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NEGOTIABLE INSTRUMENTS LAW
CASE #1
G.R. No. 215910, February 06, 2017
MANUEL C. UBAS, SR., Petitioner, v. WILSON CHAN,
Respondent.
DOCTRINE: It has been long established that where the plaintiff-
creditor possesses and submits in evidence an instrument
showing the indebtedness, a presumption that the credit has not
been satisfied arises in his favor. Thus, the defendant is, in
appropriate instances, required to overcome the said
presumption and present evidence to prove the fact of payment.
FACTS: On January 1, 1998, Petitioner entered into a verbal
agreement with respondent. Respondent, doing business under
the name and style of UNIMASTER, was indebted to him in the
amount of P1,500,000.00, representing the price of boulders,
sand, gravel, and other construction materials allegedly
purchased by respondent from him for the construction of the
Macagtas Dam. Respondent had issued three (3) bank checks,
payable to "CASH" but when petitioner presented the subject
checks for encashment, the same were dishonored due to a stop
payment order. When the checks were dishonored, petitioner
demanded from respondent the value of the dishonored checks,
but to no avail.
The respondent alleged that no contract have ever existed
between him and petitioner. Petitioner, on the other hand,
presented as the only proof of their business transaction the
subject checks issued to him by respondent and delivered to his
office by respondent's worker on different occasions. For his part,
respondent admitted to having issued the subject checks.
However, he claimed that they were not issued to petitioner, but
to Engr. Merelos for purposes of replenishing the project's
revolving fund and Engr. Merelos lost the same sometime in
January 1998.
RTC ruled in favor of petitioner and did not lend credence to
respondent's claim that the subject checks were lost and only
came into the possession of petitioner, considering the fact that
petitioner mentioned the details of the subject checks in the said
demand letter and, thus, would have incriminated himself had he
actually stolen them. CA reversed and set aside the RTC's ruling,
because the subject checks cannot be validly used as proof of
the alleged transactions between petitioner and respondent.
ISSUE:Whether or not respondent failed to overcome the
disputable presumption that every party to an instrument acquired
the same for valuable consideration.
HELD: Yes.
Jurisprudence holds that "in a suit for a recovery of sum of
money, as here, the plaintiff-creditor (petitioner in this case) has
the burden of proof to show that defendant (respondent in this
case) had not paid him the amount of the contracted loan.
However, it has also been long established that where the
plaintiff-creditor possesses and submits in evidence an
instrument showing the indebtedness, a presumption that the
credit has not been satisfied arises in his favor. Thus, the
defendant is, in appropriate instances, required to overcome the
said presumption and present evidence to prove the fact of
payment so that no judgment will be entered against him. This
presumption stems from Section 24 of the NIL, which provides
that:
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Section 24. Presumption of Consideration. - Every negotiable
instrument is deemed prima facie to have been issued for a
valuable consideration; and every person whose signature
appears thereon to have become a party thereto for value.
As mentioned, petitioner had presented in evidence the three (3)
dishonored checks which were undeniably signed by respondent.
Hence, as the RTC correctly ruled, it is presumed that the subject
checks were issued for a valid consideration, which therefore,
dispensed with the necessity of any documentary evidence to
support petitioner's monetary claim. Unless otherwise rebutted,
the legal presumption of consideration under Section 24 of the
NIL stands. Verily, "the vital function of legal presumption is to
dispense with the need for proof.
CASE #2
G.R. No. 227005, June 19, 2017
BDO UNIBANK, INC., Petitioner, v. ENGR. SELWYN LAO,
DOING BUSINESS UNDER THE NAME AND STYLE "SELWYN
F. LAO CONSTRUCTION" AND "WING AN CONSTRUCTION
AND DEVELOPMENT CORPORATION" AND
INTERNATIONAL EXCHANGE BANK (NOW UNION BANK OF
THE PHILIPPINES), Respondents.
DOCTRINE: The liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. 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."
FACTS: Lao entered into a transaction with Everlink, through its
authorized representative Wu, under which, Everlink would
supply him with "HCG sanitary wares. For the down payment, he
issued two (2) Equitable crossed checks payable to Everlink. Lao
averred that when the checks were encashed, he contacted
Everlink for the immediate delivery of the sanitary wares, but the
latter failed to perform its obligation. Later, Lao learned that the
checks were deposited in two different bank accounts at
respondent International Exchange Bank, now respondent Union
Bank of the Philippines (Union Bank). He was later informed that
the two bank accounts belonged to Wu and a company named
New Wave Plastic (New Wave). Consequently, Lao was
prompted to file a complaint against Everlink and Wu for their
failure to comply with their obligation and against BDO for
allowing the encashment of the two (2) checks. He later withdrew
his complaint against Everlink as the corporation had ceased
existing.
BDO asserted that it had no obligation to ascertain the owner of
the accounts to which the checks were deposited because the
instruction to deposit the said checks to the payee's account only
was directed to the payee and the collecting bank, which in this
case was Union Bank and that as the drawee bank, its
obligations consist in examining the genuineness of the
signatures appearing on the checks, and paying the same if there
were sufficient funds in the account under which the checks were
drawn.
Lao filed an Amended Complaint, wherein he impleaded Union
Bank as additional defendant for allowing the deposit of the
crossed checks in two bank accounts other than the payee's, in
violation of its obligation to deposit the same only to the payee's
account.

RTC absolved BDO from any liability, but ordered Union Bank to
pay Lao. It opined that Union Bank was negligent in allowing the
deposit and encashment of the said check without proper
endorsement. The CA affirmed, with modification, the ruling of the
RTC. It ordered BDO to pay Lao and further directed Union Bank
to reimburse BDO the aforementioned amount.
ISSUE: Whether or not a collecting bank assumes responsibility
for a crossed check as a general endorser in accordance with
Section 66 of the NIL.
HELD: Yes.
The liability of the drawee bank is based on its contract with the
drawer and its duty to charge to the latter's accounts only those
payables authorized by him. A drawee bank is under strict liability
to pay the check only to the payee or to the payee's order. On the
other hand, the liability of the collecting bank is anchored on its
guarantees as the last endorser of the check. 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 the present case, BDO paid the value of the check to Union
Bank, which, in turn, credited the amount to New Wave's account.
The payment by BDO was in violation of Lao's instruction
because the same was not issued in favor of Everlink, the payee
named in the check. It must be pointed out that the subject check
was not even endorsed by Everlink to New Wave. Clearly, BDO
violated its duty to charge to Lao's account only those payables
authorized by him.
Nevertheless, even with such clear violation by BDO of its duty,
the loss would have ultimately pertained to Union Bank. By
stamping at the back of the subject check the phrase "all prior
endorsements and/or lack of it guaranteed," Union Bank had, for
all intents and purposes treated the check as a negotiable
instrument and, accordingly, assumed the warranty of an
endorser. Without such warranty, BDO would not have paid the
proceeds of the check. Thus, Union Bank cannot now deny
liability after the aforesaid warranty turned out to be false.
Further, it could not have escaped its attention that the subject
checks were crossed checks. Jurisprudence dictates that the
effects of crossing a check are: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check may
be negotiated only once - to one who has an account with a bank;
and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose
so that he must inquire if he has received the check pursuant to
that purpose. The effects of crossing a check, thus, relate to the
mode of payment, meaning that the drawer had intended the
check for deposit only by the rightful person, i.e., the payee
named therein.
It is undisputed that the subject check had been crossed
generally. This indicated that Lao, the drawer, had intended the
same for deposit only to the account of Everlink, the payee
named therein. Despite this clear intention, however, Union Bank
negligently allowed the deposit of the proceeds of the said check
in the account of New Wave.
Lao, the drawer of the subject check, has a right of action against
BDO for its failure to comply with its duty as the drawee bank.
BDO, in turn, would have a right of action against Union Bank
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because of the falsity of its warranties as the collecting bank.
Considering, however, that BDO was not made a party in the
appeal, it could no longer be held liable to Lao. Thus, the
proceedings for recovery must be simplified and Lao should be
allowed to recover directly from Union Bank.
INSURANCE
CASE #3
January 25, 2017 G.R. No. 192159
COMMUNICATION AND INFORMATION SYSTEMS
CORPORATION, Petitioner, vs. MARK SENSING AUSTRALIA
PTY. LTD., MARK SENSING PHILIPPINES, INC. and OFELIA
B. CAJIGAL, Respondents.
JARDELEZA, J.:
Facts: Petitioner Communication and Information Systems
Corporation (CISC) and respondent Mark Sensing Australia Pty.
Ltd. (MSAPL) entered into a MOA dated March 1, 2002 whereby
MSAPL appointed CISC as its exclusive AGENT to PCSO during
the lifetime of the MOA. The recent agreement referred to in the
MOA is the thermal paper and bet slip supply contract (the
Supply Contract) between the PCSO, MSAPL, and three other
suppliers, namely Lamco Paper Products Company, Inc. (Lamco
Paper), Consolidated Paper Products, Inc. (Consolidated Paper)
and Trojan Computer Forms Manufacturing Corporation (Trojan
Computer Forms). As consideration for CISC's services, MSAPL
agreed to pay CISC a commission of 24.5% of future gross sales
to PCSO, exclusive of duties and taxes, for six years.
After initially complying with its obligation under the MOA, MSAPL
stopped remitting commissions to CISC during the second
quarter of 2004. MSAPL justified its action by claiming that
Carolina de Jesus, President of CISC, violated her authority when
she negotiated the Supply Contract with PCSO and three of
MSAPL's competitors. MSAPL pointed out that it used to have a
Build Operate Transfer (BOT) Agreement with PCSO where it
undertook to build a thermal paper and bet slip manufacturing
facility to supply all requirements of PCSO. However, PCSO
unilaterally cancelled the BOT Agreement and granted supply
contracts to Lamco Paper, Consolidated Paper and Trojan
Computer Forms, which ultimately resulted in litigation between
the parties. The suit was eventually settled when PCSO, MSAPL,
and the three other suppliers entered into the Supply Contract,
which was submitted and approved by the RTC, Branch 224 of
Quezon City, as a compromise agreement MSAPL felt
shortchanged by CISC's efforts and thus decided to withhold
payment of commissions.
As a result of MSAPL's refusal to pay, CISC filed a complaint for
specific performance against MSAPL, Mark Sensing Philippines,
Inc. (MSPI), Atty. Ofelia Cajigal, and PCSO. The RTC granted
CISC's application for issuance of a writ of preliminary
attachment, stating that "the non-payment of the agreed
commission constitutes fraud on the part of the defendant
MSAPL in their performance of their obligation to the
plaintiff." The RTC found that MSAPL is a foreign corporation
based in Australia, and its Philippine subsidiary, MSPI, has no
other asset except for its collectibles from PCSO. Thus, the RTC
concluded that CISC may be left without any security if ever
MSAPL is found liable. But the RTC limited the attachment to
₱4,861,312.00, which is the amount stated in .the complaint,
instead of the amount sought to be attached by
CISC, i.e., 113,197,309.10.

CISC moved to amend the order of attachment to include unpaid
commissions in excess of the amount stated in the complaint.
The RTC granted CISC's motion and issued a new writ of
preliminary attachment. It modified the amount covered by the
writ to reflect the correct amount prayed for by CISC in its
previous motion to amend the attachment order conditioned upon
the latter's payment of additional docket fees.
CISC posted a bond in the amount of ₱113,197,309.10 through
Plaridel Surety and Insurance Company (Plaridel) in favor of
MSAPL, which the RTC approved on the same date. Two days
later, MSAPL filed a motion to determine the sufficiency of the
bond because of questions regarding the financial capacity of
Plaridel. MSAPL, apparently 'getting hold of Plaridel' s latest
financial statements, moved to recall and set aside the approval
of the attachment bond on the ground that Plaridel had no
capacity to underwrite the bond pursuant to Section 215 of the
old Insurance Code because its net worth was only
P214,820,566.00 and could therefore only underwrite up to
P42,964,113.20. But the RTC denied MSAPL's motion, finding
that although Plaridel cannot underwrite the bond by itself, the
amount covered by the attachment bond "was likewise re-insured
to sixteen other insurance companies." However, "for the best
interest of both parties," the RTC ordered Plaridel to submit proof
that the amount of ₱95,8 l 9,770.91 was reinsured. Plaridel
submitted its compliance attaching therein the reinsurance
contracts.
Issue: Whether or not the RTC committed grave abuse of
discretion when it approved the attachment bond whose face
amount exceeded the retention limit of the surety. NO.
Held: Section 215 of the old Insurance Code, the law in force at
the time Plaridel issued the attachment bond, limits the amount of
risk that insurance companies can retain to a maximum of 20% of
its net worth. However, in computing the retention limit, risks that
have been ceded to authorized reinsurers are ipso
jure deducted.48 In mathematical terms, the amount of retained
risk is computed by deducting ceded/reinsured risk from insurable
risk.49 If the resulting amount is below 20% of the insurer's net
worth, then the retention limit is not breached. In this case, both
the RTC and CA determined that, based on Plaridel's financial
statement that was attached to its certificate of authority issued
by the Insurance Commission, its net worth is
₱289,332,999.00. Plaridel's retention limit is therefore
₱57,866,599.80, which is below the ₱113,197,309.10 face value
of the attachment bond. However, it only retained an insurable
risk of ₱l7,377,938.19 because the remaining amount of
₱98,819,770.91 was ceded to 16 other insurance
companies. Thus, the risk retained by Plaridel is actually ₱40
Million below its maximum retention limit. Therefore, the approval
of the attachment bond by the RTC was in order. Contrary to
MSAPL's contention that the RTC acted with grave abuse of
discretion, we find that the RTC not only correctly applied the law
but also acted judiciously when it required Plaridel to submit proof
of its reinsurance contracts after MSAPL questioned Plaridel's
capacity to underwrite the attachment bond. Apparently, MSAPL
failed to appreciate that by dividing the risk through reinsurance,
Plaridel's attachment bond actually became more reliable-as it is
no longer dependent on the financial stability of one company-
and, therefore, more beneficial to MSAPL.
By its nature, reinsurance contracts are issued in favor of the
direct insurer because the subject of such contracts is the direct
insurer's risk-in this case, Plaridel's contingent liability to MSAPL-
and not the risk assumed under the original policy. The
requirement under Section 4, Rule 57 of the Rules of Court that
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the applicant's bond be executed to the adverse party necessarily
pertains only to the attachment bond itself and not to any
underlying reinsurance contract. With or without reinsurance, the
obligation of the surety to the party against whom the writ of
attachment is issued remains the same.
CASE #4
G.R. No. 190702 February 27, 2017
JAIME T. GAISANO, Petitioner vs. DEVELOPMENT
INSURANCE AND SURETY CORPORATION, Respondent
DOCTRINE: In UCPB General Insurance Co., Inc., we
summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision
applies, as expressly provided by Section 77 itself; (2) where
the insurer acknowledged in the policy or contract of
insurance itself the receipt of premium, even if premium has
not been actually paid, as expressly provided by Section 78
itself; (3) where the parties agreed that premium payment
shall be in installments and partial payment has been made
at the time of loss, as held in Makati Tuscany Condominium
Corp. v. Court of Appeals;(4) where the insurer granted the
insured a credit term for the payment of the premium, and
loss occurs before the expiration of the term, as held
in Makati Tuscany Condominium Corp.; and (5) where the
insurer is in estoppel as when it has consistently granted a
60 to 90-day credit term for the payment of premiums.
FACTS: Gaisano was the registered owner of a 1992 Mitsubishi
Montero with plate number GTJ-777 (vehicle), while respondent
is a domestic corporation engaged in the insurance business. On
September 27, 1996, respondent issued a comprehensive
commercial vehicle policy to petitioner in the amount of
₱1,500,000.00 over the vehicle for a period of one year
commencing on September 27, 1996 up to September 27, 1997.
To collect the premiums and other charges on the policies,
respondent's agent, Trans-Pacific Underwriters Agency (Trans-
Pacific), issued a statement of account to petitioner's company,
Noah's Ark Merchandising (Noah's Ark). Noah's Ark immediately
processed the payments and issued a Far East Bank check
dated September 27, 1996 payable to Trans-Pacific on the same
day. However, nobody from Trans-Pacific picked up the check
that day (September 27) because its president and general
manager, Rolando Herradura, was celebrating his birthday.
Trans-Pacific informed Noah's Ark that its messenger would get
the check the next day, September 28.
In the evening of September 27, 1996, while under the official
custody of Noah's Ark marketing manager Achilles Pacquing
(Pacquing) as a service company vehicle, the vehicle was stolen
in the vicinity of SM Megamall at Ortigas, Mandaluyong City.
Pacquing reported the loss to the Philippine National Police
Traffic Management Command at Camp Crame in Quezon City.
Efforts to retrieve it proved futile.
Oblivious of the incident, Trans-Pacific picked up the check the
next day, September 28. It issued an official receipt dated
September 28, 1996, acknowledging the receipt of for the
premium and other charges over the vehicle.
On October 1, 1996, Pacquing informed petitioner of the vehicle's
loss. Thereafter, petitioner reported the loss and filed a claim with
respondent for the insurance proceeds of ₱1,500,000.00. After
investigation, respondent denied petitioner's claim on the ground
that there was no insurance contract.

Gaisano filed a complaint for collection of sum of money and
damages with the RTC where it sought . to collect the insurance
proceeds from respondent. Development Insurance asserted that
the non-payment of the premium rendered the policy ineffective.
The RTC ruled in favor of petitioner. The CA reversed such
decision. The CA upheld respondent's position that an insurance
contract becomes valid and binding only after the premium is paid
pursuant to Section 77 of the Insurance Code.
ISSUE: Whether or not there is a binding insurance contract
between the parties
HELD: None. Insurance is a contract whereby one undertakes
for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. Just like any
other contract, it requires a cause or consideration. The
consideration is the premium, which must be paid at the time and
in the way and manner specified in the policy. If not so paid, the
policy will lapse and be forfeited by its own terms.
The law, however, limits the parties' autonomy as to when
payment of premium may be made for the contract to take effect.
The general rule in insurance laws is that unless the premium is
paid, the insurance policy is not valid and binding
There are, of course, exceptions to the rule that no insurance
contract takes effect unless premium is paid.
In UCPB General Insurance Co., Inc., we summarized the
exceptions as follows: (1) in case of life or industrial life policy,
whenever the grace period provision applies, as expressly
provided by Section 77 itself; (2) where the insurer
acknowledged in the policy or contract of insurance itself the
receipt of premium, even if premium has not been actually
paid, as expressly provided by Section 78 itself; (3) where
the parties agreed that premium payment shall be in
installments and partial payment has been made at the time
of loss, as held in Makati Tuscany Condominium Corp. v.
Court of Appeals;(4) where the insurer granted the insured a
credit term for the payment of the premium, and loss occurs
before the expiration of the term, as held in Makati Tuscany
Condominium Corp.; and (5) where the insurer is
in estoppel as when it has consistently granted a 60 to 90-
day credit term for the payment of premiums.
The insurance policy in question does not fall under the first
to third exceptions laid out in UCPB General Insurance Co.,
Inc.: (1) the policy is not a life or industrial life policy; (2) the policy
does not contain an acknowledgment of the receipt of premium
but merely a statement of account on its face; and (3) no
payment of an installment was made at the time of loss on
September 27.
Petitioner argues that his case falls under the fourth and fifth
exceptions because the parties intended the contract of
insurance to be immediately effective upon issuance, despite
non-payment of the premium. This waiver to a pre-payment in full
of the premium places respondent in estoppel.
The fourth and fifth exceptions to Section 77 operate under the
facts obtaining in Makati Tuscany Condominium Corp. and UCPB
General Insurance Co., Inc. Both contemplate situations where
the insurers have consistently granted the insured a credit
extension or term for the payment of the premium. Here,
however, petitioner failed to establish the fact of a grant by
respondent of a credit term in his favor, or that the grant has been
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consistent. While there was mention of a credit agreement
between Trans-Pacific and respondent, such arrangement was
not proven and was internal between agent and principal. Under
the principle of relativity of contracts, contracts bind the parties
who entered into it. It cannot favor or prejudice a third person,
even if he is aware of the contract and has acted with knowledge.
We cannot sustain petitioner's claim that the parties agreed
that the insurance contract is immediately effective upon
issuance despite nonpayment of the premiums. Even if there
is a waiver of pre-payment of premiums, that in itself does
not become an exception to Section 77, unless the insured
clearly gave a credit term or extension. This is the clear
import of the fourth exception in the UCPB General
Insurance Co., Inc.
The policy states that the insured's application for the insurance
is subject to the payment of the premium. There is no waiver of
pre-payment, in full or in installment, of the premiums under the
policy. Consequently, respondent cannot be placed in estoppel.
The consequence of this declaration is that petitioner is entitled to
a return of the premium paid for the vehicle in the amount of
₱55,620.60 under the principle of unjust enrichment.
CASE #5
G.R. No. 185565, April 26, 2017
LOADSTAR SHIPPING COMPANY, INCORPORATED AND
LOADSTAR INTERNATIONAL SHIPPING COMPANY,
INCORPORATED, Petitioners, v. MALAYAN INSURANCE
COMPANY, INCORPORATED, Respondent.
Doctrine: At the pain of being repetitive, the Court reiterates the
principle that actual damages are not presumed. As the Court
discussed in the Decision dated November 26, 2014, Malayan
was not able to prove the pecuniary loss suffered by PASAR for
which the latter was indemnified. This is in line with the principle
that a subrogee steps into the shoes of the insured and can
recover only if the insured likewise could have recovered.
Facts: Loadstar International Shipping, Inc.(Loadstar Shipping)
and Philippine Associated Smelting and Refining Corporation
(PASAR) entered into a Contract of Affreightment for domestic
bulk transport of the latter’s copper concentrate.
On September 10, 2000, 5,065.47 wet metric tons (WMT) of
copper concentrates were loaded in Cargo Hold Nos. 1 and 2 of
MV "Bobcat", a marine vessel owned by Loadstar International
Shipping Co., Inc. (Loadstar International) and operated by
Loadstar Shipping under a charter party agreement. The shipper
and consignee under the Bill of Lading are Philex Mining
Corporation (Philex) and PASAR, respectively. The cargo was
insured with Malayan Insurance Company, Inc. (Malayan). P & I
Association is the third party liability insurer of Loadstar Shipping.
On September 12, while in the vicinity of Cresta de Gallo, the
vessel’s chief officer on routine inspection found a crack on
starboard side of the main deck which caused seawater to enter
and wet the cargo inside Cargo Hold No. 2 forward/aft. When the
vessel arrived at Leyte, PASAR and Philex’s representatives
boarded and inspected the vessel and undertook sampling of the
copper concentrates. The Elite Adjusters and Surveyor, Inc. (Elite
Surveyor) confirmed that samples of copper concentrates were
contaminated by seawater. Consequently, PASAR rejected 750
MT of the 2,300 MT cargo discharged from Cargo Hold No. 2.
Malayan paid PASAR the amount of P 32,351,102.32, the
amount Elite Surveyor recommended payment to the assured.

Meanwhile, on November 24, 2000, Malayan wrote Loadstar
Shipping informing the latter of a prospective buyer for the
damaged copper concentrates and the opportunity to
nominate/refer other salvage buyers to PASAR. On November
29, 2000, Malayan wrote Loadstar Shipping informing the latter of
the acceptance of PASAR’s proposal to take the damaged
copper concentrates at a residual value of US$90,000.00.
PASAR signed a subrogation receipt in favor of Malayan. To
recover the amount paid and in the exercise of its right of
subrogation, Malayan demanded reimbursement from Loadstar
Shipping, which refused to comply. Consequently, on September
19, 2001, Malayan instituted with the RTC a complaint for
damages.
The RTC found that although contaminated by seawater, the
copper concentrates can still be used. The RTC also found that
defendants-appellees were not afforded the opportunity to object
or participate or nominate a participant in the sale of the
contaminated copper concentrates to lessen the damages to be
paid. No record was presented to show that a public bidding was
conducted. Malayan sold the contaminated copper concentrates
to PASAR at a low price then paid PASAR the total value of the
damaged concentrate without deducting anything from the claim.
The CA revered the RTC’s Decision.
However, the Supreme Court ruled reinstating the RTC’s
Decision. It ruled that Malayan, as the insurer of PASAR, neither
stated nor proved that the goods are rendered useless or unfit for
the purpose intended by PASAR due to contamination with
seawater. Hence, there is no basis for the goods’ rejection under
Article 365 of the Code of Commerce. Clearly, it is erroneous for
Malayan to reimburse PASAR as though the latter suffered from
total loss of goods in the absence of proof that PASAR sustained
such kind of loss. Malayan also failed to establish the legal basis
of its decision to sell back the rejected copper concentrates to
PASAR. It cannot be ascertained how and when Malayan
deemed itself asthe owner of the rejected copper concentrates to
have these validly disposed of. If the goods were rejected, it only
means there was no acceptance on the part of PASAR from the
carrier. Furthermore, PASAR and Malayan simply agreed on the
purchase price of US$90,000.00 without any allegation or proof
that the said price was the depreciated value based on the
appraisal of experts as provided under Article 364 of the Code of
Commerce.
Hence this Motion for Reconsideration
Issue: Whether or not there was error for the Supreme Court in
not granting the claim of Malayan against Loadstar?
Held: No.
It is also inequitable to consider the purchase price of
US$90,000.00 as the actual residual value of the copper
concentrates since there is no showing that PASAR and Malayan
objectively arrived at this amount. There is no explanation why
Article 364 of the Code of Commerce which calls for the valuation
of experts was not observed by Malayan and PASAR in fixing the
residual value of the copper concentrates.
The price was derived through the exclusion of the petitioners in
the valuation and sale of the wet copper concentrates, despite
their manifestation of willingness to participate thereto.
At the pain of being repetitive, the Court reiterates the principle
that actual damages are not presumed. As the Court discussed in
the Decision dated November 26, 2014, Malayan was not able to
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prove the pecuniary loss suffered by PASAR for which the latter
was indemnified. This is in line with the principle that a subrogee
steps into the shoes of the insured and can recover only if the
insured likewise could have recovered.
TRANSPORTATION LAW
CASE #6
G.R. No. 213088 June 28, 2017
LAND TRANSPORTATION FRANCHISING AND
REGULATORY BOARD (LTFRB), Petitioner vs. G.V. FLORIDA
TRANSPORT, INC., Respondent
FACTS: In this case, there was a vehicular accident involving a
public utiliy bus which resulted to death and injuries of several
passengers. It appears upon investigation that the plate number
of the said bus actually belongs to a different bus owned and
register under the name of a certain Norberto Que and under his
Certificate of Public Convenience(CPC).Upon further
investigation, it was found out that the said bus was indeed
registered under the name of Dagupan bus, and the previous
owner was Norberto Que. According to Dagupan bus, the owner
of such bus was G.V. Florida, and such registration under its
name is just a preparatory act of old authorized units of Dagupan
Bus, in relation to their agreement which facilitated the
exchangeof its CPC. On his part, Que alleged that his CPC and
bus units were sold to G.V. Florida and that the plate number of
the old bus was used by the latter to the new units. The petitioner
LTFRB on its decision, imposed the penalty of suspension for 6
months, all existing 28 CPC of respondent G.V. Florida.
ISSUE: Whether or not the Land Transportation Franchise and
Regulatory Board has the power to suspend the CPC of the
respondent G.V. Florida.
RULING: YES. The Court ruled that Section 16(n) of
Commonwealth Act. No. 146, otherwise known as the Public
Service Act, provides:
Section 16. Proceedings of the Commission,
upon notice and hearing. - The Commission
shall have power, upon proper notice and
hearing in accordance with the rules and
provisions of this Act, subject to the limitations
and exceptions mentioned and saving
provisions to the contrary:
xxxx
(n) To suspend or revoke any certificate
issued under the provisions of this Act
whenever the holder thereof has violated or
willfully and contumaciously refused to comply
with any order rule or regulation of the
Commission or any provision of this Act:
Provided, That the Commission, for good
cause, may prior to the hearing suspend for a
period not to exceed thirty days any certificate
or the exercise of any right or authority issued
or granted under this Act by order of the
Commission, whenever such step shall in the
judgment of the Commission be necessary to
avoid serious and irreparable damage or
inconvenience to the public or to private
interests.
xxxx
Also, Section 5(b) of E.O. 202 states:

Sec. 5. Powers and Functions of the Land
Transportation Franchising and Regulatory
Board. The Board shall have the following
powers and functions:
Also, Section 5(b) of E.O. 202 states:
Sec. 5. Powers and Functions of the Land
Transportation Franchising and Regulatory
Board. The Board shall have the following
powers and functions:
xxxx
b. To issue, amend, revise, suspend or cancel
Certificates of Public Convenience or permits
authorizing the operation of public land
transportation services provided by motorized
vehicles, and to prescribe the appropriate
terms and conditions therefor;
xxxx
In the present case, respondent is guilty of several
violations of the law, to wit: lack of petitioner's approval of the
sale and transfer of the CPC which respondent bought from Cue;
operating the ill-fated bus under its name when the same is
registered under the name of Dagupan Bus Co., Inc.; attaching a
vehicle license plate to the ill-fated bus when such plate belongs
to a different bus owned by Cue; and operating the subject bus
under the authority of a different CPC. What makes matters
worse is that respondent knowingly and blatantly committed
these violations.
CORPORATION LAW
CASE #7
January 11, 2017 G.R. No. 189158
JAMES IENT and MAHARLIKA SCHULZE, Petitioners,
vs. TULLETT PREBON (PHILIPPINES), INC., Respondent.
x-----------------------x
JAMES IENT and MAHARLIKA SCHULZE, Petitioners,
vs. TULLETT PREBON (PHILIPPINES), INC., Respondent.
DOCTRINE:
The Corporation Code was intended as a regulatory measure, not
primarily as a penal statute. Sections 31 to 34 in particular were
intended to impose exacting standards of fidelity on corporate
officers and directors but without unduly impeding them in the
discharge of their work with concerns of litigation. Considering the
object and policy of the Corporation Code to encourage the use
of the corporate entity as a vehicle for economic growth, the
Court cannot espouse a strict construction of Sections 31 and 34
as penal offenses in relation to Section 144 in the absence of
unambiguous statutory language and legislative intent to that
effect. When Congress intends to criminalize certain acts it does
so in plain, categorical language, otherwise such a statute would
be susceptible to constitutional attack.
Facts:
Tullett Prebon (Philippines), Inc. and the Tradition Group are
groups of Inter-dealer Brokers (IDB) in the world, the former
being the second largest while the latter is the third. Tullett was
the first to establish a business presence in the Philippines and
had been engaged in the interdealer broking business or voice
brokerage here since 1995. Sometime in August 2008, in line
with Tradition Group’s motive of expansion and diversification in
Asia, petitioners Ient and Schulze were tasked with the
establishment of a Philippine subsidiary of Tradition Asia to be
known as Tradition Financial Services Philippines, Inc. (Tradition
Philippines). Tradition Philippines was registered with the
Securities and Exchange Commission (SEC) with petitioners Ient
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and Schulze, among others, named as incorporators and
directors in its Articles of Incorporation. In October 2008, Tullett,
through one of its directors, Gordon Buchan, filed a Complaint-
Affidavit with the City Prosecution Office of Makati City against
the officers/employees of the Tradition Group for violation of
Sections 31 and 34 in relation to Sec 144 of the Corporation
Code. Impleaded as respondents in the Complaint-Affidavit were
petitioners Ient and Schulze, Jaime Villalon (Villalon), who was
formerly President and Managing Director of Tullett, Mercedes
Chuidian (Chuidian), who was formerly a member of Tullett’s
Board of Directors, and other John and Jane Does. Villalon and
Chuidian were charged with using their former positions in Tullett
to sabotage said company by orchestrating the mass resignation
of its entire brokering staff in order for them to join Tradition
Philippines. With respect to Villalon, Tullett claimed that the
former held several meetings between August 22 to 25, 2008 with
members of Tullett’s Spot Desk and brokering staff in order to
convince them to leave the company.
The Acting Prosecutor dismissed the complaints ruling that the
acts of the petitioners do not fall under Sections 31 and 34 and
Section 144 does not apply to violations of the said sections
because a reading of Sections 31 and 34 shows that penalties for
violations thereof are already provided therein.
Tullett filed a petition for review with the Secretary of Justice. The
then Secretary of Justice Raul M. Gonzalez reversed and set
aside Prosecutor Delos Trinos’ resolution and directed the latter
to file the information for violation of Sections 31 and 34 in
relation to Section 144. Ient and Schulze moved for
reconsideration. Meanwhile, two Informations, one for violation of
Section 31 and another for violation of Section 34, were filed; and
the motion for reconsideration was also denied. The petitioners
went to the Court of Appeals via a petition for certiorari under
Rule 65. The CA affirmed the Secretary of Justice’s Resolution.
Hence, this petition. Petitioners posit that Section 144 only
applies to the provisions of the Corporation Code or its
amendments “not otherwise specifically penalized” by said statute
and should not cover Sections 31 and 34 which both prescribe
the “penalties” for their violation; namely, damages, accounting
and restitution of profits. On the other hand, respondent and the
appellate court have taken the position that the term “penalized”
under Section 144 should be interpreted as referring to criminal
penalty, such as fine or imprisonment, and that it could not
possibly contemplate “civil” penalties such as damages,
accounting or restitution.
Issue:
Whether or not the criminal liability imposed by Section 144
attaches to violations of Sections 31 and 34 of the Corporation
Code?
Held:
No. As Section 144 speaks, among others, of the imposition of
criminal penalties, the Court is guided by the elementary rules of
statutory construction of penal provisions. First, in all criminal
prosecutions, the existence of criminal liability for which the
accused is made answerable must be clear and certain. Penal
statutes are construed strictly against the State and liberally in
favor of the accused. When there is doubt on the interpretation of
criminal laws, all must be resolved in favor of the accused.
Intimately related to the in dubio pro reo principle is the rule of
lenity. The rule applies when the court is faced with two possible
interpretations of a penal statute, one that is prejudicial to the
accused and another that is favorable to him. The rule calls for
the adoption of an interpretation which is more lenient to the
accused. There is textual ambiguity in Section 144; moreover,

such ambiguity remains even after an examination of its
legislative history and the use of other aids to statutory
construction, necessitating the application of the rule of lenity in
the case at bar.
Moreover, the Corporation Code was intended as a regulatory
measure, not primarily as a penal statute. Sections 31 to 34 in
particular were intended to impose exacting standards of fidelity
on corporate officers and directors but without unduly impeding
them in the discharge of their work with concerns of litigation.
Considering the object and policy of the Corporation Code to
encourage the use of the corporate entity as a vehicle for
economic growth, the Court cannot espouse a strict construction
of Sections 31 and 34 as penal offenses in relation to Section 144
in the absence of unambiguous statutory language and legislative
intent to that effect.
CASE #8
WESLEYAN UNIVERSITY-PHILIPPINES vs.
GUILLERMO T. MAGLAYA, SR.
G.R. No. 212774 January 23, 2017
FACTS:
WUP is a non-stock, non-profit, non-sectarian educational
corporation duly organized and existing under the Philippine laws.
Respondent Atty. Guillermo T. Maglaya, Sr. was appointed as a
corporate member and was elected as a member of the Board of
Trustees, both for a period of five (5) years. He was elected as
President of the University for a five-year term. He was re-elected
as a trustee.
In a Memorandum, the incumbent Bishops of the United
Methodist Church apprised all the corporate members of the
expiration of their terms on December 31, 2008, unless renewed
by the former. The Bishops, through a formal notice to all the
officers, deans, staff, and employees of WUP, introduced the new
corporate members, trustees, and officers. Manuel Palomo, the
new Chairman of the Board, informed Maglaya of the termination
of his services and authority as the President of the University.
Thereafter, Maglaya and other former members of the Board filed
a Complaint for Injunction and Damages before the Regional Trial
Court of Cabanatuan City.The RTC dismissed the case declaring
the same as a nuisance or harassment suit prohibited under
Section l(b), Rule 1 of the Interim Rules for Intra-Corporate
Controversies. The RTC observed that it is clear from the by-laws
of WUP that insofar as membership in the corporation is
concerned, which can only be given by the College of Bishops of
the United Methodist Church, it is a precondition to a seat in the
WUP Board. Consequently, the expiration of the terms of the
plaintiffs, including Maglaya, as corporate members carried with it
their termination as members of the Board.
The CA affirmed the decision of the RTC, and dismissed the
petition for certiorari filed by the plaintiffs for being the improper
remedy.
Thereafter, Maglaya filed the present illegal dismissal case
against WUP, Palomo, Bishop Lito C. Tangonan and Bishop Leo
A. Soriano. He claimed that he was unceremoniously dismissed
in a wanton, reckless, oppressive and malevolent manner. The
Labor Arbiter ruled in favor of WUP. The LA held that the action
between employers and employees where the employer-
employee relationship is merely incidental is within the exclusive
and original jurisdiction of the regular courts.
The NLRC reversed and set aside the Decision of the LA ruling
that the illegal dismissal case falls within the jurisdiction of the
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labor tribunals. Since the reasons for his termination cited by
WUP were not among the just causes provided under Article 282
(now Article 297) of the Labor Code, Maglaya was illegally
dismissed.
The CA noted that the decision and resolution of the NLRC
became final and executor.
ISSUE:
Whether or not the CA erred when it summarily dismissed the
special civil action for certiorari raising lack of jurisdiction of the
NLRC filed by WUP on the ground that the NLRC had no
jurisdiction over the case involving a corporate officer and where
the nature of the controversy is an intra-corporate dispute?
RULING:
YES. "Corporate officers" in the context of Presidential Decree
No. 902- A are those officers of the corporation who are given
that character by the Corporation Code or by the corporation's by-
laws. There are three specific officers whom a corporation must
have under Section 25 of the Corporation Code. These are the
president, secretary and the treasurer. The number of officers is
not limited to these three. A corporation may have such other
officers as may be provided for by its by-laws like, but not limited
to, the vice-president, cashier, auditor or general manager. The
number of corporate officers is thus limited by law and by the
corporation's by-laws.
The president, vice-president, secretary and treasurer are
commonly regarded as the principal or executive officers of a
corporation, and they are usually designated as the officers of the
corporation. However, other officers are sometimes created by
the charter or by-laws of a corporation, or the board of directors
may be empowered under the by-laws of a corporation to create
additional offices as may be necessary.
The alleged "appointment" of Maglaya instead of "election" as
provided by the by-laws neither convert the president of university
as a mere employee, nor amend its nature as a corporate officer.
With the office specifically mentioned in the by-laws, the NLRC
erred in taking cognizance of the case, and in concluding that
Maglaya was a mere employee and subordinate official because
of the manner of his appointment, his duties and responsibilities,
salaries and allowances, and considering the Identification Card,
the Administration and Personnel Policy Manual which specified
the retirement of the university president, and the check
disbursement as pieces of evidence supporting such finding.
A corporate officer's dismissal is always a corporate act, or an
intra-corporate controversy which arises between a stockholder
and a corporation, and the nature is not altered by the reason or
wisdom with which the Board of Directors may have in taking
such action. To emphasize, the determination of the rights of a
corporate officer dismissed from his employment, as well as the
corresponding liability of a corporation, if any, is an intra-
corporate dispute subject to the jurisdiction of the regular courts.
In sum, this Court finds that the NLRC erred in assuming
jurisdiction over, and thereafter in failing to dismiss, Maglaya's
complaint for illegal dismissal against WUP, since the subject
matter of the instant case is an intra-corporate controversy which
the NLRC has no jurisdiction.
CASE #9
January 25, 2017 G.R. No. 206038
MARY E. LIM, represented by her Attorney-in-fact,
REYNALDO V. LIM, Petitioner, vs.MOLDEX LAND, INC., 1322
ROXAS BOULEVARD CONDOMINIUM CORPORATION, and

JEFFREY JAMINOLA, EDGARDO MACALINTAL, JOJI
MILANES, and CLOTHILDA ANNE ROMAN, in their capacity
as purported MENDOZA, and LEONEN,JJ. members of the
Board of Directors of 1322 Golden Empire Corporation,,
Respondents.
FACTS: Lim is a registered unit owner of 1322 Golden Empire
Tower, a condominium project of Moldex Land, Inc. (Moldex), a
real estate company engaged in the construction and
development of high-end condominium projects and in the
marketing and sale of the units thereof to the general public.
Condocor, a non-stock, non-profit corporation, is the registered
condominium corporation for the Golden Empire Tower. Lim, as a
unit owner of Golden Empire Tower, is a member of Condocor.
Lim claimed that the individual respondents are non-unit
buyers, but all are members of the Board of Directors of
Condocor, having been elected during its organizational meeting
in 2008. They were again elected during the July 21, 2012
general membership meeting. Moldex became a member of
Condocor on the basis of its ownership of the 220 unsold units in
the Golden Empire Tower. The individual respondents acted: as
its representatives.
On July 21, 2012, Condocor held its annual general membership
meeting. Its corporate secretary certified, and Jaminola, as
Chairman, declared the existence of a quorum even though only
29 of the 108 unit buyers were present. The declaration of
quorum was based on the presence of the majority of the voting
rights, including those pertaining to the 220 unsold units held by
Moldex through its representatives. Lim, through her attorney-in-
fact, objected to the validity of the meeting. The objection was
denied. Thus, Lim and all the other unit owners present, except
for one, walked out and left the meeting.
Despite the walkout, the individual respondents and the other unit
owner proceeded with meeting. All 4 individual respondents were
voted as members of the board, together with 3 others whose
election was conditioned on their subsequent
confirmation.9 Thereafter, the newly elected members of the
board conducted an organizational meeting and proceeded with
the election of its officers.
Consequently, Lim filed an election protest before the RTC. Said
court, however, dismissed the complaint. It explained that the
presence or absence of a quorum in the subject meeting was
determined on the basis of the voting rights of all the units owned
by the members in good standing. The total voting rights of unit
owners in good standing was 73,376 and, as certified by the
corporate secretary, 83.33% of the voting rights in good standing
were present in the said meeting, inclusive of the 58,504 voting
rights of Moldex.
ISSUES (5 ISSUES)
Issue1 : Whether or not Lim is a member of Condoco? YES.
Respondents argued that Lim had no cause of action to file the
subject action because she was no longer the owner of a
condominium unit by virtue of a Deed of Assignment19 she
executed in favor of Reynaldo Valera Lim and Dianna Mendoza
Lim, her nephew and niece.
Section 90 of the Corporation Code states that membership in a
non-stock corporation and all rights arising therefrom are
personal and non-transferable, unless the articles of incorporation
or the by-laws otherwise provide. A perusal of Condocor's By-
Laws as regards membership and transfer of rights or ownership
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over the unit reveal that: Membership in the CORPORATION is a
mere appurtenance of the ownership of any unit in the
CONDOMINIUM and may not therefore be sold, transferred or
otherwise encumbered separately from the said unit. Any
member who sells or transfer his/her/its unit/s in the
CONDOMINIUM shall automatically cease to be a member of
the CORPORATION, the membership being automatically
assumed by the buyer or transferee upon registration of the
sale or transfer and ownership of the latter over the unit with
the Register of Deeds for the City of Manila.20 [Emphasis
supplied.]
Likewise, the Master Deed of Condocor provides: Section 11 :
MORTGAGES, LIENS, LEASES, TRANSFERS OF RIGHTS AND
SALE OF UNITS: All transactions involving the transfer of the
ownership or occupancy of any UNIT, such as sale, transfer of
rights or leases, as well as encumbrances involving said UNIT,
such as mortgages, liens and the like, shall be reported to the
CORPORATION within five (5) days after the effectivity of
said transactions.21
Nothing in the records showed that the alleged transfer made by
Lim was registered with the Register of Deeds of the City of
Manila or was reported to the corporation. Logically, until and
unless the registration is effected, Lim remains to be the
registered owner of the condominium unit and thus, continues to
be a member of Condocor.
(MAIN ISSUE) Issue 2: whether the July 21, 2012 membership
meeting was valid? No
Section 52 of the Corporation Code of the
Philippines (Corporation Code) provides: Section 52. Quorum in
meetings. - Unless otherwise provided for in this Code or in the
by-laws, a quorum shall consist of the stockholders representing
a majority of the outstanding capital stock or a majority of the
members in the case of non-stock corporations.
Thus, for stock corporations, the quorum is based on the number
of outstanding voting stocks while for non-stock corporations,
only those who are actual, living members with voting rights shall
be counted in determining the existence of a quorum. 31
Similarly, Section 6 of Condocor's By-Laws reads: "The
attendance of a simple majority of the members who are in good
standing shall constitute a quorum ... x x x." The phrase,
"members in good standing," is a mere qualification as to which
members will be counted for purposes of quorum. As can be
gleaned from Condocor's By-Laws, there are two (2) kinds of
members: 1) members in good standing; and 2) delinquent
members. Section 6 merely stresses that delinquent members
are not to be taken into consideration in determining quorum. In
relation thereto, Section 733 of the By-Laws, referring to voting
rights, also qualified that only those members in good standing
are entitled to vote. Delinquent members are stripped off their
right to vote. Clearly, contrary to the ruling of the RTC, Sections 6
and 7 of Condocor's By-Laws do not provide that majority of the
total voting rights, without qualification, will constitute a quorum.
It must be emphasized that insofar as Condocor is concerned,
quorum is different from voting rights. Applying the law and
Condocor's By-Laws, if there are 100 members in a non-stock
corporation, 60 of which are members in good standing, then the
presence of 50% plus 1 of those members in good standing will
constitute a quorum. Thus, 31 members in good standing will
suffice in order to consider a meeting valid as regards the
presence of quorum. The 31 members will naturally have to

exercise their voting rights. It is in this instance when the number
of voting rights each member is entitled to becomes significant. If
29 out of the 31 members are entitled to 1 vote each, another
member (known as A) is entitled to 20 votes and the remaining
member (known as B) is entitled to 15 votes, then the total
number of voting rights of all 31 members is 64. Thus, majority of
the 64 total voting rights, which is 33 (50% plus 1), is necessary
to pass a valid act. Assuming that only A and B concurred in
approving a specific undertaking, then their 35 combined votes
are more than sufficient to authorize such act.
The By-Laws of Condocor has no rule different from that provided
in the Corporation Code with respect the determination of the
existence of a quorum. The quorum during the July 21, 2012
meeting should have been majority of Condocor's members in
good standing. Accordingly, there was no quorum during the July
21, 2012 meeting considering that only 29 of the 108 unit buyers
were present. As there was no quorum, any resolution passed
during the July 21, 2012 annual membership meeting was null
and void and, therefore, not binding upon the corporation or its
members. The meeting being null and void, the resolution and
disposition of other legal issues emanating from the null and void
July 21, 2012 membership meeting has been rendered
unnecessary.
To serve as a guide for the bench and the bar, however, the
Court opts to discuss and resolve the same.
Issue 3: whether Moldex can be deemed a member of
Condocor?
YES Lim further averred that the ownership contemplated by law
must result from a sale transaction between the owner-developer
and the purchaser. She advanced the view that the ownership of
Moldex was only in the nature of an owner-developer and only for
the sole purpose of selling the units.
There is no provision in P.D. No. 957 which states that an owner-
developer of a condominium project cannot be a member of a
condominium corporation. Section 30 of P.D. No. 957 determines
the purposes of a homeowners association - to promote and
protect the mutual interest of the buyers and residents, and to
assist in their community development. A condominium
corporation, however, is not just a management body of the
condominium project. It also holds title to the common areas,
including the land, or the appurtenant interests in such areas.
Section 2 of the Condominium Act states: Sec. 2. A condominium
is an interest in real property consisting of separate interest in a
unit in a residential, industrial or commercial building and an
undivided interest in common, directly or indirectly, in the land on
which it is located and in other common areas of the building. A
condominium may include, in addition, a separate interest in
other portions of such real property. Title to the common areas,
including the land, or the appurtenant interests in such
areas, may be held by a corporation specially formed for the
purpose (hereinafter known as the "condominium
corporation") in which the holders of separate interest shall
automatically be members or shareholders, to the exclusion
of others, in proportion to the appurtenant interest of their
respective units in the common areas. [Emphasis supplied]
In Sunset View,43the Court elucidated on what constitutes
"separate interest," in relation to membership, as mentioned in
the Condominium Act, to wit: By necessary implication, the
"separate interest" in a condominium, which entitles the
holder to become automatically a shareholder in the
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condominium corporation, as provided in Section 2 of the
Condominium Act, can be no other than ownership of a
unit. This is so because nobody can be a shareholder unless he
is the owner of a unit and when he ceases to be the owner, he
also ceases automatically to be a shareholder. 44 [Emphasis
supplied.]
Thus, law and jurisprudence dictate that ownership of a
unit entitles one to become a member of a condominium
corporation.1âwphi1 The Condominium Act does not provide a
specific mode of acquiring ownership. Thus, whether one
becomes an owner of a condominium unit by virtue of sale or
donation is of no moment.
It is erroneous to argue that the ownership must result from a
sale transaction between the owner-developer and the purchaser.
Such interpretation would mean that persons who inherited a unit,
or have been donated one, and properly transferred title in their
names cannot become members of a condominium corporation.
Issue 4: Whether Moldez may appoint duly authorized
representatives who will exercise its membership rights,
specifically the right to be voted as corporate
directors/officers? YES Moldex may appoint a duly authorized
representative
A corporation can act only through natural persons duly
authorized for the purpose or by a specific act of its board of
directors.45 Thus, in order for Moldex to exercise its membership
rights and privileges, it necessarily has to appoint its
representatives.
Section 58 of the Corporation Code mandates: Section
58. Proxies. - Stockholders and members may vote in person
or by proxy in all meetings of stockholders
or members. Proxies shall in writing, signed by the stockholder
or member and filed before the scheduled meeting with the
corporate secretary. Unless otherwise provided in the proxy, it
shall be valid only for the meeting for which it is intended. No
proxy shall be valid and effective for a period longer than five (5)
years at any one time. [Emphasis supplied]
Relative to the above provision is Section 1, Article II of
Condocor's By-Laws, 46 which grants registered owners the right
to designate any person or entity to represent them in Condocor,
subject to the submission of a written notification to the Secretary
of such designation. Further, the owner's representative is
entitled to enjoy and avail himself of all the rights and privileges,
and perform all the duties and responsibilities of a member of the
corporation. The law and Condocor's By-Laws evidently allow
proxies in members' meeting.
Prescinding therefrom, Moldex had the right to send duly
authorized representatives to represent it during the questioned
general membership meeting- the individual respondents were
instituted as Moldex's representatives.
Issue 5: Whether or not Moldex representatives (individual
respondents) may be elected as directors of Condocor? NO
Individual respondents who are non-members cannot be elected
as directors and officers of the condominium corporation
Section 23. The Board of Directors or Trustees. - Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be

elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall
hold office for one (1) year until their successors are elected and
qualified.
Every director must own at least one (1) share of the capital stock
of the corporation of which he is a director, which share shall
stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a director shall
thereby cease to be a director. Trustees of non-stock
corporations must be members thereof.A majority of the
directors or trustees of all corporations organized under this Code
must be residents of the Philippines. [Emphases supplied]
This rule was reiterated in Section 92 of the Corporation Code,
which states: Section 92. Election and term of trustees. – x x x No
person shall be elected as trustee unless he is a member of the
corporation. x x x
While Moldex may rightfully designate proxies or representatives,
the latter, however, cannot be elected as directors or trustees of
Condocor. First, the Corporation Code clearly provides that a
director or trustee must be a member of record of the
corporation. Further, the power of the proxy is merely to vote. If
said proxy is not a member in his own right, he cannot be elected
as a director or proxy.
Respondents cannot rely on the Securities and Exchange
Commission (SEC) Opinions they cited to justify the individual
respondents' election as directors. In Heirs of Gamboa
v. Teves,49 the Court En Banc held that opinions issued by SEC
legal officers do not have the force and effect of SEC rules and
regulations because only the SEC en banc can adopt rules and
regulations.
Following Section 25 of the Corporation Code, the election of
individual respondents, as corporate officers, was likewise invalid.
 Section 25 of the Corporation Code mandates that the
President shall be a director. As previously discussed,
Jaminola could not be elected as a director.
Consequently, Jaminola's election as President was null
and void.
 The same provision allows the election of such other
officers as may be provided for in the by-laws.
Condocor's By-Laws, however, require that the Vice-
President shall be elected by the Board from among its
member-directors in good standing, and the Secretary
may be appointed by the Board under the same
circumstance. Like Jaminola, Milanes and Macalintal
were not directors and, thus, could not be elected and
appointed as Vice-President and Secretary,
respectively.
 Insofar as Roman's election as Treasurer is concerned,
the same would have been valid, as a corporate
treasurer may or may not be a director of the
corporation's board. The general membership meeting
of Condocor, however, was null and void. As a
consequence, Roman's election had no legal force and
effect.
 In fine, the July 21, 2012 annual general membership
meeting of Condocor being null and void, all acts and
resolutions emanating therefrom are likewise null and
void.
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CASE #10
G.R. No. 184317, January 25, 2017
METROPOLITAN BANK AND TRUST
COMPANY, Petitioner, v. LIBERTY CORRUGATED BOXES
MANUFACTURING CORPORATION, Respondent.
DOCTRINE: A corporation with debts that have already matured
may still file a petition for rehabilitation under the Interim Rules of
Procedure on Corporation Rehabilitation.
FACTS: Respondent Liberty is a domestic corporation that
produces corrugated packaging boxes. It obtained various credit
accommodations and loan facilities from petitioner Metrobank. To
secure its loans, Liberty mortgaged to Metrobank 12 lots in
Valenzuela City. Liberty defaulted on the loans. Liberty filed a
petition before the RTC a corporate rehabilitation because it
claimed that it could not meet its obligations to Metrobank
because of the Asian Financial Crisis, which resulted to a drastic
decline in demand for its goods, and the serious illness of its
founder, Ki Kiao Koc. RTC, finding its petition sufficient issued a
stay order. Metrobank then filed its comment arguing that Liberty
was not qualified for corporate rehabilitation and that such were
defective and not feasible, and that it claimed that such was filed
in order to avoid its obligation with the bank.
The RTC gave due course to the petition and it referred the
rehabilitation plan to the rehabilitation receiver which
recommended the approval of the plan of Liberty provided that
the latter would initiate the construction on the property within 12
months from approval. RTC approved the rehabilitation plan and
found that Liberty was capable of being rehabilitated. Metrobank
appealed to the CA but the CA affirmed the decision of the RTC
stating that debtor corporation could still avail of the remedy of
rehabilitation under the Interim Rules of Procedure on Corporate
Rehabilitation even if they were in default. The CA stressed that
the purpose of the rehabilitation proceedings is to enable the
distressed company to gain a new lease in life and to allow the
creditors to be paid their claims.
Petitioner claims that the phrase under the Interim Rules, which
states “who foresees the impossibility of meeting its debts when
they respectively fall due" must be construed plainly to mean that
an element of foresight is required. Because foresight is required,
the debts of the corporation should not have matured.
ISSUES:
(1) WON respondent, as debtor in default, is qualified to file a
petition for rehabilitation under PD 902-A and Rule 4, Sec. 1 of
the Interim Rules
(2) WON respondent’s petition is sufficient in form and substance
and respondent’s rehabilitation is feasible
HELD:
(1) YES. To adopt petitioner's interpretation would undermine the
purpose of the Interim Rules. There is no reason why
corporations with debts that may have already matured should
not be given the opportunity to recover and pay their debtors in
an orderly fashion. The opportunity to rehabilitate the affairs of an
economic entity, regardless of the status of its debts, redounds to
the benefit of its creditors, owners, and to the economy in
general. Rehabilitation, rather than collection of debts from a
company already near bankruptcy, is a better use of judicial
rewards. Thus, the condition that triggers rehabilitation
proceedings is not the maturation of a corporation's debts but the
inability of the debtor to pay these.

Where the law does not distinguish, neither should this
Court. Because the definition under the Interim Rules is
encompassing, there should be no distinction whether a claim
has matured or otherwise. Rule 4, Section 1 of the Interim Rules
does not specify what kind of debtor may seek rehabilitation. In
this case, the phrase "any debtor who foresees the impossibility
of meeting its debts when they respectively fall due" in Rule 4,
Section 1 of the Interim Rules need not refer to a specific period
or point in time when the debts mature. It may refer to the debtor
corporation's general realization that it will not be able to fulfill its
obligations— a realization that may come before default.
Construing the phrase "when they respectively fall due" to mean
that the debtor must already be in default defeats the clear
purpose of the lawmakers. It unjustly limits rehabilitation to
corporations with matured obligations.
(2) YES. Both the Court of Appeals and the Regional Trial Court
found that the Rehabilitation Receiver carefully considered the
feasibility of the rehabilitation plan, and that no serious objection
and counter proposal were presented by petitioner. Both the
Court of Appeals and the Regional Trial Court found the
Rehabilitation Receiver's assurance that the cashflow from
respondent's committed sources to be sufficient.
Based on his assessment, the Rehabilitation Receiver noted that
the funds required to finance the first year of the rehabilitation
plan would be much less than that the amount stated in the
Petition. Respondent put forth in detail its financial commitments.
Respondent, as a debtor corporation, may file for rehabilitation
despite having defaulted on its obligations to petitioner. As its
Petition for rehabilitation was sufficient and its rehabilitation plan
was feasible, respondent's rehabilitation should proceed.
CASE #11
G.R. No. 206617, January 30, 2017
PHILIPPINE NUMISMATIC AND ANTIQUARIAN
SOCIETY, Petitioner, v. GENESIS AQUINO, ANGELO
BERNARDO, JR., EDUARDO M. CHUA, FERNANDO
FRANCISCO, JR., FERMIN S. CARINO, PERCIVAL M.
MANUEL, FERNANDO M. GAITE, JR., JOSE CHOA, TOMAS
DE GUZMAN, JR., LI VI JU, CATALINO M. SILANGIL,
RAMUNDO SANTOS, PETER SY, AND WILSON
YULOQUE,Respondents.
DOCTRINE: Section 23, in relation to Sec. 25 of the Corporation
Code, clearly enunciates that all corporate powers are exercised,
all business conducted, and all properties controlled by the board
of directors. A corporation has a separate and distinct personality
from its directors and officers and can only exercise its corporate
powers through the board of directors. Thus, it is clear that an
individual corporate officer cannot solely exercise any corporate
power pertaining to the corporation without authority from the
board of directors. Absent the said board resolution, a petition
may not be given due course. The application of the rules must
be the general rule, and the suspension or even mere relaxation
of its application, is the exception. This Court may go beyond the
strict application of the rules only on exceptional cases when
there is truly substantial compliance with the rule.
FACTS: Petitioner Philippine Numismatic and Antiquarian
Society, Inc. (PNAS) is a non-stock, non-profit domestic
corporation duly organized in accordance with Philippine Laws.
Petitioner filed a complaint with the RTC, Branch 24, Manila
praying for the issuance of a writ of a preliminary injunction
against respondent Angelo Bernardo, Jr. The complaint was
verified by respondents Eduardo M. Chua, Catalino M. Silangil
and Percival M. Manuel who claimed to be the attorneys-in-fact of
petitioner as per Secretary's Certificate attached to the complaint.
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Petitioner was represented by Atty. Faustino S. Tugade as
counsel. On December 22, 2009, another complaint was filed by
petitioner against respondents Genesis Aquino, Angelo Bernardo,
Jr., Eduardo M. Chua, Fernando Francisco, Jr., Fermin S. Carino,
Percival M. Manuel, Fernando M. Gaite, Jr., Jose Choa, Tomas
De Guzman, Jr., Li Vi Ju, Catalino M. Silangil, Raymundo Santos,
Peter Sy, and Wilson Yuloque docketed as Civil Case No. 09-
122709 praying that the Membership Meeting conducted by
defendants on November 25, 2008 be declared null and void. It
is, likewise prayed that a temporary restraining order or a writ of
preliminary injunction be issued for the defendants to desist from
acting as the true members, officers and directors of petitioner.
The verification was signed by Atty. William L. Villareal. The
petitioner was represented by Siguion Reyna Montecillo and
Ongsiako Law Office.
On January 26, 2010, considering that there were two different
parties claiming to be the representative of petitioner, the RTC
issued a Joint Order directing the parties to submit within fifteen
(15) days from notice the appropriate pleadings as to who were
the true officers of PNAS and to submit all the documentary
exhibits in support of their respective positions.
Only respondents Eduardo M. Chua, Tomas De Guzman, Jr.,
Catalina M. Silangil, Peter Sy, Fernando Francisco, Jr., and
Percival M. Manuel in Civil Case No. 09-122709 complied with
the aforesaid Joint Order. In their Memorandum, they alleged that
Atty. William F. Villareal who signed the verification in the
complaint was not authorized by the Board of Directors of PNAS
to institute the complaint in behalf of petitioner corporation, and
that his action in filing the complaint is an ultra vires act and was
in violation of Section 23 of the Corporation Code.
On the part of respondents Genesis Aquino, Angelo Bernardo,
Jr., Li Vi Ju, and Raymundo Santos, they filed a Special Entry of
Appearance to Question the Issue of Improper Service of
Summons and Notices and Motion to Defer the Proceedings Until
All the Said Issues Have Been Resolved. Petitioner then filed a
Motion to Declare Defendants in Default and for Judgment.
Subsequently, on March 15, 2010, the RTC issued a Joint Order
dismissing the complaint, The failure of plaintiff represented by
Atty. William F. Villareal who alleged in the complaint that he is
the President of Philippine Numismatic and Antiquarian Society,
Inc. and its duly-authorized representative to file the appropriate
pleadings and submit documentary exhibits relative to his
authority to file the instant complaint for and in behalf of plaintiff
Philippine Numismatic and Antiquarian Society, Inc. as mandated
by the order of this Court during the hearing on January 26, 2010
lends credence to the assertion of defendants that he has no
authority to represent plaintiff and to file the complaint in Civil
Case No. 09- 122709. Consequently, the court has no other
recourse but to order the dismissal of Civil Case No. 09-122709.
Such decision was also affirmed by the CA, hence, this case.
ISSUE: Whether the Court of Appeals erred in dismissing the
case when it refused to consider, contrary to established
jurisprudence, a board resolution/secretary's certificate as proof
of authority to file initiatory pleadings for and on a company's
behalf.
HELD: NO.
Section 23, in relation to Sec. 25 of the Corporation Code, clearly
enunciates that all corporate powers are exercised, all business
conducted, and all properties controlled by the board of directors.
A corporation has a separate and distinct personality from its
directors and officers and can only exercise its corporate powers
through the board of directors. Thus, it is clear that an individual

corporate officer cannot solely exercise any corporate power
pertaining to the corporation without authority from the board of
directors. Absent the said board resolution, a petition may not be
given due course. The application of the rules must be the
general rule, and the suspension or even mere relaxation of its
application, is the exception. This Court may go beyond the strict
application of the rules only on exceptional cases when there is
truly substantial compliance with the rule.
Hence, since petitioner is a corporation, the certification attached
to its complaint filed with the RTC must be executed by an officer
or member of the board of directors or by one who is duly
authorized by a resolution of the board of directors; otherwise, the
complaint will have to be dismissed. Courts are not, after all,
expected to take judicial notice of corporate board resolutions or
a corporate officers' authority to represent a
corporation. Petitioner's failure to submit proof that Atty. William
L. Villareal has been authorized by PNAS to file the complaint is a
sufficient ground for the dismissal thereof.
CASE #12
G.R. No. 193068, February 01, 2017
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. STA.
INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO
CUENCA, MANUEL TINIO, CUENCA INVESTMENT
CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
G.R. No. 193099, February 1, 2017
NATIONAL DEVELOPMENT CORPORATION, Petitioner, v. STA.
INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO
M. CUENCA, MANUEL I. TINIO, CUENCA INVESTMENT
CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
DOCTRINE: A condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfilment and a debtor loses the
right to make use of the period when a condition is violated,
making the obligation immediately demandable; The general rule
is that, "in the absence of an authority from the board of directors,
no person, not even the officers of the corporation, can validly
bind the corporation." A corporation is a juridical person, separate
and distinct from its stockholders and members, having "powers,
attributes and properties expressly authorized by law or incident
to its existence."
FACTS: Sometime in 1977, National Galleon Shipping
Corporation (Galleon), was organized to operate a liner service
between the Philippine and its trading partners. Galleon’s major
stockholders were respondents. Galleon experienced financial
difficulties and had to take out several loans from different
sources such as foreign financial institutions, its shareholders,
and other entities "with whom it had ongoing commercial
relationships." DBP guaranteed Galleon's foreign loans. In return,
Galleon and its stockholders executed a Deed of Undertaking
and obligated themselves to guarantee DBP's potential liabilities.
To secure DBP's guarantee, Galleon undertook to secure a first
mortgage on its 5 new vessels and 2 second-hand
vessels. However, despite the loans extended to it, "Galleon's
financial condition did not improve."
Cuenca, as Galleon's president, wrote to the members of the
Cabinet Standing Committee "for the consideration of a policy
decision to support a liner service." Cuenca also wrote then
President Ferdinand Marcos and asked for assistance. In 1981,
President Marcos issued Letter of Instructions No. 1155
addressed to the NDC, DBP, and the Maritime Industry Authority.
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Pursuant to the Letter of Instructions, Galleon’s stockholders and
NDC entered into a Memorandum of Agreement where they
undertook to prepare and sign a share purchase agreement
covering 100% of Galleon’s equity. The purchase price was to be
paid after 5 years from the execution of the share purchase
agreement
DBP, acting as Galleon’s guarantor, paid off its debts to its
foreign bank creditor, and pursuant to its deed of undertaking,
Galleon executed a mortgage contract over 7 of its vessels in
favor of DBP.
NDC took over Galleon's operations "even prior to the signing of
a share purchase agreement." However, despite NDC's takeover,
the share purchase agreement was never formally executed.
In 1985, respondents filed a complaint alleging that NDC, "without
paying a single centavo, took over the complete, total, and
absolute ownership, management, control, and operation of
defendant [Galleon] and all its assets, even prior to the formality
of signing a share purchase agreement, which was held in
abeyance because the defendant NDC was verifying and
confirming the amounts paid by plaintiffs to Galleon, and certain
liabilities of Galleon to plaintiffs. They also alleged that NDC tried
to delay 'the formal signing of the share purchase agreement in
order to interrupt the running of the 5-year period to pay the
purchase of the shares and the execution of the negotiable
promissory notes to secure payment. And as to DBP, they
claimed that it can no longer go after them for any deficiency
judgment since NDC had been subrogated in their place as
borrowers, hence the deed of undertaking between them have
been extinguished and novated.
RTC upheld the validity of the Letters of Instructions No. 1155
and the MOA executed by NDC and Galleon’s stockholders. RTC
also held that the NDC was in estopped from claiming that it is
not liable for the payment of Galleon’s shares since it prevented
the execution of the share purchase agreement and had admitted
to being Galleon’s owner and that the liability of DBP under the
deed of undertaking had been extinguished due to novation. The
CA also affirmed the decision of the RTC finding the MOA
between NDC and respondents was a perfected contract which
bound the parties. The CA likewise affirmed the decision of the
RTC that NDC "voluntarily prevented the execution of a share
purchase agreement when it reneged on its various obligations
under the Memorandum of Agreement."
ISSUES:
(1) WON the MOA obligated NDC to purchase Galleon’s shares
of stocks and pay advances made by respondents in Galleon’s
favor
(2) WON the MOA novated the Deed of Undertaking executed
between DBP and respondents
HELD:
(1) YES. Taking the provisions of the Memorandum of Agreement
as a whole, it is clear that while there was an intention to follow
the directives of Letter of Instructions No. 1155, the transfer of
shares from respondents to NDC was to be effected only with the
execution of the share purchase agreement, the terms and
conditions of which were laid out in the Memorandum of
Agreement. The execution of a share purchase agreement was a
condition precedent to the transfer of Galleon's shares to NDC.
However, the CA found that the NDC prevented its execution by
deliberately delaying its review of Galleon's financial accounts.
The MOA was executed on August 10, 1981, giving the parties
no more than 60 days or up to October 9, 1981, to prepare and

sign the share purchase agreement. However, it was only on
April 26, 1982, or more than 8 months after the MOA was signed,
did NDC's General Director submit his recommendation on
Galleon's outstanding account. Considering NDC's delay, the
execution of the share purchase agreement should be considered
fulfilled with NDC as the new owner of 100% of Galleon's shares
of stocks.
(2) NO. Novation is a mode of extinguishing an obligation by
"changing its object or principal conditions, substituting the
person of the debtor or subrogating a third person in the rights of
the creditor." While novation, "which consists in substituting a new
debtor in the place of the original one may be made even without
the knowledge or against the will of the latter, it must be with the
consent of the creditor." The CA erred when it ruled that DBP was
privy to the MOA since Ongpin was concurrently Governor of
DBP and chairman of NDC Board of Directors at the time the
MOA was signed.
The general rule is that, "in the absence of an authority from the
board of directors, no person, not even the officers of the
corporation, can validly bind the corporation." A corporation is a
juridical person, separate and distinct from its stockholders and
members, having "powers, attributes and properties expressly
authorized by law or incident to its existence." Section 23 of the
Corporation Code provides that "the corporate powers of all
corporations shall be exercised, all business conducted and all
property of such corporations shall be controlled and held by the
board of directors."
Aside from Ongpin being the concurrent head of DBP and NDC
at the time the MOA was executed, there was no proof presented
that Ongpin was duly authorized by the DBP to give consent to
the substitution by NDC as a co-guarantor of Galleon's debts.
Ongpin is not DBP, therefore, it is wrong to assume that DBP
impliedly gave its consent to the substitution simply by virtue of
the personality of its Governor.
Novation is never presumed. The animus novandi, whether
partial or total, "must appear by express agreement of the parties,
or by their acts which are too clear and unequivocal to be
mistaken." There was no such animus novandi in the case at bar
between DBP and respondents, thus, respondents have not been
discharged as Galleon's co-guarantors under the Deed of
Undertaking and they remain liable to DBP.
CASE #13
February 1, 2017 G.R. No. 188146
PILIPINAS SHELL PETROLEUM
CORPORATION, Petitioner vs. ROYAL FERRY SERVICES,
INC., Respondent
DOCTRINE: The venue for a petition for voluntary insolvency
proceeding under the Insolvency Law is the Court of First
Instance of the province or city where the insolvent debtor
resides. A corporation is considered a resident of the place where
its principal office is located as stated in its Articles of
Incorporation. However, when it is uncontroverted that the
insolvent corporation abandoned the old principal office, the
corporation is considered a resident of the city where its actual
principal office is currently found.
FACTS: Respondent, Royal Ferry Services Inc. (Royal Ferry) is a
domestic corporation. According to its Articles of Incorporation,
Royal Ferry's principal place of business is located in Makati
City.6 However, it currently holds office in Manila. 7
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Respondent filed a verified Petition for Voluntary Insolvency
before the Regional Trial Court (RTC) of Manila.8 RTC declared
Respondent insolvent.
Petitioner, Pilipinas Shell Petroleum Corporation (Pilipinas Shell)
filed before the RTC of Manila a Formal Notice of Claim 15 and a
Motion to Dismiss.16 In the Notice of Claim, Petitioner asserted
that Respondent owed them the amount of ₱2,769,387.67. 17 In its
Motion to Dismiss, it alleged that the Petition was filed in the
wrong venue.18 It argued that the Insolvency Law provides that a
petition for insolvency should be filed before the court with
territorial jurisdiction over the corporation's residence. 19 Since
Respondent’s Articles of Incorporation stated that the
corporation's principal office is in Makati City, the Petition should
have been filed before the RTC of Makati and not before the
RTC of Manila.20
RTC initially denied the motion but later reconsidered its decision.
It held that a corporation cannot change its place of business
without amending its Articles of Incorporation. 24 Without the
amendment, respondent’s transfer did not produce any legal
effect on its residence.
The Court of Appeals overturned the grant of the Motion to
Dismiss since Petitioner failed to secure the written consent of all
the creditors of Respondent as required by Section 81[31] of the
Insolvency Law.
Hence, this Petition. Petitioner maintained the ground of improper
venue. It contends that the residence of a corporation depends
on what is stated in its articles of incorporation, regardless of
whether the corporation physically moved to a different location.
On the other hand, respondent posits that the fiction of a
corporation's residence must give way to uncontroverted facts.
ISSUE: Whether or not the Petition for Insolvency was properly
filed.
HELD: YES. The Petition for Insolvency was properly filed before
the RTC of Manila.
The old Insolvency Law provides that in determining the venue
for insolvency proceedings, the insolvent corporation should be
considered a resident of the place where its actual place of
business is located six (6) months before the filing of the petition.
If there is a conflict between the place stated in the articles of
incorporation and the physical location of the corporation's main
office, the actual place of business should control.
Requiring a corporation to go back to a place it has abandoned
just to file a case is the very definition of inconvenience. There is
no reason why an insolvent corporation should be forced to exert
whatever meager resources it has to litigate in a city it has
already left.
In any case, the creditors deal with the corporation's agents,
officers, and employees in the actual place of business. To
compel a corporation to litigate in a city it has already abandoned
would create more confusion.
Moreover, the six (6)-month qualification of the law's requirement
of residence shows intent to find the most accurate location of the
debtor's activities. If the address in a corporation's articles of
incorporation is proven to be no longer accurate, then legal fiction
should give way to fact.

Respondent is a resident of Manila. The law should be read to lay
the venue of the insolvency proceeding in the actual location of
the debtor's activities. If it is uncontroverted that respondent's
address in its Articles of Incorporation is no longer accurate, legal
fiction should give way to fact. Thus, the Petition was correctly
filed before the RTC of Manila.
CASE #14
Pilipinas Shell Petroleum Corporation vs
Carlos Duque & Teresa Duque
G.R. No. 216467
Feb. 15, 2017
Doctrine: A corporate officer who issues a bouncing corporate
check can only be held civilly liable when he is convicted.
Facts: Pilipinas Shell Petroleum Corporation (PSPC) is a lessee
of a building in Makati. PSPC subleased a 500-meter portion of
the 2nd floor to The Fitness Center(TFC). After TFC encountered
business problems, it assigned all its rights and obligations under
the contract of sublease to Fitness Consultants, Inc.(FCI), with
PSPC’s conformity. Subsequently, FCI failed to pay its rentals to
PSPC. FCI issued a check, signed by the respondents Carlos
Duque, its proprietor, and Teresa Duque, the corporate secretary.
When the check was presented, it was dishonored, leading to the
filing of a criminal complaint against the respondents for violation
of B.P. 22.
The MeTC of Makati found the Duques guilty of the charges
sentenced them to pay a fine of Php105,516.55 with subsidiary
imprisonment in case of insolvency.
The respondents appealed to the RTC which acquitted them but
maintained that they should pay the fine. Respondents filed a
Motion for Partial Reconsideration claiming that they should not
be civilly liable because their acquittal was due to the
prosecution’s failure to establish the elements of the crime
charge, which the RTC has granted.
PSPC filed a Motion for Reconsideration, and RTC granted said
motion, holding that the person who actually signed the corporate
check shall be held liable without any condition, qualification or
limitation
Respondents filed a petition for review with the CA, which ruled in
favor of the respondents, reversing the previous decision, holding
that upon acquittal, the civil liability of a corporate officer in a BP
22 case is extinguished with the criminal liability, without
prejudice to an independent civil action which may be pursued
against the corporation.
PSPC filed a motion for reconsideration, but the CA denied it.
Issue:
Whether or not the respondents, as corporate officers, may still
be held civilly liable despite their acquittal from the criminal
charge of violation of BP 22?
Ruling: No. In the case of Gosiaco vs. Ching, the Court
enunciated a rule that a corporate officer who issues a bouncing
check can only be held civilly liable when he is convicted. Citing
the case of Bautista vs. Auto Plus Traders, Incorporated, et al.,
the Court categorically held that the civil liability of a corporate
officer in a BP 22 case is extinguished with the criminal liability
The general rule is that a corporate officer who issues a bouncing
corporate check can be held civilly liable when he is convicted. It
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is clear that the civil liability of the corporate officer for the
issuance of a bouncing corporate check attaches only if he is
convicted. Conversely, it will follow that once acquitted of the
offense of violating BP 22, a corporate officer is discharged from
any civil liability arising from the issuance of the worthless check
in the name of the corporation he represents.
CASE #15
Philippine National Construction Company, Represented by
the Government Service Insurance System through its
members, namely: Lea Faith David, Anne Rosalie Besin, and
Lessley Beaño petitioners, vs The Members of the Board of
Directors of the Philippine National Construction Company,
the Members of the Board of Trustees of the Government
Service Insurance System, and the Government Commission
for Government-Owned or – Controlled Corporations,
respondents
G.R. No. 225943 Feb. 22, 2017
Facts: Philippine National Construction Company (PNCC),
through its Board of Directors, entered into a Performance
Agreement with the Government Commission for Government-
Owned or – Controlled Corporations (GCGOCC). The petitioners
claimed that the disposition undertaken by the PNCC BOD, would
result in the disposal of substantially all of the properties of the
PNCC. They claim that since GSIS owned 47,490,383 shares of
PNCC, translating to 27.22% stake in the latter, and as members
of the GSIS, they would be directly ad adversely affected by the
implementation of the Performance Agreement.
The petitioners wrote to the GSIS Board of Trustees(BOT)
demanding that the GSIS should bring an action against the
PNCC upon the matter, but the GSIS BOT refused to accede to
their demand opining that the petitioners’ dear regarding the
financial viability of the GSIS to provide retirement pay and
pension to its members was unfounded. Thus, they instituted a
complaint for the declaration of nullity of contract. (Civil Case No.
2016-04)
The RTC dismissed the case for being a nuisance or harassment
suit. This this direct appeal to the Court.
Issue: Whether or not the dismissal of the complaint was proper?
Ruling: Yes. The Court ruled that the petition failed to show any
reversible error committed by te RTC in dismissing the complaint.
The civil case in question is unquestionably a derivative action
because it was initiated by petitioners as supposed members of
the GSIS, a shareholder of the PNCC, in order to enforce a
corporate cause of action. Under the Corporation Code, where a
corporation is an injured party, its power to sue is lodged in its
board of directors or board of trustees; but an individual
stockholder may be permitted to institute a derivative suit on
behalf of the corporation 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 control of the corporation. In a
derivative suit, the corporation is only a nominal party.
In Sec.1, Rule 8 of the Interim Rules of Procedure for Intra-
Corporate Controversies (A.M. No. 01-2-04-SC, March 13, 2001),
the requisites for a proper derivative suit is provided:
Sec. 1. Derivative Action. – A stockholder o member may bring
an action in the name of a corporation or association, as the case
may be, provided that:

(1) He was a stockholder or member at the time the
acts or transactions subject of the action occurred
and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the
same with particularity in the compliant, to exhaust
all remedies available under the articles of
incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or acts
complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall
forthwith dismiss the case.
In the current case, the petitioners were not
stockholders of PNCC, thus indicating their lack of legal standing
to initiate the action as a derivative suit on behalf of PNCC. The
RTC correctly emphasized that the derivative suit could not
prosper without the petitioners first complying with the legal
requisites for its institution.
CASE #16
G.R. No. 188269, April 17, 2017
SUMIFRU (PHILIPPINES) CORPORATION (SURVIVING
ENTITY IN A MERGER WITH DAVAO FRUITS CORPORATION
AND OTHER COMPANIES), Petitioner, v. BERNABE
BAYA, Respondent.
Doctrine: In the merger of two existing corporations, one of the
corporations survives and continues the business, while the other
is dissolved and all its rights, properties and liabilities are
acquired by the surviving corporation.
Facts: Bernabe Baya was employed by AMS Farming
Corporation (AMSFC) and worked his way to a supervisory rank.
As a supervisor, Baya joined the union of supervisors, and
eventually, formed AMS Kapalong Agrarian Reform Beneficiaries
Multipurpose Cooperative (AMSKARBEMCO), the basic agrarian
reform organization of the regular employees of AMSFC. In 1999,
Baya was reassigned to a series of supervisory positions in
AMSFC's sister company, Davao Fruits Corporation (DFC),
where he also became a member of the latter's supervisory union
while at the same time, remaining active at AMSKARBEMCO.
Later on and upon AMSKARBEMCO's petition before the
Department of Agrarian Reform (DAR), some 220 hectares of
AMSFC's 513-hectare banana plantation were covered by the
Comprehensive Agrarian Reform Law. Eventually, said portion
was transferred to AMSFC's regular employees as Agrarian
Reform Beneficiaries (ARBs), including Baya. DFC encouraged
Baya to shift his loyalty to SAFFPAI, an association of pro-
company beneficiaries. When he refused, Baya received a letter
stating that his secondment with DFC has ended, thus, ordering
his return to AMSFC. However, upon Baya's return to AMSFC, he
was informed that there were no supervisory positions available;
thus, he was assigned to different rank-and-file positions instead.
Baya requested to be restored to a supervisory position but this
was denied, prompting him to file an illegal dismissal case
against AMSFC and DFC. The LA ruled in favor of Baya but the
NLRC reversed the LA’s decision. The Court of Appeals
reinstated the decision of the LA finding constructive dismissal.
Before the Supreme Court, Sumifru, the surviving entity in a
merger with DFC, contended that it should only be held liable for
the period when Baya stayed with DFC as it only merged with the
latter and not with AMSFC.
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Issue: Whether or not Sumifru is only liable for the period when
Baya stayed with DFC as it only merged with the latter?
Held: No. Section 80 of the Corporation Code of the Philippines
clearly states that one of the effects of a merger is that the
surviving company shall inherit not only the assets, but also the
liabilities of the corporation it merged with. In this case, both
AMSFC and DFC are guilty of acts constitutive of constructive
dismissal performed against Baya. As such, they should be
deemed as solidarily liable for the monetary awards in favor of
Baya. Meanwhile, Sumifru, as the surviving entity in its merger
with DFC, must be held answerable for the latter's liabilities,
including its solidary liability with AMSFC arising herein. Verily,
jurisprudence states that "in the merger of two existing
corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties
and liabilities are acquired by the surviving corporation," as in this
case.
CASE #17
G.R. No. 207246
JOSE M. ROY III, Petitioner vs. CHAIRPERSON TERESITA
HERBOSA, THE SECURITIES AND EXCHANGE
COMMISSION, and PHILIPPINE LONG DISTANCE
TELEPHONE COMP ANY,, Respondents
TOPIC: Corporation Law
DOCTRINE: The Gamboa Decision already held, in no uncertain
terms, that what the Constitution requires is "[fJull [and legal]
beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights x x x must rest
in the hands of Filipino nationals x x x." And, precisely that is
what SEC-MC No. 8 provides, viz.: "x x x For purposes of
determining compliance [with the constitutional or statutory
ownership], the required percentage of Filipino ownership shall
be applied to BOTH (a) the total number of outstanding shares of
stock entitled to vote in the election of directors; AND (b) the total
number of outstanding shares of stock, whether or not entitled to
vote x x x."
FACTS: Before the Court is the Motion for Reconsideration dated
January 19, 20171 (the Motion) filed by petitioner Jose M. Roy III
(movant) seeking the reversal and setting aside of the Decision
dated November 22, 2016 (the Decision) which denied the
movant's petition, and declared that the Securities and Exchange
Commission (SEC) did not commit grave abuse of discretion in
issuing Memorandum Circular No. 8, Series of 2013 (SEC-MC
No. 8) as the same was in compliance with, and in fealty to, the
decision of the Court in Gamboa v. Finance Secretary Teves,
(Gamboa Decision) and the resolution denying the Motion for
Reconsideration therein (Gamboa Resolution).
ISSUE: Whether or not SEC commit grave abuse of discretion in
issuing Memorandum Circular No. 8, Series of 2013
HELD: The heart of the controversy is the interpretation of
Section 11, Article XII of the Constitution, which provides: "No
franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of
the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens x x x."
The Gamboa Decision already held, in no uncertain terms, that
what the Constitution requires is "[fJull [and legal] beneficial
ownership of 60 percent of the outstanding capital stock, coupled
with 60 percent of the voting rights x x x must rest in the hands of

Filipino nationals xxx." And, precisely that is what SEC-MC
No. 8 provides, viz.: "xxx For purposes of determining
compliance [with the constitutional or statutory ownership], the
required percentage of Filipino ownership shall be applied to
BOTH (a) the total number of outstanding shares of stock entitled
to vote in the election of directors; AND (b) the total number of
outstanding shares of stock, whether or not entitled to vote xxx."
In construing "full beneficial ownership," the Implementing Rules
and Regulations of the Foreign Investments Act of 1991 (FIA-
IRR) provides:
For stocks to be deemed owned and held by Philippine citizens or
Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks,
the voting rights of which have been assigned or transferred to
aliens cannot be considered held by Philippine citizens or
Philippine nationals.
In turn, "beneficial owner" or "beneficial ownership" is defined in
the Implementing Rules and Regulations of the Securities
Regulation Code (SRC-IRR) as:
[A]ny person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or
shares voting power (which includes the power to vote or direct
the voting of such security) and/or investment returns or power
(which includes the power to dispose of, or direct the disposition
of such security) x x x.
Thus, the definition of "beneficial owner or beneficial ownership"
in the SRC-IRR, which is in consonance with the concept of "full
beneficial ownership" in the FIA-IRR, is, as stressed in the
Decision, relevant in resolving only the question of who is the
beneficial owner or has beneficial ownership of each "specific
stock" of the public utility company whose stocks are under
review. If the Filipino has the voting power of the "specific
stock", i.e., he can vote the stock or direct another to vote for
him, or the Filipino has the investment power over the "specific
stock", i.e., he can dispose of the stock or direct another to
dispose of it for him, or both, i.e., he can vote and dispose of
that "specific stock" or direct another to vote or dispose it for
him, then such Filipino is the "beneficial owner" of that "specific
stock." Being considered Filipino, that "specific stock" is then to
be counted as part of the 60% Filipino ownership requirement
under the Constitution. The right to the dividends, jus fruendi - a
right emanating from ownership of that "specific stock"
necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that
the dividends accruing to any particular stock are determinative of
that stock's "beneficial ownership." Dividend declaration is
dictated by the corporation's unrestricted retained earnings. On
the other hand, the corporation's need of capital for expansion
programs and special reserve for probable contingencies may
limit retained earnings available for dividend declaration. It bears
repeating here that the Court in the Gamboa Decision
adopted the foregoing definition of the term "capital" in
Section 11, Article XII of the 1987 Constitution in express
recognition of the sensitive and vital position of public
utilities both in the national economy and for national
security, so that the evident purpose of the citizenship
requirement is to prevent aliens from assuming control of
public utilities, which may be inimical to the national
interest. This purpose prescinds from the "benefits"/dividends
that are derived from or accorded to the particular stocks held by
Filipinos vis-a-vis the stocks held by aliens. So long as Filipinos
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have controlling interest of a public utility corporation, their
decision to declare more dividends for a particular stock
over other kinds of stock is their sole prerogative - an act of
ownership that would presumably be for the benefit of the
public utility corporation itself. Thus, as explained in the
Decision:
In this regard, it would be apropos to state that since Filipinos
own at least 60% of the outstanding shares of stock entitled to
vote directors, which is what the Constitution precisely requires,
then the Filipino stockholders control the corporation, i.e., they
dictate corporate actions and decisions, and they have all the
rights of ownership including, but not limited to, offering certain
preferred shares that may have greater economic interest to
foreign investors - as the need for capital for corporate pursuits
(such as expansion), may be good for the corporation that they
own. Surely, these "true owners" will not allow any dilution of their
ownership and control if such move will not be beneficial to them.
CASE #18
G.R. No. 185024, April 24, 2017
JOSELITO HERNAND M. BUSTOS, Petitioner, v. MILLIANS
SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, AND
THE REGISTER OF DEEDS OF MARIKINA CITY, Respondents.
Doctrine: Stay orders should only cover those claims directed
against corporations or their properties, against their guarantors,
or their sureties who are not solidarily liable with them, to the
exclusion of accommodation mortgagors. Properties merely
owned by stockholders cannot be included in the inventory of
assets of a corporation under rehabilitation.
Facts: Spouses Fernando and Amelia Cruz owned a 464-square-
meter lot covered by Transfer Certificate of Title (TCT) No. N-
126668. The City Government of Marikina levied the property for
nonpayment of real estate taxes. The property was auctioned off
on October 14, 2004 with petitioner Joselito Hernand M. Bustos
emerging as the winning bidder. Meanwhile, notices of lis
pendens were annotated on TCT No. N-126668 on February 9,
2005. These markings indicated that SEC Corp. Case No. 036-
04, which was filed before the RTC and involved the rehabilitation
proceedings for Millians Shoe, Inc. (MSI), covered the subject
property and included it in the Stay Order issued by the RTC
dated October 25, 2004.
Bustos moved for the exclusion of the subject property from the
Stay Order. He claimed that the lot belonged to Spouses Cruz
who were mere stockholders and officers of MSI. Both the RTC
and CA ruled against Bustos. Specifically, the CA ruled that MSI,
being a close corporation, its stockholders and/or officers usually
manage the business of the corporation and are subject to all
liabilities of directors, i.e. personally liable for corporate debts and
obligations. Thus, the Cruz Spouses being stockholders of MSI
are personally liable for the latter's debt and obligations.
Issue: Whether or not the property of Spouses Cruz who are
mere stockholders of MSI should be included in the Stay Order
(inventory of assets of a corporation under rehabilitation)?
Held: No. There was no legal basis to classify MSI as a close
corporation. A narrow distribution of ownership does not, by itself,
make a close corporation. Courts must look into the articles of
incorporation to find provisions expressly stating that (1) the
number of stockholders shall not exceed 20; or (2) a preemption
of shares is restricted in favor of any stockholder or of the
corporation; or (3) the listing of the corporate stocks in any stock
exchange or making a public offering of those stocks is

prohibited. Here, neither the CA nor the RTC showed its basis for
finding that MSI is a close corporation. The courts a quo did not
at all refer to the Articles of Incorporation of MSI. The petition
submitted by respondent in the rehabilitation proceedings before
the RTC did not even include those Articles of Incorporation
among its attachments.
Thus, the general doctrine of separate juridical personality, which
provides that a corporation has a legal personality separate and
distinct from that of people comprising it, must be applied. By
virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of
the stockholder. Thus, being an officer or a stockholder of a
corporation does not make one's property the property also of the
corporation.
Therefore, the parcels of land of the spouses could not be
considered part of the corporate assets that could be subjected to
rehabilitation proceedings.
CASE #19
G.R. No. 202454 April 25, 2017
CALIFORNIA MANUFACTURING COMPANY, INC., Petitioner,
vs. ADVANCED TECHNOLOGY SYSTEM, INC., Respondent.
FACTS: MCI is a domestic corporation engaged in the food and
beverage manufacturing business. Respondent ATSI is also a
domestic corporation that fabricates and distributes food
processing machinery and equipment, spare parts, and its allied
products. CMCI leased from ATSI a Prodopak machine which
was used to pack products in 20-ml. pouches. The parties agreed
to a monthly rental of ₱98,000 exclusive of tax. Upon receipt of
an open purchase order ATSI delivered the machine to CMCI's
plant.
ATSI filed a Complaint for Sum of Money against CMCI to collect
unpaid rentals. In its Answer, CMCI averred that ATSI was one
and the same with Processing Partners and Packaging
Corporation (PPPC), which was a toll packer of CMCI products.
CMCI alleged that in 2000, PPPC agreed to transfer the
processing of CMCI's product line from its factory. Upon the
request of PPPC, through its Executive Vice President Felicisima
Celones, CMCI advanced ₱4 million as mobilization fund. PPPC
President and Chief Executive Officer Francis Celones allegedly
committed to pay the amount in 12 equal instalments deductible
from PPPC's monthly invoice to CMCI beginning in October 2000.
CMCI likewise claims that in a letter, Felicisima proposed to set
off PPPC's obligation to pay the mobilization fund with the rentals
for the Prodopak machine. CMCI argued that the proposal was
binding on both PPPC and A TSI because Felicisima was an
officer and a majority stockholder of the two corporations.
Moreover, in a letter, she allegedly represented to the new
management of CMCI that she was authorized to request the
offsetting of PPPC's obligation with ATSI's receivable from
CMCI.
ISSUE: Whether or not the veil of corporate fiction be pierced.
HELD: NO. Without question, the Spouses Celones are
incorporators, directors, and majority stockholders of the ATSI
and PPPC. But that is all that CMCI has proven. There is no proof
that PPPC controlled the financial policies and business practices
of ATSI either in July 2001 when Felicisima proposed to set off
the unpaid ₱3.2 million mobilization fund with CMCI's rental of
Prodopak machines; or in August 2001 when the lease
agreement between CMCI and ATSI commenced.
Assuming arguendo that Felicisima was sufficiently clothed with
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authority to propose the offsetting of obligations, her proposal
cannot bind ATSI because at that time the latter had no
transaction yet with CMCI. Besides, CMCI had leased only one
Prodopak machine. Felicisima's reference to the Prodopak
machines in its letter in July 2001 could only mean that those
were different from the Prodopak machine that CMCI had leased
from A TSI.
In all its pleadings, CMCI averred that the P4 million mobilization
fund was in furtherance of its agreement with PPPC in
2000.1awp++i1 Prior thereto, PPPC had been a toll packer of its
products as early as 1996. Clearly, CMCI had been dealing with
PPPC as a distinct juridical person acting through its own
corporate officers from 1996 to 2003.
CMCI's dealing with ATSI began only in August 2001. It appears,
however, that CMCI now wants the Court to gloss over the
separate corporate existence ATSI and PPPC notwithstanding
the dearth of evidence showing that either PPPC or ATSI had
used their corporate cover to commit fraud or evade their
respective obligations to CMCI. It even appears that CMCI
faithfully discharged its obligation to ATSI for a good two years
without raising any concern about its relationship to PPPC.
The fraud test, which is the second of the three-prong test to
determine the application of the alter ego doctrine, requires that
the parent corporation's conduct in using the subsidiary
corporation be unjust, fraudulent or wrongful. Under the third
prong, or the harm test, a causal connection between the
fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the
plaintiff has to be established. None of these elements have been
demonstrated in this case. Hence, we can only agree with the CA
and RTC in ruling out mutuality of parties to justify the application
of legal compensation in this case.
CASE #20
Dutch Movers, Inc., Cesar and Yolanda Lee vs. Edilberto
Lequin, Christopher R. Salvador, Reynaldo L. Singsing, And
Raffy B. Mascardo
G.R. No. 210032, April 25, 2017
Del Castillo, J.
DOCTRINE: A corporation has a separate and distinct
personality from its stockholders, and from other corporations it
may be connected with. However, such personality may be
disregarded, or the veil of corporate fiction may be pierced
attaching personal liability against responsible person if the
corporation's personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws.
Facts: Edilberto Lequin, Christopher Salvador, Reynaldo
Singsing, and Raffy Mascardo (respondents) filed an Illegal
Dismissal case against Dutch Movers, Inc. (DMI), and/or spouses
Cesar Lee and Yolanda Lee (petitioners), its alleged
President/Owner, and Manager respectively. DMI employed
Lequin as truck driver and the rest of the respondents as helpers.
Cesar Lee informed them that DMI would cease its hauling
operation for no reason; as such, they requested DMI to issue a
formal notice regarding the matter but to no avail. Later, upon
respondents' request, the DOLE NCR issued a certification
revealing that DMI did not file any notice of business closure.
Thus, respondents argued that they were illegally dismissed as
their termination was without cause and only on the pretext of
closure. The Labor Arbiter dismissed the complaint for lack of
cause of action. This was reversed by the NLRC. It ruled that

respondents were illegally dismissed because DMI simply placed
them on standby, and no longer provide them with work. The
dispositive portion of the judgment only made Dutch Movers
liable and never mentioned Spouses Lee’s liability. This decision
became final and executory. Consequently, respondents filed a
Motion for Writ of Execution. Later, they submitted a Reiterating
Motion for Writ of Execution with Updated Computation of Full
Backwages. Pending resolution of these motions, respondents
filed a Manifestation and Motion to Implead stating that upon
investigation, they discovered that DMI no longer operates. They,
nonetheless, insisted that petitioners - who managed and
operated DMI, and consistently represented to respondents that
they were the owners of DMI - continue to work at Toyota
Alabang, which they also own and operate. They further averred
that the Articles of Incorporation (AOI) of DMI ironically did not
include petitioners as its directors or officers; and those named
directors and officers were persons unknown to them. Given
these developments, respondents prayed that petitioners, and the
officers named in DMI's AOI, be impleaded, and be held solidarity
liable with DMI in paying the judgment awards.
The LA issued an Order holding petitioners liable for the
judgment awards and issued a Writ of Execution against Dutch
Movers and Spouses Lee. Petitioners moved to quash the Writ to
Execution. This was denied by the LA. The NLRC quashed the
writ insofar as it holds individual respondents Cesar Lee and
Yolanda Lee liable for the judgment award against the
complainants. The NLRC ruled that the Writ of Execution should
only pertain to DMI since petitioners were not held liable to pay
the awards under the final and executory NLRC Decision. It
added that petitioners could not be sued personally for the acts of
DMI because the latter had a separate and distinct personality
from the persons comprising it; and, there was no showing that
petitioners were stockholders or officers of DMI; or even granting
that they were, they were not shown to have acted in bad faith
against respondents. The CA reversed the NLRC and accordingly
affirmed the Writ of Execution impleading petitioners as
party-respondents liable to answer for the judgment awards.
Hence, this present petition filed by Spouses Lee.
Issue: Whether or not Spouses Lee are personally liable to pay
the judgment awards in favor of respondents?
Held: Yes. A corporation has a separate and distinct personality
from its stockholders, and from other corporations it may be
connected with. However, such personality may be disregarded,
or the veil of corporate fiction may be pierced attaching personal
liability against responsible person if the corporation's personality
is used to defeat public convenience, justify wrong, protect fraud
or defend crime, or is used as a device to defeat the labor laws.
Here, the veil of corporate fiction must be pierced and
accordingly, petitioners should be held personally liable for
judgment awards because the peculiarity of the situation shows
that they controlled DMI; they actively participated in its operation
such that DMI existed not as a separate entity but only as
business conduit of petitioners. Petitioners controlled DMI by
making it appear to have no mind of its own, and used DMI as
shield in evading legal liabilities, including payment of the
judgment awards in favor of respondents.
First, petitioners and DMI jointly filed their Position Paper, Reply,
and Rejoinder in contesting respondents' illegal dismissal.
Perplexingly, petitioners argued that they were not part of DMI
and were not privy to its dealings; yet, petitioners, along with DMI,
collectively raised arguments on the illegal dismissal case against
them.
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Second, petitioners were identified as the owners and managers
of DMI. In their Motion to Quash, however, petitioners neither
denied these allegations nor adduced evidence to establish that
they were not the owners and managers of DMI.
Third, piercing the veil of corporate fiction is allowed, and
responsible persons may be impleaded, and be held solidarily
liable even after final judgment and on execution, provided that
such persons deliberately used the corporate vehicle to unjustly
evade the judgment obligation, or resorted to fraud, bad faith, or
malice in evading their obligation.
CASE #21
June 7, 2017 G.R. No. 211108
ALEJANDRO D.C. ROQUE vs. PEOPLE OF THE PHILIPPINES
FACTS: On November 17, 1993, Barangay Mulawin Tricycle
Operators and Drivers Association, Inc. (BMTODA) became a
corporation duly registered with the Securities and Exchange
Commission (SEC). Sometime in August 2003, Oscar Ongjoco
(Ongjoco), a member of BMTODA, learned that BMTODA's funds
were missing. In a letter, Ongjoco requested copies of the
Association's documents pursuant to his right to examine records
under Section 74 of the Corporation Code of the Philippines
(Corporation Code). However, Singson, the Secretary of
BMTODA, denied his request.
Ongjoco also learned that the incumbent officers were holding
office for three years already, in violation of the one-year period
provided for in BMTODA's by-laws. He then requested from
Roque, the President of BMTODA, a copy of the list of its
members with the corresponding franchise numbers of their
respective tricycle fees and the franchise fees paid by each
member, but Roque denied Ongjoco's request.
Ongjoco filed an Affidavit-Complaint against Roque and Singson
for violation of Section 7 4 in relation to Section 144 of the
Corporation Code because of their refusal to furnish him copies
of records pertaining to BMTODA.
The RTC ruled that said association failed to prove its existence
as a corporation.
On appeal, the CA reversed and set aside the Order dated
November 12, 2008 of the RTC. The CA ruled that BMTODA is a
duly registered corporation. The CA stated that a Petition to Lift
Order of Revocation and the SEC Order Lifting the Revocation
were presented in evidence; and that logic dictates that such
documentary evidence presupposes a duly registered and
existing entity.
ISSUE: Whether or not Roque can be held liable for violating the
Corporation Code for his refusal to furnish Ongjoco copies of
such pertinent records of BMTODA?
RULING: YES. The Corporation Code provides for the liability for
damages of any officer or agent of the corporation for refusing to
allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from its records or
minutes. Section 144 of the same Code further provides for other
applicable penalties in case of violation of any provision of the
Corporation Code.
Hence, to prove any violation under the aforementioned
provisions, it is necessary that: (1) a director, trustee, stockholder
or member has made a prior demand in writing for a copy of

excerpts from the corporations records or minutes; (2) any officer
or agent of the concerned corporation shall refuse to allow the
said director, trustee, stockholder or member of the corporation to
examine and copy said excerpts; (3) if such refusal is made
pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action spall be
imposed upon the directors or trustees who voted for such
refusal;· and (4) where the officer or agent of the corporation sets
up the defense that the person demanding to examine and copy
excerpts from the corporation's records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand, the contrary must be
shown or proved.
Clearly, Ongjoco, as a member of BMTODA, had a right to
examine documents and records pertaining to said association.
To recall, Ongjoco made a prior demand in writing for copy of
pertinent records of BMTODA from Roque and Singson. Ongjoco
sent his letters dated December 13, 2003 12 and August 29,
2004 13 to Roque and Singson, respectively. However, both of
them refused to furnish Ongjoco copies of such pertinent records.
While it appears that the registration of BMTODA as a
corporation with the SEC was revoked on September 30, 2003,
the letter-request of Ongjoco to Singson, which was dated while
BMTODA's registration was revoked, was actually received by
Singson after the revocation was lifted. In a Letter dated October
11, 2004, the General Counsel of the SEC made it clear that the
SEC lifted the revocation of BMTODA's registration on August 30,
2004. As the CA correctly observed, the letter-request was
received by Singson on September 23, 2004 when BMTODA had
regained its active status.
In any case, the revocation of a corporation's Certificate of
Registration does not automatically warrant the extinction of the
corporation itself such that its rights and liabilities are likewise
altogether extinguished. Thus, the revocation of BMTODA's
registration does not automatically strip off Ongjoco of his right to
examine pertinent documents and records relating to such
association.
Also, since Roque .admitted the revocation of BMTODA's
Registration , he cannot come 'forward and disclaim BMTODA's
registration with the SEC as a corporation. It is logical to presume
that a registration precedes the revocation thereof; as any
registration cannot be revoked without its valid existence.
A reading of this present Petition reveals that Roque admitted his
denial of Ongjoco's request, i.e., to furnish him a copy of
BMTODA's list of its members with the corresponding franchise
body numbers of their respective tricycles and franchise fees paid
by each member. Also, what was requested from Singson
pertains to an entirely different document. Thus, Singson' s denial
is immateriai, and does not detract from Roque' s denial of
Ongjoco's request to access the above-mentioned document. For
his individual and separate act, Roque should be held
accountable. Hence, Roque's denial is unquestionably
considered as a violation under the Corporation Code.
CASE #22
GR No. 224099, Jun 21, 2017
ROMMEL M. ZAMBRANO v. PHILIPPINE CARPET
MANUFACTURING CORPORATION +
MENDOZA, J.:
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DOCTRINE: The doctrine of piercing the corporate veil applies
only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle
for the evasion of an existing obligation; 2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is
merely a farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
FACTS:
On January 3, 2011, petitioners, who were employees of private
respondent Philippine Carpet Manufacturing Corporation, were
notified of the termination of their employment effective February
3, 2011 on the ground of cessation of operation due to serious
business losses. They were of the belief that their dismissal was
without just cause and in violation of due process because the
closure of Phil Carpet was a mere pretense to transfer its
operations to its wholly owned and controlled corporation, Pacific
Carpet Manufacturing Corporation (Pacific Carpet). They
asserted that their dismissal constituted unfair labor practice as it
involved the mass dismissal of all union officers and members of
the Philippine Carpet Manufacturing Employees Association
(PHILCEA).
In its defense, Phil Carpet countered that it permanently closed
and totally ceased its operations because there had been a
steady decline in the demand for its products due to global
recession, stiffer competition, and the effects of a changing
market. Thus, in order to stem the bleeding, the company
implemented several cost-cutting measures, including voluntary
redundancy and early retirement programs. Phil Carpet likewise
faithfully complied with the requisites for closure or cessation of
business under the Labor Code. The petitioners and the
Department of Labor and Employment were served written
notices one (1) month before the intended closure of the
company. The petitioners’ •were also paid their separation pay
and they voluntarily executed their respective Release and
Quitclaim before the DOLE officials.
In the September 29, 2014 Decision, the Labor Arbiter dismissed
the complaints for illegal dismissal and unfair labor practice. The
NLRC affirmed the findings of the LA, which was subsequently
affirmed by the CA.
In this case, the petitioners question the validity of the quitclaims
they signed on the ground that Phil Carpet's closure was a mere
pretense. As the closure of Phil Carpet, however, was supported
by substantial evidence, the petitioners' reason for seeking the
invalidation of the quitclaims must necessarily fail. Further, as
aptly observed by the CA, the contents of the quitclaims, which
were in Filipino, were clear and simple, such that it was unlikely
that the petitioners did not understand what they were signing.
Finally, the amount they received was reasonable as the same
complied with the requirements of the Labor Code.
ISSUE:
Whether or not ownership by one corporation of another and
presence of interlocking directors are sufficient to establish alter
ego relationship enough to pierce the veil of corporate fiction.
RULING:
No. SC declared that mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the
separate corporate personality. It has likewise ruled that the

existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy
considerations.
SC further ruled in the case of Philippine National Bank v. Hydro
Resources Contractors Corporation - The doctrine of piercing the
corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is
used as a vehicle for the evasion of an existing obligation; 2)
fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego
or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation.
Piercing the corporate veil based on the alter ego theory requires
the concurrence of three elements: control of the corporation by
the stockholder of parent corporation, fraud or fundamental
unfairness imposed on the plaintiff, and harm or damage caused
to the plaintiff by the fraudulent or unfair act of the corporation.
The absence of any of these elements prevents piercing the
corporate veil.
CASE #23
GR No. 190590, Jul 12, 2017
ROBERTO V. SAN JOSE v. JOSE MA. OZAMIZ +
CARPIO, J.:
Doctrine: There are 2 tests to determine existence of intra-
corporate controversy: the relationship test and the nature of the
controversy test. Cases involving intra-corporate controversy falls
well within the jurisdiction of the RTC.
Facts: In 1996 San Jose and Angcao were elected several times
as Corporate Secretary and Board of Directors of Philcomsat
Holdings Corporation (PHC) then known as Liberty Mines, Inc.
while Ozamiz was a stockholder of PHC since 1997.
Ozamiz wrote San Jose and Angcao requesting for a copy of all
the Minutes of the Meetings of the Board and Executive
Committee. After a series of follow-up, his request was left
unheeded and was told that it would be taken at the next Board
Meeting however this was also not fulfilled and did not hear from
the officers.
Ozamiz filed a complaint for inspection of books with the RTC.
Petitioners asserted that case should have been filed before the
Sandiganbayan since the majority of the stocks of PHC is owned
by corporations sequestered by the PCGG, the case concerns
assets of sequestered corporations, and thus the Sandiganbayan
is the proper court with jurisdiction. Hence, complaint must be
dismissed for lack of jurisdiction.
RTC rendered its Order dismissing the complaint for lack of
jurisdiction. The CA reversed and set aside the Order of the RTC
saying that PHC is not under any writ of sequestration issued by
the PCGG. Hence, it should be within the jurisdiction of the RTC.
Issue: Whether or not the intracorporate controversy is within the
jurisdiction of RTC?
Ruling: Yes. Jurisdiction is within the RTC because it is an intra-
corporate controversy.
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To determine whether or not a case involves an intra-corporate
dispute, two tests are applied - the relationship test and the
nature of the controversy test.
Under the relationship test, there is an intra-corporate
controversy when the conflict is (1) between the corporation,
partnership, or association and the public; (2) between the
corporation, partnership, or association and the State insofar as
its franchise, permit, or license to operate is concerned; (3)
between the corporation, partnership, or association and its
stockholders, partners, members, or officers; and (4) among the
stockholders, partners, or associates themselves.
Based on the foregoing tests, it is clear that this case involves an
intracorporate dispute. It is a conflict between a stockholder and
the corporation, which satisfies the relationship test, and it
involves the enforcement of the right of Ozamiz, as a stockholder,
to inspect the books of PHC and the obligation of the latter to
allow its stockholder to inspect its books
The nature of controversy test, an ICC arises when the
controversy is not only rooted in the existence of an intra-
corporate relationship, but also in the enforcement of the parties'
correlative rights and obligations and internal / intra-corporate
regulatory rules of the corporation. This case involves an intra-
corporate dispute. It is a conflict between a stockholder and the
corporation, satisfying the relationship test, and involving
enforcement of the right of a stockholder, to inspect the books of
PHC and the obligation of the latter to allow its stockholder to
inspect its books.
CASE #24
G.R. No. 207684, July 17, 2017
PHILTRANCO SERVICE ENTERPRISES, INC., AND/OR JOSE
PEPITO ALVAREZ, ARSENIO YAP AND CENTURION
SOLANO, Petitioners, v. FRANKLIN CUAL, NOEL PORMENTO,
RAMIL TIMOG, WILFREDO PALADO, ROBERTO VILLARAZA,
JOSE NERIO ARTISTA, CESAR SANCHEZ, RENERIO
MATOCIÑOS, VALENTINO SISCAR, LARRY ACASIO, GERARDO
NONATO, JOSE SAFRED, JUAN LUNA, GREGORIO MEDINA,
NESTOR ZAGADA, FRANCISCO MIRANDA, LEON MANUEL
VILLAFLOR, RODOLFO NOLASCO, REYNALDO PORTES,
GERARDO CALINYAO, LUTARDO DAYOLA, VICENTE BALDOS,
ROGELIO MEJARES, RENIE SILOS AND SERVANDO
PETATE, Respondents.
Doctrine: The lack of authorized or just cause to terminate one's
employment and the failure to observe due process do not ipso
facto mean that the corporate officer acted with malice or bad
faith. There must be independent proof of malice or bad faith
which is lacking in the present case.
Facts: Respondents were all members of Philtranco Workers
Union Association of Genuine Labor Organization (PWU-AGLO).
They alleged that they were not absorbed by Philtranco despite
the fact that the company was hiring new employees; thus, the
respondents, together with other Philtranco employees, filed a
labor complaint for illegal dismissal on October 16, 2007, and
prayed for reinstatement, backwages and wage differentials.
Docketed as NLRC NCR Case No. 00-10-11607-07 (first NLRC
case), the complaint essentially assailed the employees' inclusion
in the retrenchment program of Philtranco.
In March 25, 2008 Decision, Labor Arbiter (LA) Antonio Macam
found union president Jose Jessie Olivar (Olivar) to have been
illegally dismissed and was entitled to reinstatement, backwages
and attorney's fees. The present respondents' claims, however,

were dismissed for their failure to sign the verification and
certification of non-forum shopping of the complaint and position
paper; the latter was signed only by Olivar without specific
authority from the board.
Significantly, the LA, as affirmed by the NLRC and the CA, found
the retrenchment program undertaken by Philtranco in the years
2006 to 2007 as invalid for failure to sufficiently prove its
necessity, considering that the audited financial statements for
those years were not presented. On this basis, Olivar was
declared to have been illegally dismissed and ordered Alvarez,
Yap and Solano solidarily liable with Philtranco for the payment of
backwages, etc., as officers of the latter.
On the belief that the dismissal of their claims due to a
technicality was without prejudice to their refiling of the same
complaint, the respondents filed NLRC-NCR Case No. 06-08130-
10 (second NLRC case). This time, Philtranco submitted its
audited financial statements for the years 2006 and 2007.
When Philtranco appealed LA Cueto's decision to the NLRC, the
commission reversed and set aside LA Cueto's decision on
September 15, 2011. Unlike LA Cueto, the commission gave
weight to the audited financial statements for the years 2006 and
2007 submitted by Philtranco in the refiled case, but which was
not presented in the prior case. Respondents' motion for
reconsideration before the NLRC was denied on December 13,
2011. Hence, they assailed the reversal via a petition for certiorari
before the CA, which thereafter reinstated LA Cueto's decision.
Issue: W/N The Court of Appeals committed reversible error
when it ruled that individual petitioners Jose Pepito Alvarez,
Arsenio Yap and Centurion Solano were jointly and severally
liable for payment of backwages and other awards.
Held: No. The Court ruled, on the issue of whether or not the
individual petitioners, Jose Pepita Alvarez, Arsenio Yap and
Centurion Solano, who are officers of Philtranco, should be jointly
and severally held liable with petitioner corporation, this Court
finds merit in petitioners' arguments. As pronounced in Lambert
Pawnbrokers and Jewelry Corporation v. Binamira, the lack of
authorized or just cause to terminate one's employment and the
failure to observe due process do not ipso facto mean that the
corporate officer acted with malice or bad faith. There must be
independent proof of malice or bad faith which is lacking in the
present case.
CASE #25
G.R. No. 197032, July 26, 2017
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. PRICE
RICHARDSON CORPORATION, CONSUELO VELARDE-ALBERT,
AND GORDON RESNICK, Respondents.
Facts: Respondent Price Richardson Corporation (Price
Richardson) is a Philippine corporation duly incorporated under
Philippine laws on December 7, 2000. Its primary purpose is “to
provide administrative services which includes but is not limited to
furnishing all necessary and incidental clerical, bookkeeping,
mailing and billing services." On October 17, 2001, its former
employee, Michelle S. Avelino, (Avelino) executed a sworn
affidavit at the National Bureau of Investigation's Interpol
Division, alleging that Price Richardson was "engaged in boiler
room operations, wherein the company sells non-existent stocks
to investors using high pressure sales tactics." Whenever this
activity was discovered, the company would close and emerge
under a new company name.
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The SEC filed a complaint against herein respondents. The
petitioner alleged that Price Richardson was neither licensed nor
registered "to engage in the business of buying and selling
securities within the Philippines or act as salesman, or an
associated person of any broker or dealer." As shown by the
seized documents and equipment, Price Richardson engaged in
seeking clients for the buying and selling of securities, thereby
violating Sections 26.3 and 28 of the Securities Regulation Code.
In defense, the incorporators and directors denied knowing or
agreeing to the offenses charged. They countered that they
already transferred their respective shares to various individuals
in December 2000, as shown by their registered Deeds of
Absolute Sale of Shares of Stock. Velarde-Albert denied the
Securities and Exchange Commission's allegations against her
while Resnick did not submit any evidence refuting the charges.
Respondent Price Richardson insists that Section 28 of the
Securities Regulation Code prohibits anyone from engaging in
the business of buying and selling securities without registration
from the Securities and Exchange Commission if those
transactions are offered "to the public within the Philippines." This
provision does not apply in this case because the alleged buyers
of securities were not citizens of or resided in the Philippines.
Additionally, the allegedly sold or offered securities were
registered outside the Philippines, where the alleged sales also
transpired. Hence, these sales are not under the Philippine
jurisdiction.
Issue: W/N the respondents are liable under Sec. 26.3 and 28 of
the Securities and Regulation Code.
Held: Yes. The complaint alleged that respondents committed
violations of the following:
SECURITIES REGULATION CODE
Section 26. Fraudulent Transactions. – It shall be unlawful for any
person, directly or indirectly, in connection with the purchase or
sale of any securities to:
26.3. Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or deceit
upon any person.
Section 28. Registration of Brokers, Dealers, Salesmen and
Associated Persons. – 28.1. No person shall engage in the
business of buying or selling securities in the Philippines as a
broker or dealer, or act as a salesman, or an associated person
of any broker or dealer unless registered as such with the
Commission.
An examination of the records reveals that probable cause exists
to file an information against respondent Price Richardson for
violating the laws.
Based on the Certification dated October 11, 2001 issued by the
Market Regulation Department of the Securities and Exchange
Commission, respondent Price Richardson "has never been
issued any secondary license to act as broker/dealer in
securities, investment house and dealer in government
securities." Petitioner also certified that respondent Price
Richardson "is not, under any circumstances, authorized or
licensed to engage and/or solicit investments from
clients."However, the documents seized from respondent Price
Richardson's office show possible sales of securities.

Petitioner further supports its charges by submitting the
complaint-affidavits and letters of individuals who transacted with
Price Richardson:
The SEC has submitted the complaint of Mr. Don Sextus
Nilantha, a citizen of Sri Lanka who clearly named Price
Richardson as selling him 1000 shares of Hugo Intl. Telecom,
Inc. sometime in April 2001. At such time, and until today, Price
Richardson was not authorized to act as traders or brokers o[f]
securities in the Philippines.
Furthermore, there are other complainants against Price
Richardson who deserve to have their complaints aired and tried
before the proper court. Mr. Johannes Jacob Van Prooyen filed a
complaint against Price Richardson with the National Bureau of
Investigation . . . In the said complaint, Mr. Van Prooyen clearly
pointed to Price Richardson as the ones who contacted him on
June 12, 2001 to buy 2000 shares of Hugo Intl. Telecom, Inc. and
on July 10, 2001 to buy 2000 shares of GeoAlert. At no time at
such relevant dates was Price Richardson licensed to act as
traders or brokers of securities in the Philippines.
Mr. Bjorn L. Nymann of Oslo, Norway wrote about Price
Richardson to this very same Department of Justice, which letter
was received on July 9, 2002. In his letter Mr. Nymann admitted
dealing with Price Richardson. He admitted to having bought
3000 shares of Hugo Intl. Telecom, Inc. . . . Although Mr. Nymann
is not a complaining witness against Price Richardson, his letter
is relevant as at no time at such relevant date was Price
Richardson licensed to act as traders or brokers of securities in
the Philippines.114
In addition, respondent Price Richardson stated in its
Memorandum:
If this Honorable Court were to consider the set-up of Price
Richardson, it was as if it engaged in outsourced operations
wherein persons located in the Philippines called up persons
located in foreign locations to inform them of certain securities
available in certain locations, and to determine if they wanted to
buy these securities which are offered in a different country.
The evidence gathered by petitioner and the statement of
respondent Price Richardson are facts sufficient enough to
support a reasonable belief that respondent is probably guilty of
the offense charged.
However, respondents Velarde-Albert and Resnick cannot be
indicted for violations of the Securities Regulation Code and the
Revised Penal Code. Petitioner failed to allege the specific acts
of respondents Velarde-Albert and Resnick that could be
interpreted as participation in the alleged violations. There was
also no showing, based on the complaints, that they were
deemed responsible for Price Richardson's violations. A
corporation's personality is separate and distinct from its officers,
directors, and shareholders. To be held criminally liable for the
acts of a corporation, there must be a showing that its officers,
directors, and shareholders actively participated in or had the
power to prevent the wrongful act.
CASE #26
GR No. 201306, Aug 09, 2017
LYDIA LAO v. YAO BIO LIM +
LEONEN, J.:
DOCTRINE: Section 43 of the Corporation Code provides that ". .
. no stock dividend shall be issued without the approval of
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stockholders representing not less than two-thirds (2/3) of the
capital stock
FACTS: PSI was organized with an authorized capital stock of
P2,000,000.00, divided into 20,000 shares with a par value of
P100 per share. Out of this authorized capital stock, 4,600 shares
were subscribed and paid up.
Ong Y. Seng, King's father, had the most number of subscribed
shares, holding 1,200 shares. Before his death, he sought, and
was granted, the approval of the PSI board of directors to transfer
his shares to King. Since then, King had been consistently
elected as a member of the PSI board of directors.
During the special stockholders' meeting, a new set of directors
and officers was elected. Yao Bio Lim was elected President and
King was Vice President.
Lao, the former president, refused to acknowledge the newly
elected directors and officers as well as King's ownership of
1,200 PSI shares. Lao issued a Secretary's Certificate stating that
a board meeting was held on the same date wherein the board of
directors resolved to nullify the transfer to King of the shares
owned by his father.
King discovered that a stockholders' meeting was conducted,
wherein Lao, William Chua Lian (Chua Lian), Jeffrey Ong (Ong),
and Henry Sy were elected as new members of the board of
directors.
King filed a petition before the Securities and Exchange
Commission "to enjoin [Lao, Chua Lian, Ong, and Henry Sy] from
representing themselves as officers and members of the board of
directors of the Philadelphia School, Inc. and to nullify all acts
done and resolutions passed by them. When Republic Act No.
8799 took effect, the case was transferred to Regional Trial Court.
RTC rendered a decision granting King's petition.
King filed a motion for execution, which was granted by the
Regional Trial Court.Lao's group questioned the order of the trial
court granting execution through a petition for certiorari filed
before the Court of Appeals. The Court of Appeals upheld the
validity of the order,[18] which this Court eventually sustained.
Meanwhile, a general stockholders' meeting was held wherein
Lao, Ong, Henry- Sy, Sy Tian Tin, Sy Tian Tin, Jr. and Paul Chua
(petitioners) were elected as members of the board of directors,
with Chua Lian as chairman of the board.
Yao Bio Lim and King filed a Petition before Regional Trial Court
against petitioners, the newly elected board of directors. They
sought, among others, to annul: (1) "the elections held and all
corporate acts of the supposedly new board of directors and
officers of [PSI]," (2) the "issuance of stock dividends," and (3)
the "illegal transfer of shares of stock." They also prayed that
petitioners, together with Chua Lian, be ordered to account for
damages and for the funds and assets of the corporation since
August 1998.
Yao Bio Lim and King averred that, they received the Notice of
meeting informing them about the general stockholders' meeting
to be held on March 15, 2002 at 9:00 a.m. at the PSI's board
room. "The notice, however, did not state the agenda or the
purpose of the meeting." Moreover, they alleged that the Notice
sent to King was still in the name of his father, Ong Y. Seng,
while that sent to Yao Bio Lim included the name of his deceased
father, Yao Chek.

Yao Bio Lim claimed that he acquired his PSI shares from his
father, who owned 300 PSI shares during his lifetime.
Specifically, in 1995, Yao Chek transferred one (1) share to him
and 100 shares to his brother, Yao Tok Lim. After Yao Chek's
death in 1999, his remaining shares were divided among his five
(5) children. Yao Bio Lim's brothers, in turn, agreed to assign their
corresponding shares to Yao Bio Lim and Yao Juan Lim. [26]
During the meeting, "Philip King and a certain Atty. Garaygay
were asked to leave the board room because they were allegedly
not stockholders." On the other hand, Yao Bio Lim was allowed to
vote for only one (1) share during the elections despite the
proxies he held for his brothers, Yao Tok Lim and Yao Juan Lim.
Yao Bio Lim and King further attested that the Securities and
Exchange Commission and the Regional Trial Court had
previously ordered that the stockholders listed in the General
Information Sheet be used as basis for the 2000 and 2001
elections of PSI board of directors. Lao, Chua Lian, Ong, and
Henry Sy allegedly violated these orders when they used a
different list of stockholders during the elections held on March
15, 2002. Moreover, they had purportedly previously issued
300% stock dividends to some stockholders without the required
approval of stockholders representing two-thirds (2/3) of the
outstanding capital stock of PSI.
Finally, Yao Bio Lim and King assailed the transfer of the
following shares of stocks without the required prior notice to all
stockholders, which allegedly deprived them of "the opportunity to
exercise their option to buy the shares"
RTC rendered its decision in favor of Yao Bio Lim and King. The
Court of Appeals affirmed the Regional Trial Court Decision. It
held that there were valid grounds to nullify the March 15, 2002
stockholders' meeting. The Notice of meeting was not sent to the
stockholders at least two (2) weeks prior to the meeting as
required under Section 50 of the Corporation Code. Petitioners
used a schedule of stockholders different from the list contained
in the 1997 General Information Sheet, contrary to previous
orders of the Securities and Exchange Commission and of the
Regional Trial Court.
The Court of Appeals further found that the issuance of 300%
stock dividends was not approved by stockholders representing
two-thirds (2/3) of the outstanding capital stock in violation of
Section 43 of the Corporation Code.
MR was denied. Hence, this petition.
ISSUE: Whether or not the proceeding and elections during
the March 15, 2002 meeting is VALID.
HELD: NO.
FIRST, King's ownership of PSI stocks was finally resolved by
this Court only on April 28, 2011.
By so defying the Order of both the SEC and the RTC as regards
the use of the 1997 [General Information Sheet], [petitioners], in
effect, refused to recognize [respondents'] shareholdings and
their right to vote, thus, rendering void all the acts done during the
meeting, particularly the holding of the election of the officers and
the declaration and issuance of the 300% stock dividend. [54]
While it may be true that SEC Case No. 05-99-6297 and Civil
Case No. Q-01-42972 were finally resolved only on April 28,
2011, the Orders mentioned in the Court of Appeals Decision
were issued before the March 15, 2002 annual stockholders'
meeting. Hence, petitioners were obliged to use the list of
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stockholders indicated in the 1997 General Information Sheet in
compliance with the Orders dated March 13, 2000 and March 23,
2001 issued by the Securities and Exchange Commission and by
the Regional Trial Court, respectively.
The handwritten minutes of the March 22, 1997 meeting offered
by petitioners as proof that the declaration and issuance of stock
dividends were questionable because "it [did] not even indicate
the number of stock dividends to be declared."[60]
SECOND, While the minutes contain the names and signatures
of stockholders who were present at the meeting, the shares held
by each were not indicated. On its face, the minutes did not
readily confirm how many shares were represented and voted at
the meeting, particularly on the stock dividends declaration.
The handwritten minutes of the March 22, 1997 stockholders'
meeting recorded the following:
Quorum established.
Ratified all acts and proceedings of the Board of Directors and
Management
Declaration of stock dividends
Nomination and the election of same Board and Officers in the
preceding years as new Board
Meeting adjourned. 1:05 P.M. (Emphasis supplied)
This Court finds no reversible error on the part of the Court of
Appeals in nullifying the 300% stock dividends, a declaration on
the basis of the following findings of the Regional Trial Court:
[O]n the declaration, issuance and distribution of a three hundred
percent (300%) stock dividend by [petitioners] in favor of certain
stockholders, the evidence shows that the action or actions of the
[petitioners] with respect to the 300% stock dividends was or
were done without the approval of. . . Yao Bio Lim, . . . Philip King
and Lucia Cheng who own and/or are entitled to vote one
thousand nine hundred fifty (1,950) shares of stocks of the
outstanding capital stock of the School of 4,600 shares, or
approximately forty-two percent (42%) of the outstanding capital
stock of the School. The act/s of the [petitioners] violated Section
43 of the Corporation Code which provides that ". . . no stock
dividend shall be issued without the approval of stockholders
representing not less than two-thirds (2/3) of the capital stock[.]"
Petitioners have not presented any cogent reason for this Court
to set aside these findings. Without respondents' and Lucia
Cheng's approval, who held 42% of the outstanding capital stock
of PSI collectively, the required two-thirds (2/3) or 67% vote for
stock dividends declaration prescribed under Section 43 of the
Corporation Code clearly could not have been met.
Regarding the ground that the notice was not sent to the
stockholders at least two (2) weeks prior to the meeting as
required under Section 50 of the Corporation Code, Section 50 of
Batas Pambansa Blg. 68 reads in part:
Section 50. Regular and Special Meetings of Stockholders or
Members. — Regular meetings of stockholders or members shall
be held annually on a date fixed in the by-laws, or if not so fixed,
on any date in April of every year as determined by the board of
directors or trustees: Provided, That written notice of regular
meetings shall be sent to all stockholders or members of record
at least two (2) weeks prior to the meeting, unless a different
period is required by the by-laws. (Emphasis supplied)
Under PSI's by-laws, notice of every regular or special meeting
must be mailed or personally delivered to each stockholder not

less than five (5) days prior to the date set for the meeting. Article
VIII (5) of PSI's by-laws expressly provides:
In this case, the PSI's by-laws providing only for a five (5)-day
prior notice must prevail over the two (2)-week notice under the
Corporation Code. By its express terms, the Corporation Code
allows "the shortening (or lengthening) of the period within which
to send the notice to call a special (or regular) meeting." Thus,
the mailing of the Notice to respondents on March 5, 2002 calling
for the annual stockholders' meeting to be held on March 15,
2002 is not irregular, since it complies with what was stated in
PSI's by-laws.
CASE #27
G.R. No. 211519, August 14, 2017
BANK OF COMMERCE, PETITIONER, VS. HEIRS OF
RODOLFO DELA CRUZ, RESPONDENT.
BERSAMIN, J.:
DOCTRINE: The terms of merger between two corporations,
when determinative of their joint or respective liabilities towards
third parties, cannot be assumed. The party alleging the
corporations' joint liabilities should establish the allegation.
Otherwise, the liabilities of each of them shall be separate.
FACTS: Plaintiff Dela Cruz is the sole owner and proprietor of the
Mamertha General Merchandising (Mamertha), an entity engaged
in sugar trading. He maintained a bank account with defendant
Panasia.
Dela Cruz discovered that Panasia allowed his son, Allan Dela
Cruz to withdraw money from the said bank account/deposit
without his consent and/or authority. Upon discovery, he
immediately instructed Panasia not to allow his son to make any
withdrawals from his bank account and even sent a letter to
Panasia, stating therein that his son, Allan Dela Cruz is neither
authorized to make any withdrawal from his bank account nor
sign any check drawn against the bank account unless with his
written/expressed consent or authority. The said letter was
personally received by Panasia's Grace Park Branch Manager
and Operation Officer.
Despite said instruction and receipt of the letter, Panasia still
allowed and continued to allow Dela Cruz's son, Allan Dela Cruz
to withdraw from the said bank account/deposit without his
knowledge and consent. The unauthorized withdrawals amounted
to Fifty Six Million Two Hundred Twenty Three Thousand Sixty
Six Pesos and 7/100 (P56,223,066.07) as evidenced by
Panasia's banking counter checks.
Dela Cruz demanded from Panasia the restoration of the said
amount to his bank account/deposit. However, despite said
demand, Panasia failed to do so.
Dela Cruz instituted a suit for collection of sum of money against
Panasia to collect the amount of the unauthorized withdrawals on
his bank account/deposit. In the meantime, the Bank of
Commerce demanded payment from Dela Cruz the amount of
Twenty Seven Million One Hundred Fifty Thousand Pesos
(P27,150,000.00). Not having any knowledge of obtaining or
having obtained a loan from the Bank of Commerce, Dela Cruz
upon verification from the said bank discovered that the loan
payment demanded by the bank refers to the loan he obtained
from Panasia and that pursuant to a Purchase and Sale
Agreement entered into between Panasia and Bank of
Commerce, Panasia has been acquired by Bank of Commerce
transferring to the latter the former's assets and liabilities on bank
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deposits.
As a consequence thereof, Dela Cruz demanded from the Bank
of Commerce to pay the liability of Panasia to him and offered to
compensate/set off his secured loan obligation with Panasia in
the amount of P27,150,000.00 by deducting the same from his
outstanding claim of P56,223,066.07. Dela Cruz claimed that he
is entitled to legal compensation or set-off and therefore, the
Bank of Commerce had no right to foreclose the mortgaged
properties since the principal obligation has already been
extinguished.
The Bank of Commerce claimed that it purchased from Panasia
only selected accounts and liabilities. DelaCruz's loan account
who does business under the name and style of Mamertha
General Merchandising was among those acquired by it from
Panasia by virtue of the Purchase and Sale Agreement and Deed
of Assignment both entered into by and between Panasia and
Bank of Commerce. Dela Cruz obtained loans in the principal
amount of P16,650,000.00 and P2,850,000.00 from Panasia
secured by Real Estate Mortgage dated September 2, 1998 and
April 17, 2000 using Transfer Certificate of Title (TCT) Nos.
262200 and 291630. Likewise, Dela Cruz executed six (6)
promissory notes which became past due and demandable and
the former refused to settle his outstanding obligations. Hence, it
filed a petition for extra-judicial foreclosure of real estate
mortgage under Act. 3135, as amended. It had to foreclose on
the mortgage when Dela Cruz refused to pay his obligation and
maintained that Dela Cruz cannot ask for set-off or legal
compensation
After trial, the RTC declared the petitioner and Panasia jointly and
severally liable to the late Rodolfo dela Cruz. It concluded that
dela Cruz had successfully established the negligence of Panasia
in its fudiciary relationship with him by allowing his son to
withdraw from his account despite the lack of authority to
withdraw, and, worse, despite the express instructions of dela
Cruz himself; and that the petitioner's defense that it had not
assumed the liability of Panasia was unworthy of consideration
because common sense dictated that the petitioner, by taking
over Panasia, had absorbed all the assets and liabilities of
Panasia.
On appeal, the CA concurred with the RTC's conclusion, and
affirmed the judgment of the RTC,[5] pointing out that the failure of
the petitioner to formally offer the documents denominated as
Purchase and Sale Agreement and the Deed of Assignment was
fatal to the petitioner's defense of not having assumed Panasia's
liabilities; and that the factual findings by the RTC on the
negligence on the part of Panasia were correct.
Hence, this appeal. It argues that its failure to formally offer the
documents that would prove that it had acquired from Panasia
only selected assets and liabilities was not fatal to its defense
because the genuineness and due execution of the documents
had been alleged to have been admitted by dela Cruz in his
amended complaint and pre-trial brief; that there was no evidence
on which to base its solidary liability for the negligence of
Panasia; and that Panasia had not been negligent in allowing
dela Cruz's son to withdraw from his account because such
withdrawals had been authorized
ISSUE: Whether or not the petitioner was properly held to be
solidarily liable with Panasia for the latter's negligence
HELD: NO. Contrary to the findings and conclusions of the RTC,
the merger of the petitioner and Panasia was not of common

knowledge. It was overly presumptuous for the RTC to thereby
assume the merger because the element of notoriety as basis for
taking judicial notice of the merger was loudly lacking. A merger
is the union of two or more existing corporations in which the
surviving corporation absorbs the others and continues the
combined business. The merger dissolves the non-surviving
corporations, and the surviving corporation acquires all the rights,
properties and liabilities of the dissolved corporations.
Considering that the merger involves fundamental changes in the
corporation, as well as in the rights of the stockholders and the
creditors, there must be an express provision of law authorizing
the merger. The merger does not become effective upon the
mere agreement of the constituent corporations, but upon the
approval of the articles of merger by the Securities and Exchange
Commission issuing the certificate of merger as required by
Section 79 of the Corporation Code.[18] Should any party in the
merger be a special corporation governed by its own charter,
the Corporation Code particularly mandates that a favorable
recommendation of the appropriate government agency should
first be obtained.
It is plain enough, therefore, that there were several specific facts
whose existence must be shown (not assumed) before the
merger of two or more corporations can be declared as
established. Among such facts are the plan of merger that
includes the terms and mode of carrying out the merger and the
statement of the changes, if any, of the present articles of the
surviving corporation; the approval of the plan of merger by
majority vote of each of the boards of directors of the concerned
corporations at separate meetings; the submission of the plan of
merger for the approval of the stockholders or members of each
of the corporations at separate corporate meetings duly called for
the purpose; the affirmative vote of 2/3 of the outstanding capital
in case of stock corporations, or 2/3 of the members in case of
non-stock corporations; the submission of the approved articles
of merger executed by each of the constituent corporations to the
SEC; and the issuance of the certificate by the SEC on the
approval of the merger.
In this case, because dela Cruz's allegation of the merger was
specifically denied by the petitioner, the RTC had absolutely no
factual and legal bases to take constructive notice of any of the
foregoing circumstances. It should have required proof of the
acquisition of the liability of Panasia on the part of the petitioner.
Accordingly, if the RTC and the CA could not reasonably declare
the petitioner solidarily liable with Panasia for the latter's
negligence, the dismissal of the amended complaint of dela Cruz
against the petitioner was in order.
CASE #28
G.R. No. 185894, August 30, 2017
BELO MEDICAL GROUP, INC., Petitioner, v. JOSE L.
SANTOS AND VICTORIA G. BELO, Respondents.
Facts: under Rule 45 of the Rules of Court, Belo Medical Group,
Inc. Assails the Regional Trial Court December 8, 2008 Joint
Resolution in Civil Case No. 08-397. This Joint Resolution
granted respondent Jose L. Santos' (Santos) Motion to Dismiss
and Belo Medical Group's Complaint for interpleader and
Supplemental Complaint for Declaratory Relief against Santos
and Victoria G. Belo, and declared all other pending incidents as
moot.
The controversy began on May 5, 2008 when Belo Medical
Group received a request from Santos for the inspection of
corporate records. Santos claimed that he was a registered
shareholder and a co-owner of Belo's shares, as these were
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acquired while they cohabited as husband and wife. Santos
sought advice on his probable removal as director of the
corporation considering that he was not notified of meetings
where he could have been removed. He also inquired on the
election of Alfredo Henares as Corporate Secretary in 2007 when
Santos had not been notified of a meeting for Henares' possible
election. Finally, he sought explanation on the corporation's
failure to inform him of the 2007 annual meeting and the holding
of an annual meeting in 2008. Santos' concern over the corporate
operations arose from the alleged death of a patient in one (1) of
its clinics.
Santos was unsuccessful in inspecting the corporate books as
Henares, the officer-in-charge of corporate records, was
travelling. Belo Medical Group asked for time in order for Henares
to accommodate Santos' request.
After the first attempt to inspect, Belo wrote Belo Medical Group
on May 14, 2007 to repudiate Santos' co-ownership of her shares
and his interest in the corporation. She claimed that Santos held
the 25 shares in his name merely in trust for her, as she, and not
Santos, paid for these shares. She informed Belo Medical Group
that Santos already had a pending petition with the Regional Trial
Court to be declared as co-owner of her properties. She asserted
that unless a decision was rendered in Santos' favor, he could not
exercise ownership rights over her properties.
Belo also informed Belo Medical Group that Santos had a
business in direct competition with it. She suspected that Santos'
request to inspect the records of Belo Medical Group was a
means to obtain a competitor's business information, and was,
therefore, in bad faith.
A second inspection was attempted through a written demand by
Santos on May 15, 2008.[13] Again, he was unsuccessful.
Belo wrote to Belo Medical Group on May 20, 2008 to reiterate
her objections to Santos' attempts at inspecting corporate books
and his inquiry regarding a patient. Belo further manifested that
she was exercising her right as a shareholder to inspect the
books herself to establish that the 25 shares were not owned by
Santos, and that he did not pay for these shares.
Thus, Belo Medical Group filed a Complaint for Interpleader with
Branch 149, Regional Trial Court, Makati City on May 21, 2008.
Belo Medical Group alleged that while Santos appeared to be a
registered stockholder, there was nothing on the record to show
that he had paid for the shares under his name. The Complaint
was filed "to protect its interest and compel [Belo and Santos] to
interplead and litigate their conflicting claims of ownership of, as
well as the corresponding right of inspection arising from, the
twenty-five (25) [Belo Medical Group] shares between
themselves pursuant to Rule 62 of the 1997 Rules of Civil
Procedure. A conflict between two (2) stockholders of a
corporation does not automatically render their dispute as intra-
corporate. The nature of the controversy must also be examined.
Issue: Whether or not the present controversy is intra-corporate;
Third, whether or not Belo Medical Group, Inc. came to this Court
using the correct mode of appeal.
Held: Yes. This Court now uses both the relationship test and the
nature of the controversy test to determine if an intra-corporate
controversy is present.
Applying the relationship test, this Court notes that both Belo and
Santos are named shareholders in Belo Medical Group's Articles

of Incorporation[94] and General Information Sheet for 2007. The
conflict is clearly intra-corporate as it involves two (2)
shareholders although the ownership of stocks of one stockholder
is questioned. Unless Santos is adjudged as a stranger to the
corporation because he holds his shares only in trust for Belo,
then both he and Belo, based on official records, are stockholders
of the corporation. Belo Medical Group argues that the case
should not have been characterized as intra-corporate because it
is not between two shareholders as only Santos or Belo can be
the rightful stockholder of the 25 shares of stock. This may be
true. But this finding can only be made after trial where ownership
of the shares of stock is decided.
The trial court cannot classify the case based on potentialities.
The two defendants in that case are both stockholders on record.
They continue to be stockholders until a decision is rendered on
the true ownership of the 25 shares of stock in Santos' name. If
Santos' subscription is declared fictitious and he still insists on
inspecting corporate books and exercising rights incidental to
being a stockholder, then, and only then, shall the case cease to
be intra-corporate.
Applying the nature of the controversy test, this is still an intra-
-corporate dispute. The Complaint for interpleader seeks a
determination of the true owner of the shares of stock registered
in Santos' name. Ultimately, however, the goal is to stop Santos
from inspecting corporate books. This goal is so apparent that,
even if Santos is declared the true owner of the shares of stock
upon completion of the interpleader case, Belo Medical Group
still seeks his disqualification from inspecting the corporate books
based on bad faith. Therefore, the controversy shifts from a mere
question of ownership over movable property to the exercise of a
registered stockholder's proprietary right to inspect corporate
books.
LAW ON INTELLECTUAL PROPERTY
CASE #29
G.R. No. 186967, January 18, 2017
DIVINA PALAO, Petitioner, v. FLORENTINO III
INTERNATIONAL, INC., Respondent.
Facts: In its Petition for Cancellation, Florentino claimed that the
utility model covered by Letters Patent No. UM-7789 was not
original, new, or patentable, as it had been publicly known or
used in the Philippines and had even been the subject of several
publications.8 It added that it, as well as many others, had been
using the utility model well before Palao's application for a patent.
In its Decision No. 2007-31, the Bureau of Legal Affairs of the
Intellectual Property Office denied Florentino's Petition for
Cancellation. It noted that the testimony and pictures, which
Florentino offered in evidence, failed to establish that the utility
model subject of Letters Patent No. UM- 7789 was publicly
known or used before Palao's application for a patent.
In its Resolution No. 2008-1412 dated July 14, 2008, the Bureau
of Legal Affairs of the Intellectual Property Office denied
Florentino's Motion for Reconsideration.
On July 30, 2008, Florentino appealed to the Office of the
Director General of the Intellectual Property Office. This appeal's
Verification and Certification of Non-Forum Shopping was signed
by Atty. John Labsky P. Maximo (Atty. Maximo) of the firm Balgos
and Perez. However, Florentino failed to attach to its appeal a
secretary's certificate or board resolution authorizing Balgos and
Perez to sign the Verification and Certification of Non-Forum
Shopping. Thus, on August 14, 2008, the Office of the Director
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General issued the Order requiring Florentino to submit proof that
Atty. Maximo or Balgos and Perez was authorized to sign the
Verification and Certification of Non-Forum Shopping.
In his Order dated September 22, 2008, Intellectual Property
Office Director General Adrian S. Cristobal, Jr. dismissed
Florentino's appeal. He noted that the Secretary's Certificate
pertained to an August 14, 2008 Resolution issued by
Florentino's Board of Directors, and reasoned that the same
Certificate failed to establish the authority of Florentino's counsel
to sign the Verification and Certification of Non-Forum Shopping
as of the date of the filing of Florentino's appeal
Florentino then filed before the Court of Appeals a Petition for
Review under Rule 43 of the 1997 Rules of Civil Procedure. In its
assailed January 8, 2009 Decision, the Court of Appeals faulted
Director General Cristobal for an overly strict application of
procedural rules. Thus, it reversed Director General Cristobal's
September 22, 2008 Order and reinstated Florentino's appeal.
Issue: Whether the Court of Appeals erred in reversing the Order
of Intellectual Property Office Director General Adrian S.
Cristobal, Jr., and in reinstating respondent Florentino III
International, Inc.'s appeal.
Held: Yes. The need for a certification of non-forum shopping to
be attached to respondent's appeal before the Office of the
Director General of the Intellectual Property Office is established.
These requirements notwithstanding, the Intellectual Property
Office's own Regulations on Inter Partes Proceedings specify
that the Intellectual Property Office "shall not be bound by the
strict technical rules of procedure and evidence.
It is reasonable, therefore—consistent with the precept of liberally
applying procedural rules in administrative proceedings, and with
the room allowed by jurisprudence for substantial compliance
with respect to the rule on certifications of non-forum shopping—
to construe the error committed by respondent as a venial lapse
that should not be fatal to its cause. We see here no "wanton
disregard of the rules or [the risk of] caus[ing] needless delay in
the administration of justice." On the contrary, construing it as
such will enable a full ventilation of the parties' competing claims.
As with Philippine Public School Teachers Association, we
consider it permissible to set aside, pro hac vice, the procedural
defect. Thus, we sustain the ruling of the Court of Appeals.
CASE #30
G.R. No. 188996. February 1, 2017
SERI SOMBOONSAKDIKUL, petitioner, vs. ORLANE S.A.,
respondent.
Doctrine: A trademark is defined under Section 121.1 of RA
8293 as any visible sign capable of distinguishing the goods. It is
susceptible to registration if it is crafted fancifully or arbitrarily and
is capable of identifying and distinguishing the goods of one
manufacturer or seller from those of another. In determining
colorable imitation, the Court has used either the dominancy test
or the holistic or totality test.
Facts: On September 23, 2003, petitioner Seri Somboonsakdikul
filed an application for registration of the mark LOLANE with the
IPO for goods classified under Class 3 (personal care products)
of the International Classification of Goods and Services for the
Purposes of the Registration of Marks. Orlane S.A. (respondent)
filed an opposition to petitioner's application, on the ground that
the mark LOLANE was similar to ORLANE in presentation,

general appearance and pronunciation, and thus would amount
to an infringement of its mark. Orlane alleged that: (1) it was the
rightful owner of the ORLANE mark which was first used in 1948;
(2) the mark was earlier registered in the Philippines on July 26,
1967 for the following goods: x x x perfumes, toilet water, face
powders, lotions, essential oils, cosmetics, lotions for the hair,
dentrifices, eyebrow pencils, make-up creams, cosmetics & toilet
preparations under Registration No. 12996; and (3) on
September 5, 2003, it filed another application for use of the
trademark on its additional cosmetic products.
Orlane adds that by promotion, worldwide registration,
widespread and high standard use, the mark had acquired
distinction, goodwill, superior quality image and reputation and
was now well-known. Imputing bad faith on the petitioner, Orlane
claimed that LOLANE' s first usage was only on August 19, 2003.
In his answer, petitioner denied that the LOLANE mark was
confusingly similar to the mark ORLANE. He averred that he was
the lawful owner of the mark LOLANE which he has used for
various personal care products sold worldwide. He alleged that
the first worldwide use of the mark was in Vietnam on July 4,
1995. Petitioner also alleged that he had continuously marketed
and advertised Class 3 products bearing LOLANE mark in the
Philippines and in different parts of the world and that as a result,
the public had come to associate the mark with him as provider of
quality personal care products. Petitioner maintained that the
marks were distinct and not confusingly similar either under the
dominancy test or the holistic test. The mark ORLANE was in
plain block upper case letters while the mark LOLANE was
printed in stylized word with the second letter L and the letter A
co-joined.
Bureau of Legal Affairs (BLA): rejected petitioner's application,
finding that Orlane's application was filed, and its mark registered,
much earlier. The BLA ruled that there was likelihood of
confusion based on the following observations: (1) ORLANE and
LOLANE both consisted of six letters with the same last four
letters - LANE; (2) both were used as label for similar products;
(3) both marks were in two syllables and that there was only a
slight difference in the first syllable; and (4) both marks had the
same last syllable so that if these marks were read aloud, a
sound of strong similarity would be produced and such would
likely deceive or cause confusion to the public as to the two
trademarks.
Director General of the IPO: Affirmed the decision of the BLA
Director
CA: On appeal, denied the petition and held that there exists
colorable imitation of respondent's mark by LOLANE. Applying
the dominancy test, the CA ruled that LOLANE' s mark is
confusingly or deceptively similar to ORLANE. There are
predominantly striking similarities in the two marks including
LANE, with only a slight difference in the first letters, thus the two
marks would likely cause confusion to the eyes of the public. The
similarity is highlighted when the two marks are pronounced
considering that both are one word consisting of two syllables.
The CA rejected petitioner's assertion that his products' cheaper
price and low-income market eliminates the likelihood of
confusion. Low-income groups, and even those who usually
purchased ORLANE products despite the higher cost, may be led
to believe that LOLANE products are low-end personal care
products also marketed by respondent. The CA upheld the
applicability of the dominancy test in this case.
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Issue: Whether there is confusing similarity between ORLANE
and LOLANE which would bar the registration of LOLANE before
the IPO
Held: No, there is no confusing similarity between ORLANE and
LOLANE which would bar the registration of LOLANE before the
IPO. The Court ruled that the CA erred when it affirmed the
Decision of the IPO.
In determining colorable imitation, we have used either the
dominancy test or the holistic or totality test. The dominancy test
considers the similarity of the prevalent or dominant features of
the competing trademarks that might cause confusion, mistake,
and deception in the mind of the purchasing public. More
consideration is given on the aural and visual impressions
created by the marks on the buyers of goods, giving little weight
to factors like prices, quality, sales outlets, and market segments.
On the other hand, the holistic test considers the entirety of the
marks as applied to the products, including the labels and
packaging, in determining confusing similarity. The focus is not
only on the predominant words but also on the other features
appearing on the labels.
There is no colorable imitation between the marks LOLANE and
ORLANE which would lead to any likelihood of confusion to the
ordinary purchasers. A trademark is defined under Section 121.1
of RA 8293 as any visible sign capable of distinguishing the
goods. It is susceptible to registration if it is crafted fancifully or
arbitrarily and is capable of identifying and distinguishing the
goods of one manufacturer or seller from those of another. Thus,
the mark must be distinctive.
In determining the likelihood of confusion, the Court must
consider: [a] the resemblance between the trademarks; [b] the
similarity of the goods to which the trademarks are attached; [c]
the likely effect on the purchaser and [d] the registrant's express
or implied consent and other fair and equitable considerations.
Likewise, the Court finding that LOLANE is not a colorable
imitation of ORLANE due to distinct visual and aural differences
using the dominancy test, it no longer finds necessary to discuss
the contentions of the petitioner as to the appearance of the
marks together with the packaging, nature of the goods
represented by the marks and the price difference, as well as the
applicability of foreign judgments. The Court ruled that the mark
LOLANE is entitled to registration.
CASE #31
FRIETRANS MANUFACTURING CORP. vs. DAVIDOFF ET.
CIE SA & JAPAN TOBACCCO, INC.
G.R. No. 197482, March 6, 2017
FACTS: Davidoff Et. Cie SA (Davidoff) and Japan Tobacco, Inc.
(JTI) [collectively, respondents] were non-resident foreign
corporations. Meanwhile, petitioner Forietrans Manufacturing
Corporation (FMC) was a domestic corporation.
Business Profiles Inc. (BPI) as respondent’s private investigator
reported to respondents that "there were counterfeit Davidoff and
JTI products, or products bearing colorable imitation of Davidoff
and JTI products, or which are confusingly or deceivingly similar
to Davidoff and JTI registered trademarks, being manufactured
and stored" in FMC' s warehouses. Armed with such information,
Sycip Law Firm as their representative then sought the
assistance of the CIDG and the latter responded to by applying
for four search warrants that led to the search at the FMC’s
premises where several boxes containing raw tobacco,

cigarettes, cigarette packs, and cigarette reams bearing the name
DAGETA and DAGETA International. With the seized items as
evidence, three separate Complaint-Affidavits were filed before
the Office of the Provincial Prosecutor of San Fernando,
Pampanga charging FMC and its employees· with violation of
Republic Act No. 8293, or the Intellectual Property Code of the
Philippines (IP Code). However, the complaints were dismissed
by both the Regional Trial Court and Secretary on Justice as
there was no probable cause when the search warrants were
obtained, but such finding was overturned by the Court of
Appeals, hence, this petition.
ISSUE: Whether there was violation of the RA No. 8293
(Intellectual Property Code).
HELD: YES. Both Prosecutor Macabulos and Secretary
Gonzalez disregarded the foregoing evidence of respondents and
confined their resolutions on the finding that there is an obvious
difference between the names "Davidoff' and "Dageta."
Petitioners likewise rely on this finding and did not bother to
refute or explain the alleged similarities in the packaging of
Davidoff and Dageta cigarettes. While we agree that no confusion
is created insofar as the names "Davidoff' and "Dageta" are
concerned, we cannot say the same with respect to the
cigarettes' packaging. Indeed there might be differences when
the two are compared. We have, in previous cases, noted that
defendants in cases of infringement do not normally copy but only
make colorable changes. The most successful form of copying is
to employ enough points of similarity to confuse the public, with
enough points of difference to confuse the courts.
CASE #32
G.R. No. 186088, March 22, 2017
WILTON DY and/or PHILITES ELECTRONIC & LIGHTING
PRODUCTS, Petitioner vs KONINKLIJKE PHILIPS
ELECTRONICS, N.V., Respondent
SERENO, CJ.:
DOCTRINE: In determining similarity and likelihood of confusion,
jurisprudence has developed two tests: the dominancy test, and
the holistic or totality test.34 On one hand, the dominancy test
focuses on "the similarity of the prevalent or dominant features of
the competing trademarks that might cause confusion, mistake,
and deception in the mind of the purchasing public. Duplication or
imitation is not necessary; neither is it required that the mark
sought to be registered suggests an effort to imitate. Given more
consideration are the aural and visual impressions created by the
marks on the buyers of goods, giving little weight to factors like
prices, quality, sales outlets, and market segments. " 35 On the
other hand, the holistic or totality test necessitates a
"consideration of the entirety of the marks as applied to the
products, including the labels and packaging, in determining
confusing similarity. The discerning eye of the observer must
focus not only on the predominant words, but also on the other
features appearing on both labels so that the observer may draw
conclusion on whether one is confusingly similar to the other." 36
FACTS: Petitioner PHILITES filed a trademark application
covering its fluorescent bulb, incandescent light, starter and
ballast. After publication, respondent Koninklijke Philips
Electronics, N .V. ("PHILIPS") filed a Verified Notice of Opposition
on the ground that PHILITES' registration will mislead the public
over an identical or confusingly similar mark of PHILIPS, which is
registered and internationally well-known mark.
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IPP-BLA Director rendered a Decision8 denying the Opposition.
Upon appeal, the IPP-DG rendered a Decision11, affirming the
ruling of the IPP-BLA.
CA granted the Petition for Review. The application for trademark
registration of respondent Wilton Dy and/or Philites Electronic &
Lighting Products is DISMISSED. In so ruling, the CA reasoned
that the "drawing of the trademark submitted by [petitioner] has a
different appearance from that of [petitioner's] actual wrapper or
packaging that contain the light bulbs, which We find confusingly
similar with that of [respondent's] registered trademark and
packaging." Moreover, it found to be "self-serving [petitioner's]
asseveration that the mark 'PHILITES' is a coined or arbitrary
mark from the words 'Philippines' and 'lights.' Of all the marks that
[petitioner] could possibly think of for his light bulbs, it is odd that
[petitioner] chose a mark with the letters 'PHILI,' which are the
same prevalent or dominant five letters found in [respondent's]
trademark 'PHILIPS' for the same products, light bulbs." Hence,
the appellate court concluded that petitioner had intended to ride
on the long-established reputation and goodwill of respondent's
trademark.
Hence, this petition.
ISSUES:
1. Whether or not respondent's mark is a registered and
well-known mark in the Philippines; and
2. Whether or not the mark applied for by petitioner is
identical or confusingly similar with that of respondent.
RULING: Yes to both.
1. Respondent's mark is a registered and well-known mark in the
Philippines.
Rule l00(a) of the Rules and Regulations on Trademarks, Service
Marks, Tradenames and Marked or Stamped Containers defines
"competent authority" in the following manner:
(c) "Competent authority" for purposes of determining whether a
mark is well-known, means the Court, the Director General, the
Director of the Bureau of Legal Affairs, or any administrative
agency or office vested with quasi-judicial or judicial jurisdiction to
hear and adjudicate any action to enforce the rights to a mark.
As found by the High Court in Philips Export B.V. vs Court of
Appeals, PHILIPS is a trademark or trade name which was
registered as far back as 1922, and has acquired the status of a
well-known mark in the Philippines and internationally as well.
2. Petitioner seeks to register a mark nearly resembling that
of respondent, which may likely to deceive or cause confusion
among consumers.
Despite respondent's diversification to numerous and varied
industries,33 the records show that both parties are engaged in
the same line of business: selling identical or similar goods such
as fluorescent bulbs, incandescent lights, starters and ballasts.
In determining similarity and likelihood of confusion,
jurisprudence has developed two tests: the dominancy test, and
the holistic or totality test.34
On one hand, the dominancy test focuses on "the similarity of the
prevalent or dominant features of the competing trademarks that
might cause confusion, mistake, and deception in the mind of the
purchasing public. Duplication or imitation is not necessary;

neither is it required that the mark sought to be registered
suggests an effort to imitate. Given more consideration are the
aural and visual impressions created by the marks on the buyers
of goods, giving little weight to factors like prices, quality, sales
outlets, and market segments. "35
On the other hand, the holistic or totality test necessitates a
"consideration of the entirety of the marks as applied to the
products, including the labels and packaging, in determining
confusing similarity. The discerning eye of the observer must
focus not only on the predominant words, but also on the other
features appearing on both labels so that the observer may draw
conclusion on whether one is confusingly similar to the other."
Applying the dominancy test in the instant case, it shows the
uncanny resemblance or confusing similarity between the
trademark applied for by respondent with that of petitioner's
registered trademark. An examination of the trademarks shows
that their dominant or prevalent feature is the five-letter "PHILI",
"PHILIPS" for petitioner, and "PHILITES" for respondent. The
marks are confusingly similar with each other such that an
ordinary purchaser can conclude an association or relation
between the marks. The consuming public does not have the
luxury of time to ruminate the phonetic sounds of the trademarks,
to find out which one has a short or long vowel sound. At bottom,
the letters "PHILI'' visually catch the attention of the consuming
public and the use of respondent's trademark will likely deceive or
cause confusion. Most importantly, both trademarks are used in
the sale of the same goods, which are light bulbs. 37
Applying 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. A comparison
between petitioner's registered trademark "PHILIPS'' as used in
the wrapper or packaging of its light bulbs and that of
respondent's applied for trademark "PHILITES" as depicted in the
container or actual wrapper/packaging of the latter's light bulbs
will readily show that there is a strong similitude and likeness
between the two trademarks that will likely cause deception or
confusion to the purchasing public. The fact that the parties'
wrapper or packaging reflects negligible differences considering
the use of a slightly different font and hue of the yellow is of no
moment because taken in their entirety, respondent's trademark
"PHILITES" will likely cause confusion or deception to the
ordinary purchaser with a modicum of intelligence. 38
CASE #33
G.R. No. 221717, June 19, 2017
MANG INASAL PHILIPPINES, INC., petitioner, vs. IFP
MANUFACTURING CORPORATION, respondent.
Doctrine: A mark that is similar to a registered mark or a mark
with an earlier filing or priority date (earlier mark) and which is
likely to cause confusion on the part of the public cannot be
registered with the IPO. The concept of confusion, which is at the
heart of the proscription, could either refer to confusion of goods
or confusion of business. Confusion, in either of its forms, is only
possible when the goods or services covered by allegedly similar
marks are identical, similar or related in some manner.
Facts: The Trademark Application and the Opposition
Respondent IFP Manufacturing Corporation is a local
manufacturer of snacks and beverages. IFP Manufacturing Corp.
filed an application for the registration of the mark, “OK Hotdog
Inasal Cheese Hotdog Flavor Mark”, in connection with goods
under Class 30 of the Nice Classification. It was intended to be
used on one of its curl snack products. However, the said
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application was opposed by Mang Inasal, that owned the mark,
“Mang Inasal, Home of Real Pinoy Style Barbecue and Device”,
for services under Class 43. It has been registered with the IPO
in 2006 and has been used by petitioner since 2003.
Petitioner contended that the registration of OK Hotdog is
prohibited under Sec. 123.1d of R.A. 8293. The OK Hotdog and
Mang Inasal marks share similarities, as to their appearance and
to the goods or services they represent, thus suggesting a false
connection or association between the said marks, and would
likely cause confusion to the public. Petitioner avers that:
1. The OK Hotdog Inasal mark is similar to the Mang Inasal mark.
Both marks feature the same dominant element-i.e., the word
"INASAL"-printed and stylized in the exact same manner, viz:
a. In both marks, the word "INASAL" is spelled using the
same font style and red color;
b. In both marks, the word "INASAL" is placed inside the
same black outline and yellow background; and
c. In both marks, the word "INASAL" is arranged in the
same staggered format.
2. The goods that the OK Hotdog Inasal mark is intended to
identify (i.e., curl snack products) are also closely related to the
services represented by the Mang Inasal mark (i.e., fast food
restaurants). Both marks cover inasal or inasal-flavored food
products.
Petitioner's opposition was referred to the Bureau of Legal Affairs
(BLA) of the IPO for hearing and disposition.
BLA: dismissed petitioner’s opposition
Director General of the IPO: affirmed such dismissal. On the
ground that:
1. There are other words found in the OK Hotdog Inasal
mark that are not present in the Mang Inasal mark.
2. The underlying goods and services are not closely
related
CA: denied the appeal of the petitioner. MR was also denied.
Issue: Whether or not the trademark “OK Hotdog Inasal” may be
registered?
Held: No. Sec.123.1d provides that a mark that is similar to a
registered mark or a mark with an earlier filing, and which is likely
to cause confusion on the part of the public cannot be registered
with the IPO. The concept of the confusion could refer to the
confusion of goods or confusion of business. Confusion, in both
forms, is only possible when the goods or services covered by
allegedly similar marks are identical, similar, or related in some
manner.
To fall under the ambit of Sec. 123.1d and be regarded as likely
to deceive or cause confusion, a prospective mark must meet two
minimum conditions:
1. The prospective mark must nearly resemble or be similar to an
earlier mark; and
a. The OK Hotdog Inasal Mark is Similar to the Mang
Inasal Mark. Similarity does not mean absolute identity
of marks. It is enough that a prospective mark be a
colorable imitation of the former. Colorable imitation
denotes such likeness in form, content, words, sound,
meaning, special arrangement or general appearance
of one mark with respect to another as would likely
mislead an average buyer in the ordinary course of
purchase.

b. In determining whether there is similarity or colorable
imitation, authorities may use two tests:
i. Dominancy Test focuses on the similarity of the
prevalent features of the competing trademark
which might cause confusion or deception. If the
competing trademark contains the main, essential
or dominant features of another, and confusion or
deception is likely to result, infringement takes
place. The question is whether the use of the
marks involved is likely to cause confusion or
mistake in the mind of the public or deceive
purchasers.
ii. Holistic Test requires that the entirety of the
marks in question be considered in resolving
confusing similarity. The trademarks in their
entirety as they appear in their respective labels
or hang tags must also be considered in relation
to the goods to which they are attached.
iii. Recent case law seems to indicate an
overwhelming judicial preference to applying the
dominancy test.
iv. In the mark, the word “INASAL” is dominant and
the way it is stylized is similar to Mang Inasal’s. It
is a descriptive term that cannot be appropriated,
but the way it is stylized is not. Thus, Mang Inasal
can claim exclusive use of such element. Even if
there are differences, the average buyer would
pay more attention to the prominent feature
compared to the peripheral details.
2. The prospective mark must pertain to goods or services that
are either identical, similar or related to the goods or services
represented by the earlier mark.
a. Related goods and services are those that, though non-
identical or non-similar, are so logically connected to
each other that they may reasonably be assumed to
originate from one manufacturer or from economically-
linked manufacturers. In determining whether goods or
services are related, several factors may be recognized:
i. The business (and its location) to which the goods
belong;
ii. The class of product to which the goods belong;
iii. The product’s quality, quantity, or size, including the
nature of the package, wrapper or container;
iv. The nature and cost of the articles;
v. The descriptive properties, physical attributes or
essential characteristics with reference to their form,
composition, texture or quality;
vi. The purpose of the goods;
vii. Whether the article is bought for immediate
consumption, that is, day-to-day household items;
viii. The fields of manufacture;
ix. The conditions under which the article is usually
purchased; and
x. The channels of trade through which the goods flow,
how they are distributed, marketed, displayed, and
sold.
A very important circumstance is whether there exists a likelihood
that an appreciable number of ordinarily prudent purchasers will
be misled, or simply confused, as to the source of the goods in
question. The simulation, in order to be objectionable, must be
such as appears likely to mislead the ordinary intelligent buyer
who has a need to supply and is familiar with the article that he
seeks to purchase.
b. The two are related as it may lead to a confusion of business.
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Petitioner uses the Mang Inasal mark in connection with its
restaurant services that is particularly known for its chicken
inasal. The mark has been used for petitioner’s business
since 2003. Respondent seeks to market under the OK
Hotdog Inasal mark curl snack products which it publicizes
as having a cheese hotdog inasal flavor. It is the fact that the
underlying goods and servicesthat involve inasal and inasal-
flavored products ultimately fixes the relations between such
goods and services. Thus, an average buyer is likely to be
confused as to the true source of such curls.
CASE #34
G.R. No.217194, September 6, 2017
SOCIETE DES PRODUCTS NESTLE SA. , Petitoner VS
PUREGOLD PRICE CLUB, INC., Respondent
Doctrine: In determining similarity or 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 trademarks that might
cause confusion and deception. 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.
Facts: On 14 June 2007, Puregold filed an application for the
registration of the trademark "COFFEE MATCH" with the
lntellectual Property Office (IPO). The registration was filed by
Puregold for use on coffee, tea, cocoa, sugar, artificial coffee,
flour and preparations made from cereals, bread, pastry and
confectionery, and honey under Class 30 of the International
Classification of Goods.
On 5 December 2008, Nestle filed an opposition against
Puregold's application for registration. Nestle alleged that it is the
exclusive owner of the "COFFEE-MATE" trademark and that
there is confusing similarity between the "COFFEE-MATE"
trademark and Puregold's "COFFEE MATCH" application. Nestle
alleged that "COFFEE-MATE" has been declared an
internationally well-known mark and Puregold's use of "COFFEE
MATCH" would indicate a connection with the goods covered in
Nestle's "COFFEE-MATE" mark because of its distinct similarity.
Nestle claimed that it would suffer damages if the application
were granted since Puregold's "COFFEE MATCH" would likely
mislead the public that the mark originated from Nestle.
Issue: Whether or not there is confusing similarity between the
COFFEE-MATE trademark and COFFEE-MATCH trademark?
Held: No. We agree with the findings of the BLA-IPO and ODG-
IPO. The distinctive features of both marks are sufficient to warn
the purchasing public which are Nestle's products and which are
Puregold's products. While both "-MATE" and "MATCH" contain
the same first three letters, the last two letters in Puregold's mark,
"C" and "H," rendered a visual and aural character that made it
easily distinguishable from Nestle's mark. Also, the
distinctiveness of Puregold's mark with two separate words with
capital letters "C" and "M" made it distinguishable from Nestle's
mark which is one word with a hyphenated small letter "-m" in its
mark. In addition, there is a phonetic difference in pronunciation
between Nestle's "-MATE" and Puregold's "MATCH." As a result,
the eyes and ears of the consumer would not mistake Nestle's
product for Puregold's product. Accordingly, this Court sustains
the findings of the BLA-IPO and ODG-IPO that the likelihood of
confusion between Nestle's product and Puregold's product does
not exist and upholds the registration of Puregold's mark.

CASE #35
G.R. No. 221732, August 23, 2017
FERNANDO U. JUAN, petitioner vs ROBERTO U. JUAN
(SUBSTITUTED BY HIS SON JEFFREY C. JUAN) and
LAUNDROMATIC CORPORATION, Respondents
Doctrine: By their very definitions, copyright and trade or service
name are different. Copyright is the right of literary property as
recognized and sanctioned by positive law. An intangible,
incorporeal right granted by statute to the author or originator of
certain literary or artistic productions, whereby he is invested, for
a limited period, with the sole and exclusive privilege of
multiplying copies of the same and publishing and selling them.
Trade name, on the other hand, is any designation which (a) is
adopted and used by person to denominate goods which he
markets, or services which he renders, or business which he
conducts, or has come to be so used by other, and (b) through its
association with such goods, services or business, has acquired
a special significance as the name thereof, and ( c) the use of
which for the purpose stated in (a) is prohibited neither by
legislative enactment nor by otherwise defined public policy.
Facts: Respondent Roberto U. Juan claimed that he began using
the name and mark "Lavandera Ko" in his laundry business on
July 4, 1994. He then opened his laundry store at No. 119 Alfaro
St., Salcedo St., Makati City in 1995. Thereafter, on March 17,
1997, the National Library issued to him a certificate of copyright
over said name and mark. Respondent Roberto then formed a
corporation to handle the said business, hence, Laundromatic
Corporation (Laundromatic) was incorporated in 1997, while
"Lavandera Ko" was registered as a business name on
November 13, 1998 with the Department of Trade and Industry
(DTI). Thereafter, respondent Roberto discovered that his
brother, petitioner Fernando was able to register the name and
mark "Lavandera Ko" with the Intellectual Property Office (/PO)
on October 18, 2001, the registration of which was filed on June
5, 1995. Respondent Roberto also alleged that a certain Juliano
Nacino (Juliano) had been writing the franchisees of the former
threatening them with criminal and civil cases if they did not stop
using the mark and name "Lavandera Ko." It was found out by
respondent
Thus, respondent Roberto filed a petition for injunction, unfair
competition, infringement of copyright, cancellation of trademark
and name with/and prayer for TRO and Preliminary Injunction
with the Regional Trial Court (RTC).
The RTC rendered a Resolution dated September 23, 2013,
dismissing the petition and ruling that neither of the parties had a
right to the exclusive use or appropriation of the mark "Lavandera
Ko" because the same was the original mark and work of a
certain Santiago S. Suarez (Santiago). According to the RTC, the
mark in question was created by Suarez in 1942 in his musical
composition called, "Lavandera Ko" and both parties of the
present case failed to prove that they were the originators of the
same mark.
Issue: Whether or not the RTC erred in denying the parties the
proper determination as to who has the ultimate right to use the
said trade name?
Held: Yes. "Lavandera Ko," the mark in question in this case is
being used as a trade name or specifically, a service name since
the business in which it pertains involves the rendering of laundry
services. Under Section 121.1 of R.A. No. 8293, "mark" is defined
as any visible sign capable of distinguishing the goods
(trademark) or services (service mark) of an enterprise and shall
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include a stamped or marked container of goods. As such, the
basic contention of the parties is, who has the better right to use
"Lavandera Ko" as a service name because Section 165.i3 of the
said law, guarantees the protection of trade names and business
names even prior to or without registration, against any unlawful
act committed by third parties. A cause of action arises when the
subsequent use of any third party of such trade name or business
name would likely mislead the public as such act is considered
unlawful.
SPECIAL COMMERCIAL LAWS
CASE #36
March 15, 2017 G.R. No. 193069
NSC HOLDINGS (PHILIPPINES), INC., Petitioner vs TRUST
INTERNATIONAL PAPER CORPORATION (TIPCO) and ATTY.
MONICO JACOB, Respondents
FACTS: Trust International Paper Corporation (TIPCO) is a pulp
and paper manufacturing company organized and existing under
the laws of the Republic of the Philippines. On 29 July 2005,
TIPCO filed a "Petition for Corporate Rehabilitation with Prayer
for Suspension of Payments" before the RTC. The trial court
issued a Stay Order directing the appointment of respondent Atty.
Monico Jacob as the rehabilitation receiver (Receiver).
NSC filed its "Comment with Motion," alleging that certain
receivables, as well as the authority to collect payments for these
receivables, were being held by TIPCO for and on behalf of NSC
as its agent. This was pursuant to a Trade Receivables Purchase
and Sale Agreement (TRPSA) entered into by both parties. NSC
claimed that under the TRPSA, it entered into a Certificate of
Assignment with TIPCO. In that agreement, the latter sold and
assigned receivables to NSC in the total amount of ₱l55,380,590
NSC claimed that it was a trustor, not a creditor, of TIPCO. As
such, it moved that TIPCO be directed to segregate the
receivables held by the latter on behalf of NSC. These
receivables would thereby be excluded from TlPCO's list of
assets and payables that would be subject to the rehabilitation
plan. NSC likewise prayed that TIPCO be ordered to directly
remit any collection or payment to the former as soon as
practicable.
During the initial hearing, the Court summarily heard NSC's
contentions as well as TIPCO's counter-argument that the true
agreement was really one of a loan. Afterwards, the RTC issued
an Order holding that both parties had "agreed to submit the
issue that receivables transferred to NSC should not be included
as TIPCO's assets for the resolution of the Court-appointed
Rehabilitation Receiver, subject to the Court's approval."
The RTC issued the First Order (approved TIPCO's proposed
rehabilitation plan) and Second Order (treated NSC's prior
Motion as a motion for reconsideration. Consequently, it denied
the Motion for being a prohibited pleading). Subsequently, due to
strong insistence of the parties of their respective positions with
respect to the nature of TIPCO’s obligation to NSC, the Receiver
rendered the opinion that the issue raised needed to be litigated
separately, as to make a recommendation thereon was not within
his competence. He also said that the approval of the
rehabilitation plan need not be affected, since the plan also
called for the payment of TIPCO's obligation to NSC. The RTC
agreed with the Receiver’s recommendation in its assailed
Omnibus Order (Third Order). The RTC finds the Receiver's
position, namely, that the issues involved would require a full
blown litigation, justified. Considering that the rehabilitation plan
calls for the payment of the obligation of petitioner to NSC, the

implementation of the rehabilitation plan shall not be suspended
because of the pendency of this issue. xxx While the parties may
decide to elevate the matter for determination in an appropriate
court, the rehabilitation plan shall continue to be implemented
without prejudice to a final and executory decision on such issue.
Aggrieved, petitioner NSC appealed the Third Order before the
CA. The CA dismissed NSC's appeal and affirmed the Third
Order in toto. According to the appellate court, petitioner
essentially moved to amend the approved rehabilitation plan in
the latter's petition. Hence, petitioner should have appealed the
First, and not the Third Order of the RTC, as it was the First
Order that had approved the rehabilitation plan. The failure to
appeal the First Order supposedly rendered it final and executory
and effectively prevented NSC from challenging the
recommendations made by the Receiver. For the CA, NSC could
no longer insist that the receivables be excluded from TIPCO's
assets. The appellate court held that this matter had already been
addressed and resolved by the RTC when the latter approved the
rehabilitation plan in its First Order.
ISSUE: Whether or not petitioner could still raise the issue before
the CA of its inclusion as a creditor in the approved rehabilitation
plan, considering that the RTC had already resolved this issue in
the First Order? NO.
 NSC is barred from raising before the CA the issue of
its inclusion as a creditor in the approved rehabilitation
plan.
The RTC in its First Order determined that NSC was a creditor
whose claims must be paid in accordance with the approved
rehabilitation plan. It must be emphasized that this determination
was made after addressing NSC's contentions and TIPCO's
counter-allegations with respect to the receivables in the initial
hearing as well as in the Receiver's
It must also be noted that after the initial hearing, the
RTC issued an Order stating that both parties had "agreed to
submit the issue that receivables transferred to NSC should not
be included as TIPCO's assets for the resolution of the Court-
appointed Rehabilitation Receiver, subject to the Court's
approval."41 Accordingly, the trial court adopted the findings of the
Receiver in his Report. It approved the inclusion of NSC in the
plan as a creditor and the payment of the latter's claims over the
receivables in accordance with the approved rehabilitation plan.
Definitely, the RTC was able to resolve the issue of the inclusion
of NSC as a creditor in the plan. Thus, the latter was wrong in its
contention that the First Order did not resolve its contentions. On
the contrary, it is an order that definitely settled the issue.
This makes it a final order with respect to that issue.
Therefore, pursuant to the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules), 42 petitioner should have
ventilated its discontent with the First Order via a Rule 43 petition
for review before the CA, and not through a mere motion before
the RTC. However, the records show that NSC failed to file such
a petition before the CA within 15 days from the former's receipt
of the First Order. Instead, it filed a motion before the RTC. That
motion, however, did not stop the First Order from lapsing into
finality. Clearly, NSC availed of the wrong remedy and the issue
on its inclusion as a creditor in the approved rehabilitation plan
has already lapsed into finality. Therefore, the CA was correct in
denying its appeal.
 The Second and the Third Orders did not modify or
reverse the First Order.
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It cannot be said that it is the Second or Third Orders
that should be appealed by petitioner. The Second and the Third
Orders were acts of the RTC that were distinct and separate from
the First Order. They did not reverse or modify it. Nowhere did
the foregoing orders modify the validity, content, or immediate
enforceability of the First Order or the approved rehabilitation
plan.
As the trial court pronounced in its Third Order, "[w]hi le
the parties may decide to elevate the matter for determination in
an appropriate court, the rehabilitation plan shall continue to be
implemented without prejudice to a final and executory decision
on such issue." The terms of the approved rehabilitation plan
were therefore not conditioned on the results of the separate
litigation. The plan stands on its own, whether or not a separate
action was initiated by the parties. Should they opt to initiate such
action and a decision be issued on the issue, only then will the
RTC resolve the effect of the decision on the approved
rehabilitation plan. Until then, the matter remains beyond the
appellate jurisdiction of this Court.
 The motion to rehabilitation plan denied by the RTC.
In view of our conclusion that the Third Order was
essentially a denial of NSC's motion to revise the approved
rehabilitation plan, we find this course of action to be in line with
the law. The motion to revise the plan had no basis in law.
Section 26 of the Interim Rules allows the modification
and alteration of the approved rehabilitation plan, if these steps
are necessary to achieve the desired targets or goals set forth
therein. As explained by this Court in Victoria-Aquino v. Pacific
Plans, the Interim Rules allow the modification of the plan,
precisely because of conditions that may supervene or affect
its implementation subsequent to its approval. In this case,
NSC based its motion to revise the approved plan on its
persistent contention that it was a trustor, not a creditor, of
TIPCO. However, this contention is not a supervening event that
warrants the modification of the rehabilitation plan under Section
26 of the Interim Rules. The facts clearly show that this issue was
raised at the start of the rehabilitation proceedings, considered by
the Receiver in his Report, and accordingly resolved by the RTC
in its First Order as extensively discussed above. Therefore,
petitioner's contention could not have been a supervening matter
that arose only after the approval of the rehabilitation plan and
would thereby affect its implementation. As discussed above, it
was a matter that should have been timely raised before the CA
via a Rule 43 Petition for Review. Hence, the denial of the motion
to revise was proper.
CASE #37
G.R. No. 211287, April 17, 2017
LAND BANK OF THE PHILIPPINES, Petitioner, v. WEST BAY
COLLEGES, INC., PBR MANAGEMENT AND DEVELOPMENT
CORPORATION AND BCP TRADING CO., INC., Respondents.
TOPIC: Special Commercial Laws
DOCTRINE: Also, a belated application of the insurance
proceeds to the obligations of West Bay or PBR and BCP would
violate the Stay Order dated July 10, 2002 issued by the RTC.
Section 6 of Rule 4 of the 2000 Interim Rules of Procedure on
Corporate Rehabilitation, which was in force at the time of the
filing of the petition for corporate rehabilitation, provides:
SEC. 6. Stay Order. - xxx (d) prohibiting the debtor from
making any payment of its liabilities outstanding as at the
date of filing of the petition; xxx

FACTS: West Bay Colleges, Inc. (West Bay) is a domestic
corporation engaged in the operation of an educational institution;
while PBR Management and Development Corporation (PBR)
and BCP: Trading Company, Inc. (BCP) are domestic
corporations engaged in the business of real estate and
construction, respectively. Together, West Bay, PBR and BCP
form the Chiongbian Group of Companies (CGC) (respondents).
West Bay applied for an interim financing with Land Bank for the
construction of a school building, which was approved in the
amount of P125 Million. PBR, on the other hand, availed of a
P100-Million Term Loan from Land Bank for the construction of
condominium buildings. West Bay, as an accommodation
mortgagor, executed a Real and Chattel Mortgage over its
training vessel to secure the loan of PBR with Land Bank. The
vessel was insured with First Lepanto Taisho Insurance
Corporation in the amount of P26 Million, representing the
mortgagee Land Bank's insurable interest in the vessel.
On November 3, 2000, the mortgaged vessel sank during the
typhoon Seniang. By agreement of the parties, insurance
proceeds in the amount of P21,980,000.00 net of shared
expenses were released to Land Bank on account of PBR's loan.
To resolve its financial difficulties, West Bay proposed a
restructuring of its debts with Land Bank, which the latter
accepted through a letter dated March 25, 2002. It was provided
therein that Land Bank will reimburse West Bay with the
insurance proceeds that it had previously received.
The respondents filed a petition for corporate rehabilitation with a
prayer for suspension of payments before the Regional Trial
Court (RTC) of Muntinlupa City. The RTC Branch 256 issued a
Stay Order directing, among others, a stay in the enforcement
of all claims against West Bay, its guarantors and sureties
not solidarily liable with it, particularly, PBR and BCP.
The RTC approved the rehabilitation plan on September 10, 2002
which provided, inter alia, that the P21,980,000.00 insurance
proceeds received by Land Bank shall instead be applied to the
loan of West Bay. In the subsequent years, the rehabilitation plan
underwent several amendments which were approved by the
RTC. The updated Rehabilitation Plans consistently provided for
the application of the P21,980,000.00 insurance proceeds to the
loan accounts of PBR and BCP.
While the rehabilitation proceedings were pending, Land Bank
filed a motion to be substituted by Philippine Distressed Asset
Asia Pacific (PDAAP), a special purpose vehicle which was
granted. Thereafter, the respondents filed an Amended
Rehabilitation Plan, indicating that PDAAP did not agree to the
application of P21,980,000.00 insurance proceeds to the
outstanding obligations of PBR.
West Bay filed an Urgent Motion with the RTC praying for the
issuance of an order directing Land Bank to reimburse to it the
amount of P21,980,000.00 representing the insurance proceeds.
West Bay reasoned that the reimbursement was provided for in
the restructuring plan previously approved by Land Bank in the
letter dated March 25, 2002 but was not complied with. It alleged
that although the RTC approved the rehabilitation plans
authorizing the application of the insurance proceeds to the
obligations of West Bay, it was never implemented. The Land
Bank explained that the insurance proceeds were applied (value-
dated) in January and June 2002 to West Bay's and PBR's
outstanding loan obligation
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The RTC denied the Urgent Motion as it found no justifiable
reason for the reimbursement of the insurance proceeds to West
Bay. This was set aside by the CA as it found out that LBP did
not apply the insurance proceeds to the remaining obligations of
West Bay, PBR or BCP as there was no statement of the
settlement of the insurance proceeds in the context of the
restructured loan.
ISSUE: Whether or not West Bay is entitled to the reimbursement
HELD: Yes. As the CA pointed out, despite several amendments
to the rehabilitation plan which repeatedly provided for the
application of the insurance proceeds to the debts of West Bay,
then to PBR and BCP, there is no showing that Land Bank
applied the amount thereof to the aforementioned loans.
The Court is inclined to uphold this finding – for if Land Bank
had in fact deducted the amount of the insurance proceeds
from the loan obligations of either West Bay or PBR and
BCP, this information would have reflected on the
rehabilitation plans of the CGC. In other words, if the
insurance proceeds were indeed applied to West Bay's and
PBR's account in January and June 2002 as Land Bank
espoused, then P21,980,000.00 should have been subtracted
from the obligations of the said companies. Verily, Land
Bank negated its own claim when it failed to present
evidence of reduction in the outstanding balances of the
respondents, whether singly or collectively.
Also, a belated application of the insurance proceeds to the
obligations of West Bay or PBR and BCP would violate the Stay
Order dated July 10, 2002 issued by the RTC. Section 6 of Rule 4
of the 2000 Interim Rules of Procedure on Corporate
Rehabilitation, which was in force at the time of the filing of the
petition for corporate rehabilitation, provides:
SEC. 6. Stay Order. - xxx (d) prohibiting the debtor from
making any payment of its liabilities outstanding as at the
date of filing of the petition; xxx
CASE #38
April 24, 2017
G.R. No. 224764
BUREAU OF INTERNAL REVENUE, ASSISTANT
COMMISSIONER ALFREDO V. MISAJON, GROUP
SUPERVISOR ROLANDO M. BALBIDO, and EXAMINER
REYNANTE DP. MARTIREZ, Petitioners, vs. LEPANTO
CERAMICS, INC., Respondent.
Facts:
Respondent Lepanto Ceramics, Inc. (LCI) - a domestic
corporation, filed a petition for corporate rehabilitation pursuant
FRIA before the RTC of Calamba City, the designated Special
Commercial Court. Essentially, LCI alleged that due to the
financial difficulties it has been experiencing dating back to the
Asian financial crisis, it had entered into a state of insolvency
considering its inability to pay its obligations as they become due
and that its total liabilities amounting to ₱4,213 ,682, 715. 00 far
exceed its total assets worth ₱1,112,723,941.00. Notably, LCI
admitted in the annexes attached to the aforesaid Petition its tax
liabilities to the national government in the amount of at least
₱6,355,368.00.
The Rehabilitation Court issued a Commencement Order,
which, inter alia: declared LCI to be under corporate
rehabilitation; and suspended all actions or proceedings, in court
or otherwise, for the enforcement of claims against LCI. Despite
the foregoing, Misajon, et al., acting as Assistant Commissioner,

Group Supervisor, and Examiner, respectively, of the BIR's Large
Taxpayers Service, sent LCI a notice of informal
conference dated, informing the latter of its deficiency internal tax
liabilities for the Fiscal Year ending June 30, 2010.
In response, LCI's court-appointed receiver, Roberto L.
Mendoza, sent BIR a letter-reply, reminding the latter of the
pendency of LCI's corporate rehabilitation proceedings, as well as
the issuance of a Commencement Order in connection therewith.
Undaunted, the BIR sent LCI a Formal Letter of Demand,
requiring LCI to pay deficiency taxes
Issue: Whether or not the RTC Br. 35 correctly found Misajon, et
al. to have defied the Commencement Order and, accordingly,
cited them for indirect contempt.
Held: Yes. RTC Br. 35 correctly cited them for indirect contempt.
Misajon, et al. 's foregoing acts are in clear defiance of the
Commencement Order.
"Case law has defined corporate rehabilitation 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 inherent purpose of rehabilitation is to find ways and
means to minimize the expenses of the distressed corporation
during the rehabilitation period by providing the best possible
framework for the corporation to gradually regain or achieve a
sustainable operating form. It enables the company to gain a new
lease in life and thereby allow creditors to be paid their claims
from its earnings. 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 of payments projected in the plan, more, if
the corporation continues as a going concern than if it is
immediately liquidate d.
FRIA Law provides, inter alia, that upon the issuance of a
Commencement Order - which includes a Stay or Suspension
Order - all actions or proceedings, in court or otherwise, for the
enforcement of "claims" against the distressed company shall be
suspended. including, but not limited to; (1) all claims of the
government, whether national or local, including taxes,
tariffs and customs duties. In other words, the creditors must
ventilate their claims before the rehabilitation court, and any
"[a]ttempts to seek legal or other resource against the distressed
corporation shall be sufficient to support a finding of indirect
contempt of court.
Despite the foregoing, the BIR, through Misajon, et al., still opted
to send LCI: (a) a notice of informal conference dated May 27,
2013, informing the latter of its deficiency internal tax liabilities for
the Fiscal Year ending June 30, 2010; and (b) a Formal Letter of
Demand dated May 9, 2014, requiring LCI to pay deficiency taxes
in the amount of P567,5 l 9,348.39, notwithstanding the written
reminder coming from LCI's court-appointed receiver of the
pendency of rehabilitation proceedings concerning LCI and the
issuance of a commencement order. Notably, the acts of sending
a notice of informal conference and a Formal Letter of Demand
are part and parcel of the entire process for the assessment and
collection of deficiency taxes from a delinquent taxpayer, - an
action or proceeding for the enforcement of a claim which should
have been suspended pursuant to the Commencement Order.
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CASE #39
G.R. No. 178467, April 26, 2017
SPS. CRISTINO & EDNA CARBONELL, Petitioners, v.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.
DOCTRINE:
Banks' compliance with the degree of diligence required
by the General Banking Act of 2000 should be determined in
accordance with the particular circumstances of each case.
FACTS: Petitioner travelled to Bangkok, Thailand after
withdrawing US$1,000.00 in US$100 notes from their dollar
account at the respondent's Pateros branch. While in Bangkok,
they had exchanged five US$100 bills into Baht, but only four of
the US$100 bills had been accepted by the foreign exchange
dealer because the fifth one was apparently "no good”.
Unconvinced by the reason for the rejection, they had asked a
companion to exchange the same bill at Norkthon Bank in
Bangkok. The bank teller thereat had then informed them and
their companion that the dollar bill was fake. Later on, Petitioners
bought jewelry from a shop owner by using four of the remaining
US$100 bills as payment however they had been confronted by
the shop owner at the hotel lobby because their four US$100 bills
had turned out to be counterfeit. The shop owner had shouted at
them: "You Filipinos, you are all cheaters”.
Upon their return to the Philippines, they had confronted the
manager of the respondent's Pateros branch on the fake dollar
bills, but the latter had insisted that the dollar bills released to
them were genuine. In order to put the issue to rest, the counsel
of the petitioners had submitted the subject US$100 bills to the
Bangko Sentral ng Pilipinas (BSP) for examination. The BSP had
certified that the four US$100 bills were near perfect genuine
notes.
Respondent's counsel extended their sympathy and regret over
the troublesome experience that the petitioners had encountered,
and offered to reinstate US$500 in their dollar account, and, in
addition, to underwrite a round-trip all-expense-paid trip to Hong
Kong. Despite said offer, petitioners initiated against the
respondent an action for damages. The CA and the RTC both
found that the respondent had exercised the diligence required by
law in observing the standard operating procedure, in taking the
necessary precautions for handling the US dollar bills in question,
and in selecting and supervising its employees.
ISSUE:
Whether or not respondent's failure to exercise the degree of
diligence required in handling the affairs of its clients showed that
it was liable not just for simple negligence but for
misrepresentation and bad faith amounting to fraud.
HELD: No.
The General Banking Act of 2000 demands of banks the highest
standards of integrity and performance. As such, the banks are
under obligation to treat the accounts of their depositors with
meticulous care. However, the banks' compliance with this
degree of diligence is to be determined in accordance with the
particular circumstances of each case.
In order for gross negligence to exist as to warrant holding the
respondent liable therefor, the petitioners must establish that the
latter did not exert any effort at all to avoid unpleasant
consequences, or that it willfully and intentionally disregarded the
proper protocols or procedure in the handling of US dollar notes
and in selecting and supervising its employees.
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In this connection, it is significant that the BSP certified that the

falsity of the US dollar notes in question, which were "near perfect
genuine notes," could be detected only with extreme difficulty
even with the exercise of due diligence. BSP's Senior Currency
Analyst testified that the subject dollar notes were "highly
deceptive" inasmuch as the paper used for them were similar to
that used in the printing of the genuine notes.

With the respondent having established that the characteristics of

the subject dollar notes had made it difficult even for the BSP
itself as the country's own currency note expert to identify the
counterfeiting with ease despite adhering to all the properly laid
out standard operating procedure and precautions in the handling
of US dollar bills, holding it liable for damages in favor of the
petitioners would be highly unwarranted in the absence of proof
of bad faith, malice or fraud on its part. It must be emphasized
that respondent formally apologized to them and even offered to
reinstate the USD$500.00 in their account as well as to give them
the all-expense-paid round trip ticket to Hong Kong.

35