2018 BAR EXAMS REMINDERS

Atty. Maria Zarah R. Villanueva-Castro

FRIA
Creditors are indispensable parties.

A corporate rehabilitation case cannot be decided without the creditors’ participation. The failure of
petitioner to implead its creditors as respondents cannot be cured by serving copies of the Petition on its
creditors. (Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, G.R. No. 177382
February 17, 2016)

By not declaring its former employees as creditors in the Amended Petition for Corporate Rehabilitation
and by not notifying the same employees that an appeal had been filed, petitioner consistently denied
the due process rights of these employees. (Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc.,
784 SCRA 173, G.R. No. 177382 February 17, 2016)

Material financial commitment as a requirement for rehabilitation

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
Polyprinters’s 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. (Philippine Bank of Communications vs. Basic Polyprinters and Packaging Corporation, 738
SCRA 561, G.R. No. 187581 October 20, 2014)

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. (BPI Family Savings Bank, Inc. vs. St. Michael Medical Center, Inc., 754 SCRA 493, G.R. No.
205469 March 25, 2015)

Rehabilitation must be denied where insolvency appears irreversible and purpose is solely to delay
enforcement of claims.

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. Thus, the remedy of
rehabilitation should be denied to corporations whose insolvency appears to be irreversible and whose
sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious
by: (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. (Philippine Asset Growth Two, Inc. v. Fastech Synergy Philippines, Inc. (formerly First Asia
System Technology, Inc.), G.R. No. 206528, June 28, 2016)

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Actual vs. Technical Insolvency

In case of actual insolvency, the corporation’s assets are not enough to cover its liabilities whereas in
technical insolvency, the corporation has enough assets but it foresees its inability to pay its obligations
for more than one year. (Philippine National Bank v. Court of Appeals, G.R. No. 165571, January 20, 2009)

Pre-Negotiated Rehabilitation

An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court
for the approval of a pre-negotiated Rehabilitation Plan, which has been endorsed or approved by
creditors holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured creditors
holding more than fifty per cent (50%) of the total secured claims of the debtor and unsecured creditors
holding more than fifty per cent (50%) of the total unsecured claims of the debtor. (Sec. 76, FRIA)

Cram Down

A rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the
corporation’s total liabilities if there is a showing that rehabilitation is feasible and the opposition of the
creditors is manifestly unreasonable. (Victorio-Aquino v. Pacific Plans, Inc., G.R. No. 193108, December 10,
2014; Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation, G.R. No. 175844, July 29, 2013)

Standstill Period

Standstill Period is the period agreed upon by the debtor and its creditors to enable them to negotiate
and enter into an out-of-court or informal restructuring/workout agreement or Rehabilitation Plan
pursuant to Rule 4 of these Rules. The standstill agreement may include provisions identical with or similar
to the legal effects of a commencement order under Section 9, Rule 2 of these Rules. (Sec. 5(q), Rule 1,
A.M. 12-12-11-SC)

Properties merely owned by stockholders cannot be included in the inventory of assets of a corporation
under rehabilitation.

In rehabilitation proceedings, claims of creditors are limited to demands of whatever nature or character
against a debtor or its property, whether for money or otherwise. In several cases, we have already held
that stay orders should only cover those claims directed against corporations or their properties, against
their guarantors, or their sureties who are not solidarily liable with them, to the exclusion of
accommodation mortgagors. xxx Given that the true owner the subject property is not the corporation,
petitioner cannot be considered a creditor of MSI but a holder of a claim against respondent spouses.
Bustos vs. Millians Shoe, Inc., 824 SCRA 67, G.R. No. 185024 April 24, 2017

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INSURANCE
Cash and Carry Rule; Exceptions:

Notwithstanding 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. Exceptions are:
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;
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; 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 case did not fall under any of the exceptions (Gaisano
v. Development Insurance and Surety Corp., G.R. No. 190702, February 27, 2017)

The obscurity of the language of the policy shall be construed in favor of the insured.

In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely
clear whether the phrase “effective June 22, 1999” refers to the subject of the sentence, namely “the
reinstatement of this policy,” or to the subsequent phrase “changes are made on the policy.”

Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability
has lapsed. (The Insular Life Assurance Company, Ltd. vs. Khu, 789 SCRA 544, G.R. No. 195176 April 18,
2016, J. Del Castillo)

Insurable Interest

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long
as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he
has a vendor’s lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days after the time of the loss covered by the policies. (Gaisano
Cagayan, Inc. vs. Insurance Company of North America, 490 SCRA 286, G.R. No. 147839 June 8, 2006)

Non-default options in life insurance

In the case of individual life or endowment insurance, the policy shall contain in substance the following
conditions, among other things:

A provision specifying the options to which the policyholder is entitled to in the event of default in a
premium payment after three (3) full annual premiums shall have been paid. Such option shall consist of:

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 (1) A cash surrender value payable upon surrender of the policy which shall not be less than the
reserve on the policy, the basis of which shall be indicated, for the then current policy year and any
dividend additions thereto, reduced by a surrender charge which shall not be more than one-fifth
(1/5) of the entire reserve or two and one-half percent (2½%) of the amount insured and any dividend
additions thereto; and

(2) One or more paid-up benefits on a plan or plans specified in the policy of such value as may be
purchased by the cash surrender value. (Sec. 233[f], IC)

FPA Clause

FPA or Free from Particular Average clause limits the liability of the insurer in case of partial loss.

TRANSPORTATION
The LTFRB can suspend operation of 186 buses covered by its 28 CPCs although only one bus unit was
involved in the incident.

The LTFRB’s power to suspend the CPCs issued to public utility vehicles depends on its assessment of the
gravity of the violation, the potential and actual harm to the public, and the policy impact of its own
actions. (LTFRB vs. G.V. Florida Transport, Inc., G.R. No. 213088, June 28, 2017)

A common carrier’s extraordinary responsibility over the shipper’s goods lasts from the time these
goods are unconditionally placed in the possession of, and received by, the carrier for transportation,
until they are delivered, actually or constructively, by the carrier to the consignee.

That the cargo disappeared during transit while under the custody of BMT — TMBI’s subcontractor — did
not diminish nor terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code presumes
that it was at fault. Instead of showing that it had acted with extraordinary diligence, TMBI simply argued
that it was not a common carrier bound to observe extraordinary diligence. Its failure to successfully
establish this premise carries with it the presumption of fault or negligence, thus rendering it liable to
Sony/Mitsui for breach of contract. (Torres-Madrid Brokerage, Inc. vs. FEB Mitsui Marine Insurance Co.,
Inc., 796 SCRA 142, G.R. No. 194121 July 11, 2016)

Actual notification was not necessary to render the petitioner as the common carrier liable for the lost
personal belongings of a passenger.

By allowing him to board the vessel with his belongings without any protest, the petitioner became
sufficiently notified of such belongings. So long as the belongings were brought inside the premises of the
vessel, the carrier was thereby effectively notified and consequently duty-bound to observe the required
diligence in ensuring the safety of the belongings during the voyage. (Sulpicio Lines, Inc. vs. Sesante, 798
SCRA 459, G.R. No. 172682 July 27, 2016)

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The airlines’ claim that petitioners do not have confirmed reservations cannot be given credence by the
Court. The petitioners were issued two (2)-way tickets with itineraries indicating the date and time of
their return flight to Manila. These are binding contracts of carriage.

The petitioners were issued two-way tickets with itineraries indicating the date and time of their return
flight to Manila. These are binding contracts of carriage. China Southern Airlines allowed petitioners to
check in their luggage and issued the necessary claim stubs showing that they were part of the flight. It
was only after petitioners went through all the required check-in procedures that they were informed by
the airlines that they were merely chance passengers. (Ramos vs. China Southern Airlines Co., Ltd., 804
SCRA 114, G.R. No. 213418 September 21, 2016)

Natural disaster (storm)

According to PAGASA, a storm has a wind force of 48 to 55 knots, equivalent to 55 to 63 miles per hour or
10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around
force 7 to 8 on the Beaufort Scale. Consequently, the strong winds accompanying the southwestern
monsoon could not be classified as a “storm.” Such winds are the ordinary vicissitudes of a sea voyage.
(Transimex Co. vs. Mafre Asian Insurance Corp., 802 SCRA 667, G.R. No. 190271 September 14, 2016)

The bill of lading is oftentimes drawn up by the shipper/consignor and the carrier without the
intervention of the consignee.

However, the latter can be bound by the stipulations of the bill of lading when a) there is a relation of
agency between the shipper or consignor and the consignee or b) when the consignee demands
fulfillment of the stipulation of the bill of lading which was drawn up in its favor. (MOF Company, Inc. vs.
Shin Yang Brokerage Corporation, 608 SCRA 521, G.R. No. 172822 December 18, 2009)

Respondent’s ferry services are so intertwined with its main business as to be properly considered
ancillary thereto. The constancy of respondent’s ferry services in its resort operations is underscored by
its having its own Coco Beach boats. And the tour packages it offers, which include the ferry services,
may be availed of by anyone who can afford to pay the same. These services are thus available to the
public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be
imprudent to suppose that it provides said services at a loss. The Court is aware of the practice of beach
resort operators offering tour packages to factor the transportation fee in arriving at the tour package
price. That guests who opt not to avail of respondent’s ferry services pay the same amount is likewise
inconsequential. These guests may only be deemed to have overpaid. (Cruz vs. Sun Holidays, Inc., 622
SCRA 389, G.R. No. 186312 June 29, 2010)

PRIVATE CORPORATIONS
Management and control of a corporation are vested in its Board of Directors.

The management and control of GDITI, being a stock corporation, are vested in its duly elected Board of
Directors, the body that: (1) exercises all powers provided for under the Corporation Code; (2) conducts

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all business of the corporation; and (3) controls and holds all property of the corporation. Its members
have been characterized as trustees or directors clothed with a fiduciary character. Tom vs. Rodriguez,
761 SCRA 679, G.R. No. 215764 July 6, 2015.

Thus, a MOA that allows a third part to control and manage a company, without the board’s imprimatur
is contrary to law.

Beneficial ownership

As defined in the SRC-IRR, “[b]eneficial owner or beneficial ownership means any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares
voting power (which includes the power to vote or direct the voting of such security) and/or investment
returns or power (which includes the power to dispose of, or direct the disposition of such security). (Roy
III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016)

The term “full beneficial ownership” found in the FIA-IRR is to be understood in the context of the entire
paragraph defining the term “Philippine national.” Mere legal title is not enough to meet the required
Filipino equity, which means that it is not sufficient that a share is registered in the name of a Filipino
citizen or national, i.e., he should also have full beneficial ownership of the share. If the voting right of a
share held in the name of a Filipino citizen or national is assigned or transferred to an alien, that share is
not to be counted in the determination of the required Filipino equity. In the same vein, if the dividends
and other fruits and accessions of the share do not accrue to a Filipino citizen or national, then that share
is also to be excluded or not counted. (Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22,
2016)

If a “specific stock” is owned by a Filipino in the books of the corporation, but the stock’s voting power or
disposing power belongs to a foreigner, then that “specific stock” will not be deemed as “beneficially
owned” by a Filipino. (Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016)

Business-Enterprise Transfer

In such transfer, the transferee corporation’s interest goes beyond the assets of the transferor’s assets
and its desires to acquire the latter’s business enterprise, including its goodwill. Here, the transferee
purchases not only the assets of the transferor, but also its business. As a result of the sale, the transferor
is merely left with its juridical existence, devoid of its industry and earning capacity. (Y-I Leisure Philippines,
Inc. vs. Yu, 770 SCRA 56, G.R. No. 207161 September 8, 2015)

Abandonment of sale

After approval by the stockholders and the Board of the sale, the Board may, nevertheless, in its
discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and
assets, subject to the rights of third parties under any contract relating thereto, without further action or
approval by the stockholders or members. (Lopez Realty vs. Sps. Tanjangco, 12 November 2014)

Issuance of shares requires board approval only. No need for shareholders’ approval.

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The power to issue stocks is lodged with the Board of Directors and no stockholders meeting is required
to consider it because additional issuances of stock (unlike increase in capital stock) does not need
approval of the stockholders. What is only required is the board resolution approving the additional
issuance of shares. The corporation shall also file the necessary application with the SEC to exempt these
from the registration requirements under the SRC. (Majority of Stockholders of Ruby Industrial Corp. v.
Lim, G.R. No. 165887, June 6, 2011)

Change of Corporate Name

The mere change in the corporate name is not considered under the law as the creation of a new
corporation; hence, the renamed corporation remains liable for the illegal dismissal of its employee
separated under that guise. (Zuellig Freight & Cargo Systems vs. NLRC, G.R. No. 157900, July 22, 2013)

Transfer of Shares

The statutory rule that, 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 cannot be applied when the Corporation unduly
refused to recognize the assignment of the shares. (Interport Resources Corp. vs. Securities Specialist Inc.
& R.C. Lee Securities , Inc., G.R. No. 154069; June 06, 2016)

Registration of transfer of shares

The surrender of the certificate of stocks by the transferee to the corporation is not a requisite before
registration of the transfer maybe made in the corporate books. (Anna Teng v. SEC; G. R. 184332; Feb 17,
2016)

But, the surrender of the original certificate of stock is necessary before the issuance of a new one so that
the old certificate may be cancelled. A corporation is not bound and cannot be required to issue a new
certificate unless the original certificate is produced and surrendered. Surrender and cancellation of the
old certificates serve to protect not only the corporation but the legitimate shareholder and the public as
well, as it ensures that there is only one document covering a particular share of stock. (Id)

The registration of a transfer of shares of stock is a ministerial duty on the part of the corporation.

Aggrieved parties may then resort to the remedy of mandamus to compel corporations that wrongfully
or unjustifiably refuse to record the transfer or to issue new certificates of stock. (Andaya vs. Rural Bank
of Cabadbaran, Inc., 799 SCRA 325, G.R. No. 188769 August 3, 2016)

Requiring petitioner to register the transaction before he could institute a mandamus suit to compel
registration of transfer of shares was a palpable error.

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It would lead to an absurd, circuitous situation in which transferee was prevented from causing the
registration of the transfer, ironically because the shares had not been registered. (Andaya vs. Rural Bank
of Cabadbaran, Inc., 799 SCRA 325, G.R. No. 188769 August 3, 2016)

Executor/Administrator can vote shares of a deceased stockholder

On the death of a shareholder, the executor or administrator duly appointed by the court is vested with
the legal title to the stock and entitled to vote it. (Lopez Realty, Inc. and Asuncion Lopez-Gonzales v. Sps.
Tanjangco, G.R. No. 154291, November 12, 2014)

Until a settlement and division of the estate is effected, the stocks of the decedent are held by the
administrator or executor. (Id)

Right of Inspection

In the absence of evidence, the PCGG cannot unilaterally deny a stockholder from exercising his statutory
right of inspection based on an unsupported and naked assertion that private respondent’s motive is
improper or merely for curiosity or on the ground that the stockholder is not in friendly terms with the
corporation’s officers. (Associated Smelting and Refining Corporation vs. Lim, 804 SCRA 600, G.R. No.
172948 October 5, 2016)

Appraisal right requires unrestricted retained earnings

No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained
earnings. Thus, for an action to prosper, the Corporation must have Unrestricted Retained Earnings at the
time of the filing of the complaint. (Turner vs. Lorenzo Shipping Corporation
G.R. No. 157479, November 24, 2010)

An action to nullify the sale of corporate property and seeks to preserve the same partakes of a derivate
suit.

The action does not entail the premature distribution of corporate assets. On the contrary, the reliefs seek
to preserve them for the corporate interest of ALRAI. Clearly then, any benefit that may be recovered is
accounted for, not in favor of respondents, but for the corporation, who is the real party-in-interest.
Hence, derivative action. (Agdao Landless Residents Association, Inc. vs. Maramion, 806 SCRA 74, G.R.
Nos. 188642; 189425, G.R. Nos. 188888-89 October 17, 2016)

Individual suits are filed when the cause of action belongs to the stockholder personally, and not to the
stockholders as a group, or to the corporation, e.g., denial of right to inspection and denial of dividends
to a stockholder.

If the cause of action belongs to a group of stockholders, such as when the rights violated belong to
preferred stockholders, a class or representative suit may be filed to protect the stockholders in the group.
(Agdao Landless Residents Association, Inc. vs. Maramion, 806 SCRA 74, G.R. Nos. 188642 & 189425,
G.R. Nos. 188888-89 October 17, 2016)

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The power of a corporation to validly grant or convey any of its real or personal properties is
circumscribed by its primary purpose.

Based on the records of this case, we find that the transfers of the corporate properties to Javonillo,
Armentano, Dela Cruz, Alcantara and Loy are bereft of any legitimate corporate purpose, nor were they
shown to be reasonably necessary to further ALRAI’s purposes. This is principally because, as respondents
argue, petitioners “personally benefitted themselves by allocating among themselves vast track of lands
at the dire expense of the landless general membership of the Association.” (Agdao Landless Residents
Association, Inc. vs. Maramion, 806 SCRA 74, G.R. Nos. 188642; 189425, G.R. Nos. 188888-89 October 17,
2016)

Only the President and the Board of Directors are authorized by the by-laws to call a special meeting.

In the instant case, there is no dispute that the 17 December 1997 Special Stockholders’ Meeting was
called neither by the President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its
name suggests, is created for the purpose of overseeing the affairs of the corporation, nowhere in the by-
laws does it state that it is authorized to exercise corporate powers, such as the power to call a special
meeting, solely vested by law and the MSC by-laws on the President or the Board of Directors. (Jose A.
Bernas, et al vs. Jovencio F. Cinco, G.R. Nos. 163356-57, July 1, 2015)

Membership in a non-stock corporation

Section 90 of the Corporation Code states that membership in a nonstock corporation and all rights arising
therefrom are personal and nontransferable, unless the articles of incorporation or the by-laws otherwise
provide. (Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038 January 25, 2017)

Ownership of a condominium unit, through any valid means, entitles one to become a member of a
condominium corporation.

The Condominium Act does not provide a specific mode of acquiring ownership. Thus, whether one
becomes an owner of a condominium unit by virtue of sale or donation is of no moment. It is erroneous
to argue that the ownership must result from a sale transaction between the owner-developer and the
purchaser. Such interpretation would mean that persons who inherited a unit, or have been donated one,
and properly transferred title in their names cannot become members of a condominium corporation.
(Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038 January 25, 2017)

Individual respondents who are non-members cannot be elected as directors and officers of the
condominium corporation.

While Moldex may rightfully designate proxies or representatives, the latter, however, cannot be elected
as directors or trustees of Condocor. First, the Corporation Code clearly provides that a director or trustee
must be a member of record of the corporation. Further, the power of the proxy is merely to vote. If said
proxy is not a member in his own right, he cannot be elected as a director or proxy. (Lim vs. Moldex Land,
Inc., 815 SCRA 619, G.R. No. 206038 January 25, 2017)

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Section 25 of the Corporation Code mandates that the President shall be a director.

As previously discussed, Jaminola (being non-member) could not be elected as a director. Consequently,
Jaminola’s election as President was null and void. (Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No.
206038 January 25, 2017)

Section 97 of the Corporation Code only specifies that “the stockholders of the corporation shall be
subject to all liabilities of directors.” Nowhere in that provision is there any inference that stockholders
of a close corporation are automatically liable for corporate debts and obligations.

Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for personal
liability of stockholders of close corporation, viz.: Sec. 100. Agreements by stockholders.—x x x x 5. To
the extent that the stockholders are actively engaged in the management or operation of the business
and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other
and among themselves. Said stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance. (Emphasis supplied) As can be read in
that provision, several requisites must be present for its applicability. (Bustos vs. Millians Shoe, Inc., 824
SCRA 67, G.R. No. 185024 April 24, 2017)

Corporation Sole vs. Corporation Aggregate

A corporation sole is “one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding
elder of a religious denomination, sect, or church, for the purpose of administering or managing, as
trustee, the affairs, properties and temporalities of such religious denomination, sect or church.”

A corporation aggregate formed for the same purpose, on the other hand, consists of two or more
persons. (Iglesia Evangelista Metodism En Las Islas Filipinas (IEMELIF) (Corporation Sole), Inc. vs. Lazaro,
624 SCRA 224, G.R. No. 184088, July 6, 2010)

Although a non-stock corporation has a personality that is distinct from those of its members who
established it, its articles of incorporation cannot be amended solely through the action of its board of
trustees. The amendment needs the concurrence of at least two-thirds of its membership.

If such approval mechanism is made to operate in a corporation sole, its one member in whom all the
powers of the corporation technically belongs, needs to get the concurrence of two-thirds of its
membership. The one member, here the General Superintendent, is but a trustee, according to Section
110 of the Corporation Code, of its membership. (Iglesia Evangelista Metodism En Las Islas Filipinas
(IEMELIF) (Corporation Sole), Inc. vs. Lazaro, 624 SCRA 224, G.R. No. 184088, July 6, 2010)

Offline Carrier

An offline carrier is “any foreign air carrier not certificated by the CAB, but who maintains office or who
has designated or appointed agents or employees in the Philippines, who sells or offers for sale any air
transportation in behalf of said foreign air carrier and/or others, or negotiate for, or holds itself out by

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solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or arranges for such
transportation.”

Hence, doing business. (Air Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507
January 11, 2016)

The Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 7042 clarifies that “doing
business” includes “appointing representatives or distributors, operating under full control of the
foreign corporation, domiciled in the Philippines or who in any calendar year stay in the country for a
period or periods totaling one hundred eighty (180) days or more.”

Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides guidance with its definition
of “doing business” with regard to foreign corporations. Section 3(d) of the law enumerates the activities
that constitute doing business: d. the phrase “doing business” shall include soliciting orders, service
contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the business organization:

Provided, however, That the phrase “doing business” shall not be deemed to include mere investment as
a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to represent its interests in
such corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account[.] (Emphasis supplied) (Air Canada vs.
Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016)

SECURITIES REGULATIONS CODE

A claim for accounting of association dues involves an intra-corporate dispute.

Just because the property has already been sold extra-judicially does not mean that the questioned
assessments have now become legal and valid or that they have become immaterial. In fact, the validity
of the foreclosure depends on the legality of the assessments and the issue must be determined by the
court if only to insure that the owner was not deprived of her property without having been heard.
(Chateau de Baie Condominium Corp. v. Sps. Moreno, 644 SCRA 288, G.R. No. 186271, February 23, 2011)

It does not necessarily follow that when both parties of a dispute are stockholders of a corporation, the
dispute is automatically considered intra-corporate in nature and jurisdiction consequently falls with
the SEC.

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When the nature of the controversy involves matters that are purely civil in character, it is beyond the
ambit of the limited jurisdiction of the SEC. (Intestate Estate of Alexander T. Ty vs. Court of Appeals, 356
SCRA 661, G.R. No. 112872, G.R. No. 114672 April 19, 2001)

Where the question raised in the complaint is whether or not there was a valid sale of corporate shares
in the absence of cause or consideration, the proper forum for such a dispute is a regular trial court.

the determination whether a contract is simulated or not is an issue that could be resolved by applying
pertinent provisions of the Civil Code, particularly those relative to obligations and contracts. (Intestate
Estate of Alexander T. Ty vs. Court of Appeals, 356 SCRA 661, G.R. No. 112872, G.R. No. 114672 April 19,
2001)

RTC’s Power to Call a Shareholders’ Meeting

Concomitant to the power of the RTC to hear and decide intra-corporate controversies is the authority to
issue orders necessary or incidental to the carrying out of the powers expressly granted to it, including in
appropriate cases, the holding of a special stockholders’ meeting (Yujuico vs. Quiambao, 513 SCRA 243,
G.R. No. 168639, January 29, 2007) Thus, the RTC may, in appropriate cases (such as the election
controversy here), order the holding of a special meeting of stockholders or members of a corporation
involving an intra-corporate dispute under its supervision. (Ibid)

Mere clarificatory conference cannot satisfy the due process requirement of CDO.

Petitioner did not conduct proper investigation or verification before it issued the challenged orders
(CDO). The clarificatory conference undertaken by petitioner regarding respondent’s business operations
cannot be considered a proper investigation or verification process to justify the issuance of the Cease
and Desist Order. It was merely an initial stage of such process, considering that after it issued the said
order following the clarificatory conference, petitioner still sought verification from the BSP on the nature
of respondent’s business activity. (Securities and Exchange Commission vs. Performance Foreign Exchange
Corporation, 495 SCRA 579, G.R. No. 154131 July 20, 2006)

The Sandiganbayan has no jurisdiction on intra-corporate disputes involving sequestered companies.

The mere fact that a corporation's shares of stocks are owned by a sequestered corporation does not, by
itself, automatically categorize the matter as one involving sequestered assets, or matters incidental to or
related to transactions involving sequestered corporations and/ or their assets. (Roberto V. San Jose, et
al., vs. Jose Ma. Ozamiz, G.R. No. 190590, July 12, 2017)

Network marketing scheme which aims to attract people to buy products does not constitute
investment contract.

They buy a product of some value to them: an Internet website of a 15-MB capacity. The client can use
this website to enable people to have internet access to what he has to offer to them, say, some skin
cream. The buyers of the website do not invest money in PCI that it could use for running some business
that would generate profits for the investors. The price of US$234.00 is what the buyer pays for the use

12
of the website, a tangible asset that PCI creates, using its computer facilities and technical skills. (Securities
and Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA 28, G.R. No. 164197 January 25, 2012)

Investment Contract

The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co.10 that,
for an investment contract to exist, the following elements, referred to as the Howey test must concur:
(1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others. (Securities
and Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA 28, G.R. No. 164197 January 25, 2012)

When Tender Offer Mandatory

A person is required to make a tender offer for equity shares of a public company in an amount equal to
the number of shares that the person intends to acquire in the following circumstances:

a) Any person or a group of persons acting in concert, who intends to acquire 35% or more of equity
shares of a public company pursuant to an agreement made between or among the person and
one or more sellers;
b) Any person or a group of persons acting in concert, intends to acquire 35% or more of the equity
shares of a public company in one or more transactions within a period of 12 months;
c) If any acquisition of even less than 35% would result in ownership of over 51% of the total
outstanding equity securities of a public company. (Rule 19, SRC Rules)

LETTERS OF CREDIT

Where there was a meeting of the minds between the buyer and the seller regarding the sale of foundry
pig iron to be paid for under a letter of credit, the failure of the buyer to open the letter of credit did not
prevent the perfection of the contract and neither did such failure extinguish the contract.

Where the buyer fails to open the letter of credit, as stipulated, the seller or exporter is entitled to claim
damages for such breach. Damages for failure to open the letter of credit may include the loss of profit
which the seller would have reasonably made had the transaction been carried out. (Reliance
Commodities vs. Daewoo Industrial Co., 228 SCRA 545)

Other parties to a letter of credit

The number of the parties, not infrequently and almost invariably in international trade practice, may be
increased. Thus, the services of an advising (notifying) bank may be utilized to convey to the seller the
existence of the credit; or, of a confirming bank which will lend credence to the letter of credit issued by
a lesser known issuing bank; or, of a paying bank which undertakes to encash the drafts drawn by the
exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may
approach another bank, termed the negotiating bank, to have the draft discounted. (Bank of America, NT
& SA vs. Court of Appeals, 228 SCRA 357, G.R. No. 105395 December 10, 1993)

13
A negotiating bank has right of recourse against the issuer bank and, until reimbursement is obtained, the
drawer of the draft continues to assume a contingent liability thereon. (Id)

Fraud Exception

The “fraud exception principle” is an exception to the independence principle. The untruthfulness of a
certificate accompanying a demand for payment under a standby letter of credit may qualify as fraud
sufficient to support an injunction against payment. The remedy for fraudulent abuse is an injunction.
(Transfield Philippines, Inc. vs. Luzon Hydro Corp., 443 SCRA 307)

TRUST RECEIPTS
The transaction is a simple loan when the goods subject of the agreement had been purchased and
delivered to the supposed entrustee prior to the execution of the trust receipt agreement.

The acquisition of ownership over the goods before the execution of the trust receipt agreement makes
the contract a simple loan, regardless of the denomination of the contract. (Colinares vs. Court of Appeals,
339 SCRA 609) Prior to the date of execution of the trust receipt, ownership over the goods was already
transferred to the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt
transaction, wherein the goods belong in ownership to the bank and are only released to the importer in
trust after the loan is granted. (Id)

When the goods subject of the transaction, such as chemicals and metal plates, were not intended for
sale or resale but for use in the fabrication of steel communication towers, the agreement cannot be
considered a trust receipt transaction but a simple loan.

P.D. No. 115 punishes the entrustee for his failure to deliver the price of the sale, or if the goods are not
sold, to return them to the entruster, which, in the present case, is absent and could not have been
complied with; therefore, the liability of the entrustee is only civil in nature. (Anthony L. Ng vs. People of
the Philippines, G.R. No. 173905, April 23, 2010)

Under the Trust Receipts law, the loss of the goods under trust receipt regardless of the cause and the
period or time it occurred, does not extinguish the civil obligation of the entrustee.

Where the entrustee tendered the return of the articles to the entrustee because they did not meet its
manufacturing requirements but the latter refused to accept and as a consequence, the entruster stored
them in its warehouse which was, however, gutted by fire, the entrustee’s obligation was not extinguished
despite the tender and its invocation of the principle of res perit domino. (Rosario Textile Mills Corp. vs.
Home Bankers Savings and Trust Company, 462 SCRA 88)

The principle of res perit domino will not apply if under the trust receipt, the bank is made to appear as
the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could
dispose of the goods in any manner that it wants, which it cannot do, just to give consistency with the
purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider

14
the bank as the true owner from the inception of the transaction would be to disregard the loan feature
thereof. (Id)

If the entrustee is a corporation, the penalty shall be imposed upon the directors, officers, employees or
other officials or persons responsible for the offense.

However, the person signing the trust receipt for the corporation is not solidarily liable with the entrustee-
corporation for the civil liability arising from the criminal offense unless he personally bound himself under
a separate contract of surety or guaranty. (Ong vs. Court of Appeals, 401 SCRA 649)

The fact that the officer who signed the trust receipt on behalf of the entrustee-corporation signed in
his official capacity without receiving the goods as he had never taken possession of such nor
committing dishonesty and abuse of confidence in transacting with the entrustor, is immaterial.

The law specifically makes the director, officer, employee or any person responsible criminally liable
precisely for the reason that a corporation, being a juridical entity, cannot be the subject of the penalty
of imprisonment. (Alfredo Ching vs. Secretary of Justice, 481 SCRA 609)

When the entrustee defaults on his obligation, the entruster has the discretion to avail of remedies
which it deems best to protect its right.

The law uses the word “may” in granting to the entruster the right to cancel the trust and take possession
of the goods; hence, the option is given to the entruster. (South City Homes, Inc. vs. BA Finance
Corporation, 371 SCRA 603)

Being based on an obligation ex contractu and not ex delicto, the civil action may proceed independently
of the criminal proceedings instituted against the entrustees regardless of the result of the latter.

A civil case filed by the entruster against the entrustees based on the failure of the latter to comply with
their obligation under the Trust Receipt agreement is proper because this breach of obligation is separate
and distinct from any criminal liability for misuse and/or misappropriation of goods or proceeds realized
from the sale of goods released under the trust receipts. (Sarmiento vs. Court of Appeals, 394 SCRA 315)

Entruster has discretion to avail or seek alternative action at any time upon default or failure of
entrustee to comply with any of the terms and conditions of trust agreement.

Significantly, the law uses the word “may” in granting to the entruster the right to cancel the trust and
take possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any
alternative action, such as a third-party claim or a separate civil action which it deems best to protect its
right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions
of the trust agreement. (Prudential Bank vs. National Labor Relations Commission, 251 SCRA 421, G.R. No.
112592 December 19, 1995)

15
INTELLECTUAL PROPERTY
The essential element of infringement is that the infringing mark is likely to cause confusion.

In this case, the complaint-affidavit for the Davidoff infringement case alleged confusing similarity
between the cigarette packs of the authentic Davidoff cigarette and the sample Dageta cigarette pack
seized during the search of FMC’s premises. Respondents submitted samples of the Davidoff and Dageta
cigarette packs during the preliminary investigation. (Forietrans Manufacturing Corp. vs. Davidoff Et. Cie
SA, 819 SCRA 191, G.R. No. 197482 March 6, 2017)

While there is no confusion is created insofar as the names “Davidoff” and “Dageta” are concerned, we
cannot say the same with respect to the cigarettes’ packaging. Indeed there might be differences when
the two are compared. We have, in previous cases, noted that defendants in cases of infringement do not
normally copy but only make colorable changes. The most successful form of copying is to employ enough
points of similarity to confuse the public, with enough points of difference to confuse the courts. (Id)

Ordinary Purchaser

An“ordinary purchaser” was defined as one “accustomed to buy, and therefore to some extent familiar
with, the goods in question. (Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA
600, G.R. No. 100098 December 29, 1995)

A personal name or surname may not be monopolized as a trademark or tradename as against others
of the same name or surname.

“LEE” is primarily a surname. Private respondent cannot, therefore, acquire exclusive ownership over and
singular use of said term . . . It has been held that a personal name or surname may not be monopolized
as a trademark or tradename as against others of the same name or surname. (Emerald Garment
Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600, G.R. No. 100098 December 29, 1995)

Barrio Fiesta’s “PAPA BOY” mark for its lechon sauce is confusing with UFC’s “PAPA” catsup.

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 lechón sauce,
and that the “PAPA BOY” lechón 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.” (UFC Philippines, Inc. [now merged with Nutri-Asia, Inc. as the surviving entity]
vs. Barrio Fiesta Manufacturing Corporation, 781 SCRA 424, G.R. No. 198889, January 20, 2016)

16
Trademark dilution is the lessening of the capacity of a famous mark to identify and distinguish good or
services.

To be eligible for the protection from dilution, there has to be a finding that: (1) the trademark sought to
be protected is famous and distinctive; (2) the use by another began after the owner’s mark became
famous; and (3) such subsequent use defames the owner’s mark. (Levi Strauss & Co. vs. Clinton Apparelle,
Inc., 470 SCRA 236, G.R. No. 138900, September 20, 2005)

Copyright Conditions for debates

The copyright conditions for the debates are: (1) the reproduction or communication to the
public by mass media of the debates is for information purposes; (2) the debates have not been
expressly reserved by the Lead Networks (copyright holders); and (3) the source is clearly
indicated. (Rappler, Inc. vs. Bautista, 788 SCRA 442, G.R. No. 222702 April 5, 2016)

There is a confusing similarity between the registered marks PHILIPS and PHILITES.

Applying the dominancy test in the instant case, it shows the uncanny resemblance or confusing similarity
between the trademark applied for by respondent with that of petitioner’s registered trademark. An
examination of the trademarks shows that their dominant or prevalent feature is the five-letter “PHILI,”
“PHILIPS” for petitioner, and “PHILITES” for respondent. The marks are confusingly similar with each other
such that an ordinary purchaser can conclude an association or relation between the marks. xxx Most
importantly, both trademarks are used in the sale of the same goods, which are light bulbs. The confusing
similarity becomes even more prominent when we examine the entirety of the marks used by petitioner
and respondent, including the way the products are packaged. In using the holistic test, we find that there
is a confusing similarity between the registered marks PHILIPS and PHILITES, and note that the mark
petitioner seeks to register is vastly different from that which it actually uses in the packaging of its
products. (Dy vs. Koninklijke Philips Electronics, N.V., 821 SCRA 241, G.R. No. 186088 March 22, 2017)

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. “Unlike a patent, a
copyright gives no exclusive right to the art disclosed; protection is given only to the expression of the
idea — not the idea itself.” (Olaño vs. Lim Eng Co, 787 SCRA 272, G.R. No. 195835 March 14, 2016)

Divisional Applications

When two or more inventions are claimed in a single application but are of such a nature that a single
patent may not be issued for them, the applicant is required “to divide,” that is, to limit the claims to
whichever invention he may elect, whereas those inventions not elected may be made the subject of
separate applications which are called “divisional applications”. (Smith Kline Beckman Corporation vs.

17
Court of Appeals, 409 SCRA 33, G.R. No. 126627 August 14, 2003)

Tests of Patent Infringement

Literal Infringement means each and every element recited in a claim has identical correspondence in the
allegedly infringing device or process.

The doctrine of equivalents provides that an infringement also takes place when a device appropriates a
prior invention by incorporating its innovative concept and, although with some modification and change,
performs substantially the same function in substantially the same way to achieve substantially the same
result. (Smith Kline Beckman Corporation vs. Court of Appeals, 409 SCRA 33, G.R. No. 126627 August 14,
2003)

The right of priority given to a patent applicant is only relevant when there are two or more conflicting
patent applications on the same invention.

Because a right of priority does not automatically grant letters patent to an applicant, possession of a right
of priority does not confer any property rights on the applicant in the absence of an actual patent.

Under Section 31 of the Intellectual Property Code, a right of priority is given to any patent applicant who
has previously applied for a patent in a country that grants the same privilege to Filipinos. (E.I. Dupont de
Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379 August 31, 2016)

Since both the United States and the Philippines are signatories to the Paris Convention for the
Protection of Industrial Property, an applicant who has filed a patent application in the United States
may have a right of priority over the same invention in a patent application in the Philippines.

However, this right of priority does not immediately entitle a patent applicant the grant of a patent. A
right of priority is not equivalent to a patent. Otherwise, a patent holder of any member-state of the Paris
Convention need not apply for patents in other countries where it wishes to exercise its patent. . (E.I.
Dupont de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379 August 31, 2016)

After the publication of the patent, any person may examine the invention and develop it into
something further than what the original patent holder may have envisioned.

The grant of a patent provides protection to the patent holder from the indiscriminate use of the
invention. However, its mandatory publication also has the correlative effect of bringing new ideas into
the public consciousness. After the publication of the patent, any person may examine the invention and
develop it into something further than what the original patent holder may have envisioned. (E.I. Dupont
de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379 August 31, 2016)

18
e-COMMERCE
To be admissible in evidence as an electronic data message or to be considered as the functional
equivalent of an original document under the Best Evidence Rule, the writing must foremost be an
“electronic data message” or an “electronic document.”

R.A. No. 8792, otherwise known as the Electronic Commerce Act of 2000, considers an electronic data
message or an electronic document as the functional equivalent of a written document for evidentiary
purposes. The Rules on Electronic Evidence regards an electronic document as admissible in evidence if it
complies with the rules on admissibility prescribed by the Rules of Court and related laws, and is
authenticated in the manner prescribed by the said Rules.

An electronic document is also the equivalent of an original document under the Best Evidence Rule, if it
is a printout or output readable by sight or other means, shown to reflect the data accurately. Thus, to be
admissible in evidence as an electronic data message or to be considered as the functional equivalent of
an original document under the Best Evidence Rule, the writing must foremost be an “electronic data
message” or an “electronic document.” (MCC Industrial Sales Corporation vs. Ssangyong Corporation, 536
SCRA 408, G.R. No. 170633 October 17, 2007)

In a virtual or paperless environment, technically, there is no original copy to speak of, as all direct
printouts of the virtual reality are the same, in all respects, and are considered as originals.

Ineluctably, the law’s definition of “electronic data message,” which, as aforesaid, is interchangeable with
“electronic document,” could not have included facsimile transmissions, which have an original paper-
based copy as sent and a paper-based facsimile copy as received. These two copies are distinct from each
other, and have different legal effects. (MCC Industrial Sales Corporation vs. Ssangyong Corporation, 536
SCRA 408, G.R. No. 170633 October 17, 2007)

Since a facsimile transmission is not an “electronic data message” or an “electronic document,” and
cannot be considered as electronic evidence by the Court, with greater reason is a photocopy of such a
fax transmission not electronic evidence.

In the present case, therefore, Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-POSTS0401-2 (Exhibits
“E” and “F”), which are mere photocopies of the original fax transmittals, are not electronic evidence,
contrary to the position of both the trial and the appellate courts. (MCC Industrial Sales Corporation vs.
Ssangyong Corporation, 536 SCRA 408, G.R. No. 170633 October 17, 2007)

Despite the pro forma invoices not being electronic evidence, this Court finds that respondent has
proven by preponderance of evidence the existence of a perfected contract of sale.

In an action for damages due to a breach of a contract, it is essential that the claimant proves (1) the
existence of a perfected contract, (2) the breach thereof by the other contracting party and (3) the
damages which he/she sustained due to such breach. (MCC Industrial Sales Corporation vs. Ssangyong
Corporation, 536 SCRA 408, G.R. No. 170633 October 17, 2007)

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NEGOTIABLE INSTRUMENTS
Iron Clad Rule

A cashier’s check (having the same legal effects of a certified check) is not subject to countermand by the
payee after indorsement. (Republic v. PNB, G.R. No. L-16106, December 30, 1961)

Rule on fictitious payee

The fictitious-payee rule to be available as a defense, it must be shown that the makers did not intend
for the named payees to be part of the transaction involving the checks.

The lack of knowledge on the part of the payees of the existence of the checks, however, was not
tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive
the checks’ proceeds. Considering that respondents-spouses were transacting with PEMSLA and not the
individual payees, it is understandable that they relied on the information given by the officers of PEMSLA
that the payees would be receiving the checks. Verily, the subject checks are presumed order instruments.
(Philippine National Bank vs. Rodriguez, 566 SCRA 513)

Forgery not available as a defense – negligence

In the instant case, the petitioner is precluded from setting up the forgery, assuming there is forgery, due
to his own negligence in entrusting to his secretary his credit cards and checkbook including the
verification of his statements of account. (Ilusorio vs. Court of Appeals, 393 SCRA 89)

After an instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they
become principal debtors whose liability becomes identical to that of the original obligor.

The holder of a negotiable instrument need not even proceed against the maker before suing the indorser.
Hence, the drawer is not an indispensable party in an action against the indorser of the checks. (Tuazon
vs. Heirs of Ramos, G.R. No. 156262, 14 July 2005)

Manager’s and cashier’s checks

A manager’s check is one drawn by the bank’s manager upon the bank itself. It is similar to a cashier’s
check both as to effect and use. A cashier’s check is a check of the bank’s cashier on his own or another
check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted
in advance by the act of its issuance. It is really the bank’s own check and may be treated as a promissory
note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance
thereof. (Equitable PCI vs. Ong, 15 September 2006)

20
As a general rule, the drawee bank is not liable until it accepts.

Once he accepts, the drawee admits the following: (a) existence of the drawer; (b) genuineness of the
drawer’s signature; (c) capacity and authority of the drawer to draw the instrument; and (d) existence of
the payee and his then capacity to endorse. (RCBC Savings Bank vs. Odrada, 806 SCRA 646, G.R. No.
219037 October 19, 2016)

A manager’s check is accepted by the bank upon its issuance. As compared to an ordinary bill of
exchange where acceptance occurs after the bill is presented to the drawee, the distinct feature of a
manager’s check is that it is accepted in advance.

Notably, the mere issuance of a manager’s check creates a privity of contract between the holder and the
drawee bank, the latter primarily binding itself to pay according to the tenor of its acceptance. The drawee
bank, as a result, has the unconditional obligation to pay a manager’s check to a holder in due course
irrespective of any available personal defenses.

However, while this Court has consistently held that a manager’s check is automatically accepted, a holder
other than a holder in due course is still subject to defenses. (RCBC Savings Bank vs. Odrada, 806 SCRA
646, G.R. No. 219037 October 19, 2016)

The drawee bank of a manager’s check may interpose personal defenses of the purchaser of the
manager’s check if the holder is not a holder in due course.

In short, the purchaser of a manager’s check may validly countermand payment to a holder who is not a
holder in due course. Accordingly, the drawee bank may refuse to pay the manager’s check by interposing
a personal defense of the purchaser. (RCBC Savings Bank vs. Odrada, 806 SCRA 646, G.R. No. 219037
October 19, 2016)

Not a holder in due course when there is bad faith.

In the present case, Odrada attempted to deposit the manager’s checks on 16 April 2002, a day after Lim
had informed him that there was a serious problem with the Montero. Instead of addressing the issue,
Odrada decided to deposit the manager’s checks. Odrada’s actions do not amount to good faith. Clearly,
Odrada failed to make an inquiry even when the circumstances strongly indicated that there arose, at the
very least, a partial failure of consideration due to the hidden defects of the Montero. Odrada’s action in
depositing the manager’s checks despite knowledge of the Montero’s defects amounted to bad faith.
(RCBC Savings Bank vs. Odrada, 806 SCRA 646, G.R. No. 219037 October 19, 2016)

24-hour clearing rule

Under the 24-hour clearing rule, any check which should be refused by the drawee bank in accordance
with long standing and accepted banking practices shall be returned through the PCHC/local clearing
office, as the case may be, not later than the next regular clearing (24-hour). Else, the drawee bank will
not be able to recover from the collecting bank.

21
Defects of material alteration and forged endorsements no longer covered by the 24-hour clearing rule.

The rule has been modified in 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. (Areza vs. Express Savings Bank, Inc., 734 SCRA
588, G.R. No. 176697 September 10, 2014)

BANKING

Before approving a loan application, it is standard operating procedure for banks and financial
institutions to conduct an ocular inspection of the property offered for mortgage and to determine the
real owner(s) thereof.

The apparent purpose of an ocular inspection is to protect the “true owner” of the property as well as
innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto. (Philippine National Bank vs. Vila, 799 SCRA 90, G.R. No. 213241
August 1, 2016)

The bank’s act of requesting the respondents to pre-sign the certificate of acceptance/completion even
the house to be financed was not yet constructed is irregular and fraudulent.

As a banking institution serving as an originator under the UHLP and being the maker of the certificate of
acceptance/completion, it was fully aware that the purpose of the signed certificate was to affirm that
the house had been completely constructed according to the approved plans and specifications, and that
respondents had thereby accepted the delivery of the complete house. Given the purpose of the
certificate, it should have desisted from presenting the certificate to respondents for their signature
without such conditions having been fulfilled. Yet, it made respondents sign the certificate (through
Estrella Capistrano, both in her personal capacity and as the attorney-in-fact of her husband Danilo
Capistrano) despite the construction of the house not yet even starting. (Comsaving Banks (now GSIS
Family Bank) vs. Capistrano, 704 SCRA 72, G.R. No. 170942 August 28, 2013)

The properties of an insolvent bank are not transferred by operation of law to the statutory
receiver/liquidator but rather these assets are just held in trust to be distributed to its creditors after
the liquidation proceedings in accordance with the rules on concurrence and preference of credits.

The debtors properties are then deemed to have been conveyed to the Liquidator in trust for the benefit
of creditors, stockholders and other persons-in-interest. This notwithstanding, any lien or preference to
any property shall be recognized by the Liquidator in favor of the security or lienholder, to the extent

22
allowed by law, in the implementation of the liquidation plan. (Balayan Bay Rural Bank, Inc. vs. National
Livelihood Development Corporation, 771 SCRA 139, G.R. No. 194589 September 21, 2015)

The insolvent bank’s legal personality is not dissolved by virtue of being placed under receivership by
the Monetary Board.

It must be stressed here that a bank retains its juridical personality even if placed under conservatorship;
it is neither replaced nor substituted by the conservator who shall only take charge of the assets, liabilities
and the management of the institution. It being the fact that the PDIC should not be considered as a
substitute or as a codefendant of the petitioner bank but rather as a representative party or someone
acting in fiduciary capacity, the insolvent institution shall remain in the case and shall be deemed as the
real party-in-interest. (Balayan Bay Rural Bank, Inc. vs. National Livelihood Development Corporation, 771
SCRA 139, G.R. No. 194589 September 21, 2015)

Without the requisite presentation of the certificates of deposit, BPI may not terminate them.

The certificates of deposit contain provisions on the amount of interest, period of maturity, and manner
of termination. Specifically, they stressed that endorsement and presentation of the certificate of deposit
is indispensable to their termination. In other words, the accounts may only be terminated upon
endorsement and presentation of the certificates of deposit. (Bank of the Philippine Islands vs. Fernandez,
768 SCRA 563, G.R. No. 173134 September 2, 2015)

Bancassurance

The term bancassurance shall mean the presentation and sale to bank customers by an insurance company of
its insurance products within the premises of the head office of such bank duly licensed by the Bangko Sentral
ng Pilipinas or any of its branches under such rules and regulations which the Commissioner and the Bangko
Sentral ng Pilipinas may promulgate. (Sec. 375, Insurance Code)

Against whom no-fault claim made be made in a CMVLI

Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim, shall lie
against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other
case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying
the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. (Sec.
391[c], Insurance Code)

No-fault claim; Proofs required

Claim for death or injury to any passenger or third-party shall be paid without the necessity of proving fault or
negligence of any kind. Proofs of loss are: (1) Police report of accident; and (2) Death certificate and evidence
sufficient to establish the proper payee; or (3) Medical report and evidence of medical or hospital disbursement
in respect of which refund is claimed (Sec. 391, Insurance Code)

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Entitlement to no-fault claim

Passengers and third parties may claim as defined below:

xxx

"(b) Passenger is any fare paying person being transported and conveyed in and by a motor vehicle for
transportation of passengers for compensation, including persons expressly authorized by law or by
the vehicle’s operator or his agents to ride without fare.

"(c) Third party is any person other than a passenger as defined in this section and shall also exclude
a member of the household, or a member of the family within the second degree of consanguinity or
affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his
employee in respect of death, bodily injury, or damage to property arising out of and in the course of
employment. (Sec. 386, Insurance Code)

Period to claim/file legal action under the CMVLI

xxx Notice of claim must be filed within six (6) months from the date of accident, otherwise, the claim shall be
deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases,
with the Commissioner or the courts within one (1) year from denial of the claim, otherwise, the claimant’s
right of action shall prescribe. (Sec. 397, Insurance Code)

Excluded from PDIC insurance coverage

1. Investment products such as bonds and securities, trust accounts, and other similar
instruments;
2. Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;
3. Deposit accounts or transactions constituting, and/or emanating from, unsafe and
unsound banking practice/s, as determined by the Corporation, in consultation with the
BSP, after due notice and hearing, and publication of a cease and desist order issued by the
Corporation against such deposit accounts or transactions;
4. Deposits that are determined to be the proceeds of an unlawful activity as defined under
Republic Act No. 9160, as amended. (RA 3591, as amended by RA9576)
5. Cases involving splitting of deposits

Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the statutory
maximum amount of insured deposit maintained under the name of natural or juridical persons is broken down
and transferred into two (2) or more accounts in the name/s of natural or juridical persons or entities who have
no beneficial ownership on transferred deposits in their names within one hundred twenty (120) days
immediately preceding or during a bank-declared bank holiday, or immediately preceding a closure order issued

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Effects of receivership of a bank

The consequences of receivership are as follows:

1. Business operations are suspended.
2. Assets shall be deemed in custodia legis in the hands of the receiver and shall be exempt
from garnishment, levy, attachment or execution.
3. The bank is not liable to pay interest on deposits during the period of suspension of
operation. (Fidelity Savings and Mortgage Bank vs. Cenzon, G.R. No. L-46208, April 5, 1990).
4. Banks retain their legal personality.
5. There will be no preference even if the claimant-depositor obtained a writ of preliminary
attachment.

by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing of the maximum deposit
insurance coverage; xxx (Sec. 21, [f][5], RA 3591, as amended by RA 9576)

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