION Grandfather rule Basically, there are two acknowledged tests in determining the nationality of a corporation: the controf test and the grandfather rule. Paragraph 7 of BO} pinion No. 020, Series of 2005, adopting the 1967 SEC: Rules which implemented the requirement-of the Constitution and other laws pertaining to the controlling interests in enterprises engaged in the exploltation of natural resources owned by Filipino citizens, provides:. “Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Fliping citizens shall be considered as of Philippine nationality, but if the nationally of Filipino ‘ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality ‘The first part of paragraph 7, DO} Opinion No. 020, stating “shares belonging to corporations or partnerships at feast 60% of the capital of which ts owned by Filipino citizens shall be considered as of Philippine nationality,” pertains to the control test or the tiberal rule. On the other hand, the second part of the DO} Opinion which provides, “ifthe percentage of the Filipino ownership in the corporation or partnership is less than 6036, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.” pertains to the stricter, more stringent grandfather rule. Under the Liberal Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation which is at least 60% Filipine-owned is considered as Fitipino, Under the Strict Rule or Grasidfather Rule Proper, the combined totals in the Investing Corporation and the Investee Corporation must be traced (Le, “grandfathered”) to determine the total percentage of Filipino ownership. Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of the Investing Corporation and added to the shares directly owned in the Investee Corporation. Which of the two tests must be applied? A perusal of the deliberations in the Records of 1986 Constitutional Commission reveals that the grandtather rule must be applied in cases where corporate layering, asin this case. is present. ‘When the 60-40 Fiipino-foreign equity ownership is in doubt, the grandfather rule must be applied. Thuis, to establish the actual ownership, interest of participation of MBMI in each of the corporation structures of Natra, Tesoro and McArthur. they have to be “grandfathered.” (Narra Nickel Mining and Development Corp. v. Redmont.Consolidated Mines Corp, 722 SCRA 382, April 21, 2014) Rules on merger Merger is a re-organization of two or more corporations that results in thetr consolidating into a single corporation, whic is one ofthe constituent corporations, one disappearing or dissolving and the other surviving, Tu put it another way.’ merger is the absorption of one or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s). The absorbing corporation continues its existence while the life o lives of the other corporation(s) is or are terminated ‘The Corporation Code requires the following steps for merger or consolidation: 1. The board of each corporation draws up a plan of merger or consolidation. Such plan must include any amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of consolidation, all the statements cequired in the articles of incorporation of a corporation. 2. Suivmission of plan to stockholders or members of each corporation for approval, A meeting must be called and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or hy registered ‘mall A summaty of the plan must be attached to the notice. Vote of two-thirds of the embers or of stockholders representing two thirds of the outstanding capital stock will be needed. Appraisal rights, when proper, must be respected 3, Execution of the formal agreement, referred to as the articles of merger or consolidation, by the corporate officers of each constituent corporation, These take the place of the articles of incorporation of the consolidated corporation, or amend the articles of incorporation ofthe surviving corporation. 4. Submission of sai articles of merger or consolidation to the SEC for approval 5. Ifnecessary, the SEC shall seta hearing. notifying all corparations concerned atleast two weeks before. 6. Issuance of certificate of merger ar consolidated, ‘A merger does not become effective upon the mere agreement of the constituent corporations. all the requirements specified in the law must be complied within order for merger to take effect. Section 79 of the Corporation Code further provides that the merger shall be effective only upon the Issuance by the Securities and Exchange Commission (SEC) of a certificate of merger. {Bank of Commerce v. Radio Philippines Network, Inc, 722 SCRA 520, April 21,2014) De facto merger {Ado facto meryor can be pursued by\one corporation acquiring all or substantially all of the properties of another corporation is exchange of shares of stock of ¥he acquiring corporation. The acquiring corporation would end up with the 41 [asne2016 significant Doctrines n COMILAWS (rovied-segregate)new/EVSAlcrYSbusiness enterprise of the target corporation; whereas, the target corporation would end up with basically its only remaining assets being the shares of stock of the acquiring corporation. Winding up period: three years from corporation dissolution n Sec, 122. Corporate liquidation. ~ Every corporation who charter expires but its own Ihintation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved. for the purpose of prosecuting, and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute Its assets, but not for the purpose of continuing the business for which it was established. At any time during said three (3) years, sald corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and ather persons in interest, From and after any ‘such conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interest all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or municipality where such assets are located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of Its assets or property except upon lawful dissolution and after payment of all its debt and liabilities. (Alabang Development Corp. v. Alabang Hills Village Association, 724 SCRA 321, lune 2, 2014) Approval ofa corporation's rehabilitation plan; substantive considerations. Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted in order to give companies sufficient leeway to deal with debilitating financial predicaments in the hope of restoring or reaching a sustainable operating form If only to best accommodate the various interests of all its.stakeholders, may it be the corporation's stockholders, its creditors and even the general public. In this light, case law has defined corporate Fehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the hope of its eventual return from financial stress to solvency. It contemplates the continuance of corporate.life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity. Verily, the purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid th claims {rom its earnings. (See Express Investments ill Private Ltd. v. Bayan Telecommunications, Inc, G.R, Nos, 174457-59, December 5, 2012, 687 SCRA 50, 86-87). Thus, rehabilitation shall be undertaken when it is shown that the continued ‘operation of the corporation is economically more feasible and its creditors can recover, by way of the present value ot payments projected in the plan, more, if the corporation continues as.a going concern than if itis immediately liquidated. (BPI v.Sarabia Manor Hotel Corp, GR. No, 175844, July 29, 2013). Feasibility of rehabilitation, in order to determine the feasibility of.a proposed rehabilitation plan, it Is imperative that a thorough ‘examination and analysis of the distressed corporation's financial data must be conducted. If the results of such ‘examination and analysis show that there Is a réal opportunity to rehabilitate the corporatidn in view of the assumptions made and financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albei under the terms and conditions stated in the approved rehabilitation plan. On the other hand, ifthe results ofthe financial ‘examination and analysis clearly indicate that there lies no reasonable probability that the distressed corporation could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then it may be said that a rehabilitation would not be feasible. In such case,'the rehabilitation court may convert the proceedings into one for liquidation. as further guidance on the matter, the Court's pronouncement in Wonder Book Carporatian v. Philippine Bank of Communications proves instructive: Rehabilitation ix x x available to a corporation {which}, while illiquid, has assets that can senigrate more cash if used in its daily operations than sold, tts liquidity issues can be addressed by a Practicable. business plan that will generate enough cash to sustain daily operations, has a definite Souce of financing for its proper and full implementation, and anchored on realistic assumptions and goals, This rertiedy should be denied to corporations whose insolvency appears to be irreversible and ‘whose sole:purpose is to delay the enforcement of any of the rights of the creditors, which is rendered ‘obvious by the following: (a) the absence of a sound and workable business plan; (b) baseless and. “unexplained assumptions, targets and goals; (c) speculative capital infusion or complete lack thereof for " the.eéecution of the business plan; (4) cash flow cannot sustain daily operations; and (e) negative net ‘worth amid the-assets are near full depreciation or fully depreciated. (G.R. No. 187316, July 16, 2022, 676 SCRA489), ‘Tests in determining whether a controversy is intra-corporate. Reyes w. Regional Trial Court of Makati, Branch 142, GR. No. 165744, August 11, 2008, 361 SCRA 593, contains a comprehensive discussion of these two tests, thus: Initially, the main consideration in determining whether a dispute constitutes an intra- corporate controversy was limited to a consideration of the intra-corporate relationship existing between or among the parties. The, types relationships embraced under Section S(b) x x Xx were as follows: a. Between the corporation, partnership, or association and the public; b. Between the corporation, partnership, or association and its stockholders, partners, members, or officers: Between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and 4. Among the stockholders, parmers or associates themselves. xx x 2 | ABRC2016 Significant Doctrines in COMLAWS revised-segregate)new/EVSA/crys“The existence of any ofthe above intra-corporate relations was sufficient to confer jurisdiction tw che SEC (now the RTC), regardless of the subject matter ofthe dispute. This came to be known as the relationship test. However, in the 1984 case of DMRC Enterprises v. Esta de! Sol Mountain Réserve, Inc the Court introduced the nature ofthe controversy test. We declared in this case that itis not the mere existence of, an intra-_corporate relationship that gives rise to an intra-corporate controversy; to rely on the relationship test alone will divest the regular courts of their jurisdiction for the sole reason that the dispute involves a corporation, its directors, officers, or stockholders. We saw that there is no legal sense in disregarding or minimizing the value of the nature ofthe transactions which gives rise tothe dispute. Under the nature of the controversy test, the incidents of that relationship must also be considered for the’ purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement ofthe parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation, If the relationship and its incidents are morely incidental fo the controversy or if there will still be conflict even ifthe relationship does not exist, then no intra-corporate controversy extsts, Combination of the two (2) tests. ‘The Court then combined the two tests and declared that jurisdiction should be determined by considering not conly the status or relationship of the parties, but also the nature of the question under contraversy. This two-tier test was adopted in the recent case of Speed Distribution, Inc. v, Court of Appeals: “To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: (a) the status or relationship of the parties, and {b] the nature of the question that Is the subject of their controversy. ‘The first element requires that the controversy must arise out of intra-corporate or partnership relations between any or all of the parti¢s and the corporation, partnership, or association of which they are stockholders, members or associates, between any or all of them and the corporation, partnership oF association of which they are stockholders, members. or associates. respectively: and between. such corporation, partnership, or assoclation and the State Insofar as it concerns the individual franchises. ‘The second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation, If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra- corporate controversy,’ (Citations and some emphases omitted; emphases supplied.) Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of intra-corporate oi partnership relations, and (b) the nature of the question subject of the controversy must be such that it is Intrinsicall connected with the regulation of the corporation or the enforcement of the parties’ rights and obligations under th Corporation Code and the internal regulatory rules of the corporation. So long as these twe criteria are satisficd, th dispute is intra- corporate and the RTC, acting as a special commercial court, has jurisdiction over it. (Vitallano Aguirre Il etal. v. FQB+7 Inc, etal, GR. No. 170770, January 9, 2013). Effects of dissolution of a corporation. Section 145 of the Corporation Code protects, among others, the rights and remedies of corporate actors agains other corporate actors. The statutory:provision assures an aggrieved party that the corporation’s dissolution will no impair, much less remove, his/her rights or remedies against the corporation, its stockholders, directors or officers. It als states that corporate dissolution will not extinguish any liability already incurred by the corporation, its stockholders directors, or officers. In short, Section 145 preserves 2 corporate actor's cause of action and remedy against anothe corporate actor, In so doing, Section 145 also preserves the nature of the controversy between the parties as an intra corporate dispute. ‘The dissolution of the corporation simply prohibits it from continuing its business. However, despite suc! dissolution, the parties involved in the litigation are still corporate actors. The dissolution does not automatically conver the parties into total strangers or change their intra-corporate relationships. Neither does it change or terminate existin ‘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 ax an intra-corporate dispute despite the subsequent dissolution of th corporation. Nature and liabilities of corporation. Basic is the rule n corporation law that a corporation is a juridical entity which is vested with a legal personalit separate and distinct from thase acting for and In its behalf and, in general, from the people comprising it. Following thi principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sol liabilities. A director, officer or employee of a corparation is generally not held personally liable for obligations incurred b the corporation. (Garcia v. SSS Legal & Collection, GR, No. 170735, December 17, 2007). Nevertheless, this legal fictio may be disregarded iFit is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existin obligation, the circumvention of statutes, or to confuse legitimate issues, Solidary lability of officers for ilabilities of a corporation; when. Solidary liability will chen attach to the directors, officers or employees of the corporation in certai circumstances, such as: 1. When directors and trustees or, iit appropriate cases, the officers of a corporation: (a) vote for or assent t patently unlawful acts of the corporition; (b) act in bad faith or with gross negligence in directing th Eorporate affairs: and (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholder ‘or members, and other persons: 3 | ABRCI016 significant Doctrines in COMLAWS (revised-segregate)new/EVSAVrYS> hind. isbn otepa We lteraees ete ‘uetiat pert. Yalu, See ef ee pate OE y acta atl of tatty hagastinal poi tey aut Li 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 thereto; 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; oF ¥ 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. (Vichico v. National Labor Relations Commission, 339 Pil. 242 (1997). 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, (Francisco v. Mallen, Jr, G.. No, 173169, September 22, 2010, 631 SCRA 118; Heirs of Tan v. IEB, supra.) Rights of stockholders; preferred shares cannot vote; reason. Indisputably, one of the rights of a stockholder isthe right to participate in the control or management of the corporation, This is exercised through his vote in the election of directors because iti the board of directors that controls ‘or manages the corporation. [nthe absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often ‘excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred’ shareholders are merely investors in the corporation for income in the same manner as bondholders. in fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote. Common shares cannot-be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid. 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, ifthe preferred shares also have the right to vote in the election of directors, then the term “capital” shall ude such preferred shares because the right to participate inthe control or management of the corporation is exercised ‘ifough the right to vote in the election of directors.In short, the term "capital" in Section 11, Article XII of the ‘xs2-Constitution refers only to shares of stock that can 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. As revealed in the deliberations of the Constitutional Commission, “capital” refers to the voting stock or controlling interest of a corporation. Piercing te corporate veil. ‘Under a variation of the doctrine of piercing the veil of corporate fiction, when two business enterprises are ‘owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or one and the same. (General Credit Corporation v. Alsons Development and tnvestment Corporation, 542 Phil. 219 (2007) ‘While the conditions forthe disregard of the uridicalentity may vary, the following are some probative factors of identity that wil justify the application ofthe doctrine of piercing the corporate veil, as laid down in Concept Builders, Inc. ¥. NLRC, (326 Phil. 955 (1996) {1) Stock ownership by one or common ownership of both corporations; (2) Identity of directors and officers: {G) The manner of keeping corporate books and records, and (4) Methods of conducting the business. (Concept Builders, Inc. v. NLRC, 326 Phil. 955 (1996); Heirs of Tan Uy v. IEB, GR. No, 166282; Goldkey Dev. Corp. v.IEB, GR, No, 166283, February 13.2013). ‘Apposite to the case at bar is the case of Palacio vs. Fly Transportation Co, where the Supreme Court held: “Where the main purpose in forming the corporation was to evade one's subsidiary lability for damages ina criminal case, the corporation may nat be heard to say that it has a personality separate and distinct from its members, because to allow it to do so would be to sanetion the use of fiction of corporate entity as a shield to further an end subversive of justice (La Campana Coffee Factory, et a. v. Kaisahan ng ‘mga Manggagawa, etc, etal, L-5677, May 25, 1953). The Supreme Court can even substitute the real party xo itvinterest in place ofthe defendant corporation in order to avoid multiplicity of suits and thereby save the parties unnecessary expenses and delay. (Alfonso vs. Villamor, 16 Phit. 315).” 15121, May 31, 1962, 5 SCRA 1011 © This isavhat the third party claimant wants to do including the defendant in this case, to use the separate and distinct personality of the two corporations as a shield to further an end subversive of justice by avoiding the execution of . a final judgment ofthe court. (Gold Line Tower, Inc. v. Heirs of Lacsa, G.R. No, 159108, June 18, 2012) Doctrine of piercing the corporate veil (test in determining applicability). ‘The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as ‘one and the same juridical person with respect to a given transaction, is basically applied only to determine established liability; it is not available to confer on the court jurisdiction it has not acquired, In the first place, over a party not impleaded in a case, ‘A-corporation not impleaded in a suit cannot be subject to the court's process of piercing the veil of its corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any proceedings taken against that corporation and its property would infringe on its right to due process. The doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Before this doctrine can be applied, the court must first have jurisdiction over the corporation. ‘The implication of the above cls two-fold: (1) the court must first acquire jurisdiction over the corporation or corporations involved before its ar their separate personalities are disregarded: and (2) the doctrine of piercing the veil of orate entity can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly Sena : ‘ale oe ew st aan, — vp gee oa Hoa eee a eae ua-asaxall ts ads bulas tmnt pbbrought under the authority of the court by way of service of summons or what passes as such service. (Kukan International Corporation v. Hon. Amor Reyes, et al, G.R, No. 182729, September 29, 2010, Velasco, Jr, J) ‘Tests Evolved to Determine Applicability of Piercing Doctrine. ‘The tests in determining the applicability of the doctrine of piercing the veil of corporate fiction are as follows: Control, not mere majority or complete stock control, but complete domination, not only of the finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had atthe time no separate mind, will or existence of its own; 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 acts in contravention of plaintiff's legal right; and The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. (Heirs of Ramon Durano, Sr. vs. Uy, 344 SCRA 238 (2000). It has been held that the existence of the corporate entity does not shield from prosecution the corporate agent who knowingly and intentionally causes the corporation to commit the crime. The.corporation obviously acts, and can act, only by and through its human agents, and it is their conduct which the law must deter. The employee or agent of a corporation engaged in unlawful business naturally aids and abets in the carrying on of such business-and will be prosecuted as principal if, with knowledge of the business, its purpose and effect, he consciously contributes his efforts to its conduct and promotion (llegal recruitment In this case), however slight his contribution may be. (The Executive Secretary v.CA, 429 SCRA 81 (2004) Doctrine of piercing corporate veil; effect on liability of officers. ‘The law vests a corporation with a personality distinct and separate from its stockholders or members. In the same vein, a corporation by legal fiction and convenience, is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. Nonetheless, the shield is not at all times impenetrable and cannot be extended t0 a point beyond its reason and policy. Circumstances might deny a claim for corporate personality, under the “doctrine of plercing the vell of corporate fiction.” Plercing the veil of corporate fiction is an equitable doctrine developed to address sitdations where the separate corporate personality of a corporation is abused or used for wrongful purposes, Under the dotrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, oF to justify a wrong, to shield or perpetrate fraud or to carry out sinilar or inequitable considerations, other "unjustiflable alms or intentions, In which case, the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical, (Livesey v. Binswanger Philippines, Inc, 719 SCRA 433, March 19,2014) Instances when corporate directors/trustees or officers may be held personally liable for the obligation of the corporation. orang Ie is hombook principle that personal liability of corporate diréctors, trustees or officers attaches only when: (a) ‘Ditor$ (LD) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in enc y _ sfecting is ffs or when there sa conf of interest resulting damages othe corporations stockholders or other ALMA Lee ub, Persons: (b) they consent to the issuance of watered down stock or when, having knowledge of such issuance, do not (+ YY forthwith file with the corporate secretary their written objection; (c) they agree to hold themselves.personally and Henensiw Uh Késotdarily lable with the corporation; or () they are made by specific provision of law personally answerable for their eile corporation action. (SPI Technologies, Inc. v. Mapua, 720 SCRA 743, April 7, 2014) Ut In case for illegal dismissal, a corporate officer not be held personally liable for the monetary liabilities of the it rorporation. . Pit pain EPPO. poration has psoaly separ and dint rom is ofcers and boa of er nko may ny be ta Males Meta personaly liable for damages if itis proven that they acted with malice or bad faith in the dismissal-of an employee. ngage Wide Absent any evidence on record that an officer acted maliciously or in bad faith in effecting the termination of an employee, xppantin, plus the apparent lack of allegation inthe pleadings of the employee thatthe officer acted In such manner, the doctrine of ‘ys tuitia.gqrporate fiction dictates that only the corporation should be held liable for the dismissal of the employee. (Mirant ‘aay son idalfiines) Corporation v. Caro, 728 SCRA 465, April 23,2014) a. tlatindig Mi ts pot texftim ie, Compt by.Estopel—all person who assume to act asa corporacion mowing ft without authority to do so aad fae gahall be table as general partners for all debts, lability and damages incurred or arising as a result thereof. (Sec. 21) {a thuiss pinkie here vfote'aibook on the Penal Code and had it published by the University Publishing Co. Many copies were sold ust iy | but the publisher refused to pay the agreed royalties. Albert's heirs sued in the CP1 and won. Both the Court of Appeals and wk the Supreme Cours on appeal, afirmed the CF decision ordering the publishing company to pay, the contract having been Se ‘Up signed by its President. The affirmed judgment was made the subject of a motion for reconsideration (in the Supreme “ +" Court) wherein it was alleged for the first time that the company was nota corporation. Held: The publishing company is a corporation by estoppel because its corporate status was nat raised as an issue during the proceedings in te CP, Court of Appeals and in the Supreme Court. (Albert v, University Publishing Co. 13 SCRA 84 (1965). Effects of Non-use of Corporate Charter and Continuous Incorporation ‘Two Situations Contemplated Under Section 22: a. Non-User 2 years- When corporation does not formally organize and commence the transaction of its business the constructions of its works within two years from the date of its incorporation its corporate powers cease and the corporation shall be deemed dissolved (automatic). "Formal organization “may consist in the election of new board of directors or trustees and corporate officers."Commencement of business” may take the form of contracting for lease or sale of properties to be 5 | ABRC2016 Significant Doctrines in COMLAWS (revised-segregate}new/EVSA/crysused as business site ofthe corporation and other preparatory act geared towards fulfillment of the purpose for which the corporation was established b.Non-User 5 years: When the corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of atleast five years. 5 ‘The same shall be a graund for the suspension or revocation of sts corporate franchise or certificate of incorporation (not automatic). Notice and hearing are required. May stockholders file a complaint against the board of directors for employing devices or schemes ‘amounting to fraud or misrepresentation which Is detrimental to the interest of the pubic and/or the stockholders? Explain. ‘Answer: No. Minority stockholders do not have any statutory right to override the business judgment of the officers and board of directors of a corporation. It can only be done by way of a derivative sult and complying with the following requirements: 1. He was a stockholder or member atthe time the acts or transactions subject ofthe action occurred and at the time the action was filed; 2. He 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 rete 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. (Sec. 1, Rulee 8, Interim Rules of Procedure Governing * Intracorporate Controversies: Ching, et al. v. Subic Bay Golf & Country Club, Inc, et al, G.R. No. 174435, September 10,2014, De Castro, Distinctions among derivative suit, individual sult and a representative or class suit. ‘A derivative suit must be differentiated from individual and representative or class suits, thus: “Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual sults, class suits, and derivative sufts. Where a stockholder or member is denied the right of inspection, his suit would be individual because the ‘wrong is done to him personally and not tothe other stockholders or the corporation. Where the wrong Js done to a group of stockholders, as where preferred stockholders’ rights are violated, a class or representative suit will be proper for the protection of all stockholders belonging to the same group. But where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to the corporation and not to the individual stockholder or member. Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this fact of Itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and separate from him, and can and should Itself sue the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but there would be ‘multiplicity of sults as well as a violation of the priority rights of creditors. Furthermore, there is the difficulty of determining the amount of damages that should be paid to each individual stockholder. However, in cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves, a stockholder or member may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The corporation would thus be helpless to. seek remedy. Because of the Trequent occurrence of such a situation, the common law gradually recognized the right ofa stockholder to sue on behalf of a corporation in what eventually became known as a “derivative suit” It has been proven to be an effective remedy of the minority against the abuses of management. Thus, an individual Stockholder is permitted to institute a derivative suit on behalf ofthe corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. in such actions, the suing stockholder is regarded as the nominal party, withthe corporation as the party in interest.” ‘Trust Fund Doctrine - Under Sec. 43 of Code, the corporation can declare dividends only out of “unrestricted retainet camnings?-and that under Sec. 122, no corporation shall distribute any of its assets or property except upon lawfu dissolution and after payment of alt its debts and liabilities. ©" These provision in essence provide for the “trust and doctrine” where the “subscription to the capital of: corporation constitute a fund to which creditors have a right to look for satisfaction of their claims.” (Philippine Trust Co v. Rivera; Phil 469 (1923), “The, Trust"Fund Doctrine, first enunciated by this Court in the 1923 case of Phillppine Trust Co. v. River provides the subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to loo for the satisfaction oftheir claims. This doctrine is the underlying principle in the procedure for the distribution of capita assets, embodied in Corporation Code, which allows the distribution of corporate capital only in three instances: (1 “amendment of the Articles of the Incorporation to reduce the authorized capital stock; (2) purchase of redeemable share by the corporation, regardless of the existence of unrestricted retained earnings; and (3) dissolution and eventuz liquidation of the corporation. Furthermore, the doctrine is articulated in Section 41 on the power of a corporation acquire its own shares and in Section 122 on the prohibition against the distribution of corporate assets and propert tntess the stringent requirements therefore are complied with” (Ong Yong v. Tiu, 401 SCRA 1 (2001). Board of Directors and Trustees (responsibility for crimes) Sec. 4 of BP 33 provides that when the offender is a corporation, partnership, or other juridical person, th president, the general manager, managing partner, or such other officer charged with the management of the busines bffairs thereof, or employee responsible for the violation shall be criminally liable; in case the offender is an alien, he sha 6 | ABRC2016 significant Doctrines in COMLAWS (revised-segregatelnew/EVSA/CCYSfe dea le Sd i hy Be Pate a fi bbe subject to deportation after: ate ‘entebce, (Arnel U. Ty, etal. v. NBI Supervising Agent Marvin E, De Jemil et al, GR. No. 182147, December 15, 2010, Velasco, jr. J) Shares of stock (nature of stock) s ‘When stock dividends are distributed, the amount declared ceases to belong to the corporation but Is distributed among the shareholders. Consequently, the unrestricted retained earnings of the corporation are diminished by the amount of the declared dividend while the stockholders’ equity is Increased. Therefore, stock dividends acquired by shareholders for the monetary value they forego are under the coverage of the SRF and.the basis for the latter is such ‘monetary value as declared by the board of directors. Dividends, regardless of the form these are declared, that Is, cash, property or stocks, are valued at the amount of the declared dividend taken from the unrestricted retained earnings of a corporation. Thus, the value of the declaration in the case ofa stock dividend is the actual value of the original issuance of said stocks. In the case of stock dividends, itis the amount that the corporation transfers from its surplus profit account to its capital account” or “its the amount that the corporation receives in consideration of the original issuance of the shares." It is “the distribution of cufrent or accumulated earnings to the shareholders of a corporation pro rata based on the number of shares owned." Such distribution in whatever form is valued at the declared amount or monetary equivalent. ‘Thus, it cannot be said that no consideration is involved in the issuance of stock dividends. In fact, the declaration of stock dividends is akin to a forced purchase of stocks. By declaring stock dividends, a corporation ploughs back a portion of its entire unrestricted retained earnings either to its working capital or for capital asset acquisition or Investments. Itis simplistic to say that the corporation did not receive any actual payment for these. When the dividend Is distributed, it ceases to be a property of the corporation as the entire or portion of Its unrestricted retained earnings Is distributed pro rata to corporate shareholders. (PLDT v, NTC, etal, G.R. No. 152685, December 4, 2007. Velasco, r. J) Insolvency "There are two kinds of Insolvency contemplated In it: actual insolvency, 1, the corporation's assets are not ‘enough to cover its liabilities; and technical insolvency defined under Sec. 2-12, Le, the corporation has enough assets but it foresees its inability to pay its obligations for more than one year: “The mere fact that a corporation averred that It has sufficient assets to cover its obligations does not make it “solvent” enought to prevent it from filing a petition for rehabilitation, A corporation may have considerable assets but if It foresees the impossibility of meeting its obligations for more than one year, itis considered as technically insolvent. Thus at the first instance, a corporation may file a petition for rehabilitation—a remedy provided under Sec. 4-1: When Sec. 4-1 mentioned technical Insolvency under Sec. 3-12, it was referring to the definition of technical insolvency in the sal section; it was not requiring a previous tiling of a petition for suspension of payments. ‘The period mentioned under Sec. 3-12, "longer than one year from the filing of the petition," does not refer to year-long waiting period when the SEC can finally say that the ailing corporation, ls technically insolvent to qualify fo Tehabilitation, The period referred to the corporation's inability to pay its obligations; when such inability extends beyon¢ fone year, the corporation is considered technically insolvent. Safd‘inabllity may be established from the start by way of 3 petition for rehabilitation, or it may be proved during the proceedings for suspension of payments, if the latter was the first remedy chosen by the ailing corporation. If the corporation opts for a direct petition for rehabititation on the grounc ‘of technical insolvency, it should show in its petition and later prove during the proceedings that it will not be able to mee {ts obligations for longer than one year from the filing of the petition. (Philippine National Bank, et al v. Hon. Court 0 Appeals, G.R No, 165571, January 20, 2009, Velasco, It. J) INSURANCE LAW Concept of the incontestability clause, ‘The “incontestability clause” is a provision in law that after a policy of life insurance made payable on the death 0 the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of i issue or ofits last reinstatement: the insurer cannot prove that the policy is void ab initio or is rescindable by reason 0 fraudulent concealment or misrepresentation of the insured or his agent. "The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of th contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2) years fron the issuance ofthe policy or its last reinstatement. whe. insurer. is deemed to have the necessary facilities to discover such fraudulent ‘concealment 0 migrepresentation within a period of two (2) years Its not fair forthe insurer to collect the premiums as long as th instived is stl alive, only to raise the issue of fraudulent concealment or misrepresentation when the insured dies in orde to defeat the right of the beneficiary to recover under the policy. "at least two (2) years from the issuance ofthe policy or its last reinstatement, the beneliciary is given the stabil to recover inder the policy when the insured dies. The provision also makes clear when the two-year perléd shou! ‘commence in case the policy should lapse and is reinstated, that i, from the date ofthe ast reinstatement. “After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will n Tonger ie ‘Congress felt this was sufficient answer to the various tactics employed by insurance companies to avoid liabilit (Manila Bankers Life Insurance Corp. v.Aban, GR. No, 175666, July 29, 2013) ‘What the incontestability clause precludes. ‘The so-called “incontestability clause” precludes the insurer from raising the defenses of false representations ‘concealment of material facts insofar as health and previous diseases are concerned ifthe insurance has been in force f atleast two years during the insured's lifetime, The phrase “during the lifetime” found in Section 48 simply means that 1 policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 “for a period of two years.” borne by the records, the policy was Issued on August 30, 1993, the insured died on April'10, 1996, and t claim was denied on April 16, 1997. The insurance policy was thus in force for a period of 3 years, 7 months, and 24 day 7 | ABRC2016.Significant Doctrines in COMLAWS (revised:-segregate)new/EVSA/CrsA. Tomy 4 Psena. the svc taping PM, oa OD aa ied Considering that the Insured died after the two-year period, the plaintiff-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the Insured’s fraudulent concealment or misrepresentation or want of insurable interest on the part of the beneficiary, herein defendant-appellee. Well-settld is the rule that itis the plaintiff-appellant’s burden to show that the factual findings ofthe trial court are not based on substantial evidence or that is conclusions are contrary to applicable law and Jurisprudence. The plaintiff- appellant failed to discharge that burden. (Manila Bankers Life insurance Corp. v. Aban, G.R. No. 175666, July 29, 2013). Effect of unconsented transfer of insured object. ‘The original policy was renewed on an “as is basis,” It follows that the renewal policy carried with It the same stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location stipulated in the renewal policy. ‘There being an unconsented removal, the transfer was at PAP's own risk. Consequently, it must suffer the consequences of the fire, Thus, “given thatthe location of risk covered under the policy is not the location affected, the policy will, therefore, not respond to this loss/claim,” With the transfer of the location of the subject properties, without notice and without Malayan’s consent after the renewal ofthe policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 ofthe Insurance Code provides: he Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment. ey Under Section 27 of the Insurance Code, “a concealment entitles the injured party toerescind a gontract of Insurance.” th, ‘Moreover, under Section 68 of the Insurance Code, the insurer is entitled to rescind thé insurancescontract in case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code-prOvides, a8 follows: Section 68. An alteration in the use or condition ofa thing insured from that to-whieh itis 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 contract of fire insurance. ‘Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit: b 1) the policy limits the use or condition ofthe thing insured; 2) there isan alteration in said use or condition; 3) the alteration is without the consent ofthe insurer; 44) the alteration is made by means within the insured's control, and °° 5) the alteration increases the risk of loss (Malayan Insurance, Co, Ine. v. PAP Co, Ltd. (Phil. Branch), G.R. No. 200784, August 7,2013). Final rejection; its concept. In HH. Hollero Construction, Inc v. GSIS;et al,“&R.No. 152334, September 24, 2014, Perlas-Bernabe, J, nsurance- indemnity claim was filed by plaintiff but the,GSIS‘in a letter dated April 26, 1990 denied it. A complaint was filed on September 27, 1991. Ruling that the cause-of action has ‘already prescribed, the SC Held: The prescriptive period for the insured’s action for indemnity should be reckoned from the final rejection of the aim. ae’ th Final rejection’ simply means denial by the insurer of the claims of the insured and not the rejection or denial by the insurer of the insured’s motion or request for reconsideration. The rejection referred to should be construed as the. rejection in the first instance, (See Sun Insurance Office, Ltd. v. CA, G.R. No, 89741, March 13, 1991, 195 SCRA 193, 199). Tn Sun Insurance Office, Ltd. v. CA it was held that the one-year prescriptive period does not start to run until the petition for reconsideration had been resolved by the insurer,” holding that such view “runs counter to the declared purpose for requiring that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from the denial of the claim." Upholding the contention would contradict and defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence ‘which may be considered against them is destroyed.” In Eagle Star Insurance Co, vs. Chia Yu, 96 Phil. 696 [1955], It was held that the right ofthe insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an insurance contract does not accrue until the insured’s claim is finally rejected by the insurer. This is because before such final rejection there is no real necessity for bringing suit. ‘Since “cause of action” requires as essential elements not only a legal right of the plaintiff and a correlated obligation of the defendant in violation ofthe said legal right, the cause of action does not accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this case to pay the amount of the bond)" (ACCFA vs. Alpha Insurance & Surety Co, Inc. (24 SCRA 151 [1968]). The insured’s cause of action or his right to file a claim either in the Insurance Commission or in a court of competent jurisdiction commences from the time of the denial of his claim by the Insurer, either expressly or impliedly. ‘The rejection referred to should be construed as the rejection, in the first instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a petition for reconsideration, such should have been expressly stipulated. Right of subrogation. "The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.” The right of subrogation is, however not absolute. "There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer’s right of subrogation 1s defeated. x x x Similarly, where the insurer pays the assured value of the lost goods without notifying the carrier who has 8 | ABRC2016.Sigificant Doctrines in COMLAWS (revised-segregate)new/EVSA/crysuo fale He ania Launnaer patie asd ti ho a uidenee dafare fei Dene Arete rte ins ra ial LS EE in good faith settled the assured's claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation. x x x And where the Insurer pays the assured for a loss which is a risk covered by the policy, thereby effecting ‘voluntary payment” the former has no right of subrogation against the third party lable for the loss x x x. S ‘The rights of subrogee cannot be superior to the rights possessed by a subrogor. “Subrogation is the substitution of one person in the place of another with reference to a lawful claim or rights, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The rights to which the subrogee succeeds are the same as but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other wards, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee Is effect steps into the shoes of the isnured and can recover only if the insured Ukewise could have recovered. An insure indemnifies the insured based on the loss or injury the latter actually suffered from. If there is no loss oF injury, then there is no obligation on the part of the insurer to indemnify the insured, Should the insurer pay the insured and It tums out that indemnification is not due, or if due, the amount paid is excessive, the Insurer takes the risk of not being able to seek recompense from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to be indemnified and therefore, no right to collection is passed on the subrogee. (Loadstar Shipping Company, Inc. . Malayan insurance Company, Inc, 742 SCRA 627, November 26, 2014) ‘SECURITIES CODE. ‘The Securities Regulation Code treats investment contracts as “securities” that have to be registered with the SEC before they can be distributed and sold. 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. (Implementing Rules and Regulations of R.A. 8799, Rule 3.1-1), ‘The United States Supreme Court held in Securities and Exchange Commission v. Wj. Howey Co, 328 US 293 (21946) 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. Thus, to sustain the SEC position in this «ase, PC's scheme or contract with Its buyers must have all these elements. (SEC v. Prosperity Com. Inc, G.R. No, 164197, January 25,2012). 'An example that comes to mind would be the long-term commercial papers that large companies, like San Miguel Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor buys these papers or securities, he invests his money, together with others, in SMC with an expectation of profits arising from the efforts of those who manage and operate that company. SMC has to register these commercial papers with the SEC before offering them to investors. * INTELLECTUAL PROPERTY ‘Two (2) tests to determine likelihood of confusion: ‘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. The contrasting concept of these tests was explained in Societes Des Produits Nestle, SA. vy, Jr, thus: ‘The dominancy test focuses on the simitarity of the main, prevalent or essential features of the competing trademarks that-might cause confusion. Infringement takes place when the competing. trademark contains the essential features of another, Imitation or an effort to imitate is unnecessary. The ‘question is whether theuse of the marks is likely to cause confusion or deceive purchasers. ‘The holistic.test considers the entirety of the marks, including labels and packaging, in determining confusing similarity. The focus ts not only on the predominant words but also on the other features appearing on the labels. ‘As to what test should be applied in a trademark infringement case, it said in MeDonal’s Corporation v. Macjo Fastfood Corporation, C.R. No, 166115, February 2, 2007, 514 SCRA 95) that: < In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to another, noset rules can be deduced because each case must be decided on its merits, In such cases, even © more’than in-any other litigation, precedent must be studied in the light of the facts of the particular - “Case. That is the reason why in trademark cases, jurisprudential precedents should be applied only to a ‘case ifthey are specifically in point. Application of holistic test. ‘The case of Emerald Garment Manufacturing Corporation v. Court of Appeals, G.R. No. 100098, Deceraber 29, 995, 251 SCRA 600, which involved an alleged trademark infringement of jeans products, is worth referring to. Applying the holistic test, che Court ruled that there was no infringement. ‘The holistic test Is applicable here considering that the herein criminal cases also involved trademark infringement in relation to jeans products. Accordingly, the jeans trademarks of Levi's Philippines and Diaz must be considered as a whole in determining the likelihood of confusion between them. The maong pants or jeans made and sold by Levi's Philippines, which included LEVI'S 501, were very popular in the Philippines. The consuming public knew that the original LEVI'S 501 jeans were under a foreign brand and quite expensive. Such jeans could be purchased only In malls for boutiques as ready-to-wear Items, and were not available in tailoring shops like those of Diaz's as well as not acquired ‘on a “made-to-order” basis, Under the circumstances, the consuming public could easily discern if the jeans were original or fake LEVI'S 501, or were manufactured by other brands of Jeans. Confusion and deception were remote, for, as the Cour has observed in Emerald Garments: First, the products involved in the case at bar are, in the main, various kinds of jeans. These are not your ordinary household items like catsup, say sauce or soap which are of minimal cost, Maong pants 9 | AaRC2016.Significant Doctrines in COMLAWS (revised-segregate)new/EVSA/crysOF (a Sat ae nt Hos aga Nifi, | SF ang are not inenpenive, According the anual buyer i predipasd to bbe more cautious and Mivotin didn eS ast wel peat paler his porchase, Confusion and deception, then, is less subatn wie tf, age Among these, what essentially determines the attitudes of the purchasér, specifically his (U-ttrriagus ih, Inclination to be cautious, is the cast of the goods. To be sure, a person who buys a box of candies will not none tjfs) _eXeFIREAS MUEh cae as One who buys an expensive wate, Asa general ule an ordinary buyer dows not F exercise as much prudence in buying an article for which he pays a few centavos as he does in SOT. Nbofty aatl purchasing a more valuable thing. Expensive and valuable items are normally bought only after 5 and matters of everyday purchase requiring frequent replacement are bought by the casual consumer without great care CH sie) Second ike his beer, the average Filipino consumer generally buys his jeans by brand. He does not ask the Sales clerk for generic jeans but for, say, a Levis, Guess, Wrangler or even an Armani. He i, Uherefore, more or less knowledgeable and familiar with his preference and wil! not easily be distracted. Finally, more credit should be given to the “ordinary purchaser.” Cast In this particular controversy, the ordinary purchaser is not the “completely unwary consumer” but is the “ordinarily intelligent buyer considering the type of product involved ede akipabte vw, deliberate, comparative and analytical investigation. But mass products, tow priced articles in wide use, te Liceae . What constitutes infringement. In Pensource International, inc. v. Horphag Research Management SA, G.R. No. 180073, November 25, 2009, the Court laid down what constitutes infringement of an unregistered trade name, thus: 1. ‘The trademark being infringed is registered in the Intellectual Property Office; however, in infringement of trade name, the same need not be registered: 2. The trademark or trade name is reproduced, counterfeited, copied, or colorably imitated by the infringer; 3. ‘The infringing mark or trade name is used in connection with the sale; offering for sale, or advertising of any ‘goods, business or services; or the infringing mark or trade name is applied to labels, signs, prints, packages, wrappers, receptacles, or advertisements intended to be used upon or in connection with such goods, business, or 4. The use or application of the infringing mark or trade name is likely to cause confusion or mistake or ta deceive purchasers or others as to the goods or services themselves or as to the source or origin of such gaods or services or the Identity of such business; and 5, Itis without the consent of the trademark or trade name owner or the assignee thereof, No need for registration of trade naine. A ade name need not be registered with the [PO before an infringement suit may be filed by its owner against the owner of an infringing trademark. All that is required ts that the trade name is previously used in trade or commerce in the Philippines. (Philips Export BV v.CA, GR. No. 96161, February 21, 1992, 206 SCRA 457). Section 22 of Republic Act No. 166,[12] as amended, required registration of a trade name as a condition for the Institution of an infringement suit, to wit: i ‘Sec, 22. Infringement, what constitutes, Any person who shall use. without the consent of the registrant, any reproduction, counterfeit, copy, oF colorable imitation of any registered mark or trade name in connection with the sale, offering for sale, or advertising of any goods, busiviess or services on or in connection with which such use is likely to cause confusion or mistake or to deceive purchasers oF others as ta the source of origin of such goods or services, or identity of such business; or reproduce, counterfeit, copy, or cotorably imitate any such mark or trade name and apply such reproduction, counterfeit, copy, or colorable imitation’ to labels, signs, prints, packages, wrappers, receptacles, or advertisements intended to be used upon or in connection with such goods, business, or services, shall be able to civil action by the registrant for any or all of the remedies herein provided. However, RA 8293, which took effect on 1 January 198, has dispensed with the registration requirement. Section 165.2 of RA 8293 categorically states that trade names shall be protected, even prior to or without registration with the IPO, against any unlawful act including any subsequent use of the trade name by a third party, whether as a trade name or trademark likely to mislead the public. Thus: Sec. 165.2 (a) notwithstanding any laws or regulations providing for any obligation to register trade names, such names shall be protected, even prior to or without registration, against any unlawful act committed by third parties, (b) in particular, any subsequent use ofa trade name by a third party, whether asa trade name or a mark oF collective mark, or any such use of a similar trade name or mark, likely to mislead the public, shall be deemed unlawful 1 Is the likelihood of confusion that is the gravamen of infringement. But there is na absolute standard for likelihood of confusion. Only the particular, and sometimes peculiar, circumstances of each case can determine its existence. Thus, in infringement cases, precedents must be evaluated in the light of each particular case, (Philip Morris, Inc, v. Fortune Tobacco Corp., G.R, No. 158589, June 27, 2006, 493 SCRA 333) : In determining similarity and likelihood of confusion, our jurisprudence has developed two tests: the dominancy test and the holistic test. The dominancy test focuses on the similarity of the prevalent features of the competing. wade! ks that might cause confusion and deception, thus constituting infringement. If the competing trademark contains the main, essential, and dominant features of another, and confusion or deception is likely to result, infringement ‘occurs. Exact duplication of imitation is not required. The question is whether the use of the marks involved is likely to ‘cause confusion or mistake in the mind of the public or to deceive consumers. in contrast, the holistic test entails a consideration of the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing similarity (Philip Mortis, Inc. v. Fortune Tobacco Corp.. GR. No. 158589, June 27, 2006, 493 SCRA 333). The discerning eye of the observer must focus not only on the predominant 20 | ABRC2016 Significant Doctrines in COMLAWS (revised-segregats}new/EVSA/eryswords but also on the other features appearing on both marks in order that the observer may draw his conclusion whether ‘one is confusingly similar to the other. (Prosource Int'l Inc. v. Horphag Research Management SA, G.R. No. 180073 November 25, 2009) ; Applying elther the dominancy test or the holistic test, petitioners San Francisco Coffee trademark is a clear infringement of respondents San Francisco Coffee & Roastery, inc. Trade name. The descriptive words San Franciscc Coffee are precisely the dominant features of respondents trade name, Petitioner and respondent are engaged in the same bbusiness of selling coffee, whether wholesale or retal. The likelihood of confusion is higher in cases where the business o ‘one corporation is the same or substantially the same as that of another corporation. In this case, the consuming public will likely be confused as to the source of the coffee being sold at petitioners coffee shops. Petitioners argument that Sar Francisco Is just a proper name referring to the famous city in California and that coffee is simply a generic term, i untenable. Respondent has acquired an exclusive right to the use of the trade name San Francisco Coffee & Roastery, Inc Since the registration of the business name with the DT! in 1995. Thus, respondents use of its trade name from then or ‘must be free from any infringement by similarity. Of course, this does nét 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 tc exclusive appropriation. It is only the combination of the words San Francisco Coffee, which is respondents trade name i its coffee business, that is protected against infringement on matters related to the coffee business to avold confusing or deceiving the public. In Philips Export BV. v. Court of Appeals, the court held that a corporation has an exclusive right to the use of its name. The right proceeds from the theory that itis a fraud on the corporation which has acquired a right to that name and pethaps carried on its business thereunder, that another should attempt to use the same name, or the same name with slight variation in such a way as to induce persons to deal with it in the belief that they are dealing withthe corporation which has given a reputation to the name. (Prosource Int. Inc. v. Horphag Research Management SA, supra; Coffee Partners, ne, .San Francisco Coffee & Roastery, Inc, G.R. No, 169504, March 3, 2010), - ‘TRADEMARKS News footage is copyrightable, ‘The Intellectual Property Code is clear about the rights afforded to authors of various kinds of works. Under the Code, “works are protected by the sole fact oftheir creation, irrespective of their mode or form of expression, as well as ‘thelr content, quality and purpose.” These include “audiovisual works and cinematographic works and works produced by a process analogous to cinematography or any process for making audiovisual tecordings.Itis true that under Section 175 ‘of the Intellectual Property Code, “news of the day and other miscellaneous facts having the character of mere items of press information” are considered unprotected subject matter. However,-the Code-does not state that expression of the news of the day, particularly when it underwent a creative process, is not entitled to protection. News or the event itself Is not copyrightable. However, an event can be captured and presented in a specifi medium, As recognized by the Court in joaquin, television involves a whole spectrum of visuals and effects, video anc audio.” News coverage in television involves framing shots, using images, graphics, and sound effects, it involves creative process and originality. Television news footage is an expression of the news. (ABS-CBN Corp. v. Felipe Gozon, et al. G.R No, 195956, March 11, 2015) When there is trademark infringement and unfair competition. Section 155 of R.A. No. 8293 identifies the acts constituting trademark infringement as follows: Section 155, Remedies: Infringement. ~ Any person who shall, without the consent of the owner of the registered mark: SugeONOIOUS toRYIKE Per 155.1 Use in commerce any reproduction, counterfeit, copy or colorable rll ip vv. Imitation of a registered mark of the same container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods or Me Paganini nag Loe services including other preparatory steps necessary to carry out the sale of any goods wa tranche, or services on or in connection with which such use is likely to cause confusion, or to ps cause mistake, or to deceive; or Reese bas 1155.2 Reproduce, counterfeit, copy or colorably imitate a registered mark or a Hin Mok dominant feature thereof and apply such reproduction, counterfeit, copy or colorable wat by Milled Cage leon to labels, slgns, rine, packages, wrapper, recaptacies or pivertioements intended to be used in commerce upon or in connection with the sale, offering forsale, "2, distribution, or advertising of goods oF services on or in connection with which such use \ is likely to cause confusion, oF to cause mistake, or to deceive, shall be liable in a civil _/ 0 action for infringement by the registrant for the remedies hereinafter set forth: * Provided, That the infringement takes place at the moment any of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether there is actual “sale of goods or services using the infringing material. ‘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 deception among the buyers or consumers can be considered as trademark infringement. (Ty v. De Jemil, G.R. No, 182147, December 15, 2010, 638 SCRA 671, 689), Refilling of LPG containers without consent of owner. Here, petitioners have actually committed trademark infringement when they refiled, without the respondents consent, the LPG containers bearing the registered marks of the respondents. Petitioners’ acts will inevitably confuse th consuming public, since they have no way of knowing thatthe gas contained in the LPG tanks bearing respondents’ marks isin realley not the later’s LPG produce after the same had been ilegaly refilled. The public wil then be led to believe tha petitioners are authorized refillers and distributors of respondents’ LPG products, considering that they are accepting ‘empty containers of respondents and refiling them for resale. 4211. | ABRC2026 Significant Doctrines in COMLAWS (revised-segregate)new/EVSA/CrsAs to the charge of unfair competition, Section 168.3, n relation to Section 170, of RA. No, 8293 describes the acts constituting unfair competition as follows: Section 168. Unfair Competition, Rights, Regulations and Remedies. xxx 1683 In particular, and without in any way limiting the scope of protettion against unfair competition, the following shall be deemed guilty of unfair competition: (a) Any person, who is selling his goods and gives them the general appearance of yoods of another manufacturer or dealer, ether as to'the goods themselves or in the wrapping of the packages in which they are contained, oF the devices or words thereon, or in any other feature of their appearance, which would be likely to Influence purchasers to believe that the goods offered are those of a rianufacturer or dealer, other than the actual manufacturer or dealer..or wha otherwise clothes the ‘oods with such appearance as shall deceive the public and defraud another of his legitimate trade, or ay subsequent vendor of such goods or any agent of any vendor engaged naling such yoods with ike purpose; Section 170, Penalties. Independent of the civil and administrative sanctions imposed by law, a criminal penalty of imprisonment from two (2) years to five (5) years and 4 fine ranging from Fifty thousand pesos (P50,000) to Two hundred thousand pesos (200,000), shall be imposed on any person who is found guilty of committing any of the acts mentioned in Section 155, Section 168 and Subsection 169.1. Unfair competition hus been defined as the passing off (or palming off) or attempting to pass off upon 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 (Superior Commercial Enterprises, ine. v. Kunnan Enterprises Ltd, and Sports Concept & Distributor, Inc, G.&. No, 169974, April 20, 2010, 618 SCRA 531, 555), . Passing off (or palming off} takes place where the defendant, by imitative devices on the general appearance of the goods, misieads prospective purchasers into buying his merchandise under Qe impression that they are buying that of his competitors. Thus, the defendant ives jus 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. ( MeDonald’s Corporation and McGeorge Food Industries, Inc. v-L.C.Big Mak Burger, Inc, et al, 480 Pall 402, 440 (2004) By reiiling and selling LPG cylinders bearing their registered marks, petitioners are selling goods by giving them the general appearance of goods of another manufacturer ‘There is a showing that the consumers may be misled into believing that the LPGs contained in the cylinders bearing the marks "GASUL” and "SHELLANE" are those goods or products of the petitioners when, in fact, they are not. Obviously, the mere use of those LPG cylinders bearing the trademarks "GASUL” and "SHELLANE” will give the LPGs sold bby REGASCO the general appearance of the products of the petitioners. (Republic Gas Corp, et al. v. Petron Corp, GR. No. 194062, une 17, 2013, Peralta.) NEGOTIABLE INSTRUMENTS Requisites of negotiability; legal rate of interest. Ifa "Promissory Note" is made out to specific persons, and not to order or to bearer, or to the order of a person as payees, then, it failed co comply with one of the requisites of negotiability under Sec. 1 of the NIL, and thus, it may not be considered as negotiable. (Rivera v. Sps. Salvador Chua, G.R. No. 184458, january 14, 2015) Requisites of negotiability; bill of exchange. ‘A bill of exchange Is an unconditional order in writing addressed by one person to another, signed by the person jiving it, requiring the person to whom itis addressed to pay on demand or ata fixed or determinable future time a sum certain in money to urder or to bearer. ‘The electronic messagesof HSBC's investor-clients containing instructions to debit their respective local or foreign currency aecounts in the Philippines and pay a certain named recipient also residing in the Philippines are parallel to an autornatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one ‘bank, These electronic messages cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability to transferred” and that the said electronic messages are “mere memoranda” of the transaction consisting of the “actual debiting of the investor-client's local or foreign currency account in the Philippines.” ‘The requisites of negotiability uncer Section 1 of the NIL: “Sec. 1, Form of negotiable instruments. ~ Au instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money: (©) Must be payable on demand, or at a fixed or determinable future time: (@) Must be payable to order or to bearer; and (©) Where the instrument is addressed to’a drawee, he must be named or otherwise indicated therein with reasonable certainty.” ‘The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor clients; and, they are not payable to order or bearer but to a specifically designated third party. ‘Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST. (The Hongkong and Shanghal Ranking Corp. Limited-Philippine Branches v. Commissioner of Internal Revenue, 724 SCRA.499, june 4, 2014) 42 | ABRC2016 Signiticant Doctrines in COMLAWS (revised-segregate)new/EVSALerysSec. 14, NIL; incomplete and delivered instrument; personal defense; Sec, 52: Holder in due course. Sec. 14 of the NIL provides: “Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill itup as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, its, valid and effectual for all purposes in his hands, and he may enforce itas if it had been filled up strictly in accordance with the authority given and within a reasonable time.” This provision applies to an incomplete but delivered instrument, Under this rue, ifthe maker or drawer delivers ‘a pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the instrument be in the possession of a person other than the drawer or maker and from such possession together with the fact that the instrument is wanting in a ‘material particular, the law presumes agency to fill up the blanks, In order however that one who is not a holder in due course can enforce the instrument against a party prior to the instrument's completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not been filled up stricly in accordance with the authority given and within a reasonable time, the make can’set this, up as @ personal defense and avoid liability. However, ifthe holder is a holder in’due course, there is a conclusive presuraption ‘that authority to fill it up had been given and that the same was not in excess of authority. ‘There is no doubt that Gutierrez exceeded his authority in completing the check. Patrimonio gave Gutierrez pre signed checks to be used in their business provided that he could only use them upon his approval. His instruction could not be any clearer as Gutierrez’ authority was limited to the use of the checks for the operation of their business, and on the condition that Patrimonto’s prior approval be first secured, Gutierrez exceeded his authority when he used the check to pay the loan he supposedly contracted for the construction of Patrimonio's house. (Alvin Parimonio v. Napoleon Gutierrez, 724 SCRA 636, June +, 2014) Who isa holder in due course? ‘The NIL defines a holder in due course: “Sec. 52. ~ A holder in due course is a holder who has taken the instrument under the following conditions: {a) That itis complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; {©} That he took it in good faith and for vale; ; {d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it” Section $2(c) of the NIL stated that a holder in due course is one who takes the Instrument “in good faith and for value. Italso provides in Section 52(d) that in order that one may be a holder in due course, itis necessary that at the time it was negotiated to him he had no notice of any infirmity in the Instrument or defect in the title of the person negotiating it (Alvin Parimonio v, Napoleon Gutierrez, 724 SCRA 636, June 4, 2014) Liability of drawee bank and collecting bank in case of material alteration; 24 hour clearing rule Section 124 of the NIL states that a material alteration avolds an Instrument except as against an assenting party and subsequent indorsers, but a Holder in due course may enforce payment according to its original tenor. Thus, when the ddrawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its. client's ‘account only for bona fide disbursements he had made. Ifthe drawee did not pay according to the original tenor of the instrument, ds directed by the drawer, then ithas no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer's account which it was expected to treat with utmost fidelity. The drawee however, sill has recourse to recover its loss. It may pass the liability back to the collecting bank which is what the drawee bank (Areva v. Express Savings Bank, Inc, 734SCRA 588, September 10, 2014) Liability of depositary bank and collecting bank . ‘Express Savings Bank and Equitable-PCl Bank are both depositary and collecting banks. A depositary bank is the first bank totake ar item even though itis also the payor bank, unless the item ls rpesented for immediate payment over the counter. It ifalso the bank to which a check is transferred for deposit in an account at such bank, even if the check is physically received and indorsed first by another bank. A collecting bank is defined as any bank handling an item for collection except the baitk on which the check is drawn. ’A depositary /collecting bank where a check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser, Under Section 66 of the NIL. an endorser warrants “that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting,” it has been repeatedly held that in check transactions, the depositary/collecting banks or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of al prior endorsements considering that the act of presenting the check for payment to the drawee is an Assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsement. any of the warranties made by the depositary /collecting bank turns out to be false, then the drawee bank may recover from it lup to the amount of the check. (Areza v. Express Savings Bank, Inc, 734 SCRA 588, September 10, 2014) i i ing Bank mAh ad se iis fer ik ec a daa sae ppt wi Ad el ae 2oleSpnfeant Bosrrein cOMLAWS (ows earnteneWEVSN alice ee esther es fan a ena ec ak he pty nahin the ow danni ity fo Metalin Se UteHON Olt 1d dae (yale 1-8 Bb LR, te 50, 01) ‘The law imposes a duty of diligence on’the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct. As collecting banks, they are both liable for the amount of the materially altered checks. ‘The@a:hour clearing rule\nsofar as materially altered checks are concerned. Section 21 of the Philippine Clearing House Rules and Regulations provides: Wha diame donk frie B See. 21. Specal Return tems Beyond The Reglemencary Clearing Period. ~ Items which have been tine 1 fuged. the the subject of material alteration or ems bearing forged endorsement when such endorsement i We illoct oso fe fe. Necessary for negotiation shall be returned by direct presentation or demand tothe Presenting Bank and igietetn through the regular clearing house facilities within the period prescribed by law for the filing of a legal Caltuctits Links Hine action by the returning bank/branch, institution or entity sending the same. He calliching daft 14 As the rule now stands, the 24-hour rule is still n force, that is, any check which should be refused by the drawee Uetlauie ‘Poem bank in accordance with long standing and accepted banking practices shall be returned through the PCHC/local clearing Ubi.” oee as the case may be, nt later than the next regular clearing (24-hour), The modifieation, however, I that tems “which have been the subject of material alteration or bearing forged endorsemient may be returned even beyond.2¢ hours so long that the same is returned within the prescriptive period fixed by law. The consensus among lawyers is that the prescriptive period is ten (1) years because a check or the endorsement thereon is a written contract. Moreover, the item need not be returned through the clearing house but hy direct presentation to the presenting bank. 1m short, the 24-hour clearing rule does not apply to altered checks. (Areza v. Express Savings. Bank, Inc, 734 ‘SCRA 588, September 10, 2014) Manager's and cashier's checks are not subject to the condition that the payee thereof should comply with his obligations to the purchaser of the checks. ‘The legal effects of a manager's check and a cashier's check are the same. A manager's check, like a cashier's check, is an order of the hank to pay, drawn upon itself, committing in effect its total resources, Integrity, and honor behind its issuance, By its peculiar character and general use in commerce, a manager's check or a cashler’s check ts regarded substantially to be as good as the money it represents, Manager's and cashier’s checks are still the subject of clearing to ensure that the same have not been materially altered or otherwise completely counterfeited. However, manager's and cashiler’s checks are pre-accepted by the mere Issuance thereof by the bank, which is both its drawer and drawee. Thus, while manager's and cashler’s checks are still subject to clearing, they cannot be countermanded for being drawn against a closed account, for being drawn against {insufficient funds, ot for similar reasons such as a condition not appearing on the face of the check. Long-standing and accepted banking practices do not countenance the countermanding of manager's and cashier’s checks on the basis of a there allegation of failure of the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking practice is that such checks are as good as cash. (Metropolitan Bank and Trust Company v. Chiok, 742 SCRA 435, November 26,2014) Holder in due course. A holder in due course holds the instrument free from any defect of ttle of prior parties and from defenses available to prior parties among themselves, and.may enforce payment of the instrument for the full amount thereof. As such, cannot raise the defense of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration, (Spouses Pedro and Florencia Violago v. BA Finance Corporation, Gi. No, 158262, July 21, 2008, Velasco, fr. 1) ‘Accommodation party. ' ‘Ail accommodation party Is a person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. The relation between an accommodation party and the accommodated party Is one of principal and surety, the accommodation party being the surety. : ‘The accommodation party, as surety, is deemed an original promisor and debtor from the beginning: he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their, liabilities are interwoven as to be inseparable, Although a contract of suretyship is in essence accessory or collateral f0-2'valld principal obligation, the surety’s liability to the creditor is immediate, primary and absolute: he is diréctly and. equaily bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes table to he debt and duty ofthe principal obligor even without possessing a direct or personal interest inthe obligations nor does-he receive any benefit therefrom. (Spouses Pedro and Florencia Violago v. BA Finance Corporation, G.R. No. 158262, july24, 2008, Velasco, |) Rights of accommodation party. A ‘While solidarily liable with the debtor, an accommodation party only lent his name and credit to the debtor. While not exonerating his solidary liability, he has a right to be properly apprised of the delinquency of the loan precisely because he isa co-signatory of the promissory notes and of his solidary ability. ‘A written notice on the default and deficiency af the loan covered by the promissory notes is required to apprise, an accommodation party. The bank is obliged to formally inform and apprise him of the defaults and the outstanding obligations, more so when the bank was invoking the solidary liability of the accommodation party. (Spouses Pedro and Florencia Violago v. BA Finance Corporation, GR. No. 158262, July 24, 2008, Velasco, J. 1) When a check Is crossed, it means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, Le, the payee named therein. (Bank of America, NT & SA, vs. Associated Cittzens Bank, G.R. No. 141001, 141018, May 21, 2009, [Carpio, }.]) The act of crossing a check serves as a warning to the holder that the check 114 | ABRC2026.significant Doctrines in COMLAWS (revised-segregate)new/EVSAVETYSee ee Real eee ata i tat ft, Hine eee eas Nat i Ses er vee a eon Burpost’so that thd holder ieee ba age Se ut acne Purpose; otherwise, he is not a holder in due course. (Dino vs. Loot, G.R, No, 170912, April 19, 2010, (Carpio, }.]) ‘The object of certifying a check, as regards both parties, is to enable the holder to use it'as money.” When the holder procures the check to be certified, “the check operates as an assignment of a part of the funds to the creditors.” Hence, the exception to the rule enunciated under Section 63 of the Central Bank to the effect “that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account” x x x (Equitable PCI Bank vs, Rowena Ong, GR, No, 156207 [September 15,2006]) A check that is payable to a specified payee is an order instrument. However, under Section 9 (¢) of the Nil, a check payable to a specified payee may nevertheless be considered as a bearer instrument if itis payable to the order of a fictitious or non-existing person, and such fact is known to. the person making it so payable. Thus, checks issued to “Prinsipe Abante” or "Si Malakas at si Maganda,” who are well-known characters in Philippine mythology, are bearer Instruments because the named payees are fictitious and non-existent. (Philippine National Bank vs. Erlando T. Rodriguez and Norma Rodriguez, supra) General rule on blank instruments; delivery. When there are blanks on the instrument, consisting of material particulars, the person in possession thereof has a prima fate authority til up, provided, that he fils it up strc) in accordance withthe authority given and within a reasonable time, ‘Where an incomplete instrument has not been delivered, It will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery. (Sec. 15, Negotiable Instruments Law) Significantly, delivery is the final act essential to the negotiability of an instrument. Delivery denotes physical transfer ofthe instrument by the maker or drawer coupled with an intention to convey tile to the payee and recognize him as a holder. ft means more than handing over to another; it imports such transfer of the instrument to another as to ‘enable the latter to hold It for himself. ohn Dy vs. People of the Philippines et ol, GR. No. 158312, November 14, 2008, {Quisumbing, Acting CJ) Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that there has been delivery of the negotiable Instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. (San Migue! Corporation vs. Puzon, G.R. No. 167567, September 22,2010, [Del CastiloJ:}) Effect of forged signature. ‘The general rule is to the effect that a forged signature is “wholly dhoperative’, and payment made ‘through or under such signature'is ineffectual or does not discharge the instrument. If payment is made, the drawee cannot charge it to the drawer's account. The traditional justification for the result is that the drawee is in a superior position to detect a forgery because he has the maker's signature and is expectedtto know and compare it. The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawvee an ideal party to spread the risk to insurance, (Samsung Construction Company Philippines, Inc. vs, Far East Bank and Trust Company, G.R. No: 129015, August 13, 2004 [Tinga )) “An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized ‘change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or number or other change to an incomplete instrument relation to the obligation of a party. In ‘other words, a material alteration is one which changes the item which are required to be stated under Section 1 of the Negotiable Instrument{s] Law.” (International Corporate Bank, Inc. vs. Court of Appeals and Philippine National Bank, G.R. No. 129910, September 5; 2006, [Carpio, J) Issuance ofa check does not itself operate as assignment of funds. ‘An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee), requesting the latter to spay a person named therein (payee) orto the order of the payee or to the bearer, a named sum of money. (Moran v.Courtof Appeals, GR. No. 105836, March 7, 1994, 230 SCRA 799). The issuance of the check does not of itself operate as an.assignment of any part of the funds in the bank to the credit of the drawer. (Act No. 2031 [1911], otherwise known as the Negotfable-instrument Law, Sec. 189). Here, the bank becomes liable only after it accepts or certifies the check. After the'thedkeis accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer. (RCBC v. Hi-Tri Dev. Corp. et al, G.R, No. 192413, june 13, 2012). Nature of the manager's check, ‘There are checks of a special type called manager's or cashier's checks. These are bills of exchange drawn by the bank's manager or cashier, in the name of the bank, against the bank itself. (Bank of the Philippine Islands v. Roxas, G.R. No, 157833, 15 October 2007, 536 SCRA 168; International Corporate Bank v. Gueco, 404 Phil. 353 [2001]). Typically, a manager's or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor's account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance. (International Corporate Bank v. Gueco, supra. Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes Its written promise to pay upon demand, (RCBC v. Hi-Tr! Dev. Corp. etal, GR. No, 192413, June 13, 2012). Republic v, Philippine National Bank, 113 Phil. 828 (1961). A manager's or a cashler’s check may be treated as a promissory note and is the substantial equivalent of a certified check (Id; Equitable PCI Bank v. Ong, 533 Phil. 415 (2006); New Pacific Timber & Supply Co, Inc. v. Seneris, 189 Phil, 517 (1980). Certification signifies that the instrument jwas drawn upon sulficient funds; that funds have been act apart or agsigned for the satisfaction ofthe check in favor of the payee: and that the funds shall be so applied when the check is presented for payment (Id.). Here, the deposit represented by the check is transferred from the credit of the maker to that of the payee or holder (Id.). Thus, to all intents and 45 | ABRC2016.Significant Doctrines in COMLAWS (revised-segregate)new/EVSAJerySPurposes, the payee or holder becomes the depositor of the drawee bank, with rights and duties of one in that situation (ia). Effect of issuance of manager’s check. * ‘The mere issuance of a manager's check does not jpso facto work as an automatic transfer of funds to the account of the payee. In case the procurer of the manager's or cashier's check retains custody of the instrument, does not tender it to the intended payee, or falls to make an effective delivery the instrument is incomplete and revocable until delivery o the instrument for the purpose of giving effect thereto. Since there was mo delivery, presentment of the check to the bank for payment did not occur. An order to debit ‘the account of respondents was never made. In fact, petitioner confirms that the Manager's Check was never negotiated o presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank. As a result, the assigned fund is deemed to remain part ofthe account of Hi-Tri, which procured the Manager's Check. The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable, because the Instrument ~ although accepted in advance ~ remains undelivered, Hence, respondents should have been informed that the deposit had been left Inactive for more than 10 years, and that it may be subjected to escheat proceedings ifleft unclaimed. (RCBC v. Hi-Tri Dev Corp. et al, GR. No, 192413, June 13, 2012). In case the negotiable instrument is altered before acceptance, is the drawee liable for the original or the altered tenor of acceptance? ‘There are two divergent interpretations proffered by legal analysts. (Agbayani, Commentaries and Jurisprudence ‘on the Commercial Law of the Philippines, Vol. 1, 1992 edition, pp. 324-326). The first view is supported by the leading case of National City Bank of Chicago v. Bank of the Republic. (300 Il. 103, 132 N.E. 832, 22 ALR. 1153). In said case, a certain Andrew Manning stole a draft and substituted his name for that ofthe original payee. He offered it as payment toa jeweler in exchange for certain jewelry. The jeweler deposited the draft to the defendant bank which collected the equivalent amount from the drawee. Upon learning of the alteration, the drawee sought to recover from the defendant bank the amount of the draft, as money pald by mistake. The court denied recovery on the ground that the drawee by accepting admitted the existence of the payee and his capacity to endorse. (Effect of Alteration of a Negotiable Instrument upon Drawee's Acceptance or Payment (March 1, 1922), Columbia Law Review, p. 260-https://archive.org/detalls/stor- 1112225, Columbia Law Review, Vol. 22, No. 3 (Mar. 1922), pp. 260-263). Stil, in Wells Fargo Bank & Union Trust Co. v. Bank of Italy, 214 Cal. 156; 4 P.2d 781; 1931 Cal. LEXIS 409, the court echoed the court's interpretation in National City Bank of Chicago, in this wise: ‘We think the construction placed upon the section by the Illinofs court is correct and that it was not the legislative intent that the obligation of the acceptor-should be. limited to the tenor of the instrument as drawn by the maker, as was the rule at common law, but that it should be enforceable in favor of a holder in due course against the acceptor according to its tenor at the time of its acceptance or certification. The foregoing opinion and the Ilinols decision which it follows give effect to the literal words of the Negotiable Instruments Law. As stated. in the Mlinois case: "The court must take:the act as it is written and should give to the words their Aatural and common meaning... ifthe language of the act conflicts with statutes or decisions in-force before its enactment the courts should not give the act a strained construction in order to make it harmonize with earlier statutes or decisfons.” The wording of the act suggests that a change in the common law was intended. A careful reading thereof, independent of any common-law influence, requires that the words "according to the tenor of his acceptance” be construed as referring to the instrument as it was at the time it came into the hands of the acceptor for acceptance, for he accepts no other instrument than the one presented to him — the altered form — and italone he engages to pay. This conclusion is in harmony with the law of England and the continental countries. It makes for the usefulness and currency of negotiable paper without seriously endangering accepted banking practices, for banking institutions can readily protect themselves against liability on altered instruments either by qualifying their acceptance or certification or by relying on forgery insurance and special paper which will make alterations obvious. Al of the arguments advanced against the conclusion herein afinounced seem highly technical in the face of the practical facts that the drawee bank has authenticated an instrument in a certain form, and that commercial policy favors the protection of anyone who, in due course, changes his position on the faith of that authentication. Second view; the better view. °~-° “Be second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior: to alteration. (20Villanueva, Cesar, Commercial Law Review, 2003, p. 447). This view appears to be in consonance with’ Section 124 of the Negotiable Instruments Law which states that a material alteration avoids an instrument except as against an assenting party and subsequent indorsers, but a holder in due course may enforce payment according to Its original tenor. Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s account only for bona fide disbursements he had made. If the drawee did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim relmbursemenc from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s account ‘hich it was expected to treat with utmost fidelity. (21Metropolitan Bank and Trust Co. v. Cabilzo, 539 Phil. 316, 327-328 (2006), The drawee, however, still has recourse to recover Its loss. It may pass the liability back to the collecting bank ‘which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks. ‘Negotiable instruments; electronic messages are not negotiable instruments. ‘The electronic messages of HSBC's investor-clients containing instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the Tax Code as such instructions are “parallel to-an automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one bank.” The electronic 16 | ABRC20%6 significant Doctrines in COMLAWS (revised-segregate}new/EVSAVerysmessages "cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred” and that the said electronic messages are “mere memoranda’ of the transaction consisting of the “actual debiting of the [investor-client-payor’s} local or foreign currency account in the Philippines” and “entered as such in the ‘books of account of the local bank,” HSBC, More fundamentally, the instructions given thrdugh electronic messages that are subjected to DST in these cases are not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the Negotiable Instruments Law, which provides: Sec. 1. Form of negotiable instruments.~ An instrument to be negotiable must conform to the following requirement (a) lt must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (4) Must be payable to order or to bearer; and (©) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty, ‘The electronic messages are not signed by the investor-clients as supposed drawers of bill of exchange; they do ‘ot contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund oF account of the investor-ctients; and, they are not payable to order or bearer but to a specifically designated third party. ‘Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the payment drawn, abroad and made payable here in the Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code. (Hongkong & Shanghai Banking Corp. Ltd. ~ Phils. v. Com. of Internal Revenue, G.R. No, 166038, June 4, 2014, Leonardo-De Castro, J) 24-hour clearing rule not applicable to altered checks. Petitioners faulted the drawee bank for not following the 24-hour clearing period because it was only in August 2000 that the drawee bank notified Equitable-PCI that there were material alterations in the checks. Is the contention correct? Why? Answer within the 24-hour clearing period, the collecting bank is absolved from liability is not correct Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21. Special Return Items Beyond The Reglementary Clearing Period. - Items which have been the subject of material alteration or items bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting Bank and, ‘not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending the same. Antonio Viray, in his book Handbook on Bank Deposits elucidated: Ie Is clear that the so-called “24-hour” rule has been modified. In the case of Hongkong & Shanghai vs. People's Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour rule under which the drawee bank forever loses the right to clalm against presenting/collecting bank if the check is not returned at the next clearing day or within 24 hours. ‘Apparently, the commercial banks felt strict enforcement of the 24-hour rule is too harsh and therefore made representations and obtained modification of the rule, which modification is now incorporated in the Manual of Regulations. Since the same.commercial banks controlled the Philippine Clearing House Corporation, incorporating the amended rule in the PCHC Rules naturally followed. As the rule now stands, the 24-hour rule is sti need not be returned through the clearing house but by direct presentation to the presenting bank. -Inshort,the 24-hour clearing rule does not apply to altered checks. (See: Areza v. Express Savings Bank, Inc, GR. No. 176697; September 10, 2014, Perez, |). BANKING Close now, hear later. If circumstances warrant it, the MB may forbid a bank from doing business and place it under receivership ‘without prior notice and hearing. Section 30 of R.A, No. 7653 provides, viz: Sec. 30. Proceedings in Recelvership and Liquidation. - Whenever, upon report ofthe head of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank: {@) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community: (©) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or (©) cannot continue In business without involving probable losses to Its depositors or eredito 17 | ABRC2016 Significant Doctrines in COMLAWS (revised-segregate)new/EVSA/cryS (. The position taken by petitioners that the drawee bank was at fault because it did not follow the 24-hour clearing period which provides that when a drawee bank fails to return a forged or altered check to the collecting bank in force, that is, any check which should be refused by the drawee bank in accordance with long standing and accepted banking practices shall be returned through the PCHC/local clearing office, as the case may be, not later than the next regular clearing (24-hour). The modification, however, is that items ‘which have been the subject of material alteration or bearing forged endorsement may be returned even beyond 24 hours. so long that the same is returned within the prescriptive period fixed by law. The consensus among lawyers is that the prescriptive period is ten (10) years because a check or the endorsement thereon is a written contract. Moreover, the item(@) has wilfully violated a cease and desist order under Section 37 that has become final, Involving acts or transactions which amount to fraud or a dissipation of the assets of the Institution; in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business inthe Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution. ‘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 appreciation and determination of whether any or all of the statutory grounds for the closure and receivership 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 bank's continuance in business would probably result in the loss to depositors or creditors. In the case of Bangko Sentral Ng Pilipinas Monetary Beard v. Hon. Antonio-Valenzuela, GR. No. 184778, October 2, 2009, 602 SCRA 698, the Court reiterated the doctrine of “cose now, hear later," stating that it was justified as a measure for the protection of the public interest. Thus: ‘The “close now, hear later" doctrine has already been justified as a measure for the protection of the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and determined efforts are taken by the government against distressed and ruismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government. (Vivas v. Monetary Board of BSP, et al, GR.No. 191424, August 7,2013). In Rural Bank of Buh, Inc. v. Court of Appeals, 245 Phil. 263 [1988], the Court also said that: xxx due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: ‘bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be ‘wiped out and disillusionment will run the gamut of the entire banking community Liability of depositary bank and collecting bank. ‘A depositary bank is the first bank to take an item even though It Is also the payor bank, unless the item is presented for immediate payment over the counter. (U.CC. - Article 4 ~ Bank-Deposits and Collections (2002) » Part 1. General Provisions and Definitions »§ 4-105). Itis also the bank to which a check is transferred for deposit in an account at such bank, even ifthe check is physically received and indorsed first by.another bank. (12 USCS § 5002 (3) (B), Title 12. Banks and Banking: Chapter 50. Check Truncation). A collecting. bank is defined as any bank handling an item for collection except the bank on which the check is drawn. Whempetitioners deposited the check with the Bank, they were designating the latter as the collecting bank. This {s in consonance with the rule that a negotiable instrument, such as a check, whether a manager's check or ordinary check, {5 not legal tender. As such, after receiving the deposit, under its own rules, the Bank shall credit the amount in petitioners’ account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cieared for deposit. (25BPI v. Court of Appeals, 383 Phil. 538, 553 (2000)), ‘The Bank and Equitable-PCI Bank are both depositary and collecting banks. A depositary/collecting bank where @ check is deposited, and which endorses the check upon presentment with the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.” In check transactions, the depositary/collecting bank’or last endorser generally suffers the loss because It has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. (Z6Metropolitan Bank and Trust Co. v. BA Finance Corporation, GR. No. 179952, 4 December 2009, 607 SCRA 620, 632; Bank of America NT & SA v. Associated Citizens Bank, GR. No. 141001, 21 May 2009, 588 SCRA 51, 60-61; Associated Bank v. Court of Appeals, 322 Phil. 677, 699-700 (1996)). If any of the warranties made by the depositary/collecting bank turns ‘ut to be false, then the drawee bank may recover from it up to the amount of the check. (27Bank of America NT & SA v. Asséeiated Citizens Bank). ‘=. ‘The law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determifiing their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the piblic'as the'expert and the law holds it to a high standard of conduct. (Banco de Oro Savings and Mortgage Bank v. Equitable Banking Corporation, 241 Phil. 187, 200 (1988) As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of the materially altered checks. Since Equitable-PCI Bank is not a party to this case and the Bank allowed its account with Equitable-PCI Bank to it has the option to seek recourse against the latter in another forum. AMLA Q- What is the nature of the proceedings for civil forfeiture for violation of the Anti-Money Laundering Act? Answer: in Republic v. Sandiganbayan, the Court declared that the rule is settled that forfeiture proceedings are actions in ‘rem. While that case involved forfeiture proceedings under RA 1379, the same principle applies in cases for civil forfeiture under RA 9160, as amended, since both cases do not terminate in the imposition of a penalty but merely in the forfeiture of the properties elther acquired illegally or related to unlawful activities in favor of the State. ‘As an action in rem, it Is a proceeding against the thing itself instead of against the person. In actions in rem orquasi in rem, jurisdiction over the person of the defendant is not a prerequisite to conferring jurisdiction on the court, provided that the court acquires jurisdiction over the res. Nonetheless. summons must be served upon the defendant in order to satisfy the requirements of due process. For this purpose, service may be made by publication as 418 | ABRC2016 Significant Doctrines in COMLAWS (revised-segregate)new/EVSA/eryssuch mode of service is allowed in actions in rem and quasi in rem. (Republic of the Philippines et al, vs, Glasgow Credit and Collection Services, Inc, GR. No. 170281, january 18, 2008) Q- What are the requisites for the issuance of a freeze order? ‘ Answer: The legal basis for the issuance of a freeze order is Section 10 of RA No. 9160, as amended by RA No. 9194, which states: Sectign 10. Freezing of Monetary Instrumentzor Property. ~ The Court of Appeals, upon application ekparte by the AMLC and after determinatidif that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Section 3(I) hereof, ‘may issue a freeze order which shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the court. ‘The Ligots claim that the CA erred in extending the effectivity petiod of the freeze order against them, given that they have not yet been convicted of committing any of the offenses enumerated under RA No. 9160 that would support the AMLC’s accusation of money-laundering activity. But the SC ruled that there is no merit in this claim. The Ligots' argument is founded on a flawed understanding of probable cause in the context of a civil forfeiture proceeding or freeze order application. Concept of probable cause under AMLC. Based on Section 10 quoted above, there are only two requisites for the issuance of a freeze order: (1) the application ex parte by the AMLC and (2) the determination of probable cause by the CA. The probable cause required for the issuance of a freeze order differs from the probable cause required for the Institution of a criminal action, and the latter was not an issue before the CA nor is it an issue before us in this case. ‘The probable cause required for the issuance of a freeze order refers to “such facts and circumstances which would lead a reasonably discreet, prudent or cautious man to believe that an unlawful activity and/or a money laundering. offense is about to be, is being or has been committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way related to said unlawful activity and/or money laundering offense.” Effects of Freeze Order is indefinite. ‘The silence of the law, however, does not in any way affect the Court's own power under the Constitution to “promulgate rules concerning the protection and enforcement of constitutional rights xxx and procedure in all courts.” Pursuant to this power, the Court issued A.M. No. 05-11-04-SC, limiting the effectivity of an extended freeze order to six months ~ to otherwise leave the grant of the extension to the sole discretion of the CA, which may extend a freeze order indefinitely oF to an unreasonable amount of time - carries serious implications on an individual's substantive right to due process, This right demands that no person be denied his right to property or be subjected to any governmental action that amounts to a denial, The right to due procéss, under these terms, requires a imitation or at least an inquiry on whether sufficient justification for the governmental action, Inequity of Indefinite Period of Freeze Order. ‘The Ligots' case perfectly illustrates the inequity that would result from giving the CA the power to extend freeze orders without limitations. As narrated above, the CA, via its September 20, 2005 resolution, extended the freeze order over the Ligats’ various bank accounts and personal properties “until after all the appropriate proceedings and/or investigations being conducted are terminated." By its very terms, the CA resolution effectively bars the Ligots from using any of the property covered by the freeze order until after an eventual civil forfeiture proceeding Is concluded in thelr favor and after they shall have been adjudged not guilty of the crimes they are suspected of committing. These periods of extension are way beyond the intent and purposes ofa freeze order which is intended solely as an interim relief; the civil and criminal trial courts can very well handle the disposition of properties related to a forfeiture case or to a crime charged and need not rely on the Interim relief that the appellate court issued as a guarantee against foss of property while the government is preparing its full case. The term of the CA’s extension, too, borders on inflicting! a punishment to the Ligots, in violation of their constitutionally protected right to be presumed Innocent, because the uhreasonable denial of thelr property comes before final conviction. In more concrete terms, the freeze order over the Ligots' properties has been in effect sin forfeiture case - per the Republic's manifestation ~ was filed only in 2011 and the forfeiture case un the petitioners’ manifestation ~ was filed only in 2012. This means that the Ligots have not bes properties subject of the freeze order for six years or so simply on the basis of the existence of prok freeze order, which was intended mainly as an intetim preemptive remedy. 2005, while the civil jer RA No. 1379 - per Freeze Order has Temporary Effect. A freeze order is meant to have a temporary effect: it was never intended to supplant forfeiture cases where the provisional remedy - which means, the remedy is an adjunct of or an incid ~ of asking for the issuance of an asset preservation order from the court where the petition is filed For emphasis, a freeze order is both a preservatory and preemptive remedy. To stress, the evils caused by the law's silence on the freeze order's period of effectivity issue the Rule in Civil Forfeiture Cases, Specifically, the Court fixed the maximum allowable extensio effectivity at six months. In doing so, the Court sought to balance the State's interest in going launderers with an individual's constitutionally-protected right not to be deprived of his property law, as well as to be presumed innocent until proven guilty. replace the actual ent to the main action is precisely available. elled the Court to ‘on the freeze order's 6-month Extension sufficient. ‘The six-month extension period is ordinarily sufficient for the government to act against the suspected money launderer and to file the appropriate forfeiture ease against him, and is a reasonable period as well that recognizes the property owner's right to due process. In this case, the period of inaction of six years, under the circumstances, already far ‘exceeded what is reasonable. 29 | ABRC2016 significant Doctrines in COMLAWS {revised-segregate)new/EVSA/crYs6-month Period is not inflexible; Balancing Test. We are not unmindful that the State Itself is entitled to due process.Jdwphit As a due process concern, we do not say that the six-month period fs an inflexible rule that would result in the automatic lifting of the freeze order upon its expiration in all instances, An inflexible rule may lend itself to abuse - to the prejudice of the'state's legitimate interests - where the property owner would simply file numerous suits, questioning the freeze order during the six-month extension period, to prevent the timely filing of a money laundering oF civil forfeiture case within this period. With the limited Fesources that our government prosecutors and investigators have at thelr disposal, the end-result of an inflexible rule is not difficult to see. ‘The factual complexities and intricacies of the case and other matters that may be beyond the government's prosecutory agencies’ control may contribute to their inability to file the corresponding civil forfeiture case before the lapse of six months. Given these considerations, itis only proper to strike a balance between the individual's right to due process and the government's interest in curbing criminality, particularly money laundering and the predicate crimes underlying it ‘Thus, as a rule, the effectivity ofa freeze order may be extended by the CA for a period not exceeding six months. Before or upon the lapse of this period, ideally, the Republic should have already filed a case for civil forfeiture against the Property owner with the proper courts and accordingly secure an asset preservation order or it should have filed the necessary information, Otherwise, the property owner should already be able to fully enjoy his property without any legal process affecting it. However, should it become completely necessary for the Republic to further extend the duration of the freeze order, it should file the necessary motion before the expiration of the six-month period and explain the reason or easons for its failure to file an appropriate case and justify the period of extension sought. The freeze order should remain effective prior to the resolution by the CA, which is hereby directed to resolve this kind of motion for extension with reasonable dispatch. (Ret. Lt. Gen. Ligot vs. Republic, G8. No. 176944, March 6, 2013) Q- What is the purpose of the AMLA? Answer: Money laundering has been generally defined by the International Criminal Police Organization (Interpol) “as “any act or attempted act to conceal or disguise the Identity of tlegally obtained proceeds so that they appear to have ‘originated trom legitimate sources.” Even before the passage of the AMLA, the problem was addressed by the Philippine government through the issuance of various circulars by the Bangko Sentral ng Pilipinas. Yet ultimately, legislative roscription was necessary, especially with the inclusion of the Philippines in the Financial Action Task Force's list of non- cooperative countries and territories in the fight against money laundering. The original AMLA, Republic Act (RA) No. ‘9160, was passed in 2001. It was amended by R.A. No, 9194 in 2003, Section 4 of the AMLA states that "[mJoney laundering isa crime whereby the proceeds of an unlawful activity as {defined in the taw] are transacted, thereby making them appear to have originated from legitimate sources.” The section further provides the three modes through which the crime of money laundering is committed. Section 7 creates the AMLC and defines its powers, which generally relate to the enforcement of the AMLA provisions and the initiation of legal actions, authorized in the AMLA such as civil forefelture proceedings and complaints for the prosecution of money laundering, offenses. In addition to providing for the definition and penalties for the crime of money laundering, the AMLA also authorizes certain provisional remedies that would aid the AMLC in the enforcement of the AMLA. These are the “freeze order” authorized under Section 10, and the "bank inquity order" authorized under Section 11. (Republic vs. Eugenio et al. GR. No, 174629, February 14, 2008) Q-Is the pre-existence of a crime filed before thie court essential for a freeze order to be issued? ‘Answer: No. The contention that a bank inquity order under Section 11 may be obtained only upon the pre-existence of a money laundering offense case already filed befote the:courts has no merits. The conclusion is based on the phrase “upon ‘order of any competent court in cases of vidlation of this Act.” the word "cases" generally understood as referring to actual cases pending with the courts. The phrase “in cases of" should be interpreted to mean “in the event there are violations” of the AMLA, and not that there are already cases pending in court concerning such violations. I the contrary position is adopted, then the bank Inguiry order would be limited in purpose as a tool in aid of litigation of live cases, and wholly inutile as a means for the ‘government to ascertain whether there is sufficient evidence to sustain an intended prosecution of the account holder for violation of the AMLA. Should that be the situation, in all likelihood the AMLC would be virtually deprived of its character asadiscovery tool, and thus would become less circumspect in filing complaints against suspect account holders. After al, under such set-up the preferred strategy would be to allow or even encourage the indiscriminate filing of complaints, uunder-the AMLA with the hope or expectation that the evidence of money laundering would somehow surface during the trial Since the AMLC could not make use of the bank inquiry order to determine whether there is evidentiary basis to prosecite the suspected malefactors, not filing any case at all would not be an alternative. Such unwholesome setup. should ‘ot-coitie'to, pass. Thus Section 11 cannot be interpreted in a way that would emasculate the remedy it has established and encourage the unfounded initiation of complaints for money laundering, Still, even ifthe bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it does not follow that such order may be availed of ex parte. There are several reasons why the AMLA does not generally sanction ex parte applications and issuances of the bank inquiry order. (Republic vs. Eugenio et al, GR. No. 174629, February 14, 2008) ‘TRANSPORTATION LAWS Carriage of Goods by Sea Act (COGSA) ‘A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time; or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charterer provides for the hire of the vessel only, elther for a determinate period of time or for a single or consecutive voyage, the ship owner to the ship's store, pay for the wages of the master of the crew and defray the expenses for the maintenance ship. The charterer does not in either of these cases become the owner of the vessel pro hac vice. 20 | ABRc2016 significant Doctrines in COMLAWS (revised-segregate}new/EVSA/crYShe Ifthe charterer is a contract eee which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. ‘The charterer is free from liabilities to third persons. (San Miguel vs. Heirs of Sabiniano Inguito, et al, G.R. No. 141716; Julius Dungao vs. CA, G.R. No. 142025, july 4, 2002; Coastwise Lightrage Corp. vs, CA, 245 SCRA 796; See: Phil. Insurance Co, Inc. (néw Charities Phils. Ins. Inc.) v Heung-A Shipping Corp. G.R. No. 187701, July 23, 2014). To escape solidary Habllity for a quasi-delict committed by his employee, an employer must rebut the presumption by presenting convincing proof that in the selection and supervision of his employer, he has exercised the care and diligence of a good father of a family. (Metro Manila Transit Corp, vs. Cam 386 SCRA 126), The owner of the person in possession and control of a vessel and the vessel are lable for all natural and proximate damage caused to persons or property by reason of negligent management or navigation. (Smith Bell Dodwell Shipping Agency Corporation vs. Borja, 383 SCRA 341) ‘The doctrine of limited liability under Article $87 of the Code of Commerce does not apply to situations in which the loss or the injury is due to the concurrent negligence of the ship owner and the captain. It has already been established that the sinking vessel had been caused by the fault or negligence of the ship captain and the crew as shown by the Improper stowage of the cargo logs. “Closer supervision on the part of the ship owner could have prevented this fatal miscalculation.” As such, the ship owner was equally negligent. It cannot escape liability by virtue of the limited liability rule. (Central Shipping Company, Inc. vs. Insurance Company of North America, GR. No. 150751, September 20, 2004) ‘The principle of last clear chance applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual obligations, for It would be inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise guilty of negligence. The common law notion of last clear chance permits courts to grant recovery to a plaintiff who has also been negligent provided that the defendant had the last clear chance to avoid the accident and filed to do so. (William Tiu, doing business under the name and style of “D" Rough Riders", and Virgilio Te Las Pinas vs. Pedro Arriegado, etal, G.R. No. 138060, September 1, 2004; Philippine Rabbit Bus Lines vs. JAC, 189 SCRA 158) ‘The responsibility of employers for the negligence of their employees in the performance of their duties is primary and the injured party may recover from the employers directly regardless of the solvency of their employees. (Wietory Liner, Inc. vs. Helrs of Andres Malecdan, 9394 SCRA 520) Ease Warsaw Convention ‘The Warsaw Convention should be deemed a limit of liability only in those cases where the cause ofthe death or injury to person, or destruction to, attended by any willful misconduct, bad faith, recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise no special or ‘extraordinary form of resulting injury. (Northwest Airlines, Inc. vs. CA, 284 SCRA 408) _ ., Charter party; damages under COGSA; prescriptive period. A charter party is contract by which an entire ship, or some principal part thereof, is let by the owner to another a26n; ferson for a specified time or use, on a particular voyage, in consideration of the payment of freight. ware A charter party has two types: First, it could be a contract of affreightment whereby the use of shipping space on Uaduvlec-NO4, vessels is leased in part or asa whole, to carry goods for others. The charter party provides for the hire of vesvel only, s t099h was He either for a determinate period of time (time charter) or for a single or consecutive voyage (voyage charter), The ship- itt vu t+ owner supplies the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the ‘hy, maintenance of the ship. The voyage remains under the responsibilty of the carrier and itis answerable for the loss of tke feeds ta, S00US received for transportation. The charterer is free from lability to third persons in respect ofthe ship. se eee rend ceriy dante osbeaeat carer cere re ebobaeleier esti es wheter AAG aka ome conrad postcard cceas eteoheargunn wine ease on crew, who are his servants. The charterer mans the vessel with his own people and becomes, in effect, the owner for the Aig Hasbin ty oyage or service stipulated and hence lable for damages or loss sustalned by the goods transported. sebum “Despite its contract of afffeightment, the carrier remained responsible, hence, answerable for the damage tbo nce by the goods recelved for transportation, Common carriers, from the nature of ther business and for reasons of » 44, Win. public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the wasdion wilt Passengers they transport. Thus, common carriers are required to render service with the greatest skill and forsight and ‘to use all reasonable means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise te due’vare in the handling and storage, including such methods as their nature requires. (Philam Insurance Company, Inc. nue setter oars Philippines insurance, Inc) v. Heung-A Shipping Corporation, 730 SCRA 512, July 23,2014) Lavi that deterininates bit of carer. Undayaricte 1753 of he Ci Cade, the lw ofthe county to which the goods ae to be transporte shal govern dys {ic (0) 4. the liability of the common carrier for their loss, destruction or deterioration. Since the subject shipment was being ‘DGEA fail fe transported from a foreign country to the Philippines, the Civil Code provisions shall apply. In all matters not regulated by ‘wile, _ the Civil Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special 1 ne Cl Cod th able for tsa he good : vai tach uae eaeeas prevsioes wana eteoeoen rns nies ete camaro te pee Jaltnat Meco vaanspored, ic aed to ouline the manner of determining the amount of such lablty, Arie S72 ef the Cate of tl Mel commerce fills in this gap, thus: fe thyguke baa ‘Article 372, The value of the goods which the carrier must pay in cases of loss oF misplacement dias Wan (uper apts Ye. shall be determined in accordance with that declared in the bill of lading, the sipper not being allowed to Aany beguasy.- Present proof that among the goods declared therein there were articles of grater value and money. xxx" guy Hegel. In case, however, of the shipper's failure to declare the value of the goods in the bill of lading, Section 4, paragraph 5 of the COGSA provides: "Neither the carrier nor the ship shall in any event he or become liable for any loss or damage to. or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in package, per customary freight unit, or the 21 | ABRC2016.Significant Doctrines in COMLAWS (revised-segregate]new/EVSA/crys deadtinviant fo dy ww . asi rl ee da Sail th wessuane.‘equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading, This declaration, if embodied in the bill of lading shall be prima fate evidence, bt shall be conclusive a the carler=(Philam surance Company, Inc: (now Charis Philippines Insurance, Inc) v. Heung-A Shipping Corporation, 730 SCRA S12, July 23, 2014) Prescriptive period governing actions for lost or damaged goods to and from Philippine ports in foreign trade. Consonant with the ruling in the recent case Asian Terminals, Inc. v. Philam Insurance Co. Inc, july 24, 2013, 702 SCRA 88, the prescriptive period for filing an action for lost/damaged good governed by contracts of carriage by sea to and from Philippine ports in foreign trade is governed by paragraph 6, Section 3 of the COGSA which states: (6) Unless notice of loss or damage and the general nature of such loss or damage be glven in writing to the carrier or his agent atthe port of discharge before or at the time of the removal of the goods Into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described inthe bill of lading. If the loss or damage Is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage may be endorsed upon the receipt of the goods given by the person taking delivery thereof. ‘The notice in writing need not be given if the state of the goods has at the time of their receipt been the sublect of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless sult s brought within one year after delivery of the Boods or the date when the goods should have been delivered: Provided, that Ifa notice of loss of 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,” Fallure to comply with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within one year after delivery of the good. (Philam Insurance Company, Inc. (now Chartis Philippines Insurance, Inc) v. Heung-A Shipping Corporation, 730 SCRA 512, July 23, 2014) . Q~ Between a common carrier and an arrastre operator, who should be responsible for damages for the loss of cargo incurred by the shipment during its unloading? Explain. Answer: Such question has been settled in Philippines First Insurance Ca, Inc. v. Wallem Phils. Shipping, Inc, GR. No. 165647, March 26, 2009, 582 SCRA 457 where it was said that common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. 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, orto the person who has aright to receive them. For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable forthe cargo from the time itis turned over to him at the dock or afloat alongside the vessel at the port of loading, until he delivers it on the shore or on the discharging wharf at the port of unloading, unless agreed otherwise. In Standard Ol Co. of New York v. Lopez Castelo, the Court interpreted the ship captain’s lability as ultimately that of the ship-owner by regarding the captain as the representative of the ship-owner. Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. Section 3 (2) thereof then states that among the carriers’ responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried. (Westwind Shipping Corporation v. UCPB Gen. Ins. Co. Inc, G.R. No. 200289; Orient Freight Int. Inc. v, UCPB Gen. Ins. Co. inc, G.R. No. 200314, November 25, 2013, Peralta) On the other hand, 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 ship's tackle. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty isto take good care of the goods and to turn them over to the party entitled to thelr possession. Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should observe the standards and measures necessary to prevent losses and damage to shipments under its custody. Q- What is the nature of the relationship and responsibility of an arrastre operator to a consignee of a cargo? Explain. Answer: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman. The relationship between the consignee and the common carrier i similar to that ofthe consignee and the arrastre operator. Since its the duty of the ARRASTRE to take good care of the goods thatare in its custody and to deliver them in good condition to the consignee, such responsiblity also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods in good condition to the consignee. (Westwind Shipping Corporation v. UCPB Gen. Ins. Co. Inc, G.R. No. 200289; Orient Freight intl Inc v. UCPB Gen, Ins, Co. Ine, G.R. No. 200314, November 25, 2013, Peralta |) Q- Who has custody of the shipment during its unloading from the vessel? Explain. Answer: The common carrier. Section 3 (2) of the COGSA states that among the carriers’ responsibilities are to properly and carefully load, care for and discharge the goods carried, The bill of lading covering the subject shipment likewise stipulates that the carrier’s liability for loss or damage to the goods ceases after Its discharge from the vessel. Article 619 of the Cade of Commerce holds a ship captain liable for the cargo from the time it ie turned over to him until ite delivery at the port of unloading, Jnew/EVSAerys 22 | auncz0is significant Doctrines in COMLAWS (revised-segre A ele atk ape. wime ——Lh wh an aassnds than Ueunlue adi load aa Fn fs abc We PETER faudalat Mat Ay Ye, Larasnas (C006 ay, Soman, o 3 2 ful Ye baay jt es th a Ne Me AA Ht Hn ual has 9 Oke he Ina th # 4 Th thes Nichiment compan v. M/V Farland, it was Alled that like the duty of Pig da S@aworthines, the duty of care of the cargo is non-delegable, and the carrier is accordingly responsible forthe acts ofthe iat MRovpmaster, the crew, the stevedore, and his other agents, It has also been held that its ordinarily the duty of the master of a ai mc “vessel co unload the cargo and place it in readiness for delivery tothe consignee, and there's an implied obligation that ‘ou this shall be accomplished with sound machinery, competent hands, and in such manner that no unnecessary injury shall tx Swanqdye done thereto, And the fact that a consignee is required to furnish persons to assist in unloading a shipment may not ‘iy,4u1) ” Felleve the carier ofits duty a5 to such unloading, (Westwind Shipping Corporation v. UCPB Gen, Ins. Co. Inc, GR. No. 200289; Orient Freight Int. ne. v. UCPB Gen. Ins.Co, ne, GR. No, 200314, November 25, 2013, Peralta, J citing Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co. (Philippines), Inc, GR. No. 168151, September 4, 2009, 598 SCRA 304 and Asian Terminals, Inc. v. Pilam Insurance Co, Inc, Gt Nos, 161163, 181262 and 191319, july 24, 2013), Q- When will the duty of the carrier over the cargo last? Explain. Answer: The extraordinary responsibility of the common cartier lasts until the me the goods are actually or constructively delivered by the carrier to the consignee or to the person who has a right to receive them. There is actual delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly ‘authorized agent and a reasonable time is given him to remove the goods. (Samar Mining Company, Inc. v. Nordeutscher Lloyd and C.F. Sharp & Company, Inc,, 217 Phil. 497, 506 (1984), citing 11Words and Phrases 676, citing Yazoo & MVR Company v. Altman, 187 SW 656, 657). In this case, since the discharging of the containers/skids, which were covered by only one bill of lading, had not yet been completed at the time the damage occurred, there is no reason to imply that there was already delivery, actual or constructive, of the cargoes to ATI. (Delsan Transport Lines, Inc. v. American Home Assurance Corp, 530 Phil. 332 (2006); Westwind Shipping Corporation v. UCPB Gen. Ins. Co. Inc, GR. No. 200289; Orient Freight Int. Inc, v, UCPB Gen. Ins. Co. Inc, G.R. No. 200314, November 25, 2013, Peralta, J). ‘Q- What is the nature of the business of a customs broker? Explain. Answer: A customs broker has been regarded as a common carrier because transportation of goods is an integral part of its business. (Loadmasters Customs Services, inc v. Glodel Brokerage Corporation, GR. No. 179446, January 10, 2011, 639 SCRA 69, 80). In Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc, 496 Phil. 437 {2005}. it was ruled that common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public, (Art. 1732, NCC). Article 1732 does not distinguish between one wiose principal business activity is the carrying of goods and one who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it fs not a common carrier ‘but a customs broker whose principal function ts to ptepare the correct customs declaration and proper shipping. documents as required by law Is bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration And in Calvo v. UCP® General Insurance Co. Ine, it was held that as the transportation of goods Is an integral part of a customs broker, the customs broker is also a common carrier. For to declare otherwise "would be to deprive those with whom [it] contracts the protection which the law affords them notwithstanding the fact that the obligation to carry ‘goods for [ts] customers, is part and parcel of petitioner's business.” As a common cartier, OFIl is mandated to observe, under Article 1733 ofthe Civil Code, extraordinary diligence in the vigilance over the goods it transports according to the peculiar circumstances of each case. in the event that the goods are lost, destroyed or deteriorated, itis presuitied to have been at fault or to have acted negligently unless it proves that It ‘observed extraordinary diligence. (Westwind Shipping Corp: v. UCPB Gen. Insurance Co, Inc, etl, G.R. No. 200289; Orient Freight International, inc v. UCPB Gen: Insurahiée Co,, Inc, etal, G.R. No. 200314, November 25, 2013, Peralta). Diligence in relation to accommodation passenger. : ‘As to an accommodation passenger or invited guest, defendant, as owner and driver of the pick-up, owes to them merely the duty to exercise reasonable care so that they may be transported safely to thelr destination. Thus, the rule is established by the weight of authority that the owner or operator of an automobile owes the duty to an invited guest to exercise reasonable care in its opération, and not unreasonably to expase him to danger and injury by increasing the hazards of travel. The rule is that an owner of an automobile owes a guest the duty to exercise ordinary or reasonable care ‘to avoid injuting him. Since the one riding in an automobile Is no less a guest because he asked for the privilege of doing so, the:same ‘obligation of care is imposed upon the driver as in case of one expressly invited to ride. The extraordinary Atitigenice imposed on.common carriers is not required. When relation ends in relation to passenger. “-In-thescase at bar, the deceased himself chose the place where he would sit, and he was half-asleep when the accident tobk place so that the incident was attributed to his lack of care considering that the pick-up was open and he was then in a crouéhing position. On the other hand, there was no showing that the defendant failed to take the precautions necessary to transport his passenger safely to his place of destination, Defendant, therefore, is not liable for damages. (Lara v. Valencia, 104 Phil. 65) ‘The relation of carrier and passenger continues until the passenger had been landed at the port of destination and has left the vessel-owner's dock or premises. Once created, the relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the carrier's conveyance or had a reasonable ‘opportunity to leave the carrier's premises. In La Mallorca v. CA, it was held that the relationship exists until the passenger has had a reasonable time to leave the premises. The reasonableness of time should be made to depend on the attending circumstances of the case like the kind of carrier, the nature of its business, or the customs of the place. inthis case, the presence of passenger X was still reasonable since his bag was still inside the vessel. (See also: La Mallorca v. CA, 17 SCRA 739; Aboitiz Shipping Co. v. CA, November 6, 1989). Wie arrival wade pers Suwhul? Be ceatinn vagy dt, E18 sigicant Doctrines in COMLAWS (revsee-segregatnew/EVSNore A atuinfunide ham Ce ee tens, nase 3 eeonistoacty, MMe pea Hote oauulgete,“LOAN AND INTEREST RATE Interest rate is now 6% per annum. ‘There has been a change in the rules on interest from 12% per annum to 6% per annum in view of the amendment to Circular No, 905 Series of 1982, The landmark case of Eastern Shipping Lines, Inc. v CA, G.R. No. 97412, july 12, 1994, 234 SCRA 78 is no longer controlling in view of the recent ruling in Dario Nacar v. Gallery Frames and/or Felipe Bordey, jr, GR. No, 189871, August 13, 2013, Peralta J Recently, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 234 of Circular No, 905, Series of 1982 and, accordingly, issued Circular No. 799.35 Series of 2013, effective uly 1, 2013, the pertinent portion of which reads: The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No, 905, Series of 1982: Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (696) per annum, Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections 4305Q.1,37 43058.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly. " ‘This Circular shall take effect on 1 July 2013. ‘Thus, from the foregoing, in the absence of an express stipulation as to the rate of Interest that Would govern the parties, the rate of legal interest for loans or forbearance of any money. goods or credits and the rate allowed in judgments Shall no longer be twelve percent (12%) per annum ~ as reflected in the case of Eastern Shipping Lines and Subsection 305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 43055.3 and 4303P..1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but-wilf now be'six percent (6%) Per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively. and not retroactively. Consequently, the twelve percent (1296) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the. prevailing rate of interest when applicable. (See: Rivera v, Sps. Chua, GR. No, 184458, January 14, 2015, Perez, }) BSP has the power to set interest rates, Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral ‘Monetary Board, GR. No, 191986, january 15, 2013, 688 SCRA $30, 547, the Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled that “the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar Credit institutions. tt even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, ar loans of financial intermediaries.” BANKING LAWS When a bank is placed under receivership, its officers, including its acting president, are no longer authorized to transact business in connection with the bank’s assets and property. (Abacus Real Estate Dev't Center vs, Manila Bank, G.R. No, 162270, April 6, 2005) ‘The appointment of receiver does not dissolve the bank as a corporation nor does it interfere with the exercise of corporate rights. Banks under liquidation fetain their corporate personality. The bank can sue and be sued but any case + could be initiated and prosecuted through the liquidator. (Manalo vs. CA, October 2002) Secrecy of Bank Deposits All'deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentallties, are hereby considered.as absolutely confidential In nature and may not be examined, inquired, or looked into by any person, government official, bureau or office. (Sec.2, LSB) Exceptions: “a. When there is written permission of the depositor or investor; (See. 2, LSB) b.-tmpeachment cases; (Sec. 2. LSB) ¢. “Upon the order of a competent court in cases of bribery or dereliction of duty of public oficial; (Sec.2, LSB) 4, Upon the order of a competent court in cases where the money deposited or invested fs the subject of litigation; (Gee. 2:18) ¢. Incase of prosecution of unexplained wealth; (BF vs. Purisima, 161 SCTA 576; RA 301) £. In case of inquiry of the BIR of bank accounts of a decedent for real estate tax purposes or in case of a tax compromise; (Sec. 6 [f], NIRC of 1997) & Upon order of a competent court in cases of violation ofthe AMLA: (RA 9160, as amended) 1 Incidental disclosures of unclaimed balances under the Unclaimed Balances Law. (RA 3696) Garnishment of Bank Deposits ‘The foreign currency deposits shall be exempt from attachment, garnishment or any order or process of any court, legislative body, government agency or any administrative body whatsoever. (Sec. 8, RA 6426, FCDA) Except when it has been established that there is probable cause that the deposits involved are in any way related to money laundering, (Sec. 11, AMLA) Sakis 2016 Significant Doctrines in COMLAWS (revised-segregateJnew/EVSA/crys ihe pv atten 4 atl ardbedloe dew etn iy Hoot &+ Gots pe Vas wade etc tl 4 ple wpe pasnttin uh aguitek dave, wr ts SES ps natn nts A letter of jement ‘OF other persons made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. (Bank of Commerce vs. Serrano, 51 SCRA 484, February 15, 2005) 7 ‘The purpose of the law is to substitute for the agreement of the buyer-importer to pay money under a contract or arrangement, Warehouse Receipts Law b. Instances when warehouseman may legally refuse to deliver goods © When the holder of the receipt does not satisfy the conditions prescribed in Sec. 8 Act 2137, as amended: 4. When the warehouseman has legal title in himself on the goods, such title or right being derived directly or indirectly from the transfer made by the depositor at the time or subsequent to the deposit for storage, or from the warehouseman’s lien. (Sec. 16) © If he had been requested by a person lawfully entitled to a right of property or possession in the goods not to make delivery to any person. (Sec. 10) £ If he had information that the delivery to be made was to one not lawfully entitled to the possession of the goods. (Sec. 10) 8. Where the goods have already been lawfully sold to third persons to satisfy the warehouseman'slien.or disposed of because of their perishable nature. (Sec. 36) h. Incase of adverse claimants, (Secs. 16 & 18) Inthe valid exercise of the warehouseman's lien. (Sec. 31) ‘The warehouseman is also liable even with indorsement or with authority. He Is likewise lable, if prior to delivery he had either: a. Been requested, by or on behalf of the person lawfully entitled to a right of property oF possession in the goods, not to make such delivery; or b, Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods. (Sec. 10) Duty of the warehouseman if there are several claimants over the goods: a. Determine within reasonable time the validity of the conflicting claim; (Sec. 18) b. Bring complaint in interpleader. (Sec. 1, Rule 62, Rules of Court) ©. Require claimant to litigate among themselves. (Sec. 17) Trust Receipt Law ‘A trust receipt is one where the entrustee, who holds an absolute ttle or security interests over certain goods, documents or instruments, released the same to the entrustee, Who executes a trust receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents, or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the ‘entruster, or a3 appears in the trust receipt, or return the goods, documents or instruments themselves of they are unsold, ‘oF not otherwise disposed of, in accordance with the terms’ and conditions specified in the trust receipt. (Bank of Commerce vs. Serrano, 451 SCRA 484, February 16, 2005) ‘The basic purpose of the law is to punish dishonesty and abuse of confidence in the handling of money or goods to the prejudice of public order. (Ong vs. CA, GR. No. 119858, April 29, 2003) A trust receipt partakes of the nature of a security transaction. It could never be a mere additional or side document. Otherwise, a party toa trust receipt agreement could easily renege undermining the importance and defeating with impunity the purpose of-such an indispensable tool in commercial transactions. (Ong vs. CA, G.R. No. 119858, April 29,2003) Chattel Mortgage Law ‘When the proceeds of the sale are insufficient to cover the debts in an extrajudicial foreclosure of chattel mortgage, the mortgagee is entitled to claim the deficiency from the debtor. (State Investment House, Inc. vs. CA, 217 SCRA32, 1993) Equity of Redemption distinguished from Right of Redemption “The right of redemption in relation to a mortgage exists only in the case of the extrajudicial foreclosure of the mortgage. No'such right is recognized in a judicial foreclosure except only where the mortgagee is bank or banking ‘institution, The period.to exercise the right of redemption Is within one year from the registration of the sherit's certiticate of foreclosure sale. Where-no right of redemption exists in case of a judicial foreclosure because the mortgagee is not a bank or banking institution, the foreclosure sale when conformed by an order of the court shall operate to divest the rights of all parties to the action and to vest their rights in the purchaser. There then exists only what is simply known as the equity of redemption. Thus is simply the right ofthe defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68 of the Rules of Court. or even after the foreclosure sale, but prior to confirmation. (Huerta Alba Resort. Inc. vs. CA, September 1, 2000, G.R. No. 128567) Good Luck to All 2016 Bar Examinees We Are Praying for Your Success God Bless! From: ABRC Family 25 | ABRc2016-significant Doctrines in COMLAWS (revised-segregatejnew/EVSA/erYS