Doctrine of Independence in Letters of Credit

MERCANTILE LAW DIGESTS 2014-June 2016
LETTERS OF CREDIT
DOCTRINE OF INDEPENDENCE
Philippine National Bank vs. San Miguel Corporation

G.R. No. 186063; January 15, 2014
J. Peralta
Where the trial court rendered a decision finding the applicant of a letter of credit solely
liable to pay the beneficiary and omitted by inadvertence to insert in its decision the phrase
without prejudice to the decision that will be made against the issuing bank, the bank cannot
evade responsibility base on this ground.The Independence Principle assures the seller or the
beneficiary of prompt payment independent of any breach of the main contract and precludes
the issuing bank from determining whether the main contract is actually accomplished or not.
Facts:
San Miguel Corporation (SMC) entered into an Exclusive Dealership Agreement with Rodolfo
Goroza, wherein the latter was given by SMC the right to trade, deal, market or otherwise sell
its various beer products. Goroza applied for a credit line with SMC. To comply with the
credit line application requirement, he applied for and was granted a letter of credit by PNB.
Subsequently, Goroza availed of his credit line with PNB and started selling SMCs beer
products.
An additional credit line with PNB was applied for by Goroza and his total credit line reached
P4,400,000. Initially, Goroza was able to pay his credit purchases with SMC, but after
sometime he started to become delinquent with his accounts.
SMC demanded Goroza and PNB to pay the amount of P3,722,440.88, but neither of them
paid. As a result, SMC filed a Complaint for collection of sum of money against PNB and
Goroza.
After summons, PNB filed its answer, while Goroza did not. Upon motion, Goroza was
subsequently declared in default. RTC later on rendered a decision in favor of SMC and
against Goroza.
In the meantime, trial continued with respect to PNB. AN Urgent Motion to Terminate
Proceedings was filed by PNB on the ground that a decision was already rendered finding
Goroza solely liable. The RTC denied this motion and subsequently issued a Supplemental
Judgment stating that: the phrase without prejudice to the decision made against the other
defendant PNB which was not declared in default shall be inserted in the dispositive portion
of the decision. PNB then filed a motion for reconsideration, but the RTC denied the same.
Aggrieved, PNB filed a special civil action for certiorari with the CA, but was denied. A motion
for reconsideration was filed, but was again denied. Hence, the petition.
Page 1 of 192
PNB argues that the RTC decision, finding Goroza solely liable to pay the entire amount
sought to be recovered by SMC, has settled the obligation of both Goroza and PNB.
Issue:
Whether or not the issuing bank is released from its liability to pay the beneficiary.
Ruling:
Petition Denied.
In the case ofTransfield Philippines, Inc. v. Luzon Hydro Corporation:

By definition, a letter of credit is a written instrument whereby the writer
requests or authorizes the addressee to pay money or deliver goods to a third
person and assumes responsibility for payment of debt therefor to the
addressee. A letter of credit, however, changes its nature as different
transactions occur and if carried through to completion ends up as a binding
contract between the issuing and honoring banks without any regard or
relation to the underlying contract or disputes between the parties thereto.
Thus, the engagement of the issuing bank is to pay the seller or beneficiary of
the credit once the draft and the required documents are presented to it. The
so-called "independence principle" assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main contract is
actually accomplished or not. Under this principle, banks assume no liability
or responsibility for the form, sufficiency, accuracy, genuineness, falsification
or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they
assume any liability or responsibility for the description, quantity, weight,
quality, condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts and/or omissions,
solvency, performance or standing of the consignor, the carriers, or the
insurers of the goods, or any other person whomsoever.
In a letter of credit transaction, such as in this case, where the credit is stipulated as
irrevocable, there is a definite undertaking by the issuing bank to pay the beneficiary
provided that the stipulated documents are presented and the conditions of the credit are
complied with. Precisely, the independence principle liberates the issuing bank from the
duty of ascertaining compliance by the parties in the main contract. As the principle's
nomenclature clearly suggests, the obligation under the letter of credit is independent of the
related and originating contract. In brief, the letter of credit is separate and distinct from the
underlying transaction.
In other words, PNB cannot evade responsibility on the sole ground that the RTC judgment
found Goroza liable and ordered him to pay the amount sought to be recovered by SMC.
PNB's liability, if any, under the letter of credit is yet to be determined.
Page 2 of 192
Hongkong and Shanghai Banking Corporation Limited v. National Steel Corporation

and Citytrust Banking Corporation
G.R. No. 183486, February 24, 2016, Jardeleza, J:
Facts:
Respondent National Steel Corporation (NSC) entered into an Export Sales Contract (the
Contract) with Klockner East Asia Limited (Klockner) on October 12, 1993. NSC sold 1,200
metric tons of prime cold rolled coils to Klockner under FOB ST Iligan terms. In accordance
with the requirements in the Contract, Klockner applied for an irrevocable letter of credit
with HSBC in favor of NSC as the beneficiary in the amount of US$468,000. On October 22,
1993, HSBC issued an irrevocable and onsight letter of credit no. HKH 239409 (the Letter of
Credit) in favor of NSC. The Letter of Credit stated that it is governed by the International
Chamber of Commerce Uniform Customs and Practice for Documentary Credits (UCP 400).
Under UCP 400, HSBC as the issuing bank, has the obligation to immediately pay NSC upon
presentment of the documents listed in the Letter of Credit.3 These documents are: (1) one
original commercial invoice; (2) one packing list; (3) one non-negotiable copy of clean on
board ocean bill of lading made out to order, blank endorsed marked 'freight collect and
notify applicant etc.
The Letter of Credit was amended twice to reflect changes in the terms of delivery. On
November 2, 1993, the Letter of Credit was first amended to change the delivery terms from
FOB ST Iligan to FOB ST Manila and to increase the amount to US$488,400. It was
subsequently amended on November 18, 1993 to extend the expiry and shipment date to
December 8, 1993.
On November 21, 1993, NSC, through Emerald Forwarding Corporation, loaded and shipped
the cargo of prime cold rolled coils on board MV Sea Dragon under China Ocean Shipping
Company Bill of Lading. The cargo arrived in Hongkong on November 25, 1993.
NSC coursed the collection of its payment from Klockner through CityTrust Banking
Corporation (CityTrust). NSC had earlier obtained a loan from CityTrust secured by the
proceeds of the Letter of Credit issued by HSBC. CityTrust sent a collection order (Collection
Order) to HSBC respecting the collection of payment from Klockner. HSBC sent a cablegram
to CityTrust acknowledging receipt of the Collection Order. It also stated that the documents
will be presented to "the drawee against payment subject to UCP 322 [Uniform Rules for
Collection (URC) 322] as instructed. It also informed SCB-M that it has referred the matter to
Klockner for payment and that it will revert upon the receipt of the amount. 17 On December
8, 1993, the Letter of Credit expired.
HSBC sent another cablegram to SCB-M advising it that Klockner had refused payment. It
then informed SCB-M that it intends to return the documents to NSC with all the banking
charges for its account. CityTrust insisted that a demand for payment must be made from
Klockner since the documents "were found in compliance with LC terms and conditions."
HSBC replied on the same day stating that in accordance with CityTrust's instruction in its
Collection Order, HSBC treated the transaction as a matter under URC 322. Thus, it
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demanded payment from Klockner which unfortunately refused payment for unspecified
reasons. It then noted that under URC 322, Klockner has no duty to provide a reason for the
refusal.
Meanwhile, on March 3, 1994, NSC sent a letter to HSBC where it, for the first time, demanded
payment under the Letter of Credit.
Unable to collect from HSBC, NSC filed a complaint against it for collection of sum of money
(Complaint) docketed as Civil Case No. 94-2122 (Collection Case) of the RTC Makati. In its
Complaint, NSC alleged that it coursed the collection of the Letter of Credit through CityTrust.
However, notwithstanding CityTrust's complete presentation of the documents in
accordance with the requirements in the Letter of Credit, HSBC unreasonably refused to pay
its obligation in the amount of US$485,767.93.
HSBC denied that it has any liability under the Letter of Credit. It argued that CityTrust
modified the obligation when it stated in its Collection Order that the transaction is subject
to URC 322 and not under UCP 400.
The RTC Makati rendered a decision (RTC Decision) dated February 23, 2000. It found that
HSBC is not liable to pay NSC the amount stated in the Letter of Credit. It ruled that the
applicable law is URC 322 as it was the law which CityTrust intended to apply to the
transaction. Under URC 322, HSBC has no liability to pay when Klockner refused payment.
The CA reversed the ruling of the RTC. The CA found that it is UCP 400 and not URC 322
which governs the transaction. According to the CA, the terms of the Letter of Credit clearly
stated that UCP 400 shall apply. Further, the CA explained that even if the Letter of Credit did
not state that UCP 400 governs, it nevertheless finds application as this Court has
consistently recognized it under Philippine jurisdiction. Thus, applying UCP 400 and
principles concerning letters of credit, the CA explained that the obligation of the issuing
bank is to pay the seller or beneficiary of the credit once the draft and the required
documents are properly presented.
Issue: Who among the parties bears the liability to pay the amount stated in the Letter of
Credit.
Held: The Court upheld the CAs decision. HSCB is liable to pay NSC. Under the
independence principle, the issuing bank's obligation to pay under the letter of credit is
separate from the compliance of the parties in the main contract.
Letters of credit are governed primarily by their own provisions, by laws specifically
applicable to them, and by usage and custom. Consistent with our rulings in several cases,
100 usage and custom refers to UCP 400. When the particular issues are not covered by the
provisions of the letter of credit, by laws specifically applicable to them and by UCP 400, our
general civil law finds suppletory application.
Page 4 of 192
Applying this set of laws and rules, the Court ruled that HSBC is liable under the provisions
of the Letter of Credit, in accordance with usage and custom as embodied in UCP 400, and
under the provisions of general civil law.
From the moment that HSBC agreed to the terms of the Letter of Credit - which states that
UCP 400 applies - its actions in connection with the transaction automatically became bound
by the rules set in UCP 400. Even assuming that URC 322 is an international custom that has
been recognized in commerce, this does not change the fact that HSBC, as the issuing bank of
a letter of credit, undertook certain obligations dictated by the terms of the Letter of Credit
itself and by UCP 400. In Feati, this Court applied UCP 400 even when there is no express
stipulation in the letter of credit that it governs the transaction. On the strength of our ruling
in Feati, we have the legal duty to apply UCP 400 in this case independent of the parties'
agreement to be bound by it.
UCP 400 states that an irrevocable credit payable on sight, such as the Letter of Credit in this
case, constitutes a definite undertaking of the issuing bank to pay, provided that the
stipulated documents are presented and that the terms and conditions of the credit are
complied with. Further, UCP 400 provides that an issuing bank has the obligation to examine
the documents with reasonable care. Thus, when CityTrust forwarded the Letter of Credit
with the attached documents to HSBC, it had the duty to make a determination of whether
its obligation to pay arose by properly examining the documents.
LOAN SECURITY FEATURE
TRUST RECEIPTS LAW
BANGKO SENTRAL NG PILIPINAS v. AGUSTIN LIBO-ON

G.R. No. 173864, November 23, 2015, REYES, J.
In the absence of such absolute conveyance of title to qualify as an assignment of

credit, the subject promissory note with trust receipt agreement should be interpreted as
it is denominated. The contract being that of a mere loan, and because there was no valid
assignment of credit, BSP may not foreclose the mortgage
Facts:
The Spouses Libo-on secured loans from the Rural Bank of Hinigaran, Inc. As
security for the loan, the Spouses Libo-on executed a Deed of Real Estate Mortgage over
a parcel of land in favor of the Rural Bank of Hinigaran. The Rural Bank of Hinigaran, in
turn, secured a loan with Bangko Sentral ng Pilipinas (BSP). As a security for the loan,
the Rural Bank of Hinigaran pledged and deposited to BSP promissory notes with
supporting TCTs, including the promissory note and TCT of the Spouses Libo-ons
mortgaged with the former. Despite BSP's demand, the Spouses Libo-on failed to pay.
The loan obligation of the Rural Bank of Hinigaran with BSP likewise fell due and
demandable as the former failed to pay its loan from BSP. As a result, BSP filed an
Page 5 of 192
application for extrajudicial foreclosure against the mortgage security of the Spouses
Libo-on with the Rural Bank of Hinigaran. However, before BSP could complete the
auction sale, Agustin Libo-on filed an action against BSP for damages with prayer for the
issuance of a TRO and a writ of preliminary injunction before the RTC. The Spouses
Libo-on argued that there is no privity of contract between them and BSP as the latter
was not authorized by the Rural Bank of Hinigaran to act on its behalf, nor was the
mortgage assigned to it. BSP claimed that its authority to foreclose the subject mortgage
was by virtue of an assignment of credit, i.e., "Promissory Note with Trust Receipt
Agreement" executed by the Rural Bank of Hinigaran in their favor where the latter
assigned, deposited, and pledged the promissory notes executed by the Spouses Libo-
on including the contract of real estate mortgage to it.
Issue:
Whether BSP has the authority to foreclose the mortgage
Ruling:
No. In a trust receipt transaction, the entrustee has the obligation to deliver to the entruster
the price of the sale, or if the merchandise is not sold, to return the merchandise to the
entruster. There are, therefore, two obligations in a trust receipt transaction: the first
refers to money received under the obligation involving the duty to turn it over to the
owner of the merchandise sold, while, the second refers to the merchandise received
under the obligation to "return" it to the owner. Clearly, this concept of trust receipt is
inconsistent with that of an assignment of credit where there is an absolute conveyance
of title that would have in effect given authority to BSP to foreclose the subject mortgage.
Without a valid assignment of credit, as in this case, BSP has no authority to foreclose
the mortgaged property of the Spouses Libo-on to the Rural Bank of Hinigaran. Moreso, BSP
could not possibly sell the subject property without violating the prohibition against
pactum commissorium since without a valid assignment of credit, BSP cannot ipso facto
appropriate for itself the Spouses Libo-on's mortgaged property to the Rural Bank of
Hinigaran.
The character of the transactions between the parties is not only determined by the
language used in the document but by their intention. However, the intent of the parties
to the transaction is to be determined in the first instance, by the very language which
they used. A deed of assignment usually contains language which suggests that the
parties intended to effect a complete alienation of title to and rights over the receivables
which are the subject of the assignment. This language is comprised of works like
"remise," "release and quitclaim" and clauses like "the title and right of possession to
said accounts receivable is to remain in said assignee" who "shall have the right to
collect directly from the debtor." The same intent is also suggested by the use of the
words "agent and representative of the assignee" in referring to the assignor. This
Page 6 of 192
concept of complete alienation of title and rights in an assignment of credit is lacking.
NEGOTIABLE INSTRUMENTS LAW
KINDS OF NEGOTIABLE INSTRUMENTS
NUNELON MARQUEZ v. ELISAN CREDIT CORPORATION

G.R. No. 194642, April 6, 2015, BRION, J.
The promissory notes securing the first and second loan contained exactly the same
terms and conditions, except for the date and amount of principal. Marquez knew of such
terms and conditions even assuming that the entries on the interest and penalty charges
were in blank when he signed the promissory note.
Facts:
Nunelon Marquez obtained a first loan from Elisan Credit Corporation (ECC) for P53,000
payable in 180 days. Marquez signed a promissory note which provides that it is payable
in weekly installments and subject to 26% annual interest. In case of non-payment, he
agreed to pay 10% monthly penalty based on the total amount unpaid and another 25%
of such for attorneys fees. To further secure payment of the loan, Marquez executed a
chattel mortgage over a motor vehicle which reads that, among others, the motor vehicle
shall stand as a security for the first loan and all other obligations of every kind already
incurred or which may hereafter be incurred."
Subsequently, Marquez obtained a second loan from ECC for P55,000, as evidenced by
a promissory note and a cash voucher. The promissory note covering the second loan
contained exactly the same terms and conditions as the first promissory note. When
the second loan had matured, Marquez only paid P29,600, leaving an unpaid balance of
P25,040. Due to liquidity problems, Marquez asked ECC if he could pay in daily
installments until the second loan is paid, to which the latter acquiesced. Twenty-one
months after the second loans maturity, Marquez had already paid P56,440, an amount
greater than the principal.
Despite the receipt of such an amount, ECC filed a complaint for judicial foreclosure
of the chattel mortgage because Marquez allegedly failed to settle the balance of the second
loan despite demand. It further alleged that pursuant to the terms of the promissory note,
Marquezs failure to fully pay upon maturity triggered the imposition of the 10% monthly
penalty and 25% attorneys fees. Before Marquez could file an answer, the MTC approved
the writ of replevin which ECC sought for. The MTC found for Marquez and held that the
second loan was fully extinguished. The RTC initially affirmed the ruling but reversed the
same upon reconsideration. The CA affirmed the reversal.
Issue:
Whether the second promissory note was genuine and duly executed
Page 7 of 192
Ruling:
Yes. Marquez denies that he stipulated upon and consented to the interest,
penalty and attorney's fees because he purportedly signed the promissory note in
blank. This allegation deserves scant consideration. It is self-serving and unsupported
by evidence. Moreover, Marquez does not deny the genuineness and due execution of
the first promissory note. Only when he failed to pay the second loan did he impugn
the validity of the interest, penalty and attorney's fees. The CA and the RTC also noted
that Marquez is a schooled individual, an engineer by profession, who, because of
these credentials, will not just sign a document in blank without appreciating the import
of his action.
HOLDER IN DUE COURSE
ALVIN PATRIMONIO vs. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN III

G.R. No. 187769, June 4, 2014, J. Brion
Arguing that Gutierrez is not a holder in due course, Patrimonio filed the instant petition
praying that the ruling of the CA, ordering him to pay Gutierrez, be reversed. Ruling in favor of
the Patrimonio the SC ruled that Section 52(c) of the NIL states that a holder in due course is
one who takes the instrument "in good faith and for value." Acquisition in good faith means
taking without knowledge or notice of equities of any sort which could be set up against a prior
holder of the instrument. It means that he does not have any knowledge of fact which would
render it dishonest for him to take a negotiable paper. The absence of the defense, when the
instrument was taken, is the essential element of good faith. In this case, after having been
found out that the blanks were not filled up in accordance with the authority the Patrimonio
gave, Gutierrez has no right to enforce payment against Patrimonio, thus, the latter cannot be
obliged to pay the face value of the check.
Facts:
Patrimonio and Gutierrez entered in a business venture under the name of Slam Dunk
Corporation, a corporation which produces mini-concerts and shows related to basketball.
In the course of their business, Patrimonio pre-signed several checks to answer for the
expenses of their business. Although signed, these checks had no payees name, date or
amount. The blank checks were entrusted to Gutierrez with the specific instruction not to fill
them out without previous notification to and approval by Patrimonio. However, in the
middle of 1993, without Patrimonios knowledge and consent, Gutierrez went to Marasigan
(Patrimonios former teammate), to secure a loan in the amount of P200,000.00 alleging that
Patrimonio needed the money for the construction of his house. Marasigan agreed to the
request and gave him P 200, 000. Consequently, Guitierrez delivered to Marasigan one of the
pre-signed blank checks with the blank portions filled out with the words "Cash" "Two
Hundred Thousand Pesos Only", and the amount of "P200,000.00". The portion of the check
corresponding to the date was also filled out with the words "May 23, 1994".
Page 8 of 192
When Marasigan deposited the check, the same was dishonored for the reason of
Account Closed. Thereafter, Marasigan sought recovery from Gutierrez but to no avail. He
then sent several demand letters to Patrimonio asking for payment but his demands likewise
went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against
Patrimonio. Thereafter, Patrimonio filed before the RTC a complaint for the declaration of
nullity of the loan and recovery of damages against herein Gutierrez and Marasigan.
Patrmonio completely denied authorizing the loan or the checks negotiation, and asserted
that he was not privy to the parties loan agreement.
The RTC ruled in favor of Marasigan. It declared Marasigan as a holder in due course
and dismissed Patrimonios complaint. It further ordered Patrimonio to pay Marasigan the
face value of the check with a right to claim reimbursement from Gutierrez. On appeal, the
CA affirmed the ruling of the RTC but agreed with Patrimonio that Marasigan is not a holder
in due course. However, since the loan is grounded on an obligation arising from law, it held
that it cannot be nullified and that Patrimonio is still liable to pay Marasigan the sum of P
200, 000. Hence, this petition.
Issues:
1. Whether Marasigan is a holder in due course.
2. Whether respondent Gutierrez has completely filled out the subject check strictly under
the authority given by Patrimonio.
Ruling:
1. No. Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:
Sec. 52 A holder in due course is a holder who has taken the instrument under the
following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any
sort which could be set up against a prior holder of the instrument. It means that he does not
have any knowledge of fact which would render it dishonest for him to take a negotiable
Page 9 of 192
paper. The absence of the defense, when the instrument was taken, is the essential element
of good faith.
Since he (Marasigan) knew that the underlying obligation was not actually for
Patrimonio, the rule that a possessor of the instrument is prima facie a holder in due course
is inapplicable. As correctly noted by the CA, his inaction and failure to verify, despite
knowledge that Patrimonio was not a party to the loan, may be construed as gross negligence
amounting to bad faith.
2. No, the Check Was Not Completed Strictly Under The Authority Given by
Patrimonio.
The answer is supplied by the applicable statutory provision found in Section 14 of

the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it
by filling up the blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a
reasonable time. But if any such instrument, after completion, is negotiated to a holder
in due course, it is valid and effectual for all purposes in his hands, and he may enforce
it as if it had been filled up strictly in accordance with the authority given and within
a reasonable time.
This provision applies to an incomplete but delivered instrument. Under this rule, if
the maker or drawer delivers a pre-signed blank paper to another person for the purpose of
converting it into a negotiable instrument, that person is deemed to have prima facie
authority to fill it up. It merely requires that the instrument be in the possession of a person
other than the drawer or maker and from such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the blanks.
In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instruments completion, two requisites must exist:
(1) that the blank must be filled strictly in accordance with the authority given; and (2) it
must be filled up within a reasonable time. If it was proven that the instrument had not been
filled up strictly in accordance with the authority given and within a reasonable time, the
maker can set this up as a personal defense and avoid liability. However, if the holder is a
holder in due course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.
While under the law, Gutierrez had a prima facie authority to complete the check,
such prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation)
Page 10 of 192
once the check is completed. In other words, only the authority to complete the check is
presumed. Further, the law used the term "prima facie" to underscore the fact that the
authority which the law accords to a holder is a presumption juris tantum only; hence,
subject to subject to contrary proof. Thus, evidence that there was no authority or that the
authority granted has been exceeded may be presented by the maker in order to avoid
liability under the instrument.
Notably, Gutierrez was only authorized to use the check for business expenses; thus,
he exceeded the authority when he used the check to pay the loan he supposedly contracted
for the construction of Patrimonio's house. This is a clear violation of Patrimonio 's
instruction to use the checks for the expenses of Slam Dunk. It cannot therefore be validly
concluded that the check was completed strictly in accordance with the authority given by
Patrimonio.
Considering that Marasigan is not a holder in due course, Patrimonio can validly set
up the personal defense that the blanks were not filled up in accordance with the authority
he gave. Consequently, Marasigan has no right to enforce payment against Patrimonio and
the latter cannot be obliged to pay the face value of the check.
MATERIAL ALTERATION
CESAR V. AREZA and LOLITA B. AREZA vs. EXPRESS SAVINGS BANK, INC. and MICHAEL
POTENCIANO
G.R. No. 176697, September 10, 2014, J. PEREZ
When the drawee bank pays a materially altered check, it violates the terms of the check,
as well as its duty to charge its clients account only for bona fide disbursements he had made.
If the drawee did not pay according to the original tenor of the instrument, as directed by the
drawer, then it has no right to claim reimbursement from the drawer, much less, the right to
deduct the erroneous payment it made from the drawers account which it was expected to
treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. The
collecting banks are ultimately liable for the amount of the materially altered check. It cannot
further pass the liability back to Cesar and Lolita absent any showing in the negligence on the
part of Cesar and Lolita which substantially contributed to the loss from alteration.
Facts:
Cesar V. Areza and Lolita B. Areza maintained two bank deposits with Express Savings
Banks Bian branch (the Bank).
They were engaged in the business of "buy and sell" of brand new and second-hand
motor vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay
(Mambuay) for the purchase of a second-hand Mitsubishi Pajero and a brand-new Honda
CRV.
Page 11 of 192
The buyer, Mambuay, paid Cesar and Lolita with nine (9) Philippine Veterans Affairs
Office (PVAO) checks payable to different payees and drawn against the Philippine Veterans
Bank (drawee), each valued at Two Hundred Thousand Pesos (P200,000.00) for a total of
One Million Eight Hundred Thousand Pesos (P1,800,000.00).
About this occasion, Cesar and Lolita claimed that Michael Potenciano (Potenciano),
the branch manager of the Bank was present during the transaction and immediately offered
the services of the Bank for the processing and eventual crediting of the said checks to Cesar
and Lolita account. On the other hand, Potenciano countered that he was prevailed upon to
accept the checks by way of accommodation of Cesar and Lolita who were valued clients of
the Bank.
On 3 May 2000, Cesar and Lolita deposited the said checks in their savings account
with the Bank. The Bank, in turn, deposited the checks with its depositary bank, Equitable-
PCI Bank, in Bian, Laguna. Equitable-PCI Bank presented the checks to the drawee, the
Philippine Veterans Bank, which honored the checks.
On 6 May 2000, Potenciano informed Cesar and Lolita that the checks they deposited
with the Bank were honored. He allegedly warned Cesar and Lolita that the clearing of the
checks pertained only to the availability of funds and did not mean that the checks were not
infirmed. Thus, the entire amount of P1,800,000.00 was credited to Cesar and Lolita savings
account. Based on this information, Cesar and Lolita released the two cars to the buyer.
Sometime in July 2000, the subject checks were returned by PVAO to the drawee on
the ground that the amount on the face of the checks was altered from the original amount
of P4,000.00 to P200,000.00. The drawee returned the checks to Equitable-PCI Bank by way
of Special Clearing Receipts. In August 2000, the Bank was informed by Equitable-PCI Bank
that the drawee dishonored the checks on the ground of material alterations. Equitable-PCI
Bank initially filed a protest with the Philippine Clearing House. In February 2001, the latter
ruled in favor of the drawee Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited
the deposit account of the Bank in the amount of P1,800,000.00.
The Bank insisted that they informed Cesar and Lolita of said development in August
2000 by furnishing them copies of the documents given by its depositary bank. On the other
hand, Cesar and Lolita maintained that the Bank never informed them of these
developments.
On 9 March 2001, Cesar and Lolita issued a check in the amount of P500,000.00. Said
check was dishonored by the Bank for the reason "Deposit Under Hold." According to Cesar
and Lolita, the Bank unilaterally and unlawfully put their account with the Bank on hold. On
22 March 2001, Cesar and Lolita counsel sent a demand letter asking the Bank to honor their
check. The Bank refused to heed their request and instead, closed the Special Savings
Account of the Cesar and Lolita with a balance of P1,179,659.69 and transferred said amount
to their savings account. The Bank then withdrew the amount of P1,800,000.00 representing
the returned checks from Cesar and Lolita savings account.
Page 12 of 192
Acting on the alleged arbitrary and groundless dishonoring of their checks and the
unlawful and unilateral withdrawal from their savings account, Cesar and Lolita filed a
Complaint for Sum of Money with Damages against the Bank and Potenciano with the RTC of
Calamba. The RTC ruled in favor of Cesar and Lolita.
Express Savings Bank and Potenciano filed a motion for reconsideration while Cesar
and Lolita filed a motion for execution from the Decision of the RTC. On appeal, the Court of
Appeals affirmed the ruling of the trial court but deleted the award of damages. Hence, Cesar
and Lolita filed the present petition for review on certiorari.
Issues:
1. Whether or not the Bank had the right to debit P1,800,000.00 from Cesar and Lolita
accounts.
2. What are the liabilities of the drawee, the intermediary banks, and the Cesar and
Lolita for the altered checks?
Ruling:
The Bank cannot debit the savings account of Cesar and Lolita.
When the drawee bank pays a materially altered check, it violates the terms of the
check, as well as its duty to charge its clients account only for bona fide disbursements he
had made. If the drawee did not pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim reimbursement from the drawer, much
less, the right to deduct the erroneous payment it made from the drawers account which it
was expected to treat with utmost fidelity. The drawee, however, still has recourse to recover
its loss. It may pass the liability back to the collecting bank which is what the drawee bank
exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount
of the checks.
When Cesar and Lolita deposited the check with the Bank, they were designating the
latter as the collecting bank. This is in consonance with the rule that a negotiable instrument,
such as a check, whether a manager's check or ordinary check, is not legal tender. As such,
after receiving the deposit, under its own rules, the Bank shall credit the amount in Cesar
and Lolita account or infuse value thereon only after the drawee bank shall have paid the
amount of the check or the check has been cleared for deposit.
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount
of the materially altered checks. Since Equitable-PCI Bank is not a party to this case and the
Bank allowed its account with Equitable PCI Bank to be debited, it has the option to seek
recourse against the latter in another forum.
As the rule now stands, the 24-hour rule is still in force, that is, any check which
should be refused by the drawee bank in accordance with long standing and accepted
Page 13 of 192
banking practices shall be returned through the PCHC/local clearing office, as the case may
be, not later than the next regular clearing (24-hour). The modification, however, is that
items which have been the subject of material alteration or bearing forged endorsement may
be returned even beyond 24 hours so long that the same is returned within the prescriptive
period fixed by law. The consensus among lawyers is that the prescriptive period is ten (10)
years because a check or the endorsement thereon is a written contract. Moreover, the item
need not be returned through the clearing house but by direct presentation to the presenting
bank. In short, the 24-hour clearing rule does not apply to altered checks.
The Bank cannot debit the savings account of Cesar and Lolita. A
depositary/collecting bank may resist or defend against a claim for breach of warranty if the
drawer, the payee, or either the drawee bank or depositary bank was negligent and such
negligence substantially contributed to the loss from alteration. In the instant case, no
negligence can be attributed to Cesar and Lolita.
The drawee bank, Philippine Veterans Bank in this case, is only liable to the extent of
the check prior to alteration. Since Philippine Veterans Bank paid the altered amount of the
check, it may pass the liability back as it did, to Equitable-PCI Bank, the collecting bank. The
collecting banks, Equitable-PCI Bank and the Bank, are ultimately liable for the amount of
the materially altered check. It cannot further pass the liability back to the Cesar and Lolita
absent any showing in the negligence on the part of the Cesar and Lolita which substantially
contributed to the loss from alteration.
CHECKS
METROPOLITAN BANK AND TRUST COMPANY vs. WILFRED N. CHIOK

BANK OF THE PHILIPPINE ISLANDS vs. WILFRED N. CHIOK
GLOBAL BUSINESS BANK, INC. vs. WILFRED N. CHIOK
G.R. No. 172652, G.R. No. 175302, G.R. No. 175394, November 26, 2014, J. LEONARDO-
DE CASTRO
Clearing should not be confused with acceptance. Managers and cashiers checks are
still the subject of clearing to ensure that the same have not been materially altered or
otherwise completely counterfeited. However, managers and cashiers checks are pre-
accepted by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus,
while managers and cashiers checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against insufficient
funds, or for similar reasons such as a condition not appearing on the face of the check. Long
standing and accepted banking practices do not countenance the countermanding of
managers and cashiers checks on the basis of a mere allegation of failure of the payee to
comply with its obligations towards the purchaser. On the contrary, the accepted banking
practice is that such checks are as good as cash. However, in view of the peculiar circumstances
of the case at bench, We are constrained to set aside the foregoing concepts and principles in
favor of the exercise of the right to rescind a contract upon the failure of consideration thereof.
Facts:
Page 14 of 192
Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He
usually buys dollars from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the
date of the sale. Chiok pays Nuguid either in cash or managers check, to be picked up by the
latter or deposited in the latters bank account. Nuguid delivers the dollars either on the same
day or on a later date as may be agreed upon between them, up to a week later. Chiok and
Nuguid had been dealing in this manner for about six to eight years, with their transactions
running into millions of pesos. For this purpose, Chiok maintained accounts with
Metropolitan Bank and Trust Company (Metrobank) and Global Business Bank, Inc. (Global
Bank), the latter being then referred to as the Asian Banking Corporation (Asian Bank). Chiok
likewise entered into a Bills Purchase Line Agreement (BPLA) with Asian Bank. Under the
BPLA, checks drawn in favor of, or negotiated to, Chiok may be purchased by Asian Bank.
Upon such purchase, Chiok receives a discounted cash equivalent of the amount of the check
earlier than the normal clearing period.
On July 5, 1995, pursuant to the BPLA, Asian Bank bills purchased Security Bank &
Trust Company (SBTC) Managers Check (MC) No. 037364 in the amount of P25,500,000.00
issued in the name of Chiok, and credited the same amount to the latters Savings Account
No. 2-007-03-00201-3.
On the same day, July 5, 1995, Asian Bank issued MC No. 025935 in the amount of
P7,550,000.00 and MC No. 025939 in the amount of P10,905,350.00 to Gonzalo Bernardo,
who is the same person as Gonzalo B. Nuguid. The two Asian Bank managers checks, with a
total value of P18,455,350.00 were issued pursuant to Chioks instruction and was debited
from his account. Likewise upon Chioks application, Metrobank issued Cashiers Check (CC)
No. 003380 in the amount of P7,613,000.00 in the name of Gonzalo Bernardo. The same was
debited from Chioks Savings Account No. 154-42504955.
Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and 025939, and
Metrobank CC No. 003380), with an aggregate value of P26,068,350.00 in Nuguids account
with Far East Bank & Trust Company (FEBTC), the predecessor-in-interest of Bank of the
Philippine Islands (BPI). Nuguid was supposed to deliver US$1,022,288.50, the dollar
equivalent of the three checks as agreed upon, in the afternoon of the same day. Nuguid,
however, failed to do so, prompting Chiok to request that payment on the three checks be
stopped. Chiok was allegedly advised to secure a court order within the 24-hour clearing
period.
On the following day, July 6, 1995, Chiok filed a Complaint for damages with
application for ex parterestraining order and/or preliminary injunction with the Regional
Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella Nuguid, and the
depositary banks, Asian Bank and Metrobank, represented by their respective managers,
Julius de la Fuente and Alice Rivera. The complaint was docketed as Civil Case No. Q-95-
24299 and was raffled to Branch 96. The complaint was later amended to include the prayer
of Chiok to be declared the legal owner of the proceeds of the subject checks and to be
allowed to withdraw the entire proceeds thereof.
Page 15 of 192
On the same day, July 6, 1995, the RTC issued a temporary restraining order (TRO)
directing the spouses Nuguid to refrain from presenting the said checks for payment and the
depositary banks from honoring the same until further orders from the court.
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the TRO.
Metrobank claimed that when it received the TRO on July 6, 1995, it refused to honor CC No.
003380 and stopped payment thereon. However, in a letter also dated July 6, 1995, Ms.
Jocelyn T. Paz of FEBTC, Cubao-Araneta Branch informed Metrobank that the TRO was issued
a day after the check was presented for payment. Thus, according to Paz, the transaction was
already consummated and FEBTC had already validly accepted the same. In another letter,
FEBTC informed Metrobank that the restraining order indicates the name of the payee of
the check as GONZALO NUGUID, but the check is in fact payable to GONZALO BERNARDO.
We believe there is a defect in the restraining order and as such should not bind your bank.
Alice Rivera of Metrobank replied to said letters, reiterating Metrobanks position to comply
with the TRO lest it be cited for contempt by the trial court. However, as would later be
alleged in Metrobanks Answer before the trial court, Metrobank eventually acknowledged
the check when it became clear that nothing more can be done to retrieve the proceeds of
the check. Metrobank furthermore claimed that since it is the issuer of CC No. 003380, the
check is its primary obligation and should not be affected by any prior transaction between
the purchaser (Chiok) and the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against Asian Bank
before the Philippine Clearing House Corporation (PCHC) Arbitration Committee for the
collection of the value of Asian Bank MC No. 025935 and 025939, which FEBTC had allegedly
allowed Nuguid to withdraw on July 5, 1995, the same day the checks were deposited. The
case was docketed as Arbicom Case No. 95-082. The PCHC Arbitration Committee later
relayed, in a letter dated August 4, 1995, its refusal to assume jurisdiction over the case on
the ground that any step it may take might be misinterpreted as undermining the jurisdiction
of the RTC over the case or a violation of the July 6, 1995 TRO. On July 25, 1995, the RTC
issued an Order directing the issuance of a writ of preliminary prohibitory injunction. On
May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC Decision
with modifications.
Global Bank and BPI filed separate Motions for Reconsideration of the May 5, 2006
Court of Appeals Decision. On November 6, 2006, the Court of Appeals denied the Motions
for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R. No.
175394) filed with this Court separate Petitions for Review on Certiorari. In Resolutions
dated February 21, 2007 and March 12, 2007, this Court resolved to consolidate the three
petitions.
Page 16 of 192
Issues:
1. Whether or not payment of managers and cashiers checks are subject to the
condition that the payee thereof should comply with his obligations to the purchaser
of the checks.
2. Whether or not the purchaser of managers and cashiers checks has the right to
have the checks cancelled by filing an action for rescission of its contract with the
payee.
3. Whether or not the peculiar circumstances of this case justify the deviation from the
general principles on causes and effects of managers and cashiers checks.
Ruling:
1.
The legal effects of a managers check and a cashiers check are the same. A managers
check, like a cashiers check, is an order of the bank to pay, drawn upon itself, committing in
effect its total resources, integrity, and honor behind its issuance. By its peculiar character
and general use in commerce, a managers check or a cashiers check is regarded
substantially to be as good as the money it represents.
The RTC effectively ruled that payment of managers and cashiers checks are subject
to the condition that the payee thereof complies with his obligations to the purchaser of the
checks.
The dedication of such checks pursuant to specific reciprocal undertakings between

their purchasers and payees authorizes rescission by the former to prevent substantial and
material damage to themselves, which authority includes stopping the payment of the
checks.
Moreover, it seems to be fallacious to hold that the unconditional payment of

managers and cashiers checks is the rule. To begin with, both managers and cashiers
checks are still subject to regular clearing under the regulations of the Bangko Sentral ng
Pilipinas, a fact borne out by the BSP manual for banks and intermediaries, which provides,
among others, in its Section 1603.1, c.
It goes without saying that under the aforecited clearing rule, the enumeration of
causes to return checks is not exclusive but may include other causes which are consistent
with long standing and accepted banking practices. The reason of plaintiffs can well
constitute such a justifiable cause to enjoin payment.
The RTC made an error at this point. While indeed, it cannot be said that managers
and cashiers checks are pre-cleared, clearing should not be confused with acceptance.
Managers and cashiers checks are still the subject of clearing to ensure that the same have
not been materially altered or otherwise completely counterfeited. However, managers and
Page 17 of 192
cashiers checks are pre-accepted by the mere issuance thereof by the bank, which is both its
drawer and drawee. Thus, while managers and cashiers checks are still subject to clearing,
they cannot be countermanded for being drawn against a closed account, for being drawn
against insufficient funds, or for similar reasons such as a condition not appearing on the
face of the check. Long standing and accepted banking practices do not countenance the
countermanding of managers and cashiers checks on the basis of a mere allegation of failure
of the payee to comply with its obligations towards the purchaser. On the contrary, the
accepted banking practice is that such checks are as good as cash.
2.
The right to rescind invoked by the Court of Appeals is provided by Article 1191 of
the Civil Code.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The cause of action supplied by the above article, however, is clearly predicated upon
the reciprocity of the obligations of the injured party and the guilty party. Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation of one is dependent upon the obligation
of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. When Nuguid failed to deliver
the agreed amount to Chiok, the latter had a cause of action against Nuguid to ask for the
rescission of their contract. On the other hand, Chiok did not have a cause of action against
Metrobank and Global Bank that would allow him to rescind the contracts of sale of the
managers or cashiers checks, which would have resulted in the crediting of the amounts
thereof back to his accounts.
Otherwise stated, the right of rescission under Article 1191 of the Civil Code can only
be exercised in accordance with the principle of relativity of contracts under Article 1131 of
the same code.
3.
In view of the peculiar circumstances of this case, and in the interest of substantial
justice, the Court is constrained to rule in the affirmative.
The Court does not detract from well-settled concepts and principles in commercial
law regarding the nature, causes and effects of a managers check and cashiers check. Such
checks are primary obligations of the issuing bank and accepted in advance by the mere
Page 18 of 192
issuance thereof. They are a banks order to pay drawn upon itself, committing in effect its
total resources, integrity, and honor. By their peculiar character and general use in the
commercial world, they are regarded substantially as good as the money they
represent. However, in view of the peculiar circumstances of the case at bench, the Court is
constrained to set aside the foregoing concepts and principles in favor of the exercise of the
right to rescind a contract upon the failure of consideration thereof.
In deviating from general banking principles and disposing the case on the basis of
equity, the courtsa quo should have at least ensured that their dispositions were indeed
equitable. This Court observes that equity was not served in the dispositions below wherein
Nuguid, the very person found to have violated his contract by not delivering his dollar
obligation, was absolved from his liability, leaving the banks who are not parties to the
contract to suffer the losses of millions of pesos.
Asian Bank, which is now Global Bank, obeyed the TRO and denied the clearing of the
managers checks. As such, Global Bank may not be held liable on account of the knowledge
of whatever else Chiok told them when he asked for the procedure to secure a Stop Payment
Order. On the other hand, there was no mention that Metrobank was ever notified of the
alleged failure of consideration. Only Asian Bank was notified of such fact. Furthermore, the
mere allegation of breach on the part of the payee of his personal contract with the purchaser
should not be considered a sufficient cause to immediately nullify such checks, thereby
eroding their integrity and honor as being as good as cash.NSURANC
INSURANCE LAW
NON-LIFE INSURANCE
Fortune Medicare, Inc. vs. David Robert Amorin

G.R. No195872; March 12, 2014
J. Reyes
For purposes of determining the liability of a health care provider to its members, a
health care agreement is in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same
to the extent agreed upon under the contract. Limitations as to liability must be distinctly
specified and clearly reflected in the extent of coverage which the company voluntary assume,
otherwise, any ambiguity arising therein shall be construed in favor of the member.
Facts:
David Robert Amorin was a cardholder/member of Fortune Medicare, Inc. (Fortune Care).
While on vacation in Hawaii, Amorin underwent an emergency surgery, specifically
appendectomy, at St. Francis Medical Center, causing him to incur professional and
hospitalization expenses of $7,242.35 and $1,777.79, respectively. He attempted to recover
from Fortune Care the full amount thereof upon his return to Manila, but the company
Page 19 of 192
merely approved a reimbursement of P12, 151, an amount that was based on the average
cost of appendectomy if the procedure were performed in an accredited hospital in Metro
Manila. Amorin received the said amount under protest, but asked for its adjustment to cover
the total amount of professional fees which he had paid, and 80% of the approved standard
charges based on American standard considering that the emergency procedure occurred
in the US. To support his claim, Amorin cited Section 3, Art. V on Benefits and Coverages of
the Health Care Contract.
Fortune Care denied the request thereby prompting Amorin to file a complaint for breach of
contract with damages. For its part, Fortune Care argued that the Health Care Contract did
not cover hospitalization costs and professional fees incurred in foreign countries, as the
contracts operation was confined to Philippine territory. The RTC dismissed Amorins
complaint. Dissatisfied, Amorin appealed the RTC decision to the CA. Subsequently, the CA
rendered its decision granting the appeal, thereby reversing and setting aside the trial court
decision. Hence, the appeal. Fortune Care argues that the phase approved standard charges
did not automatically mean Philippine Standard
Issue:
Whether Fortune Care is liable to the member for the amount demanded by the latter.
Ruling:
Petition Denied.
For purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider
must pay for the same to the extent agreed upon under the contract.
In the instant case, the extent of Fortune Cares liability to Amorin under the attendant
circumstances was governed by Section 3(B), Article V of the subject Health Care Contract,
considering that the appendectomy which the member had to undergo qualified as an
emergency care, but the treatment was performed at St. Francis Medical Center in Honolulu,
Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the
total hospitalization cost including the professional fee (based on the total
approved charges) to a member who receives emergency care in a non-
accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency
confinement occurs in foreign territory, Fortune Care will be obligated
to reimburse or pay eighty (80%) percent of the approved standard
charges which shall cover the hospitalization costs and professional fees.
Page 20 of 192
The point of dispute now concerns the proper interpretation of the phrase approved
standard charges, which shall be the base for the allowable 80% benefit. The trial court
ruled that the phrase should be interpreted in light of the provisions of Section 3(A), i.e., to
the extent that may be allowed for treatments performed by accredited physicians in
accredited hospitals. As the appellate court however held, this must be interpreted in its
literal sense, guided by the rule that any ambiguity shall be strictly construed against Fortune
Care, and liberally in favor of Amorin.
As may be gleaned from the Health Care Contract, the parties thereto contemplated the
possibility of emergency care in a foreign country. As the contract recognized Fortune Cares
liability for emergency treatments even in foreign territories, it expressly limited its liability
only insofar as the percentage of hospitalization and professional fees that must be paid or
reimbursed was concerned, pegged at a mere 80% of the approved standard charges.
In the absence of any qualifying word that clearly limited Fortune Cares liability to costs that
are applicable in the Philippines, the amount payable by Fortune Care should not be limited
to the cost of treatment in the Philippines, as to do so would result in the clear disadvantage
of its member. If, as Fortune Care argued, the premium and other charges in the Health Care
Contract were merely computed on assumption and risk under Philippine cost and, that the
American cost standard or any foreign countrys cost was never considered, such limitations
should have been distinctly specified and clearly reflected in the extent of coverage which
the company voluntarily assumed.
INSURANCE POLICY
Gaisano v. Development Insurance Corporation, G.R. No. 190702
On September 27, 1996, respondent issued a comprehensive commercial vehicle policy to

petitioner in the amount of Pl,500,000.00 over petitioners 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). 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, the vehicle was stolen. Oblivious of the incident,
Trans-Pacific picked up the check the next day, September 28. It issued an official receipt
numbered 124713 dated September 28, 1996, acknowledging the receipt of P55,620.60 for
the premium and other charges over the vehicle. The check issued to TransPacific for
P140,893.50 was deposited with Metrobank for encashment on October 1, 1996. Was there
a valid insurance contract from which petitioner can claim?
Page 21 of 192
There was none. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding. Here, there is no dispute that the check was
delivered to and was accepted by respondent's agent, Trans-Pacific, only on September 28,
1996. No payment of premium had thus been made at the time of the loss of the vehicle on
September 27, 1996. While petitioner claims that Trans-Pacific was informed that the check
was ready for pick-up on September 27, 1996, the notice of the availability of the check, by
itself, does not produce the effect of payment of the premium. Trans-Pacific could not be
considered in delay in accepting the check because when it informed petitioner that it will
only be able to pick-up the check the next day, petitioner did not protest to this, but instead
allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium
yet to make the insurance policy effective.
In UCPB General Insurance Co., Inc., we summarized the exceptions to the general rule above
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 any
of these exceptions. We cannot sustain petitioner's claim that the parties agreed that the
insurance contract is immediately effective upon issuance despite nonpaymentof the
premiums. Even if there is a waiver of pre-payment ofpremiums, 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. To rule
otherwise would render nugatory the requirement in Section 77 that "[n]otwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, x x x."
INCONTESTABILITY PERIOD
The Insular Life Assurance Company, Ltd. V. Khu et. al.

G.R. No. 195176, April 18, 2016, Del Castillo, J:
Facts:
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular
Life under the latters Diamond Jubilee Insurance Plan. Felipe accomplished the required
medical questionnaire wherein he did not declare any illness or adverse medical condition.
Insular Life thereafter issued him an insurance policy with a face value of P1 million. This
took effect on June 22, 1997.
Page 22 of 192
On June 23, 1999, Felipes policy lapsed due to non-payment of the premium covering the
period from June 22, 1999 to June 23, 2000.
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00
as premium. Except for the change in his occupation of being self-employed to being the
Municipal Mayor of Binuangan, Misamis Oriental, all the other information submitted by
Felipe in his application for reinstatement was virtually identical to those mentioned in his
original policy.
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may
only be considered if he agreed to certain conditions such as payment of additional premium
and the cancellation of the riders pertaining to premium waiver and accidental death
benefits. Felipe agreed to these conditions and paid the premium. On June 23, 2000, Felipe
paid the annual premium in the amount of P28,000.00 covering the period from June 22,
2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium
covering the period from June 22, 2001 to June 21, 2002. On September 22, 2001, Felipe died.
The beneficiaries demanded for the proceeds but the same was denied by Insular Life on the
ground
that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes
Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his
application for reinstatement of his insurance policy; and that it would not have reinstated
the insurance policy had Felipe disclosed the material information on his adverse health
condition. It contended that when Felipe died, the policy was still contestable.
The RTC ruled in favor of the beneficiaries. This was upheld by the CA, hence, this petition.
Issue: Whether Felipes reinstated life insurance policy is already incontestable at the time
of his death.
Held: Petition denied.
1. After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is void
ab initio or is rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
Section 48 regulates both the actions of the insurers and prospective takers of life
insurance. It gives insurers enough time to inquire whether the policy was obtained
by fraud, concealment, or misrepresentation; on the other hand, it forewarns
scheming individuals that their attempts at insurance fraud would be timely
uncovered thus deterring them from venturing into such nefarious enterprise. At
the same time, legitimate policy holders are absolutely protected from unwarranted
denial of their claims or delay in the collection of insurance proceeds occasioned by
Page 23 of 192
allegations of fraud, concealment, or misrepresentation by insurers, claims which

may no longer be set up after the two-year period expires as ordained under the law.
The insurer is deemed to have the necessary facilities to discover such fraudulent
concealment or misrepresentation within a period of two (2) years. It is not fair for
the insurer to collect the premiums as long as the insured is still alive, only to raise
the issue of fraudulent concealment or misrepresentation when the insured dies in
order to defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the
beneficiary is given the stability to recover under the policy when the insured dies.
The provision also makes clear when the two-year period should commence in case
the policy should lapse and is reinstated, that is, from the date of the last
reinstatement.
2. The policy was reinstated in June 1999 (instead of December 1999 as claimed by the
insurer). The court ruled in favor of the insured and in favor of the effectivity of the
insurance contract in the midst of ambiguity in the insurance contract provisions.
Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations.
RESCISSION OF INSURANCE CONTRACTS
Sunlife of Canada (Philippines), Inc. v. Sibya, et. al.

G.R. No. 211212, 08 June 2016, Reyes, J:
Facts:
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun
Life. In his Application for Insurance, he indicated that he had sought advice for kidney
problems. On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued an
insurance policy in his favor. The policy indicated the respondents as beneficiaries and
entitles them to a death benefit of PhPl,000,000.00 should Atty. Jesus Jr. dies on or before
February 5, 2021, or a sum of money if Atty. Jesus Jr. is still living on the endowment date.
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As
such, Ma. Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated
in his insurance policy. In a letter dated August 27, 2001, however, Sun Life denied the claim
Page 24 of 192
on the ground that the details on Atty. Jesus Jr.'s medical history were not disclosed in his
application.
The respondents reiterated their claim against Sun Life thru a letter dated September 17,
2001. Sun Life, however, refused to heed the respondents' requests and instead filed a
Complaint for Rescission before the RTC and prayed for judicial confirmation of Atty. Jesus
Jr.'s rescission.
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance
application his previous medical treatment at the National Kidney Transplant Institute in
May and August of 1994. According to Sun Life, the undisclosed fact suggested that the
insured was in "renal failure" and at a high risk medical condition. Consequently, had it
known such fact, it would not have issued the insurance policy in favor of Atty. Jesus Jr.
Simultaneously, Sun Life tendered a check representing the refund ofthe premiums paid by
Atty. Jesus Jr.
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit
misrepresentation in his application for insurance. They averred that Atty. Jesus Jr. was in
good faith when he signed the insurance application and even authorized Sun Life to inquire
further into his medical history for verification purposes.
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation
when he applied for life insurance with Sun Life. It observed that given the disclosures and
the waiver and authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter
had all the means of ascertaining the facts allegedly concealed by the applicant.
Hence, it held that the petitioner violated Sections 241 and 242 of the Insurance Code of the
Philippines and ordered petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma.
Daisy S. Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents)
the amounts of PhPl,000,000.00 as death benefits, PhPl00,000.00 as moral damages,
PhPl00,000.00 as exemplary damages, and PhPl00,000.00 as attorney's fees and costs of suit.
This was upheld by the CA but modified the decision of the RTC in so far as petitioners
alleged violation of Sections 241 and 242 of the Insurance Code of the Philippines. Hence,
this petition.
Issue: Whether Atty. Sibuya is entitled to the proceeds of the insurance policy given the
alleged concealment/misrepresentation when he applied for an insurance policy
Held: The petition has no merit. The Court held that if the insured dies within the two-year
contestability period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation.
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the
insured. Under the provision, an insurer is given two years - from the effectivity of a life
insurance contract and while the insured is alive - to discover or prove that the policy is void
ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of
Page 25 of 192
the insured or his agent. After the two-year period lapses, or when the insured dies within
the period, the insurer must make good on the policy, even though the policy was obtained
by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business
must be penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has
two years from its issuance, to investigate and verify whether the policy was obtained by
fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May
11, 2001, or a mere three months from the issuance ofthe policy, Sun Life loses its right to
rescind the policy.
Assuming, however, for the sake of argument, that the incontestability period has not yet set
in, the Court agreed with the CA when it held that Sun Life failed to show that Atty. Jesus Jr.
committed concealment and misrepresentation.
CLAIMS SETTLEMENT AND SUBROGRATION
H.H. HOLLERO CONSTRUCTION, INC. vs. GOVERNMENT SERVICE INSURANCE SYSTEM

and POOL OF MACHINERY INSURERS
G.R. No. 152334, September 24, 2014, J. Perlas-Bernabe
The prescriptive period for the insureds action for indemnity should be reckoned from
the "final rejection" of the claim. "Final rejection" simply means denial by the insurer of the
claims of the insured and not the rejection or denial by the insurer of the insureds motion or
request for reconsideration. A perusal of the letter dated April 26, 1990 shows that the GSIS
denied Hollero Constructions indemnity claims. The same conclusion obtains for the
letter dated June 21, 1990 denying Hollero Constructions indemnity claim. Holler's causes of
action for indemnity respectively accrued from its receipt of the letters dated April 26, 1990
and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently,
given that it allowed more than twelve (12) months to lapse before filing the necessary
complaint before the RTC on September 27, 1991, its causes of action had already prescribed.
Facts:
The GSIS and Hollero Construction entered into a Project Agreement whereby the
latter undertook the development of a GSIS housing project known as Modesta Village
Section B. Hollero obligated itself to insure the Project, including all the improvements, upon
the execution of the Agreement under a Contractors All Risks (CAR) Insurance with the GSIS
General Insurance Department for an amount equal to its cost or sound value, which shall
not be subject to any automatic annual reduction.
Pursuant to its undertaking, Holler secured a CAR Policy for land development and
for the construction of twenty (20) housing units. In turn, the GSIS reinsured the CAR Policy
with Pool of Machinery Insurers. Under both policies, it was provided that: (a) there must be
prior notice of claim for loss, damage or liability within fourteen (14) days from the
Page 26 of 192
occurrence of the loss or damage; (b) all benefits thereunder shall be forfeited if no action is
instituted within twelve(12) months after the rejection of the claim for loss, damage or
liability; and (c) if the sum insured is found to be less than the amount required to be insured,
the amount recoverable shall be reduced to such proportion before taking into account the
deductibles stated in the schedule (average clause provision).
During the construction, three (3) typhoons hit the country, namely, Typhoon,
Typhoon Huaning, and Typhoon, which caused considerable damage to the
Project. Accordingly, Hollero Construction filed several claims for indemnity with the GSIS.
In a letter dated April 26, 1990, the GSIS rejected Hollero Constructions indemnity claims
for the damages wrought by Typhoons Biring and Huaning, finding that no amount is
recoverable pursuant to the average clause provision under the policies. In a letter dated
June 21, 1990, the GSIS similarly rejected Hollero Constructions indemnity claim for
damages wrought by Typhoon Saling on a "no loss" basis, it appearing from its records that
the policies were not renewed before the onset of the said typhoon.
Hollero filed a Complaint for Sum of Money and Damages before the RTC which was
opposed by the GSIS through a Motion to Dismiss on the ground that the causes of action
stated therein are barred by the twelve-month limitation provided under the policies, i.e.,
the complaint was filed more than one (1) year from the rejection of the indemnity claims.
The RTC granted Hollero Constructions indemnity claims. The CA set aside and reversed the
RTC Judgment.
Issue:
Whether or not the CA committed reversible error in dismissing the complaint on the ground
of prescription.
Ruling:
No. Contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary, and
popular sense.
Section 10 of the General Conditions of the subject CAR Policies commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is made or used in
support thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy, or if a claim is made and rejected
and no action or suit is commenced within twelve months after such rejection or, in case of
arbitration taking place as provided herein, within twelve months after the Arbitrator or
Arbitrators or Umpire have made their award, all benefit under this Policy shall be forfeited.
In this relation, case law illumines that the prescriptive period for the insureds action
for indemnity should be reckoned from the "final rejection" of the claim.
Page 27 of 192
A perusal of the letter dated April 26, 1990 shows that the GSIS denied Hollero
Constructions indemnity claims wrought by Typhoons Biring and Huaning, it appearing that
no amount was recoverable under the policies. While the GSIS gave Hollero Construction the
opportunity to dispute its findings, neither of the parties pursued any further action on the
matter; this logically shows that they deemed the said letter as a rejection of the claims. Lest
it cause any confusion, the statement in that letter pertaining to any queries Hollero
Construction may have on the denial should be construed, at best, as a form of notice to the
former that it had the opportunity to seek reconsideration of the GSISs rejection. Surely,
Hollero Construction cannot construe the said letter to be a mere "tentative resolution." In
fact, despite its disavowals, Hollero Construction admitted in its pleadings that the GSIS
indeed denied its claim through the aforementioned letter, but tarried in commencing the
necessary action in court.
The same conclusion obtains for the letter dated June 21, 1990 denying Hollero
Construction s indemnity claim caused by Typhoon Saling on a "no loss" basis due to the non-
renewal of the policies therefor before the onset of the said typhoon. The fact that Hollero
Construction filed a letter of reconsideration therefrom dated April 18, 1991, considering
too the inaction of the GSIS on the same similarly shows that the June 21, 1990 letter was
also a final rejection of Hollero Constructions indemnity claim.
As correctly observed by the CA, "final rejection" simply means denial by the insurer
of the claims of the insured and not the rejection or denial by the insurer of the insureds
motion or request for reconsideration. The rejection referred to should be construed as the
rejection in the first instance, as in the two instances above-discussed.
Holler's causes of action for indemnity respectively accrued from its receipt of the
letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the
first instance. Consequently, given that it allowed more than twelve (12) months to lapse
before filing the necessary complaint before the RTC on September 27, 1991, its causes of
action had already prescribed.
VIGILANCE OVER GOODS
ASIAN TERMINALS, INC. vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION

G.R. No. 185964, June 16, 2014, J. Reyes
The shipment received by the ATI from the vessel of COCSCO was found to have sustained
loss and damages. An arrastre operators duty is to take good care of the goods and to turn
them over to the party entitled to their possession. It must prove that the losses were not due to
its negligence or to that of its employees. The Court held that ATI failed to discharge its burden
of proof. ATI blamed COSCO but when the damages were discovered, the goods were already in
ATIs custody for two weeks. Witnesses also testified that the shipment was left in an open area
exposed to the elements, thieves and vandals.
Page 28 of 192
Facts:
About 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags
were loaded on M/V Da Feng owned by China Ocean Shipping Co. (COSCO) in favor of Grand
Asian Sales, Inc. (GASI). It was insured by GASI with FIRST LEPANTO for P7,959,550.50
under Marine Open Policy No. 0123.
The shipment arrived in Manila and was discharged into the custody of ATI, which
was engaged in arrastre business. It remained at ATIs storage area until withdrawen by
broker, Proven Customs Brokerage Corporation (PROVEN) for delivery to GASI.
Upon receipt, GASI found that the goods incurred shortages of 8,600 kg. and spillages
of 3,315 kg. for a total of loss valued at P166,722.41. GASI sought recompense from COSCO
through its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH BELL), ATI, and PROVEN,
but was denied. Thus, FIRST LEPANTO paid P165,772.40 as insurance indemnity.
Then GASI executed a Release of Claim, discharging FIRST LEPANTO from any and all
liabilities pertaining to the damaged shipment and subrogating it to all the rights of recovery
and claims the former may have against any person or corporation in relation to the
damaged shipment.
FIRST LEPANTO demanded reimbursement from COSCO through SMITH BELL,

PROVEN, and ATI. When denied, it filed a Complaint for sum of money before the MeTC.
ATI denied liability and claimed it exercised due diligence and care in handling the
goods. ATI alleged that upon arrival, it was discovered that one jumbo bag sustained
loss/damage while in custody of COSCO as evidenced by Turn Over Survey of Bad Order
Cargo No. 47890. During withdrawal of PROVEN, it was re-examined and the goods were
found to be in the same condition as when it was turned over to ATI such that one jumbo bag
was damaged. ATI also averred that even if it was liable, its contract for cargo handling
service limits its liability to not more than P5,000 per package.
PROVEN also denied liability and claimed that the damages were sustained before
they were withdrawn from ATIs custody under which the shipment was left in an open area
exposed to the elements, thieves and vandals. Despite receipt of summons, COSCO and
SMITH BELL failed to file an answer to the complaint.
MeTC dismissed the claim, absolving ATI and PROVEN of liability and finding COSCO
to be liable but ruling that it had no jurisdiction over it since it was a foreign corporation and
it was not established that SMITH BELL is its Philippine Agent. On appeal, the RTC reversed
this decision, by which it held ATI liable. ATI challenged the RTCs decision before the Court
of Appeals in which it argued that there was no valid subrogation because FIRST LEPANTO
failed to present a valid and existing Marine Open Policy or insurance contract. The CA
dismissed the appeal.
Page 29 of 192
Issue:
1. Is ATI liable for the damages of the shipment?
2. Whether or not the presentation of the insurance policy is indispensable in proving

right of FIRST LEPANTO to be subrogated
Ruling:
1. Yes, ATI failed to prove that it exercised due care and diligence while shipment was
under its custody, control and possession as arrastre operator.
Factual questions pertaining to ATIs liability has already been settled in the uniform
factual findings of the RTC and the CA. Such findings are binding and conclusive upon the
Supreme Court. Only questions of law are allowed in petitions for review on certiorari under
Rule 45 of the Rules of Court.
The relationship between the consignee and the arrastre operator is akin to that
existing between the consignee and/or the owner of the shipped goods and the common
carrier, or that between a depositor and a warehouseman. Hence, in the performance of its
obligations, an arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman. An arrastre operators duty is to take
good care of the goods and to turn them over to the party entitled to their possession.
Since the safekeeping of the goods is its responsibility, it must prove that the losses
were not due to its negligence or to that of its employees. ATI failed to discharge its burden
of proof. Instead, it insisted on shifting the blame to COSCO on the basis of the Request for
Bad Order Survey, purportedly showing that when ATI received the shipment, one jumbo
bag thereof was already in damaged condition.
The Court affirmed the finding of the RTC and CA that ATIs contention was
improbable and illogical. The date of the said document was too distant from the date when
the shipment was actually received by ATI from COSCO. In fact, what the document
established is that when the loss/damage was discovered, the shipment has been in ATIs
custody for at least two weeks. This circumstance, coupled with the undisputed declaration
of PROVENs witnesses that while the shipment was in ATIs custody, it was left in an open
area exposed to the elements, thieves and vandals, all generate the conclusion that ATI failed
to exercise due care and diligence.
2. No, the non-presentation of the insurance contract is not fatal to FIRST LEPANTOs
cause of action.
ATI put in issue the submission of the insurance contract for the first time before the
CA. ATI also failed to allege the necessity of the insurance contract in its answer to the
complaint before the MeTC. Neither was the same considered during pre-trial as one of the
decisive matters in the case.
Page 30 of 192
Since it was not agreed during the pre-trial proceedings that FIRST LEPANTO will
have to prove its subrogation rights by presenting a copy of the insurance contract, ATI is
barred from pleading the absence of such contract in its appeal. It is imperative for the
parties to disclose during pre-trial all issues they intend to raise during the trial because they
are bound by the delimitation of such issues. The determination of issues during the pre-trial
conference bars the consideration of other questions, whether during trial or on appeal.
However, the Court ruled that the non-presentation of the insurance contract is not
fatalto FIRST LEPANTOs right to collect reimbursement. Subrogation is the substitution of
one person in the place of another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities.
As a general rule, the marine insurance policy needs to be presented in evidence

before the insurer may recover the insured value of the lost/damaged cargo in the exercise
of its subrogatory right. Presentation of the contract constitutive of the insurance
relationship between the consignee and insurer is critical because it is the legal basis of the
latters right to subrogation.
But the Court held that there are exceptions to this rule. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim. Hence,
presentation in evidence of the marine insurance policy is not indispensable before the
insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, was held sufficient to
establish not only the relationship between the insurer and consignee, but also the amount
paid to settle the insurance claim.
It was held that the Certificate of Insurance and the Release of Claim presented as
evidence sufficiently established FIRST LEPANTOs right to collect reimbursement as the
subrogee of GASI.
LIABILITY FOR ACTS OF OTHERS
MARIANO C. MENDOZA AND ELVIRA LIM vs. SPOUSES LEONORA J. GOMEZ

AND GABRIEL V. GOMEZ
G.R. No. 160110, June 18, 2014, J. Perez
The operator of a bus company cannot renege on the obligation brought about by
collision of vehicles by claiming that she is not the true owner of the bus. In case of collision of
motor vehicles, the person whose name appears in the certificate of registration shall be
considered the employer of the person driving the vehicle and shall be directly and primarily
liable with the driver under the principle of vicarious liability.
Page 31 of 192
Facts:
An Isuzu Elf truck (Isuzu truck) owned by Leonora J. Gomez (Leonora) and driven by
Antenojenes Perez (Perez), was hit by a Mayamy Transportation bus (Mayamy bus) with
registered under the name of Elvira Lim (Lim) and driven by Mariano C. Mendoza
(Mendoza). Mendoza was charged with reckless imprudence resulting in damage to property
and multiple physical injuries, however, he eluded arrest, prompting the spouses Gomez to
file a separate complaint for damages against Mendoza and Lim, seeking actual damages,
compensation for lost income, moral damages, exemplary damages, attorneys fees and costs
of the suit.
At the trial, it was found out that the Isuzu truck was on its right lane when the
Mayamy bus intruded the lane which caused the collision. As a result, the helpers on board
the truck sustained injuries necessitating medical treatment amounting to P11,267.35,
which amount was shouldered by spouses Gomez. The spouses also contended that the
collision deprived them the daily income of P1,000.00 as they were engaged in buying plastic
scraps and delivering them to recycling plants, truck was vital in the furtherance of the
business. Lastly, the spouses claimed that the Isuzu truck sustained extensive damages on
its cowl, chassis, lights and steering wheel, amounting to P142,757.40.
Lim raised the issue of ownership of the bus in question that although the registered
owner was Lim, the actual owner of the bus was one SPO1 Cirilo Enriquez, who had the bus
attached with Mayamy Transportation Company under the so-called "kabit system."
The RTC found Mendoza liable for direct personal negligence under Article 2176 of
the Civil Code, and it also found Lim vicariously liable under Article 2180 of the same Code.
The RTC relied on the Certificate of Registration in concluding that she is the registered
owner of the bus in question. Although actually owned by Enriquez, following the established
principle in transportation law, Lim, as the registered owner, is the one who can be held
liable. Mendoza and Lim were ordered to pay spouses Gomez 1) the costs of repair of the
damaged vehicle in the amount of P142,757.40; 2) the amount ofP1,000.00 per day from
March 7, 1997 up to November 1997 representing the unrealized income of the spouses
Gomez when the incident transpired up to the time the damaged Isuzu truck was repaired;
3) P100,000.00 as moral damages, plus a separate amount of P50,000.00 as exemplary
damages; 4) P50,000.00 as attorneys fees; and lastly 5) the costs of suit. Aggrieved, Mendoza
appealed to the CA which affirmed the decision of the RTC with the exception of the award
of unrealized income. Hence, the present petition.
Issues:
1. Whether or not Lim is liable as the employer despite the fact that the original owner
of the bus is Enriquez
2. Whether or not the award of moral and exemplary damages as well as attorneys fees
and costs of suit is proper
Page 32 of 192
Ruling:
1. Yes, Lim shall be vicariously liable with Mendoza.
In Filcar Transport Services v. Espinas, we held that the registered owner is deemed
the employer of the negligent driver, and is thus vicariously liable under Article 2176, in
relation to Article 2180, of the Civil Code. Citing Equitable Leasing Corporation v. Suyom, the
Court ruled that in so far as third persons are concerned, the registered owner of the motor
vehicle is the employer of the negligent driver, and the actual employer is considered merely
as an agent of such owner. Thus, whether there is an employer-employee relationship
between the registered owner and the driver is irrelevant in determining the liability of the
registered owner who the law holds primarily and directly responsible for any accident,
injury or death caused by the operation of the vehicle in the streets and highways.
As early as Erezo v. Jepte, the Court, speaking through Justice Alejo Labrador
summarized the justification for holding the registered owner directly liable, to wit:
x x x The main aim of motor vehicle registration is to identify the owner so that
if any accident happens, or that any damage or injury is caused by the vehicles
on the public highways, responsibility therefore can be fixed on a definite
individual, the registered owner. Instances are numerous where vehicle
running on public highways caused accidents or injuries to pedestrians or
other vehicles without positive identification of the owner or drivers, or with
very scant means of identification. It is to forestall these circumstances, so
inconvenient or prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of persons responsible
for damages or injuries caused on public highways. As such, there can be no
other conclusion but to hold Lim vicariously liable with Mendoza.
2. As to exemplary damages and costs of suit, yes but as to moral damages and
attorneys fees, no.
Moral Damages. Moral damages are awarded to enable the injured party to obtain
means, diversions or amusements that will serve to alleviate the moral suffering he has
undergone, by reason of the defendant's culpable action. In fine, an award of moral damages
calls for the presentation of 1) evidence of besmirched reputation or physical, mental or
psychological suffering sustained by the claimant; 2)a culpable act or omission factually
established; 3) proof that the wrongful act or omission of the defendant is the proximate
cause of the damages sustained by the claimant; and 4) the proof that the act is predicated
on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil
Code.
A review of the complaint and the transcript of stenographic notes yields the
pronouncement that respondents neither alleged nor offered any evidence of besmirched
reputation or physical, mental or psychological suffering incurred by them.
Page 33 of 192
Spouses Gomez cannot rely on Article 2219 (2) of the Civil Code which allows moral
damages in quasi-delicts causing physical injuries because in physical injuries, moral
damages are recoverable only by the injured party, and in the case at bar, herein respondents
were not the ones who were actually injured. In B.F. Metal (Corp.) v. Sps. Lomotan, et al., the
Court, in a claim for damages based on quasi-delict causing physical injuries, similarly
disallowed an award of moral damages to the owners of the damaged vehicle, when neither
of them figured in the accident and sustained injuries.
Neither can respondents rely on Article 21 of the Civil Code as the RTC erroneously
did. Article 21 deals with acts contra bonus mores, and has the following elements: (1) There
is an act which is legal; (2) but which is contrary to morals, good custom, public order, or
public policy; (3) and it is done with intent to injure. In the present case, it can hardly be said
that Mendozas negligent driving and violation of traffic laws are legal acts. Moreover, it was
not proven that Mendoza intended to injure Perez, et al. Thus, Article 21 finds no application
to the case at bar. All in all, we find that the RTC and the CA erred in granting moral damages
to respondents.
Exemplary Damages. Article 2229 of the Civil Code provides that exemplary or
corrective damages are imposed, by way of example or correction for the public good, in
addition to moral, temperate, liquidated or compensatory damages. Article 2231 of the same
Code further states that in quasi-delicts, exemplary damages may be granted if the defendant
acted with gross negligence.
In motor vehicle accident cases, exemplary damages may be awarded where the defendants
misconduct is so flagrant as to transcend simple negligence and be tantamount to positive or
affirmative misconduct rather than passive or negative misconduct. In characterizing the
requisite positive misconduct which will support a claim for punitive damages, the courts
have used such descriptive terms as willful, wanton, grossly negligent, reckless, or malicious,
either alone or in combination.
Gross negligence is the absence of care or diligence as to amount to a reckless

disregard of the safety of persons or property. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them. In the case at bar, having
established respondents right to compensatory damages, exemplary damages are also in
order, given the fact that Mendoza was grossly negligent in driving the Mayamy bus. His act
of intruding or encroaching on the lane rightfully occupied by the Isuzu truck shows his
reckless disregard for safety.
Attorneys Fees. Article 2208 of the Civil Code enumerates the instances when
attorneys fees may be recovered:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of

litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
Page 34 of 192
(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs valid and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;
(8) In actions for indemnity under workmens compensation and employers
liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered;
In all cases, the attorneys fees and expenses of litigation must be reasonable.
In Spouses Agustin v. CA, we held that, the award of attorneys fees being an exception
rather than the general rule, it is necessary for the court to make findings of facts and law
that would bring the case within the exception and justify the grant of such award. Thus, the
reason for the award of attorneys fees must be stated in the text of the courts decision;
otherwise, if it is stated only in the dispositive portion of the decision, the same must be
disallowed on appeal.
In the case at bar, the RTC Decision had nil discussion on the propriety of attorneys
fees, and it merely awarded such in the dispositive portion. Following established
jurisprudence, however, the CA should have disallowed on appeal said award of attorneys
fees as the RTC failed to substantiate said award.
Costs of suit. The Rules of Court provide that, generally, costs shall be allowed to the
prevailing party as a matter of course, thus:
Section 1. Costs ordinarily follow results of suit.- Unless otherwise provided in

these rules, costs shall be allowed to the prevailing party as a matter of course,
but the court shall have power, for special reasons, to adjudge that either party
shall pay the costs of an action, or that the same be divided, as may be
equitable. No costs shall be allowed against the Republic of the Philippines,
unless otherwise provided by law.
In the present case, the award of costs of suit to respondents, as the prevailing party,
is in order.
Page 35 of 192
STIPULATION FOR LIMITATION OF LIABILITY
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE,

INC.*) vs. HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING,
INC
G.R. No. 1877l
HEUNG-A SHIPPING CORPORATION and W ALLEM PHILIPPINES SHIPPING, INC. vs.

PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE, INC.),
G.R. No. 187812,
July 23, 2014, J. Reyes
Common carriers, as a general rule, are presumed to have been at fault or negligent if
the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that
they exercised extraordinary diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that they
observed such diligence. As the carrier of the subject shipment, HEUNG-A was bound to exercise
extraordinary diligence in conveying the same and its slot charter agreement with DONGNAMA
did not divest it of such characterization nor relieve it of any accountability for the shipment.
However, the liability of HEUNG-A is limited to $500 per package or pallet because in case of
the shippers failure to declare the value of the goods in the bill of lading, Section 4, paragraph
5 of the COGSA provides that neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package
Facts:
On December 19, 2000, Novartis Consumer Health Philippines, Inc. (NOVARTIS)

imported from Jinsuk Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of
Ovaltine Power 18 G laminated plastic packaging material.
In order to ship the goods to the Philippines, JINSUK engaged the services of Protop
Shipping Corporation (PROTOP), a freight forwarder likewise based in South Korea, to
forward the goods to their consignee, NOVARTIS. PROTOP shipped the cargo through
Dongnama Shipping Co. Ltd. (DONGNAMA) which in turn loaded the same on M/V Heung-A
Bangkok V-019 owned and operated by Heung-A Shipping Corporation, (HEUNG-A), a
Korean corporation, pursuant to a slot charter agreement whereby a space in the latters
vessel was reserved for the exclusive use of the former. Wallem Philippines Shipping, Inc.
(WALLEM) is the ship agent of HEUNG-A in the Philippines.
NOVARTIS insured the shipment with Philam Insurance Company, Inc. (PHILAM, now
Chartis Philippines Insurance, Inc.) under All Risk Marine Open Insurance Policy No. MOP-
0801011828 against all loss, damage, liability, or expense before, during transit and even
after the discharge of the shipment from the carrying vessel until its complete delivery to the
consignees premises.
Page 36 of 192
The vessel arrived at the port of Manila, South Harbor, on December 27, 2000. The
shipment reached NOVARTIS premises on January 5, 2001 and was thereupon inspected by
the companys Senior Laboratory Technician, Annie Rose Caparoso (Caparoso). Upon initial
inspection, Caparoso found the container van locked with its load intact. After opening the
same, she inspected its contents and discovered that the boxes of the shipment were wet and
damp. The boxes on one side of the van were in disarray while others were opened or
damaged due to the dampness. Caparoso further observed that parts of the container van
were damaged and rusty. There were also water droplets on the walls and the floor was wet.
Since the damaged packaging materials might contaminate the product they were meant to
hold, Caparoso rejected the entire shipment.
Aggrieved, NOVARTIS demanded indemnification for the lost/damaged shipment

from PROTOP but was denied. Insurance claims were, thus, filed with PHILAM which paid
the insured value of the shipment in the adjusted amount of One Million Nine Hundred Four
Thousand Six Hundred Thirteen Pesos and Twenty Centavos (1,904,613.20). Claiming that
after such payment, it was subrogated to all the rights and claims of NOVARTIS against the
parties liable for the lost/damaged shipment, PHILAM filed on June 4, 2001, a complaint for
damages against PROTOP. On December 11, 2001, PHILAM filed a Motion to Admit Second
Amended Complaint this time designating PROTOP as the owner/operator of M/V Heung-A
Bangkok V-019 and adding HEUNG-A as party defendant for being the registered owner of
the vessel. The motion was granted and the second amended complaint was admitted by the
trial court on December 14, 2001.
In a Decision dated February 26, 2007, the RTC rendered HEUNG-A, PROTOP and
WALLEM liable for the loss. PHILAM was declared to have been validly subrogated in
NOVARTIS stead and thus entitled to recover the insurance claims it paid to the latter.
An appeal to the CA was interposed by PHILAM, WALLEM and HEUNG-A. The CA ruled
that proximate cause of the damage was the failure of HEUNG-A to inspect and examine the
actual condition of the sea van before loading it on the vessel. However, the CA limited the
liability of PROTOP, WALLEM and HEUNG-A to US$8,500.00 pursuant to the liability
limitation under the COGSA since the shipper failed to declare the value of the subject cargo
in the bill of lading and since they could not be made answerable for the two (2) unaccounted
pallets because the shipment was on a shippers load, count and seal basis.
Issues:
1. Whether HEUNG-A should be liable for the loss sustained.
2. Whether HEUNG-As liability can be limited to US$500 per package pursuant to the
COGSA.
Ruling:
1. As the carrier of the subject shipment, HEUNG-A was bound to exercise

extraordinary diligence in conveying the same and its slot charter agreement with
Page 37 of 192
DONGNAMA did not divest it of such characterization nor relieve it of any accountability for
the shipment.
[C]ommon carriers, as a general rule, are presumed to have been at fault or negligent
if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove
that they exercised extraordinary diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that they
observed such diligence. Further, under Article 1742 of the Civil Code, even if the loss,
destruction, or deterioration of the goods should be caused by the faulty nature of the
containers, the common carrier must exercise due diligence to forestall or lessen the loss.
Here, HEUNG-A failed to rebut this prima facie presumption when it failed to give
adequate explanation as to how the shipment inside the container van was handled, stored
and preserved to forestall or prevent any damage or loss while the same was in its
possession, custody and control.
2. Yes. Under Article 1753 of the Civil Code, the law of the country to which the goods
are to be transported shall govern the liability of the common carrier for their loss,
destruction or deterioration. Since the subject shipment was being transported from South
Korea to the Philippines, the Civil Code provisions shall apply. In all matters not regulated
by the Civil Code, the rights and obligations of common carriers shall be governed by the
Code of Commerce and by special laws such as the COGSA. While the Civil Code contains
provisions making the common carrier liable for loss/damage to the goods transported, it
failed to outline the manner of determining the amount of such liability. Article 372 of the
Code of Commerce fills in this gap, thus:
Article 372. The value of the goods which the carrier must pay in cases if loss
or misplacement shall be determined in accordance with that declared in the bill of
lading, the shipper not being allowed to present proof that among the goods declared
therein there were articles of greater value and money.
In case, however, of the shippers failure to declare the value of the goods in the bill
of lading, Section 4, paragraph 5 of the COGSA provides:
Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, or the equivalent of that sum in other
currency, unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading shall be prima facie evidence, but shall be conclusive on
the carrier.
Hence, when there is a loss/damage to goods covered by contracts of carriage from a

foreign port to a Philippine port and in the absence a shippers declaration of the value of the
goods in the bill of lading, as in the present case, the foregoing provisions of the COGSA shall
Page 38 of 192
apply. The CA, therefore, did not err in ruling that HEUNG-A, WALLEM and PROTOPs
liability is limited to $500 per package or pallet.
DILIGENCE REQUIRED OF COMMON CARRIERS
NEDLLOYD LIJNEN B.V. ROTTERDAM AND THE EAST ASIATIC CO., LTD. vs. GLOW
LAKS ENTERPRISES, LTD.
G.R. No. 156330, November 19, 2014, J. Perez
There is no dispute that the custody of the goods was never turned over to the consignee
or his agents but was lost into the hands of unauthorized persons who secured possession
thereof on the strength of falsified documents. When the goods shipped are either lost or arrived
in damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable. To overcome
the presumption of negligence, the common carrier must establish by adequate proof that it
exercised extraordinary diligence over the goods. In the present case, Nedlloyd failed to prove
that they did exercise the degree of diligence required by law over the goods they transported,
it failed to adduce sufficient evidence they exercised extraordinary care to prevent
unauthorized withdrawal of the shipments.
Facts:
Nedlloyd Lijnen B.V. Rotterdam is a foreign corporation engaged in the business of

carrying goods by sea, whose vessels regularly call at the port of Manila. It is doing business
in the Philippines thru its local ship agent, co-petitioner East Asiatic Co., Ltd. Glow Laks
Enterprises, Ltd., is likewise a foreign corporation organized and existing under the laws of
Hong Kong. It is not licensed to do, and it is not doing business in, the Philippines. On or
about 14 September 1987, Glow loaded on board M/S Scandutch at the Port of Manila a total
343 cartoons of garments, complete and in good order for pre-carriage to the Port of Hong
Kong. The goods covered by Bills of Lading Nos. MHONX-2 and MHONX-34 arrived in good
condition in Hong Kong and were transferred to M/S Amethyst for final carriage to Colon,
Free Zone, Panama. Both vessels, M/S Scandutch and M/S Amethyst, are owned by Nedlloyd
represented in the Phlippines by its agent, East Asiatic. The goods which were valued at
US$53,640.00 was agreed to be released to the consignee, Pierre Kasem, International, S.A.,
upon presentation of the original copies of the covering bills of lading. Upon arrival of the
vessel at the Port of Colon on 23 October 1987, Nedlloyd purportedly notified the consignee
of the arrival of the shipments, and its custody was turned over to the National Ports
Authority in accordance with the laws, customs regulations and practice of trade in Panama.
By an unfortunate turn of events, however, unauthorized persons managed to forge the
covering bills of lading and on the basis of the falsified documents, the ports authority
released the goods.
On 16 July 1988, Glow filed a formal claim with Nedlloyd for the recovery of the
amount of US$53,640.00 representing the invoice value of the shipment but to no avail.
Claiming that Nedlloyd are liable for the misdelivery of the goods, Glow initiated Civil Case
before the RTC of Manila, seeking for the recovery of the amount of US$53,640.00, including
Page 39 of 192
the legal interest from the date of the first demand. After the Pre-Trial Conference, trial on
the merits ensued. The RTC rendered a Decision ordering the dismissal of the complaint but
granted Nedlloyd counterclaims. The Court of Appeals reversed the findings of the RTC and
held that foreign laws were not proven in the manner provided by Section 24, Rule 132 of
the Revised Rules of Court, and therefore, it cannot be given full faith and credit.
Issue:
Whether or not Nedllyod are liable for the misdelivery of goods under Philippine
laws.
Ruling:
Yes, Nedlloyd is laible.
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are delivered to the
carrier. This responsibility remains in full force and effect even when they are temporarily
unloaded or stored in transit, unless the shipper or owner exercises the right of stoppage in
transitu, and terminates only after the lapse of a reasonable time for the acceptance, of the
goods by the consignee or such other person entitled to receive them. It was further provided
in the same statute that the carrier may be relieved from the responsibility for loss or damage
to the goods upon actual or constructive delivery of the same by the carrier to the consignee
or to the person who has the right to receive them.
In this case, there is no dispute that the custody of the goods was never turned over
to the consignee or his agents but was lost into the hands of unauthorized persons who
secured possession thereof on the strength of falsified documents. The loss or the
misdelivery of the goods in the instant case gave rise to the presumption that the common
carrier is at fault or negligent. A common carrier is presumed to have been negligent if it fails
to prove that it exercised extraordinary vigilance over the goods it transported. When the
goods shipped are either lost or arrived in damaged condition, a presumption arises against
the carrier of its failure to observe that diligence, and there need not be an express finding
of negligence to hold it liable. To overcome the presumption of negligence, the common
carrier must establish by adequate proof that it exercised extraordinary diligence over the
goods. It must do more than merely show that some other party could be responsible for the
damage.
In the present case, Nedlloyd failed to prove that they did exercise the degree of
diligence required by law over the goods they transported. Indeed, aside from their
persistent disavowal of liability by conveniently posing an excuse that their extraordinary
responsibility is terminated upon release of the goods to the Panamanian Ports Authority,
Nedlloyd failed to adduce sufficient evidence they exercised extraordinary care to prevent
unauthorized withdrawal of the shipments. Nothing in the New Civil Code, however,
suggests, even remotely, that the common carriers responsibility over the goods ceased
upon delivery thereof to the custom authorities. The contract of carriage remains in full force
Page 40 of 192
and effect even after the delivery of the goods to the port authorities; the only delivery that
releases it from their obligation to observe extraordinary care is the delivery to the
consignee or his agents. Even more telling of Nedlloyd continuing liability for the goods
transported to the fact that the original bills of lading up to this time, remains in the
possession of the notify party or consignee.
While surrender of the original bill of lading is not a condition precedent for the
common carrier to be discharged from its contractual obligation, there must be, at the very
least, an acknowledgement of the delivery by signing the delivery receipt, if surrender of the
original of the bill of lading is not possible. There was neither surrender of the original copies
of the bills of lading nor was there acknowledgment of the delivery in the present case. This
leads to the conclusion that the contract of carriage still subsists and Nedlloyd could be held
liable for the breach thereof.
Petitioners could have offered evidence before the trial court to show that they exercised the
highest degree of care and caution even after the goods was turned over to the custom
authorities, by promptly notifying the consignee of its arrival at the Port of Cristobal in order
to afford them ample opportunity to remove the cargoes from the port of discharge. This
court have scoured the records and found that neither the consignee nor the notify party was
informed by Nedlloyd of the arrival of the goods, a crucial fact indicative of Nedlloyds failure
to observe extraordinary diligence in handling the goods entrusted to their custody for
transport.
LIABILITIES OF COMMON CARRIERS
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL

SHIPPING COMPANY, INCORPORATED vs. MALAYAN INSURANCE COMPANY,
INCORPORATED
G.R. No. 185565, November 26, 2014, J. Reyes
Under the Code of Commerce, if the goods are delivered but arrived at the destination in
damaged condition, the remedies to be pursued by the consignee depend on the extent of
damage on the goods. If the effect of damage on the goods consisted merely of diminution in
value, the carrier is bound to pay only the difference between its price on that day and its
depreciated value as provided under Article 364. 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.
Facts:
Loadstar International Shipping (Loadstar Shipping) and PASAR entered into a

contract of affreightment of the latters copper concentrates. A shipment of cooper
concentrates were loaded in MV Bobcat, the vessel of Loadstar International Shipping Co.,
Inc. (Loadstar International), with Philex as shipper and PASAR as consignee. The cargo was
Page 41 of 192
insured by Malayan Insurance Company, Inc. (Malayan). While out in the sea, the crew of the
vessel found a crack on the vessel which caused seawater to enter and wet the copper
concentrates.
Immediately after the vessel arrived at port, PASAR and Philexs tested the copper
concentrates and found them to be contaminated. PASAR sent a formal notice of claim to
Loadstar Shipping, and surveyors recommended the value of the claim at P 32,351,102.32.
Malayan paid PASAR said amount.
Meanwhile, 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. Malayan later wrote Loadstar Shipping informing the latter of the
acceptance of PASARs proposal to take the damaged copper concentrates at a residual value
of US$90,000.00. Loadstar Shipping wrote Malayan requesting for the reversal of its decision
to accept PASARs proposal and the conduct of a public bidding to allow Loadstar Shipping
to match or top PASARs bid by 10%.
PASAR then signed a subrogation receipt in favor of Malaya. To recover the amount
Malaya paid to PASAR, it demanded reimbursement from Loadstar Shipping, which refused
to comply, prompting Malaya to file a case of damages with the RTC, against Loadstar
Shipping, and later including Loadstar International. Malayan alleged that due to the
unseaworthiness of the vessel, PASAR suffered loss of the cargo. Petitioners maintain, among
others, that Malayans claim is excessive, grossly overstated, unreasonable and
unsubstantiated; that their liability, if any, should not exceed the CIF value of the
lost/damaged cargo as set forth in the bill of lading, charter party or customary rules of trade;
and that the arbitration clause in the contract of affreightment should be followed.
The RTC dismissed the complaint, finding that although contaminated by seawater,
the copper concentrates can still be used. It gave credence to the testimony of Francisco
Esguerra, petitioners expert witness, that despite high chlorine content, the copper
concentrates remain intact and will not lose their value. The gold and silver remain with the
grains/concentrates even if soaked with seawater and does not melt. The RTC observed that
the purchase agreement between PASAR and Philex contains a penalty clause and has no
rejection clause. Despite this agreement, the parties failed to sit down and assess the penalty.
The CA reversed and set aside the RTC, holding that petitioners must pay Malayan the
amount of P33,934,948.74 as actual damages, less $90,000.00-the residual value of the
copper concentrates it sold to PASAR in 2000.
Issue:
Did PASAR not suffer total loss of the copper concentrates as to warrant rejection of
the goods and reimbursement from Malayan?
Ruling:
Page 42 of 192
The petition is granted.
The contract between PASAR and the petitioners is a contract of carriage of goods and
not a contract of sale. Therefore, the petitioners and PASAR are bound by the laws on
transportation of goods and their contract of affreightment. Since the Contract of
Affreightment between the petitioners and PASAR is silent as regards the computation of
damages, whereas the bill of lading presented before the trial court is undecipherable, the
New Civil Code and the Code of Commerce shall govern the contract between the parties.
Malayan paid PASAR the amount of P32,351,102.32 covering the latters claim of
damage to the cargo. This represents damages for the total loss of that portion of the cargo
which were contaminated with seawater and not merely the depreciation in its value.
Strangely though, after claiming damages for the total loss of that portion, PASAR bought
back the contaminated copper concentrates from Malayan at the price of US$90,000.00. The
fact of repurchase is enough to conclude that the contamination of the copper concentrates
cannot be considered as total loss on the part of PASAR.
[Under the Code of Commerce], if the goods are delivered but arrived at the
destination in damaged condition, the remedies to be pursued by the consignee depend on
the extent of damage on the goods.
If the goods are rendered useless for sale, consumption or for the intended purpose,
the consignee may reject the goods and demand the payment of such goods at their market
price on that day pursuant to Article 365. In case the damaged portion of the goods can be
segregated from those delivered in good condition, the consignee may reject those in
damaged condition and accept merely those which are in good condition. But if the consignee
is able to prove that it is impossible to use those goods which were delivered in good
condition without the others, then the entire shipment may be rejected. To reiterate, under
Article 365, the nature of damage must be such that the goods are rendered useless for sale,
consumption or intended purpose for the consignee to be able to validly reject them.
If the effect of damage on the goods consisted merely of diminution in value, the
carrier is bound to pay only the difference between its price on that day and its depreciated
value as provided under Article 364.
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. Otherwise, there will be no difference in the indemnification of goods which were not
delivered at all; or delivered but rendered useless, compared against those which were
delivered albeit, there is diminution in value.
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
Page 43 of 192
itself as the 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.
BILL OF LADING
EASTERN SHIPPING LINES, INC. vs. BPI/MS INSURANCE CORP., &MITSUI SUMITOMO
INSURANCE CO., LTD.,
G.R. No. 182864, January 12, 2015, J. Perez
Mere proof of delivery of the goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes a prima facie case of fault or negligence
against the carrier. If no adequate explanation is given as to how the deterioration, loss, or
destruction of the goods happened, the transporter shall be held responsible. In this case, the
fault is attributable to ESLI.
Facts:
BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan, Sumitomo
Corporation shipped on board Eastern Shipping Lines vessel M/V Eastern Venus 22 22
coils of various Steel Sheet weighing in good order and condition for transportation to and
delivery at the port of Manila in favor of consignee Calamba Steel Center, Inc. The declared
value of the shipment was US$83,857.59. The shipment was insured with the BPI/MS and
Mitsui against all risks under Marine Policy No. 103-GG03448834. The complaint alleged
that the shipment arrived and upon withdrawal of the shipment by the Calamba Steels
representative, it was found out that part of the shipment was damaged and was in bad order
condition such that there was a Request for Bad Order Survey. It was found out that the
damage amounted to US$4,598.85 prompting Calamba Steel to reject the damaged shipment
for being unfit for the intended purpose. On 12 May 2004, Sumitomo Corporation again
shipped on board ESLIs vessel M/V Eastern Venus 25 50 coils in various Steel Sheet
weighing 383,532 kilograms in good order and condition for transportation to and delivery
at the port of Manila, Philippines in favor of the same consignee Calamba Steel. The shipment
was insured with the BPI/MS and Mitsui against all risks under Marine Policy No. 104-
GG04457785. ESLIs vessel with the second shipment arrived at the port of Manila partly
damaged and in bad order. The coils sustained further damage during the discharge from
vessel to shore until its turnover to ATIs custody for safekeeping. Upon withdrawal from
ATI and delivery to Calamba Steel, it was found out that the damage amounted to
US$12,961.63. As it did before, Calamba Steel rejected the damaged shipment for being unfit
for the intended purpose.
Calamba Steel attributed the damages on both shipments to ESLI as the carrier and
ATI as the arrastre operator in charge of the handling and discharge of the coils and filed a
claim against them. When ESLI and ATI refused to pay, Calamba Steel filed an insurance claim
for the total amount of the cargo against BPI/MS and Mitsui as cargo insurers. As a result,
Page 44 of 192
BPI/MS and Mitsui became subrogated in place of and with all the rights and defenses
accorded by law in favor of Calamba Steel.
BPI/MS and Mitsui filed a Complaint before the RTC of Makati City against ESLI and
ATI to recover actual damages amounting to US$17,560.48 with legal interest, attorneys fees
and costs of suit. ATI, in its Answer, denied the allegations and insisted that the coils in two
shipments were already damaged upon receipt from ESLIs vessels. It likewise insisted that
it exercised due diligence in the handling of the shipments and invoked that in case of
adverse decision. On its part, ESLI denied the allegations of the complainants and averred
that the damage to both shipments was incurred while the same were in the possession and
custody of ATI and/or of the consignee or its representatives.
BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1)
Manuel, the Cargo Surveyor of Philippine Japan Marine Surveyors and Sworn Measurers
Corporation who personally examined and conducted the surveys on the two shipments; (2)
Richatto P. Almeda, the General Manager of Calamba Steel who oversaw and examined the
condition, quantity, and quality of the shipped steel coils, and who thereafter filed formal
notices and claims against ESLI and ATI; and (3) Virgilio G. Tiangco, Jr., the Marine Claims
Supervisor of BPI/MS who processed the insurance claims of Calamba Steel. Along with the
Affidavits were the Bills of Lading covering the two shipments, Invoices, Notices of Loss of
Calamba Steel, Subrogation Form, Insurance Claims, Survey Reports, Turn Over Survey of
Bad Order Cargoes and Request for Bad Order Survey.
ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte, who monitored
in coordination with ATI the discharge of the two shipments, and Rodrigo Victoria who
personally surveyed the subject cargoes on board the vessel as well as the manner the ATI
employees discharged the coils. Lastly, ATI submitted the Affidavits of its Bad Order
Inspector Ramon Garcia and Claims Officer Ramiro De Vera.
RTC Makati City rendered a decision finding both the ESLI and ATI liable for the
damages sustained by the two shipments. On appeal, ESLI argued that the trial court erred
when it found BPI/MS has the capacity to sue and when it assumed jurisdiction over the case.
It also questioned the ruling on its liability since the Survey Reports indicated that the cause
of loss and damage was due to the rough handling of ATIs stevedores during discharge from
vessel to shore and during loading operation onto the trucks. It invoked the limitation of
liability of US$500.00 per package as provided in Commonwealth Act No. 65 or the Carriage
of Goods by Sea Act (COGSA). The CA denied the appeal of ESLI while granted that of ATI.
Issue:
Whether or not CA correctly ruled that ESLI is liable.
Ruling:
On the liability of ESLI
Page 45 of 192
ESLI bases of its non-liability on the survey reports prepared by BPI/MS and Mitsuis
witness Manuel which found that the cause of damage was the rough handling on the
shipment by the stevedores of ATI during the discharging operations. However, Manuel does
not absolve ESLI of liability. The witness in fact includes ESLI in the findings of negligence.
As stated in the affidavit of Manuel: During the aforesaid operations, the employees and
forklift operators of ESLI and ATI were very negligent in the handling of the subject
cargoes. ESLI cites the affidavit of its witness Rodrigo who stated that the cause of the
damage was the rough mishandling by ATIs stevedores. As Rodrigo admits, it was also his
duty to inspect and monitor the cargo on-board upon arrival of the vessel. ESLI cannot invoke
its non-liability solely on the manner the cargo was discharged and unloaded. The actual
condition of the cargoes upon arrival prior to discharge is equally important and cannot be
disregarded. Proof is needed that the cargo arrived at the port of Manila in good order
condition and remained as such prior to its handling by ATI.
Based on the bills of lading issued, it is undisputed that ESLI received the two
shipments of coils from shipper Sumitomo Corporation in good condition at the ports of
Yokohama and Kashima, Japan. However, upon arrival at the port of Manila, some coils from
the two shipments were partly dented and crumpled as evidenced turn over survey of bad
cargoes signed by ESLIs representatives, a certain Tabanao and Rodrigo together with ATIs
representative Garcia. According to the report, four coils and one skid were partly dented
and crumpled prior to turnover by ESLI to ATIs possession while a total of eleven coils were
partly dented and crumpled prior to turnover.
Mere proof of delivery of the goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes a prima facie case of fault or negligence
against the carrier. If no adequate explanation is given as to how the deterioration, loss, or
destruction of the goods happened, the transporter shall be held responsible. From the
foregoing, the fault is attributable to ESLI.
Limitation of Liability
ESLI assigns as error the appellate courts finding and reasoning that the package
limitation under the COGSA is inapplicable even if the bills of lading covering the shipments
only made reference to the corresponding invoices. ESLI argues that the value of the cargoes
was not incorporated in the bills of lading and that there was no evidence that the shipper
had presented to the carrier in writing prior to the loading of the actual value of the cargo,
and, that there was a no payment of corresponding freight
The New Civil Code provides that a stipulation limiting a common carriers liability to
the value of the goods appearing in the bill of lading is binding, unless the shipper or owner
declares a greater value. In addition, a contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed upon.
COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount
recoverable in case of loss or damage shall not exceed US$500.00 per package or per
customary freight unless the nature and value of such goods have been declared by the
Page 46 of 192
shipper before shipment and inserted in the bill of lading. The Code takes precedence
as the primary law over the rights and obligations of common carriers with the Code of
Commerce and COGSA applying suppletorily.
ESLI contends that there must be an insertion of this declaration in the bill of lading
itself to fall outside the statutory limitation of liability.
The bills of lading represent the formal expression of the parties rights, duties and
obligations. It is the best evidence of the intention of the parties which is to be deciphered
from the language used in the contract, not from the unilateral post facto assertions of one of
the parties, or of third parties who are strangers to the contract.
As to the non-declaration of the value of the goods on the second bill of lading, there
is no error on the part of the appellate court when it ruled that there was a compliance of the
requirement provided by COGSA. The declaration requirement does not require that all the
details must be written down on the very bill of lading itself. It must be emphasized that all
the needed details are in the invoice, which contains the itemized list of goods shipped to a
buyer, stating quantities, prices, shipping charges, and other details which may contain
numerous sheets. Compliance can be attained by incorporating the invoice, by way of
reference, to the bill of lading provided that the former containing the description of the
nature, value and/or payment of freight charges is as in this case duly admitted as evidence.
A review of the bill of ladings and invoice on the second shipment indicates that the shipper
declared the nature and value of the goods with the corresponding payment of the freight on
the bills of lading. Further, under the caption description of packages and goods, it states
that the description of the goods to be transported as various steel sheet in coil with a gross
weight of 383,532 kilograms (89.510 M3). On the other hand, the amount of the goods is
referred in the invoice, the due execution and genuineness of which has already been
admitted by ESLI, is US$186,906.35 as freight on board with payment of ocean freight of
US$32,736.06 and insurance premium of US$1,813.17. From the foregoing, the Court ruled
that the non- limitation of liability applies in the present case.
Designer Baskets, Inc. v. Air Sea Transport, Inc., et. al.

G.R. No. 184513, March 9, 2016, Jardeleza, J:
Facts:
DBI is a domestic corporation engaged in the production of housewares and handicraft items
for export. Sometime in October 1995, Ambiente, a foreign-based company, ordered from
DBI 223 cartons of assorted wooden items (the Shipment). The Shipment was worth
US$12,590.87 and payable through telegraphic transfer. Ambiente designated ACCLI as the
forwarding agent that will ship out its order from the Philippines to the United States (US).
ACCLI is a domestic corporation acting as agent of ASTI, a US based corporation engaged in
carrier transport business, in the Philippines.
On January 7, 1996, DBI delivered the shipment to ACCLI for sea transport from Manila and
delivery to Ambiente at 8306 Wilshire Blvd., Suite 1239, Beverly Hills, California. To
Page 47 of 192
acknowledge receipt and to serve as the contract of sea carriage, ACCLI issued to DBI
triplicate copies of the Bill of Lading. DBI retained possession of the originals of the bills of
lading pending the payment of the goods by Ambiente. ASTI released the Shipment to
Ambiente on the strength of an Indemnity Agreement executed in its favor.
DBI then made several demands to Ambiente for the payment of the shipment, but to no
avail. Thus, on October 7, 1996, DBI filed the Original Complaint against Ambiente, ACCLI
and ASTI for the payment of the value of the Shipment, damages and legal fees.
ASTI, ACCLI and its directors and incorporators filed a motion to dismiss. They argued that:
(a) they are not the real parties-in-interest in the action because the cargo was delivered and
accepted by Ambiente. The case, therefore, was a simple case of non- payment of the buyer;
(b) relative to the incorporators-stockholders of ACCLI, piercing the corporate veil is
misplaced; (c) contrary to the allegation of DBI, the bill of lading covering the shipment does
not contain a proviso exposing ASTI to liability in case the shipment is released without the
surrender of the bill of lading; and (d) the Original Complaint did not attach a certificate of
non-forum shopping.
DBI opposed the said motion, asserting that ASTI and ACCLI failed to exercise the required
extraordinary diligence when they allowed the cargoes to be withdrawn by the consignee
without the surrender of the original bill of lading. ASTI, ACCLI, and ACCLIs incorporators-
stockholders countered that it is DBI who failed to exercise extraordinary diligence in
protecting its own interest. They averred that whether or not the buyer-consignee pays the
seller is already outside of their concern.
Before the case was resolved by the lower court, DBI impleaded Ambiente as additional party
defendant. The RTC found ASTI, ACCLI and its incorporators solidarily liable with Ambiente.
The incorporators were, however, absolved from liability. The CA affirmed that Ambiente is
liable but absolved ASTI and ACCLI. According to the CA, there is nothing in the applicable
laws that require the surrender of bills of lading before the goods may be released to the
buyer/consignee. The CA stressed that DBI failed to present evidence to prove its assertion
that the surrender of the bill of lading upon delivery of the goods is a common mercantile
practice.
As for ASTI, the CA explained that its only obligation as a common carrier was to deliver the
shipment in good condition. It did not include looking beyond the details of the transaction
between the seller and the consignee, or more particularly, ascertaining the payment of the
goods by the buyer Ambiente.
Issue: Whether ASTI/ACCLI may be held liable for releasing the Shipment without first
demanding for the surrender of the Bill of Lading
Held: No. A common carrier may release the goods to the consignee even without the
surrender of the bill of lading.
Under Article 350 of the Code of Commerce, the shipper as well as the carrier of the
merchandise or goods may mutually demand that a bill of lading be made. A bill of lading,
Page 48 of 192
when issued by the carrier to the shipper, is the legal evidence of the contract of carriage
between the former and the latter. It defines the rights and liabilities of the parties in
reference to the contract of carriage. The stipulations in the bill of lading are valid and
binding unless they are contrary to law, morals, customs, public order or public policy.
Here, ACCLI, as agent of ASTI, issued Bill of Lading No. AC/MLLA601317 to DBI. This bill of
lading governs the rights, obligations and liabilities of DBI and ASTI. DBI claims that Bill of
Lading No. AC/MLLA601317 contains a provision stating that ASTI and ACCLI are to release
and deliver the cargo/shipment to the consignee, x x x, only after the original copy or copies
of the said Bill of Lading is or are surrendered to them; otherwise they become liable to [DBI]
for the value of the shipment. Quite tellingly, however, DBI does not point or refer to any
specific clause or provision on the bill of lading supporting this claim. The language of the
bill of lading shows no such requirement. There is no obligation, therefore, on the part of
ASTI and ACCLI to release the goods only upon the surrender of the original bill of lading.
Further, a carrier is allowed by law to release the goods to the consignee even without the
latters surrender of the bill of lading. The third paragraph of Article 353 of the Code of
Commerce is enlightening:
Article 353. The legal evidence of the contract between the shipper and
the carrier shall be the bills of lading, by the contents of which the
disputes which may arise regarding their execution and performance
shall be decided, no exceptions being admissible other than those of
falsity and material error in the drafting.
After the contract has been complied with, the bill of lading which the
carrier has issued shall be returned to him, and by virtue of the exchange
of this title with the thing transported, the respective obligations and
actions shall be considered cancelled, unless in the same act the claim
which the parties may wish to reserve be reduced to writing, with the
exception of that provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the
bill of lading subscribed by the carrier, because of its loss or any
other cause, he must give the latter a receipt for the goods
delivered, this receipt producing the same effects as the return of
the bill of lading. (Emphasis supplied.)
The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading
to the carrier and their respective obligations are considered canceled. The law, however,
provides two exceptions where the goods may be released without the surrender of the bill
of lading because the consignee can no longer return it. These exceptions are when the bill
of lading gets lost or for other cause. In either case, the consignee must issue a receipt to the
carrier upon the release of the goods. Such receipt shall produce the same effect as the
surrender of the bill of lading.
Page 49 of 192
The non-surrender of the original bill of lading does not violate the carriers duty of
extraordinary diligence over the goods. The surrender of the original bill of lading is not a
condition precedent for a common carrier to be discharged of its contractual obligation.
DELIVERY OF GOODS TO COMMON CARRIER
Eastern Shipping Lines Inc. vs. BPI/MS Insurance Corp. and Mitsui Sum Tomo
Insurance Co. Ltd.
G.R. No. 193986; January 15, 2014
J. Villarama, Jr.
When the goods were damaged even before they were turned over to the stevedore and
such damage was even compounded by the negligent acts of the common carrier and stevedore
when both mishandled the goods during the discharging operation, the common carrier cannot
deny its liability. From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence in the vigilance over the goods
transported by them. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them.
Facts:
On several occasions, Sumimoto Corporation (Sumimoto) shipped though a vessel owned by

Eastern Shipping Lines various steel sheets in coil in favor of the consignee Calamba Steel
Center Inc. (Calamba Steel). The cargo was insured against all risk by umimoto with Mitsui
Sumimoto Insurance (Mitsui). Upon arrival of the shipments on various dates, a number of
coils were observed to be in bad condition upon its discharge. The possession of the cargoes
were then turned over to ATI for stevedoring, storage and safekeeping pending the
withdrawal thereof by Calamba Steel.
Being unfit for its intended purpose, Calamba steel rejected the damaged portion of the
goods. Thereafter it filed an insurance claim with Mitsui though the latters settling agent,
respondent BPI/MI Insurance Corporation (BPI/MS), and the former was paid the total
amount of the damages suffered by all the shipments. Subsequently, as insurer and subrogee
of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages against Eastern Shipping
and ATI.
The RTC rendered its decision in favor of the respondents. Aggrieved, the petitioner
appealed to the CA, which later on affirmed the RTCs findings and ruling. After the denial of
its motion for reconsideration, petitioner filed the petition for review. The petitioner argued
that it had no participation in the discharging operations and that it did not have a choice in
selecting the stevedore since ATI is the only arrastre operator mandated to conduct the
discharging operations. Thus, petitioner prays that it be absolve from any liability relative to
the damage incurred by the goods.
Page 50 of 192
Issue:
Whether or not the petitioner is solidarily liable with ATI on account of the damage incurred
by the goods.
Ruling:
Petition Denied.
It is settled in maritime law jurisprudence that cargoes while being loaded generally remain
under the custody of the carrier. As hereinbefore found by the RTC and affirmed by the CA
based on the evidence presented, the goods were damaged even before they were turned
over to ATI. Such damage was even compounded by the negligent acts of the petitioner and
ATI which both mishandled the goods during the discharging operation. Thus, it bears
stressing unto petitioner that common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the vigilance over
the goods transported by them. Subject to certain exceptions enumerated under Article 1734
of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration
of the goods. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them. Owing to this high degree of
diligence required of them, common carriers, as a general rule, are presumed to have been
at fault or are negligent if the goods they transported deteriorated or got lost or destroyed.
That is, unless they prove that they exercised extraordinary diligence in transporting the
goods. In order to avoid responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such high level of diligence. In this case, petitioner
failed to hurdle such burden.
CARRIAGE OF GOODS BY SEA ACT
MARINA PORT SERVICES, INC v. AMERICAN HOME ASSURANCE CORPORATION, G.R.

No. 201822, August 12, 2015
MSCs shipment of bags of flour arrived at the Marina Port Services (MPSI) and was duly
checked and assessed. However, upon receipt of the container vans containing the shipment
at its warehouse, MSC discovered substantial shortages in the number of bags of flour
delivered. Hence, it filed a formal claim for loss with MPSI. When MPSI denied the claim,
MSCs insurer paid the same and was subrogated to MSC.
Issue: Can MPSI be held liable for the loss?
Held: No. The relationship between an arrastre operator and a consignee is similar to that
between a warehouseman and a depositor, or to that between a common carrier and the
consignee and/or the owner of the shipped goods. Thus, an arrastre operator should adhere
to the same degree of diligence as that legally expected of a warehouseman or a common
Page 51 of 192
carrier as set forth in Section 3[b] of the Warehouse Receipts [Act] and Article 1733 of the
Civil Code. As custodian of the shipment discharged from the vessel, the arrastre operator
must take good care of the same and turn it over to the party entitled to its possession.
In case of claim for loss filed by a consignee or the insurer as subrogee, it is the arrastre
operator that carries the burden of proving compliance with the obligation to deliver the
goods to the appropriate party. It must show that the losses were not due to its negligence
or that of its employees. It must establish that it observed the required diligence in handling
the shipment. Otherwise, it shall be presumed that the loss was due to its fault.
To prove proper delivery, MPSI presented 10 gate passes which bore the duly identified
signature of MSC's representative. In the gate pass, it was acknowledged that Issuance of
[the] Gate Pass constitutes delivery to and receipt by consignee of the goods as described
above in good order and condition, unless an accompanying B.O. certificate duly issued and
noted on the face of [the] Gate Pass appears. As held in International Container Terminal
Services, Inc. v. Prudential Guarantee & Assurance Co., Inc., the signature of the consignee's
representative on the gate pass is evidence of receipt of the shipment in good order and
condition. Also, that MPSI delivered the subject shipment to MSC's representative in good
and complete condition and with lock and seals intact is established by the testimonies.
At any rate, MPSI cannot just the same be held liable for the missing bags of flour since the
consigned goods were shipped under "Shipper's Load and Count" arrangement. "This means
that the shipper was solely responsible for the loading of the container, while the carrier was
oblivious to the contents of the shipment. Protection against pilferage of the shipment was
the consignee's lookout. The arrastre operator was, like any ordinary depositary, duty-
bound to take good care of the goods received from the vessel and to turn the same over to
the party entitled to their possession, subject to such qualifications as may have validly been
imposed in the contract between the parties. The arrastre operator was not required to
verify the contents of the container received and to compare them with those declared by
the shipper because, as earlier stated, the cargo was at the shipper's load and count. The
arrastre operator was expected to deliver to the consignee only the container received from
the carrier."
CORPORATION LAW
CLASSES OF CORPORATIONS
Iglesia Filipina Independente vs. Heirs of Bernardino Taeza

G.R. No. 179597; February 3, 2014
J. Peralta
Sec. 113 of the Corporation Code states that: Any corporation sole may purchase and
hold real estate and personal property for its church, charitable, benevolent or educational
purposes, and may receive bequests or gifts for such purposes. Such corporation may mortgage
or sell real property held by it upon obtaining an order for that purpose from the Court of First
Instance of the province where the property is situated; Provided, That in cases where the rules,
regulations and discipline of the religious denomination, sect or church, religious society or
Page 52 of 192
order concerned represented by such corporation sole regulate the method of acquiring,
holding, selling and mortgaging real estate and personal property, such rules, regulations and
discipline shall control, and the intervention of the courts shall not be necessary. Hence, the
sale of real properties owned by a religious corporation by the Supreme Bishop alone is
unenforceable where its Canons require not just the consent of the Supreme Bishop but also the
concurrence of the laymens committee, the parish priest, and the Diocesan Bishop.
Facts:
Iglesia Filipina Independiente (IFI), a duly registered religious corporation, owned a parcel
of land decscribed as Lot 3653. The lot is subdivided as follows: Lot Nos. 3653-A, 3653-B,
3653-C, and 3653-D.
Through IFIs Supreme Bishop Rev. Macario Ga, Lot 3653-D was sold to one Bienveniedo de
Guzman. Years after, Lot Nos. 3653-A and 3653-B were likewise sold by Bishop Rev. Ga to
Bernardino Taeza. Subsequently, Taeza registered the subject parcels of land and occupied
a portion thereof.
IFI demanded Taeza to vacate said land which he failed to do. A complaint for annulment of
sale was filed by IFI against Taeza before the RTC of Tuguegarao City. The trial court
rendered judgment in favor of IFI and held that the deed of sale executed between Rev. Ga
and Taeza is null and void.
On appeal, the CA rendered its decision reversing and setting aside the RTC decision. It ruled
that IFI, being a corporation sole, validly transferred ownership over the land in question
through its Supreme Bishop, who was at the time the administrator of all properties and the
official representative of the church. It further held that the authority of Supreme Bishop
Rev. Ga to enter into a contract and represent IFI cannot be assailed, as there are no
provisions in its constitution and canons giving the said authority to any other person or
entity.
IFI elevated the case to the SC. It maintained that there was no consent to the contract of sale
as Supreme Bishop Ga had no authority to give such consent.
Issue:
Whether or not the Supreme Bishop is authorized to enter into a contract of sale in behalf of
the religious corporation.
Ruling:
Petition Granted.
Section 113 of the Corporation Code of the Philippines provides that:

Sec. 113. Acquisition and alienation of property. - Any corporation sole may
purchase and hold real estate and personal property for its church, charitable,
Page 53 of 192
benevolent or educational purposes, and may receive bequests or gifts for

such purposes. Such corporation may mortgage or sell real property held by it
upon obtaining an order for that purpose from the Court of First Instance of
the province where the property is situated; Provided, That in cases where the
rules, regulations and discipline of the religious denomination, sect or church,
religious society or order concerned represented by such corporation sole
regulate the method of acquiring, holding, selling and mortgaging real estate
and personal property, such rules, regulations and discipline shall control, and
the intervention of the courts shall not be necessary.
Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons
of the Philippine Independent Church, that "[a]ll real properties of the Church located or
situated in such parish can be disposed of only with the approval and conformity of the
laymen'scommittee, the parish priest, the Diocesan Bishop, with sanction of the Supreme
Council, and finally with the approval of the Supreme Bishop, as administrator of all the
temporalities of the Church."
Evidently, under petitioner's Canons, any sale of real property requires not just the consent
of the Supreme Bishop but also the concurrence of the laymen's committee, the parish priest,
and the Diocesan Bishop, as sanctioned by the Supreme Council. However, petitioner's
Canons do not specify in what form the conformity of the other church entities should be
made known. Thus, as petitioner's witness stated, in practice, such consent or approval may
be assumed as a matter of fact, unless some opposition is expressed.
Here, the trial court found that the laymen's committee indeed made its objection to the sale
known to the Supreme Bishop. The CA, on the other hand, glossed over the fact of such
opposition from the laymen's committee, opining that the consent of the Supreme Bishop to
the sale was sufficient, especially since the parish priest and the Diocesan Bishop voiced no
objection to the sale.
The Court finds it erroneous for the CA to ignore the fact that the laymen's committee
objected to the sale of the lot in question. The Canons require that ALL the church entities
listed in Article IV (a) thereof should give its approval to the transaction. Thus, when the
Supreme Bishop executed the contract of sale of petitioner's lot despite the opposition made
by the laymen's committee, he acted beyond his powers.
Dennis A.B. Funa vs. Manila Economic and Cultural Office and the Commission on Audit
G.R. No. 193462; February 4, 2014
J. Perez
The Manila Economic and Cultural Office (MECO) is not a GOCC or government
instrumentality. It is a sui generis private entity especially entrusted by the government with
the facilitation of unofficial relations with the people in Taiwan without jeopardizing the
countrys faithful commitment to the One China policy of the PROC. However, despite its non-
governmental character, the MECO handles government funds in the form of the verification
fees it collects on behalf of the DOLE and the consular fees it collects under Section 2(6) of EO
Page 54 of 192
No. 15, s. 2001. Hence, under existing laws, the accounts of the MECO pertaining to its collection
of such "verification fees" and "consular fees" should be audited by the COA.
Facts:
Manila Economic and Cultural Office (MECO) was organized as a non-stock, non-profit
corporation under the Corporation Code. From the moment it was incorporated, MECO
became the corporate entity entrusted by the Philippine government with the responsibility
of fostering friendly and unofficial relations with the people of Taiwan, particularly in the
areas of trade, economic cooperation, investment, cultural, scientific and educational
exchanges. To enable it to carry out such responsibility, MECO was authorized by the
government to perform certain consular and other functions that relates to the promotion,
protection and facilitation of Philippine interests in Taiwan.
On August 23, 2010, the petitioner sent a letter to the COA requesting for a copy of the latest
financial and audit report of MECO invoking, for that purpose, his constitutional right to
information of matters of public concern. The petitioner made the request on the belief that
MECO, being under the operational supervision of the DTI, is a GOCC and thus subject to the
audit jurisdiction of COA.
Two days later, the Assistant Commissioner issued a memorandum stating that MECO was
not among the agencies audited by any of the three Clusters of the Corporate Government
Sector.
Perceiving the memorandum as an admission that COA had never audited and examined the
accounts of MECO, the petitioner filed the instant petition for mandamus and impleaded both
COA and MECO. According to the petitioner, MECO possesses all the essential characteristics
of a GOCC and an instrumentality under the Administrative Code as it is controlled by the
government thru a board of directors appointed by the President of the Philippines and
while not integrated within the executive departmental framework, it is nonetheless under
the operational and policy supervision of the DTI.
MECO, for its part, maintains that while it performs public functions, it is not a GOCC, and its
funds are private funds. COA, on the other hand, claims that MECO is a non-governmental
entity, but argues that, despite being such, it may still be audited with respect to the
verification fees for overseas employment documents that it collects from Taiwanese
employers on behalf of DOLE.
Issue:
Whether or not the Manila Economic and Cultural Office (MECO) is a GOCC subject to the
audit jurisdiction of COA.
Ruling:
Petition is Partially Granted.

Page 55 of 192
GOCCs are "stock or non-stock" corporations "vested with functions relating to public needs"
that are "owned by the Government directly or through its instrumentalities." By definition,
three attributes thus make an entity a GOCC: first, its organization as stock or non-stock
corporation; second, the public character of its function; and third, government ownership
over the same. Possession of all three attributes is necessary to deem an entity a GOCC.
In this case, there is not much dispute that the MECO possesses the first and second
attributes. It is the third attribute, which the MECO lacks.The organization of the MECO as a
non-stock corporation cannot at all be denied. Records disclose that the MECO was
incorporated as a non-stock corporation under the Corporation Code on 16 December 1977.
The purposes for which the MECO was organized are somewhat analogous to those of a
trade, business or industry chamber, but only on a much larger scale i.e., instead of furthering
the interests of a particular line of business or industry within a local sphere, the MECO seeks
to promote the general interests of the Filipino people in a foreign land.
Finally, it is not disputed that none of the income derived by the MECO is distributable as
dividends to any of its members, directors or officers. Verily, the MECO is organized as a non-
stock corporation.
The public character of the functions vested in the MECO cannot be doubted either. Indeed,
to a certain degree, the functions of the MECO can even be said to partake of the nature of
governmental functions. As earlier intimated, it is the MECO that, on behalf of the people of
the Philippines, currently facilitates unofficial relations with the people in Taiwan.Consistent
with its corporate purposes, the MECO was "authorized" by the Philippine government to
perform certain "consular and other functions" relating to the promotion, protection and
facilitation of Philippine interests in Taiwan.
A perusal of the functions of the MECO reveals its uncanny similarity to some of the functions
typically performed by the DFA itself, through the latters diplomatic and consular missions.
The functions of the MECO, in other words, are of the kind that would otherwise be
performed by the Philippines own diplomatic and consular organs, if not only for the
governments acquiescence that they instead be exercised by the MECO. Evidently, the
functions vested in the MECO are impressed with a public aspect.
The MECO Is Not Owned or Controlled by the Government Organization as a non-stock

corporation and the mere performance of functions with a public aspect, however, are not
by themselves sufficient to consider the MECO as a GOCC. In order to qualify as a GOCC, a
corporation must also, if not more importantly, be owned by the government.
The government owns a stock or non-stock corporation if it has controlling interest in the
corporation. In a stock corporation, the controlling interest of the government is assured by
its ownership of at least fifty-one percent (51%) of the corporate capital stock. In a non-stock
corporation, like the MECO, jurisprudence teaches that the controlling interest of the
government is affirmed when "at least majority of the members are government officials
Page 56 of 192
holding such membership by appointment or designation"or there is otherwise "substantial

participation of the government in the selection" of the corporations governing board.
In this case, the petitioner argues that the government has controlling interest in the MECO
because it is the President of the Philippines that indirectly appoints the directors of the
corporation. The petitioner claims that the President appoints directors of the MECO thru
"desire letters" addressed to the corporations board. The fact of the incorporation of the
MECO under the Corporation Code is key. The MECO was correct in postulating that, as a
corporation organized under the Corporation Code, it is governed by the appropriate
provisions of the said code, its articles of incorporation and its by-laws. In this case, it is the
by-laws of the MECO that stipulates that its directors are elected by its members; its officers
are elected by its directors; and its members, other than the original incorporators, are
admitted by way of a unanimous board resolution.
It is significant to note that none of the original incorporators of the MECO were shown to be
government officials at the time of the corporations organization. Indeed, none of the
members, officers or board of directors of the MECO, from its incorporation up to the present
day, were established as government appointees or public officers designated by reason of
their office. There is, in fact, no law or executive order that authorizes such an appointment
or designation. Hence, from a strictly legal perspective, it appears that the presidential
"desire letters" pointed out by petitioner are, no matter how strong its persuasive effect may
be, merely recommendatory.
The MECO Is Not a Government Instrumentality; It Is a Sui Generis Entity.The categorical

exclusion of the MECO from a GOCC makes it easier to exclude the same from any other class
of government instrumentality. The other government instrumentalities are all, by explicit
or implicit definition, creatures of the law. The MECO cannot be any other instrumentality
because it was, as mentioned earlier, merely incorporated under the Corporation Code.
It is evident, from the peculiar circumstances surrounding its incorporation, that the MECO
was not intended to operate as any other ordinary corporation. And it is not. Despite its
private origins, and perhaps deliberately so, the MECO was "entrusted" by the government
with the "delicate and precarious" responsibility of pursuing "unofficial"relations with the
people of a foreign land whose government the Philippines is bound not to recognize. The
intricacy involved in such undertaking is the possibility that, at any given time in fulfilling
the purposes for which it was incorporated, the MECO may find itself engaged in dealings or
activities that can directly contradict the Philippines commitment to the One China policy of
the PROC. Such a scenario can only truly be avoided if the executive department exercises
some form of oversight, no matter how limited, over the operations of this otherwise private
entity.
Indeed, from hindsight, it is clear that the MECO is uniquely situated as compared with other
private corporations. From its over-reaching corporate objectives, its special duty and
authority to exercise certain consular functions, up to the oversight by the executive
department over its operationsall the while maintaining its legal status as a non-
governmental entitythe MECO is, for all intents and purposes, sui generis.
Page 57 of 192
The Accounts of the MECO Pertaining to the Verification Fees and Consular Fees May Be
Audited by the COA. Section 14(1), Book V of the Administrative Code authorizes the COA to
audit accounts of non-governmental entities "required to pay or have government share" but
only with respect to "funds xxx coming from or through the government." This provision of
law perfectly fits the MECO:
First. The MECO receives the "verification fees" by reason of being the collection agent
of the DOLEa government agency. Out of its collections, the MECO is required, by
agreement, to remit a portion thereof to the DOLE. Hence, the MECO is accountable to
the government for its collections of such "verification fees" and, for that purpose,
may be audited by the COA.
Second. Like the "verification fees," the "consular fees" are also received by the MECO
through the government, having been derived from the exercise of consular functions
entrusted to the MECO by the government. Hence, the MECO remains accountable to
the government for its collections of "consular fees" and, for that purpose, may be
audited by the COA.
GRANDFATHER RULE
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND

DEVELOPMENT, INC., and McARTHUR MINING, INC., vs. REDMONT CONCOLIDATED
MINES CORP.
G.R. No. 195580, January 28, 2015, J. Velasco, Jr.
A corporation that complies with the 60-40 Filipino to foreign equity requirement can
be considered a Filipino corporation if there is no doubt as to who has the beneficial
ownership and control of the corporation. In this case, a further investigation as to the
nationality of the personalities with the beneficial ownership and control of the corporate
shareholders in both the investing and investee corporations is necessary. Doubt refers to
various indicia that the beneficial ownership and control of the corporation do not in fact
reside in Filipino shareholders but in foreign stakeholders. Even if at first glance the petitioners
comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the present case that gives
rise to a reasonable suspicion that the Filipino shareholders do not actually have the requisite
number of control and beneficial ownership in petitioners Narra, Tesoro, and McArthur. Hence,
the Court is correct in using the Grandfather Rule in determining the nationality of the
petitioners.
Facts:
Petitioner Narra Nickel and Mining Development Corp. (Narra) filed this Motion for
Reconsideration of the Supreme Court's April 21, 2014 Decision wherein it affirmed the
appellate court's ruling that petitioners, being foreign corporations, are not entitled to
Mineral Production Sharing Agreements (MPSAs ). In reaching the assailed decision, the
Court upheld with approval the appellate court's finding that there was doubt as to
petitioners' nationality since a 100% Canadian-owned firm, MBMI Resources, Inc. (MBMI),
Page 58 of 192
effectively owns 60% of the common stocks of the petitioners by owning equity interest of
petitioners' other majority corporate shareholders.
To petitioners, the Courts application of the Grandfather Rule to determine their

nationality is erroneous and allegedly without basis in the Constitution, the Foreign
Investments Act of 1991 (FIA), the Philippine Mining Act of 1995, and the Rules issued by
the Securities and Exchange Commission (SEC). These laws and rules supposedly espouse
the application of the Control Test in verifying the Philippine nationality of corporate entities
for purposes of determining compliance with Sec. 2, Art. XII of the Constitution that only
corporations or associations at least sixty per centum of whose capital is owned by such
[Filipino] citizens may enjoy certain rights and privileges, like the exploration and
development of natural resources
Issue:
Whether the Court erred in using the Grandfather rule and not the control test in
determining the nationality of the petitioners.
Ruling:
No. As defined by Dean Cesar Villanueva, the Grandfather Rule is the method by
which the percentage of Filipino equity in a corporation engaged in nationalized and/or
partly nationalized areas of activities, provided for under the Constitution and other
nationalization laws, is computed, in cases where corporate shareholders are present, by
attributing the nationality of the second or even subsequent tier of ownership to determine
the nationality of the corporate shareholder. Thus, to arrive at the actual Filipino ownership
and control in a corporation, both the direct and indirect shareholdings in the corporation
are determined. In other words, if there are layers of intervening corporations investing in a
mining joint venture, we must delve into the citizenship of the individual stockholders of
each corporation.
Admittedly, an ongoing quandary obtains as to the role of the Grandfather Rule in

determining compliance with the minimum Filipino equity requirement vis--vis the Control
Test. This confusion springs from the erroneous assumption that the use of one method
forecloses the use of the other. The Control Test and the Grandfather Rule are not, as it were,
incompatible ownership-determinant methods that can only be applied alternative to each
other. Rather, these methods can, if appropriate, be used cumulatively in the determination
of the ownership and control of corporations engaged in fully or partly nationalized
activities, as the mining operation.
The Grandfather Rule, standing alone, should not be used to determine the Filipino
ownership and control in a corporation, as it could result in an otherwise foreign corporation
rendered qualified to perform nationalized or partly nationalized activities. Hence, it is only
when the Control Test is first complied with that the Grandfather Rule may be applied. Put
in another manner, if the subject corporations Filipino equity falls below the threshold 60%,
the corporation is immediately considered foreign-owned, in which case, the need to resort
to the Grandfather Rule disappears.
Page 59 of 192
On the other hand, a corporation that complies with the 60-40 Filipino to foreign
equity requirement can be considered a Filipino corporation if there is no doubt as to who
has the beneficial ownership and control of the corporation. In that instance, there is no
need for a dissection or further inquiry on the ownership of the corporate shareholders in
both the investing and investee corporation or the application of the Grandfather Rule. As a
corollary rule, even if the 60-40 Filipino to foreign equity ratio is apparently met by the
subject or investee corporation, a resort to the Grandfather Rule is necessary if doubt exists
as to the locus of the beneficial ownership and control.
In this case, a further investigation as to the nationality of the personalities with the
beneficial ownership and control of the corporate shareholders in both the investing and
investee corporations is necessary.
As explained in the April 21, 2012 Decision, the doubt that demands the application
of the Grandfather Rule in addition to or in tandem with the Control Test is not confined to,
or more bluntly, does not refer to the fact that the apparent Filipino ownership of the
corporations equity falls below the 60% threshold. Rather, doubt refers to various indicia
that the beneficial ownership and control of the corporation do not in fact reside in
Filipino shareholders but in foreign stakeholders. Even if at first glance the petitioners
comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the present case that
gives rise to a reasonable suspicion that the Filipino shareholders do not actually have the
requisite number of control and beneficial ownership in petitioners Narra, Tesoro, and
McArthur. Hence, a further investigation and dissection of the extent of the ownership of the
corporate shareholders through the Grandfather Rule is justified.
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND

DEVELOPMENT, INC., and MCARTHUR MINING, INC. vs. REDMONT CONSOLIDATED
MINES CORP.
G.R. No. 195580, April 21, 2014, J. Velasco Jr.
The Grandfather Rule is a method to determine the nationality of the corporation by

making reference to the nationality of the stockholders of the investor corporation. Based on a
SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule applies only
when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the joint
venture corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the Grandfather Rule will not apply.
Facts:
Redmont Consolidated Mines Corp. (Redmont), a domestic corporation organized

and existing under Philippine laws, took interest in mining and exploring certain areas of the
province of Palawan. After inquiring with the Department of Environment and Natural
Resources (DENR), it learned that the areas where it wanted to undertake exploration and
Page 60 of 192
mining activities where already covered by Mineral Production Sharing Agreement (MPSA)
applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc.

(SMMI), filed an application for an MPSA. Subsequently, SMMI was issued MPSA-AMA-IVB-
153 covering an area of over 1,782 hectares and EPA-IVB-44 which includes an area of 3,720
hectares. The MPSA and EP were then transferred to Madridejos Mining Corporation (MMC)
and, on November 6, 2006, assigned to petitioner McArthur. Petitioner Narra acquired its
MPSA from Alpha Resources and Development Corporation and Patricia Louise Mining &
Development Corporation (PLMDC) which previously filed an application for an MPSA.
Through the said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277
hectares in barangays Calategas and San Isidro, Municipality of Narra, Palawan.
Subsequently, another MPSA application of SMMI was filed with the DENR Region IV-B,
labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays
Malinao and Princesa Urduja, Municipality of Narra, Province of Palawan. SMMI
subsequently conveyed, transferred and assigned its rights and interest over the said MPSA
application to Tesoro.
On 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three (3)
separate petitions for the denial of petitioners applications for MPSA. In the petitions,
Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro and Narra are
owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian corporation.
Redmont reasoned that since MBMI is a considerable stockholder of petitioners, it was the
driving force behind petitioners filing of the MPSAs over the areas covered by applications
since it knows that it can only participate in mining activities through corporations which
are deemed Filipino citizens. Redmont argued that given that petitioners capital stocks were
mostly owned by MBMI, they were likewise disqualified from engaging in mining activities
through MPSAs, which are reserved only for Filipino citizens.
Issue:
Whether or not petitioner corporations Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule".
Ruling:
Yes.
Grandfather Rule is a method to determine the nationality of the corporation by

making reference to the nationality of the stockholders of the investor corporation. Based
on a SEC Rule and DOJ Opinion, the Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases
where the joint venture corporation with Filipino and foreign stockholders with less than
60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is
either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, where the 60-40
Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will not apply.
Page 61 of 192
After a scrutiny of the evidence extant on record, the Court finds that this case calls
for the application of the grandfather rule since doubt prevails and persists in the corporate
ownership of petitioners. Also doubt is present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since their common investor, the 100% Canadian
corporationMBMI, funded them. Obviously, the instant case presents a situation which
exhibits a scheme employed by stockholders to circumvent the law, creating a cloud of doubt
in the Courts mind. To determine, therefore, the actual participation, direct or indirect, of
MBMI, the grandfather rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of

petitioners corporate structure, they have to be "grandfathered." As previously discussed,
McArthur acquired its MPSA application from MMC, which acquired its application from
SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000) divided into
10,000 common shares at one thousand pesos (PhP 1,000) per share, subscribed to by the
following:
Name Nationality Number of Amount Amount Paid

Shares Subscribed
Madridejos Filipino 5,997 PhP PhP 825,000.00
Mining 5,997,000.00
Corporation
MBMI Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60
Resources, Inc.
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Filipino 1 PhP 1,000.00 PhP 1,000.00
Esguerra
Manuel A. Filipino 1 PhP 1,000.00 PhP 1,000.00
Agcaoili
Michael T. American 1 PhP 1,000.00 PhP 1,000.00
Mason
Kenneth Canadian 1 PhP 1,000.00 PhP 1,000.00
Cawkell
Total 10,000 PhP PhP 2,708,174.60
10,000,000.00
Interestingly, looking at the corporate structure of MMC, we take note that it has a
similar structure and composition as McArthur. In fact, it would seem that MBMI is also a
major investor and "controls" MBMI and also, similar nominal shareholders were present,
Page 62 of 192
i.e. Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason)
and Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation
In the case of Madridejos Mining Corporation, noticeably, Olympic Mines &

Development Corporation (Olympic) as one of its stockholders did not pay any amount with
respect to the number of shares they subscribed to in the corporation, which is quite absurd
since Olympic is the major stockholder in MMC. MBMIs 2006 Annual Report sheds light on
why Olympic failed to pay any amount with respect to the number of shares it subscribed to.
MBMI states that Olympic entered into joint venture agreements with several Philippine
companies, wherein MBMI holds directly and indirectly a 60% effective equity interest in the
Olympic Properties. Thus, as demonstrated in this first corporation, McArthur, when it is
"grandfathered," company layering was utilized by MBMI to gain control over McArthur. It
is apparent that MBMI has more than 60% or more equity interest in McArthur, making the
latter a foreign corporation.
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten
million pesos (PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP
1,000 per share. Except for the name "Sara Marie Mining, Inc.," Tesoros corporate structure
shows exactly the same figures as the corporate structure of petitioner McArthur, down to
the last centavo. All the other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili,
Mason and Cawkell. The figures under "Nationality," "Number of Shares," "Amount
Subscribed," and "Amount Paid" are exactly the same.
Sara Marie Mining, Inc.
After subsequently studying SMMIs corporate structure, it is not farfetched for us to

spot the glaring similarity between SMMI and MMCs corporate structure. Again, the
presence of identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson),
Esguerra, Salazar, Hernando, Mason and Cawkell. The figures under the headings
"Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" are exactly the
same except for the amount paid by MBMI which now reflects the amount of two million
seven hundred ninety four thousand pesos (PhP 2,794,000). Oddly, the total value of the
amount paid is two million eight hundred nine thousand nine hundred pesos (PhP
2,809,900). Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics
participation in SMMIs corporate structure, it is clear that MBMI is in control of Tesoro and
owns 60% or more equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino
corporation and, thus, disqualifies it to participate in the exploitation, utilization and
development of our natural resources.
Page 63 of 192
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of
PLMDCs MPSA application, whose corporate structures arrangement is similar to that of
the first two petitioners discussed. The capital stock of Narra is ten million pesos (PhP
10,000,000), which is divided into ten thousand common shares (10,000) at one thousand
pesos (PhP 1,000) per share. Again, MBMI, along with other nominal stockholders, i.e.,
Mason, Agcaoili and Esguerra, is present in this corporate structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDCs corporate
structure:
Name Nationality Number of Amount Amount Paid

Shares Subscribed
Palawan Alpha South Filipino 6,596 PhP PhP 0
Resources Development 6,596,000.00
Corporation
MBMI Resources, Canadian 3,396 PhP PhP
Inc. 3,396,000.00 2,796,000.00
Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00 PhP 1,000.00
Fernando B. Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Henry E. Fernandez Filipino 1 PhP 1,000.00 PhP 1,000.00
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Manuel A. Agcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00
Total 10,000 PhP PhP
10,000,000.00 2,708,174.60
Yet again, the same stockholders in petitioners corporate structures are present.
Similarly, the amount of money paid by the 2nd tier majority stock holder, in this case,
Palawan Alpha South Resources and Development Corp. (PASRDC), is zero.
Concluding from the above-stated facts, it is quite safe to say that petitioners
McArthur, Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation,
Page 64 of 192
owns 60% or more of their equity interests. Such conclusion is derived from grandfathering
petitioners corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to
the picture, MBMIs Summary of Significant Accounting Policies statement regarding the
"joint venture" agreements that it entered into with the "Olympic" and "Alpha" groups
involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered"
corporations boils down to MBMI, Olympic or corporations under the "Alpha" group wherein
MBMI has joint venture agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure or the underlying
relationships between and among the corporations, petitioners are NOT Filipino nationals
and must be considered foreign since 60% or more of their capital stocks or equity interests
are owned by MBMI.
RINE OF SEPARATE JURIDICAL PERSONALITY
PHILIPPINE NATIONAL BANK vs. MERELO B. AZNAR et al.

G.R. No. 171805, May 30, 2014, J. Leonardo-De Castro
Stockholders cannot claim ownership over corporate properties by virtue of the Minutes
of a Stockholders meeting which merely evidence a loan agreement between the stockholders
and the corporation. As such, there interest over the properties are merely inchoate.
Facts:
In 1958, RISCO ceased operation due to business reverses. Due to Merelo B. Aznar,
Matias B. Aznar III, Jose L. Aznar, Rosario T. Barcenilla, Jose B. Enad and Ricardo Gabuyas
(Aznar et al)desire to rehabilitate RISCO, they contributed a total amount of P212,720.00
which was used in the purchase of the three (3) parcels of land located in various areas in
the Cebu Province.
After the purchase of the above lots, titles were issued in the name of RISCO. The
amount contributed by plaintiffs constituted as liens and encumbrances on the
aforementioned properties as annotated in the titles of said lots. Such annotation was made
pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO stating
that;
And that the respective contributions above-mentioned shall constitute as their

lien or interest on the property described above, if and when said property are
titled in the name of RURAL INSURANCE & SURETY CO., INC., subject to
registration as their adverse claim in pursuance of the Provisions of Land
Registration Act, (Act No. 496, as amended) until such time their respective
contributions are refunded to them completely.
Thereafter, various subsequent annotations were made on the same titles in favor of
PNB. As a result, a Certificate of Sale was issued in favor of PNB, being the lone and highest
bidder of the three (3) parcels of land and was also issued Transfer Certificate of Title over
the said parcels of land.
Page 65 of 192
This prompted Aznar et. al to file a complaint seeking the quieting of their supposed
title to the subject properties. They alleged that the subsequent annotations on the titles are
subject to the prior annotation of their liens and encumbrances. On the other hand, asserts
that plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over
the properties of the corporation. PNB posited that even if plaintiffs monetary lien had not
expired, their only recourse was to require the reimbursement or refund of their
contribution.
Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings. Thus,
the trial court rendered the November 18, 1998 Decision, which ruled against PNB. It further
declared that the Minutes of the Special Meeting of the Board of Directors of RISCO annotated
on the titles to subject properties as an express trust whereby RISCO was a mere trustee and
the above-mentioned stockholders as beneficiaries being the true and lawful owners of Lots
3597, 7380 and 1323.
On appeal, the CA set aside the ruling of the trial court and ruled that there was no
trust created. The lien is merely an evidence of the loan. Thus, it directed PNB to pay Aznar,
et al., the amount of their contributions plus legal interest from the time of acquisition of the
property until finality of judgment.
Issue:
Whether or not Aznar et al as stockholders has the legal or equitable rights over the
subject properties
Ruling:
No. Aznar et al do not have any legal or equitable rights over the properties.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the
properties at issue because they have no legal and/or equitable rights over the properties
that are derived from the previous registered owner which is RISCO.
As a consequence thereof, a corporation has a personality separate and distinct from

those of its stockholders and other corporations to which it may be connected. Thus, we had
previously ruled in Magsaysay-Labrador v. Court of Appeals that the interest of the
stockholders over the properties of the corporation is merely inchoate and therefore does
not entitle them to intervene in litigation involving corporate property.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent,

remote, conjectural, consequential and collateral. At the very least, their interest is purely
inchoate, or in sheer expectancy of a right in the management of the corporation and to share
in the profits thereof and in the properties and assets thereof on dissolution, after payment
of the corporate debts and obligations.
Page 66 of 192
In the case at bar, there is no allegation, much less any proof, that the corporate
existence of RISCO has ceased and the corporate property has been liquidated and
distributed to the stockholders. The records only indicate that, as per Securities and
Exchange Commission (SEC) Certification dated June 18, 1997, the SEC merely suspended
RISCOs Certificate of Registration beginning on September 5, 1988 due to its non-
submission of SEC required reports and its failure to operate for a continuous period of at
least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely
evidence of a loan agreement between them and the company. There is no indication or even
a suggestion that the ownership of said properties were transferred to them which would
require no less that the said properties be registered under their names. For this reason, the
complaint should be dismissed since Aznar, et al., have no cause to seek a quieting of title
over the subject properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions
used to purchase the subject properties is already barred by prescription.
COMMISSIONER OF CUSTOMS vs. OILINK INTERNATIONAL CORPORATION

G.R. No. 161759, July 2, 2014, J. Bersamin
URC and Oilink had the same Board of Directors and Oilink was 100% owned by URC.
The Court held that the doctrine of piercing the corporate veil has no application here because
the Commissioner of Customs did not establish that Oilink had been set up to avoid the payment
of taxes or duties, or for purposes that would defeat public convenience, justify wrong, protect
fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate deception or
otherwise circumvent the law.
Facts:
In the course of its business undertakings, particularly in the period from 1991 to
1994, Union Refinery Corporation (URC) imported oil products into the country. URC and
Oilink had interlocking directors when Oilink started its business. They had the same Board
of Directors and Oilink was 100% owned by URC.
The District Collector of the Port of Manila, formally demanded that URC pay the taxes
and duties on its oil imports that had arrived between January 6, 1991 and November 7, 1995
at the Port of Lucanin in Mariveles, Bataan.
On July 2, 1999, Commissioner Tan made a final demand for the total liability of
P138,060,200.49 upon URC and Oilink. Co requested from Commissioner Tan a complete
finding of the facts and law in support ofthe assessment made in the latters July 2, 1999 final
demand. Oilink formally protested the assessment on the ground that it was not the party
liable for the assessed deficiency taxes.
Page 67 of 192
On July 12, 1999, after receiving the letter from Co, Commissioner Tan communicated
in writing the detailed computation of the tax liability, stressing that the Bureau of Customs
(BoC) would not issue any clearance to Oilink unless the amount of P138,060,200.49
demanded as Oilinks tax liability be first paid, and a performance bond be posted by
URC/Oilink to secure the payment of any adjustments that would result from the BIRs
review of the liabilities for VAT, excise tax, special duties, penalties, etc.
Thus, on July 30, 1999, Oilink appealed to the CTA, seeking the nullification of the
assessment for having been issued without authority and with grave abuse of discretion
tantamount to lack of jurisdiction because the Government was thereby shifting the
imposition from URC to Oilink.
The CTA rendered its decision declaring as null and void the assessment of the Commissioner
of Customs. The CA ruled in favor of Oilink.
Issue:
Whether or not the Commissioner of Customs could pierce the veil of corporate
fiction
Ruling:
No. A corporation, upon coming into existence, is invested by law with a personality
separate and distinct from those of the persons composing it as well as from any other legal
entity to which it may be related. For this reason, a stockholder is generally not made to
answer for the acts or liabilities of the corporation, and viceversa. The separate and distinct
personality of the corporation is, however, a mere fiction established by law for convenience
and to promote the ends of justice. It may not be used or invoked for ends that subvert the
policy and purpose behind its establishment, or intended by law to which the corporation
owes its being. This is true particularly when the fiction is used to defeat public convenience,
to justify wrong, to protect fraud, to defend crime, to confuse legitimate legal or judicial
issues, to perpetrate deception or otherwise to circumvent the law. This is likewise true
where the corporate entity is being used as an alter ego, adjunct, or business conduit for the
sole benefit of the stockholders or of another corporate entity. In such instances, the veil of
corporate entity will be pierced or disregarded with reference to the particular transaction
involved.
In Philippine National Bank v. Ritratto Group, Inc., the Court has outlined the following
circumstances thatare useful in the determination of whether a subsidiary is a mere
instrumentality of the parent-corporation, viz:
1. Control, not mere majority or complete control, but complete domination, not only
of finances butof policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate mind, will or existence
of its own;
Page 68 of 192
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetrate the violation of a statutory or other positive legal duty, or dishonest and, unjust
act incontravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned
with reality, not form, and with how the corporation operated and the individual defendant's
relationship to the operation. Consequently, the absence of any one of the foregoing elements
disauthorizes the piercing of the corporate veil.
Indeed, the doctrine of piercing the corporate veil has no application here because
the Commissioner of Customs did not establish that Oilink had been set up to avoid the
payment of taxes or duties, or for purposes that would defeat public convenience, justify
wrong, protect fraud, defend crime, confuse legitimate legal or judicial issues, perpetrate
deception or otherwise circumvent the law. It is also noteworthy that from the outset the
Commissioner of Customs sought to collect the deficiency taxes and duties from URC, and
that it was only on July 2, 1999 when the Commissioner of Customs sent the demand letter
to both URC and Oilink. That was revealing, because the failure of the Commissioner of
Customs to pursue the remedies against Oilink from the outset manifested that its belated
pursuit of Oilink was only an afterthought.
GIRLY G. ICO vs. SYSTEMS TECHNOLOGY INSTITUTE, INC., MONICO V.

JACOB and PETER K. FERNANDEZ
G.R. No. 185100, July 9, 2014, J. Del Castillo
A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the directors and officers acts as corporate
agents, are not their personal liability but the direct responsibility of the corporation they
represent. As a rule, they are only solidarily liable with the corporation for the illegal
termination of services of employees if they acted with malice or bad faith.
To hold a director or officer personally liable for corporate obligations, two requisites
must concur: (1) it must be alleged in the complaint that the director or officer assented to
patently unlawful acts of the corporation or that the officer was guilty of gross negligence or
bad faith; and (2) there must be proof that the officer acted in bad faith.
Facts:
Systems Technology Institute, Inc. (STI) is an educational institution duly

incorporated, organized, and existing under Philippine laws. Monico V. Jacob (Jacob) and
Peter K. Fernandez (Fernandez) are STI officers, the former being the President and Chief
Executive Officer (CEO) and the latter Senior Vice-President. STI offers pre-school,
elementary, secondary and tertiary education, as well as post-graduate courses either
through franchisees or STI wholly-owned schools.
Page 69 of 192
Girly G. Ico (Ico), a masteral degree holder with doctorate units earned, was hired as
Faculty Member by STI College Makati (Inc.), which operates STI College-Makati (STI-
Makati). STI College Makati (Inc.) is a wholly-owned subsidiary of STI. Ico was subsequent
promoted as Dean of STI College- Paraaque and, thereafter, as Chief Operating Officer (COO)
of STI-Makati.
However, after the merger between STI and STI College Makati (Inc.), Ico received a
memorandum cancelling her COO assignment at STI-Makati, citing managements decision
to undertake an "organizational restructuring" in line with the merger of STI and STI-Makati.
Further ordering Ico to report to turn over her work to one Victoria Luz (Luz), who shall
function as STI-Makatis School Administrator. According to STI, the "organizational re-
structuring" was undertaken "in order to streamline operations. In the process, the positions
of Chief Executive Officer and Chief Operating Officer of STI Makati were abolished."
Furthermore, the STIs Corporate Auditor/Audit Advisory Group conducted an audit

of STI-Makati covering the whole period of Icos stint as COO/School Administrator therein.
In a report (Audit Report) later submitted to Fernandez, the auditors claim to have
discovered several irregularities. In another memorandum, it was recommended that an
investigation committee be formed to investigate Ico for grave abuse of authority,
falsification, gross dishonesty, maligning and causing intrigues, and other charges.
Fernandez recommended that Ico be placed under preventive suspension pending
investigation. Hence, pursuant to said recommendation, Ico was placed under preventive
suspension and banning her entry to any of STIs premises.
Labor Arbiter (LA) found Ico to have been illegally constructively and in bad faith
dismissed by respondents in her legally acquired status as regular employee thus, ordering
respondents SYSTEMS TECHNOLOGY INSTITUTE, INC. and/or MONICO V. JACOB, PETER K.
FERNANDEZ in solido to reinstate her to her former position and pay Icos full back wages
plus damages. On appeal, NLRC reversed the ruling of the LA. On petition for certiorari by
Ico before the CA, CA affirmed the ruling of the NLRC, hence, this petition.
Issue:
Whether Jacob, as officer of STI, may be held solidarily liable with STI.
Ruling:
Nonetheless, the Court fails to discern any bad faith or negligence on the part of
respondent Jacob. The principal character that figures prominently in this case is Fernandez;
he alone relentlessly caused petitioners hardships and suffering. He alone is guilty of
persecuting petitioner. Indeed, some of his actions were without sanction of STI itself, and
were committed outside of the authority given to him by the school; they bordered on the
personal, rather than official. His superior, Jacob, may have been, for the most part, clueless
of what Fernandez was doing to petitioner. After all, Fernandez was the Head of the
Academic Services Group of the EMD, and petitioner directly reported to him at the time; his
Page 70 of 192
position enabled him to pursue a course of action with petitioner that Jacob was largely
unaware of.
A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the directors and officers acts as corporate
agents, are not their personal liability but the direct responsibility of the corporation they
represent. As a rule, they are only solidarily liable with the corporation for the illegal
termination of services of employees if they acted with malice or bad faith.
To hold a director or officer personally liable for corporate obligations, two requisites
must concur: (1) it must be alleged in the complaint that the director or officer assented to
patently unlawful acts of the corporation or that the officer was guilty of gross negligence or
bad faith; and (2) there must be proof that the officer acted in bad faith.
Hence, Jacob is absolved from any liability.
PALM AVENUE HOLDING CO.,INC., and PALM AVENUE REALTY AND DEVELOPMENT
CORPORATION vs. SANDIGANBAYAN 5TH Division, REPUBLIC OF THE PHILIPPINES,
represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG)
G.R. No. 173082, August 6, 2014, J. Peralta
The writ of sequestration issued against the assets of the corporation is not valid
because the suit in the civil case was against the shareholder in the corporation and is not a suit
against the latter. Thus, the failure to implead these corporations as defendants and merely
annexing a list of such corporations to the complaints is a violation of their right to due process
for it would be, in effect, disregarding their distinct and separate personality without a hearing.
Furthermore, the sequestration order issued against the corporation is deemed

automatically lifted due to the failure of the Republic to commence the proper judicial action
or to implead them therein within the period under the Constitution.
Facts:
Through a writ of sequestration dated October 27, 1986, the Presidential Commission
on Good Government (PCGG) sequestered all the assets, properties, records, and documents
of the Palm Companies.The PCGG had relied on a letter from the Palm Companies Attorney-
in-Fact, Jose S. Sandejas, specifically identifying Benjamin Kokoy Romualdez, a known
crony of former President Ferdinand E. Marcos, as the beneficial owner of the Benguet
Corporation shares in the Palm Companies name.
The Republic, represented by the PCGG, filed a complaint with the Sandiganbayan
docketed as Civil Case No. 0035 but did not initially implead the Palm Companies as
defendants. However, the Sandiganbayan issued a Resolution dated June 16, 1989 where it
ordered said companies to be impleaded. Pursuant to said order, the Republic filed an
amended complaint dated January 17, 1997 and named therein the Palm Companies as
defendants. The graft court admitted the amended complaint on October 15, 2001.
Page 71 of 192
Thereafter, the companies filed a Motion for Bill of Particulars to direct the Republic
to submit a bill of particulars regarding matters in the amended complaint which were not
alleged with certainty or particularity.
Hence, the Republic submitted its bill of particulars. Subsequently, the Palm
Companies filed a motion to dismiss the Republics complaint. They argued that the bill of
particulars did not satisfactorily comply with the requested details.
Furthermore, the Palm Companies filed another motion to order the PCGG to release
all the companies shares of stock and funds in its custody on the ground that since they were
not impleaded as parties-defendants in Civil Case No. 0035 within the period prescribed by
the Constitution.
The Sandiganbayan then issued its October 21, 2010 Resolution, granting the
companies foregoing motion.
Issue:
Whether the Sandiganbayan committed grave abuse of discretion amounting to

excess off jurisdiction in granting the Palm Companies motion to release all shares of stock
and funds in the custody of the PCGG
Ruling:
No.
Under Sec. 26, Article XVIII of the 1987 Constitution, it mandates the Republic to file
the corresponding judicial action or proceedings within a six-month period (from its
ratification on February 2, 1987) in order to maintain sequestration, non-compliance with
which would result in the automatic lifting of the sequestration order. Hence, there is a
necessity on the part of the Republic to actually implead corporations as defendants in the
complaint, out of recognition for their distinct and separate personalities, failure to do so
would necessarily be denying such entities their right to due process.
Here, the writ of sequestration issued against the assets of the Palm Companies is not
valid because the suit in Civil Case No. 0035 against Benjamin Romualdez as shareholder in
the Palm Companies is not a suit against the latter. Thus, the failure to implead these
corporations as defendants and merely annexing a list of such corporations to the complaints
is a violation of their right to due process for it would be, in effect, disregarding their distinct
and separate personality without a hearing.
In the case at bar, the Palm Companies were merely mentioned as Item Nos. 47 and
48, Annex A of the Complaint, as among the corporations where defendant Romualdez owns
shares of stocks. Furthermore, while the writ of sequestration was issued on October 27,
1986, the Palm Companies were impleaded in the case only in 1997, or already a decade from
Page 72 of 192
the ratification of the Constitution in 1987, way beyond the prescribed period.
The sequestration order issued against the Palm Companies is therefore deemed
automatically lifted due to the failure of the Republic to commence the proper judicial action
or to implead them therein within the period under the Constitution. However, the lifting of
the writ of sequestration will not necessarily be fatal to the main case since the same does
not ipso facto mean that the sequestered properties are, in fact, not illgotten. The effect of the
lifting of the sequestration will merely be the termination of the governments role as
conservator.
OLONGAPO CITY vs. SUBIC WATER AND SEWERAGE CO., INC.

G.R. No. 171626, August 6, 2014, J. Brion
OCWD and Subic Water are two separate and different entities. Subic Water clearly
demonstrated that it was a separate corporate entity from OCWD. OCWD is just a ten percent
(10%) shareholder of Subic Water. As a mere shareholder, OCWDs juridical personality cannot
be equated nor confused with that of Subic Water. It is basic in corporation law that a
corporation is a juridical entity vested with a legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. Under this corporate
reality, Subic Water cannot be held liable for OCWDs corporate obligations in the same manner
that OCWD cannot be held liable for the obligations incurred by Subic Water as a separate
entity. The corporate veil should not and cannot be pierced unless it is clearly established that
the separate and distinct personality of the corporation was used to justify a wrong, protect
fraud, or perpetrate a deception.
Facts:
The Olongapo City filed a complaint for sum of money and damages against Olongapo
City Water District (OCWD). It alleged that OCWD failed to pay its electricity bills to Olongapo
City and remit its payment under the contract to pay, pursuant to OCWDs acquisition of
Olongapo Citys water system.
In the interim, OCWD entered into a Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA), Biwater International Limited (Biwater), and D.M. Consunji,
Inc. (DMCI). Pursuant to this agreement, Subic Water a new corporate entity was
incorporated, with the following equity participation from its shareholders: SBMA 19.99%
or 20%; OCWD 9.99% or 10%; Biwater 29.99% or 30%; and DMCI 39.99% or 40%.
Subic Water was granted the franchise to operate and to carry on the business of
providing water and sewerage services in the Subic Bay Free Port Zone, as well as in
Olongapo City. Hence, Subic Water took over OCWDs water operations in Olongapo City. To
finally settle their money claims against each other, Olongapo City and OCWD entered into a
compromise agreement.
The compromise agreement also contained a provision regarding the parties request
that Subic Water, Philippines, which took over the operations of the defendant Olongapo City
Page 73 of 192
Water District be made the co-maker for OCWDs obligations. Mr. Noli Aldip, then chairman
of Subic Water, acted as its representative and signed the agreement on behalf of Subic
Water.
To enforce the compromise agreement, Olongapo City filed a motion for the issuance
of a writ of execution with the RTC. It granted the motion, but did not issue the corresponding
writ of execution. Almost four years later, the Olongapo City, prayed again for the issuance
of a writ of execution against OCWD.
OCWDs former counsel, filed a manifestation alleging that OCWD had already been
dissolved and that Subic Water is now the former OCWD. Because of this assertion, Subic
Water also filed a manifestation informing the RTC that as borne out by the articles of
incorporation and general information sheet of Subic Water defendant OCWD is not Subic
Water. The manifestation also indicated that OCWD was only a ten percent (10%)
shareholder of Subic Water; and that its 10% share was already in the process of being
transferred to Olongapo City pursuant to a Deed of Assignment .
The RTC granted the motion for execution and directed its issuance against OCWD
and/or Subic Water. The CA granted Subic Waters petition for certiorari and reversed the
trial courts rulings.
Issue:
Whether or not Subic Water can be made liable under the writ of execution issued by
RTC in favor of Olongapo City
Ruling:
No, the writ of execution issued by the RTC, in favor of Olongapo City, is null and void.
OCWD and Subic Water are two separate and different entities.
Olongapo City practically suggests that since Subic Water took over OCWDs water
operations in Olongapo City, it also acquired OCWDs juridical personality, making the two
entities one and the same.
This is an interpretation that we cannot make or adopt under the facts and the
evidence of this case. Subic Water clearly demonstrated that it was a separate corporate
entity from OCWD. OCWD is just a ten percent (10%) shareholder of Subic Water. As a mere
shareholder, OCWDs juridical personality cannot be equated nor confused with that of Subic
Water. It is basic in corporation law that a corporation is a juridical entity vested with a legal
personality separate and distinct from those acting for and in its behalf and, in general, from
the people comprising it.
Under this corporate reality, Subic Water cannot be held liable for OCWDs corporate
obligations in the same manner that OCWD cannot be held liable for the obligations incurred
by Subic Water as a separate entity. The corporate veil should not and cannot be pierced
Page 74 of 192
unless it is clearly established that the separate and distinct personality of the corporation
was used to justify a wrong, protect fraud, or perpetrate a deception.
In Concept Builders, Inc. v. NLRC, the Court enumerated the possible probative factors
of identity which could justify the application of the doctrine of piercing the corporate veil.
These are:
(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records; and
(4) Methods of conducting the business.
The burden of proving the presence of any of these probative factors lies with the one
alleging it. Unfortunately, Olongapo City simply claimed that Subic Water took over OCWD's
water operations in Olongapo City. Apart from this allegation, Olongapo City failed to
demonstrate any link to justify the construction that Subic Water and OCWD are one and the
same. Under this evidentiary situation, our duty is to respect the separate and distinct
personalities of these two juridical entities.
Furthermore, an officers actions can only bind the corporation if he had been
authorized to do so. An examination of the compromise agreement reveals that it was not
accompanied by any document showing a grant of authority to Mr. Noli Aldip to sign on
behalf of Subic Water.
Subic Water is a corporation. A corporation, as a juridical entity, primarily acts

through its board of directors, which exercises its corporate powers. In this capacity, the
general rule is that, in the absence of authority from the board of directors, no person, not
even its officers, can validly bind a corporation.
A corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that the authority to do so has been conferred upon him, and
this includes powers which have been intentionally conferred, and also such powers as, in
the usual course of the particular business, are incidental to, or may be implied from, the
powers intentionally conferred, powers added by custom and usage, as usually pertaining to
the particular officer or agent, and such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that it has conferred.
Mr. Noli Aldip signed the compromise agreement purely in his own capacity.
Moreover, the compromise agreement did not expressly provide that Subic Water consented
to become OCWDs co-maker. As worded, the compromise agreement merely provided that
both parties also request Subic Water, Philippines, which took over the operations of
Olongapo City Water District be made as co-maker for the obligations above-cited. This
request was never forwarded to Subic Waters board of directors. Even if due notification
had been made (which does not appear in the records), Subic Waters board does not appear
to have given any approval to such request. No document such as the minutes of Subic
Waters board of directors meeting or a secretarys certificate, purporting to be an
Page 75 of 192
authorization to Mr. Aldip to conform to the compromise agreement, was ever presented. In
effect, Mr. Aldips act of signing the compromise agreement was outside of his authority to
undertake.
Since Mr. Aldip was never authorized and there was no showing that Subic Waters
articles of incorporation or by-laws granted him such authority, then the compromise
agreement he signed cannot bind Subic Water. Subic Water cannot likewise be made a surety
or even a guarantor for OCWDs obligations. OCWDs debts under the compromise
agreement are its own corporate obligations to Olongapo City.
The SC confirmed that the writ of execution issued by RTC Olongapo, in favor of
Olongapo City, is null and void. Accordingly, Subic Water cannot be made liable under the
writ.
GERARDO LANUZA, JR. AND ANTONIO 0. OLBES vs. BF CORPORATION, SHANGRI- LA

PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO,
MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS
G.R. No. 174938, October 01, 2014, J. Leonen
BF Corporation filed a collection complaint with the Regional Trial Court against
Shangri-La and the members of its board of directors. A corporations representatives are
generally not bound by the terms of the contract executed by the corporation. They are not
personally liable for obligations and liabilities incurred on or in behalf of the corporation.
Facts:
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court
against Shangri-La and the members of its board of directors.
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the

construction of the buildings using its own funds and credit despite Shangri-Las
default. According to BF Corporation, Shangri- La misrepresented that it had funds to pay for
its obligations with BF Corporation, and the delay in payment was simply a matter of delayed
processing of BF Corporations progress billing statements. BF Corporation eventually
completed the construction of the buildings. Shangri-La allegedly took possession of the
buildings while still owing BF Corporation an outstanding balance.
On August 3, 1993, Shangri-La, and its BOD filed a motion to suspend the proceedings
in view of BF Corporations failure to submit its dispute to arbitration, in accordance with
the arbitration clause provided in its contract.
Petitioners main argument arises from the separate personality given to juridical
persons vis-a -vis their directors, officers, stockholders, and agents. Since they did not sign
the arbitration agreement in any capacity, they cannot be forced to submit to the jurisdiction
Page 76 of 192
of the Arbitration Tribunal in accordance with the arbitration agreement. Moreover, they
had already resigned as directors of Shangri-La at the time of the alleged default.
The Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove
the existence of circumstances that render petitioners and the other directors solidarily
liable. It ruled that petitioners and Shangri-Las other directors were not liable for the
contractual obligations of Shangri-La to BF Corporation.
Issue:
Whether or not Shangri-Las directors were liable for the contractual obligations of
Shangri-La to BF Corporation
Ruling:
No.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are

separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law. This means that while it
is not a person, naturally, the law gives it a distinct personality and treats it as such. A
corporation, in the legal sense, is an individual with a personality that is distinct and separate
from other persons including its stockholders, officers, directors, representatives, and other
juridical entities.
The law vests in corporations rights, powers, and attributes as if they were natural
persons with physical existence and capabilities to act on their own. For instance, they have
the power to sue and enter into transactions or contracts. A consequence of a corporations
separate personality is that consent by a corporation through its representatives is not
consent of the representative, personally. Its obligations, incurred through official acts of its
representatives, are its own. A stockholder, director, or representative does not become a
party to a contract just because a corporation executed a contract through that stockholder,
director or representative. Hence, a corporations representatives are generally not bound
by the terms of the contract executed by the corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the corporation.
This court recognized in Heirs of Augusto Salas, Jr. v. Laperal Realty Corporation that
an arbitration clause shall not apply to persons who were neither parties to the contract nor
assignees of previous parties, thus: A submission to arbitration is a contract. As such, the
Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as
their assigns and heirs. But only they.
As a general rule, therefore, a corporations representative who did not personally

bind himself or herself to an arbitration agreement cannot be forced to participate in
Page 77 of 192
arbitration proceedings made pursuant to an agreement entered into by the corporation. He

or she is generally not considered a party to that agreement.
However, there are instances when the distinction between personalities of directors,
officers, and representatives, and of the corporation, are disregarded. The Court calls this
piercing the veil of corporate fiction. When there are allegations of bad faith or malice against
corporate directors or representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be treated as one. Without a trial,
courts and tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or
tribunals must first determine whether circumstances exist to warrant the courts or
tribunals to disregard the distinction between the corporation and the persons representing
it.
Hence, when the directors, as in this case, are impleaded in a case against a
corporation, alleging malice or bad faith on their part in directing the affairs of the
corporation, complainants are effectively alleging that the directors and the corporation are
not acting as separate entities.
In that case, complainants have no choice but to institute only one proceeding against
the parties. Under the Rules of Court, filing of multiple suits for a single cause of action is
prohibited. Institution of more than one suit for the same cause of action constitutes splitting
the cause of action, which is a ground for the dismissal of the others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. A party may not institute more than
one suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action; effect of. If two or more suits are
instituted on the basis of the same cause of action, the filing of one or a judgment upon the
merits in any one is available as a ground for the dismissal of the others. (4a)
It is because the personalities of petitioners and the corporation may later be found
to be indistinct that we rule that petitioners may be compelled to submit to arbitration.
FVR SKILLS AND SERVICES EXPONENTS, INC. (SKILLEX), FULGENCIO V. RANA and
MONINA R. BURGOS vs. JOVERT SEV A, JOSUEL V. V ALENCERINA, JANET ALCAZAR,
ANGELITO AMPARO, BENJAMIN ANAEN, JR., JOHN HILBERT BARBA, BONIFACIO
BATANG, JR., VALERIANO BINGCO,JR., RONALD CASTRO, MARLON CONSORTE,
ROLANDO CORNELIO, EDITO CULDORA, RUEL DUNCIL, MERVIN FLORES, LORD
GALISIM, SOTERO GARCIA, JR., REY GONZALES, DANTE ISIP, RYAN ISMEN, JOEL JUNIO,
CARLITO LATOJA, ZALDY MARRA, MICHAEL PANTANO, GLENN PILOTON, NORELDO
QUIRANTE, ROEL RANCE, RENANTE ROSARIO and LEONARDA TANAEL
G.R. No. 200857, October 22, 2014, J. Arturo D. Brion
A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising it. The general rule is
Page 78 of 192
that, obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities.
A director or officer shall only be personally liable for the obligations of the corporation,
if the following conditions concur: (1) the complainant alleged in the complaint that the
director or officer assented to patently unlawful acts of the corporation, or that the officer was
guilty of gross negligence or bad faith; and (2) the complainant clearly and convincingly proved
such unlawful acts, negligence or bad faith.
In the present case, the respondents failed to show the existence of the first requisite.
They did not specifically allege in their complaint that Rana and Burgos willfully and knowingly
assented to the petitioner's patently unlawful act of forcing the respondents to sign the dubious
employment contracts in exchange for their salaries. The respondents also failed to prove that
Rana and Burgos had been guilty of gross negligence or bad faith in directing the affairs of the
corporation.
Facts:
The twenty-eight (28) respondents in this case were employees of petitioner FVR
Skills and Services Exponents, Inc. (petitioner), an independent contractor engaged in the
business of providing janitorial and other manpower services to its clients.
Skillex entered into a Contract of Janitorial Service (service contract) with Robinsons
Land Corporation (Robinsons). Both agreed that the petitioner shall supply janitorial,
manpower and sanitation services to Robinsons Place Ermita Mall for a period of one year.
Halfway through the service contract, the Skillex asked the respondents to execute individual
contracts which stipulated that their respective employments shall end at the last day of the
year.
The Skillex and Robinsons no longer extended their contract of janitorial services.
Consequently, the Skillex dismissed the respondents as they were project employees whose
duration of employment was dependent on the petitioner's service contract with Robinsons.
Respondents filed a complaint for illegal dismissal with the NLRC. They argued that
they were not project employees; they were regular employees who may only be dismissed
for just or authorized causes. The LA ruled in the Skillex's favor but was reversed by NLRC
considering that the respondents had been under the petitioner's employ for more than a
year already and was affirmed by CA.
Issue:
Whether or not Rana and Burgos should be held solidarily liable with the corporation
for respondents' monetary claims having personalities separate and distinct from the
corporation.
Page 79 of 192
Ruling:
No, Rana and Burgos, as the petitioner's president and general manager, should not
be held solidarily liable with the corporation for its monetary liabilities with the
respondents.
A corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it. The general
rule is that, obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities.
A director or officer shall only be personally liable for the obligations of the
corporation, if the following conditions concur: (1) the complainant alleged in the complaint
that the director or officer assented to patently unlawful acts of the corporation, or that the
officer was guilty of gross negligence or bad faith; and (2) the complainant clearly and
convincingly proved such unlawful acts, negligence or bad faith.
In the present case, the respondents failed to show the existence of the first requisite.
They did not specifically allege in their complaint that Rana and Burgos willfully and
knowingly assented to the petitioner's patently unlawful act of forcing the respondents to
sign the dubious employment contracts in exchange for their salaries. The respondents also
failed to prove that Rana and Burgos had been guilty of gross negligence or bad faith in
directing the affairs of the corporation.
To hold an officer personally liable for the debts of the corporation, and thus pierce
the veil of corporate fiction, it is necessary to clearly and convincingly establish the bad faith
or wrongdoing of such officer, since bad faith is never presumed. Because the respondents
were not able to clearly show the definite participation of Burgos and Rana in their illegal
dismissal, the Court upholds the general rule that corporate officers are not personally liable
for the money claims of the discharged employees, unless they acted with evident malice and
bad faith in terminating their employment.
DOCTRINE OF PIERCING THE CORPORATE VEIL
Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc. and Keth Elliot
G.R. No. 177493; March 19, 2014
J. Brion
Piercing the veil of corporate fiction is warranted when a corporation ceased to exist
only in name, as it re-emerged in the person of another corporation, for the purpose of evading
its unfulfilled financial obligation under a compromise agreement
Page 80 of 192
Facts:
CBB Philippines Strategic Property Services, Inc. (CBB) hired Livesy as Director and Head of
Business Space Development with a monthly salary of $5,000. Later on, Livesy was
appointed as Managing Director and his salary was increased to $16,000 a month. Despite
the several deals that Livesy was able to draw up for CBB, the latter failed to pay him a
significant portion of his salary. For this reason, he was compelled to resign.
Subsequently, Livesy filed a complaint for illegal dismissal with money claims against CBB
and Dwyer, CBBs president, with the Labor Arbiter. Livesy demanded that CBB pay him
$25,000 for the unpaid salaries. For its part, CBB posited that the LA had no jurisdiction as
the complaint involved an intra-corporate dispute.
The LA rendered decision in favor of Livesy and ordered CBB to pay him $23,000 in accrued
salaries and $5,000 a month in back salaries until restatement. Thereafter, the parties
entered into a compromise agreement which the LA approved. In the agreement, Livesey
was to receive an amount in full satisfaction of the LAs decision, broken down into three
installments.
CBB was able to pay Livesey the initial amount, but not the two installments as the company
ceased operations. Because of this, Livesey moved for the issuance of writ of execution which
the LA granted. However, the same was not enforced. Livesey claimed that there was
evidence showing the CBB and Binswanger Philippines Inc. (Binswanger) are one and the
same corporation. Invoking the doctrine of piercing the veil of corporate fiction, Livesey
prayed that an alias writ of execution be issued against Binswanger and Keith Elliot, CBBs
former President and current President and CEO of Brinswanger. The LA denied the motion.
On appeal, the NLRC ruled in favor of Livesy and declared the respondents jointly and
severally liable with CBB. When the case was elevated to the CA, the NLRC decision was
reversed. The CA emphasized that the mere fact that Binswanger and CBB have the same
President is not itself sufficient to peirce the viel of corporate fiction of the two entities.
Thereafter, Livesy moved for reconsideration, but the CA denied the same. Hence, the
petition.
Issue:
Whether or not the veil of corporate fiction may be disregarded.
Ruling:
Petition Granted.
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations
where the separate corporate personality of a corporation is abused or used for wrongful
purposes. Under the doctrine, the corporate existence may be disregarded where the entity
is formed or used for non-legitimate purposes, such as to evade a just and de obligation, to
Page 81 of 192
justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable

considerations, other unjustifiable aims or intentions, in which case, the fiction will be
disregarded and the individuals composing it and the two corporations will be treated as
identical.
In the present case, we see an indubitable link between CBBs closure and Binswangers
incorporation. CBB ceased to exist only in name; it re-emerge in the person of Binswanger
for an urgent purposeto avoid payment by CBB of the last two installments of its monetary
obligation to Livesey as well as its other financial liabilities. Freed of CBBs liabilities,
especially that owing to Livesy, Binswanger can continue, as it did continue, CBBs real estate
brokerage business.
While the ostensible reason for Binswangers establishment is to continue CBBs business
operations in the Philippines, which by itself is not illegal, the close proximity between CBBs
disestablishment and Binswangers coming into existence points to an unstated but urgent
consideration which, as earlier noted, was to evade CBBs unfulfilled financial obligation to
Livesy under the compromise agreement.
Pacific Rehouse Corporation vs. CA and Export and Industry Bank, Inc.
G.R. Nos. 199687 & 201537; March 24, 2014
J. Reyes
The court cannot have jurisdiction over both the parent corporation and its wholly-
owned subsidiary where service of summons was only made upon the parent corporation. If the
court has no jurisdiction over the corporation, it follows that the court has no business piercing
its veil of corporate fiction because such action offends the corporations right to due process.
Furthermore, the alter ego doctrine is inapplicable where fraudulent intent is lacking.
Control, by itself, does not mean that the controlled corporation is a mere instrumentality or a
business conduit of the mother company. Even control over the financial and operational
concerns of a subsidiary company does not by itself call for disregarding its corporate fiction.
There must bear perpetuation of fraud behind the control or at least a fraudulent or illegal
purpose behind the control in order to justify piercing the veil of corporate fiction.
Facts:
A Complaint was instituted against EIB Securities Inc. (E-Securities) for unauthorized sale of
32,180,000 DMCI shares of private respondents Pacific Rehouse Corporation, et al. When
judgment was rendered, the RTC directed E-Securities to return to the private respondents
the DMCI shares. After attaining finality of the judgment, a writ of execution was issued, but
was returned unsatisfied. Alleging that E-Securities is a wholly-owned controlled and
dominated subsidiary of Export and Industry Bank and is thus a mere alter ego and business
conduit of Export and Industry Bank, the respondents moved for the issuance of an alias writ
of execution to hold Export and Industry Bank liable.
Page 82 of 192
Concluding that E-Securities is a mere business conduit or alter ego of Export and Industry
Bank, the dominant parent corporation, RTC ruled that the piercing of the veil of corporate
fiction is justified. Furthermore, the RTC ratiocinated that being one and the same entity in
the eyes of law, the service of summons upon E-Securities has bestowed jurisdiction over
both the parent and wholly-owned subsidiary.
Export Bank filed before the CA a petition for certiorari with prayer for TRO seeking the
nullification of the RTC Order. Later on, the CA rendered decision granting Export Banks
petition. The CA explained that the alter ego theory cannot be sustained because ownership
of a subsidiary by the parent company is not enough justification to pierce the veil of
corporate fiction.
Issue:
1) Whether or not the court validly acquired jurisdiction.

2) Whether or not the alter ego doctrine is not applicable.
Ruling:
JURISDICTION
The Court already ruled in Kukan International Corporation v. Reyes that compliance with the
recognized modes of acquisition of jurisdiction cannot be dispensed with even in piercing
the veil of corporate fiction.
It is therefore correct to say that the court must first and foremost acquire jurisdiction over
the parties; and only then would the parties be allowed to present evidence for and/or
against piercing the veil of corporate fiction. If the court has no jurisdiction over the
corporation, it follows that the court has no business piercing its veil of corporate fiction
because such action offends the corporations right to due process.
Jurisdiction over the defendant is acquired either upon a valid service of summons or the
defendants voluntary appearance in court. When the defendant does not voluntarily submit
to the courts jurisdiction or when there is no valid service of summons, any judgment of the
court which has no jurisdiction over the person of the defendant is null and void. The
defendant must be properly apprised of a pending action against him and assured of the
opportunity to present his defenses to the suit. Proper service of summons is used to protect
ones right of due process.
As Export Bank was neither served with summons, nor has it voluntarily appeared before
the court, the judgment sought to be enforced as against E-Securities cannot be made against
its parent company, Export Bank. Export bank has consistently disputed the RTC jurisdiction,
commencing from its filing of an Omnibus Motion by way of special appearance during the
execution state until the filling of its Comment before the Court wherein it was pleaded that
RTC of Makati never acquired jurisdiction over Export Bank. Export Bank was not pleaded
Page 83 of 192
as a party in the case. It was never served with summons by nor did it voluntarily appear
before RTC of Makati so as to be subjected to the latters jurisdiction.
ALTER EGO DOCTRINE IS NOT APPLICABLE
It is a fundamental principle of corporation law that a corporation is an entity separate and

distinct from its stockholders and from other corporations to which it may be connected.
But, this separate and distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice. So, when the notion of separate juridical personality
is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used
as a device used to defeat the labor law, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of another corporation.
Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity
of the instrumentality may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of finances, policies and
practices that the controlled corporation has, so to speak, no separate mind, will or existence
of its own, and is but a conduit for its principal. It must be kept in mind that the control must
be shown to have been excercised at the time the acts complained of took place. Moreover,
the control and breach of duty must proximately cause the injury or unjust loss for which the
complaint is made.
The Court has laid down a three-prolonged control test to establish when the alter ego
doctrine should be operative:
1. Control, not mere majority or complete stock control, but complete domination,
not only of finances by of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of the plaintiffs legal right; and
3. The aforesaid control and breach of duty must have proximately caused the injury
or unjust loss complained of.
The absence of any one of these elements prevents piercing the veil in applying the
instrumentality or alter ego doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual defendants relationship to that
operation. Hence, all three elements should concur for the alter ego doctrine to be applicable.
The RTC bore emphasis on the alleged control exercised by Export Bank upon its subsidiary
E-Securities, control, by itself, does not mean that the controlled corporation is a mere
instrumentality or a business conduit of the mother company. Even control over the financial
and operational concerns of a subsidiary company does not by itself call for disregarding its
Page 84 of 192
corporate fiction. There must bear perpetuation of fraud behind the control or at least a
fraudulent or illegal purpose behind the control in order to justify piercing the veil of
corporate fiction. Such fraudulent intent is lacking in this case.
Moreover, there was nothing on record demonstrative of Export Banks wrongful intent in
setting up a subsidiary, E-Securities. If used to perform legitimate functions, a subsidiarys
separate existence shall be respected, and the liability of the parent corporation as well as
the subsidiary will be confined to those arising in their respective business. To justify
treating the sole stockholder or holding company as responsible, it is not enough that the
subsidiary is so organized and controlled as to make it merely an instrumentality, conduit
or adjunct of its stockholders. It must further appear that to organize their separate entities
would aid in the consummation of a wrong.
As established in the main case and reiterated by the CA, the subject 32,180,000 DMCI shares
which E-Securities is obliged to return to the petitioners were an average price of P0.24 per
share. The proceeds were then used to buy back 61,000,000 KPP shares earlier sold by E-
Securities. Quite unexpectedly however, the total amount of these DMCI shares ballooned to
P1,465,799,000.00. It must be taken into account that this unexpected turnabout did not
inure to the benefit of E-Securities, much less Export Bank.
Furthermore, ownership by Export Bank of great majority or all of stocks of E-Securities and
the existence of interlocking directorates may serve as badges of control, but ownership of
another corporation, per se, without proof of actuality of the other conditions are insufficient
to establish an alter ego relationship or connection between the two corporations, which will
justify the setting aside of the cover of corporate fiction. The court has declared that mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of the corporation is not of itself sufficient ground for disregarding the separate
corporate personality. The Court 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.
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS vs. DAN T. LIM, doing
business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES
G.R. No. 206806, June 25, 2014, J. Leonen
The corporate existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield
or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction will be disregarded and the individuals composing
it and the two corporations will be treated as identical. In the case at bar, when petitioner Arco
Pulp and Papers obligation to Lim became due and demandable, she not only issued an
unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp
and Papers liability. She unjustifiably refused to honor petitioner corporations obligations to
Page 85 of 192
respondent. These acts clearly amount to bad faith. In this instance, the corporate veil may be
pierced, and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.
Facts:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business. Lim delivered scrap papers worth 7,220,968.31 to Arco
Pulp and Paper Company, Inc. through its Chief Executive Officer and President, Candida A.
Santos. The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim
the value of the raw materials or deliver to him their finished products of equivalent value.
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper
issued a post-dated check as partial payment, with the assurance that the check would not
bounce. When he deposited the check, it was dishonored for being drawn against a closed
account. On the same day, Arco Pulp and Paper and a certain Eric Sy executed a
memorandum of agreement where Arco Pulp and Paper bound themselves to deliver their
finished products to Megapack Container Corporation, owned by Eric Sy, for his account.
According to the memorandum, the raw materials would be supplied by Dan T. Lim, through
his company, Quality Paper and Plastic Products.
Despite repeated demands by Lim, Arco Pulp and Paper did not pay. Lim filed a
complaint for collection of sum of money with prayer for attachment with the RTC. The trial
court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint,
holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of
agreement, novation took place, which extinguished Arco Pulp and Papers obligation to. Lim.
The CA reversed said decision.
Issue:
Whether or not Candida A. Santos was solidarily liable with Arco Pulp and Paper Co.,
Inc.
Ruling:
Yes.
In Heirs of Fe Tan Uy v. International Exchange Bank, the Court has ruled:
Basic is the rule in corporation law that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. Following this principle, obligations incurred
by the corporation, acting through its directors, officers and employees, are its sole liabilities.
A director, officer or employee of a corporation is generally not held personally liable for
obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded
Page 86 of 192
if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, or to confuse legitimate issues.
Before a director or officer of a corporation can be held personally liable for corporate
obligations, however, the following requisites must concur: (1) the complainant must allege
in the complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the
complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
As a general rule, directors, officers, or employees of a corporation cannot be held

personally liable for obligations incurred by the corporation. However, this veil of corporate
fiction may be pierced if complainant is able to prove, as in this case, that (1) the officer is
guilty of negligence or bad faith, and (2) such negligence or bad faith was clearly and
convincingly proven.
Here, Santos entered into a contract with respondent in her capacity as the President
and Chief Executive Officer of Arco Pulp and Paper. She also issued the check in partial
payment of petitioner corporations obligations to respondent on behalf of petitioner Arco
Pulp and Paper. This is clear on the face of the check bearing the account name, "Arco Pulp
& Paper, Co., Inc." Any obligation arising from these acts would not, ordinarily, be Santos
personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and
Paper.
The Court found, however, that the corporate veil must be pierced. In Livesey v.
Binswanger Philippines:
Piercing the veil of corporate fiction is an equitable doctrine developed to

address situations where the separate corporate personality of a corporation
is abused or used for wrongful purposes. Under the doctrine, the corporate
existence may be disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation, or to justify a
wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in which case, the fiction
will be disregarded and the individuals composing it and the two corporations
will be treated as identical.
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to

hide behind the corporate veil. When petitioner Arco Pulp and Papers
obligation to respondent became due and demandable, she not only issued an
unfunded check but also contracted with a third party in an effort to shift
petitioner Arco Pulp and Papers liability. She unjustifiably refused to honor
petitioner corporations obligations to respondent. These acts clearly amount
to bad faith. In this instance, the corporate veil may be pierced, and petitioner
Santos may be held solidarily liable with petitioner Arco Pulp and Paper.
____________________________________________________________________________________________________
Page 87 of 192
WPM INTERNATIONAL TRADING , INC. and WARLITO P. MANLAPAZ

vs. FE CORAZON LABAYEN
G.R. No. 182770, September 17, 2014, J. Brion
When an officer owns almost all of the stocks of a corporation, it does not ipso facto
warrant the application of the principle of piercing the corporate veil unless it is proven that
the officer has complete dominion over the corporation.
Facts:
WPM International Trading, Inc. (WPM) is engaged in the restaurant business, with
Warlito P. Manlapaz as its president. WPM entered into a management agreement with the
Labayen, by virtue of which the Labayen was authorized to operate, manage and rehabilitate
Quickbite, a restaurant owned and operated by WPM. As part of her tasks, the respondent
looked for a contractor who would renovate the two existing Quickbite outlets. She engaged
the services of CLN Engineering Services to renovate one of the outlets at the cost of
P432,876.02. However, out of the P432,876.02 renovation cost, only the amount of
P320,000.00 was paid to CLN, leaving a balance of P112,876.02.
CLN filed a complaint for sum of money and damages before the RTC against the
respondent and Manlapaz. CLN later amended the complaint to exclude Manlapaz as
defendant. Labayen was declared in default for her failure to file a responsive pleading. The
RTC found the respondent liable to pay CLN actual damages in the amount of P112,876.02
with 12% interest per annum and 20% of the amount recoverable as attorneys fees.
As a result, Labayen instituted a complaint for damages against WPM and Manlapaz.
She alleged that she should be entitled to reimbursement. Labayen also contended that her
participation in the management agreement was limited only to introducing Manlapaz to
CLNs general manager and that it was actually Manlapaz and the general manager who
agreed on the terms and conditions of the agreement. Manlapaz, on the other hand, claimed
Labayen had entered into the renovation agreement with CLN in her own personal capacity
and that since she had exceeded her authority as agent of WPM, the renovation agreement
should only bind her. Further, WPM has a separate and distinct personality, Manlapaz cannot
be made liable for the Labayens claim.
RTC held that Labayen was entitled to indemnity from Manlapaz. The RTC found that
based on the records, there is a clear indication that WPM is a mere instrumentality or
business conduit of Manlapaz and as such, WPM and Manlapaz are considered one and the
same. The RTC also found that Manlapaz had complete control over WPM considering that
he is its chairman, president and treasurer at the same time. The RTC thus concluded that
Manlapaz is liable in his personal capacity to reimburse the respondent the amount she paid
to CLN in connection with the renovation agreement. CA affirmed the decision of the RTC
applying the principle of piercing the veil of corporate fiction.
Page 88 of 192
Issue:
Whether or not CA correctly applied the principle of piercing the veil of corporate
fiction
Ruling:
No, the CA erred in applying the doctrine.
The doctrine of piercing the corporate veil applies only in three (3) basic instances,
namely: a) when the separate and distinct corporate personality defeats public convenience,
as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b)
in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or
defend a crime; or c) is used in alter ego cases, i.e., where a corporation is essentially 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 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, namely:
(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in respect
to the transaction attacked so that the corporate entity as to this transaction
had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiffs legal right; and
(3) The aforesaid control and breach of duty must have proximately caused
the injury or unjust loss complained of. The absence of any of these elements
prevents piercing the corporate veil.
In the present case, the attendant circumstances do not establish that WPM is a mere
alter ego of Manlapaz. Aside from the fact that Manlapaz was the principal stockholder of
WPM, records do not show that WPM was organized and controlled, and its affairs conducted
in a manner that made it merely an instrumentality, agency, conduit or adjunct of Manlapaz.
As held in Martinez v. Court of Appeals, the mere ownership by a single stockholder of even
all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to
disregard the separate corporate personality. To disregard the separate juridical personality
of a corporation, the wrongdoing must be clearly and convincingly established.
In this connection, the Court stresses that the control necessary to invoke the
instrumentality or alter ego rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to
Page 89 of 192
speak, no separate mind, will or existence of its own, and is but a conduit for its principal.
The control must be shown to have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.
Here, Labayen failed to prove that Manlapaz, acting as president, had absolute control
over WPM. Even granting that he exercised a certain degree of control over the finances,
policies and practices of WPM, in view of his position as president, chairman and treasurer
of the corporation, such control does not necessarily warrant piercing the veil of corporate
fiction since there was not a single proof that WPM was formed to defraud CLN or the
respondent, or that Manlapaz was guilty of bad faith or fraud.
On the contrary, the evidence establishes that CLN and Labayen knew and acted on
the knowledge that they were dealing with WPM for the renovation of the latters restaurant,
and not with Manlapaz. That WPM later reneged on its monetary obligation to CLN, resulting
to the filing of a civil case for sum of money against the respondent, does not automatically
indicate fraud, in the absence of any proof to support it.
_________________________________________________________________________________________________________
HACIENDA CATAYWA/MANUEL VILLANUEVA, et al. vs. ROSARIO LOREZO

G.R. No. 179640, March 18, 2015, J. Peralta
This Court agrees with the petitioners that there is no need to pierce the corporate veil.
Respondent failed to substantiate her claim that Mancy and Sons Enterprises, Inc. and Manuel
and Jose Marie Villanueva are one and the same. She based her claim on the SSS form wherein
Manuel Villanueva appeared as employer. However, this does not prove, in any way, that the
corporation is used to defeat public convenience, justify wrong, protect fraud, or defend crime,
or when it is made as a shield to confuse the legitimate issues, warranting that its separate and
distinct personality be set aside.
Facts:
Rosario Lorezo received, upon inquiry, a letter from the Social Security System,
informing her that she cannot avail of their retirement benefits since per their record she
has only paid 16 months. Such is 104 months short of the minimum requirement of 120
months payment to be entitled to the benefit.
Aggrieved, Lorezo then filed her Amended Petition before the SSC, alleging that she
was employed as laborer in Hda. Cataywa managed by Jose Marie Villanueva in 1970 but was
reported to the SSS only in 1978. She alleged that SSS contributions were deducted from her
wages from 1970 to 1995, but not all were remitted to the SSS which, subsequently, caused
the rejection of her claim. She also impleaded Talisay Farms, Inc. by virtue of its Investment
Agreement with Mancy and Sons Enterprises. She also prayed that the veil of corporate
fiction be pierced since she alleged that Mancy and Sons Enterprises and Manuel and Jose
Marie Villanueva are one and the same.
Page 90 of 192
Petitioners Manuel and Jose Villanueva refuted in their answer, the allegation that
not all contributions of respondent were remitted. Petitioners alleged that all farm workers
of Hda. Cataywa were reported and their contributions were duly paid and remitted to SSS.
It was the late Domingo Lizares, Jr. who managed and administered the hacienda. While,
Talisay Farms, Inc. filed a motion to dismiss on the ground of lack of cause of action in the
absence of an allegation that there was an employer-employee relationship between Talisay
Farms and respondent.
The SSC found that Lorezo was a regular employee subject to compulsory coverage
of Hda. Cataywa/Manuel Villanueva/ Mancy and Sons Enterprises, Inc. within the period of
1970 to February 25, 1990. The SSC denied petitioners' Motion for Reconsideration. The
petitioners, then, elevated the case before the CA where the case was dismissed outright
because the signatory to the Verification failed to attach his authority to sign for and in behalf
of the other Petitioners and the certified true copies of pleadings and documents relevant
and pertinent to the petition are incomplete.
Issues:
Whether or not the corporate veil should be pierced
Ruling:
No. It was held in Rivera v. United Laboratories, Inc. that
While a corporation may exist for any lawful purpose, the law will regard it as an
association of persons or, in case of two corporations, merge them into one, when its
corporate legal entity is used as a cloak for fraud or illegality. This is the doctrine of piercing
the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made
as a shield to confuse the legitimate issues, or where a corporation is the 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. To disregard the separate juridical personality of a
corporation, the wrongdoing must be established clearly and convincingly. It cannot be
presumed.
This Court has cautioned against the inordinate application of this doctrine,
reiterating the basic rule that "the corporate veil may be pierced only if it becomes a shield
for fraud, illegality or inequity committed against a third person.
The Court has expressed the language of piercing doctrine when applied to alter ego
cases, as follows: Where the stock of a corporation is owned by one person whereby the
corporation functions only for the benefit of such individual owner, the corporation and the
individual should be deemed the same.
Page 91 of 192
This Court agrees with the petitioners that there is no need to pierce the corporate
veil. Respondent failed to substantiate her claim that Mancy and Sons Enterprises, Inc. and
Manuel and Jose Marie Villanueva are one and the same. She based her claim on the SSS form
wherein Manuel Villanueva appeared as employer. However, this does not prove, in any way,
that the corporation is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the legitimate issues, warranting that
its separate and distinct personality be set aside. Also, it was not alleged nor proven that
Mancy and Sons Enterprises, Inc. functions only for the benefit of Manuel Villanueva, thus,
one cannot be an alter ego of the other.
INCORPORATION AND ORGANZATION
BY-LAWS
FOREST HILLS GOLF AND COUNTRY CLUB, INC. vs. GARDPRO, INC.
G.R. No. 164686, October 22, 2014, J. Bersamin
The relevant provisions of the articles of incorporation and the by-laws of Forest Hills
governed the relations of the parties as far as the issues between them were concerned. Indeed,
the articles of incorporation of Forest Hills defined its charter as a corporation and the
contractual relationships between Forest Hills and the State, between its stockholders and the
State, and between Forest Hills and its stockholder; hence, there could be no gainsaying that
the contents of the articles of incorporation were binding not only on Forest Hills but also on
its shareholders. On the other hand, the by-laws were the self-imposed rules resulting from the
agreement between Forest Hills and its members to conduct the corporate business in a
particular way. In that sense, the by-laws were the private statutes by which Forest Hills was
regulated, and would function. The charter and the by-laws were thus the fundamental
documents governing the conduct of Forest Hills corporate affairs; they established norms of
procedure for exercising rights, and reflected the purposes and intentions of the incorporators.
Until repealed, the by-laws were a continuing rule for the government of Forest Hills and its
officers, the proper function being to regulate the transaction of the incidental business of
Forest Hills. The by-laws constituted a binding contract as between Forest Hills and its
members, and as between the members themselves. Every stockholder governed by the by-laws
was entitled to access them. The by-laws were self-imposed private laws binding on all
members, directors and officers of Forest Hills. The prevailing rule is that the provisions of the
articles of incorporation and the by-laws must be strictly complied with and applied to the
letter.
Facts:
Petitioner Forest Hills Golf and Country Club, Inc. (interchangeably Forest Hills or
Club), a non-profit stock corporation, was established to promote social, recreational and
athletic activities among its members. It was an exclusive and private club organized for the
sole benefit of its members. Fil-Estate Properties, Inc., a party to a Project Agreement to
Page 92 of 192
develop the Forest Hills Residential Estates and the Forest Hills Golf and Country Club,
undertook to market the golf club shares of Forest Hills for a fee. In July 1995, Fil-Estate
Properties, Inc. (FEPI) assigned its rights and obligations under the Project Agreement to Fil-
Estate Golf and Development, Inc. (FEGDI).
In 1995, FEPI and FEGDI engaged Fil-Estate Marketing Associates Inc., (FEMAI) to
market and offer for sale the shares of stocks of Forest Hills. Leandro de Mesa, the President
of FEMAI, oriented the sales staff on the information that would usually be inquired about
by prospective buyers. He made it clear that membership in the Club was a privilege, such
that purchasers of shares of stock would not automatically become members of the Club, but
must apply for and comply with all the requirements in order to qualify them for
membership, subject to the approval of the Board of Directors.
Gardpro, Inc. (Gardpro) bought class C common shares of stock, which were special
corporate shares that entitled the registered owner to designate two nominees or
representatives for membership in the Club. Subsequently, Ramon Albert, the General
Manager of the Club, notified the shareholders that it was already accepting applications for
membership. In that regard, Gardpro designated Fernando R. Martin and Rolando N. Reyes
to be its corporate nominees; hence, the two applied for membership in the Club. Forest Hills
charged them membership fees of P50, 000.00 each, prompting Martin to immediately call
up Albert and complain about being thus charged despite having been assured that no such
fees would be collected from them. With Albert assuring that the fees were temporary, both
nominees of Gardpro paid the fees. At that time, the P45, 000.00 membership fees of
corporate members were increased to P75,000.00 per nominee by virtue of the resolution of
the Board of Directors. Any nominee who paid the fees within a specified period was entitled
to a discount of P25, 000.00. Both nominees of Gardpro were then admitted as members
upon approval of their applications by the Board of Directors. Later, Gardpro decided to
change its designated nominees, and Forest Hills charged Gardpro new membership fees of
P75, 000.00 per nominee. When Gardpro refused to pay, the replacement did not take place.
Later, Gardpro filed a complaint in the SEC. SEC Hearing Officer rendered decision in
favor of Gardpro which were later affirmed by both the SEC En Bank and the CA.
Issue:
Whether or not the replacement nominees of Gardpro are required to pay

membership fees.
Ruling:
No. Forest Hills was not authorized under its articles of incorporation and by-laws to
collect new membership fees for the replacement nominees of Gardpro.
There is no question that Gardpro held class C common stocks that entitled it to two
memberships in the Club. Its nominees could be admitted as regular members upon approval
of the Board of Directors but only one nominee for each class C share as designated in the
Page 93 of 192
resolution could vote as such. A regular member was then entitled to use all the facilities and
privileges of the Club. In that regard, Gardpro could only designate as its
nominees/representatives its officers whose functions and office were defined by its own
by-laws.
The membership in the Club was a privilege, it being clear that the mere purchase of
a share in the Club did not immediately qualify a juridical entity for membership. Admission
for membership was still upon the favorable action of the Board of Directors of the Club.
Under Section 2.2.7 of its by-laws, the application form was accomplished by the chairman
of the board, president or chief executive officer of the applicant juridical entity. The
designated nominees also accomplished their respective application forms, duly proposed
and seconded, and the nominees were evaluated as to their qualifications. The nominees
automatically became ineligible for membership once they ceased to be officers of the
corporate member under its by-laws upon certification of such loss of tenure by a
responsible officer of the corporate member.
Corporations buy shares in clubs in order to invest for earnings. Their purchases may
also be to reward their corporate executives by having them enjoy the facilities and perks
concomitant to the club memberships. When Gardpro purchased and registered its
ownership of the class C common shares, it did not only invest for earnings because it also
became entitled to nominate two of its officers in the Club as set forth in its seventh purpose
of the articles of incorporation and Section 2.2.2 of the by-laws.
Golf clubs usually sell shares to individuals and juridical entities in order to raise
capital for the construction of their recreational facilities. In that regard, golf clubs accept
juridical entities to become regular members, and allow such entities to designate corporate
nominees because only natural persons can enjoy the sports facilities. In the context of this
arrangement, Gardpros two nominees held playing rights. But the articles of incorporation
of Forest Hills and Section 2.2.2 of its by-laws recognized the right of the corporate member
to replace the nominees, subject to the payment of the transfer fee in such amount as the
Board of Directors determined for every change. The replacement could take place for any
of the following reasons, namely: (a) if the nominee should cease to be an officer of the
corporate member; or (b) if the corporate member should request the replacement. In case
of a replacement, the playing rights would also be transferred to the new nominees.
The relevant provisions of the articles of incorporation and the by-laws of Forest Hills
governed the relations of the parties as far as the issues between them were concerned.
Indeed, the articles of incorporation of Forest Hills defined its charter as a corporation and
the contractual relationships between Forest Hills and the State, between its stockholders
and the State, and between Forest Hills and its stockholder; hence, there could be no
gainsaying that the contents of the articles of incorporation were binding not only on Forest
Hills but also on its shareholders. On the other hand, the by-laws were the self-imposed rules
resulting from the agreement between Forest Hills and its members to conduct the corporate
business in a particular way. In that sense, the by-laws were the private statutes by which
Forest Hills was regulated, and would function. The charter and the by-laws were thus the
fundamental documents governing the conduct of Forest Hills corporate affairs; they
Page 94 of 192
established norms of procedure for exercising rights, and reflected the purposes and
intentions of the incorporators. Until repealed, the by-laws were a continuing rule for the
government of Forest Hills and its officers, the proper function being to regulate the
transaction of the incidental business of Forest Hills. The by-laws constituted a binding
contract as between Forest Hills and its members, and as between the members themselves.
Every stockholder governed by the by-laws was entitled to access them. The by-laws were
self-imposed private laws binding on all members, directors and officers of Forest Hills. The
prevailing rule is that the provisions of the articles of incorporation and the by-laws must be
strictly complied with and applied to the letter.
Anent the second issue, the Court disagrees with the contention of Forest Hills that
the CA encroached upon its prerogative to determine its own rules and procedures and to
decide all issues on the construction of its articles of incorporation and by-laws. On the
contrary, the CA acted entirely within its legal competence to decide the issues between the
parties. The complaint of Gardpro stated a cause of action, and thus contained the operative
acts that gave rise to its remedial right against Forest Hills. The cause of action required not
only the interpretation of contracts and the application of corporate laws but also the
application of the civil law itself, particularly its tenets on unjust enrichment and those
regulating property rights arising from ownership. If Forest Hills were allowed to charge
nominees membership fees, and then to still charge their replacement nominees every time
a corporate member changed its nominees, Gardpro would be unduly deprived of its full
enjoyment and control of its property even as the former would be unjustly enriched.
GENERAL POWERS, THEORY OF GENERAL CAPACITY
CORORATE POWERS: HOW EXERCISED
PHILIPPINE RACE HORSE TRAINER'S ASSOCIATION, INC. v. PIEDRAS NEGRAS

CONSTRUCTION AND DEVELOPMENT CORPORATION
G.R. No. 192659, December 02, 2015, PERALTA, J.
The doctrine of apparent authority provides that a corporation will be estopped

from denying the agent's authority if it knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, and it holds him out to the public
as possessing the power to do those acts. The doctrine does not apply, however, if the
principal did not commit any act or conduct which a third party knew and relied upon in
good faith as a result of the exercise of reasonable prudence.
Facts:
Through its president, Rogelio Catajan, and pursuant to a Resolution it issued,

Philippine Race Horse Trainers Association (PRHTC) entered into an agreement with
Fil-Estate Properties Inc., (FEPI) whereby the latter would render construction
services for the former. Through a Deed of Assignment, all the rights and obligations
of FEPI were transferred to Piedras Negras Construction and Development
Corporation (PNCDC) for the continuation of the construction works. However, when
Page 95 of 192
the obligation of PRHTC became due, it refused to pay PNCDC for the construction
on the ground that it was suffering from financial difficulties. Meanwhile, there was a
change in the composition of the Board of Directors of PRHTC. PNCDC was prompted
to bring the case before the Construction Industry Arbitration Commission (CIAC) for
satisfaction of PRHTCs obligation.
Issue:
Whether the contract between PRHTC and PNCDC is enforceable
Ruling:
No. The Resolution by the Board of Directors of PRHTC cannot be construed

to authorize Catajan to enter into a contract with PNCDC since the Resolution provides
that Catajans authority is limited only to dealing with FEPI and not with PNCDC. The
doctrine of apparent authority finds no application in this case. The board of directors,
not the president, exercises corporate power. While in the absence of a charter or
bylaw provision to the contrary the president is presumed to have authority, the
questioned act should still be within the domain of the general objectives of the
company's business and within the scope of his or her usual duties. Here, PRHTAI is an
association of professional horse trainers in the Philippine horse racing industry
organized as a non-stock corporation and it is committed to the uplifting of the
economic condition of the working sector of the racing industry. It is not in its ordinary
course of business to enter into housing projects, especially not in such scale and
magnitude so massive as to amount to P101,150,000.00.
MEETINGS
LOPEZ REALTY, INC. AND ASUNCION LOPEZ-GONZALES vs. SPOUSES REYNALDO

TANJANGCO AND MARIA LUISA ARGUELLES-TANJANGCO
G.R. No. 154291, November 12, 2014, J. Reyes
The petitioner assails the validity of sale of shares of stocks to the respondents claiming
that there was no compliance with the requirement of prior notice to the Board of Directors
when the Board Resolution authorizing the sale to the respondent spouses were promulgated.
The Supreme Court ruled that the general rule is that a corporation, through its board of
directors, should act in the manner and within the formalities, if any, prescribed by its charter
or by the general law. However, the actions taken in such a meeting by the directors or trustees
may be ratified expressly or impliedly.
Facts:
The petitioner Lopez Realty, Inc. issued a Board Resolution authorizing Arturo, a
member of the Board of Directors of the corporation, to negotiate with the Tanjanco spouses
for the sale of the shares of LRI (Lopez Realty Corporation). Because of this, Arturo and
the spouses executed a Deed of Sale for the shares for a consideration of Php3.6M. However,
Page 96 of 192
Asuncion, another Board of Director of the said corporation, submitted a letter requesting
the Board to defer any transaction with Tanjanco as she was not apprised and given notice
of the said transaction. Despite this, the execution of the Deed of Absolute Sale between
Arturo and spouses Tanjanco proceeded. Asuncion then filed a complaint for the Annulment
of the Deed of Sale with a prayer for a writ of preliminary injuction in the Regional Trial
Court. Asuncion alleges that she was neither notified nor apprised of the on-going sale of the
shares of LRI.
The Regional Trial Court granted the prayer of Asuncion and declared the subject
deed null and void for failure to comply with the strict procedural requirements. The RTC
ruled that for a Board Resolution authorizing the sale of share to be valid, it is necessary that
notice must be sent to the Board of Directors at least one day prior to the said board meeting.
However, on appeal, the Court of Appeals reversed and set aside the decision of the RTC.
Hence, the current petition.
Issue:
Whether or not the sale of the shares of stock of LRI to respondent spouses Tanjanco
are valid pursuant to the Board Resolution promulgated by LRI despite lack of notice to
Asuncion, one of its Board of Directors.
Ruling:
The sale of the shares of stock of LRI to the respondent spouses Tanjanco is deemed
valid because the Board Resolution from which it is derived is also valid despite the lack of
the required prior notice to its Board of Directors. The Supreme Court reinstated the decision
of the RTC and affirmed the decision of the Court of Appeals.
Section 53 of the Corporation Code provides for the following:
SEC. 53. Regular and special meetings of directors or trustees. Regular meetings of
the board of directors or trustees of every corporation shall be held monthly, unless
the by-laws provide otherwise.
Special meetings of the board of directors or trustees may be held at any time upon
call of the president or as provided in the by-laws.
Meetings of directors or trustees of corporations may be held anywhere in or outside

of the Philippines, unless the by-laws provide otherwise. Notice of regular or special
meetings stating the date, time and place of the meeting must be sent to every director
or trustee at least one (1) day prior to the scheduled meeting, unless otherwise
provided by the by-laws. A director or trustee may waive this requirement, either
expressly or impliedly.
The general rule is that a corporation, through its board of directors, should act in the
manner and within the formalities, if any, prescribed by its charter or by the general law.
Page 97 of 192
Thus, directors must act as a body in a meeting called pursuant to the law or the
corporation's by-laws, otherwise, any action taken therein may be questioned by any
objecting director or shareholder.
However, the actions taken in such a meeting by the directors or trustees may be
ratified expressly or impliedly. "Ratification means that the principal voluntarily adopts,
confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this
voluntary choice, knowingly made, which amounts to a ratification of what was theretofore
unauthorized and becomes the authorized act of the party so making the ratification. The
substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ratification can be made either expressly or impliedly. Implied ratification may
take various forms like silence or acquiescence, acts showing approval or adoption of the
act, or acceptance and retention of benefits flowing therefrom."
In the present case, the ratification was expressed through the July 30, 1982 Board
Resolution. Asuncion claims that the July 30, 1982 Board Resolution did not ratify the Board
Resolution dated August 17, 1981 for lack of the required number of votes because Juanito
is not entitled to vote while Leo voted "no" to the ratification of the sale even if the minutes
stated otherwise.
Simny Guy v. Gilbert Guy

G.R. No. 184068, April 19, 2016, Sereno, J:
Facts:
GCI is a family-owned corporation of the Guy family duly organized and existing under
Philippine laws. Petitioner Simny G. Guy (Simny) is a stockholder of record and member of
the board of directors of the corporation. Respondents are also GCI stockholders of record
who were allegedly elected as new directors by virtue of the assailed stockholders' meeting
held on 7 September 2004.
On 10 September 2004, Paulino Delfin Pe and Benjamin Lim (stockholder of record of GCI)
informed petitioner that they had received a notice dated 31 August 2004 calling for the
holding of a stockholders meeting on 07 September 2004 at Manila Hotel. On 22 September
2004, or fifteen (15) days after the stockholders' meeting, petitioner received the
aforementioned notice.
On 30 September 2004, petitioner, for himself and on behalf of GCI and Grace Guy Cheu
(Cheu), filed a Complaint against respondents before the RTC of Manila for the "Nullification
of Stockholders' Meeting and Election of Directors, Nullification of Acts and Resolutions,
Injunction and Damages with Prayer for Temporary Restraining Order and/or Writ of
Preliminary lnjunction.
Petitioner assailed the election held on 7 September 2004 on the following grounds: (1)
there was no previous notice to petitioner and Cheu; (2) the meeting was not called by the
proper person; and (3) the notices were not issued by the person who had the legal authority
Page 98 of 192
to do so. In his Answer, respondent Gilbert G. Guy (Gilbert) argued that the stockholders'
meeting on 7 September 2004 was legally called and held; that the notice of meeting was
signed by the authorized officer of GCI and sent in accordance with the by-laws of the
corporation; and that Cheu was not a stockholder of record of the corporation, a status that
would have entitled her to receive a notice of the meeting.
The RTC issued a temporary restraining order against the respondents. Meantime, in a
Manifestation dated 10 August 2005, the respondents disclosed that a stockholders meeting
has already been held and hence, the complaint by the petitioner has already been mooted.
The RTC thereafter issued a decision dismissing the complaint on the ground that
appropriate notices were sent to the petitioner. The CA affirmed the RTCs decision in toto;
hence, this petition.
Issue: Whether the special stockholders meeting was not validly called and held
Held: The special stockholders meeting was validly conducted. For a stockholders' special
meeting to be valid, certain requirements must be met with respect to notice, quorum and
place. Under the Corporation Code, one of the requirements is a previous written notice sent
to all stockholders at least one (1) week prior to the scheduled meeting. Under the By-laws
of GCI, the notice of the meeting shall be mailed not less than five (5) days prior to the date
set for the special meeting.
The Corporation Code itself permits the shortening (or lengthening) of the period within
which to send the notice to call a special (or regular) meeting. Thus, no irregularity exists in
the mailing of the notice sent by respondent Gilbert G. Guy on 2 September 2004 calling for
the special stockholders' meeting to be held on 7 September 2004, since it abides by what is
stated in GCI's by-laws
ELECTIONS OF BOARD OF DIRECTORS AND TRUSTEES
Estate of Dr. Juvencio P. Ortanez v. Jose C. Lee, et. al.

GR. No. 184251, March 9, 2016; Perez, J:
Facts:
On 6 July 1956, Dr. Ortan ez organized and founded the Philippine International Life
Insurance Company, Inc. (Philinterlife). At the time of its incorporation, Dr. Ortan ez owned
ninety percent (90%) of the subscribed capital stock of Philinterlife.
Upon his death on 21 July 1980, Dr. Ortan ez left behind an estate consisting of, among others,
2,029 shares of stock in Philinterlife, then representing at least 50.725% of the outstanding
capital stock of Philinterlife which was at 4,000 shares valued at P4,000,000.00.
On 30 March 2006, petitioners filed a Complaint for Election Contest before the RTC of
Quezon City. The complaint challenged the lawfulness and validity of the meeting and
election conducted by the group of Jose C. Lee (respondents) et. al. on 15 March 2006. During
Page 99 of 192
the assailed meeting, Jose C. Lee (Lee) et. al. were elected as members of the Board of
Directors of Philinterlife.
Petitioners claimed that before the contested election, they formally informed the
respondents that without the participation of the Estate, no quorum would be constituted in
the scheduled annual stockholders meeting. Petitioners averred that in spite of their formal
announcement and notice that they were not participating in the session, the respondents
continued, in bad faith, with the illegal meeting. Further, respondents allegedly elected
themselves as directors of Philinterlife and proceeded to elect their own set of officers.
Petitioners, who insisted that they represented at least 51% of the outstanding capital stock
of 5,000 shares of Philinterlife, conducted on the same day and in the same venue but in a
different room, their own annual stockholders meeting and proceeded to elect their own set
of directors. According to the petitioners, the sale of the shares of the estate to the
respondents through the Filipino Loan Assistance Group (FLAG), as well as the increases in
the authorized capita stock of the corporation, was declared null and void by the court, which
decision was affirmed by no longer than the Supreme Court. They further submitted that the
exercise of pre-emptive right of the Estate to acquire 51% of the additional 1,000 paid up
shares of stock, raising the total outstanding capital stock to 5,000 shares, was recognized
by the RTC of Quezon City.
Respondents, for their part, categorically denied the material allegations of the complaint
and raised the defense that the stockholders meeting they conducted on 15 March 2006 was
valid as it was allegedly attended by stockholders representing 98.76% of the 50,000 shares
representing the authorized and issued capital stock of Philinterlife.
The RTC ruled in favor of the respondents on the ground that the petitioners failed to present
the required preponderance of evidence to substantiate their claim that they were the
owners of at least 51% of the outstanding capital stock of Philinterlife. The ruling of the RTC
was affirmed by the CA; hence, this petition.
Issue: Whether the respondents were validly elected as directors of Philinterlife
Held: Yes. The Court agreed with the lower courts that the petitioners failed to present
credible and convincing evidence that Philinterlifes outstanding capital stock during the 15
March 2006 annual stockholders meeting was 5,000 and that they own more than 2,550
shares or 51% thereof. The unrebutted presumption is that respondents, were duly elected
as directors-officers of Philinterlife. In the absence of evidence to the contrary, the
presumption is that the respondents were duly elected as directors/officers of Philinterlife
during the aforesaid annual stockholders meeting. Petitioners cannot, in the instant election
contest case, question the increases in the capital stocks of the corporation.
FIDUCIARY DUTIES AND LIABILITY RULES
Rodolfo Laborte and Philippine Tourism Authority vs. Pagsanjan Tourism Consumers
Cooperative
Page 100 of 192
G.R. No. 183860; January 15, 2014

J. Reyes
Operation by a cooperative of a restaurant and boat ride services in an administration

complex owned by a Government Owned and Controlled Corporation may, in the absence of any
contract, concession and franchise, be terminated any time so as to allow the latter to fulfil its
mandated duty as tourism administrator.
Facts:
Petitioner Philippine Tourism Authority (PTA) is a GOCC that administers tourism zones as
mandated by P.D. 564. PTA used to operate the Philippine Gorge Tourist Zone (PGTZ)
Administration Complex (PTA Complex), a declared tourist zone in Pagsanjan, Laguna.
On the other hand, respondent Pagsanjan Tourism Consumers Cooperative (PTCC), is a

cooperative organized under the Cooperative Code of the Philippines and the other
respondents are PTCC employees, consisting of restaurant staff and boatmen at the PTA
Complex.
During sometime, PTA implemented a reorganization and reshuffling in its top level
management. Rodolfo Laborte was designated as Area Manager in the CALABARZON area
with direct supervision over the PTA Complex and other entities at the Southern Luzon.
In view of PTA Complexs rehabilitation and upgrading project, Laborte served a written
notice to the respondents to cease operation of the restaurant business and boat ride
services. Consequently, PTCC filed a Complaint for Prohibition, Injunction and Damages with
TRO and Preliminary Injunction against Laborte. Subsequently, the trial court issued the TRO
prayed for.
Opposing the issuance of the TRO, Laborte averred that the PTCC does not own the
restaurant facility as it was onlyt olerated to operate the same by the PTA as a matter of
lending support and assistance to the cooperative in its formative years. Since PTCC had no
contract, concession, or exclusive franchise to operate the restaurant business and the
boating services in the PTA Complex, no existing right has been allegedly violated by the
petitioners. RTC rendered a decision in favor of the respondents.
Laborte and PTA appealed to the CA. Later on, CA promulgated its decision affirming RTCs
decision. A motion for reconsideration was filed, but was denied for lack of merit. Hence, the
petition.
Petitioners assert that the PTA is mandated to administer tourism zones and it has adopted
a comprehensive program and project to rehabilitate and upgrade the facilities of the PTA
complex and that PTCC has novested right to continue operating the restaurant and boat
ride services since it has no contract, concession or exclusive franchise with PTA.
Page 101 of 192

Issue:
Whether or not PTA can validly terminate PTCCs operation.
Ruling:
Petition Granted.
The PTA is a government owned and controlled corporation which was mandated to
administer tourism zones. Based on this mandate, it was the PTAs obligation to adopt a
comprehensive program and project to rehabilitate and upgrade the facilities of the PTA. The
Court finds that there was indeed a renovation of the Pagsanjan Administration Complex
which was sanctioned by the PTA main office; and such renovation was done in good faith in
performance of its mandated duties as tourism administrator. In the exercise of its
management prerogative to determine what is best for the said agency, the PTA had the right
to terminate at any moment the PTCCs operations of the restaurant and the boat ride
services since the PTCC has no contract, concession or franchise from the PTA to operate the
above-mentioned businesses. As shown by the records, the operation of the restaurant and
the boat ride services was merely tolerated, in order to extend financial assistance to its PTA
employee-members who are members of the then fledging PTCC.
Except for receipts for rents paid by the PTCC to the PTA, the respondents failed to show any
contract, concession agreement or franchise to operate the restaurant and boat ride
services. In fact, the PTCC initially did not implead the PTA in its Complaint since it was well
aware that there was no contract executed between the PTCC and the PTA. While the PTCC
has been operating the restaurant and boat ride services for almost ten (10) years until its
closure, the same was by mere tolerance of the PTA. In the consolidated case of Phil. Ports
Authority v. Pier 8 Arrastre & Stevedoring Services, Inc., the Court upheld the authority of
government agencies to terminate at any time hold-over permits. Thus, considering that the
PTCCs operation of the restaurant and the boat ride services was by mere tolerance, the PTA
can, at any time, terminate such operation.
With respect to Laborte's liability in his official and personal capacity, the Court finds that
Laborte was simply implementing the lawful order of the PTA Management. As a general rule
the officer cannot be held personally liable with the corporation, whether civilly or
otherwise, for the consequences of his acts, if acted for and in behalf of the corporation,
within the scope of his authority and in good faith. Thus, the Court finds no basis to hold
petitioner Laborte liable.
RIGHT TO INSPECT
ADERITO Z. YUJUICO AND BONIFACIO C. SUMBILLA vs. CEZAR T. QUIAMBAO

AND ERIC C. PILAPIL
G.R. No. 180416, June 02, 2014, J. Perez
Page 102 of 192

A criminal action based on the violation of a stockholder's right to examine or inspect

the corporate records and the stock and transfer hook of a corporation under the second and
fourth paragraphs of Section 74 of the Corporation Code can only he maintained against
corporate officers or any other persons acting on behalf of such corporation. The complaint and
the evidence Quiambao and Sumbilla submitted during preliminary investigation do not
establish that Quiambao and Pilapil were acting on behalf of STRADEC. Violations of Section
74 contemplates a situation wherein a corporation, acting thru one of its officers or agents,
denies the right of any of its stockholders to inspect the records, minutes and the stock and
transfer book of such corporation. Thus, the dismissal is valid.
Facts:
Strategic Alliance Development Corporation is a domestic corporation operating as a

business development and investment company. On 1 March 2004, during the annual
stockholder's meeting of STRADEC, Aderito Z. Yujuico was elected as president and chairman
of the company. Yujuico replaced Cezar T. Quiambao, who had been the president and
chairman of STRADEC since 1994. STRADEC appointed petitioner Bonifacio C. Sumbilla as
treasurer and one Joselito John G. Blando as corporate secretary. Blando replaced
respondent Eric C. Pilapil, the previous corporate secretary of STRADEC. On 12 August 2005,
Yujuico and Sumbilla filed a criminal complaint against Quiambao and Pilapil and one
Giovanni T. Casanova before the Office of the City Prosecutor of Pasig City. The complaint
accuses Quiambao, Pilapil and Casanova of violating Section 74 in relation to Section 144 of
the Corporation Code.
That during the stockholders' meeting, Yujuico--as newly elected president and
chairman of STRADEC--demanded Quiambao for the turnover of the corporate records of the
company, particularly the accounting files, ledgers, journals and other records of the
corporation's business. Quiambao refused. After the stockholders' meeting, Quiambao and
Casanova caused the removal of the corporate records of STRADEC from the company's
offices in Pasig City. Upon his appointment as corporate secretary, Blando likewise
demanded Pilapil for the turnover of the stock and transfer book of STRADEC. Pilapil refused.
On 25 June 2004, Pilapil proposed to Blando to have the stock and transfer book deposited
in a safety deposit box with Equitable Pel Bank. Blando acceded to the proposal and the stock
and transfer book was deposited in a safety deposit box with the bank identified. It was
agreed that the safety deposit box may only be opened in the presence of both Quiambao and
Blando. Quiambao and Pilapil withdrew the stock and transfer book from the safety deposit
box and brought it to the offices of the Stradcom Corporation in Quezon City. Quiambao
thereafter asked Blando to proceed to the STRADCOM offices. Upon arriving thereat,
Quiambao pressured Blando to make certain entries in the stock and transfer books. After
making such entries, Blando again demanded that he be given possession of the stock and
transfer book. Quiambao refused.
Blando received an order issued by the RTC of Pasig City, which directed him to cancel
the entries he made in the stock and transfer book. Blando wrote letters to Quiambao and
Pilapil once again demanding for the turnover of the stock and transfer book. Pilapil replied
where he appeared to agree to Blando's demand. However, Quiambao still refused to
Page 103 of 192
turnover the stock and transfer book to Blando. Blando was once again constrained to agree
to a proposal by Pilapil to have the stock and transfer book deposited with the RTC of Pasig
City. The said court, however, refused to accept such deposit on the ground that it had no
place for safekeeping.
Since Quiambao and Pilapil still refused to turnover the stock and transfer book,
Blando again acceded to have the book deposited in a safety deposit box, this time, with the
Export and Industry Bank. Yujuico and Sumbilla theorize that the refusal by the Quiambao,
Pilapil and Casanova to turnover STRADEC's corporate records and stock and transfer book
violates their right, as stockholders, directors and officers of the corporation, to inspect such
records and book under Section 74 of the Corporation Code and may be held criminally liable
pursuant to Section 144 of the Corporation Code.
The MeTC partially granted the Urgent Omnibus Motion. The MeTC ordered the
issuance of a warrant of arrest against Quiambao and Pilapil. The RTC issued a TRO enjoining
the MeTC from conducting further proceedings in Criminal Case No. 89724.
The RTC granted Quiambao and Pilapils certiorari petition and directing the
dismissal of Criminal Case No. 89724. According to the RTC, the MeTC committed grave
abuse of discretion in issuing a warrant of arrest against Quiambao and Pilapil. The RTC
opined that refusing to allow inspection of the stock and transfer book, as opposed to
refusing examination of other corporate records, is not punishable as an offense under the
Corporation Code. The petitioners moved for reconsideration, but the RTC remained
steadfast. Hence, this petition by Yujuico and Sumbilla.
Issue:
Whether or not the RTCs refusal to allow inspection of the stock and transfer book of
a corporation is not a punishable offense under the Corporation Code, such a refusal still
amounts to a violation of Section 74 of the Corporation Code, for which Section 144 of the
same code prescribes a penalty.cra1aw
Ruling:
No, there is no violation of the Corporation, thus, dismissal of the complaint is

warranted.
The act of refusing to allow inspection of the stock and transfer book of a corporation,
when done in violation of Section 74(4) of the Corporation Code, is punishable as an offense
under Section 144 of the same code. In justifying this conclusion, the RTC seemingly relied
on the fact that, under Section 74 of the Corporation Code, the application of Section 144 is
expressly mentioned only in relation to the act of "refusing to allow any director, trustees,
stockholder or member of the corporation to examine and copy excerpts from the
corporation's records or minutes" that excludes its stock and transfer book, the same does
not mean that the latter section no longer applies to any other possible violations of the
former section. It must be emphasized that Section 144 already purports to penalize
Page 104 of 192
"violations" of "any provision" of the Corporation Code "not otherwise specifically penalized
therein." Hence, we find inconsequential the fact that that Section 74 expressly mentions the
application of Section 144 only to a specific act, but not with respect to the other possible
violations of the former section.
A criminal action based on the violation of a stockholder's right to examine or inspect

the corporate records and the stock and transfer hook of a corporation under the second and
fourth paragraphs of Section 74 of the Corporation Code can only he maintained against
corporate officers or any other persons acting on behalf of such corporation. The
submissions of the Yujuico and Sumbilla during the preliminary investigation clearly suggest
that Quiambao and Pilapil are neither in relation to STRADEC. Thus, we sustain the dismissal
of Criminal Case No. 89724.
Criminal Case No. 89724 accuses Quiambao and Pilapil of denying Yujuico and
Sumbilla's right to examine or inspect the corporate records and the stock and transfer
book of STRADEC. It is thus a criminal action that is based on the violation of the second and
fourth paragraphs of Section 74 of the Corporation Code. A perusal of the second and fourth
paragraphs of Section 74, as well as the first paragraph of the same section, reveal that they
are provisions that obligates a corporation: they prescribe what books or records
a corporation is required to keep; where the corporation shall keep them; and what are the
other obligations of the corporation to its stockholders or members in relation to such books
and records. Hence, by parity of reasoning, the second and fourth paragraphs of Section 74,
including the first paragraph of the same section, can only be violated by a corporation.
It is clear then that a criminal action based on the violation of the second or fourth
paragraphs of Section 74 can only be maintained against corporate officers or such other
persons that are acting on behalf of the corporation. Violations of Section 74 contemplates
a situation wherein a corporation, acting thru one of its officers or agents, denies the right of
any of its stockholders to inspect the records, minutes and the stock and transfer book of
such corporation.
The problem with the Yujuico and Sumbilla's complaint and the evidence that they
submitted during preliminary investigation is that they do not establish that Quiambao and
Pilapil were acting on behalf of STRADEC. Quiambao and Sumbilla are not actually invoking
their right to inspect the records and the stock and transfer book of STRADEC under the
second and fourth paragraphs of Section 74. What they seek to enforce is the proprietary
right of STRADEC to be in possession of such records and book. Such right, though certainly
legally enforceable by other means, cannot be enforced by a criminal prosecution based on
a violation of the second and fourth paragraphs of Section 74.
DERIVATIVE SUIT
NESTOR CHING and ANDREW WELLINGTON vs. SUBIC BAY GOLF AND COUNTRY CLUB,
INC., HU HO HSIU LIEN alias SUSAN HU, HU TSUNG CHIEH alias JACK HU, HU TSUNG
HUI, HU TSUNG TZU and REYNALD R. SUAREZ
G.R. No. 174353, September 10, 2014, J. LEONARDO-DE CASTRO
Page 105 of 192
A derivative suit cannot prosper without first complying with the legal requisites for its
institution. Thus, a complaint which contained no allegation whatsoever of any effort to avail
of intra-corporate remedies allows the court to dismiss it, even motu proprio. Indeed, even if
petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated
the same in the Complaint and specified the reasons for such opinion. The requirement of this
allegation in the Complaint is not a useless formality which may be disregarded at will.
Facts:
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a
Complaint with the RTC of Olongapo City on behalf of the members of Subic Bay Golf and
Country Club, Inc. (SBGCCI) against the said country club and its Board of Directors and
officers under the provisions of Presidential Decree No. 902-A in relation to Section 5.2 of
the Securities Regulation Code. The complaint alleged that the defendant corporation sold
shares to plaintiffs at US$22,000.00 per share, presenting to them the Articles of
Incorporation. However, on June 27, 1996, an amendment to the Articles of Incorporation
was approved by the Securities and Exchange Commission (SEC).
Petitioners claimed in the Complaint that SBGCCI did not disclose to them the above
amendment which allegedly makes the shares non-proprietary, as it takes away the right of
the shareholders to participate in the pro-rata distribution of the assets of the corporation
after its dissolution. According to petitioners, this is in fraud of the stockholders who only
discovered the amendment when they filed a case for injunction to restrain the corporation
from suspending their rights to use all the facilities of the club. Furthermore, petitioners
alleged that the Board of Directors and officers of the corporation did not call any
stockholders meeting from the time of the incorporation, in violation of Section 50 of the
Corporation Code and the By-Laws of the corporation. Neither did the defendant directors
and officers furnish the stockholders with the financial statements of the corporation nor the
financial report of the operation of the corporation in violation of Section 75 of the
Corporation Code. Petitioners also claim SBGCCI presented to the SEC an amendment to the
By-Laws of the corporation suspending the voting rights of the shareholders except for the
five founders shares. Said amendment was allegedly passed without any stockholders
meeting or notices to the stockholders in violation of Section 48 of the Corporation Code.
The Complaint furthermore enumerated several instances of fraud in the

management of the SBGCCI allegedly committed by the Board of Directors and officers of the
corporation.
The RTC issued an Order dismissing the Complaint. The RTC held that the action is a
derivative suit. Petitioners Ching and Wellington elevated the case to the Court of Appeals
which rendered the assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they argue that
the Complaint they filed with the RTC was not a derivative suit.
Page 106 of 192

Issue:
Whether or not the Complaint is indeed a derivative suit.
Ruling:
The nature of an action, as well as which court or body has jurisdiction over it, is
determined based on the allegations contained in the complaint of the plaintiff, irrespective
of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted
therein.
While there were allegations in the Complaint of fraud in their subscription

agreements, such as the misrepresentation of the Articles of Incorporation, petitioners do
not pray for the rescission of their subscription or seek to avail of their appraisal rights.
Instead, they ask that defendants be enjoined from managing the corporation and to pay
damages for their mismanagement. Petitioners only possible cause of action as minority
stockholders against the actions of the Board of Directors is the common law right to file a
derivative suit. The legal standing of minority stockholders to bring derivative suits is not a
statutory right, there being no provision in the Corporation Code or related statutes
authorizing the same, but is instead a product of jurisprudence based on equity. However, a
derivative suit cannot prosper without first complying with the legal requisites for its
institution.
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra Corporate

Controversies imposes the following requirements for derivative suits:
(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
complaint, to exhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain the relief he
desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply with the second and fourth
requisites above.
Upon a careful examination of the Complaint, this Court finds that the same should
not have been dismissed on the ground that it is a nuisance or harassment suit. Although the
shareholdings of petitioners are indeed only two out of the 409 alleged outstanding shares
or 0.24%, the Court has held that it is enough that a member or a minority of stockholders
file a derivative suit for and in behalf of a corporation.
With regard, however, to the second requisite, we find that petitioners failed to state
with particularity in the Complaint that they had exerted all reasonable efforts to exhaust all
Page 107 of 192
remedies available under the articles of incorporation, by-laws, and laws or rules governing
the corporation to obtain the relief they desire. The Complaint contained no allegation
whatsoever of any effort to avail of intra-corporate remedies. Indeed, even if petitioners
thought it was futile to exhaust intra-corporate remedies, they should have stated the same
in the Complaint and specified the reasons for such opinion. Failure to do so allows the RTC
to dismiss the Complaint, even motu proprio, in accordance with the Interim Rules. The
requirement of this allegation in the Complaint is not a useless formality which may be
disregarded at will.
ALFREDO L. VILLAMOR, JR. vs. JOHN S. UMALE, IN SUBSTITUTION OF

HERNANDO F. BALMORES
G.R. No. 172843, September 24, 2014, J. Leonen
Derivative Suit: The Court has recognized that a stockholder's right to institute a
derivative suit is not based on any express provision of the Corporation Code, or even the
Securities Regulation Code, but is impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the corporation and its stockholders for
violation of their fiduciary duties. In effect, the suit is an action for specific performance of an
obligation, owed by the corporation to the stockholders, to assist its rights of action when the
corporation has been put in default by the wrongful refusal of the directors or management to
adopt suitable measures for its protection.
Management committees: Management committees and receivers are appointed when

the corporation is in imminent danger of (1) dissipation, loss, wastage or destruction of assets
or other properties; and (2) paralysation of its business operations that may be prejudicial to'
the interest of the minority stockholders, parties-litigants, or the general public." Applicants for
the appointment of a receiver or management committee need to establish the confluence of
these two requisites. This is because appointed receivers and management committees will
immediately take over the management of the corporation and will have the management
powers specified in law.
Jurisdiction to appoint receiver: The Court of Appeals has no power to appoint a receiver
or management committee. The Regional Trial Court has original and exclusive jurisdiction to
hear and decide intra-corporate controversies, including incidents of such controversies. These
incidents include applications for the appointment of receivers or management committees.
Facts:
MC Home Depot occupied a prime property (Rockland area) in Pasig. The property
was part of the area owned by Mid-Pasig Development Corporation. Pasig Printing
Corporation (PPC) obtained an option to lease portions of Mid-Pasig's property, including
the Rockland area. PPC's board of directors issued a resolution waiving all its rights,
interests, and participation in the option to lease contract in favor of the law firm of Atty.
Villamor. PPC, represented by Villamor, entered into a memorandum of agreement with MC
Home Depot. Under the MOA, MC Home Depot would continue to occupy the area as PPC's
Page 108 of 192

sub-lessee for 4 years, renewable for another 4 years, at a monthly rental of P4,500,000.00
plus goodwill of P18,000,000.00.
In compliance with the terms of the MOA, MC Home Depot issued 20 post-dated
checks representing rental payments for one year and the goodwill money. The checks were
given to Villamor who did not turn these or the equivalent amount over to PPC, upon
encashment. Hernando Balmores, stockholder and director of PPC, wrote a letter addressed
to PPJC's directors informing them that Villamor should be made to deliver to PPC and
account for MC Home Depot's checks or their equivalent value. Due to the alleged inaction of
the directors, respondent Balmores filed with the RTC an intra-corporate controversy
complaint against petitioners for their alleged devices or schemes amounting to fraud or
misrepresentation. Respondent Balmores alleged that because of petitioners' actions, PPC's
assets were ". . . not only in imminent danger, but have actually been dissipated, lost, wasted
and destroyed." Respondent Balmores prayed that a receiver be appointed from his list of
nominees. He also prayed for petitioners' prohibition from "selling, encumbering,
transferring or disposing in any manner any of PPC's properties, including the MC Home
Depot checks and/or their proceeds." He prayed for the accounting and remittance to PPC of
the MC Home Depot checks or their proceeds and for the annulment of the board's resolution
"waiving PPC's rights in favor of Villamor's law firm.
The RTC denied respondent Balmores' prayer for the appointment of a receiver or
the creation of a management committee. According to it, PPC's entitlement to the checks
was doubtful. The resolution issued by PPC's board of directors; waiving its rights to the
option to lease contract in favor of Villamor's law firm, must be accorded prima facie validity.
Balmores filed with CA a petition for certiorari which was given due course. It reversed the
trial court's decision, and issued a new order placing PPC under receivership and creating
an interim management committee. The CA considered the danger of dissipation, wastage,
and loss of PPC's assets if the review of the trial court's judgment would be delayed. It stated
that the board's waiver of PPC's rights in favor of Villamor's law firm without any
consideration and its inaction on Villamor's failure to turn over the proceeds of rental
payments to PPC warrant the creation of a management committee. Also, the CA ruled that
the case filed by respondent Balmores with the trial court "was a derivative suit because
there were allegations of fraud or ultra vires acts ... by PPC's directors.
Issues:
1. Whether the Court of Appeals correctly characterized respondent Balmores' action

as a derivative suit
2. Whether the Court of Appeals properly placed PPC under receivership and created a
receiver or management committee
Ruling:
1. No.
Page 109 of 192

The requisites of a derivative suit are as follows:
a. 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;
b. He exerted all reasonable efforts, and alleges the same with particularity
in the complaint, to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;
c. No appraisal rights are available for the act or acts complained of; and
d. The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the
case.
Balmores' action in the trial court failed to satisfy all the requisites of a derivative suit.
Balmores failed to exhaust all available remedies to obtain the reliefs he prayed for. Though
he tried to communicate with PPC's directors about the checks in Villamor's possession
before he filed an action with the trial court, Balmores was not able to show that this
comprised -all the remedies available under the articles of incorporation, bylaws, laws, or
rules governing PPC. Neither did respondent Balmores implead PPC as party in the case nor
did he allege that he was filing on behalf of the corporation. The non-derivative character of
Balmores' action may also be gleaned from his allegations in the trial court complaint. In the
complaint, he described the nature of his action as an action under Rule 1, Section l(a)(l) of
the Interim Rules, and not an action under Rule 1, Section l(a)(4) of the Interim Rules, which
refers to derivative suits. Respondent Balmores filed an individual suit. His intent was very
clear from his manner of describing the nature of his action as being based on Rule 1, Sec.
1(a)(1) of the Interim Rules, involving devices or schemes employed by, or acts of, the
petitioners as board of directors, business associates and officers of PPC, amounting to fraud
or misrepresentation, which are detrimental to the interest of the plaintiff as stockholder of
PPC.
Balmores did not bring the action for the benefit of the corporation. Instead, he was
alleging that the acts of PPCs directors, specifically the waiver of rights in favor of Villamors
law firm and their failure to take back the MC Home Depot checks from Villamor, were
detrimental to his individual interest as a stockholder. In filing an action, therefore, his
intention was to vindicate his individual interest and not PPCs or a group of stockholders.
2. No.
The CA still erred in placing PPC under receivership and in creating and appointing a
management committee. A corporation may be placed under receivership, or
management committees may be created to preserve properties involved in a suit and to
protect the rights of the parties under the control and supervision of the court.
Management committees and receivers are appointed when the corporation is in
imminent danger of (1) dissipation, loss, wastage or destruction of assets or other
properties; and (2) paralysation of its business operations that may be prejudicial to' the
Page 110 of 192
interest of the minority stockholders, parties-litigants, or the general public." PPC waived
its rights, without any consideration in favor of Villamor. The checks were already in
Villamor's possession. Some of the checks may have already been encashed. It is,
therefore, enough to constitute loss or dissipation of assets under the Interim Rules.
Balmores, however, failed to show that there was an imminent danger of paralysis of
PPC's business operations. Apparently, PPC was- earning substantial amounts from its
other sub-lessees. Balmores did not prove otherwise. He, therefore, failed to show at least
one of the requisites for appointment of a receiver or management committee.
Marcelino Florete, Jr. et. al. v. Rogelio Florente, et. al.

GR. No. 174909, January 20, 2016, Leonen, J:
Facts:
Spouses Marcelino Florete, Sr. and Salome Florete (now both deceased) had four (4)
children: Marcelino Florete, Jr. (Marcelino, Jr.), Maria Elena Muyco (Ma. Elena), Rogelio
Florete, Sr. (Rogelio, Sr.), and Teresita Menchavez (Teresita), now deceased.
Peoples Broadcasting Service, Inc. (Peoples Broadcasting) is a private corporation

authorized to operate, own, maintain, install, and construct radio and television stations in
the Philippines. In its incorporation on March 8, 1966,7 it had an authorized capital stock of
250,000.00 divided into 2,500 shares at 100.00 par value per share. Twenty-five percent
(25%) of the corporations authorized capital stock were then subscribed.
On November 17, 1967, Berlin and Sudario resigned from their positions as General Manager
and Station Supervisor, respectively.Berlin and Sudario each transferred 20 shares to Raul
Muyco and Estrella Mirasol.
Salome died on November 22, 1980. Marcelino, Sr. suffered a stroke on July 12, 1982, which
left him paralyzed and bedridden until his death on October 3, 1990. After Marcelino, Sr.s
stroke, their son, Rogelio, Sr. started managing the affairs of Peoples Broadcasting.
In October 1993, Peoples Broadcasting sought the services of the accounting and auditing
firm Sycip Gorres Velayo and Co. in order to determine the ownership of equity in the
corporation. Sycip Gorres Velayo and Co. submitted a report detailing the movements of the
corporations shares from November 23, 1967 to December 8, 1989. Even as it tracked the
movements of shares, Sycip Gorres Velayo and Co. declined to give a categorical statement
on equity ownership as Peoples Broadcastings corporate records were incomplete.
On June 23, 2003, Marcelino, Jr., Ma. Elena, and Raul Muyco (Marcelino, Jr. Group) filed before
the Regional Trial Court a Complaintfor Declar ation of Nullity of Issuances, Transfers and
Sale of Shares in Peoples Broadcasting Service, Inc. and All Posterior Subscriptions and
Increases thereto with Damages against Diamel Corporation, Rogelio, Sr., Imelda Florete,
Margaret Florete, and Rogelio Florete, Jr. (Rogelio, Sr. Group).
Page 111 of 192

he Regional Trial Court issued a Decision (which it called a "Placitum") dismissing the
Marcelino, Jr. Groups Complaint. It ruled that the Marcelino, Jr. Group did not have a cause
of action against the Rogelio, Sr. Group and that the former is estopped from questioning the
assailed movement of shares of Peoples Broadcasting. It also ruled that indispensible parties
were not joined in their Complaint.
he Marcelino, Jr. Group filed before the Court of Appeals a Petition for Review with a prayer
for the issuance of a temporary restraining order and/or writ of preliminary injunction to
deter the immediate execution of the trial court Decision awarding damages to Rogelio, Sr.
The Court of Appeals issued a temporary restraining order and, subsequently, a writ of
preliminary injunction.
In its Decision dated March 29, 2006, the Court of Appeals denied the Marcelino, Jr. Groups
Petition and affirmed the trial court Decision. It also lifted the temporary restraining order
and writ of preliminary injunction. The Court of Appeals ruled that the Marcelino, Jr. Group
did not have a cause of action against those whom they have impleaded as defendants. It also
noted that the principal obligors in or perpetrators of the assailed transactions were persons
other than those in the Rogelio, Sr. Group who have not been impleaded as parties. Thus, the
Court of Appeals emphasized that the following parties were indispensable to the case:
Peoples Broadcasting; Marcelino, Sr.; Consolidated Broadcasting System, Inc.; Salome;
Divinagracia; Teresita; and "other stockholders of [Peoples Broadcasting] to whom the
shares were transferred or the nominees of the stockholders." Hence, this petition.
Issue: Whether the CA erred in dismissing the complaint filed by the petitioners
Held: No. A stockholder may suffer from a wrong done to or involving a corporation, but this
does not vest in the aggrieved stockholder a sweeping license to sue in his or her own
capacity. The determination of the stockholders appropriate remedywhether it is an
individual suit, a class suit, or a derivative suithinges on the object of the wrong done.
When the object of the wrong done is the corporation itself or "the whole body of its stock
and property without any severance or distribution among individual holders,"1 it is a
derivative suit, not an individual suit or class/representative suit, that a stockholder must
resort to. Among the basic requirements for a derivative suit to prosper is that the minority
shareholder who is suing for and on behalf of the corporation must allege in his complaint
before the proper forum that he is suing on a derivative cause of action on behalf of the
corporation and all other shareholders similarly situated who wish to join him. Moreover, it
is important that the corporation be made a party to the case.
DISPOSITION AND ENCUMBRANCES OF SHARES
Interport Resources Corporation v. Securities Specialist, Inc. et. al.

G.R. No.154069, 06 June 2016, Bersamin, J:
Facts:
Page 112 of 192

In January 1977, Oceanic Oil & Mineral Resources, Inc. (Oceanic) entered into a subscription
agreement with R.C. Lee, a domestic corporation engaged in the trading of stocks and other
securities, covering 5,000,000 of its shares with par value of PO.O1 per share, for a total of
P50,000.00. Thereupon, R.C. Lee paid 25% of the subscription, leaving 75% unpaid. Oceanic
issued Subscription Agreements to R.C. Lee.
On July 28, 1978, Oceanic merged with Interport, with the latter as the surviving corporation.
Under the terms of the merger, each share of Oceanic was exchanged for a share of lnterport.
Thereafter, R.C. Lee endorsed the Subscription Agreements to SSI, a domestic corporation
registered as a dealer in securities.
Later on, R.C. Lee requested Interport for a list of subscription agreements and stock
certificates issued in the name of R.C. Lee and other individuals named in the request. Upon
finding no record showing any transfer or assignment of the Oceanic subscription
agreements and stock certificates of Interport as contained in the list, R.C. Lee paid its unpaid
subscriptions and was accordingly issued stock certificates corresponding thereto.
On February 8, 1989, Interport issued a call for the full payment of subscription receivables,
setting March 15, 1989 as the deadline. SSI tendered payment prior to the deadline through
two stockbrokers of the Manila Stock Exchange. However, the stockbrokers reported to SSI
that lnterport refused to honor the Oceanic subscriptions.
On the date of the deadline, SSI directly tendered payment to lnterport for the balance of the
5,000,000 shares covered by the Oceanic Subscription Agreements. Interport rejected the
same.
SSI learned that Interport had issued the 5,000,000 shares to R.C. Lee, relying on the latter's
registration as the owner of the subscription agreements in the books of the former, Thus,
SSI wrote R.C. Lee demanding the delivery of the 5,000,000 Interport shares on the basis of
a purported assignment of the subscription agreements covering the shares made in 1979.
R.C. Lee failed to return the subject shares inasmuch as it had already sold the same to other
parties. SSI thus demanded that R.C. Lee pay not only the equivalent of the 25% it had paid
on the subscription but the whole 5,000,000 shares at current market value. SSI also made
demands upon Interport and R.C. Lee for the cancellation of the shares issued to R.C. Lee and
for the delivery of the shares to SSl.
After its demands were not met, SSI commenced this case in the SEC to compel the
respondents to deliver the shares and pay damages.
The SEC ruled in favor of SSI and required Interport to issue all the 5,000,000 shares and pay
damages. The respondents appealed to the SEC En Bank. The latter modified the decision
and stated that it would be inequitable to issue the 5,000,000 shares in favor of SSI since it
only paid 25% thereof. The decision of the SEC En Banc was affirmed by the CA, hence, this
petition.
Page 113 of 192

lnterport argues that R.C. Lee should be held liable for the delivery of 25% of the shares
under the subject subscription agreements inasmuch as R.C. Lee had already received all the
5,000,000 shares upon its payment of the 75% balance on the subscription price to Interport;
that it was only proper for R.C. Lee to deliver 25% of the shares under the Oceanic
subscription agreements because it had already received the corresponding payment
therefor from SSI for the assignment of the shares; that R.C. Lee would be unjustly enriched
if it retained the 5,000,000 shares and the 25% payment of the subscription price made by
SSI in favor of R.C. Lee as a result of the assignment; and that it merely relied on its records,
in accordance with Section 74 of the Corporation Code, when it issued the stock certificates
to R.C. Lee upon its full payment of the subscription price.
Issue: Whether Interport is liable to deliver the Oceanic shares of stock to SSI
Held:
1. The SEC correctly categorized the assignment of the subscription agreements as a

form of novation by substitution of a new debtor and which required the consent of
or notice to the creditor. Under the Civil Code, obligations may be modified by: (l)
changing their object or principal conditions; or (2) substituting the person of the
debtor; or (3) subrogating a third person of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of
the creditor. In this case, the change of debtor took place when R.C. Lee assigned the
Oceanic shares under Subscription Agreement to SSI so that the latter became obliged
to settle the 75% unpaid balance on the subscription.
Clearly, the effect of the assignment of the subscription agreements to SSI was to
extinguish the obligation of R.C. Lee to Oceanic, now Interport, to settle the unpaid
balance on the subscription. As a result of the assignment, Interport was no longer
obliged to accept any payment from R.C. Lee because the latter had ceased to be privy
to Subscription Agreements for having been extinguished insofar as it was concerned.
On the other hand, Interport was legally bound to accept SSI's tender of payment for
the 75% balance on the subscription price because SSI had become the new debtor
under Subscription Agreements Nos. 1805, and 1808 to 1811. As such, the issuance
of the stock certificates in the name of R.C. Lee had no legal basis in the absence of a
contractual agreement between R.C. Lee and Interport.
2. Under Section 63 of the Corporation Code, no transfer of shares of stock shall be valid,
except as between the parties, until the transfer is recorded in the books of the
corporation. This statutory rule cannot be strictly applied herein, however, because
lnterport had unduly refused to recognize the assignment of the shares between R.C.
Lee and SSL
Page 114 of 192

Anna Teng v. Securities and Exchange Commission

G.R. No. 184332, February 17, 2016, Reyes, J:
Facts:
This case has its origin in the case entitled TCL Sales Corporation and Anna Teng v. Hon. Court
of Appeals and Ting Ping Lay (G.R. No. 129777). Herein respondent Ting Ping purchased 480
shares of TCL Sales Corporation (TCL) from Peter Chiu (Chiu) on February 2, 1979; 1,400
shares on September 22, 1985 from his brother Teng Ching Lay (Teng Ching), who was also
the president and operations manager of TCL; and 1,440 shares from Ismaelita Maluto
(Maluto) on September 2, 1989.
Upon Teng Ching's death in 1989, his son Henry Teng (Henry) took over the management of
TCL. To protect his shareholdings with TCL, Ting Ping on August 31, 1989 requested TCL's
Corporate Secretary, herein petitioner Teng, to enter the transfer in the Stock and Transfer
Book of TCL for the proper recording of his acquisition. He also demanded the issuance of
new certificates of stock in his favor. TCL and Teng, however, refused despite repeated
demands. Because of their refusal, Ting Ping filed a petition for mandamus with the SEC
against TCL and Teng,
The Securities and Exchange Commission (SEC) granted the issuance of an alias writ of
execution, compelling petitioner Anna Teng (Teng) to register and issue new certificates of
stock in favor of respondent Ting Ping Lay (Ting Ping). The order of the SEC was affirmed by
the CA; hence, this petition.
Issue: Whether the surrender of the certificates of stock is a requisite before registration of
the transfer may be made in the corporate books and for the issuance of new certificates in
its stead.
Held: No. Under Section 63 of the Corporation Code, certain minimum requisites must be
complied with for there to be a valid transfer of stocks, to wit: (a) there must be delivery of
the stock certificate; (b) the certificate must be endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make the transfer; and (c) to be valid against third
parties, the transfer must be recorded in the books of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly
authorized representative that is the operative act of transfer of shares from the original
owner to the transferee.41 The Court even emphatically declared. in Fil-Estate Golf and
Development, Inc., et al. v. Vertex Sales and Trading, Inc. that in "a sale of shares of stock,
physical delivery of a stock certificate is one of the essential requisites for the transfer of
ownership of the stocks purchased."43 The delivery contemplated in Section 63, however,
pertains to the delivery of the certificate of shares by the transferor to the
transferee, that is, from the original stockholder named in the certificate to the person or
entity the stockholder was transferring the shares to, whether by sale or some other valid
form of absolute conveyance of ownership. "[S]hares of stock may be transferred by delivery
Page 115 of 192

to the transferee of the certificate properly indorsed. Title may be vested in the transferee
by the delivery of the duly indorsed certificate of stock."
It is thus clear that Teng's position - that Ting Ping must first surrender Chiu's and Maluto's
respective certificates of stock before the transfer to Ting Ping may be registered in the
books of the corporation - does not have legal basis. The delivery or surrender adverted to
by Teng, i.e., from Ting Ping to TCL, is not a requisite before the conveyance may be recorded
in its books. To compel Ting Ping to deliver to the corporation the certificates as a condition
for the registration of the transfer would amount to a restriction on the right of Ting Ping to
have the stocks transferred to his name, which is not sanctioned by law. The only limitation
imposed by Section 63 is when the corporation holds any unpaid claim against the shares
intended to be transferred.
DISSOLUTION AND LIQUIDATION
ALABANG DEVELOPMENT CORPORATION vs. ALABANG HILLS VILLAGE ASSOCIATION

AND RAFAEL TINIO
G.R. No. 187456, June 02, 2014, J. Peralta
ADC filed its complaint not only after its corporate existence was terminated but also
beyond the three-year period allowed by Section 122 of the Corporation Code. To allow ADC to
initiate the subject complaint and pursue it until final judgment, on the ground that such
complaint was filed for the sole purpose of liquidating its assets, would be to circumvent the
provisions of Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing
of the subject complaint petitioner lacks the capacity to sue as a corporation.
Facts:
The case traces its roots to the Complaint for Injunction and Damages filed with the
RTC of Muntinlupa City on Alabang Development Corporation against Alabang Hills Village
Association, Inc. and Rafael Tinio Tinio, President of AHVAI. The Complaint alleged that
Alabang is the developer of Alabang Hills Village and still owns certain parcels of land therein
that are yet to be sold, as well as those considered open spaces that have not yet been
donated to the local government of Muntinlupa City or the Homeowner's Association. In
September 2006, ADC learned that AHVAI started the construction of a multi-purpose hall
and a swimming pool on one of the parcels of land still owned by ADC without the latter's
consent and approval, and that despite demand, AHVAI failed to desist from constructing the
said improvements. ADC thus prayed that an injunction be issued enjoining defendants from
constructing the multi-purpose hall and the swimming pool at the Alabang Hills Village.
In its Answer With Compulsory Counterclaim, AHVAI denied ADC's asseverations and
claimed that the latter has no legal capacity to sue since its existence as a registered
corporate entity was revoked by the SEC on May 26, 2003; that ADC has no cause of action
because by law it is no longer the absolute owner but is merely holding the property in
question in trust for the benefit of AHVAI as beneficial owner thereof; and that the subject
lot is part of the open space required by law to be provided in the subdivision. As
Page 116 of 192
counterclaim, it prayed that an order be issued divesting ADC of the title of the property and
declaring AHVAI as owner thereof; and that ADC be made liable for moral and exemplary
damages as well as attorney's fees. On January 4, 2007, the RTC of Muntinlupa City, rendered
judgment dismissing ADCs complaint. ADC filed a Notice of Appeal of the RTC decision. The
RTC approved ADC's notice of appeal but dismissed respondent AHVAIs counterclaim on
the ground that it is dependent on ADC's complaint. Respondent AHVAI then filed an appeal
with the CA. The CA dismissed both appeals of ADC and AHVAI, and affirmed the decision of
the RTC. Thus, the instant petition.
Issue:
1. Whether or not the Court of Appeals erred in relying on the case of Columbia
Pictures, Inc. V. Court of appeals in resolving ADC's lack of capacity
2. Whether or not the Court of Appeals erred in finding lack of capacity of the ADC
in filing the case contrary to the earlier rulings of this honorable court
Ruling:
1. No, the CA did not err.
The Court does not agree that the CA erred in relying on the case of Columbia Pictures,
Inc. v. Court of Appeals. The CA cited the case for the purpose of restating and distinguishing
the jurisprudential definition of the terms lack of capacity to sue and lack of personality
to sue; and of applying these definitions to the present case. Unlike in the instant case, the
corporations involved in the Columbia case were foreign corporations is of no moment. The
definition of the term lack of capacity to sue enunciated in the said case still applies to the
case at bar. Indeed, as held by this Court and as correctly cited by the CA in the case of
Columbia: lack of legal capacity to sue means that the plaintiff is not in the exercise of his
civil rights, or does not have the necessary qualification to appear in the case, or does not
have the character or representation he claims; lack of capacity to sue' refers to a plaintiff's
general disability to sue, such as on account of minority, insanity, incompetence, lack of
juridical personality or any other general disqualifications of a party. In the instant case,
petitioner lacks capacity to sue because it no longer possesses juridical personality by reason
of its dissolution and lapse of the three-year grace period provided under Section 122 of the
Corporation Code.
2. As provided by Section 122 of the Corporation Code.
It is to be noted that the time during which the corporation, through its own officers,
may conduct the liquidation of its assets and sue and be sued as a corporation is limited to
three years from the time the period of dissolution commences; but there is no time limit
within which the trustees must complete a liquidation placed in their hands. It is provided
only that the conveyance to the trustees must be made within the three-year period. It may
be found impossible to complete the work of liquidation within the three-year period or to
reduce disputed claims to judgment. The authorities are to the effect that suits by or against
Page 117 of 192
a corporation abate when it ceased to be an entity capable of suing or being sued but trustees
to whom the corporate assets have been conveyed pursuant to the authority of Sec. 78 may
sue and be sued as such in all matters connected with the liquidation.
Still in the absence of a board of directors or trustees, those having any pecuniary
interest in the assets, including not only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make proper representations with the SEC
which has primary and sufficiently broad jurisdiction in matters of this nature, for working
out a final settlement of the corporate concerns. In the instant case, there is no dispute that
petitioner's corporate registration was revoked on May 26, 2003. Based on law, it had three
years, or until May 26, 2006, to prosecute or defend any suit by or against it. The subject
complaint, however, was filed only on October 19, 2006, more than three years after such
revocation. It is not disputed that the subject complaint was filed by ADC and not by its
directors or trustees.
In the present case, petitioner filed its complaint not only after its corporate existence
was terminated but also beyond the three-year period allowed by Section 122 of the
Corporation Code. Thus, it is clear that at the time of the filing of the subject complaint
petitioner lacks the capacity to sue as a corporation. To allow petitioner to initiate the subject
complaint and pursue it until final judgment, on the ground that such complaint was filed for
the sole purpose of liquidating its assets, would be to circumvent the provisions of Section
122 of the Corporation Code.
MERGERS AND CONSOLIDATIONS
BANK OF COMMERCE vs. RADIO PHILIPPINES NETWORK, INC., ET. AL.

G.R. No. 195615, April 21, 2014, J. Abad
Indubitably, it is clear that no merger took place between Bancommerce and TRB as the
requirements and procedures for a merger were absent. A merger does not become effective
upon the mere agreement of the constituent corporations. All the requirements specified in the
law must be complied with in order for merger to take effect. Here, Bancommerce and TRB
remained separate corporations with distinct corporate personalities. What happened is that
TRB sold and Bancommerce purchased identified recorded assets of TRB in consideration of
Bancommerces assumption of identified recorded liabilities of TRB including booked
contingent accounts. There is no law that prohibits this kind of transaction especially when it
is done openly and with appropriate government approval.
Facts:
Traders Royal Bank (TRB) sold to petitioner Bank of Commerce (Bancommerce) its
banking business consisting of specified assets and liabilities through a Purchase and
Assumption (P & A) Agreement. Bangko Sentral ng Pilipinas' (BSP's) approval of their P & A
Agreement was however necessary. On November 8, 2001 the BSP approved that agreement
subject to the condition that Bancommerce and TRB would set up an escrow fund of PSO
million with another bank to cover TRB liabilities for contingent claims that may
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subsequently be adjudged against it, which liabilities were excluded from the purchase.
Subsequently, P & A Agreement was approved by BSP. To comply with a BSP mandate, TRB
placed P50 million in escrow with Metropolitan Bank and Trust Co. (Metrobank) to answer
for those claims and liabilities that were excluded from the P & A Agreement and remained
with TRB.
Shortly after acting in G.R. 138510, Traders Royal Bank v. Radio Philippines Network
(RPN), Inc., this Court ordered TRB to pay respondents RPN, Intercontinental Broadcasting
Corporation, and Banahaw Broadcasting Corporation (collectively, RPN, et al.) actual
damages plus 12% legal interest and some amounts. Based on this decision, RPN, et al.filed
a motion for execution against TRB before the Regional Trial Court (RTC). But rather than
pursue a levy in execution of the corresponding amounts on escrow with Metrobank, RPN,
et al. filed a Supplemental Motion for Execution where they described TRB as "now Bank of
Commerce" based on the assumption that TRB had been merged into Bancommerce.
Subsequently, the RTC issued the assailed Order directing the release to the Sheriff of
Bancommerces "garnished monies and shares of stock or their monetary equivalent" and
for the sheriff to pay 25% of the amount "to the respondents counsel representing his
attorneys fees and appearance fees and litigation expenses" and the balance to be paid to
the respondents after deducting court dues.
Issue:
Whether or not there was a merger or de facto merger between TRB and
Bancommerce thereby considering the latter as judgment debtor.
Ruling:
None.
Indubitably, it is clear that no merger took place between Bancommerce and TRB as
the requirements and procedures for a merger were absent. A merger does not become
effective upon the mere agreement of the constituent corporations. All the requirements
specified in the law must be complied with in order for merger to take effect. Section 79 of
the Corporation Code further provides that the merger shall be effective only upon the
issuance by the Securities and Exchange Commission (SEC) of a certificate of merger. Here,
Bancommerce and TRB remained separate corporations with distinct corporate
personalities. What happened is that TRB sold and Bancommerce purchased identified
recorded assets of TRB in consideration of Bancommerces assumption of identified
recorded liabilities of TRB including booked contingent accounts. There is no law that
prohibits this kind of transaction especially when it is done openly and with appropriate
government approval.
In his book, Philippine Corporate Law, Dean Cesar Villanueva explained that under
the Corporation Code, "a de facto merger can be pursued by one corporation acquiring all or
substantially all of the properties of another corporation in exchange of shares of stock of
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the acquiring corporation. The acquiring corporation would end up with the business
enterprise of the target corporation; whereas, the target corporation would end up with
basically its only remaining assets being the shares of stock of the acquiring corporation."
No de facto merger took place in the present case simply because the TRB owners did
not get in exchange for the banks assets and liabilities an equivalent value in Bancommerce
shares of stock. Moreover, Bancommerce and TRB agreed with BSP approval to exclude from
the sale the TRBs contingent judicial liabilities, including those owing to RPN, et al. The
Bureau of Internal Revenue (BIR) treated the transaction between the two banks purely as
a sale of specified assets and liabilities when it rendered its opinion on the tax consequences
of the transaction given that there is a difference in tax treatment between a sale and a
merger or consolidation. Furthermore, what was "consolidated" was the banking activities
and transactions of Bancommerce and TRB, not their corporate existence. The BSP did not
remotely suggest a merger of the two corporations.
To end, since there had been no merger, Bancommerce cannot be considered as TRBs
successor-in-interest and against which the Courts Decision of October 10, 2002 in G.R.
138510 may be enforced. Bancommerce did not hold the former TRBs assets in trust for it
as to subject them to garnishment for the satisfaction of the latters liabilities to RPN, et al.
Bancommerce bought and acquired those assets and thus, became their absolute owner.
SECURITIES REGULATION CODE
SECURITIES AND EXCHANGE COMMISSION
PRIMANILA PLANS, INC., HEREIN REPRESENTED BY EDUARDO S. MADRID vs.

SECURITIES AND EXCHANGE COMMISSION
G.R. No. 193791, August 6, 2014, J. Reyes
The authority of the SEC and the manner by which it can issue cease and desist orders
are provided in Section 64 of the SRC. The law is clear on the point that a cease and desist order
may be issued by the SEC motu proprio, it being unnecessary that it results from a verified
complaint from an aggrieved party. A prior hearing is also not required whenever the
Commission finds it appropriate to issue a cease and desist order that aims to curtail fraud or
grave or irreparable injury to investors. It is beyond dispute that Primasa plans were not
registered with the SEC. Primanila was then barred from selling and offering for sale the said
plan product. A continued sale by the company would operate as fraud to its investors, and
would cause grave or irreparable injury or prejudice to the investing public, grounds which
could justify the issuance of a cease and desist order under Section 64 of the SRC.
Facts:
Primanilas website www.primanila.com was offering a pension plan product called

Primasa Plan. The website contains detailed instructions as to how interested persons can
Page 120 of 192

apply for the said plan and where initial contributions and succeeding installment payments
can be made by applicants and planholders.
Primanila failed to renew its Dealers License for 2008. In view of the expiration of
the said license, the SECs Non Traditional Securities and Instruments Department (NTD)
enjoined Primanila from selling and/or offering for sale pre-need plans to the public.
Primanila has not been issued a secondary license to act as dealer or general agent
for pre-need pension plans for 2008. Also, no registration statement has been filed by
Primanila for the approval of a pension plan product called Primasa Plan. This is shown in
the certification issued by NTD upon the request of SECs Compliance and Enforcement
Department (CED).
It was discovered by CED Primanilas Bank Account is still active when it deposited
on March 6, 2008 the sum of Php 50.00. Among the many planholders of PRIMANILA are
enlisted personnel of the PNP. The PNP remitted the total amount of Php 2,072,149.38 to
PRIMANILA representing the aforementioned premium collections via salary deductions of
the 410 enlisted personnel of PNP who are planholders. But Primanila failed to deposit the
required monthly contributions to the trust fund in violation of Pre-need Rule 19.1. This is
shown in the Trust Fund Reports for the months of November and December 2007 prepared
by ASIATRUST BANK, the trustee of Primanila.
Primanila under-declared the total amount of its collections as shown in its SEC
Monthly Collection Reports which it submitted to NTD. Its reports show that it only collected
Php 302,081.00 from January to September 2007. However, the remittance report of the PNP
shows that Primanila received the amount of Php 1,688,965.22 from the PNP planholders
alone for the said period. Therefore, it under-declared its report by Php 1,386,884.22.7
From these findings, the SEC declared that Primanila committed a flagrant violation
of Republic Act No. 8799, otherwise known as The Securities Regulation Code (SRC),
particularly Section 16 thereof. The SEC then issued the subject cease and desist order "in
order to prevent further violations and in order to protect the interest of its plan holders and
the public."
Feeling aggrieved, Primanila filed a Motion for Reconsideration/Lift Cease and Desist
Order, arguing that it was denied due process as the order was released without any prior
issuance by the SEC of a notice or formal charge that could have allowed the company to
defend itself. The cease and desist order issued on April 9, 2008 was then made permanent.
The CA affirmed in toto the issuances of the SEC.
Issue:
Whether or not Primanila was accorded due process notwithstanding the SECs
immediate issuance of the cease and desist order on April 9, 2008
Page 121 of 192

Ruling:
Yes, the authority of the SEC and the manner by which it can issue cease and desist
orders are provided in Section 64 of the SRC.
The law is clear on the point that a cease and desist order may be issued by the SEC
motu proprio, it being unnecessary that it results from a verified complaint from an
aggrieved party. A prior hearing is also not required whenever the Commission finds it
appropriate to issue a cease and desist order that aims to curtail fraud or grave or irreparable
injury to investors. There is good reason for this provision, as any delay in the restraint of
acts that yield such results can only generate further injury to the public that the SEC is
obliged to protect.
To equally protect individuals and corporations from baseless and improvident

issuances, the authority of the SEC under this rule is nonetheless with defined limits. A cease
and desist order may only be issued by the Commission after proper investigation or
verification, and upon showing that the acts sought to be restrained could result in injury or
fraud to the investing public. Without doubt, these requisites were duly satisfied by the SEC
prior to its issuance of the subject cease and desist order.
Records indicate the prior conduct of a proper investigation on Primanilas activities

by the Commissions CED. Investigators of the CED personally conducted an ocular
inspection of Primanilas declared office, only to confirm reports that it had closed even
without the prior approval of the SEC. Members of CED also visited the company website of
Primanila, and discovered the companys offer for sale thereon of the pension plan product
called Primasa Plan, with instructions on how interested applicants and planholders could
pay their premium payments for the plan. One of the payment options was through bank
deposit to Primanilas given Metrobank account which, following an actual deposit made by
the CED was confirmed to be active.
As part of their investigation, the SEC also looked into records relevant to Primanilas
business. Records with the SECs Non-Traditional Securities and Instruments Department
(NTD) disclosed Primanilas failure to renew its dealers license for 2008, orto apply for a
secondary license as dealer or general agent for pre-need pension plans for the same year.
SEC records also confirmed Primanilas failureto file a registration statement for Primasa
Plan, to fully remit premium collections from planholders, and to declare truthfully its
premium collections from January to September 2007.
The SEC was not mandated to allow Primanila to participate in the investigation
conducted by the Commission prior to the cease and desist orders issuance. Given the
circumstances, it was sufficient for the satisfaction of the demands of due process that the
company was amply apprised of the results of the SEC investigation, and then given the
reasonable opportunity to present its defense. Primanila was able to do this via its motion to
reconsider and lift the cease and desist order. After the CED filed its comment on the motion,
Primanila was further given the chance to explain its side to the SEC through the filing of its
Page 122 of 192
reply. "Trite to state, a formal trial or hearing isnot necessary to comply with the
requirements of due process. Its essence is simply the opportunity to explain ones position."
The validity of the SECs cease and desist order is further sustained for having
sufficient factual and legal bases.
The acts specifically restrained by the subject cease and desist order were Primanilas
sale, offer for sale and collection of payments specifically for its Primasa plans.
Notwithstanding the findings of both the SEC and the CA on Primanilas activities, the
company still argued in its petition that it neither sold nor collected premiums for the
Primasa product. Primanila argued that the offer for sale of Primasa through the Primanila
website was the result of mere inadvertence, after the website developer whom it hired got
hold of a copy of an old Primasa brochure and then included its contents in the company
website even without the knowledge and prior approval of Primanila.
In the instant case, the substantial evidence is derived from the results of the SEC
investigation on Primanilas activities. Specifically on the product Primasa plans, the SEC
ascertained that there were detailed instructions on Primanilas website as to how interested
persons could apply for a plan, together with the manner by which premium payments
therefor could be effected. A money deposit by CED to Primanilas Metrobank account
indicated in the advertisement confirmed that the bank account was active.
There could be no better conclusion from the foregoing circumstances that Primanila
was engaged in the sale or, at the very least, an offer for sale to the public of the Primasa
plans. The offer for Primasa was direct and its reach was even expansive, especially as it
utilized its website as a medium and visits to it were, as could be expected, from prospective
clients.
It is beyond dispute that Primasa plans were not registered with the SEC. Primanila
was then barred from selling and offering for sale the said plan product. A continued sale by
the company would operate as fraud to its investors, and would cause grave or irreparable
injury or prejudice to the investing public, grounds which could justify the issuance of a cease
and desist order under Section 64 of the SRC. Furthermore, even prior to the issuance of the
subject cease and desist order, Primanila was already enjoined by the SEC from selling
and/or offering for sale pre-need products to the public. The SEC Order dated April 9, 2008
declared that Primanila failed to renew its dealers license for 2008, prompting the SECs
NTD to issue a letter dated January3, 2008 addressed to Primanilas Chairman and Chief
Executive Officer Eduardo S. Madrid, enjoining the company from selling and/or offering for
sale pre-need plans to the public. It also had not obtained a secondary license to act as dealer
or general agent for pre-need pension plans for 2008.
In view of the foregoing, Primanila clearly violated Section 16 of the SRC and pertinent
rules which barred the sale or offer for sale to the public of a pre-need product except in
accordance with SEC rules and regulations.
Page 123 of 192

COSMOS BOTTLING CORPORATION vs. COMMISSION EN BANC of the

SECURITIES AND EXCHANGE COMMISSION (SEC) and JUSTINA F. CALLANGAN, in her
capacity as Director of the Corporation Finance Department of the SEC
G.R. No. 199028, November 12, 2014, J. Perlas- Bernabe
As an administrative agency with both regulatory and adjudicatory functions, the SEC
was given the authority to delegate some of its functions to, inter alia, its various operating
departments, such as the SECCFD, the Enforcement and Investor Protection Department, and
the Company Registration and Monitoring Department. In this case, the Court disagrees with
the findings of both the SEC En Banc and the CA that the Revocation Order emanated from the
SEC En Banc. Rather, such Order was merely issued by the SEC-CFD as one of the SECs operating
departments. In other words, the Revocation Order is properly deemed as a decision issued by
the SEC-CFD as one of the Operating Departments of the SEC, and accordingly, may be appealed
to the SEC En Banc, as what Cosmos properly did in this case. Perforce, the SEC En Banc and the
CA erred in deeming Cosmoss appeal as a motion for reconsideration and ordering its dismissal
on such ground.
Facts:
The instant case stemmed from Cosmoss failure to submit its 2005 Annual Report to
the SEC within the prescribed period. In connection therewith, it requested an extension of
time within which to file the same. In response, the SEC-Corporation Finance Department
(SEC-CFD), through respondent Director Callangan, sent Cosmos a letter denying the latters
request and directing it to submit its 2005 Annual Report. The same letter also ordered
Cosmos to show cause why the Cosmoss Registration of Securities/Permit to Sell Securities
to the Public (Subject Registration/Permit) should not be revoked for violating Section 17.1
(a) of Republic Act No. 8799, otherwise known as "The Securities Regulation Code" (SRC).
Cosmos sent a reply-letter to the SEC-CFD, explaining that its failure to file its 2005
Annual Report was due to the non-completion by its external auditors of their audit
procedures. For this reason, Cosmos implored the SEC-CFD to reconsider its previous denial
of Cosmoss request for additional time to file its 2005 Annual Report. Thereafter, hearings
for the suspension of the Subject Registration/Permit commenced, with Cosmos advancing
the same reasons for the non- submission of its 2005 Annual Report. The SEC-CFD ordered
the suspension of the Subject Registration/Permit (suspension order) for a period of 60 days
from receipt of the same, or until Cosmos files its 2005 Annual Report, whichever is earlier.
The SEC-CFD also stated that Cosmoss failure to submit its 2005 Annual Report within the
60-day period shall constrain the SEC to initiate proceedings for revocation of the Subject
Registration/Permit.
On October 31, 2007, Cosmos finally submitted its 2005 and 2006 Annual Reports to
the SEC. In connection therewith, Cosmos requested SEC-CFD that the latter lift the
suspension order and abandon the revocation proceedings against the former. The SEC-CFD
referred the matter to the SEC En Banc for its consideration. After the said meeting, the SEC
En Banc issued Resolution No. 87, series of (s.) 2008 wherein they resolved to: (a) deny
Cosmoss request for the lifting of the suspension order; and (b) revoke the Subject
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Registration/Permit. On the basis thereof, the SEC-CFD issued a Revocation Order echoing
the pronouncements indicated in the aforesaid resolution. On appeal, this resolution was
later on affirmed by SEC En Banc and CA stating that the Revocation Order was a mere
articulation of the SEC En Bancs Resolution No. 87, s. 2008, and thus, should be considered
an issuance of the SEC En Banc itself. The SEC En Banc deemed Cosmoss appeal as a motion
for reconsideration, a prohibited pleading under Section 3-6, Rule III of the 2006 SEC Rules
of Procedure. Furthermore, CA held that Cosmoss appeal, which was treated as a prohibited
motion for reconsideration under the 2006 SEC Rules of Procedure, did not toll the
reglementary period for filing an appeal before it. As such, the SEC En Bancs Ruling, as well
as the Revocation Order, had already lapsed into finality and could no longer be disturbed.
Issue:
Whether or not the CA correctly treated Cosmoss appeal before the SEC En Banc as a
motion for reconsideration, and consequently, affirmed its dismissal for being a prohibited
pleading under the 2006 SEC Rules of Procedure.
Ruling:
No.
As an administrative agency with both regulatory and adjudicatory functions, the SEC
was given the authority to delegate some of its functions to, inter alia, its various operating
departments, such as the SECCFD, the Enforcement and Investor Protection Department, and
the Company Registration and Monitoring Department, pursuant to Section 4.6 of the SRC.
Naturally, the aforesaid provision also gives the SEC the power to review the acts performed
by its operating departments in the exercise of the formers delegated functions. This power
of review is squarely addressed by Section 11-1, Rule XI of the 2006 SEC Rules of Procedure.
In this case, the Court disagrees with the findings of both the SEC En Banc and the CA
that the Revocation Order emanated from the SEC En Banc. Rather, such Order was merely
issued by the SEC-CFD as one of the SECs operating departments, as evidenced by the
following: (a) it was printed and issued on the letterhead of the SEC-CFD, and not the SEC En
Banc; (b) it was docketed as a case under the SEC-CFD as an operating department of the
SEC, since it bore the serial number "SEC-CFD Order No. 027, [s.] 2008;" and (c) it was signed
solely by Director Callangan as director of the SEC-CFD, and not by the commissioners of the
SEC En Banc. Further, both the SEC En Banc and the CA erred in holding that the Revocation
Order merely reflected Resolution No. 87, s. 2008, and thus, should already be considered as
the ruling of the SEC En Banc in this case. As admitted by respondents, the SEC-CFDs referral
of the case to the SEC En Banc for its consideration in its March 13, 2008 meeting, which
eventually resulted in the issuance of Resolution No. 87, s.2008, was merely an internal
procedure inherent in the exercise by the SEC of its administrative and regulatory functions.
In sum, the Revocation Order is properly deemed as a decision issued by the SEC-CFD
as one of the Operating Departments of the SEC, and accordingly, may be appealed to the SEC
En Banc, as what Cosmos properly did in this case. Perforce, the SEC En Banc and the CA
erred in deeming Cosmoss appeal as a motion for reconsideration and ordering its dismissal
Page 125 of 192
on such ground. In view thereof, the Court deems it prudent to reinstate and remand the case
to the SEC En Banc for its resolution on the merits.
INTRA-CORPORATE DISPUTES
Raul Cosare vs. Bradcom Asia, Inc. and Dante Arevalo

G.R. No. 201298; February 5, 2014
J. Reyes
When the officer claiming to have been illegally dismissed is an ordinary employee of
the corporation, jurisdiction over the same lies with the Labor Arbiter. It is only when the officer
claiming to have been illegally dismissed is classified as a corporate officer that the issue is
deemed an intra-corporate dispute which falls within the jurisdiction of the trial courts
Furthermore, the mere fact that the stockholder of a corporation is the one who filed
the case for illegal dismissal does not necessarily make the action an intra-corporate
controversy. Not all conflicts between the stockholders and the corporation are classified as
intra-corporate. There are other facts to consider in determining whether the dispute involves
corporate matters as to consider them as intra-corporate controversies.
Facts:
Cosare was named as an incorporator of Broadcom, a company set up by Arevalo, with an

assigned 100 shares of stock. Cosare was promoted to the position of Assistant Vice
President and Head of the Technical Coordination. Sometime in 2003, Abiong was appointed
as Broadcoms Vice President for Sales, and thus, became Cosares immediate superior.
On March 2009, Cosare sent a confidential memo to Arevalo informing the latter of certain
anomalies which were allegedly being committed by Abiog against the company. Instead of
acting on Cosares accusations, he was instead called for a meeting by Arevalo wherein he
was asked to tender his resignation. Cosare refused to comply with the dirtive.
Later on, Cosare filed a labor complaint claiming that he was constructively dismissed from
employment by the respondents and further argued that he was illegally suspended. The
Labor Arbiter rendered decision dismissing the complaint. On appeal, the NLRC reversed the
Decision of the Labor Arbiter. After the denial of their motion for reconsideration, the
respondents filed a petition for certiorari with the CA and argued that the case involved an
intra-corporate controversy which is within the jurisdiction of the RTC, instead of the LA.
The CA granted the petition and ruled that the case involved an intra-corporate controversy.
Cosare filed a motion for reconsideration, but was denied. Hence, the petition.
Issue:
Whether or not the case instituted by Cosare was an intra-corporate dispute that falls within
the jurisdiction of the RTC.
Page 126 of 192

Ruling:
Petition Granted.
When the dispute involves a charge of illegal dismissal, the action may fall under the
jurisdiction of the LAs upon whose jurisdiction, as a rule, falls termination disputes and
claims for damages arising from employer-employee relations as provided in Article 217 of
the Labor Code. Consistent with this jurisprudence, the mere fact that Cosare was a
stockholder and an officer of Broadcom at the time the subject controversy developed failed
to necessarily make the case an intra-corporate dispute.
In Matling Industrial and Commercial Corporation v. Coros, the Court distinguished between
a "regular employee" and a "corporate officer" for purposes of establishing the true nature
of a dispute or complaint for illegal dismissal and determining which body has jurisdiction
over it. Succinctly, it was explained that "[t]he determination of whether the dismissed
officer was a regular employee or corporate officer unravels the conundrum" of whether a
complaint for illegal dismissal is cognizable by the LA or by the RTC. "In case of the regular
employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority to
adjudicate.
There are two circumstances which must concur in order for an individual to be considered
a corporate officer, as against an ordinary employee or officer, namely: (1) the creation of
the position is under the corporations charter or by-laws; and (2) the election of the officer
is by the directors or stockholders. It is only when the officer claiming to have been illegally
dismissed is classified as such corporate officer that the issue is deemed an intra-corporate
dispute which falls within the jurisdiction of the trial courts.
Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the cases
filing did not necessarily make the action an intra- corporate controversy. "Not all conflicts
between the stockholders and the corporation are classified as intra-corporate. There are
other facts to consider in determining whether the dispute involves corporate matters as to
consider them as intra-corporate controversies." Time and again, the Court has ruled that in
determining the existence of an intra-corporate dispute, the status or relationship of the
parties and the nature of the question that is the subject of the controversy must be taken
into account. Considering that the pending dispute particularly relates to Cosares rights and
obligations as a regular officer of Broadcom, instead of as a stockholder of the corporation,
the controversy cannot be deemed intra-corporate. This is consistent with the "controversy
test" explained by the Court in Reyes v. Hon. RTC, Br. 142, to wit:
Under the nature of the controversy test, the incidents of that relationship
must also be considered for the purpose of ascertaining whether the
controversy itself is intra-corporate. The controversy must not only be rooted
in the existence of an intra-corporate relationship, but must as well pertain to
the enforcement of the parties correlative rights and obligations under the
Corporation Code and the internal and intra-corporate regulatory rules of the
corporation. If the relationship and its incidents are merely incidental to the
Page 127 of 192
controversy or if there will still be conflict even if the relationship does not
exist, then no intra-corporate controversy exists.
All told, it is then evident that the CA erred in reversing the NLRCs ruling that favored Cosare
solely on the ground that the dispute was an intra-corporate controversy within the
jurisdiction of the regular courts.
_________________________________________________________________________________________________________
ROBERTO L. ABAD, MANUEL D. ANDAL, BENITO V. ARANETA, PHILIP G. BRODETT,

ENRIQUE L. LOCSIN and ROBERTO V. SAN JOSE vs. PHILIPPINE COMMUNICATIONS
SATELLITE CORPORATION
G.R. No. 200620, March 18, 2015, J. Villarama, Jr.
. Upon the enactment of Republic Act No. 8799, the jurisdiction of the SEC over intra-
corporate controversies and the other cases enumerated in Section 5 of P.D. No. 902-A was
transferred to the Regional Trial Court. The jurisdiction of the Sandiganbayan has been held
not to extend even to a case involving a sequestered company notwithstanding that the
majority of the members of the board of directors were PCGG nominees.
Facts:
Respondent PHILCOMSA, along with Philippine Overseas Telecommunications

Corporation (POTC) were among those private companies sequestered by the PCGG after the
EDSA People Power Revolution in 1986. PHILCOMSAT owns 81% of the outstanding capital
stock of Philcomsat Holdings Corporation (PHC). The majority shareholders of PHILCOMSAT
are also the seven families who have owned and controlled POTC.
During the administration of President Gloria Macapagal-Arroyo, Enrique L. Locsin

and Manuel D. Andal, along with Julio Jalandoni, were appointed nominee-directors
representing the Republic of the Philippines. These PCGG nominees have aligned with the
Nieto family (Nieto-PCGG) against the group of Africa and Ilusorio (Africa-Bildner), in the
ensuing battle for control over the respective boards of POTC, PHILCOMSAT and PHC.
On August 31, 2004, the following were elected during the annual stockholders
meeting of PHC conducted by the Nieto-PCGG group wherein Locsin was elected Chairman.
Said election at PHC was the offshoot of separate elections conducted by the two factions in
POTC and PHILCOMSAT, the Africa-Bildner group and the Nieto-PCGG group. In the July 28,
2004 stockholders meetings of POTC and PHILCOMSAT, Victor Africa was among those in
the Africa-Bildner group who were elected as Directors. He was designated as the POTC
proxy to the PHILCOMSAT stockholders meeting. While Locsin, Andal and Nieto, Jr. were
also elected as Directors, they did not accept their election as POTC and PHILCOMSAT
Directors. Instead, the Nieto-PCGG group held the stockholders meeting for PHILCOMSAT
on August 9, 2004 at the Manila Golf Club. Immediately after the stockholders meeting, an
organizational meeting was held, and Nieto, Jr. and Locsin were respectively elected as
Chairman and President of PHILCOMSAT. At the same meeting, they issued a proxy in favor
Page 128 of 192

of Nieto, Jr. and/or Locsin authorizing them to represent PHILCOMSAT and vote the
PHILCOMSAT shares in the stockholders meeting of PHC scheduled on August 31, 2004.
Thereafter, the two factions took various legal steps including the filing of suits and
countersuits to gain legitimacy for their respective election as directors and officers of POTC
and PHILCOMSAT. The Africa group had sought the invalidation of the proxy issued in favor
of Nieto, Jr. and/or Locsin and consequent nullification of the elections held during the
annual stockholders meeting of PHC on August 31, 2004. Africa in his capacity as President
and CEO of PHILCOMSAT, and as stockholder in his own right, wrote the board and
management of PHC that PHILCOMSAT will exercise its right of inspection over the books,
records, papers, etc. pertinent to the business transactions of PHC. In his letter, Nieto, Jr. said
that Africas request will be referred to the PHC Board of Directors or Executive Committee
in view of the several pending cases involving the Africa and Nieto-PCGG groups on one hand,
and the PHC and its board of directors on the other. He further advised Africa to inform them
in writing of his reasons and purposes for such inspection. In reply, Africa reiterated his
request for inspection asserting that the PHILCOMSAT board of directors was elected on
September 22, 2005. On the day of the scheduled inspection, PHILCOMSAT sent its
representatives. However, Brodett disallowed the conduct of the inspection which prompted
PHILCOMSAT through its counsel to make a written query whether the refusal of Brodett to
permit the conduct of PHCs inspection of corporate books and financial documents was with
the knowledge and authority of PHCs board of directors. But no reply or communication was
received by Africa from the PHC.
PHILCOMSAT filed in the RTC a Complaint for Inspection of Books against the
incumbent PHC directors and/or officers, to enforce its right under Sections 74 and 75 of the
Corporation Code of the Philippines. The RTC dismissed the complaint for lack of jurisdiction.
PHILCOMSAT appealed to the CA thru a petition for review arguing that it is the RTC and not
Sandiganbayan which has jurisdiction over the case involving a stockholders right to inspect
corporate books and records. The CA granted the petition.
Issue:
Whether it is the Sandiganbayan or RTC which has jurisdiction over a stockholders

suit to enforce its right of inspection under Section 74 of the Corporation Code
Ruling:
It is the RTC and not the Sandiganbayan which has jurisdiction over cases which do
not involve a sequestration-related incident but an intra-corporate controversy.
Originally, Section 5 of P.D. No. 902-A vested the original and exclusive jurisdiction
over cases involving the following in the SEC: Controversies arising out of intra-corporate or
partnership relations, between and among stockholders, members or associates; between any
or all of them and the corporation. Upon the enactment of Republic Act No. 8799, effective on
August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and the other
cases enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court.
Page 129 of 192
The jurisdiction of the Sandiganbayan has been held not to extend even to a case
involving a sequestered company notwithstanding that the majority of the members of the
board of directors were PCGG nominees. The Court marked this distinction clearly in Holiday
Inn (Phils.), Inc. v. Sandiganbayan:
The original and exclusive jurisdiction given to the Sandiganbayan over PCGG
cases pertains to (a) cases filed by the PCGG, pursuant to the exercise of its
powers under Executive Order Nos. 1, 2 and 14, as amended by the Office of
the President, and Article XVIII, Section 26 of the Constitution, i.e., where the
principal cause of action is the recovery of ill-gotten wealth, as well as all
incidents arising from, incidental to, or related to such cases and (b) cases filed
by those who wish to question or challenge the commissions acts or orders in
such cases.
The complaint concerns PHILCOMSATs demand to exercise its right of inspection as

stockholder of PHC but which petitioners refused on the ground of the ongoing power
struggle within POTC and PHILCOMSAT that supposedly prevents PHC from recognizing
PHILCOMSATs representative (Africa) as possessing such right or authority from the
legitimate directors and officers. Clearly, the controversy is intra-corporate in nature as
they arose out of intra-corporate relations between and among stockholders, and between
stockholders and the corporation.
_________________________________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION v. SUBIC BAY GOLF AND COUNTRY CLUB,
INC. AND UNIVERSAL INTERNATIONAL GROUP DEVELOPMENT CORPORATION
G.R. No. 179047, March 11, 2015, LEONEN, J.
Intra-corporate controversies, previously under the SEC's jurisdiction, are now under
the jurisdiction of RTCs designated as commercial courts. However, this does not oust the
SEC of its jurisdiction to determine if administrative rules and regulations were violated.
Facts:
Subic Bay Golf Course operated by Subic Bay Metropolitan Authority (SBMA) and
Universal International Group of Taiwan (UIG) entered into a Lease and Development
Agreement. SBMA agreed to lease the golf course to UIG for 50 years while UIG agreed
to develop, manage and maintain the golf course and other related facilities within the
complex. Later, Universal International Group Development Corporation (UIGDC) which
succeeded to the interests of UIG executed a Deed of Assignment in favor of Subic Bay
Golf and Country Club, Inc. (SBGCCI). SBGCCI and UIGDC entered into a Development
Agreement. After application, SBGCCI was issued by SEC a Certificate of Permit to Offer
Securities for Sale to the Public of its propriety shares.
Regina Filart and Margarita Villareal informed the SEC that they had been asking UIGDC
for the refund of their payment for their SBGCCI shares claiming that there was failure
Page 130 of 192
to deliver the promised amenities. SEC's Corporation Finance Department gave due
course to Villareal and Filart's letter-complaint. Due to UIGDCs failure to comply with
undertakings in the Registration Statement and Prospectus, tantamount to
misrepresentation, and in violation of the provisions of the Securities Regulation Code,
and its implementing rules and regulation, the Certificate of Registration and Permit to
Sell Securities to the Public issued to respondent Subic Bay Golf and Country Club, Inc.,
were suspended.
SBGCCI and UIGDC filed a Petition for Review arguing that the letter-complaint filed
by Villareal and Filart involved an intra-corporate dispute that was under the
jurisdiction of the RTC and not the SEC. They also argued that the Securities Regulation
Code does not grant the SEC the power to order the refund of payment for shares of
stock. The CA found that the case involved an intra-corporate controversy and that SEC
acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI to refund Villareal
and Filart the amount they paid for SBGCCI shares of stock.
Issue:
Whether the SEC has jurisdiction over the case
Ruling:
No. Actions pertaining to intra-corporate disputes should be filed directly before

designated Regional Trial Courts. Intra-corporate disputes brought before other courts
or tribunals are dismissible for lack of jurisdiction. The relationship test requires that
the dispute be between a corporation/partnership/association and the public; a
corporation/partnership/association and the state regarding the entity's franchise,
permit, or license to operate; a corporation/partnership/association and its
stockholders, partners, members, or officers; and among stockholders, partners, or
associates of the entity.
The nature of the controversy test requires that the action involves the enforcement
of corporate rights and obligations. This case is an intra-corporate dispute, over which
the RTC has jurisdiction. It is a dispute between the corporation, SBGCCI, and its
shareholders, Villareal and Filart.
Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI
and UIGDC's alleged failure to abide by their representations in their prospectus.
Specifically, Villareal and Filart alleged in their letter-complaint that the world-class
golf course that was promised to them when they purchased shares did not materialize.
This is an intra-corporate matter under the RTC's jurisdiction. It involves the
determination of a shareholder's rights under the Corporation Code or other intra-
corporate rules when the corporation or association fails to fulfill its obligations.
However, even though the Complaint filed before SEC contains allegations that are intra-
corporate in nature, it does not necessarily oust it of its regulatory and administrative
Page 131 of 192
jurisdiction to determine and act if there were administrative violations committed. Thus,
when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC
committed misrepresentations in the sale of their shares, nothing prevented the SEC
from taking cognizance of it to determine if SBGCCI and UIGDC committed
administrative violations and were liable under the Securities Regulation Code.
However, SEC's regulatory power does not include the authority to order the refund of
the purchase price of Villareal's and Filart's shares in the golf club. The issue of refund is
intra-corporate or civil in nature. Similar to issues such as the existence or inexistence
of appraisal rights, pre- emptive rights, and the right to inspect books and corporate
records, the issue of refund is an intra- corporate dispute that requires the court to
determine and adjudicate the parties' rights based on law or contract. Injuries, rights,
and obligations involved in intra-corporate disputes are specific to the parties involved.
They do not affect the SEC or the public directly.
ROBERTO L. ABAD, MANUEL D. ANDAL, BENITO V. ARANETA, PHILIP G.

BRODETT, ENRIQUE L. LOCSIN AND ROBERTO V. SAN JOSE v. PHILIPPINE
COMMUNICATIONS SATELLITE CORPORATION, REPRESENTED BY VICTOR
AFRICA
G.R. No. 200620, March 18, 2015, VILLARAMA, JR., J.
The jurisdiction of the Sandiganbayan has been held not to extend even to a case
involving a sequestered company notwithstanding that the majority of the members of
the board of directors were PCGG nominees.
Facts:
This case is a remnant of the multiple suits generated by the two factions (Nieto-
PCGG group and Africa-Bildner group) battling for control of two sequestered
corporations. Philcomsat and POTC were sequestered by PCGG. Philcomsat owns 81%
of the outstanding capital stock of Philcomsat Holdings (PHC). The majority
shareholders of Philcomsat are also the seven families who have owned and
controlled POTC.
Africa, in his capacity as President of Philcomsat, and as stockholder in his own

right, wrote the board and management of PHC that Philcomsat will exercise its right of
inspection over the books of PHC. PHC refused prompting Africa to file a case in the
RTC. The Nieto-PCGG group claim that RTC has no jurisdiction since the main
controversy is rooted upon the issue of who between the Africa and Nieto-PCGG
groups is the legitimate board of directors. It was further pointed out that POTC and
PHILCOMSAT were both under sequestration by the PCGG, and hence all issues and
controversies arising therefrom or related or incidental thereto fall under the exclusive
and original jurisdiction of the Sandiganbayan.
Page 132 of 192

Issue:
Whether the RTC has jurisdiction over a stockholders suit
Ruling:
Yes. It is the RTC and not the Sandiganbayan which has jurisdiction over cases
which do not involve a sequestration-related incident but an intra-corporate
controversy. Upon the enactment of Republic Act No. 8799 (The Securities Regulation
Code), the jurisdiction of the SEC over intra- corporate controversies and the other
cases enumerated in Section 5 of P.D. No. 902-A was transferred to the RTC. Issues
regarding the propriety of the election of a party as a Director and his authority to act
in that capacity should be determined only by the RTC pursuant to the pertinent law on
jurisdiction because they do not concern the recovery of ill-gotten wealth.
The complaint concerns PHILCOMSATs demand to exercise its right of

inspection as stockholder of PHC which petitioners refused on the ground of the
ongoing power struggle within POTC and PHILCOMSAT that supposedly prevents
PHC from recognizing PHILCOMSATs representative (Africa) as possessing such right
or authority from the legitimate directors and officers. The controversy is intra-
corporate in nature as they arose out of intra-corporate relations between and among
stockholders, and between stockholders and the corporation.
PROHIBITIONS ON FRAUD, MANIPULATION AND INSIDER TRADING
Securities and Exchange Commission vs. Oudine Santos

G.R. No. 195542; March 19, 2014
J. Perez
The violation of Section 28 of the SRC has the following elements: (a) engaging in the
business of buying or selling securities in the Philippines as a broker or dealer; or (b) acting as
a salesman; or(c) acting as an associated person of any broker or dealer, unless registered as
such with the SEC. Thus, a person is liable for violating Section 28 of the SRC where, acting as a
broker, dealer or salesman, is in the employ of a corporation which sold or offered for sale
unregistered securities in the Philippines.
Facts:
To do business in the Philippines, PIPC-BVI, a foreign corporation registered in the British

Virgin Islands, was incorporated as Philippine International Planning Center Corporation
(PIPC Corporation).
When the head of PIPC Corporation had gone missing with the monies and investments of
significant number of investors, the SEC was flooded with complaints against PICP
Corporation, its directors, officers, employees, agents and brokers for the alleged violation
of certain provisions of the Securities Regulation Code. Soon thereafter, the SEC filed a
Page 133 of 192
complaint-affidavit for the violation of Sections 8, 26 and 28 of the SRC before the DOC.
Among the respondents were the directors, officers and employees of PIPC, including Oudine
Santos.
Private complainants Luisa Lorenzo and Ricky Sy charged Santos in her capacity as
investment consultant of PIPC who actively engaged in the solicitation and recruitment of
investors. Private complainants maintain that Santos acted as the corporations agent and
made representations regarding tis investment products and that of the supposed global
corporation PIPC-BVI. Facilitating Lorenzos and Sys investment with the corporation,
Santos represented to the tow that investing with PIPC Corporation, an affiliate of PIPC-BVI,
would be safe and full-proof.
Later on, the DOJ issued a resolution indicting, among others, Santos for the violation of
Section 28 of the SRC. Specifically referring to Santos as Investment Consultant of the
corporation, the DOJ found probable cause to indict her for violation of Section 28 of the SRC
for engaging in the business of selling or offering for sale securities on behalf of the PIPC
Corporation without her being registered as a broker, dealer, salesman or an associated
person.
Upon separate motions for reconsideration, the DOJ panel issued a Resolution modifying its
previous ruling and excluding one of the respondents therein. Santos filed a petition for
review before the Office of the Secretary of the DOJ assailing the Resolution and claiming that
she was a mere clerical employee/information provider who never solicited nor recruited
investors, particularly Lorenzo and Sy. Thereafter, the Office of the Secretary of the DOJ
issued a Resolution excluding Santos from prosecution for violation of Section 28 of the SRC.
After the denial of the motion for reconsideration, the SEC filed a petition for certiorari before
the CA seeking to annul the Resolution of the DOJ. The CC dismissed SECs petition. Hence,
the appeal by certiorari raising the sole error of Santos exclusion from the Information for
violation of Section 28 of the SRC.
Issue:
Whether or not the respondent is an Investment Consultant and the transaction between her
and the petitioners constitutes as an investment contract.
Ruling:
Petition Granted.
We sustain the DOJ panels findings which were not overruled by the Secretary of the DOJ
and the appellate court, that PIPC Corporation and/or PIPC-BVI was: (1) an insurer of
securities without the necessary registration or license form the SEC, and (2) engage in the
business of buying or selling securities. In connection therewith, we look to Section 3 of the
Securities Regulation Code for pertinent definition of terms:
Page 134 of 192

Sec. 3. Definition of Terms.-xxx

xxx
3.3. Broker is a person engaged in the business of buying and selling
securities for the account of others.
3.4. Dealer means any person who buys and sells securities for
his/her own account in the ordinary course of business.
3.5. Associated person of a broker or dealer is an employee thereof
whom, directly exercises control of supervisory authority, but does not
include a salesman, or an agent or a person whose functions are solely clerical
or ministerial.
xxx
3.13. Salesman is a natural person, employed as such or as an agent,
by a dealer, issuer or broker to buy and sell securities.
To determine whether the DOJ Secretarys Resolution was tainted with grave abuse of
discretion, we pass upon the elements for violation of Section 28 of the SRC: (a) engaging in
the business of buying or selling securities in the Philippines as a broker or dealer; or (b)
acting as a salesman; or(c) acting as an associated person of any broker or dealer, unless
registered as such with the SEC.
Trying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation and/or
PIPC-BVI, a corporation which sold or offered for sale unregistered securities in the
Philippines. To escape probable culpability, Santos claims that she was a mere clerical
employee of PIPC Corporation and/or PIPC-BVI and was never an agent or salesman who
actually solicited the sale of or sold unregistered securities issued by PIPC Corporation
and/or PIPC-BVI.
Solicitation is that act of seeking or asking for business or information; it is not a commitment
to an agreement.
Santos, by the very nature of her function as when she now unaffectedly calls an information
provider, brought about by the sale of securities made by PIPC Corporation and/or PIPC-BVI
to certain individuals, specifically private complainants Sy and Lorenzo by providing
information on the investment products of PIPC Corporation and/or PIPC-BVI with the end
in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts Sys or Lorenzos investments, Santos
procured the sales of these unregistered securities to the two complainants by providing
information on the investment products being offered for sale byPIPC Corporation and/or
PIPC-BVI and convincing them to invest therein.
No matter Santos strenuous objections, it is apparent that she connected the probable
investors, Sy and Lorenzo, to PIPC Corporation and/or PIPC-BVI, acting as an ostensible
agent of the latter on the viability of PIPC Corporation as an investment company. At each
point of Sys and Lorenzos investment, Santos participation thereon, even if not shown
strictly on paper, was prima facie established.
Page 135 of 192
In all of the documents presented by Santos, she never alleged or pointed out that she did
not receive extra consideration for her simply providing information to Sy and Lorenzo
about PIPC Corporation and/or PIPC-BVI. Santos only claims that the monies invested by Sy
and Lorenzo did not pass though her hands. In short, Santos did not present in evidence her
salaries as supposed mere clerical employee or information provider of PIPC-BVI. Such
presentation would have foreclosed all questions on her status within PIPC Corporation
and/or PIPC-BVI at the lowest rung of the ladder who only provided information and who
did not use her discretion in any capacity.
The transaction initiated by Santos with Sy and Lorenzo, respectively, is an investment

contract or participation in a profit sharing agreement that falls within the definition of law.
When the investor is relatively uniformed and turns over his money to others, essentially
depending upon their representations and their honesty and skill in managing it, the
transaction generally is considered to be an investment contract. The touchstone is the
presence of an investment in a common venture premised on a reasonable expectation of
profits to be derived from the entrepreneurial or managerial efforts of others.
At the bottom, the exculpation of Santos cannot be preliminarily established simply by

asserting that she did not sign the investment contracts, as the facts alleged in this case
constitute fraud perpetrated on the public. Specially so because the absence of Santos
signature in the contract is, likewise, indicative of a scheme to circumvent and evade liability
should the pyramid fall apart.
MARGARITA M. BENEDICTO-MUOZ v. MARIA ANGELES CACHO-OLIVARES,

EDGARDO P. OLIVARES, PETER C. OLIVARES, CARMELA Q. OLIVARES, MICHAEL C.
OLIVARES, ALEXANDRA B. OLIVARES, AND MELISSA C. OLIVARES
G.R. No. 179121, November 09, 2015, JARDELEZA, J.
The SRC punishes the persons primarily liable for fraudulent transactions under
Section 58 and their aiders or abettors under Section 51.5, by making their liability for
damages joint and solidary. Thus, one cannot condone the liability of the person primarily
liable and proceed only against his aiders or abettors because the liability of the latter is
tied up with the former. Liability attaches to the aider or abettor precisely because of the
existence of the liability of the person primarily liable.
Facts:
Olivares filed a complaint for stock market fraud against Cuaycong and other
defendant stock market brokerage firms such as Abacus Securities Corporation, and
Sapphire Securities, Inc., among others. Later on, the Cuaycong brothers and Olivares
manifested to the RTC that they had amicably settled their differences and entered
into a Compromise Agreement. Olivares also agreed to drop the Cuaycong brothers as
defendants in the Case. Thereafter the RTC dismissed the complaint, holding that the
Cuaycong brothers were indispensable parties sued with the other defendants,
under a common cause of action, and that by reason of the dismissal of the complaint
Page 136 of 192
against the Cuaycongs, it had lost competency to act on the instant complaint for lack of
sufficient legal basis, the benefits of dismissal having been extended to the other
defendants.
Issue:
Whether the dismissal of the case as against the Cuaycong brothers benefits
the other defendants in the stock market fraud case
Ruling:
Yes. The dismissal of the case as against the Cuaycong brothers inures to the
benefit of other defendants because they were sued under a single and/or common
cause of action with the Cuaycong brothers; and the Cuaycong brothers are
indispensable parties, without whom no final determination can be had on the case.
The allegations plead the substantive unity in the alleged fraud and deceit that the
Cuaycong brothers and the brokerage firms committed against Olivares. The
indispensable parties are not only the Cuaycong brothers but also the petitioners. As
indispensable parties, since they had played various interconnected roles that led to
the singular injury and loss of the Olivares, their liabilities cannot be separately
determined. The dismissal of the action against the Cuaycong brothers also warrants
the dismissal of the suit against the other defendants.
PROXY SOLICITATION
SECURITIES AND EXCHANGE COMMISSION, vs. THE HONORABLE COURT OF APPEALS,

OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA
ASTRA SECURITIES CORPORATION, vs. OMICO CORPORATION, EMILIO S. TENG AND
TOMMY KIN HING TIA,
G.R. No. 187702, October 22, 2014, CJ. SERENO,
The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated
under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in
relation to the election of corporate directors, the resulting controversy, even if it ostensibly
raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election
controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section
5.2 of the SRC in relation to Section 5 (c) of Presidential Decree No. 902-A
Indeed, the validation of proxies in this case relates to the determination of the existence
of a quorum. Nonetheless, it is a quorum for the election of the directors, and, as such, which
requires the presence in person or by proxy of the owners of the majority of the outstanding
capital stock of Omico. Also, the fact that there was no actual voting did not make the election
any less so, especially since Astra had never denied that an election of directors took place.
Page 137 of 192

Facts:
Omico Corporation (Omico) is a company whose shares of stock are listed and traded
in the Philippine Stock Exchange, Inc. Astra Securities Corporation (Astra) is one of the
stockholders of Omico owning about 18% of the latters outstanding capital stock.
Omico scheduled its annual stockholders meeting. It set the deadline for submission
of proxies on and the validation of proxies. Astra objected to the validation of the proxies
issued in favor of Tommy Kin Hing Tia (Tia) as well as the inclusion of the proxies issued in
favor of Tia and/or Martin Buncio.
Astra maintained that the proxy issuers, who were brokers, did not obtain the
required express written authorization of their clients when they issued the proxies in favor
of Tia. In so doing, the issuers were allegedly in violation of SRC or Republic Act No. 8799
Rules. Despite the objections of Astra, Omicos Board of Inspectors declared that the proxies
issued in favor of Tia were valid.
Astra filed a Complaint before the Securities and Exchange Commission (SEC) praying
for the invalidation of the proxies issued in favor of Tia. Astra also prayed for the issuance of
a cease and desist order (CDO) enjoining the holding of Omicos annual stockholders
meeting until the SEC had resolved the issues pertaining to the validation of proxies which
SEC granted.
The stockholders meeting proceeded as scheduled prompting Astra to institute

before the SEC a Complaint for indirect contempt against Omico for disobedience of the CDO.
On the other hand, Omico filed before the CA a Petition for Certiorari and Prohibition
imputing grave abuse of discretion on the part of the SEC for issuing the CDO. CA declared
the CDO null and void since the controversy was an intra-corporate dispute. The SRC
expressly transferred the jurisdiction over actions involving intracorporate controversies
from the SEC to the regional trial courts.
Issue:
Whether or not the SEC has jurisdiction over controversies arising from the validation
of proxies for the election of the directors of a corporation.
Ruling:
No, SEC has no jurisdiction over controversies arising from the validation of proxies
for the election of the directors of a corporation
In GSIS v. CA, it was necessary for the Court to determine whether the action to
invalidate the proxies was intimately tied to an election controversy. Hence, the Court
pronounced: Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the
jurisdiction of the regular trial courts with respect to election related controversies is
specifically confined to "controversies in the election or appointment of directors, trustees,
Page 138 of 192
officers or managers of corporations, partnerships, or associations." Evidently, the

jurisdiction of the regular courts over so-called election contests or controversies under
Section 5 (c) does not extend to every potential subject that may be voted on by shareholders,
but only to the election of directors or trustees, in which stockholders are authorized to
participate under Section 24 of the Corporation Code.
This qualification allows for a useful distinction that gives due effect to the statutory
right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regular courts
over election contests or controversies. The power of the SEC to investigate violations of its
rules on proxy solicitation is unquestioned when proxies are obtained to vote on matters
unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A.
However, when proxies are solicited in relation to the election of corporate directors, the
resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy
solicitation, should be properly seen as an election controversy within the original and
exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to
Section 5 (c) of Presidential Decree No. 902-A.
The Court explained that the power of the SEC to regulate proxies remains in place in
instances when stockholders vote on matters other than the election of directors. The test is
whether the controversy relates to such election. All matters affecting the manner and
conduct of the election of directors are properly cognizable by the regular courts. Otherwise,
these matters may be brought before the SEC for resolution based on the regulatory powers
it exercises over corporations, partnerships and associations.
Indeed, the validation of proxies in this case relates to the determination of the
existence of a quorum. Nonetheless, it is a quorum for the election of the directors, and, as
such, which requires the presence in person or by proxy of the owners of the majority of
the outstanding capital stock of Omico. Also, the fact that there was no actual voting did not
make the election any less so, especially since Astra had never denied that an election of
directors took place.
Court finds no merit either in the proposal of Astra regarding the "two (2) viable, non-
exclusive and successive legal remedies to question the validity of proxies." It suggests that
the power to pass upon the validity of proxies to determine the existence of a quorum prior
to the conduct of the stockholders meeting should lie with the SEC; but, after the
stockholders meeting, questions regarding the use of invalid proxies in the election of
directors should be cognizable by the regular courts, since there was already an election to
speak of. There is no point in making distinctions between who has jurisdiction before and
who has jurisdiction after the election of directors, as all controversies related thereto -
whether before, during or after - shall be passed upon by regular courts as provided by law.
The Court closes with an observation.
Page 139 of 192

BANKING LAWS
Development Bank of the Philippines v. Guaria Agricultural and Realty Devt Corp.
G.R. No. 160758; January 15, 2014
J. Bersamin
The lender who refuses to release the full amount of the loan cannot foreclose the
mortgage constituted thereon. Foreclosure prior to the mortgagors default is premature and
unenforceable and the mortgagee who has been given possession over the mortgaged property
by virtue of a writ of possession may be ordered to restore the possession of the same to the
mortgagor and to pay reasonable rent for its use during the intervening period
Facts:
In order to finance the development of a resort complex, Guaria Corporation applied for a
loan from DBP in the amount of P3,387,000. Guaria Corporation executed a real estate
mortgage over several real properties in favor of DBP as security for the repayment of the
loan and a chattel mortgage over the personal properties existing at the resort complex and
those yet to be acquired out of the proceeds of the loan.
The loan was released in several instalments and the same was used by Guaria Corporation
to defray the cost of additional improvements in the resort complex. In all, the amount
released totalled P3,003,617.49. Subsequently, Guaria Corporation demanded the release
of the balance of the loan. DPB refused and directly paid some suppliers of Guaria
Corporation instead. Later on, upon inspection, DBP discovered that Guaria Corporation
had not completed the construction works. DBP thus demanded to expedite the completion
of the project and warned that it would initiate foreclosure proceedings shouldGuaria
Corporation not do so.
With the non-action and objection of Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. This resulted in Guaria Corporation suing DPB for specific
performance of the latters obligations under the loan agreement and to stop the foreclosure
of the mortgage. Due to the fact that DBP had already sold the mortgaged properties, Guaria
Corporation amended the complaint to seek the nullification of the foreclosure proceedings
and cancellation of the certificate of sale. Thereafter, a writ of possession was issued in favor
of DBP.
RTC rendered judgment declaring the extra-judicial sales of the mortgage properties null and
void and ordered DBP to return to Guaria Corporation the actuall possession and
enjoyment of all the properties foreclosed and possessed by it. On appeal, the CA affirmed
the decision of the trial court. DBP filed a motion for reconsideration, but the CA denied the
same. Hence, the appeal.
Page 140 of 192

Issue:
Whether or not the foreclosure was valid.
Ruling:
By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to
exact on Guaria Corporation the latter's compliance with its own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other
party cannot be obliged to perform what is expected of it while the other's obligation remains
unfulfilled. In other words, the latter party does not incur delay.
Still, DBP called upon Guaria Corporation to make good on the construction works pursuant
to the acceleration clause written in the mortgage contract or else it would foreclose the
mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a mortgage
constituted on real or personal property to protect the creditor's interest in case of the
default of the debtor. By its nature, however, a mortgage remains an accessory contract
dependent on the principal obligation, such that enforcement of the mortgage contract will
depend on whether or not there has been a violation of the principal obligation. While a
creditor and a debtor could regulate the order in which they should comply with their
reciprocal obligations, it is presupposed that in a loan the lender should perform its
obligation - the release of the full loan amount - before it could demand that the borrower
repay the loaned amount. In other words, Guaria Corporation would not incur in delay
before DBP fully performed its reciprocal obligation.
Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make
an effective demand for payment upon Guaria Corporation to perform its obligation under
the loan. According to Development Bank of the Philippines v. Licuanan, it would only be when
a demand to pay had been made and was subsequently refused that a borrower could be
considered in default, and the lender could obtain the right to collect the debt or to foreclose
the mortgage. Hence, Guaria Corporation would not be in default without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan
agreement, the letter dated February 27, 1978 that DBP sent would still not be regarded as
a demand to render Guaria Corporation in default under the principal contract because DBP
was only thereby requesting the latter "to put up the deficiency in the value of
improvements."
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged
properties at its instance were premature, and, therefore, void and ineffectual. The Court
thereby affirms the order for the restoration of possession to Guaria Corporation and the
payment of reasonable rentals for the use of the resort.
_________________________________________________________________________________________________________
Page 141 of 192

Land Bank of the Philippines vs. Emmanuel Oate

G.R. No. 192371; January 15, 2014
J. Del Castillo
A bank who mismanages the trust accounts of its client cannot benefit from the
inaccuracies of the reports resulting therefrom. It cannot impute the consequence of its
negligence to the client. The bank must record every single transaction accurately, down to the
last centavo and as promptly as possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he directs.
Facts:
Oate opened and maintained seven trust accounts with Land Bank. Each trust account was
covered by an Investment Management Account (IMA) with Full Discretion and has a
corresponding passbook where deposits and withdrawals were recorded.
In a letter dated October 1981, Land Bank demanded from Oate the return of P4 million it
claimed to have been inadvertently deposited to Trust Account No. 01-125 as additional
funds. Oate refused. To settle the matter, a meeting was held, but the parties failed to reach
an agreement. Since then, the issue of miscrediting remained unsettled. Subsequently,
Land Bank unilaterally applied the outstanding balance in all of Oates trust accounts
against his resulting indebtedness reason of the miscrediting of funds. Although it exhausted
the funds in all of Oates trust accounts, Land Bank was able to debit the amount of
P1,528,583.48 only. To recover the remaining balance of Oates indebtedness, Land Bank
filed a Complaint for Sum of Money.
In his Answer, Oate asserted that the set-off was without legal and factual bases. He
maintained that all the funds in his accounts came from legitimate sources and that he was
totally unaware of and had nothing to do with the alleged miscrediting.
RTC issued and Order creating a Board of Commissioners for the purpose of examining the
records of Oates seven trust accounts, as well as to determine the total amount of deposits,
withdrawals, funds invested, earnings, and expenses incurred. Subsequently, the Board
submitted a consolidated report which revealed that there were undocumented and over
withdrawals and drawings from Oates trust accounts.
In his comment, Oate asserted that the undocumented withdrawals mentioned in the
consolidated report should not be considered as cash outflows. Rather, they should be
treated as unauthorized transactions and the amounts subject thereof must be credited back
to his accounts. Land Bank for its part did not object to the Boards findings.
Eventually, RTC rendered a decision dismissing Land Banks Complaint. On appeal, the CA
affirmed RTCs ruling. Land Bank filed a Motion for Reconsideration, but was denied. Hence,
the petition for review.Land Bank argues that Oate is not entitled to the undocumented
withdrawals and insisted that it made proper accounting and apprised Oate of the status of
Page 142 of 192
his investments in accordance with the terms of the IMAs. According to the bank, it made a
full disclosure in its demand letter that the total outstanding balance of all the trust accounts
amounted to P1,471,416.52, but that the same was setoff to recoup the "miscredited" funds.
It faults Oate for not interposing any objection as his silence constitutes as his approval
after 30 days from receipt thereof. Land Bank asseverates that Oate could have also
inspected and audited the records of his accounts at any reasonable time. But he never
did.For his part, Oate refuted Land Banks claim to negative balances and over withdrawals
and posited that the bank cannot benefit from its own negligence in mismanaging the trust
accounts.
Issue:
Whether or not the bank can be held liable for the inaccuracies of the reports.
Ruling:
In Simex International (Manila), Inc. v. Court of Appeals, we elucidated on the nature of

banking business and the responsibility of banks:
The banking system is an indispensable institution in the modern world and

plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-
earner has not hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest
for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the
running of their affairs, not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately, down to
the last centavo and as promptly as possible. This has to be done if the account
is to reflect at any given time the amount of money the depositor can dispose
of as he sees fit, confident that the bank will deliver it as and to whomever he
directs.
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligations to treat the accounts of
Page 143 of 192

its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.
As to the conceded inaccuracies in the reports, we cannot allow Land Bank to benefit
therefrom. Time and again, we have cautioned banks to spare no effort in ensuring the
integrity of the records of its clients. And in Philippine National Bank v. Court of Appeals, we
held that "as between parties where negligence is imputable to one and not to the other, the
former must perforce bear the consequences of its neglect." In this case, the Board could have
submitted a more accurate report had Land Bank faithfully complied with its duty of
maintaining a complete and accurate record of Oates accounts. But the Board could not
find and present the corresponding slips for the withdrawals reflected in the passbooks. In
addition, Land Bank was less than cooperative when the Board was examining the records
of Oates accounts. It did not give the Board enough leeway to go over the records
systematically or in orderly fashion. Hence, we cannot allow Land Bank to benefit from
possible inaccuracies in the report.
Oliver v. Philippine Savings Bank and Castro

G.R. No. 214567, April 4, 2016, Mendoza, J:
Facts:
Sometime in 1997, Olive made an initial deposit of PhP12 million into her PSBank account.
During that time, Castro convinced her to loan out her deposit as interim or bridge financing
for the approved loans of bank borrowers who were waiting for the actual release of their
loan proceeds.
Under this arrangement, Castro would first show the approved loan documents to Oliver.
Thereafter, Castro would withdraw the amount needed from Olivers account. Upon the
actual release of the loan by PSBank to the borrower, Castro would then charge the rate of
4% a month from the loan proceeds as interim or bridge financing interest. Together with
the interest income, the principal amount previously withdrawn from Olivers bank account
would be deposited back to her account. Meanwhile, Castro would earn a commission of 10%
from the interest.
Their arrangement went on smoothly for months. Due to the frequency of bank transactions,
Oliver even entrusted her passbook to Castro. Because Oliver earned substantial profit, she
was further convinced by Castro to avail of an additional credit line in the amount of P10
million. The said credit line was secured by a real estate mortgage on her house and lot in
Ayala Alabang.
Oliver instructed Castro to pay P2 million monthly to PSBank starting on September 3, 1998
so that her credit line for P10 million would be fully paid by January 3, 1999.
Beginning September 1998, Castro stopped rendering an accounting for Oliver. The latter
then demanded the return of her passbook. When Castro showed her the passbook sometime
in late January or early February 1998, she noticed several erasures and superimpositions
Page 144 of 192

therein. She became very suspicious of the many erasures pertaining to the December 1998
entries so she requested a copy of her transaction history register from PSBank.
When her transaction history register6 was shown to her, Oliver was surprised to discover
that the amount of PhP4,491,250.00 (estimated at PhP4.5 million) was entered into her
account on December 21, 1998. While a total of PhP7 million was withdrawn from her
account on the same day, Oliver asserted that she neither applied for an additional loan of
PhP4.5 million nor authorized the withdrawal of PhP7 million. She also discovered another
loan for PhP1,396,310.45, acquired on January 5, 1999 and allegedly issued in connection
with the P10 million credit line. There were, however, no entries in her passbook.
PS Bank demanded payment of the unpaid loans (i.e. PhP4.5 million and PhP1.396 million)
but she alleged that she did not contract the same and that her PhP10 million credit line has
already paid in full. Thereafter, Oliver received a notice of sale (i.e. the impeding extrajudicial
foreclosure of her property in Alabang). Hence, the complaint of Oliver against PS Bank and
Castro.
The RTC ruled in favor of PS Bank and Castro. According to the Court, there was enough
evidence to prove that Oliver contracted the additional loans. The court reversed this
decision when Oliver moved for a reconsideration. Upon appeal, the CA reinstated the
original decision of the RTC; hence, this petition.
Issues:
1. Whether Castro is liable for damages for having defrauded Oliver

2. Whether the bank may be held liable for the withdrawal made on Olivers bank
account
Held:
1. Yes. Although the Court declared that there was an agency relationship between
Castro and Oliver (and that the additional loans were properly made as Oliver did not
dispute her signatures on the promissory notes), Castro exceeded her authority as an
agent when a PhP7 million withdrawal was made from Olivers account. The Court
noted that there was nothing in the records which proved that she also allowed the
withdrawal of P7 million from her bank account.
Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly failed to
secure the authorization of Oliver to withdraw such substantial amount. As a
standard banking practice intended precisely to prevent unauthorized and fraudulent
withdrawals, a bank manager must verify with the client-depositor to authenticate
and confirm that he or she has validly authorized such withdrawal. Castros lack of
authority to withdraw the P7 million on behalf of Oliver became more apparent when
she altered the passbook to hide such transaction.
Page 145 of 192

2. PSBank failed to exercise the highest degree of diligence required of banking

institutions. Aside from Castro, PSBank must also be held liable because it failed to
exercise utmost diligence in the improper withdrawal of the P7 million from Olivers
bank account.
In the case of banks, the degree of diligence required is more than that of a good father
of a family. Considering the fiduciary nature of their relationship with their
depositors, banks are duty bound to treat the accounts of their clients with the highest
degree of care. The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.
LAW ON SECRECY OF BANK DEPOSITS
DOA ADELA EXPORT INTERNATIONAL, INC. vs. TRADE AND INVESTMENT

DEVELOPMENT CORPORATION and the BANK OF THE PHILIPPINE ISLANDS
G.R. No. 201931, February 11, 2015, J. Villarama, Jr.
Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits, provides for exceptions
when records of deposits may be disclosed. These are under any of the following instances: (a)
upon written permission of the depositor, (b) in cases of impeachment, (c) upon order of a
competent court in the case of bribery or dereliction of duty of public officials or, (d) when the
money deposited or invested is the subject matter of the litigation, and (e) in cases of violation
of the Anti-Money Laundering Act, the Anti-Money Laundering Council may inquire into a bank
account upon order of any competent court. The Joint Motion to Approve Agreement was
executed by BPI and TIDCORP only. There was no written consent given by Doa Adela or its
representative that it is waiving the confidentiality of its bank deposits.It is clear therefore that
Doa Adela is not bound by the said provision since it was without the express consent of Doa
Adela who was not a party and signatory to the said agreement.
Facts:
Doa Adela Export International, Inc. (Doa Adela) filed a Petition for Voluntary
Insolvency. The RTC, after finding the petition sufficient inform and substance, issued an
order declaring Doa Adela as insolvent and staying all civil proceedings against it.
Thereafter, Atty. Arlene Gonzales was appointed as receiver. Subsequently, Atty.

Gonzales filed a Motion for Parties to Enter Into Compromise Agreement incorporating her
proposed terms of compromise.
Creditors Trade and Investment Development Corporation (TIDCORP) and Bank of

the Philippine Islands (BPI) also filed a Joint Motion to Approve the Compromise Agreement.
One of the stipulations of the agreement was the waiver of confidentiality in which
Doa Adela shall waive all rights to confidentiality provided under the provisions of Republic
Page 146 of 192
Act No. 1405, as amended, otherwise known as the Law on Secrecy of Bank Deposits, and
Republic Act No. 8791, otherwise known as The General Banking Law of 2000. Furthermore
Doa Adela will grant TIDCORP and BPI access to any deposit or other accounts maintained
by them with any bank.
The RTC approved the Compromise Agreement filed by TIDCORP and BPI.
Doa Adela filed a motion for partial reconsideration and claimed that TIDCORP and
BPIs agreement imposes on it several obligations such as waiver of confidentiality of its
bank deposits but it is not a party and signatory to the said agreement. Furthermore, there
must be an express and written waiver from the depositor concerned as required by law
before any third person or entity is allowed to examine bank deposits or bank records.
BPI counters that Doa Adela is estopped from questioning the BPI-TIDCORP
compromise agreement because Doa Adela and its counsel participated in all the
proceedings involving the subject compromise agreement and did not object when the
compromise agreement was considered by the RTC.
The RTC denied the motion and held that Doa Adelas silence and acquiescence to
the joint motion to approve compromise agreement while it was set for hearing by creditors
BPI and TIDCORP is tantamount to admission and acquiescence.
Issue:
Whether the waiver of confidentiality provision in the Agreement between TIDCORP

and BPI is valid despite Doa Adela not being a party and signatory to the same.
Ruling:
No.
Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits, provides for
exceptions when records of deposits may be disclosed. These are under any of the following
instances: (a) upon written permission of the depositor, (b) in cases of impeachment, (c)
upon order of a competent court in the case of bribery or dereliction of duty of public officials
or, (d) when the money deposited or invested is the subject matter of the litigation, and (e)
in cases of violation of the Anti-Money Laundering Act, the Anti-Money Laundering Council
may inquire into a bank account upon order of any competent court.
In this case, the Joint Motion to Approve Agreement was executed by BPI and
TIDCORP only. There was no written consent given by Doa Adela or its representative,
Epifanio Ramos, Jr., that Doa Adela is waiving the confidentiality of its bank deposits. The
provision on the waiver of the confidentiality of Doa Adelas bank deposits was merely
inserted in the agreement. It is clear therefore that Doa Adela is not bound by the said
provision since it was without the express consent of Doa Adela who was not a party and
signatory to the said agreement.
Page 147 of 192
Neither can be Doa Adela deemed to have given its permission by failure to interpose
its objection during the proceedings. It is an elementary rule that the existence of a waiver
must be positively demonstrated since a waiver by implication is not normally
countenanced. The norm is that a waiver must not only be voluntary, but must have been
made knowingly, intelligently, and with sufficient awareness of the relevant circumstances
and likely consequences.
Furthermore, it is basic in law that a compromise agreement, as a contract, is binding

only upon the parties to the compromise, and not upon non-parties. This is the doctrine of
relativity of contracts. The sound reason for the exclusion of non-parties to an agreement is
the absence of a vinculum or juridical tie which is the efficient cause for the establishment of
an obligation. Hence, a court judgment made solely on the basis of a compromise agreement
binds only the parties to the compromise, and cannot bind a party litigant who did not take
part in the compromise agreement.
BPI FAMILY SAVINGS BANKC, INC. vs. ST. MICHAEL MEDICAL CENTER, INC.
G.R. No. 205469, March 25, 2015, J. Perlas-Bernabe
It is well to emphasize that the remedy of rehabilitation should be denied to

corporations that do not qualify under the Rules. Neither should it be allowed to corporations
whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is
rendered obvious by: (a) the absence of a sound and workable business plan; (b) baseless and
unexplained assumptions, targets, and goals; and (c) speculative capital infusion or complete
lack thereof for the execution of the business plan. In this case, not only has the petitioning
debtor failed to show that it has formally began its operations which would warrant
restoration, but also it has failed to show compliance with the key requirements under the
Rules, the purpose of which are vital in determining the propriety of rehabilitation. Thus, for all
the reasons hereinabove explained, the Court is constrained to rule in favor of BPI Family and
hereby dismiss SMMCIs Rehabilitation Petition.
Facts:
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors
of St. Michael Hospital. With a vision to upgrade St. Michael Hospital into a modern, well-
equipped and full service tertiary 11-storey hospital, Sps. Rodil purchased two (2) parcels of
land adjoining their existing property and, on May 22, 2003, incorporated SMMCI, with
which entity they planned to eventually consolidate St. Michael Hospitals operations. In
order to finance the expansion of the premises of the hospital, the Spouses Rodil obtained
load from BPI Family Savings Bank. The Spouses thereafter incurred problems with the first
contractor, so the building was not completed. SMMCI was only able to pay the interest on
its BPI Family loan, or the amount of 3,000,000.00 over a two-year period, from the income
of St. Michael Hospital.
Page 148 of 192

On September 25, 2009, BPI Family demanded immediate payment of the entire loan
obligation and, soon after, filed a petition for extrajudicial foreclosure of the real properties
covered by the mortgage. The auction sale was scheduled on December 11, 2009, which was
postponed to February 15, 2010 with the conformity of BPI Family.
On August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation18

(Rehabilitation Petition) before the RTC, with prayer for the issuance of a Stay Order as it
foresaw the impossibility of meeting its obligation to BPI Family, its purported sole creditor.
In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI Family (a) to defer
foreclosing on the mortgage and (b) to agree to a moratorium of at least two (2) years during
which SMMCI either through St. Michael Hospital or its successor will retire all other
obligations. After which, SMMCI can then start servicing its loan obligation to the bank under
a mutually acceptable restructuring agreement. 24 SMMCI declared that it intends to
conclude pending negotiations for investments offered by a group of medical doctors whose
capital infusion shall be used (a) to complete the finishing requirements for the 3rd and 5th
floors of the new building; (b) to renovate the old 5storey building where St. Michael Hospital
operates; and (c) to pay, in whole or in part, the bank loan with the view of finally integrating
St. Michael Hospital with SMMCI. Finding the Rehabilitation Petition to be sufficient in form
and substance, the RTC issued a Stay Order. In an Order 34 dated August 4, 2011, the RTC
approved the Rehabilitation Plan
Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that the
approval of the Rehabilitation Plan violated its rights as an unpaid creditor/mortgagee and
that the same was submitted without prior consultation with creditors. In a Decision dated
August 30, 2012, the CA affirmed the RTCs approval of the Rehabilitation Plan. Hence, this
petition.
Issue:
Whether or not the CA correctly affirmed SMMCIs Rehabilitation Plan as approved

by the RTC.
Ruling:
No. that SMMCIs Rehabilitation Plan, an indispensable requisite in corporate

rehabilitation proceedings, failed to comply with the fundamental requisites outlined in
Section 18, Rule 3 of the Rules, particularly, that of a material financial commitment to
support the rehabilitation and an accompanying liquidation analysis, all of the petitioning
debtor: SEC. 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the terms
and conditions of such rehabilitation which shall include the manner of its implementation,
giving due regard to the interests of secured creditors such as, but not limited, to the
nonimpairment of their security liens or interests; (c) the material financial commitments to
support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan,
which may include debt to equity conversion, restructuring of the debts, dacion en pago or
sale exchange or any disposition of assets or of the interest of shareholders, partners or
Page 149 of 192
members; (e) a liquidation analysis setting out for each creditor that the present value of
payments it would receive under the plan is more than that which it would receive if the
assets of the debtor were sold by a liquidator within a six-month period from the estimated
date of filing of the petition; and (f) such other relevant information to enable a reasonable
investor to make an informed decision on the feasibility of the rehabilitation plan.

corporations that do not qualify under the Rules. Neither should it be allowed to
corporations whose sole purpose is to delay the enforcement of any of the rights of the
creditors, which is rendered obvious by: (a) the absence of a sound and workable business
plan; (b) baseless and unexplained assumptions, targets, and goals; and (c) speculative
capital infusion or complete lack thereof for the execution of the business plan.
Unfortunately, these negative indicators have all surfaced to the fore, much to SMMCIs
chagrin. While the Court recognizes the financial predicaments of upstart corporations
under the prevailing economic climate, it must nonetheless remain forthright in limiting the
remedy of rehabilitation only to meritorious cases. As above-mentioned, the purpose of
rehabilitation proceedings is not only to enable the company to gain a new lease on life but
also to allow creditors to be paid their claims from its earnings, when so rehabilitated.
Hence, the remedy must be accorded only after a judicious regard of all stakeholders
interests; it is not a one-sided tool that may be graciously invoked to escape every position
of distress.
In this case, not only has the petitioning debtor failed to show that it has formally
began its operations which would warrant restoration, but also it has failed to show
compliance with the key requirements under the Rules, the purpose of which are vital in
determining the propriety of rehabilitation. Thus, for all the reasons hereinabove explained,
the Court is constrained to rule in favor of BPI Family and hereby dismiss SMMCIs
Rehabilitation Petition.
SPOUSES EDUARDO AND LYDIA SILOS vs. PHILIPPINE NATIONAL BANK

G.R. No. 181045, July 2, 2014, J. Del Castillo
Plainly, with the subject credit agreement, the element of consent or agreement by the
borrower is now completely lacking, which makes [PNBs] unlawful act all the more
reprehensible.
Accordingly, [Spouses Silos] are correct in arguing that estoppels should not apply to
them, for estoppels cannot be predicated on an illegal act. As between the parties to a contract,
validity cannot be given to it by estoppels if it is prohibited by law or public policy. It appears
that by its acts, PNB violated the Truth in Lending Act or Republic Act No. 3765 which was
enacted to protect citizens from a lack of awareness of the true cost of credit to the use by using
a full disclosure of such cost with a view of preventing the uninformed use of credit to the
detriment of the national economy.
Page 150 of 192

Facts:
Spouses Silos were engaged in retail business since 1980s and for which they secured
several loans from PNB. Consequently, the following agreements were executed, to wit:
1. Real Estate Mortgage to secure the credit line of PhP150,000.00;

2. Supplement to the Real Estate Mortgage to secure the credit line which was first
raised to PhP1.8 Million then to PhP2.5 Million;
3. Credit Agreement of July 1989 and Eight (8) Promissory Notes; and,
4. Amendment to Credit Agreement of August 1991 and Eighteen (18) Promissory
Notes.
The original Credit Agreement provided an interest of 19.5% per annum and
authorized PNB to modify the interest rate without need of notice to Spouses Silos and
depending on whatever policy the Bank may adopt. All of the agreements and promissory
notes contained stipulations respecting this unilateral modification of interest rate.
PNB renewed the credit line from 1990 up to 1997 and Spouses Silos religiously paid
their accounts. In 1997, due to the Asian Financial Crisis, Spouses Silos failed to make good
on their outstanding promissory note for PhP2.5 Million, which provided for a penalty clause
equivalent to 24% per annum in case of default. Thus, PNB prepared a Statement of Account
showing aggregate accountabilities in the amount of PhP3,620,541.60 against Spouses Silos.
Failing to heed PNBs demand, the mortgages were foreclosed and sold to the Bank at auction
for the amount of PhP4,324,172.96.
Spouses Silos commenced a complaint for annulment of foreclosure sale with prayer
for accounting of their credit with PNB. After hearing the opposing arguments of the parties
on the disputed stipulations, the trial court ruled in favor of PNB and upheld the accounting
of debts, foreclosure sale and agreements between the parties among others. On appeal, the
CA affirmed the judgment of the trial court but with modifications respecting the applicable
interest on the unpaid promissory note, attorneys fees of 10% and reimbursement of the
difference between the bid price and the total amount due.
Issues:
1. Whether or not the provision conferring upon PNB the power to solely determine
and change the interest rate stated in the subject credit agreement is contrary to
law.
2. What is the appropriate interest that may be applied to the remaining monetary
obligation of Spouses Silos?
3. Whether or not the penalty charge in the still unpaid promissory note is also
covered by the security.
Page 151 of 192

Ruling:
1. YES, the provision runs counter to Article 1308 of the Civil Code and the Truth in
Lending Act.
In a long line of cases, the Court has struck down provisions in credit documents
issued by PNB to its borrowers, which allow it to increase or decrease interest rate within
the limits allowed by law at any time depending on whatever policy it may adopt in the future.
In the cases of PNB vs. CA circa 1991 and 1994, the Court took the position that P.D. No. 1684
and C.B. Circular No. 905, respecting the non-application of the usury law in loans and certain
forbearances, no more than allow contracting parties to stipulate freely regarding any
subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money,
goods or credits. In other words, the parties can agree to adjust, upward or downward, the
interest stipulated. Nevertheless, the Court pointed out that the said law and circular did not
authorize either party to unilaterally raise the interest rate without the others consent. Thus,
it was held that such clause introduced by PNB ran afoul with the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code.
In Spouses Almeda vs. CA, the Court also invalidated the very same provisions in PNBs
prepared Credit Agreement and mainly ratiocinated that [e]scalation clauses are not
basically wrong or legally objectionable so long as they are not solely potestative but based on
reasonable and valid grounds [and in this case] not only are the increases of the interest rates
on the basis of escalation clause patently unreasonable and unconscionable, but also there are
no valid and reasonable standards upon which the increases are anchored.
In another PNB vs. CA case, circa 1996, the disquisition went in this wise: while the
Usury Law ceiling on interest rates was lifted by C.B. No. 905, nothing in the said circular could
possibly be read as granting PNB carte blanche authority to raise interest rates to levels which
would either enslave its borrowers or lead to a hemorrhaging of their assets.
An equally relevant case, New Sampaguita Builders Construction, Inc. vs. PNB, this
Court pronounced that excessive interests, penalties and other charges not revealed in the
disclosure statements issued by banks, even it stipulated in the promissory notes, cannot be
given effect under the Truth in Lending Act.
Withal, in the light of these cases, the stipulations found in the Credit Agreement,
Amendment to the Credit Agreement and the promissory notes prepared by PNB in the
instant case must be once more invalidated. The lack of consent by Spouses Silos has been
made obvious by the fact that they signed the promissory notes in blank for PNB to fill. The
witness for PNB, Branch Manager Aspa, admitted that interest rates were fixed solely by its
Treasury Department in Manila, which were then simply communicated to all PNB branches
for imple-mentation. If this were the case, then this would explain why Spouses Silos had to
sign the promissory notes in blank, since the imposable interest rates have yet to be
determined and fixed by PNB Treasury Department.
Page 152 of 192

Further, in Aspas enumeration of factors that determine the interest rates, it can be
seen that considerations which affect PNBs borrowers are ignored. A borrowers current
financial state, his feedback or opinions, the nature and purpose of his borrowings, the effect
of foreign currency values or fluctuations on his business or borrowing, etc. these are not
factors which influence the fixing of interest rates to be imposed on him. Clearly, PNBs
method of fixing interest rates based on one-sided, indeterminate, and subjective criteria
such as profitability, cost of money, bank cost etc. is arbitrary for there is no fixed standard
or margin above or below these considerations.
To repeat what has been said in the cited cases, any modification in the contract, such
as interest rates must be made with the consent of the contracting parties. The minds of all
the parties must meet as to the proposed modification, especially when it affects an
important aspect of the agreement. In the case of loan agreements, the rate of interest is a
principal condition, if not the most important component. Thus, any modification thereof
must be mutually agreed upon; otherwise, it has no binding effect.
What is even more glaring in the present case is that, the stipulations in question no
longer provide that the parties shall agree upon the interest rate to be fixed; instead, they
are worded in such a way that Spouses Silos shall agree to whatever interest rate PNB fixes.
Plainly, with the subject credit agreement, the element of consent or agreement by Spouses
Silos is now completely lacking, which makes PNBs unlawful act all the more reprehensible.
Accordingly, Spouses Silos are correct in arguing that estoppels should not apply to
them, for estoppels cannot be predicated on an illegal act. As between the parties to a
contract, validity cannot be given to it by estoppels if it is prohibited by law or public policy.
It appears that by its acts, PNB violated the Truth in Lending Act or Republic Act No. 3765
which was enacted to protect citizens from a lack of awareness of the true cost of credit to
the use by using a full disclosure of such cost with a view of preventing the uninformed use
of credit to the detriment of the national economy.
However, the one-year period within which an action for violation of the Truth in
Lending Act may be filed evidently prescribed long ago, or sometime in 2001, one year after
Spouses Silos received the March 2000 demand letter which contained the illegal charges.
The fact that Spouses Silos later received several statements of account detailing its
outstanding obligations does not cure PNBs breach. To repeat, the belated discovery of the
true cost of credit does not reverse the ill effects of an already consummated business
decision. Neither may the statements be considered proposals sent to secure Spouses Silos
conformity; they were sent after the imposition and application of the interest rate, and not
before.
2. The loan shall be subject to the original or stipulated rate of interest and upon
maturity, the amount due shall be subject to legal interest at the rates of 12% and
then 6% per annum.
Page 153 of 192

Since the escalation clause is annulled, the principal amount of the loan is subject to
the original or stipulated rate of interest and upon maturity, the amount due shall be subject
to legal interest at the rate of 12% per annum. The interests paid by Spouses Silos should be
applied first to the payment of the stipulated or legal and unpaid interest, as the case may be
and later, to the capital or principal. PNB should then refund the excess amount of interest
that it has illegally imposed upon Spouses Silos; the amount to be refunded refers to that
paid by Spouses Silos when they had no obligation to do so. Thus, the parties original
agreement stipulated the payment of 19.5% interest; however, this rate was intended to
apply only to the first promissory note which expired in November 1989 and was paid by
Spouses Silos; it was not intended to apply to the whole duration of the loan. Subsequent
higher interest rates have been declared illegal; but because only the rates are found to be
improper, the obligation to pay interest subsists, the same to be fixed at the legal rate of 12%
per annum. However, the 12% interest shall apply only until June 30, 2013. Starting July 01,
2013, the prevailing rate of interest shall be 6% per annum pursuant to BSP Monetary Board
Circular No. 799.
3. NO, the penalty charge must be excluded for not being expressly covered by the
credit agreement.
The unpaid promissory note provides that failure to pay it or any installment thereon,
when due, shall constitute default, and a penalty charge of 24% per annum based on the
defaulted principal amount shall be imposed. This penalty charge can no longer be sustained
based on the above disquisition. Having found the credit agreements and promissory notes
to be tainted, the mortgages must likewise be accorded with the same treatment. After all, a
mortgage and a note secured by it are deemed parts of one transaction and are construed
together. Being so tainted and having attributes of a contract of adhesion as the principal
credit documents, the mortgages must be construed strictly and against the party who
drafted it. An examination of the mortgage agreements reveals that nowhere it is stated that
penalties are to be included in the secured amount. Construing the silence strictly against
PNB, the Court can only conclude that the parties did not intend to include the penalty
allowed under the subject note as part of the secured amount.
PHILIPPINE AMANAH BANK (NOW AL-AMANAH ISLAMIC INVESTMENT BANK OF THE

PHILIPPINES, ALSO KNOWN AS ISLAMIC BANK) vs. EVANGELISTA CONTRERAS
G.R. No. 173168, September 29, 2014, J. Brion
In the present case, however, nothing in the documents presented by Calinico would
arouse the suspicion of PAB to prompt a more extensive inquiry. When the Ilogon spouses
applied for a loan, they presented as collateral a parcel of land evidenced by an OCT issued by
the Office of the Register of Deeds and registered in the name of Calinico. This document did
not contain any inscription or annotation indicating that Contreras was the owner or that he
has any interest in the subject land. In fact, he admitted that there was no encumbrance
annotated on Calinicos title at the time of the latters loan application. Any private
arrangement between Calinico and him regarding the proceeds of the loan was not the concern
of PAB, as it was not a privy to this agreement. If Calinico violated the terms of his agreement
Page 154 of 192

with Contreras on the turn-over of the proceeds of the loan, then the latter's proper recourse
was to file the appropriate criminal action in court.
Facts:
In July 1981, Respondent Contreras filed a complaint for annulment of real estate
mortgage, cancellation of original certificate of title, reconveyance, recovery of possession
and damages before the RTC against Spouses Calinico and Elnora Ilogon and Petitioner
Philippine Amanah Bank (PAB). Prior to the escalation of the issue to a civil suit, Contreras
approached Spouses Ilogon to ask for help in obtaining a loan from PAB. Thereafter,
Contreras and Calinico executed documents to the effect that the property owned by the
former is open for mortgage as security for a loan and that Calinico was going to facilitate
this transaction with PAB.
Eventually, a loan was due for release by PAB but Contreras forthwith requested that
the same should not be released to Calinico. To her dismay, however, PAB released a total of
PhP 100,000.00 to Calinico. Consequently, when he failed to settle the loan, PAB was forced
to extrajudicially foreclose the mortgage and ultimately it consolidated its ownership over
the same. Hence, Contreras had to file the complaint before the RTC.
The trial court ruled in favor of PAB, pointing out that the bank had no knowledge
about the internal agreements between Contreras and Calinico. Contreras moved for
reconsideration but it was denied for having been filed out of time and then later a petition
for relief from judg-ment which was likewise denied. The CA reversed this decision by the
trial court. It found that there is sufficient evidence showing that PAB knew of certain
conflicting claims over the land and that it ignored the Contreras representations that
Calinocos title was defective.
Issue:
Whether or not PAB exercised extraordinary diligence in dealing with Calinico over
the subject property.
Ruling:
YES, PAB cannot be faulted in accepting the property as mortgage and releasing the
loan to Spouses Ilongon.
[The Court is aware] of the rule that banks are expected to exercise more care and
prudence than private individuals in their dealings, even those involving registered lands,
since their business is impressed with public interest. The rule that persons dealing with
registered lands can rely solely on the certificate of title does not apply to banks. Simply put,
the ascertainment of the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of a banks operations.
Page 155 of 192

In the present case, however, nothing in the documents presented by Calinico would
arouse the suspicion of [PAB] to prompt a more extensive inquiry. When the Ilogon spouses
applied for a loan, they presented as collateral a parcel of land evidenced by [an OCT] issued
by the Office of the Register of Deeds and registered in the name of Calinico. This document
did not contain any inscription or annotation indicating that [Contreras] was the owner or
that he has any interest in the subject land. In fact, [he] admitted that there was no
encumbrance annotated on Calinicos title at the time of the latters loan application. Any
private arrangement between Calinico and [him] regarding the proceeds of the loan was not
the concern of [PAB], as it was not a privy to this agreement. If Calinico violated the terms of
his agreement with [Contreras] on the turn-over of the proceeds of the loan, then the latter's
proper recourse was to file the appropriate criminal action in court.
[Contreras] also failed to prove its allegation that the petitioner bank knew, thru a
letter sent by the formers lawyer, Atty. Crisanto Mutya, Jr., that the sale of the subject land
between him and Calinico was made only for loan purposes, and that failure of Calinico to
turn over the proceeds of the loan will invalidate the sale.
Even assuming, for the sake of argument, that the petitioner bank received a copy of
Atty. Mutyas letter, it was still well-within its discretion to grant or deny the loan application
after evaluating the documents submitted for loan applicant. As earlier stated, [the certificate
of title]issued in Calinicos favor was free from any encumbrances. [PAB] is not anymore
privy to whatever arrangements the owner entered into regarding the proceeds of the loan.
Finally, [the Court points] out that [PAB] is a [GOCC]. While [the OCT] issued in favor
of Calinico by virtue of the deed of confirmation of sale contained a prohibition against the
alienation and encumbrance from the date of the patent, the CA failed to mention that by
the express wordings of the OCT itself, the prohibition does not cover the alienation and
encumbrance in favor of the Government or any of its branches, units or institutions.
PHILIPPINE BANK OF COMMUNICATIONS vs. BASIC POLYPRINTERS AND PACKAGING

CORPORATION
A material financial commitment becomes significant in gauging the resolve,

determination, earnestness and good faith of the distressed corporation in financing the
proposed rehabilitation plan. This commitment may include the voluntary undertakings of the
stockholders or the would-be investors of the debtor-corporation indicating their readiness,
willingness and ability to contribute funds or property to guarantee the continued successful
operation of the debtor corporation during the period of rehabilitation. In this case, the
financial commitments presented by Basic Polyprinters were insufficient for the purpose of
rehabilitation. Thus, its petition for corporate rehabilitation must necessarily fail.
Page 156 of 192

Facts:
Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a domestic

corporation engaged in the business of printing greeting cards, gift wrappers, gift bags,
calendars, posters, labels and other novelty items.
On February 27, 2004, Basic Polyprinters, along with the eight other corporations
belonging to the Limtong Group of Companies (namely: Cuisine Connection, Inc., Fine Arts
International, Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong
Corporation, Main Pacific Features, Inc., T.O.L. Realty & Development Corp., and Wonder
Book Corporation), filed a joint petition for suspension of payments with approval of the
proposed rehabilitation in the RTC.
Included in its overall Rehabilitation Program was the full payment of its outstanding
loans in favor of Philippine Bank of Communications (PBCOM), RCBC, Land Bank, EPCIBank
and AUB via repayment over 15 years with moratorium of two-years for the interest and five
years for the principal at 5% interest per annum and a dacion en pago of its affiliate property
in favor of EPCIBank.
Finding the petition sufficient in form and substance, the RTC issued the stay order
dated August 31, 2006. It appointed Manuel N. Cacho III as the rehabilitation receiver, and
required all creditors and interested parties, including the Securities and Exchange
Commission (SEC), to file their comments.
After the initial hearing and evaluation of the comments and opposition of the
creditors, including PBCOM, the RTC gave due course to the petition and referred it to the
rehabilitation receiver for evaluation and recommendation.
On October 18, 2007, the rehabilitation receiver submitted his report recommending
the approval of the rehabilitation plan. On December 19, 2007, the rehabilitation receiver
submitted his clarifications and corrections to his report and recommendations.
On January 11, 2008, the RTC issued an order approving the rehabilitation plan.
In the assailed decision promulgated on December 16, 2008, the CA affirmed the
questioned order of the RTC, agreeing with the finding of the rehabilitation receiver that
there were sufficient evidence, factors and actual opportunities in the rehabilitation plan
indicating that Basic Polyprinters could be successfully rehabilitated in due time.
The PBCOM claims that the CA did not pass upon the issues presented in its petition,
that the rehabilitation plan did not contain the material financial commitments required by
Section 5, Rule 4 of the Interim Rules of Procedure for Corporate Rehabilitation (Interim
Rules); that, accordingly, the proposed repayment scheme did not constitute a material
financial commitment, and the proposed dacion en pago was not proper because the
property subject thereof had been mortgaged in its favor;
Page 157 of 192

Issue:
Whether or not Basic Polyprinters can be rehabilitated.
Ruling:
No. Basic Polyprinters cannot be rehabilitated.

proposed rehabilitation plan. This commitment may include the voluntary undertakings of
the stockholders or the would-be investors of the debtor-corporation indicating their
readiness, willingness and ability to contribute funds or property to guarantee the continued
successful operation of the debtor corporation during the period of rehabilitation.
Basic Polyprinters presented financial commitments, as follows:
1. Additional P10 million working capital to be sourced from the insurance claim;
2. Conversion of the directors and shareholders deposit for future subscription to
common stock;
3. Conversion of substituted liabilities, if any, to additional paid-in capital to increase
the companys equity; and
4. All liabilities (cash advances made by the stockholders) of the company from the
officers and stockholders shall be treated as trade payables.
However, these financial commitments were insufficient for the purpose.
The commitment to add P10,000,000.00 working capital appeared to be doubtful

considering that the insurance claim from which said working capital would be sourced had
already been written-off by Basic Polyprinterss affiliate, Wonder Book Corporation. A claim
that has been written-off is considered a bad debt or a worthless asset, and cannot be
deemed a material financial commitment for purposes of rehabilitation. At any rate, the
proposed additional P10,000,000.00 working capital was insufficient to cover at least half of
the shareholders deficit that amounted to P23,316,044.00 as of June 30, 2006.
The Supreme Court also declared in Wonder Book Corporation v. Philippine Bank of
Communications (Wonder Book) that the conversion of all deposits for future subscriptions
to common stock and the treatment of all payables to officers and stockholders as trade
payables was hardly constituting material financial commitments. Such conversion of cash
advances to trade payables was, in fact, a mere re-classification of the liability entry and had
no effect on the shareholders deficit. On the other hand, the Supreme Court cannot
determine the effect of the conversion of the directors and shareholders deposits for
future subscription to common stock and substituted liabilities on the shareholders deficit
because their amounts were not reflected in the financial statements contained in the rollo.
Page 158 of 192

Basic Polyprinterss rehabilitation plan likewise failed to offer any proposal on how
it intended to address the low demands for their products and the effect of direct competition
from stores like SM, Gaisano, Robinsons, and other malls. Even the P245 million insurance
claim that was supposed to cover the destroyed inventories worth P264 million appears to
have been written-off with no probability of being realized later on.
The Supreme Court observes, too, that Basic Polyprinterss proposal to enter into the
dacion en pago to create a source of fresh capital was not feasible because the object thereof
would not be its own property but one belonging to its affiliate, TOL Realty and Development
Corporation, a corporation also undergoing rehabilitation. Moreover, the negotiations (for
the return of books and magazines from Basic Polyprinterss trade creditors) did not partake
of a voluntary undertaking because no actual financial commitments had been made thereon.
Worthy of note here is that Wonder Book Corporation was a sister company of Basic
Polyprinters, being one of the corporations that had filed the joint petition for suspension of
payments and rehabilitation in SEC. Both of them submitted identical commitments in their
respective rehabilitation plans. As a result, as the Court observed in Wonder Book, the
commitments by Basic Polyprinters could not be considered as firm assurances that could
convince creditors, future investors and the general public of its financial and operational
viability.
Due to the rehabilitation plan being an indispensable requirement in corporate

rehabilitation proceedings, Basic Polyprinters was expected to exert a conscious effort in
formulating the same, for such plan would spell the future not only for itself but also for its
creditors and the public in general. The contents and execution of the rehabilitation plan
could not be taken lightly.
The Supreme Court is not oblivious to the plight of corporate debtors like Basic
Polyprinters that have inevitably fallen prey to economic recession and unfortunate
incidents in the course of their operations. However, the Supreme Court must endeavor to
balance the interests of all the parties that had a stake in the success of rehabilitating the
debtors. In doing so here, the Supreme Court cannot now find the rehabilitation plan for
Basic Polyprinters to be genuine and in good faith, for it was, in fact, unilateral and
detrimental to its creditors and the public.
INTELLECTUAL PROPERTY LAW
DOCTRINE OF UNRELATED GOODS
TAIWAN KOLIN CORPORATION, LTD. vs. KOLIN ELECTRONICS CO., INC.,

G.R. No. 209843, March 25, 2015, J. Velasco, Jr.
In trademark registration, while both competing marks refer to the word KOLIN
written in upper case letters and in bold font, but one is italicized and colored black while the
Page 159 of 192

other is white in pantone red color background and there are differing features between the
two, registration of the said mark could be granted. It is hornbook doctrine that emphasis
should be on the similarity of the products involved and not on the arbitrary classification or
general description of their properties or characteristics. The mere fact that one person has
adopted and used a trademark on his goods would not, without more, prevent the adoption and
use of the same trademark by others on unrelated articles of a different kind.
Facts:
Taiwan Kolin filed with the IPO, then BPTTT, a trademark application, for the use of
KOLIN on a combination of goods, including colored televisions, refrigerators, window-
type and split-type air conditioners, electric fans and water dispensers with Taiwan Kolin
electing Class 9 as the subject of its application. Kolin Electronics opposed Taiwan Kolins
application arguing that the mark Taiwan Kolin seeks to register is identical, if not
confusingly similar, with its registered KOLIN mark covering products under Class 9 of the
NCL.
BLA-IPO denied Taiwan Kolins application, citing Sec. 123(d) of the IP Code that a
mark cannot be registered if it is identical with a registered mark belonging to a different
proprietor in respect of the same or closely-related goods. Accordingly, Kolin Electronics, as
the registered owner of the mark KOLIN for goods falling under Class 9 of the NCL, should
then be protected against anyone who impinges on its right, including Taiwan Kolin who
seeks to register an identical mark to be used on goods also belonging to Class 9 of the NCL.
Taiwan Kolin appealed the above Decision to the Office of the Director General of the
IPO which gave due course to the appeal ratiocinating that product classification alone
cannot serve as the decisive factor in the resolution of whether or not the goods are related
and that emphasis should be on the similarity of the products involved and not on the
arbitrary classification or general description of their properties or characteristics.
Kolin Electronics elevated the case to the CA which found for Kolin Electronics on the
strength of the following premises: (a) the mark sought to be registered by Taiwan Kolin is
confusingly similar to the one already registered in favor of Kolin Electronics; (b) there are
no other designs, special shape or easily identifiable earmarks that would differentiate the
products of both competing companies; and (c) the intertwined use of television sets with
amplifier, booster and voltage regulator bolstered the fact that televisions can be considered
as within the normal expansion of Kolin Electronics, and is thereby deemed covered by its
trademark as explicitly protected under Sec. 138 of the IP Code.
Issue:
Whether or not Taiwan Kolin is entitled to its trademark registration of KOLIN over
its specific goods of television sets and DVD players.
Ruling:
Yes, Taiwan Kolin is entitled.
Page 160 of 192

Whether or not the products covered by the trademark sought to be registered by

Taiwan Kolin, on the one hand, and those covered by the prior issued certificate of
registration in favor of Kolin Electronics, on the other, fall under the same categories in the
NCL is not the sole and decisive factor in determining a possible violation of Kolin
Electronics intellectual property right should Taiwan Kolins application be granted. It is
hornbook doctrine that emphasis should be on the similarity of the products involved and
not on the arbitrary classification or general description of their properties or
characteristics. The mere fact that one person has adopted and used a trademark on his
goods would not, without more, prevent the adoption and use of the same trademark by
others on unrelated articles of a different kind.
It must be noted that the products covered by Taiwan Kolins application and Kolin
Electronics registration are unrelated.
A certificate of trademark registration confers upon the trademark owner the

exclusive right to sue those who have adopted a similar mark not only in connection with the
goods or services specified in the certificate, but also with those that are related thereto.
In resolving one of the pivotal issues in this casewhether or not the products of the
parties involved are relatedthe doctrine in Mighty Corporation is authoritative. There, the
Court held that the goods should be tested against several factors before arriving at a sound
conclusion on the question of relatedness. Among these are:
(a) the business (and its location) to which the goods belong;
(b) the class of product to which the goods belong;
(c) the products quality, quantity, or size, including the nature of the package,
wrapper or container;
(d) the nature and cost of the articles;
(e) the descriptive properties, physical attributes or essential characteristics with
reference to their form, composition, texture or quality;
(f) the purpose of the goods;
(g) whether the article is bought for immediate consumption, that is, day-to-day
household items;
(h) the fields of manufacture;
(i) the conditions under which the article is usually purchased; and
(j) the channels of trade through which the goods flow, how they are distributed,
marketed, displayed and sold.
As mentioned, the classification of the products under the NCL is merely part and
parcel of the factors to be considered in ascertaining whether the goods are related. It is not
sufficient to state that the goods involved herein are electronic products under Class 9 in
order to establish relatedness between the goods, for this only accounts for one of many
considerations enumerated in Mighty Corporation.
Clearly then, it was erroneous for Kolin Electronics to assume over the CA to conclude
that all electronic products are related and that the coverage of one electronic product
Page 161 of 192
necessarily precludes the registration of a similar mark over another. In this digital age
wherein electronic products have not only diversified by leaps and bounds, and are geared
towards interoperability, it is difficult to assert readily, as Kolin Electronics simplistically
did, that all devices that require plugging into sockets are necessarily related goods.
As a matter of fact, while both competing marks refer to the word KOLIN written in
upper case letters and in bold font, the Court at once notes the distinct visual and aural
differences between them: Kolin Electronics mark is italicized and colored black while that
of Taiwan Kolin is white in pantone red color background. The differing features between
the two, though they may appear minimal, are sufficient to distinguish one brand from the
other.
Finally, in line with the foregoing discussions, more credit should be given to the
ordinary purchaser. Cast in this particular controversy, the ordinary purchaser is not the
completely unwary consumer but is the ordinarily intelligent buyer considering the type
of product involved
All told, We are convinced that Taiwan Kolins trademark registration not only covers
unrelated good, but is also incapable of deceiving the ordinary intelligent buyer. The
ordinary purchaser must be thought of as having, and credited with, at least a modicum of
intelligence to be able to see the differences between the two trademarks in question.
HOLISTIC TEST
UFC Philippines, Inc. v. Barrio Fiesta Manufacturing Corporation

G.R. No. 198889, January 20, 2016, Leonardo-De Castro, J:
Facts:
Petitioner Nutri-Asia, Inc. (petitioner) is a corporation duly organized and existing under
Philippine laws.5 It is the emergent entity in a merger with UFC Philippines, Inc. that was
completed on February 11, 2009.6 Respondent Barrio Fiesta Manufacturing Corporation
(respondent) is likewise a corporation organized and existing under Philippine laws.
On April 4, 2002, respondent filed Application No. 4-2002-002757 for the mark "PAPA BOY
& DEVICE" for goods under Class 30, specifically for "lechon sauce." The Intellectual Property
Office (IPO) published said application for opposition in the IP Phil. e-Gazette released on
September 8, 2006. Petition filed an opposition to his application.
In its verified opposition before the IPO, petitioner contended that "PAPA BOY & DEVICE" is
confusingly similar with its "PAPA" marks inasmuch as the former incorporates the term
"PAP A," which is the dominant feature of petitioner's "PAPA" marks. Petitioner averred that
respondent's use of "PAPA BOY & DEVICE" mark for its lechon sauce product, if allowed,
would likely lead the consuming public to believe that said lechon sauce product originates
from or is authorized by petitioner, and that the "PAPA BOY & DEVICE" mark is a variation
or derivative of petitioner's "PAPA" marks. Petitioner argued that this was especially true
Page 162 of 192

considering that petitioner's ketchup product and respondent's lechon sauce product are
related articles that fall under the same Class 30.
Petitioner alleged that the registration of respondent's challenged mark was also likely to
damage the petitioner, considering that its former sister company, Southeast Asia Food, Inc.,
and the latter's predecessors-in-interest, had been major manufacturers and distributors of
lechon and other table sauces since 1965, such as products employing the registered "Mang
Tomas" mark.
In its comment, respondent claims that petitioner's marks have either expired and/or "that
no confusing similarity exists between them and respondent's "PAPA BOY & DEVICE' mark."
Respondent alleges that under Section 15 of Republic Act No. 166, a renewal application
should be filed within six months before the expiration of the period or within three months
after such expiration. Respondent avers that the expiration of the 20-year term for the
"PAPA" mark under Registration No. 32416 issued on August 11, 1983 was August 11, 2003.
The sixth month before August 11, 2003 was February 11, 2003 and the third month after
August 11, 2003 was November 11, 2003. Respondent claims that the application that
petitioner filed on October 28, 2005 was almost two years late. Thus, it was not a renewal
application, but could only be considered a new application under the new Trademark Law,
with the filing date reckoned on October 28, 2005. The registrability of the mark under the
new application was examined again, and any certificate issued for the registration of "PAPA"
could not have been a renewal certificate.
As for petitioner's other mark "PAPA BANANA CATSUP LABEL," respondent claims that its
20-year term also expired on August 11, 2003 and that petitioner only filed its application
for the new "PAPA LABEL DESIGN" on November 15, 2006. Having been filed three years
beyond the renewal application deadline, petitioner was not able to renew its application on
time, and cannot claim a "continuous existence of its rights over the 'PAPA BANANA CATSUP
LABEL."' Respondent claims that the two marks are different from each other and that the
registration of one is independent of the other. Respondent concludes that the certificate of
registration issued for "PAPA LABEL DESIGN" is "not and will never be a renewal certificate.
The IPO ruled in favor of the petitioner, applying the dominance test. This was reversed by
the CA (using the holistic test); hence, this petition.
Issue: Whether the CA erred in applying the holistic test
Held: Yes. The dominancy test should have been applied. This Cour has relied on the
dominancy test rather than the holistic test. The dominancy test considers the dominant
features in the competing marks in determining whether they are confusingly similar. Under
the dominancy test, courts give greater weight to the similarity of the appearance of the
product arising from the adoption of the dominant features of the registered mark,
disregarding minor differences. Courts will consider more the aural and visual impressions
created by the marks in the public mind, giving little weight to factors like prices, quality,
sales outlets and market segments.
Page 163 of 192

Thus, in the 1954 case of Co Tiong Sa v. Director of Patents, the Court ruled:
It has been consistently held that the question of infringement of a trademark is to be

determined by the test of dominancy. Similarity in size, form and color, while relevant, is not
conclusive. If the competing trademark contains the main or essential or dominant features
of another, and confusion and deception is likely to result, infringement takes place.
Duplication or imitation is not necessary; nor is it necessary that the infringing label should
suggest an effort to imitate.
The Court agreed that respondent's mark cannot be registered. Respondent's mark is related
to a product, lechon sauce, an everyday all-purpose condiment and sauce, that is not
subjected to great scrutiny and care by the casual purchaser, who knows from regular visits
to the grocery store under what aisle to find it, in which bottle it is contained, and
approximately how much it costs. Since petitioner's product, catsup, is also a household
product found on the same grocery aisle, in similar packaging, the public could think that
petitioner had expanded its product mix to include lechon sauce, and that the "PAPA BOY"
lechon sauce is now part of the "PAPA" family of sauces, which is not unlikely considering
the nature of business that petitioner is in. Thus, if allowed. registration, confusion of
business may set in, and petitioner's hard-earned goodwill may be associated to the newer
product introduced by respondent, all because of the use of the dominant feature of
petitioner's mark on respondent's mark, which is the word "PAPA."
The words "Barrio Fiesta" are not included in the mark, and although printed on the label of
respondent's lechon sauce packaging, still do not remove the impression that "PAPA BOY" is
a product owned by the manufacturer of "PAPA" catsup, by virtue of the use of the dominant
feature. It is possible that petitioner could expand its business to include lechon sauce, and
that would be well within petitioner's rights, but the existence of a "PAPA BOY" lechon sauce
would already eliminate this possibility and deprive petitioner of its rights as an owner of a
valid mark included in the Intellectual Property Code.
The Court of Appeals likewise erred in finding that "PAPA," being a common term of
endearment for one's father, is a word over which petitioner could not claim exclusive use
and ownership. The Merriam-Webster dictionary defines "Papa" simply as "a person's
father." True, a person's father has no logical connection with catsup products, and that
precisely makes "PAPA" as an arbitrary mark capable of being registered, as it is distinctive,
coming from a family name that started the brand several decades ago. What was registered
was not the word "Papa" as defined in the dictionary, but the word "Papa" as the last name
of the original owner of the brand. In fact, being part of several of petitioner's marks, there
is no question that the IPO has found "PAPA" to be a registrable mark.
Respondent had an infinite field of words and combinations of words to choose from to coin
a mark for its lechon sauce. While its claim as to the origin of the term "PAPA BOY" is
plausible, it is not a strong enough claim to overrule the rights of the owner of an existing
and valid mark. Furthermore, this Court cannot equitably allow respondent to profit by the
name and reputation carefully built by petitioner without running afoul of the basic demands
of fair play
Page 164 of 192
UNFAIR COMPETITION
SHANG PROPERTIES REALTY CORPORATION (formerly THE SHANG GRAND TOWER

CORPORATION) and SHANG PROPERTIES, INC. (formerly EDSA PROPERTIES
HOLDINGS, INC.), vs. ST. FRANCIS DEVELOPMENT CORPORATION
G.R. No. 190706, July 21, 2014, J. Perlas-Bernabe
Section 168 of Republic Act No. 8293, otherwise known as the Intellectual Property
Code of the Philippines (IP Code), provides for the rules and regulations on unfair competition.
Section 168.2 proceeds to the core of the provision, describing forthwith who may be found
guilty of and subject to an action of unfair competition that is, any person who shall employ
deception or any other means contrary to good faith by which he shall pass off the goods
manufactured by him or in which he deals, or his business, or services for those of the one having
established such goodwill, or who shall commit any acts calculated to produce said result x x
x. In this case, the Court finds the element of fraud to be wanting hence, there can be no unfair
competition.
Facts:
St. Francis Development Corporation (SFDC) a domestic corporation engaged in

the real estate business and the developer of the St. Francis Square Commercial Center, built
sometime in 1992, located at Ortigas Center, Mandaluyong City, Metro Manila (Ortigas
Center) filed an intellectual property violation case for unfair competition, false or
fraudulent declaration, and damages arising from Shang Properties use and filing of
applications for the registration of the marks THE ST. FRANCIS TOWERS and THE ST.
FRANCIS SHANGRI-LA PLACE against Shang Properties before the IPO Bureau of Legal
Affairs (BLA).
In its complaints, SFDC alleged that it has used the mark ST. FRANCIS to identify its
numerous property development projects located at Ortigas Center. SFDC added that as a
result of its continuous use of the mark ST. FRANCIS in its real estate business, it has gained
substantial goodwill with the public that consumers and traders closely identify the said
mark with its property development projects.
Shang Properties contended that SFDC is barred from claiming ownership and
exclusive use of the mark ST. FRANCIS because the same is geographically descriptive of
the goods or services for which it is intended to be used. This is because SFDCs as well as
Shang Properties real estate development projects are located along the streets bearing the
name St. Francis, particularly, St. Francis Avenue and St. Francis Street (now known as
Bank Drive), both within the vicinity of the Ortigas Center.
The BLA rendered a decision and found that Shang Properties committed acts of
unfair competition against SFDC by its use of the mark THE ST. FRANCIS TOWERS but not
with its use of the mark THE ST. FRANCIS SHANGRI-LA PLACE. The BLA considered SFDC
to have gained goodwill and reputation for its mark, which therefore entitles it to protection
against the use by other persons, at least, to those doing business within the Ortigas Center.
Page 165 of 192
Both parties appealed the BLA decision. The IPO Director-General reversed the BLAs
finding that Shang Properties committed unfair competition through their use of the mark
THE ST. FRANCIS TOWERS, thus dismissing such charge. He found that SFDC could not be
entitled to the exclusive use of the mark ST. FRANCIS, even at least to the locality where it
conducts its business, because it is a geographically descriptive mark, considering that it was
Shang Properties as well as SFDCs intention to use the mark ST. FRANCIS in order to
identify, or at least associate, their real estate development projects/businesses with the
place or location where they are situated/conducted, particularly, St. Francis Avenue and St.
Francis Street (now known as Bank Drive), Ortigas Center.
SFDC elevated the case to the CA. The appellate court found Shang Properties guilty
of unfair competition not only with respect to their use of the mark THE ST. FRANCIS
TOWERS but also of the mark THE ST. FRANCIS SHANGRI-LA PLACE. It ruled that SFDC
which has exclusively and continuously used the mark ST. FRANCIS for more than a
decade, and, hence, gained substantial goodwill and reputation thereby is very much
entitled to be protected against the indiscriminate
usage by other companies of the trademark/name it has so painstakingly tried to establish
and maintain.
Issue:
Whether or not Shang Properties companies are guilty of unfair competition in using
the marks THE ST. FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA PLACE.
Ruling:
No. Shang Properties are not guilty of unfair competition in using the marks THE ST.
FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA PLACE.
Section 168 of Republic Act No. 8293, otherwise known as the Intellectual Property
Code of the Philippines (IP Code), provides for the rules and regulations on unfair
competition. Section 168.2 proceeds to the core of the provision, describing forthwith who
may be found guilty of and subject to an action of unfair competition that is, any person
who shall employ deception or any other means contrary to good faith by which he shall pass
off the goods manufactured by him or in which he deals, or his business, or services for those
of the one having established such goodwill, or who shall commit any acts calculated to
produce said result x x x.
The true test of unfair competition has thus been whether the acts of the defendant
have the intent of deceiving or are calculated to deceive the ordinary buyer making his
purchases under the ordinary conditions of the particular trade to which the controversy
relates. It is therefore essential to prove the existence of fraud, or the intent to deceive,
actual or probable, determined through a judicious scrutiny of the factual circumstances
attendant to a particular case.
Page 166 of 192

Here, the Court finds the element of fraud to be wanting hence, there can be no unfair
competition. What the CA appears to have disregarded or been mistaken in its disquisition,
however, is the geographically-descriptive nature of the mark ST. FRANCIS which thus bars
its exclusive appropriability, unless a secondary meaning is acquired.
Under Section 123.2 of the IP Code, specific requirements have to be met in order to
conclude that a geographically-descriptive mark has acquired secondary meaning, to wit: (a)
the secondary meaning must have arisen as a result of substantial commercial use of a mark
in the Philippines (b) such use must result in the distinctiveness of the mark insofar as the
goods or the products are concerned and (c) proof of substantially exclusive and continuous
commercial use in the Philippines for five (5) years before the date on which the claim of
distinctiveness is made. Unless secondary meaning has been established, a geographically-
descriptive mark, due to its general public domain classification, is perceptibly disqualified
from trademark registration.
The records are bereft of any showing that Shang Properties gave their
goods/services the general appearance that it was SFDC which was offering the same to the
public. Neither did Shang Properties employ any means to induce the public towards a false
belief that it was offering SFDCs goods/services. Nor did Shang Properties make any false
statement or commit acts tending to discredit the goods/services offered by SFDC.
Accordingly, the element of fraud which is the core of unfair competition had not been
established.
Besides, SFDC was not able to prove its compliance with the requirements stated in
Section 123.2 of the IP Code to be able to conclude that it acquired a secondary meaning
and, thereby, an exclusive right to the ST. FRANCIS mark, which is, as the IPO Director-
General correctly pointed out, geographically-descriptive of the location in which its realty
developments have been built. While it is true that SFDC had been using the mark ST.
FRANCIS since 1992, its use thereof has been merely confined to its realty projects within
the Ortigas Center. As its use of the mark is clearly limited to a certain locality, it cannot be
said that there was substantial commercial use of the same recognized all throughout the
country. Neither is there any showing of a mental recognition in buyers and potential
buyers minds that products connected with the mark ST. FRANCIS are associated with the
same source that is, the enterprise of SFDC. Thus, absent any showing that there exists a
clear goods/service-association between the realty projects located in the aforesaid area and
herein SFDC as the developer thereof, the latter cannot be said to have acquired a secondary
meaning as to its use of the ST. FRANCIS mark.
ROBERTO CO vs. KENG HUAN JERRY YEUNG and EMMA YEUNG

G.R. No. 212705, September 10, 2014, J. Perlas-Bernabe
Unfair competition is defined as the passing off (or palming off) or attempting to pass
off upon the public of the goods or business of one person as the goods or business of another
with the end and probable effect of deceiving the public. This takes place where the defendant
gives his goods the general appearance of the goods of his competitor with the intention of
deceiving the public that the goods are those of his competitor. Here, it has been established
Page 167 of 192
that Co conspired with the Laus in the sale/distribution of counterfeit Greenstone products to
the public, which were even packaged in bottles identical to that of the original, thereby giving
rise to the presumption of fraudulent intent. In light of the foregoing definition, it is thus clear
that Co, together with the Laus, committed unfair competition, and should, consequently, be
held liable therefor. Although liable for unfair competition, the Court deems it apt to clarify that
Co was properly exculpated from the charge of trademark infringement considering that the
registration of the trademark "Greenstone" essential as it is in a trademark infringement case
was not proven to have existed during the time the acts complained of were committed.
Facts:
At the core of the controversy is the product Greenstone Medicated Oil Item No. 16
(Greenstone) which is manufactured by Greenstone Pharmaceutical, a traditional Chinese
medicine manufacturing firm based in Hong Kong and owned by Keng Huan Jerry Yeung
(Yeung), and is exclusively imported and distributed in the Philippines by Taka Trading
owned by Yeungs wife, Emma Yeung (Emma).
On July 27, 2000, Sps. Yeung filed a civil complaint for trademark infringement and
unfair competition before the RTC against Ling Na Lau, her sister Pinky Lau (the Laus), and
Cof or allegedly conspiring in the sale of counterfeit Greenstone products to the public. In the
complaint, Sps. Yeung averred that on April 24, 2000, Emmas brother, Jose Ruivivar III
(Ruivivar), bought a bottle of Greenstone from Royal Chinese Drug Store (Royal) in Binondo,
Manila, owned by Ling Na Lau. However, when he used the product, Ruivivar doubted its
authenticity considering that it had a different smell, and the heat it produced was not as
strong as the original Greenstone he frequently used. Having been informed by Ruivivar of
the same, Yeung, together with his son, John Philip, went to Royal on May 4, 2000 to
investigate the matter, and, there, found seven (7) bottles of counterfeit Greenstone on
display for sale. He was then told by Pinky Lau (Pinky) the stores proprietor thatthe
items came from Co of Kiao An Chinese Drug Store. According to Pinky, Co offered the
products on April 28, 2000 as "Tienchi Fong Sap Oil Greenstone" (Tienchi) which she
eventually availed from him. Upon Yeungs prodding, Pinky wrote a note stating these events.
In defense, Co denied having supplied counterfeit items to Royal and maintained that
the stocks of Greenstone came only from Taka Trading. Meanwhile, the Laus denied selling
Greenstone and claimed that the seven (7) items of Tienchi were left by an unidentified male
person at the counter of their drug store and that when Yeung came and threatened to report
the matter to the authorities, the items were surrendered to him. As to Pinkys note, it was
claimed that she was merely forced by Yeung to sign the same.
The RTC ruled in favor of Sps. Yeung. The CA affirmed the RTC Decision. The Laus and
Co respectively moved for reconsideration but were, however, denied. Hence, Co filed the
instant petition.
Issue:
Whether or not the CA correctly upheld Cos liability for unfair competition.
Page 168 of 192
Ruling:
The petition is without merit.
Unfair competition is defined as the passing off (or palming off) or attempting to pass
off upon the public of the goods or business of one person as the goods or business of another
with the end and probable effect of deceiving the public. This takes place where the
defendant gives his goods the general appearance of the goods of his competitor with the
intention of deceiving the public that the goods are those of his competitor.
Here, it has been established that Co conspired with the Laus in the sale/distribution
of counterfeit Greenstone products to the public, which were even packaged in bottles
identical to that of the original, thereby giving rise to the presumption of fraudulent intent.
In light of the foregoing definition, it is thus clear that Co, together with the Laus, committed
unfair competition, and should, consequently, be held liable therefor.
Although liable for unfair competition, the Court deems it apt to clarify that Co was
properly exculpated from the charge of trademark infringement considering that the
registration of the trademark "Greenstone" essential as it is in a trademark infringement
case was not proven to have existed during the time the acts complained of were
committed, i.e., in May 2000. In this relation, the distinctions between suits for trademark
infringement and unfair competition prove useful: (a) the former is the unauthorized use of
a trademark, whereas the latter is the passing off of one's goods as those of another; (b)
fraudulent intent is unnecessary in the former, while it is essential in the latter; and (c) in
the former, prior registration of the trademark is a pre-requisite to the action, while it is not
necessary in the latter.
COPYRIGHT
LIMITATIONS ON COPYRIG
COPYRIGHTABLE WORKS
ABS-CBN CORPORATION v. FELIPE GOZON, GILBERTO R. DUAVIT, JR.

MARISSA L. FLORES, JESSICA SOHO, GRACE DELA PENA-REYES, JOHN OLIVER
T. MANALASTAS, JOHN DOES AND JANE DOES
G.R. No. 195956, March 11, 2015, LEONEN, J.
News or the event itself is not copyrightable. However, an event can be captured
and presented in a specific medium. News as expressed in a video footage is entitled to
copyright protection.
Facts:
The controversy arose from GMA-7s news coverage on the homecoming of

OFW and Iraqi militant hostage victim Angelo dela Cruz. ABS-CBN conducted live
audio-video coverage of and broadcasted the arrival Angelo dela Cruz at the NAIA and
the subsequent press conference. ABS-CBN allowed Reuters to air the footages it had
Page 169 of 192
taken earlier under a special embargo agreement. GMA-7 subscribes to Reuters and it
received a live video feed coverage of Angelo dela Cruz arrival from them. Thereafter,
it carried the live newsfeed in its program Flash Report together with its live
broadcast. Allegedly, GMA-7 did not receive any notice or was not aware that Reuters
was airing footages of ABS-CBN. GMA-7's news control room staff saw neither the "No
Access Philippines" notice nor a notice that the video feed was under embargo in
favor of ABS-CBN. ABS-CBN then filed a complaint for copyright infringement.
Issues:
1) Whether the news footage is copyrightable under the law

2) Whether criminal prosecution for infringement of copyrightable material,
such as live rebroadcast, can be negated by good faith.
Ruling:
1) Yes. Under the Intellectual Property Code, "works are protected by the sole fact of
their creation, irrespective of their mode or form of expression, as well as of their
content, quality and purpose."
An idea or event must be distinguished from the expression of that idea or event. Ideas
can be either abstract or concrete. It is the concrete ideas that are generally referred to
as expression. News or the event itself is not copyrightable. However, an event can
be captured and presented in a specific medium. As recognized by this court in
Joaquin, Jr. v. Drilon (G.R. No. 108946, January 28, 1999), television "involves a
whole spectrum of visuals and effects, video and audio." News coverage in television
involves framing shots, using images, graphics, and sound effects. It involves creative
process and originality. Television news footage is an expression of the news. News as
expressed in a video footage is entitled to copyright protection.
2) No. Infringement under the Intellectual Property Code is malum prohibitum. The
general rule is that acts punished under a special law are malum prohibitum. "In
an act which is malum prohibitum, malice or criminal intent is completely
immaterial." Unless clearly provided in the law, offenses involving infringement
of copyright protections should be considered malum prohibitum. It is the act of
infringement, not the intent, which causes the damage. To require or assume the
need to prove intent defeats the purpose of intellectual property protection
H
LIMITATIONS ON COPYRIGHTT
GMA NETWORK, INC. vs. CENTRAL CATV, INC.

G.R. No. 176694, July 18, 2014, J. Brion
The must-carry rule mandates that the local television (TV) broadcast signals of an
authorized TV broadcast station, such as the GMA Network, Inc., should be carried in full by the
cable antenna television (CATV) operator, without alteration or deletion. In this case, the
Page 170 of 192
Central CATV, Inc. was found not to have violated the must-carry rule when it solicited and
showed advertisements in its cable television (CATV) system. Such solicitation and showing of
advertisements did not constitute an infringement of the television and broadcast markets
under Section 2 of E.O. No. 205.
Facts:
Sometime in February 2000, GMA Network, Inc. (GMA), together with the Kapisanan
ng mga Brodkaster ng Pilipinas, Audiovisual Communicators, Incorporated, Filipinas
Broadcasting Network and Rajah Broadcasting Network, Inc. (complainants), filed with the
NTC a complaint against Central CATV, Inc. (Central CATV) to stop it from soliciting and
showing advertisements in its cable television (CATV) system, pursuant to Section 2 of
Executive Order (EO) No. 205. Under this provision, a grantees authority to operate a CATV
system shall not infringe on the television and broadcast markets. GMA alleged that the
phrase television and broadcast markets includes the commercial or advertising market.
In its answer, Central CATV admitted the airing of commercial advertisement on its
CATV network but alleged that Section 3 of EO No. 436 expressly allowed CATV providers to
carry advertisements and other similar paid segments provided there is consent from their
program providers.
After GMA presented and offered its evidence, Central CATV filed a motion to dismiss
by demurrer to evidence claiming that the evidence presented by the complainants failed to
show how Central CATVs acts of soliciting and/or showing advertisements infringed upon
the television and broadcast market.
The NTC granted Central CATVs demurrer to evidence and dismissed the complaint.
It ruled that since EO No. 205 does not define infringement, EO No. 436 merely clarified or
filled in the details of the term to mean that the CATV operators may show advertisements,
provided that they secure the consent of their program providers. In the present case, the
documents attached to Central CATVs demurrer to evidence showed that its program
providers have given such consent.
The NTC added that since the insertion of advertisements under EO No. 436 would
result in the alteration or deletion of the broadcast signals of the consenting television
broadcast station, its ruling necessarily results in the amendment of these provisions. The
second paragraph 9 of Section 3 of EO No. 436 is deemed to amend the previous provisional
authority issued to Central CATV, as well as Sections 6.2.1 and 6.4 of the NTCs Memorandum
Circular (MC) 4-08-88. Sections 6.2.1 and 6.4 require the CATV operators within the Grade A
or B contours of a television broadcast station to carry the latters television broadcast
signals in full, without alteration or deletion. This is known as the must-carry-rule.
GMA went to the CA, which, in turn, upheld the NTC ruling. Hence, GMA filed a petition
for review on certiorari before the Supreme Court.
Page 171 of 192

GMA alleges that the NTC gravely erred in failing to differentiate between EO No. 205,
which is a law, and EO No. 436 which is merely an executive issuance. An executive issuance
cannot make a qualification on the clear prohibition in the law, EO No. 205.
On the other hand, Central CATV contends that EO No. 205 does not expressly prohibit
CATV operators from soliciting and showing advertisements. The non-infringement
limitation under Section 2 thereof, although couched in general terms, should not be
interpreted in such a way as to deprive CATV operators of legitimate business opportunities.
Also, EO No. 436, being an executive issuance and a valid administrative legislation, has the
force and effect of a law and cannot be subject to collateral attack.
Issue:
Whether Central CATV, as a CATV operator, could show commercial advertisements

in its CATV networks.
Ruling:
Yes. Central CATV could show commercial advertisements in its CATV networks.
First, EO No. 205 is a law while EO No. 436 is an executive issuance. The NTC and the
CA proceeded from the wrong premise that both EO No. 205 and EO No. 436 are statutes.
EO No. 205 was issued by President Corazon Aquino. At the time of the issuance of EO
No. 205, President Aquino was still exercising legislative powers. EO No. 436, on the other
hand, is an executive order which was issued by President Ramos in the exercise purely of
his executive power. In short, it is not a law. In considering EO No. 436 as a law, the NTC and
the CA hastily concluded that it has validly qualified Section 2 of EO No. 205 and has amended
the provisions of MC 4-08-88. Following this wrong premise, the NTC and the CA ruled that
Central CATV has a right to show advertisements under Section 3 of EO No. 436. While
Central CATV indeed has the right to solicit and show advertisements, the NTC and the CA
incorrectly interpreted and appreciated the relevant provisions of the law and rules. The
Court seeks to correct this error by ruling that MC 4-08-88 alone sufficiently resolves the
issue on whether Central CATV could show advertisements in its CATV networks. In other
words, EO No. 436 is not material in resolving the substantive issue before us.
Second, the CATV operators are not prohibited from showing advertisements under
EO No. 205 and its implementing rules and regulations, MC 4-08-88.
MC 4-08-88 has sufficiently filled in the details of Section 2 of EO No. 205, specifically
the contentious proviso that the authority to operate [CATV] shall not infringe on the
television and broadcast markets. It is clear from Section 6.1 of MC 04-08-88 that the phrase
television market connotes audience or viewers in geographic areas and not the
commercial or advertising market as what GMA claims.
Page 172 of 192

The kind of infringement prohibited by Section 2 of EO No. 205 was particularly

clarified under Sections 6.2, 6.2.1, 6.4(a)(1) and 6.4(b) of MC 04-08-88, which embody the
must-carry rule. This rule mandates that the local TV broadcast signals of an authorized TV
broadcast station, such as GMA, should be carried in full by the CATV operator, without
alteration or deletion.
MC 4-08-88 mirrored the legislative intent of EO No. 205 and acknowledged the
importance of the CATV operations in the promotion of the general welfare. The circular
provides in its whereas clause that the CATV has the ability to offer additional programming
and to carry much improved broadcast signals in the remote areas, thereby enriching the
lives of the rest of the population through the dissemination of social, economic and
educational information, and cultural programs. Unavoidably, however, the improved
broadcast signals that CATV offers may infringe or encroach upon the audience or viewer
market of the free-signal TV. This is so because the latters signal may not reach the remote
areas or reach them with poor signal quality. To foreclose this possibility and protect the
free-TV market (audience market), the must-carry rule was adopted to level the playing field.
With the must-carry rule in place, the CATV networks are required to carry and show in full
the free-local TVs programs, including advertisements, without alteration or deletion. This,
in turn, benefits the public who would have a wide range of choices of programs or broadcast
to watch. This also benefits the free-TV signal as their broadcasts are carried under the
CATVs much-improved broadcast signals thus expanding their viewers share.
The Court finds that the Sections 6.2, 6.2.1, 6.4(a)(1) and 6.4(b) of MC 4-08-88, which
embody the must-carry rule, are the governing rules in the present case. Under these rules,
the phrase television and broadcast markets means viewers or audience market and not
commercial advertisement market as claimed by GMA. Therefore, Central CATVs act of
showing advertisements does not constitute an infringement of the television and
broadcast markets under Section 2 of EO No. 205.
COPYRIGHT INFRINGEMENT
MICROSOFT CORPORATION v. ROLANDO D. MANANSALA AND/OR MEL

MANANSALA, DOING BUSINESS AS DATAMAN TRADING COMPANY AND/OR COMIC
ALLEY
G.R. No. 166391, October 21, 2015, BERSAMIN, J.
The mere sale of the illicit copies of the software programs was enough by itself to
show the existence of probable cause for copyright infringement.
Facts:
Respondent, without any authority from petitioner, was engaged in distributing

and selling Microsoft computer software programs. A private investigator accompanied
by an agent from the NBI was able to purchase 6 CD-ROMs belonging to Microsoft. A
search warrant was issued against the premises of respondent, the search yielded several
illegal copies of Microsoft programs. Microsoft filed an affidavit-complaint with the DOJ.
Page 173 of 192
The State Prosecutor dismissed the charge for lack of proof that it was really respondent
who printed and copied the products in his store. Microsoft filed a petition for certiorari
before the CA. The CA affirmed the dismissal by the DOJ.
Issue:
Whether printing or copying is essential in the crime of copyright infringement
Ruling:
No. The gravamen of copyright infringement is not merely the unauthorized

manufacturing of intellectual works but rather the unauthorized performance of any of the
acts covered by Section 5 of PD No. 49. Hence any person who performs any of the acts
under Section 5 without obtaining the copyright owners prior consent renders himself
civilly and criminally liable for copyright infringement.
There was no need for the petitioner to still prove who copied, replicated or
reproduced the software programs. The public prosecutor and the DOJ gravely abused
their discretion in dismissing the petitioner's charge for copyright infringement against
the respondents for lack of evidence. There was grave abuse of discretion because the
public prosecutor and the DOJ acted whimsically or arbitrarily in disregarding the
settled jurisprudential rules on finding the existence of probable cause to charge the
offender in court. Accordingly, the CA erred in upholding the dismissal by the DOJ of the
petitioner's petition for review.
Sison Olano, et. al. v. Lim Eng Co

G.R. No. 195835, March 14, 2016
Reyes, J:
Facts:
The petitioners are the officers and/or directors of Metrotech Steel Industries, Inc. Lim Eng
Co, on the other hand, is the Chairman of LEC Steel Manufacturing Corporation (LEC), a
company which specializes in architectural metal manufacturing.
Sometime in 2002, LEC was invited by the architects of the Manansala Project (Project), a
high-end residential building in Rockwell Center, Makati City, to submit design/drawings
and specifications for interior and exterior hatch doors. LEC complied by submitting on July
16, 2002, shop plans/drawings, including the diskette therefor, embodying the designs and
specifications required for the metal hatch doors.
After a series of consultations and revisions, the final shop plans/drawings were submitted
by LEC on January 15, 2004 and thereafter copied and transferred to the title block of Ski-
First Balfour Joint Venture (SKI-FB), the Projects contractor, and then stamped approved for
construction on February 3, 2004.
Page 174 of 192

LEC was thereafter subcontracted by SKI-FB to manufacture and install the interior and
exterior hatch doors for the 7th and 22nd floors of the Project. Sometime thereafter, LEC
learned that Metrotech was also subcontracted to install interior and exterior hatch doors
for the 23rd and 41st floors.
On June 24, 2004, LEC demanded Metrotech to cease from infringing its intellectual property
rights. Metrotech, however, insisted that no copyright infringement was committed because
the hatch doors it manufactured were patterned in accordance with the drawings provided
by SKI-FB.
On July 6, 2004, LEC was issued a Certificate of Copyright Registration and Deposit showing
that it is the registered owner of plans/drawings for interior and exterior hatch doors. This
copyright pertains to class work I under Section 172 of Republic Act (R.A.) No. 8293, The
Intellectual Property Code of the Philippines, which covers illustrations, maps, plans,
sketches, charts and three-dimensional works relative to geography, topography,
architecture or science.
On December 9, 2004, LEC was issued another Certificate of Copyright Registration and
Deposit showing that it is the registered owner of plans/drawings for interior and exterior
hatch doors which is classified under Section 172(h) (i.e. ornamental designs or models for
articles of manufacture, whether or not registrable as an industrial design, and other works
of applied art).
When Metrotech still refused to stop fabricating hatch doors based on LECs shop
plans/drawings, the latter sought the assistance of the National Bureau of Investigation
(NBI) which in turn applied for a search warrant before the Regional Trial Court (RTC) of
Quezon City, Branch 24. The application was granted on August 13, 2004 thus resulting in
the confiscation of finished and unfinished metal hatch doors as well as machines used in
fabricating and manufacturing hatch doors from the premises of Metrotech.
The respondent filed a complaint for copyright infringement before the DOJ. The latter,
however, quashed the motion for search warrant since the allegation was not established.
Traversing the complaint, the petitioners admitted manufacturing hatch doors for the
Project. They denied, however, that they committed copyright infringement and averred that
the hatch doors they manufactured were functional inventions that are proper subjects of
patents and that the records of the Intellectual Property Office reveal that there is no patent,
industrial design or utility model registration on LECs hatch doors. Metrotech further
argued that the manufacturing of hatch doors per se is not copyright infringement because
copyright protection does not extend to the objects depicted in the illustrations and plans.
Moreover, there is no artistic or ornamental expression embodied in the subject hatch doors
that would subject them to copyright protection.
The DOJ initially denied the complaint of the petitioner for want of probable cause but
reversed the same upon motion for reconsideration filed by the respondents. The DOJ
reversed itself again when the petitioners moved for reconsideration and declared that the
evidence on record did not establish probable cause because the subject hatch doors were
Page 175 of 192
plainly metal doors with functional components devoid of any aesthetic or artistic features.
The CA, however, reversed the decision of the DOJ, hence, this petition.
Issue: Whether there is copyright infringement in this case
Held: None.
Copyright infringement is thus committed by any person who shall use original literary or
artistic works, or derivative works, without the copyright owners consent in such a manner
as to violate the foregoing copy and economic rights. For a claim of copyright infringement
to prevail, the evidence on record must demonstrate: (1) ownership of a validly copyrighted
material by the complainant; and (2) infringement of the copyright by the respondent.
While both elements subsist in the records, they did not simultaneously concur so as to
substantiate infringement of LECs two sets of copyright registrations.
The respondent failed to substantiate the alleged reproduction of the drawings/sketches of

hatch doors copyrighted. There is no proof that the respondents reprinted the copyrighted
sketches/drawings of LECs hatch doors. The raid conducted by the NBI on Metrotechs
premises yielded no copies or reproduction of LECs copyrighted sketches/drawings of hatch
doors. What were discovered instead were finished and unfinished hatch doors.
Certificate of Registration Nos. I-2004-13 and I-2004-14 pertain to class work I under
Section 172 of R.A. No. 8293 which covers illustrations, maps, plans, sketches, charts and
three-dimensional works relative to geography, topography, architecture or science. As such,
LECs copyright protection thereunder covered only the hatch door sketches/drawings and
not the actual hatch door they depict.
Copyright, in the strict sense of the term, is purely a statutory right. Being a mere statutory
grant, the rights are limited to what the statute confers. It may be obtained and enjoyed only
with respect to the subjects and by the persons, and on terms and conditions specified in the
statute. Accordingly, it can cover only the works falling within the statutory enumeration or
description.
Since the hatch doors cannot be considered as either illustrations, maps, plans, sketches,
charts and three-dimensional works relative to geography, topography, architecture or
science, to be properly classified as a copyrightable class I work, what was copyrighted
were their sketches/drawings only, and not the actual hatch doors themselves. To constitute
infringement, the usurper must have copied or appropriated the original work of an author
or copyright proprietor, absent copying, there can be no infringement of copyright.
SPECIAL LAWS
FINANCIAL REHABILITATION AND INSOLVENCY ACT
Page 176 of 192

PUERTO AZUL LAND, INC. vs. PACIFIC WIDE REALTY DEVELOPMENT CORPORATION
G.R. No. 184000, September 17, 2014, J. Perlas- Bernabe
PALI filed petition for rehabilitation due to impossibility of meeting its debts and
obligations. The issue is whether or not such dismissal of petition by the CA is valid. The court
ruled that The validity of PALIs rehabilitation was already raised as an issue by PWRDC and
resolved with finality by the Court in its November 25, 2009 Decision in G.R. No. 180893
(consolidated with G.R. No. 178768). The Court sustained therein the CAs affirmation of PALIs
Revised Rehabilitation Plan, including those terms which its creditors had found objectionable,
namely, the 50% "haircut" reduction of the principal obligations and the condonation of
accrued interests and penalty charges
Facts:
PALI is a domestic corporation engaged in the business of developing the Puerto Azul
Complex located in Ternate, Cavite into a "satellite city," described as a "self-sufficient and
integrated tourist destination community with residential areas, resort/tourism, and retail
commercial centers with recreation areas like golf courses, jungle trails, and white sand
lagoons." To finance the full operation of its business, PALI obtained loans in the total
principal amount of 640,225,324.00 from several creditors, among which were East Asia
Capital, Export and Industry Bank (EIB), Philippine National Bank, and Equitable PCI Bank
(EPCIB), secured by real estate owned by PALI and by accommodation mortgagors under a
Mortgage Trust Indenture.
Foreseeing the impossibility of meeting its debts and obligations to its creditors as
they fall due, PALI, on September 14, 2004, filed a Petition for Suspension of Payments and
Rehabilitation before the RTC. On September 17, 2004, the RTC, finding PALIs petition to be
sufficient in form and substance, issued a Stay Order pursuant to Section 6, Rule 4 of the
Interim Rules on Corporate Rehabilitation (Interim Rules). RTC approved PALIs Revised
Rehabilitation Plan. CA granted PWRDCs petition for review and reversed the December 13,
2005 RTC Decision, thereby dismissing PALIs petition for rehabilitation. It held that the
causes of PALIs inability to pay its debts were not alleged in the petition with sufficient
particularity as to have allowed the RTC to properly evaluate whether or not to issue a Stay
Order and eventually approve its rehabilitation.
Issue:
Whether or not the CA erred in reversing the RTC Decision, thereby dismissing PALIs
Revised Rehabilitation Plan
Ruling:
Yes. CA erred in dismissing PALIS Rehabilitation Plan
The validity of PALIs rehabilitation was already raised as an issue by PWRDC and
resolved with finality by the Court in its November 25, 2009 Decision in G.R. No. 180893
(consolidated with G.R. No. 178768). The Court sustained therein the CAs affirmation of
PALIs Revised Rehabilitation Plan, including those terms which its creditors had found
Page 177 of 192
objectionable, namely, the 50% "haircut" reduction of the principal obligations and the
condonation of accrued interests and penalty charges.
The rehabilitation plan is contested on the ground that the same is unreasonable and
results in the impairment of the obligations of contract. PWRDC contests the following
stipulations in PALIs rehabilitation plan: fifty percent (50%) reduction of the principal
obligation; condonation of the accrued and substantial interests and penalty charges;
repayment over a period of ten years, with minimal interest of two percent (2%) for the first
five years and five percent (5%) for the next five years until fully paid, and only upon
availability of cash flow for debt service.
The Court found nothing onerous in the terms of PALIs rehabilitation plan. The
Interim Rules on Corporate Rehabilitation provides for means of execution of the
rehabilitation plan, which may include, among others, the conversion of the debts or any
portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of
the controlling interest.
The restructuring of the debts of PALI is part and parcel of its rehabilitation.
Moreover, per findings of fact of the RTC and as affirmed by the CA, the restructuring of the
debts of PALI would not be prejudicial to the interest of PWRDC as a secured creditor.
There is nothing unreasonable or onerous about the 50% reduction of the principal
amount when, as found by the courta quo, a Special Purpose Vehicle (SPV) acquired the
credits of PALI from its creditors at deep discounts of as much as 85%. Meaning, PALIs
creditors accepted only 15% of their credits value. Stated otherwise, if PALIs creditors are
in a position to accept 15% of their credits value, with more reason that they should be able
to accept 50% thereof as full settlement by their debtor. Since the issue on the validity, as
well as regularity of the December 13, 2005 RTC Decision approving PALIs Revised
Rehabilitation Plan had already been resolved, the Court, in line with the res judicata
principle, is constrained to grant the present petition and, consequently, reverse the assailed
CA decision.
ROBINSON'S BANK CORPORATION vs. HON. SAMUEL H. GAERLAN, et al.

G.R. No. 195289, September 24, 2014, J. Del Castillo
Under Rule 3, Section 5 of the Rules of Procedure on Corporate Rehabilitation, the review
of any order or decision of the rehabilitation court or on appeal therefrom shall be in
accordance with the Rules of Court, unless otherwise provided. In the case at bar, TIDCORPs
Petition for Review sought to nullify the pari passu sharing scheme directed by the trial court
and to grant preferential and special treatment to TIDCORP over other WGC creditors, such as
RBC. This being the case, there is no visible objection to RBCs participation in said case, as it
stands to be injured or benefited by the outcome of TIDCORPs Petition for Review being both
a secured and unsecured creditor of WGC.
Page 178 of 192

Facts:
Nation Granary, Inc. (now World Granary Corporation, or WGC) filed a Petition for
Rehabilitation with Prayer for Suspension of Payments, Actions and Proceedings before the
RTC.
WGC is engaged in the business of mechanized bulk handling, transport and storage,
warehousing, drying, and milling of grains. It incurred loans amounting to P2.66 billion from
RBC and other banks and entities such as Trade and Investment Development Corporation
of the Philippines (TIDCORP). It appears that RBC is both a secured and unsecured
creditor, while TIDCORP is a secured creditor.
The RTC issued a Stay Order staying the enforcement of creditors claims and
prohibiting WGC from disposing its properties and paying its outstanding liabilities. The RTC
gave due course to the Petition for Rehabilitation. Accordingly, the receiver submitted his
Report with a proposal of a pari passu or equal sharing between the secured and
unsecured creditors of the proceeds from WGCs cash flow made available for debt servicing.
In its Comment, TIDCORP among others took exception to the proposed pari passu
sharing, insisting that as a secured creditor, it should enjoy preference over unsecured
creditors, citing law and jurisprudence to the effect that the law on preference of credits shall
be observed in resolving claims against corporations under rehabilitation. It likewise
claimed that WGC violated its Indemnity Agreement with TIDCORP which required that
while the agreement subsisted, WGC shall not incur new debts without TIDCORPs
approval by obtaining additional loans without the knowledge and consent of the latter.
RBC filed an Opposition to TIDCORPs Comment, arguing that giving preference to

TIDCORP would violate the Stay Order and impair the powers of the receiver; and that any
change in the contractual relations between TIDCORP and WGC relative to their Indemnity
Agreement comes as a necessary consequence of rehabilitation, which TIDCORP may not be
heard to complain.
The RTC approved WGCs rehabilitation plan. TIDCORP filed a Petition for review
before the CA praying that the order directing that all WGC obligations be settled on a pari
passu basis be reversed and set aside. RBC filed an Urgent Motion for Intervention with
attached Comment in Intervention, which is anchored on its original claim and objection to
TIDCORPs position.
In its Opposition, TIDCORP maintained that intervention is not allowed in

rehabilitation proceedings, citing Rule 3, Section 1 of the Interim Rules of Procedure on
Corporate Rehabilitation. It argued that a final determination of the appeal does not depend
on RBCs participation since rehabilitation proceedings are in remand binding on all
interested and affected parties even if they did not participate in the proceedings.
Page 179 of 192

Issues:
1. Whether or not RBC should be allowed to participate in the petition for review;
2. Whether or not a petition for review is the proper remedy for RBC
Ruling:
1. Yes. Under Rule 3, Section 5 of the Rules of Procedure on Corporate Rehabilitation,

the review of any order or decision of the rehabilitation court or on appeal therefrom shall
be in accordance with the Rules of Court, unless otherwise provided. This being the case,
there is no visible objection to RBCs participation in CA-G.R. SP No. 104141 as it stands to
be injured or benefited by the outcome of TIDCORPs Petition for Review being both a
secured and unsecured creditor of WGC.
To recall, TIDCORPs Petition for Review in CA-G.R. SP No. 104141 sought to 1) nullify
the pari passu sharing scheme directed by the trial court; 2) declare RBC and the other
creditor banks which granted additional loans to WGC after the latter executed its
Indemnity Agreement with TIDCORP guilty of violating TIDCORPs rights; and 3) grant
preferential and special treatment to TIDCORP over other WGC creditors. These remedies
would undoubtedly affect not merely the rights of RBC, but of all the other WGC creditors as
well, as their standing or status as creditors would be somewhat downgraded, and the
manner of recovery of their respective credits will be altered if TIDCORPs prayer is
granted. Thus, the nature of TIDCORPs Petition in CA-G.R. SP No. 104141 is such that the
other creditors like RBC must be allowed to participate in the proceedings. They have an
interest in the controversy where a final decree would necessarily affect their rights.
To disallow the participation of RBC constitutes an evasion of the appellate courts

positive duty to observe due process, a gross and patent error that can be considered as
grave abuse of discretion. Likewise, when an adverse effect on the substantial rights of a
litigant results from the exercise of the courts discretion, certiorari may issue. If not, this
Court possesses the prerogative and initiative to take corrective action when necessary to
prevent a substantial wrong or to do substantial justice.
2. No. While TIDCORP is correct in arguing that intervention is not the proper mode
for RBC coming to the CA since it is already a party to the rehabilitation proceedings, this
merely highlights the formers error in not allowing the latter to participate in the
proceedings in CA-G.R. SP No. 104141 just as it underscores the appellate courts blunder in
not ordering that RBC be allowed to comment or participate in the case so that they may be
given the opportunity to be heard on TIDCORPs allegations and accusations. And while RBC
chose the wrong mode for interposing its comments and objections in CA-G.R. SP No. 104141,
this does not necessarily warrant the outright denial of its chosen remedy; the Court is not
so rigid as to be precluded from adopting measures to insure that justice would be
administered fairly to all parties concerned. If TIDCORP must pursue its Petition for Review,
then RBC should be allowed to comment and participate in the proceedings. There is no other
solution to the impasse.
Page 180 of 192

Finally, the CA committed another patent error in declaring that RBCs proper remedy
was not to move for intervention, but to file a Petition for Review of the trial courts June 6,
2008 Order. It failed to perceive the obvious fact that there is nothing about the trial courts
order that RBC questioned; quite the contrary, it sought to affirm the said order in toto and
simply prayed for the dismissal of TIDCORPs Petition for Review. There is thus no legal and
logical basis for its conclusion that RBC should have resorted to a Petition for Review just the
same.
PHILIPPINE BANK OF COMMUNICATIONS vs. BASIC POLYPRINTERS AND PACKAGING

CORPORATION

proposed rehabilitation plan. This commitment may include the voluntary undertakings of the
stockholders or the would-be investors of the debtor-corporation indicating their readiness,
willingness and ability to contribute funds or property to guarantee the continued successful
operation of the debtor corporation during the period of rehabilitation. In this case, the
financial commitments presented by Basic Polyprinters were insufficient for the purpose of
rehabilitation. Thus, its petition for corporate rehabilitation must necessarily fail.
Facts:
Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a domestic

corporation engaged in the business of printing greeting cards, gift wrappers, gift bags,
calendars, posters, labels and other novelty items.
On February 27, 2004, Basic Polyprinters, along with the eight other corporations
belonging to the Limtong Group of Companies (namely: Cuisine Connection, Inc., Fine Arts
International, Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong
Corporation, Main Pacific Features, Inc., T.O.L. Realty & Development Corp., and Wonder
Book Corporation), filed a joint petition for suspension of payments with approval of the
proposed rehabilitation in the RTC.
Included in its overall Rehabilitation Program was the full payment of its outstanding
loans in favor of Philippine Bank of Communications (PBCOM), RCBC, Land Bank, EPCIBank
and AUB via repayment over 15 years with moratorium of two-years for the interest and five
years for the principal at 5% interest per annum and a dacion en pago of its affiliate property
in favor of EPCIBank.
Finding the petition sufficient in form and substance, the RTC issued the stay order
dated August 31, 2006. It appointed Manuel N. Cacho III as the rehabilitation receiver, and
required all creditors and interested parties, including the Securities and Exchange
Commission (SEC), to file their comments.
Page 181 of 192

After the initial hearing and evaluation of the comments and opposition of the
creditors, including PBCOM, the RTC gave due course to the petition and referred it to the
rehabilitation receiver for evaluation and recommendation.
On October 18, 2007, the rehabilitation receiver submitted his report recommending
the approval of the rehabilitation plan. On December 19, 2007, the rehabilitation receiver
submitted his clarifications and corrections to his report and recommendations.
On January 11, 2008, the RTC issued an order approving the rehabilitation plan.
In the assailed decision promulgated on December 16, 2008, the CA affirmed the
questioned order of the RTC, agreeing with the finding of the rehabilitation receiver that
there were sufficient evidence, factors and actual opportunities in the rehabilitation plan
indicating that Basic Polyprinters could be successfully rehabilitated in due time.
The PBCOM claims that the CA did not pass upon the issues presented in its petition,
that the rehabilitation plan did not contain the material financial commitments required by
Section 5, Rule 4 of the Interim Rules of Procedure for Corporate Rehabilitation (Interim
Rules); that, accordingly, the proposed repayment scheme did not constitute a material
financial commitment, and the proposed dacion en pago was not proper because the
property subject thereof had been mortgaged in its favor;
Issue:
Whether or not Basic Polyprinters can be rehabilitated.
Ruling:
No. Basic Polyprinters cannot be rehabilitated.

proposed rehabilitation plan. This commitment may include the voluntary undertakings of
the stockholders or the would-be investors of the debtor-corporation indicating their
readiness, willingness and ability to contribute funds or property to guarantee the continued
successful operation of the debtor corporation during the period of rehabilitation.
Basic Polyprinters presented financial commitments, as follows:

5. Additional P10 million working capital to be sourced from the insurance claim;
6. Conversion of the directors and shareholders deposit for future subscription to
common stock;
7. Conversion of substituted liabilities, if any, to additional paid-in capital to increase
the companys equity; and
8. All liabilities (cash advances made by the stockholders) of the company from the
officers and stockholders shall be treated as trade payables.
Page 182 of 192

However, these financial commitments were insufficient for the purpose.
The commitment to add P10,000,000.00 working capital appeared to be doubtful

considering that the insurance claim from which said working capital would be sourced had
already been written-off by Basic Polyprinterss affiliate, Wonder Book Corporation. A claim
that has been written-off is considered a bad debt or a worthless asset, and cannot be
deemed a material financial commitment for purposes of rehabilitation. At any rate, the
proposed additional P10,000,000.00 working capital was insufficient to cover at least half of
the shareholders deficit that amounted to P23,316,044.00 as of June 30, 2006.
The Supreme Court also declared in Wonder Book Corporation v. Philippine Bank of
Communications (Wonder Book) that the conversion of all deposits for future subscriptions
to common stock and the treatment of all payables to officers and stockholders as trade
payables was hardly constituting material financial commitments. Such conversion of cash
advances to trade payables was, in fact, a mere re-classification of the liability entry and had
no effect on the shareholders deficit. On the other hand, the Supreme Court cannot
determine the effect of the conversion of the directors and shareholders deposits for
future subscription to common stock and substituted liabilities on the shareholders deficit
because their amounts were not reflected in the financial statements contained in the rollo.
Basic Polyprinterss rehabilitation plan likewise failed to offer any proposal on how
it intended to address the low demands for their products and the effect of direct competition
from stores like SM, Gaisano, Robinsons, and other malls. Even the P245 million insurance
claim that was supposed to cover the destroyed inventories worth P264 million appears to
have been written-off with no probability of being realized later on.
The Supreme Court observes, too, that Basic Polyprinterss proposal to enter into the
dacion en pago to create a source of fresh capital was not feasible because the object thereof
would not be its own property but one belonging to its affiliate, TOL Realty and Development
Corporation, a corporation also undergoing rehabilitation. Moreover, the negotiations (for
the return of books and magazines from Basic Polyprinterss trade creditors) did not partake
of a voluntary undertaking because no actual financial commitments had been made thereon.
Worthy of note here is that Wonder Book Corporation was a sister company of Basic
Polyprinters, being one of the corporations that had filed the joint petition for suspension of
payments and rehabilitation in SEC. Both of them submitted identical commitments in their
respective rehabilitation plans. As a result, as the Court observed in Wonder Book, the
commitments by Basic Polyprinters could not be considered as firm assurances that could
convince creditors, future investors and the general public of its financial and operational
viability.
Due to the rehabilitation plan being an indispensable requirement in corporate

rehabilitation proceedings, Basic Polyprinters was expected to exert a conscious effort in
formulating the same, for such plan would spell the future not only for itself but also for its
creditors and the public in general. The contents and execution of the rehabilitation plan
could not be taken lightly.
Page 183 of 192
The Supreme Court is not oblivious to the plight of corporate debtors like Basic
Polyprinters that have inevitably fallen prey to economic recession and unfortunate
incidents in the course of their operations. However, the Supreme Court must endeavor to
balance the interests of all the parties that had a stake in the success of rehabilitating the
debtors. In doing so here, the Supreme Court cannot now find the rehabilitation plan for
Basic Polyprinters to be genuine and in good faith, for it was, in fact, unilateral and
detrimental to its creditors and the public.
MARILYN VICTORIO-AQUINO vs. PACIFIC PLANS INC. and MAMARETO A.

MARCELO, JR.
G.R. No. 193108, December 10, 2014, J. Peralta
While the voice and participation of the creditors is crucial in the determination of the
viability of the rehabilitation plan, as they stand to benefit or suffer in the implementation
thereof, the interests of all stakeholders is the ultimate and prime consideration.
Facts:
Respondent Pacific Plans, Inc. (now Abundance Providers and Entrepreneurs

Corporation or APEC) is engaged in the business of selling pre-need plans and educational
plans, including traditional open-ended educational plans. PEPTrads are educational plans
where respondent guarantees to pay the planholder, without regard to the actual cost at the
time of enrolment, the full amount of tuition and other school fees of a designated
beneficiary. Petitioner Marilyn is a holder of two units of respondents PEPTrads.
On April 7, 2005, foreseeing the impossibility of meeting its obligations to the availing
plan holders as they fall due, respondent filed a Petition for Corporate Rehabilitation with
the Regional Trial Court (Rehabilitation Court), praying that it be placed under rehabilitation
and suspension of payments. The Rehabilitation Court issued a Stay Order, directing the
suspension of payments of the obligations of respondent and ordering all creditors and
interested parties to file their comments/oppositions, respectively, to the Petition for
Corporate Rehabilitation. The same Order also appointed respondent Mamerto A. Marcelo
as the rehabilitation receiver and set the initial hearing of the case on May 25, 2005.
APEC submitted to the Rehabilitation Court its proposed rehabilitation plan. Under
the terms thereof, APEC proposed the implementation of a Swap, which will essentially
give the plan holder a means to exit from the PEPTrads at terms and conditions relative to a
termination value that is more advantageous than those provided under the educational plan
in case of voluntary termination. On February 16, 2006, the Rehabilitation Receiver
submitted an Alternative Rehabilitation Plan for the approval of the Rehabilitation Court.
Under the ARP, the benefits under the PEPTrads shall be translated into fixed-value benefits
as of December 31, 2004, which will be termed as Base Year-end 2004 Entitlement. The
creditors/oppositors did not oppose/comment on the Rehabilitation Receivers ARP.
Respondent commenced with the implementation of its ARP in coordination with, and with
clearance from, the Rehabilitation Receiver. In the meantime, the value of the Philippine Peso
Page 184 of 192
strengthened and appreciated. In view of this development, and considering that the trust
fund of respondent is mainly composed of NAPOCOR bonds that are denominated in US
Dollars, respondent submitted a manifestation with the Rehabilitation Court on February 29,
2008, stating that the continued appreciation of the Philippine Peso has grossly affected the
value of the U.S. Dollar-denominated NAPOCOR bonds, which stood as security for the
payment of the Net Translated Values of the PEPTrads.
Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to Admit

dated March 7, 2008, echoing the earlier tenor and substance of respondents manifestation,
and praying that the Modified Rehabilitation Plan be approved by the Rehabilitation Court.
Under the MRP, the ARP previously approved by the Rehabilitation Court is modified. The
Rehabilitation Court issued a Resolution dated July 28, 2008 approving the MRP. Marilyn
questioned the approval of the MRP before the CA on September 26, 2008.Unfortunately for
her, despite motion for reconsideration, the CA denied the same on July 21, 2010.
Hence, this Petition for Review on Certiorari.
Issue:
Whether the MRP is ultra vires insofar as it reduces the original claim and even the
original amount that Marilyn was to receive under the ARP.
Ruling:
No, it is not.
The cram-down power of the Rehabilitation Court has long been established and
even codified under Section 23, Rule 4 of the Interim Rules. Such prerogative was carried
over in the Rehabilitation Rules, which maintains that the court may approve a rehabilitation
plan over the objection of the creditors if, in its judgment, the rehabilitation of the debtors is
feasible and the opposition of the creditors is manifestly unreasonable. In Bank of the
Philippine Islands v. Sarabia Manor Hotel Corporation, where the Court elucidated the
rationale behind Section 23, Rule 4 of the Interim Rules, the Court said that a rehabilitation
plan may be approved even over the opposition of the creditors holding a majority of the
corporations total liabilities if there is a showing that rehabilitation is feasible and the
opposition of the creditors is manifestly unreasonable.
Also known as the cram-down clause, this provision, which is currently

incorporated in the FRIA, is necessary to curb the majority creditors natural tendency to
dictate their own terms and conditions to the rehabilitation, absent due regard to the greater
long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the
terms and conditions of the rehabilitation plan, preferring long-term viability over
immediate but incomplete recovery.
Based on the aforequoted doctrine, petitioners outright censure of the concept of the
cram-down power of the rehabilitation court cannot be countenanced. To adhere to the
Page 185 of 192
reasoning of petitioner would be a step backward a futile attempt to address an outdated

set of challenges. It is undeniable that there is a need to move to a regime of modern
restructuring, cram-down and court supervision in the matter of corporation rehabilitation
in order to address the greater interest of the public. This is clearly manifested in Section 64
of Republic Act No. 10142, otherwise known as Financial Rehabilitation and Insolvency Act
of 2010.
BPI FAMILY SAVINGS BANKC, INC. vs. ST. MICHAEL MEDICAL CENTER, INC.
G.R. No. 205469, March 25, 2015, J. Perlas-Bernabe

corporations that do not qualify under the Rules. Neither should it be allowed to corporations
whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is
rendered obvious by: (a) the absence of a sound and workable business plan; (b) baseless and
unexplained assumptions, targets, and goals; and (c) speculative capital infusion or complete
lack thereof for the execution of the business plan. In this case, not only has the petitioning
debtor failed to show that it has formally began its operations which would warrant
restoration, but also it has failed to show compliance with the key requirements under the
Rules, the purpose of which are vital in determining the propriety of rehabilitation. Thus, for all
the reasons hereinabove explained, the Court is constrained to rule in favor of BPI Family and
hereby dismiss SMMCIs Rehabilitation Petition.
Facts:
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors
of St. Michael Hospital. With a vision to upgrade St. Michael Hospital into a modern, well-
equipped and full service tertiary 11-storey hospital, Sps. Rodil purchased two (2) parcels of
land adjoining their existing property and, on May 22, 2003, incorporated SMMCI, with
which entity they planned to eventually consolidate St. Michael Hospitals operations. In
order to finance the expansion of the premises of the hospital, the Spouses Rodil obtained
load from BPI Family Savings Bank. The Spouses thereafter incurred problems with the first
contractor, so the building was not completed. SMMCI was only able to pay the interest on
its BPI Family loan, or the amount of 3,000,000.00 over a two-year period, from the income
of St. Michael Hospital.
On September 25, 2009, BPI Family demanded immediate payment of the entire loan
obligation and, soon after, filed a petition for extrajudicial foreclosure of the real properties
covered by the mortgage. The auction sale was scheduled on December 11, 2009, which was
postponed to February 15, 2010 with the conformity of BPI Family.
On August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation

(Rehabilitation Petition) before the RTC, with prayer for the issuance of a Stay Order as it
foresaw the impossibility of meeting its obligation to BPI Family, its purported sole creditor.
In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI Family (a) to defer
foreclosing on the mortgage and (b) to agree to a moratorium of at least two (2) years during
Page 186 of 192
which SMMCI either through St. Michael Hospital or its successor will retire all other
obligations. After which, SMMCI can then start servicing its loan obligation to the bank under
a mutually acceptable restructuring agreement. 24 SMMCI declared that it intends to
conclude pending negotiations for investments offered by a group of medical doctors whose
capital infusion shall be used (a) to complete the finishing requirements for the 3rd and 5th
floors of the new building; (b) to renovate the old 5storey building where St. Michael Hospital
operates; and (c) to pay, in whole or in part, the bank loan with the view of finally integrating
St. Michael Hospital with SMMCI. Finding the Rehabilitation Petition to be sufficient in form
and substance, the RTC issued a Stay Order. In an Order 34 dated August 4, 2011, the RTC
approved the Rehabilitation Plan
Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that the
approval of the Rehabilitation Plan violated its rights as an unpaid creditor/mortgagee and
that the same was submitted without prior consultation with creditors. In a Decision dated
August 30, 2012, the CA affirmed the RTCs approval of the Rehabilitation Plan. Hence, this
petition.
Issue:
Whether or not the CA correctly affirmed SMMCIs Rehabilitation Plan as approved

by the RTC.
Ruling:
No. that SMMCIs Rehabilitation Plan, an indispensable requisite in corporate

rehabilitation proceedings, failed to comply with the fundamental requisites outlined in
Section 18, Rule 3 of the Rules, particularly, that of a material financial commitment to
support the rehabilitation and an accompanying liquidation analysis, all of the petitioning
debtor: SEC. 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired
business targets or goals and the duration and coverage of the rehabilitation; (b) the terms
and conditions of such rehabilitation which shall include the manner of its implementation,
giving due regard to the interests of secured creditors such as, but not limited, to the
nonimpairment of their security liens or interests; (c) the material financial commitments to
support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan,
which may include debt to equity conversion, restructuring of the debts, dacion en pago or
sale exchange or any disposition of assets or of the interest of shareholders, partners or
members; (e) a liquidation analysis setting out for each creditor that the present value of
payments it would receive under the plan is more than that which it would receive if the
assets of the debtor were sold by a liquidator within a six-month period from the estimated
date of filing of the petition; and (f) such other relevant information to enable a reasonable
investor to make an informed decision on the feasibility of the rehabilitation plan.

corporations that do not qualify under the Rules. Neither should it be allowed to
corporations whose sole purpose is to delay the enforcement of any of the rights of the
creditors, which is rendered obvious by: (a) the absence of a sound and workable business
Page 187 of 192
plan; (b) baseless and unexplained assumptions, targets, and goals; and (c) speculative
capital infusion or complete lack thereof for the execution of the business plan.
Unfortunately, these negative indicators have all surfaced to the fore, much to SMMCIs
chagrin. While the Court recognizes the financial predicaments of upstart corporations
under the prevailing economic climate, it must nonetheless remain forthright in limiting the
remedy of rehabilitation only to meritorious cases. As above-mentioned, the purpose of
rehabilitation proceedings is not only to enable the company to gain a new lease on life but
also to allow creditors to be paid their claims from its earnings, when so rehabilitated.
Hence, the remedy must be accorded only after a judicious regard of all stakeholders
interests; it is not a one-sided tool that may be graciously invoked to escape every position
of distress.
In this case, not only has the petitioning debtor failed to show that it has formally
began its operations which would warrant restoration, but also it has failed to show
compliance with the key requirements under the Rules, the purpose of which are vital in
determining the propriety of rehabilitation. Thus, for all the reasons hereinabove explained,
the Court is constrained to rule in favor of BPI Family and hereby dismiss SMMCIs
Rehabilitation Petition.
Viva Shipping Lines, Inc. v. Keppel Philippines, Inc. et. al.

G.R. No. 177382, February 17, 2016, Leonen, J:
Facts:
On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for
Corporate Rehabilitation before the Regional Trial Court of Lucena City. The Regional Trial
Court initially denied the Petition for failure to comply with the requirements in Rule 4,
Sections 2 and 3 of the Interim Rules of Procedure on Corporate Rehabilitation. On October
17, 2005, Viva Shipping Lines filed an Amended Petition.
In the Amended Petition, Viva Shipping Lines claimed to own and operate 19 maritime
vessels5 and Ocean Palace Mall, a shopping mall in downtown Lucena City. Viva Shipping
Lines also declared its total properties assessed value at about 45,172,790.00. However,
these allegations were contrary to the attached documents in the Amended Petition.
One of the attachments, the Property Inventory List, showed that Viva Shipping Lines owned
only two (2) maritime vessels: M/V Viva Peafrancia V and M/V Marian Queen. The list also
stated that the fair market value of all of Viva Shipping Lines assets amounted to
447,860,000.00, 400 million more than what was alleged in its Amended Petition. Some
of the properties listed in the Property Inventory List were already marked as "encumbered"
by its creditors; hence, only 147,630,000.00 of real property and its vessels were marked
as "free assets."
In its Company Rehabilitation Plan, Viva Shipping Lines enumerated possible sources of
funding such as the sale of old vessels and commercial lots of its sister company, Sto.
Domingo Shipping Lines. It also proposed the conversion of the Ocean Palace Mall into a
Page 188 of 192
hotel, the acquisition of two (2) new vessels for shipping operations, and the "re-operation"
of an oil mill in Buenavista, Quezon.
On October 19, 2005, the Regional Trial Court found that Viva Shipping Lines Amended
Petition to be "sufficient in form and substance," and issued a stay order. It stayed the
enforcement of all monetary and judicial claims against Viva Shipping Lines, and prohibited
Viva Shipping Lines from selling, encumbering, transferring, or disposing of any of its
properties except in the ordinary course of business. Thereafter, several of the creditors of
Viva Shipping Lines (including emplloyees) came out. The RTC then lifted the stay order and
denied Viva Shiping Lines petition.
The Regional Trial Court found that Viva Shipping Lines assets all appeared to be non-
performing. Further, it noted that Viva Shipping Lines failed to show any evidence of consent
to sell real properties belonging to its sister company. Aggrieved, Viva Shipping Lines filed a
Petition for Review under Rule 43 of the Rules of Court before the Court of Appeals.
The Court of Appeals dismissed Viva Shipping Lines Petition for Review in the Resolution
dated January 5, 2007. It found that Viva Shipping Lines failed to comply with procedural
requirements under Rule 43. The Court of Appeals ruled that due to the failure of Viva
Shipping Lines to implead its creditors as respondents, "there are no respondents who may
be required to file a comment on the petition, pursuant to Section 8 of Rule 43."
Petitioner argues that the Court of Appeals should have given due course to its Petition and
excused its non-compliance with procedural rules. For petitioner, the Interim Rules of
Procedure on Corporate Rehabilitation mandates a liberal construction of procedural rules,
which must prevail over the strict application of Rule 43 of the Rules of Court.
Issue:
1. Whether the Court of Appeals erred in dismissing petitioner Viva Shipping Lines
Petition for Review on procedural grounds; and
2. Whether petitioner was denied substantial justice when the Court of Appeals did not
give due course to its petition.
Held:
1. No. The Court held that it cannot exercise its equity jurisdiction and allow petitioner
to circumvent the requirement to implead its creditors as respondents. Tolerance of
such failure will not only be unfair to the creditors, it is contrary to the goals of
corporate rehabilitation, and will invalidate the cardinal principle of due process of
law. The failure of petitioner to implead its creditors as respondents cannot be cured
by serving copies of the Petition on its creditors. Since the creditors were not
impleaded as respondents, the copy of the Petition only serves to inform them that a
petition has been filed before the appellate court. Their participation was still
significantly truncated. Petitioners failure to implead them deprived them of a fair
Page 189 of 192
hearing. The appellate court only serves court orders and processes on parties
formally named and identified by the petitioner. Since the creditors were not named
as respondents, they could not receive court orders prompting them to file remedies
to protect their property rights.
2. No. Petitioners rehabilitation plan is almost impossible to implement. Even an

ordinary individual with no business acumen can discern the groundlessness of
petitioners rehabilitation plan. Petitioner should have presented a more realistic and
practicable rehabilitation plan within the time periods allotted after initiatory
hearing, or otherwise, should have opted for liquidation.
Corporate rehabilitation is a remedy for corporations, partnerships, and associations

"who [foresee] the impossibility of meeting [their] debts when they respectively fall
due." A corporation under rehabilitation continues with its corporate life and
activities to achieve solvency, or a position where the corporation is able to pay its
obligations as they fall due in the ordinary course of business. Solvency is a state
where the businesses liabilities are less than its assets.
Corporate rehabilitation is a type of proceeding available to a business that is

insolvent. In general, insolvency proceedings provide for predictability that
commercial obligations will be met despite business downturns. Stability in the
economy results when there is assurance to the investing public that obligations will
be reasonably paid. It is considered state policy to encourage debtors, both juridical
and natural persons, and their creditors to collectively and realistically resolve and
adjust competing claims and property rights[.] . . . [R]ehabilitation or liquidation shall
be made with a view to ensure or maintain certainty and predictability in commercial
affairs, preserve and maximize the value of the assets of these debtors, recognize
creditor rights and respect priority of claims, and ensure equitable treatment of
creditors who are similarly situated. When rehabilitation is not feasible, it is in the
interest of the State to facilitate a speedy and orderly liquidation of these debtors
assets and the settlement of their obligations.
The rationale in corporate rehabilitation is to resuscitate businesses in financial

distress because "assets . . . are often more valuable when so maintained than they
would be when liquidated." Rehabilitation assumes that assets are still serviceable to
meet the purposes of the business. The corporation receives assistance from the court
and a disinterested rehabilitation receiver to balance the interest to recover and
continue ordinary business, all the while attending to the interest of its creditors to
be paid equitably. These interests are also referred to as the rehabilitative and
the equitable purposes of corporate rehabilitation.
Rather than let struggling corporations slip and vanish, the better option is to allow
commercial courts to come in and apply the process for corporate rehabilitation.
Page 190 of 192

Mervic Realty, Inv. v. Viccy Realty, Inc.

G.R. No. 193748, February 3, 2016, Brion, J:
Facts:
Mervic Realty and Viccy Realty jointly filed a petition for rehabilitation before the RTC of
Malabon. The rehabilitation petition was filed under A.M. No. 00-8-10-SC dated November
21, 2000, or the 2000 Interim Rules of Procedure on Corporate Rehabilitation
The petitioners alleged that they are duly organized domestic real estate corporations with
principal place of business in Malabon City. They disclosed that their common president is
Mario Siochi and that a majority of their stockholders and officers are members of the Siochi
family. The petitioners averred that they were financially stable until they were hit by the
Asian financial crisis in 1997. As a result of the financial crisis, they foresaw the impossibility
of meeting their obligations when they fall due.
The petitioners thus prayed that the rehabilitation court issue a stay order to suspend the
enforcement of the claims against them. As of September 30, 2006, their combined total
obligations inclusive of interests, penalties, and other charges had reached P193,156,559.00.
The RTC granted the stay order prayed for. Chinabank, one of the creditors of the petitioners
opposed the petition and likewise questioned the venue of the rehabilitation petition. Under
Section 2, Rule 3 of the Interim Rules, petitions for corporate rehabilitation shall be filed with
the Regional Trial Court having jurisdiction over the territory where the debtor's principal
office is located. According to China Bank, the Articles of Incorporation (AOI) of the
petitioners show that their principal place of business is located in Quezon City, not in
Malabon City.
The rehabilitation court approved the rehabilitation plan and denied China Banks
opposition. The Court of Appeals granted China Banks petition for review and dismissed the
petition for rehabilitation on the ground of improper venue.
The petitioners invoke the 2008 Rules which allow a group of companies to file a joint
rehabilitation petition.
Issue: Whether the petitioners, which are close family corporations, can jointly file the
petition for rehabilitation under the Interim Rules.
Held: No. The rules in effect at the time the rehabilitation petition was filed were the Interim
Rules. The Interim Rules took effect on December 15, 2000, and did not allow the joint or
consolidated filing of rehabilitation petitions. In the present case, the rehabilitation court
conducted the initial hearing on 22 January 2007 and approved the rehabilitation plan on 15
April 2008, long before the effectivity of the 2008 Rules. Clearly, the 2008 Rules cannot be
retroactively filed in the rehabilitation petition filed by the petitioners.
Page 191 of 192

In Asiatrust Development Bank v. First Aikka Development, Inc., the Court held that the
consolidation of petitions involving two separate entities is not proper. Although the
Corporations had interlocking directors, owners, officers, as well as intertwined loans, the
two corporations were separate, each one with its own distinct personality. In determining
the feasibility of rehabilitation, the court evaluates the assets and liabilities of each of these
corporations separately and not jointly with other corporations.
Thus, the Court dismissed the rehabilitation petition but only with respect to the corporation
located in Pasig City. The Court found that the other corporation properly filed its
rehabilitation petition in Baguio City because its principal office is located in that city. The
Court remanded the case to the rehabilitation court of Baguio City for further proceedings
but only with respect to the corporation located in that city.
Page 192 of 192

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MERCANTILE LAW DIGESTS 2014-June 2016

Philippine National Bank vs. San Miguel Corporation

In the case ofTransfield Philippines, Inc. v. Luzon Hydro Corporation:

Hongkong and Shanghai Banking Corporation Limited v. National Steel Corporation

LOAN SECURITY FEATURE

TRUST RECEIPTS LAW

BANGKO SENTRAL NG PILIPINAS v. AGUSTIN LIBO-ON

In the absence of such absolute conveyance of title to qualify as an assignment of

Whether BSP has the authority to foreclose the mortgage

concept of complete alienation of title and rights in an assignment of credit is lacking.

NEGOTIABLE INSTRUMENTS LAW

KINDS OF NEGOTIABLE INSTRUMENTS

NUNELON MARQUEZ v. ELISAN CREDIT CORPORATION

HOLDER IN DUE COURSE

ALVIN PATRIMONIO vs. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN III

1. Whether Marasigan is a holder in due course.

1. No. Marasigan is Not a Holder in Due Course

(a) That it is complete and regular upon its face;

(c) That he took it in good faith and for value;

The answer is supplied by the applicable statutory provision found in Section 14 of

METROPOLITAN BANK AND TRUST COMPANY vs. WILFRED N. CHIOK

The dedication of such checks pursuant to specific reciprocal undertakings between

Moreover, it seems to be fallacious to hold that the unconditional payment of

Fortune Medicare, Inc. vs. David Robert Amorin

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

Gaisano v. Development Insurance Corporation, G.R. No. 190702

On September 27, 1996, respondent issued a comprehensive commercial vehicle policy to

The Insular Life Assurance Company, Ltd. V. Khu et. al.

Held: Petition denied.

allegations of fraud, concealment, or misrepresentation by insurers, claims which

RESCISSION OF INSURANCE CONTRACTS

Sunlife of Canada (Philippines), Inc. v. Sibya, et. al.

CLAIMS SETTLEMENT AND SUBROGRATION

H.H. HOLLERO CONSTRUCTION, INC. vs. GOVERNMENT SERVICE INSURANCE SYSTEM

VIGILANCE OVER GOODS

ASIAN TERMINALS, INC. vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION

FIRST LEPANTO demanded reimbursement from COSCO through SMITH BELL,

1. Is ATI liable for the damages of the shipment?

2. Whether or not the presentation of the insurance policy is indispensable in proving

As a general rule, the marine insurance policy needs to be presented in evidence

LIABILITY FOR ACTS OF OTHERS

MARIANO C. MENDOZA AND ELVIRA LIM vs. SPOUSES LEONORA J. GOMEZ

1. Yes, Lim shall be vicariously liable with Mendoza.

Gross negligence is the absence of care or diligence as to amount to a reckless

Art. 2208. In the absence of stipulation, attorneys fees and expenses of

(3) In criminal cases of malicious prosecution against the plaintiff;

Section 1. Costs ordinarily follow results of suit.- Unless otherwise provided in

STIPULATION FOR LIMITATION OF LIABILITY

PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE,

HEUNG-A SHIPPING CORPORATION and W ALLEM PHILIPPINES SHIPPING, INC. vs.

On December 19, 2000, Novartis Consumer Health Philippines, Inc. (NOVARTIS)

Aggrieved, NOVARTIS demanded indemnification for the lost/damaged shipment

1. Whether HEUNG-A should be liable for the loss sustained.

1. As the carrier of the subject shipment, HEUNG-A was bound to exercise

Hence, when there is a loss/damage to goods covered by contracts of carriage from a

DILIGENCE REQUIRED OF COMMON CARRIERS

Nedlloyd Lijnen B.V. Rotterdam is a foreign corporation engaged in the business of

Yes, Nedlloyd is laible.

LIABILITIES OF COMMON CARRIERS

LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL

Loadstar International Shipping (Loadstar Shipping) and PASAR entered into a

Meanwhile, Malayan wrote Loadstar Shipping informing the latter of a prospective

The petition is granted.