TRANSPORTATION LAW

1. PERENA V. NICOLAS (2012)

Doctrine:
The operator of a school bus service is a common carrier in the eyes of the law. He is bound to observe extraordinary diligence in the conduct of
his business. He is presumed to be negligent when death occurs to a passenger. His liability may include indemnity for loss of earning capacity
even if the deceased passenger may only be an unemployed high school student at the time of the accident.

Facts:
Spouses Perenas were engaged in the business of transporting students from their respective residences in Paranaque to Don Bosco, Makati;
and back. They used a KIA Ceres Van (PYA 896), with a capacity of 14 students at a time; 2 in front, and 12 in the rear equally balanced on either
side. They employed Alfaro as driver.
Spouses Zarate contracted with the Perenas to transport Aaron, an unemployed high school student in Don Bosco. Aaron sat on the left side of
the van near the rear door. To avoid being late to school, Alfaro traversed the narrow part underneath Magallanes Interchange, which were
marked by piles of construction materials and parked passenger jeepneys, and the railroad crossing had no railroad warning signs, watchmen, or
other responsible persons manning the crossing. The bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.
Alfaro, and another passenger bus, traversed the railroad crossing while PNR Commuter No. 302 (train), operated by Alano, was travelling
northbound. The train blew its horn to warn motorists of its approach. Alano even applied emergency brakes when he saw that a collision was
imminent.
Fortunately, the passenger bus successfully crossed the railroad tracks. However, the train hit the rear end of the van, causing 9 of the 12
students in the rear to be thrown out of the van. Aaron’s head was severed. Alano fled the scene, and did not wait for the police investigator to
arrive.
Spouses Zarate commenced an action for damages against Alfaro, Spouses Perenas, PNR and Alano.
Perenas claimed that they exercised the diligence of a good father of the family in the selection and supervision of Alfaro, by making sure that
he has a driver’s license and that he had not been involved in any vehicular accident prior to the collision; that their own son had taken the van
daily; and that Teodoro Perena had sometimes accompanied Alfaro in the van’s trips.
PNR claimed that the proximate cause of the collision was the reckless crossing of the van; and that the narrow path had not been intended to
be a crossing for motorists.
The Court ruled in favor of the plaintiff and against the defendants ordering them to jointly and severally pay the plaintiff. In RTC, Perenas’
motion for reconsideration was denied, reiterating that the cooperative gross negligence of the Perenas and PNR had caused the collision, and
that the damages were not excessive. CA affirmed the decision of the RTC.
Hence, this review on certiorari.

Issue:
W/N Perenas and PNR are jointly and severally liable for damages.
W/N the indemnity for loss of Aaron’s earning capacity was proper.
W/N the amounts of damages were excessive.

Ratio:
Yes, they are joint tortfeasors. Perenas operated as a common carrier; and that their standard of care was extraordinary diligence, not the
ordinary diligence of a good father of a family. Although the operator of a school bus service has been usually regarded as a private carrier, the
true test for a common carrier is not the quantity or extent of the business actually transacted, or the number and character of the conveyances
used in the activity, but whether the undertaking is a part of the activity engaged in by the carrier that he has held out to the general public as
his business or occupation. There is no question that the Pereñas as the operators of a school bus service were: (a) engaged in transporting
passengers generally as a business, not just as a casual occupation; (b) undertaking to carry passengers over established roads by the method by
which the business was conducted; and (c) transporting students for a fee. Despite catering to a limited clientèle, the Pereñas operated as a
common carrier because they held themselves out as a ready transportation indiscriminately to the students of a particular school living within
or near where they operated the service and for a fee. Article 1755 of the Civil Code specifies that the common carrier should "carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all
the circumstances." To successfully fend off liability in an action upon the death or injury to a passenger, the common carrier must prove his or
its observance of that extraordinary diligence; otherwise, the legal presumption that he or it was at fault or acted negligently would stand.
Moreover, the fact of death of one of their passenger gives rise to the presumption of negligence, which they failed to overturn. The Perenas
were liable for the death of Aaron despite the fact that their driver might have acted beyond the scope of his authority or even in violation of the
orders of the common carrier for crossing a shortcut that he knew was risky to his passengers. The loudness of Alfaro’s music may have also
reduced his ability to hear the warning horns of PNR. The omission of care on the part of Alfaro was negligence. PNR is also guilty of negligence
because the railroad tracks traversed was not dedicated by the PNR as a railroad crossing for pedestrians and motorists, and that the PNR did
not ensure the safety of others through the placing of warning signs, and the like.
Yes, the award was proper. While only a high school student, had been enrolled in one of the reputable schools in the Philippines and that he
had been a normal and able-bodied child prior to his death. The basis for the computation of Aaron’s earning capacity was the minimum wage in
effect at the time of his death. Moreover, the RTC’s computation of Aaron’s life expectancy rate was not reckoned from his age of 15 years at
the time of his death, but on 21 years, his age when he would have graduated from college. It is not speculative and unfounded because the
courts premised on Aaron being a lowly minimum wage earner, and not a professional, despite his being then enrolled at a prestigious school.
Our law itself states that the loss of the earning capacity of the deceased shall be the liability of the guilty party in favor of the heirs of the
deceased, and shall in every case be assessed and awarded by the court "unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death.”
No. Moral damages were reasonable because of deep mental anguish over their son’s unexpected and violent death. Exemplary damages were
also reasonable since as a common carrier, the Pereñas needed to be vigorously reminded to observe their duty to exercise extraordinary
diligence to prevent a similarly senseless accident from happening again.

2. AF SANCHEZ BROKERAGE V. CA (2004)

Doctrine:
Customs broker may be a common carrier. as defined under Article 1732 of the Civil Code.

Facts:
Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at Dusseldorf, Germany oral contraceptives for delivery to
Manila in favor of the consignee, Wyeth-Suaco Laboratories, Inc. Specifically, the Femenal tablets were placed in 124 cartons and the Nordiol
tablets were placed in 20 cartons which were packed together in one (1) LD3 aluminum container, while the Trinordial tablets were packed in
two pallets, each of which contained 30 cartons. Wyeth-Pharma insured the shipment against all risks with FGU Insurance.
Upon its arrival in NAIA, it was discharged without exception and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) for
safekeeping.
To secure release from PSI and Bureau of Customs, Wyeth-Suaco engaged the services of Sanchez Brokerage which had been its licensed broker
since 1984. Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid the storage fee. On the receipt, another
representative of Sanchez Brokerage, M. Sison, acknowledged that he received the cargoes consisting of three pieces in good condition.
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes. Among those who witnessed the release of the
cargoes from the PSI warehouse were Ruben Alonso and Tony Akas, employees of Elite Surveryors, a marine and cargo surveryor and insurance
claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU Insurance.
The cargoes were delivered to Hizon Laboratories for quality control check. The delivery receipt indicated that the delivery consisted of one
container with 144 cartons of Femenal and Nordiol and 1 pallet containing Trinordiol. Ronnie Likas, a representative of Wyeth-Suaco,
acknowledged the delivery by affixing his signature on the delivery receipt.
Upon inspection, however, Ronnie Likas and Ruben Alonso discovered that 44 cartons containing Femenal and Nordiol were in bad order. Hence,
Ronnie Likas placed a note above his signature on the delivery receipt stating that these were in bad order. In the Annexed Schedule of Elite
Surveryors, it was noted that there were slight to heavy rains at the time of delivery. Hizon Laboratories issued a Report confirming that the
tablets were heavily damaged with water and emitted foul smell. Wyeth-Suaco issued a Notice of Materials Rejection, and demanded from
Sanchez Brokerage payment for the loss arising from damaged tablets. Wyeth-Suaco filed an insurance claim against FGU Insurance, issuing a
Subrogation Receipt.
FGU Insurance filed a complaint for damages before the RTC against Sanchez Brokerage. RTC dismissed the complaint on the ground that the
Survey Report of Elite Surveyors is bereft of any evidentiary support and a mere product of pure guesswork. CA reversed the decision and held
that Sanchez Brokerage was engaged not only in the business of customs brokerage, but also in the transportation and delivery of the cargo to
its clients, hence, a common carrier within the purview of Article 1732 of NCC. Because of this, Sanchez Brokerage is presumed negligent and
upon it rested the burden of proving that it exercised extraordinary negligence not only in instances when negligence is directly proven but also
in those cases when the cause of the damage is not known or unknown.
Sanchez Brokerage’s MR was denied. Hence, this petition.

Issue:
W/N Sanchez Brokerage is a common carrier.

Ratio:
Yes. A customs broker, to be also a common carrier, as defined under Article 1732 of the Civil Code, to wit: Art. 1732. Common carriers are
persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public. Sanchez Brokerage’s services offers include the delivery of goods to the warehouse of
the consignee or importer. While paragraph No. 4 of Article 1734 of the Civil Code exempts a common carrier from liability if the loss or damage
is due to the character of the goods or defects in the packing or in the containers, the rule is that if the improper packing is known to the carrier
or his employees or is apparent upon ordinary observation, but he nevertheless accepts the same without protest or exception notwithstanding
such condition, he is not relieved of liability for the resulting damage. Since petitioner received all the cargoes in good order and condition at the
time they were turned over by the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof was found to be in
bad order, it was incumbent on petitioner to prove that it exercised extraordinary diligence in the carriage of the goods. It did not, however.
Hence, its presumed negligence under Article 1735 of the Civil Code remains unrebutted.

3. CRUZ V. SUN HOLIDAYS (2010)

Doctrine:
Neither does Article 1732 distinguish between a carrier offering its services to the general public, i.e., the general community or population, and
one who offers services or solicits business only from a narrow segment of the general population. Indeed, respondent is a common carrier. Its
ferry services are so intertwined with its main business as to be properly considered ancillary thereto.

Facts:
Spouses Cruz filed a Complaint against Sun Holidays, Inc. with the RTC for damages arising from the death of their son Ruelito and his wife on
board the boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at
Coco Beach Island Resort owned and operated by respondent. The stay at the Resort was by virtue of a tour package-contract with respondent
that included transportation to and from the Resort and the point of departure in Batangas.
Matute, a scuba diving instructor, testified that it was windy when Ruelito and his wife trekked to the other side of the Resort mountain, where
they boarded the boat. Shortly after, it began rain, hence, the boat capsized.
At the time of his death, Ruelito was 28 years old and employed as a contractual worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in
Saudi Arabia, with a basic monthly salary of $900.
Sun Holidays denied responsibility raising the defense of fortuitous event. Sun Holidays denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised the utmost
diligence in ensuring the safety of its passengers, where the Coast Guard cleared the voyage and that there was no storm. There was also
sufficient life jackets and the boat was not filled to capacity. Carlos Bonquin, the captain, averred that they met the four conditions, to wit: 1) the
sea is calm, 2) there is clearance from the Coast Guard, 3) there is clearance from the captain, and 4) there is clearance from the Resorts
assistant manager.
RTC and CA affirmed that the respondent is a private carrier which is only required to observe ordinary diligence, and that the proximate cause
of the incident was a fortuitous event.
Petitioners maintain that the respondent is a common carrier since by its tour package, the transporting of its guests is an integral part of its
resort business.

Issue:
W/N Sun Holidays is a common carrier.

Ratio:
 Yes. Sun Holidays is a common carrier as defined under Article 1732. The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a
sideline). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the general public, i.e., the general community or population, and one who offers services or solicits business only
from a narrow segment of the general population. Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. 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 respondents ferry services pay the same
amount is likewise inconsequential. These guests may only be deemed to have overpaid. A very cautious person exercising the utmost diligence
would thus not brave such stormy weather and put other peoples lives at risk. The extraordinary diligence required of common carriers demands
that they take care of the goods or lives entrusted to their hands as if they were their own. This respondent failed to do. To fully free a common
carrier from any liability, the fortuitous event must have been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the fortuitous event.

4. VILLANUEVA vs. DOMINGO

FACTS
- Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 bearing plate No. NDW 781 91 with Leandro Luis R.
Domingo as authorized driver
- Nostradamus Villanueva was then the registered owner of a green Mitsubishi Lancer bearing Plate No. PHK 201 91.
- That while respondents were traversing the South Superhighway with a green traffic light, a green Mitsubishi lancer driven by Renato Del Cruz
Ocfemia darted from Vito Cruz hit them which cause on the left front portion which caused the car to be thrown away thereby hitting another
two other parked vehicles
- Renato dela Cruz Ocfemia was driving with expired license and positive for alcoholic breath
- Hence, an information for reckless imprudence resulting to (sic) damage to property and physical injuries was filed against Ocfemia
NOTE:
The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyer-seller and second,
impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace Car Exchange.
- Nostradamus Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero
owned by Albert Jaucian/Auto Palace Car Exchange
- Albert Jaucian claimed that he was not the owner of the vehicle. In addition, he cannot be held subsidiary liable as employer because Ocfemia
was off-duty nor performing a a duty related to his work
RTC:
- Albert Jaucian was ordered to pay respondent actual, moral, exemplary damages plus attorneys fees
CA
- Upheld but deleted appearance and attorney’s fees
ISSUE
1. Whether or not the registered owner of a motor vehicle be held liable for damages arising from a vehicular accident involving his motor
vehicle while being operated by the employee of its buyer without the latter’s consent and knowledge
2. Should not the registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof escape
or evade responsibility by and lay the same on the person actually owning the vehicle?
3. Whether or not Albert Jaucian is correct in arguing that he should escape liability because Roberto Ocfemia was not in the perfromance of his
duty at the time of the incident
HELD
1. YES.
We have consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons while it
is being operated.[6] The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte:
The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to
assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they
may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who the actual owner
is. We do not imply by his doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability
to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.
2. NO.
We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of
the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to
evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to
escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially
for the damage or injury done.
 3. NO.
Whether the driver is authorized or not by the actual owner is irrelevant to 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. To require
the driver of the vehicle to be authorized by the actual owner before the registered owner can be held accountable is to defeat the very purpose
why motor vehicle legislations are enacted in the first place.
_________________________________________________
5. UCPB vs. ABOTIZ & DAMCO
FACTS:
- SMC (San Mig Corp.) purchased three (3) units of waste water treatment plant with accessories from Super Max Engineering Enterprise of
Taiwan. It cam from Charleston, USA and arrived here in Manila via MV "SCANDUTCH STAR", then transported to Cebu on board MV "ABOITIZ
SUPERCON II"
- Upon receipt by SMC it was then discovered that one electrical motor of DBS Drive Unit Model DE-30-7 was damaged.
- Pursuant to an insurance agreement, plaintiff-appellee paid SMC the amount of ₱1,703,381.40 representing the value of the damaged unit. In
turn a Subrogation form was executed in favor of UCPB
- plaintiff-appellee filed a Complaint on July 21, 1992 as subrogee of SMC seeking to recover from defendants the amount it had paid SMC.
- EAST ASIATIC was impleaded in the complaint as general agent of DAMCO
- However, the court a quo noted the dismissal of the complaint against defendant EAST in its Order dated December 5, 1997. Thus, trial ensued
with respect to the remaining defendants.
RTC:
- DAMCO and ABOITIZ solidarily liable to plaintiff-subrogee for the damaged shipment
CA
- Reversed
o UCPB’s right of action against respondents did not accrue because UCPB failed to file a formal notice of claim within 24 hours
from (SMC’s) receipt of the damaged merchandise as required under Art. 366 of the Code of Commerce. It is a condition
precedent for the accrual of the right of action against the carrier for the damages
- UCPB in its memorandum asserts that on transshipment, the cargo was already damaged when loaded on board the inter-island carrier. UCPB
claims that under the Carriage of Goods by Sea Act (COGSA), notice of loss need not be given if the condition of the cargo has been the subject
of joint inspection
ISSUE
Whether or not a formal notice of claim is mandatory requirement for the accrual of the right of action against the carrier for damages
HELD:
YES
Art. 366 of the Code of Commerce states:
Art. 366. Within twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average which may be
found therein upon opening the packages, may be made, provided that the indications of the damage or average which gives rise to the claim
cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with
regard to the condition in which the goods transported were delivered
We have construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action against a carrier for loss of, or
damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. Otherwise, no right of action against the
carrier can accrue in favor of the former.
The shipment in this case was received by SMC on August 2, 1991. However, as found by the Court of Appeals, the claims were dated October
30, 1991, more than three (3) months from receipt of the shipment and, at that, even after the extent of the loss had already been determined
by SMC’s surveyor. The claim was, therefore, clearly filed beyond the 24-hour time frame prescribed by Art. 366 of the Code of Commerce.
_________________________________________________
6. PAL vs. SAVILLO
FACTS
- Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf Tournament held in Jakarta, Indonesia. He and several
companions decided to purchase their respective passenger tickets from PAL with the following points of passage: MANILA-SINGAPORE-
JAKARTA-SINGAPORE-MANILA.
- Private respondent and his companions were made to understand by PAL that its plane would take them from Manila to Singapore, while
Singapore Airlines would take them from Singapore to Jakarta.
- Upon their arrival in Singapore, Singapore Airlines rejected the tickets of private respondent and his group because they were not endorsed by
PAL.
- Eventually, private respondent and his companions were forced to purchase tickets from Garuda Airlines and board its last flight bound for
Jakarta.
- This incident according to the complainant brought them humiliation, embarrassment, mental anguish, serious anxiety, fear and distress.
- Upon their return in the country, he sent a demand letter to PAL on 20 December 1993 and another to Singapore Airlines on 21 March 1994.
- On 15 August 1997, private respondent filed a Complaint for Damages.
- PAL filed a motion to dismiss on the ground that the said complaint was barred on the ground of prescription
o PAL argued that the Warsaw Convention,10 particularly Article 29 thereof, governed this case, as it provides that any claim for
damages in connection with the international transportation of persons is subject to the prescription period of two years.
RTC
- Ruled in favor of complainant, Civil Code is the applicable law and not the Warsaw Convention
CA
- Affirmed
ISSUE:
Whether or not the CA erred in not applying the provisions of the Warsaw Convention despite the fact that complainant’s cause of action arose
from a breach of contract for international air transport
HELD
NO
The cardinal purpose of the Warsaw Convention is to provide uniformity of rules governing claims arising from international air travel; thus, it
precludes a passenger from maintaining an action for personal injury damages under local law when his or her claim does not satisfy the
conditions of liability under the Convention.
This Court notes that jurisprudence in the Philippines and the United States also recognizes that the Warsaw Convention does not "exclusively
regulate" the relationship between passenger and carrier on an international flight.
In United Airlines v. Uy,18 this Court distinguished between the (1) damage to the passenger’s baggage and (2) humiliation he suffered at the
hands of the airline’s employees. The first cause of action was covered by the Warsaw Convention which prescribes in two years, while the
second was covered by the provisions of the Civil Code on torts, which prescribes in four years.
 Had the present case merely consisted of claims incidental to the airlines’ delay in transporting their passengers, the private respondent’s
Complaint would have been time-barred under Article 29 of the Warsaw Convention. However, the present case involves a special species of
injury resulting from the failure of PAL and/or Singapore Airlines to transport private respondent from Singapore to Jakarta – the profound
distress, fear, anxiety and humiliation that private respondent experienced when, despite PAL’s earlier assurance that Singapore Airlines
confirmed his passage, he was prevented from boarding the plane and he faced the daunting possibility that he would be stranded in Singapore
Airport because the PAL office was already closed.
These claims are covered by the Civil Code provisions on tort, and not within the purview of the Warsaw Convention. Hence, the applicable
prescription period is that provided under Article 1146 of the Civil Code:
Art. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict.
Private respondent’s Complaint was filed with the RTC on 15 August 1997, which was less than four years since PAL received his extrajudicial
demand on 25 January 1994. Thus, private respondent’s claims have not yet prescribed and PAL’s Motion to Dismiss must be denied.
_________________________________________________
6. CRISOSTOMO vs. CA
FACTS
- Petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours International, Inc. to arrange and facilitate her
booking, ticketing and accommodation in a tour dubbed Jewels of Europe (England, Holland, Germany, Austria, Liechstenstein, Switzerland and
France) at a total cost of P74,322.70. Petitioners niece, Meriam Menor, was respondent companys ticketing manager.
- Without checking her travel documents, and by relying to Meriam’s statement that her flight is on June 15, 1991, petitioner went to NAIA on
that date. To her surprise her plane ticket was for the flight scheduled on June 14, 1991
- Thus she called Meriam menor to complain, who was able to convince her to take another tour the British Pageant which included England,
Scotland and Wales in its itinerary. For this package she was asked to pay anew P20,881.00. Partial payment was allowed
- Upon her return from Europe, she demanded from respondent the reimbursement of P61,421.70, representing the difference between the sum
she paid for Jewels of Europe and the amount she owed respondent for the British Pageant tour. Respondent refused.
- Respondent insisted that petitioner had only herself to blame for missing the flight, as she did not bother to read or confirm her flight schedule
as printed on the ticket. respondent maintained that the British Pageant was not a substitute for the package tour that petitioner missed. This
tour was independently procured by petitioner after realizing that she made a mistake in missing her flight for Jewels of Europe.
 RTC
- Respondent was negligent in erroneously advising petitioner of her departure date through its employee, Menor. However, petitioner was
guilty of contributory negligence and accordingly, deducted 10% from the amount being claimed as refund.
CA
- Set aside the decision of RTC, but appellate court held that petitioner is more negligent than respondent because as a lawyer and well-traveled
person thus not entitled to any form of damages
- Thus, this present petition
o Petitioner contends that respondent did not observe the standard of care required of a common carrier when it informed her
wrongly of the flight schedule.
ISSUE
Whether or not respondent is a common carrier, thus requiring it to exercise utmost diligence
HELD
No
A common carrier is defined under Article 1732 of the Civil Code as persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the public.

It is obvious from the above definition that respondent is not an entity engaged in the business of transporting either passengers or goods and is
therefore, neither a private nor a common carrier. Respondent did not undertake to transport petitioner from one place to another since its
covenant with its customers is simply to make travel arrangements in their behalf.
The object of petitioners contractual relation with respondent is the latters service of arranging and facilitating petitioners booking, ticketing and
accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in this
sense that the contract between the parties in this case was an ordinary one for services and not one of carriage.
Since the contract between the parties is an ordinary one for services, the standard of care required of respondent is that of a good father of a
family under Article 1173 of the Civil Code

7. G.R. No. 144274. September 20, 2004

NOSTRADAMUS VILLANUEVA vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO
CORONA, J.:

Petitioner: Nostradamus Villanueva- registered owner of a green Mitsubishi Lancer

Actual owner of green Lancer: Albert Jaucian- business buy and sell under the name Auto Palace Car Exchange
Respondent: Priscilla Domingo- registered owner of a silver Mitsubishi Lancer Car model 1980
Co-respondent: Leandro Domingo- authorized driver of Priscilla

FACTS: On 22 October 1991 at about 9:45 in the evening, following a green traffic light, respondent Priscilla’s car then driven by co-respondent,
Leandro, was cruising along the middle lane of South Superhighway at moderate speed from north to south. Suddenly, a petitioner’s car driven
by Renato Ocfemia darted from Vito Cruz Street towards the South Superhighway directly into the path of respondent’s car, thereby hitting and
bumping its left front portion. And petitioner’s car then hit two (2) parked vehicles at the roadside, the second hitting another parked car in
front of it.

Petitioner claimed that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert
Jaucian/Auto Palace Car Exchange. Auto Palace Car Exchange represented by Albert Jaucian claimed that he was not the registered owner of the
car. Moreover, it could not be held subsidiary liable as employer of Ocfemia because the latter was off-duty as utility employee at the time of
the incident. Neither was Ocfemia performing a duty related to his employment. Ocfemia was driving with expired license and positive for
alcoholic breathe- as such information for reckless imprudence resulting to damage to property and physical injuries was recommended by the
assistant prosecutor. The original complaint was amended twice: impleading Auto Palace Car Exchange and Albert Jaucian as principal defendant
doing business under the former.

RTC Manila: Petitioner liable and ordered him to pay respondent actual, moral and exemplary damages plus appearance and attorneys fees.
Albert Jaucian is hereby ordered to indemnify Nostradamus Villanueva for whatever amount the latter is hereby ordered to pay under the
judgment.
CA: Upheld the trial courts decision but deleted the award for appearance and attorneys fees because the justification for the grant was not
stated in the body of the decision.
ISSUE: MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING
HIS MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE?

HELD: Yes. The Revised Motor Vehicle Law provides that no vehicle may be used or operated upon any public highway unless the same is
property registered. It has been stated that the system of licensing and the requirement that each machine must carry a registration number,
conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians and other travelers from the careless
management of automobiles. And to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the
speed and operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be
used or operated without being properly registered for the current year, but that dealers in motor vehicles shall furnish thee Motor Vehicles
Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturers serial
number and motor number. (Section 5(c), Act No. 3992, as amended.)

Registration is required not to make said registration the operative act by which ownership in vehicles is transferred. The main purpose of
vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage or injury caused by the vehicle.
Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown or unidentified. To allow a registered
owner to escape liability by claiming that the driver was not authorized by the new (actual) owner results in the public detriment the law seeks
to avoid.

A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against
him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for
relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires.

The registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but
he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for
the injury caused to the plaintiff-appellant.

Whether the driver is authorized or not by the actual owner is irrelevant to 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. It is
immaterial whether or not the driver was actually employed by the operator of record. Finally, the issue of whether or not the driver of the
vehicle during the accident was authorized is not at all relevant to determining the liability of the registered owner. This must be so if we are to
comply with the rationale and principle behind the registration requirement under the motor vehicle law.

8. G.R. No. 162267 July 4, 2008

PCI LEASING AND FINANCE, INC. vs UCPB GENERAL INSURANCE CO., INC.

FACTS: On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate Number PHD-206 owned by United Coconut Planters Bank
was traversing the Laurel Highway, Barangay Balintawak, Lipa City. The car was insured with plantiff-appellee [UCPB General Insurance Inc.],
then driven by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said bank, was hit and bumped by an 18-wheeler Fuso Tanker Truck
with Plate No. PJE-737 and Trailer Plate No. NVM-133, owned by defendants-appellants PCI Leasing & Finance, Inc. allegedly leased to and
operated by defendant-appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its employee, defendant appellant Renato Gonzaga.
The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the rear part of the car. The driver and passenger
suffered physical injuries. However, the driver defendant-appellant Gonzaga continued on its [sic] way to its [sic] destination and did not bother
to bring his victims to the hospital.
Plaintiff-appellee paid the assured UCPB the amount of P244,500.00 representing the insurance coverage of the damaged car.
As the 18-wheeler truck is registered under the name of PCI Leasing, repeated demands were made by plaintiff-appellee for the payment of the
aforesaid amounts. However, no payment was made. Thus, plaintiff-appellee filed the instant case on March 13, 1991.
Petitioner interposed the defense that it could not be held liable for the collision, since the driver of the truck, Gonzaga, was not its employee,
but that of its co-defendant Superior Gas & Equitable Co., Inc. (SUGECO). In fact, it was SUGECO, and not petitioner, that was the actual operator
of the truck, pursuant to a Contract of Lease signed by petitioner and SUGECO. Petitioner, however, admitted that it was the owner of the truck
in question.
RTC Makati: judgment is rendered in favor of plaintiff UCPB General Insurance [respondent], ordering the defendants PCI Leasing and Finance,
Inc., [petitioner] and Renato Gonzaga, to pay jointly and severally the former
CA: Upheld the ruling of RTC. Under the Public Service Act, if the property covered by a franchise is transferred or leased to another without
obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in contemplation of law, the grantee
continues to be responsible under the franchise in relation to the operation of the vehicle, such as damage or injury to third parties due to
collisions.
ISSUE: Whether petitioner, as registered owner of a motor vehicle that figured in a quasi-delict may be held liable, jointly and severally, with the
driver thereof, for the damages caused to third parties?

HELD: Although the Public Service Act is inapplicable, as correctly argued by petitioner stating that the vehicle’s involved are not common
carriers. However, the registered owner of the vehicle driven by a negligent driver may still be held liable under applicable jurisprudence
involving laws on compulsory motor vehicle registration and the liabilities of employers for quasi-delicts under the Civil Code.
In case a separate civil action is filed, the long-standing principle is that the registered owner of a motor vehicle is primarily and directly
responsible for the consequences of its operation, including the negligence of the driver, with respect to the public and all third persons. In
contemplation of law, the registered owner of a motor vehicle is the employer of its driver, with the actual operator and employer, such as a
lessee, being considered as merely the owner's agent. This being the case, even if a sale has been executed before a tortious incident, the sale, if
unregistered, has no effect as to the right of the public and third persons to recover from the registered owner. The public has the right to
conclusively presume that the registered owner is the real owner, and may sue accordingly.
In the case now before the Court, there is not even a sale of the vehicle involved, but a mere lease, which remained unregistered up to the time
of the occurrence of the quasi-delict that gave rise to the case. Since a lease, unlike a sale, does not even involve a transfer of title or ownership,
but the mere use or enjoyment of property, there is more reason, therefore, in this instance to uphold the policy behind the law, which is to
protect the unwitting public and provide it with a definite person to make accountable for losses or injuries suffered in vehicular accidents.
The Court recognizes that the business of financing companies has a legitimate and commendable purpose. In earlier cases, it considered a
financial lease or financing lease a legal contract though subject to the restrictions of the so-called Recto Law or Articles 1484 and 1485 of the
Civil Code.
Petitioners argues that the enactment of R.A. No. 8556, especially its addition of the new Sec. 12 to the old law, is deemed to have absolved
petitioner from liability, fails to convince the Court. Sec 12. Reads: Liability of lessors. Financing companies shall not be liable for loss, damage or
injury caused by a motor vehicle, aircraft, vessel, equipment, machinery or other property leased to a third person or entity except when the
motor vehicle, aircraft, vessel, equipment or other property is operated by the financing company, its employees or agents at the time of the
loss, damage or injury.
The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do not supersede or repeal the law on compulsory motor
vehicle registration. No part of the law expressly repeals Section 5(a) and (e) of R.A. No. 4136, as amended, otherwise known as the Land
Transportation and Traffic Code.
Thus, the rule remains the same: a sale, lease, or financial lease, for that matter, that is not registered with the Land Transportation Office, still
does not bind third persons who are aggrieved in tortious incidents, for the latter need only to rely on the public registration of a motor vehicle
as conclusive evidence of ownership. A lease such as the one involved in the instant case is an encumbrance in contemplation of law, which
needs to be registered in order for it to bind third parties. Under this policy, the evil sought to be avoided is the exacerbation of the suffering of
victims of tragic vehicular accidents in not being able to identify a guilty party. A contrary ruling will not serve the ends of justice. The failure to
register a lease, sale, transfer or encumbrance, should not benefit the parties responsible, to the prejudice of innocent victims.
The non-registration of the lease contract between petitioner and its lessee precludes the former from enjoying the benefits under Section 12 of
R.A. No. 8556. Petitioner may resort to third-party complaints against their lessees or whoever are the actual operators of their vehicles.

9. G.R. No. 142305. December 10, 2003

SINGAPORE AIRLINES LIMITED vs. ANDION FERNANDEZ

FACTS: Respondent is an acclaimed soprano here in the Philippines and abroad. At the time of the incident, she was availing an educational grant
from the Federal Republic of Germany, pursuing a Masters Degree in Music majoring in Voice. She was invited to sing before the King and Queen
of Malaysia on February 3 and 4, 1991. For this singing engagement, an airline passage ticket was purchased from petitioner Singapore Airlines
which would transport her to Manila from Frankfurt, Germany on January 28, 1991. From Manila, she would proceed to Malaysia on the next
day. It was necessary for the respondent to pass by Manila in order to gather her wardrobe; and to rehearse and coordinate with her pianist her
repertoire for the aforesaid performance.
The petitioner issued the respondent a Singapore Airlines ticket leaving Frankfurt, Germany on January 27, 1991 bound for Singapore with
onward connections from Singapore to Manila. Flight No. SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January 27, 1991,
arriving at Singapore at 8:50 in the morning of January 28, 1991. The connecting flight from Singapore to Manila was leaving Singapore at 11:00
in the morning of January 28, 1991, arriving in Manila at 2:20 in the afternoon of the same day. However, on that date, from Frankfurt to
Singapore, the flight arrive 2 hours late and the aircraft bound for Manila had left as scheduled, leaving the respondent and about 25 other
passengers stranded in the Changi Airport in Singapore.
The respondent approached the transit counter who referred her to the nightstop counter and told the lady employee thereat that it was
important for her to reach Manila on that day, January 28, 1991. The lady employee told her that there were no more flights to Manila for that
day and that respondent had no choice but to stay in Singapore. Upon respondents persistence, she was told that she can actually fly to Hong
Kong going to Manila but since her ticket was non-transferable, she would have to pay for the ticket. The respondent could not accept the offer
because she had no money to pay for it. Her pleas for the respondent to make arrangements to transport her to Manila were unheeded. The
respondent then requested the lady employee to use their phone to make a call to Manila. Over the employees reluctance, the respondent
telephoned her mother to inform the latter that she missed the connecting flight. The respondent was able to contact a family friend who picked
her up from the airport for her overnight stay in Singapore.
The next day, after being brought back to the airport, the respondent proceeded to petitioners counter which says: Immediate Attention To
Passengers with Immediate Booking. There were four or five passengers in line. The respondent approached petitioners male employee at the
counter to make arrangements for immediate booking only to be told: Cant you see I am doing something. She explained her predicament but
the male employee uncaringly retorted: Its your problem, not ours.
The respondent never made it to Manila and was forced to take a direct flight from Singapore to Malaysia on January 29, 1991, through the
efforts of her mother and travel agency in Manila. Her mother also had to travel to Malaysia bringing with her respondents wardrobe and
personal things needed for the performance that caused them to incur an expense of about P50,000.
As a result of this incident, the respondents performance before the Royal Family of Malaysia was below par. Because of the rude and unkind
treatment she received from the petitioners personnel in Singapore, the respondent was engulfed with fear, anxiety, humiliation and
embarrassment causing her to suffer mental fatigue and skin rashes. She was thereby compelled to seek immediate medical attention upon her
return to Manila for acute urticarial.
RTC Pasig: Singapore Airlines is ordered to pay herein plaintiff Fernandez damages (actual, moral, exemplary, attorney’s fees and cost of suit)
CA: Upheld RTC Ruling

ISSUE: Whether or not damages was correctly awarded by reason of failure to exercise extraordinary diligence and bad faith?

HELD: Yes. When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The
passenger then has every right to expect that he be transported on that flight and on that date. If he does not, then the carrier opens itself to a
suit for a breach of contract of carriage.
The contract of air carriage is a peculiar one. Imbued with public interest, the law requires common carriers to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very cautious persons with due regard for all the circumstances. In an
action for breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All
that is necessary to prove is the existence of the contract and the fact of its non-performance by the carrier.
In the case at bar, it is undisputed that the respondent carried a confirmed ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-
Singapore; and 2) Singapore-Manila. In her contract of carriage with the petitioner, the respondent certainly expected that she would fly to
Manila on Flight No. SQ 72 on January 28, 1991. Since the petitioner did not transport the respondent as covenanted by it on said terms, the
petitioner clearly breached its contract of carriage with the respondent. The respondent had every right to sue the petitioner for this breach. The
defense that the delay was due to fortuitous events and beyond petitioners control is unavailing.
In the instant case, petitioner was not without recourse to enable it to fulfill its obligation to transport the respondent safely as scheduled as far
as human care and foresight can provide to her destination. Tagged as a premiere airline as it claims to be and with the complexities of air travel,
it was certainly well-equipped to be able to foresee and deal with such situation. The petitioners indifference and negligence by its absence and
insensitivity was exposed by the trial court. The petitioners diligence in communicating to its passengers the consequences of the delay in their
flights was wanting. The respondent was not remiss in conveying her apprehension about the delay of the flight when she was still in Frankfurt.
Upon the assurance of petitioners personnel in Frankfurt that she will be transported to Manila on the same date, she had every right to expect
that obligation fulfilled.
When a passenger contracts for a specific flight, he has a purpose in making that choice which must be respected. This choice, once exercised,
must not be impaired by a breach on the part of the airline without the latter incurring any liability. For petitioners failure to bring the
respondent to her destination, as scheduled, we find the petitioner clearly liable for the breach of its contract of carriage with the respondent.
the petitioner acted in bad faith. Bad faith means a breach of known duty through some motive of interest or ill will. Self-enrichment or fraternal
interest, and not personal ill will, may well have been the motive; but it is malice nevertheless. Bad faith was imputed by the trial court when it
found that the petitioners employees at the Singapore airport did not accord the respondent the attention and treatment allegedly warranted
under the circumstances. The trial court concluded that this inattentiveness and rudeness of petitioners personnel to respondents plight was
gross enough amounting to bad faith.
Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship, exemplary damages may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In this case, petitioners employees acted in a wanton,
oppressive or malevolent manner. The award of exemplary damages is, therefore, warranted in this case.

10. JAPAN AIRLINES, petitioner, vs. MICHAEL ASUNCION and JEANETTE ASUNCION, respondents.
G.R. No. 161730. January 28, 2005.

FACTS: Michael and Jeanette Asuncion left Manila on board Japan Airlines’ bound for Los Angeles. Their itinerary included a stopover in Narita.
Upon arrival thereat, their applications for shore pass, which is required of a foreigner aboard a vessel or aircraft who desires to stay in the
neighborhood of the port of call for not more than 72 hours, were endorsed to the Japanese immigration official. During their interview, the
immigration official noted that Michael appeared shorter than his height as indicated in his passport. Consequently, respondents were denied
shore pass entries, and were instead taken to the Narita Airport Rest House where they stayed overnight until their departure the following day
for Los Angeles. The immigration official also handed Mrs. Haguchi of JAL a notice stating that respondents were to be watched so as not to
escape. The couple later filed a complaint for damages, claiming that JAL did not fully apprise them of their travel requirements and that they
were rudely and forcibly detained at Narita Airport. JAL, on the other hand, denied the allegations of respondents, maintaining that the refusal
of the Japanese immigration authorities to issue shore passes to respondents is an act of state, which JAL cannot interfere with or prevail upon.
The trial court ruled in favor of respondents, and dismissed JAL’s counterclaim for litigation expenses, exemplary damages and attorney’s fees,
which decision was affirmed in toto by the Court of Appeals. JAL then proceeded to file a petition for review seeking to reverse and set aside the
decision of the Court of Appeals.
ISSUE: Whether JAL is guilty of breach of contract

RULING: No. Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. When an airline issues a
ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger has every right to expect
that he be transported on that flight and on that date and it becomes the carrier’s obligation to carry him and his luggage safely to the agreed
destination. If the passenger is not so transported or if in the process of transporting he dies or is injured, the carrier may be held liable for a
breach of contract of carriage. While it may be true that JAL has the duty to inspect whether its passengers have the necessary travel
documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the
authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act,
which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents.
As such, JAL should not be faulted for the denial of respondents’ shore pass applications. The most that could be expected of JAL is to endorse
respondents’ applications, which Mrs. Higuchi did immediately upon their arrival in Narita.

11. ALITALIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, respondents.

G.R. No. 71929. December 4, 1990.

FACTS: Dr. Felipa Pablo, an associate professor in the University of the Philippines, and a research grantee of the Philippine Atomic Energy
Agency, was invited to take part at a meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in
Food and Agriculture of the United Nations in Ispra, Italy, where she would be the second speaker on the first day of the meeting. To fulfill this
engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA. She arrived in Milan on the day before the meeting in accordance with
the itinerary, however, she was told by the ALITALIA personnel that her luggage was “delayed inasmuch as the same was in one of the
succeeding flights from Rome to Milan.” – one of which contained her scientific papers, slides and other research material. But the other flights
arriving from Rome did not have her baggage on board. Feeling desperate, she went to Rome to try to locate her bags herself. There, she
inquired about her suitcases in the domestic and international airports, and filled out the forms prescribed by ALITALIA for people in her
predicament. However, her baggage could not be found. Completely distraught and discouraged, she returned to Manila without attending the
meeting in Ispra, Italy. Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by her. ALITALIA
offered her "free airline tickets to compensate her for any alleged damages x x." She rejected the offer, and forthwith commenced an action. As
it turned out, Prof. Pablo’s suitcases were in fact located and forwarded to Ispra, Italy, but only on the day after her scheduled appearance and
participation at the U.N. meeting there. By then, Dr. Pablo was no longer there to accept delivery, and her suitcases were not restored to her
until 11 months later. The Court of First Instance rendered judgment in Dr. Pablo’s favor, ordering ALITALIA to pay nominal damages, attorney’s
fees, and costs of the suit. ALITALIA appealed to the IAC but failed to obtain a reversal of the judgment. ALITALIA then appealed via petition for
certiorari to review said decision, claiming that the Warsaw Convention should be applied to limit its liability.

ISSUE: Whether the Warsaw Convention should have been applied to limit ALITALIA’s liability

RULING: No. Under the Warsaw Convention, an air carrier is made liable for the destruction or loss of, or damage to, any registered luggage or
goods, if the occurrence causing it took place during the carriage by air delay in the transportation by air of passengers, luggage or goods, among
others. In these cases, it is provided in the Convention that the "action for damages, however founded, can only be brought subject to the
conditions and limits set out" therein. In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained
therein, the weight to be taken into consideration in determining the amount to which the carrier's liability is limited shall be only the total
weight of the package or packages concerned. The Warsaw Convention however denies to the carrier availment "of the provisions which exclude
or limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court
seized of the case, is considered to be equivalent to wilful misconduct," or "if the damage is (similarly) caused x x by any agent of the carrier
acting within the scope of his employment. The Convention does not thus operate as an exclusive enumeration of the instances of an airline's
liability, or as an absolute limit of the extent of that liability. Moreover, it should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is not attributable to or attended by
any wilful misconduct, bad faith, recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is
responsible, and there is otherwise no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not "regulate or
exclude liability for other breaches of contract by the carrier” or misconduct of its officers and employees, or for some particular or exceptional
type of damage. On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not restrictive of the carrier's liability,
where there was satisfactory evidence of malice or bad faith attributable to its officers and employees. In the case at bar, no bad faith or
otherwise improper conduct may be ascribed to the employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo
because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed—a breach of its contract of carriage, to
be sure—with the result that she was unable to read the paper and make the scientific presentation (consisting of slides, autoradiograms or
films, tables and tabulations) that she had painstakingly labored over, at the prestigious international conference, to attend which she had
traveled hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of the organizers. Certainly, the
compensation for the injury suffered by Dr. Pablo cannot under the circumstances be restricted to that prescribed by the Warsaw Convention
for delay in the transport of baggage. She is not, of course, entitled to be compensated for loss or damage to her luggage. As already mentioned,
her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitled to nominal damages and attorney’s fees.
12. SABENA BELGIAN WORLD AIRLINES, petitioner, vs. HON. COURT OF APPEALS and MA. PAULA SAN AGUSTIN, respondents.
G.R. No. 104685. March 14, 1996.

FACTS: Ma. Paula San Agustin was a passenger on board Flight SN 284 of Sabena Belgian World Airlines originating from Casablanca to Brussels,
Belgium, on her way back to Manila. She checked in her luggage which contained her valuables, namely jewelries, clothes, shoes/bag,
accessories – all of which amounted to USD 4,625.00, for which she was issued Tag No. 71423. She stayed overnight in Brussels and her luggage
was left on board Flight SN 284. Upon arrival at Manila International Airport, however, her luggage was missing and could not be released upon
submission of her tag. She was advised to accomplish and submit a property Irregularity Report which she submitted and filed on the same day.
She followed up her claim nearly two weeks later, but the luggage remained to be missing. She then filed a formal complaint with the office of
the Local Manager of the airline company, demanding immediate attention. On the occasion of her following up of her luggage claim once again,
she was furnished copies of Sabena Belgian World Airlines’ telefaxes with an information that its Brussel’s Office found the luggage and that they
had broken the locks for identification. She was then assured of the safe return of her luggage, only to find out later on that the luggage had
been lost for a second time. She then filed a complaint, demanding Sabena Belgian to pay the money value of the luggage and its contents, but
the latter refused on the ground that the loss was due to the former’s sole if not contributory negligence, that she did not declare the valuable
items in her checked in luggage at the flight counter upon checking in, and that her Sabena Plane Ticket contained a warning that ‘Items of value
should be carried on your person’ and that some carriers assume no liability for fragile, valuable or perishable articles and that further
information may be obtained from the carrier for guidance’; that granting without conceding that defendant is liable, its liability is limited only to
US $20.00 per kilo due to plaintiff’s failure to declare a higher value on the contents of her checked in luggage and pay additional charges
thereon.” The trial court rendered judgment, ordering petitioner to pay private respondent. Sabena appealed the decision to the Court of
Appeals, which affirmed the trial court’s judgment.

ISSUE: Whether Sabena’s liability may be limited by virtue of the Warsaw Convention

RULING: NO. Art. 1733 of the [Civil] Code provides that from the very nature of their business and by reasons of public policy, common carriers
are bound to observe extraordinary diligence in the vigilance over the goods transported by them. This extraordinary responsibility, according to
Art. 1736, lasts from the time the goods are unconditionally placed in the possession of and received by the carrier until they are delivered
actually or constructively to the consignee or person who has the right to receive them. Art. 1737 states that the common carrier’s duty to
observe extraordinary diligence in the vigilance over the goods transported by them ‘remains in full force and effect even when they are
temporarily unloaded or stored in transit.’ And Art. 1735 establishes the presumption that if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they had observed extraordinary
diligence as required in Article 1733. The only exceptions to the foregoing extraordinary responsibility of the common carrier is when the loss,
destruction, or deterioration of the goods is due to any of the following causes: (1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity; (2) Act of the public enemy in war, whether international or civil; 3)
 Act or omission of the shipper or owner of the goods; (4)
 The
character of the goods or defects in the packing or in the containers; (5)
 Order or act of competent public authority. Not one of the above
excepted causes obtains in this case. Furthermore, the loss of said baggage not only once but twice underscores the wanton negligence and lack
of care on the part of the carrier. The above findings, which certainly cannot be said to be without basis, foreclose whatever rights petitioner
might have had to the possible limitation of liabilities enjoyed by international air carriers under the Warsaw Convention, as it denies to the
carrier availment of the provisions which exclude or limit his liability if the damage is caused by his wiful misconduct or by such default on his
part as in accordance with the law of the court seized of the case, is considered to be equivalent to wilful misconduct,’ or ‘if the damage is
(similarly) caused x x by any agent of the carrier acting within the scope of his employment.’

13. [G.R. No. 122308. July 8, 1997]

PURITA S. MAPA, CARMINA S. MAPA ansd CORNELIO P. MAPA, petitioners, vs. COURT OF APPEALS and TRANS-WORLD
FACTS: Plaintiffs Mapa entered into contract of air transportation with defendant TWA as evidenced by TWA tickets , purchased in Bangkok,
Thailand. Said TWA tickets are for Los Angeles-New York-Boston-St. Louis-Chicago ....
Domicile of carrier TWA is Kansas City, Missouri, USA. Its principal place of business is Kansas City, Missouri, USA. TWAs place of business
through which the contracts were made is Bangkok, Thailand.The place of destination is Chicago, USA.
On August 10, 1990, plaintiffs Carmina and Purita left Manila on board PAL flight No. 104 for Los Angeles. Carmina was to commence schooling
and thus was accompanied by Purita to assist her in settling down at the University.Upon arriving in Boston, plaintiffs Purita and Carmina
proceeded to the carousel to claim their baggages and found only three out of the seven they checked in.
Despite demands by plaintiffs, TWA failed and refused without just cause to indemnify and redress plaintiffs for the grave injury and damages
they have suffered.[4]Purita S. Mapa, Carmina S. Mapa, and Cornelio P. Mapa (herein petitioners) then filed with the trial court on 1 August 1991
a complaint[5] for damages.
On 26 February 1992, TWA filed its Answer to the Amended Complaint raising, as special and affirmative defense, lack of jurisdiction of
Philippine courts over the action for damages in that pursuant to Article 28(1) of the Warsaw Convention, the action could only be brought
either in Bangkok where the contract was entered into, or in Boston which was the place of destination, or in Kansas City which is the carrier's
domicile and principal place of business.On 24 July 1992, the trial court issued an Order[19] dismissing the case for lack of jurisdiction in light of
Article 28(1) of the Warsaw Convention.
The appellate court affirmed the order of the trial court. It held that the Warsaw Convention is the law which governs the dispute between the
petitioners and TWA because what is involved is international transportation defined by said Convention in Article I(2). This holding is founded
on its determination that the two TWA tickets for Los Angeles-New York-Boston-St. Louis-Chicago purchased in Bangkok, Thailand, were issued
in conjunction with, and therefore formed part of, the contract of transportation performed from Manila, Philippines, to the United States.
Issue: whether the contracts of transportation between Purita and Carmina Mapa, on the one hand, and TWA, on the other, were contracts of
international transportation under the Warsaw Convention.

HELD: There are then two categories of international transportation, viz., (1) that where the place of departure and the place of destination are
situated within the territories of two High Contracting Parties regardless of whether or not there be a break in the transportation or a
transshipment; and (2) that where the place of departure and the place of destination are within the territory of a single High Contracting Party
if there is an agreed stopping place within a territory subject to the sovereignty, mandate, or authority of another power, even though the
power is not a party to the Convention. (Page 62)
The High Contracting Parties referred to in the Convention are the signatories thereto and those which subsequently adhered to it. In the case of
the Philippines, the Convention was concurred in by the Senate, through Resolution No. 19, on 16 May 1950. The Philippine instrument of
accession was signed by President Elpidio Quirino on 13 October 1950 and was deposited with the Polish Government on 9 November 1950. The
Convention became applicable to the Philippines on 9 February 1951. Then, on 23 September 1955, President Ramon Magsaysay issued
Proclamation No. 201, declaring the Philippines formal adherence thereto, to the end that the same and every article and clause thereof may be
observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof[26](Page 61).
The contracts of transportation in this case are evidenced by the two TWA tickets, No. 015:9475:153:304 and No. 015:9475:153:305, both
purchased and issued in Bangkok, Thailand.On the basis alone of the provisions therein, it is obvious that the place of departure and the place of
destination are all in the territory of the United States, or of a single High Contracting Party. The contracts, therefore, cannot come within the
purview of the first category of international transportation. Neither can it be under the second category since there was NO agreed stopping
place within a territory subject to the sovereignty, mandate, or authority of another power.
The only way to bring the contracts between Purita and Carmina Mapa, on the one hand, and TWA, on the other, within the first category of
international transportation is to link them with, or to make them an integral part of, the Manila-Los Angeles travel of Purita and Carmina
through PAL aircraft.
It must be underscored athat the first category of international transportation under the Warsaw Convention is based on the contract made by
the parties. TWA does not claim that the Manila-Los Angeles contracts of transportation which brought Purita and Carmina to Los Angeles were
also its contracts. It does not deny the assertion of the petitioners that those contracts were independent of the TWA tickets issued in Bangkok,
Thailand.
The flaw of respondents position is the presumption that the parties have regarded as an undivided carriage or as a single operation the carriage
from Manila to Los Angeles through PAL then to New York-Boston- St. Louis-Chicago through TWA.
WHEREFORE, the instant petition is GRANTED.
14. G.R. No. L-22272 June 26, 1967
ANTONIA MARANAN, plaintiff-appellant,
vs.
PASCUAL PEREZ, ET AL., defendants.
PASCUAL PEREZ, defendant appellant.
FACTS: Rogelio Corachea, was a passenger in a taxicab owned and operated by Pascual Perez when he was stabbed and killed by the driver,
Simeon Valenzuela. Valenzuela was prosecuted for homicide in the Court of First Instance of Batangas. Found guilty.
On December 6 1961, while appeal was pending in the Court of Appeals, Antonia Maranan, Rogelio's mother, filed an action in the Court of First
Instance of Batangas to recover damages from Perez and Valenzuela for the death of her son. Defendants asserted that the deceased was killed
in self-defense, since he first assaulted the driver by stabbing him from behind. Defendant Perez further claimed that the death was a caso
fortuito for which the carrier was not liable.
Issue: WON the death was caso fortuito for which the carrier was not liable.
Held: YES. Defendant-appellant relies solely on the ruling enunciated in Gillaco v. Manila Railroad, that the carrier is under no absolute liability
for assaults of its employees upon the passengers. The attendant facts and controlling law of that case and the one at bar are very different
however. In the Gillaco case, the passenger was killed outside the scope and the course of duty of the guilty employee. As this Court there
found.
Now here, the killing was perpetrated by the driver of the very cab transporting the passenger, in whose hands the carrier had entrusted the
duty of executing the contract of carriage. In other words, unlike the Gillaco case, the killing of the passenger here took place in the course of
duty of the guilty employee and when the employee was acting within the scope of his duties.
Moreover, the Gillaco case was decided under the provisions of the Civil Code of 1889 which, unlike the present Civil Code, did not impose upon
common carriers absolute liability for the safety of passengers against wilful assaults or negligent acts committed by their employees. Unlike the
old Civil Code, the new Civil Code of the Philippines expressly makes the common carrier liable for intentional assaults committed by its
employees upon its passengers as provided by Art 1759.
The Civil Code provisions on the subject of Common Carriers1 are new and were taken from Anglo-American Law.2There, the basis of the carrier's
liability for assaults on passengers committed by its drivers rests either on (1) the doctrine of respondeat superior or (2) the principle that it is
the carrier's implied duty to transport the passenger safely.3
Under the first, which is the minority view, the carrier is liable only when the act of the employee is within the scope of his authority and duty. It
is not sufficient that the act be within the course of employment only.4 Under the second view, upheld by the majority and also by the later
cases, it is enough that the assault happens within the course of the employee's duty. It is no defense for the carrier that the act was done in
excess of authority or in disobedience of the carrier's orders.5 The carrier's liability here is absolute in the sense that it practically secures the
passengers from assaults committed by its own employees.6
As can be gleaned from Art. 1759, the Civil Code of the Philippines evidently follows the rule based on the second view. At least three very
cogent reasons underlie this rule. As explained in Texas. v. Monroe, , and Haver v. Central Railroad Co.,: (1) the special undertaking of the carrier
requires that it furnish its passenger that full measure of protection afforded by the exercise of the high degree of care prescribed by the law,
inter alia from violence and insults at the hands of strangers and other passengers, but above all, from the acts of the carrier's own servants
charged with the passenger's safety; (2) said liability of the carrier for the servant's violation of duty to passengers, is the result of the formers
confiding in the servant's hands the performance of his contract to safely transport the passenger, delegating therewith the duty of protecting
the passenger with the utmost care prescribed by law; and (3) as between the carrier and the passenger, the former must bear the risk of
wrongful acts or negligence of the carrier's employees against passengers, since it, and not the passengers, has power to select and remove
them.
Accordingly, it is the carrier's strict obligation to select its drivers and similar employees with due regard not only to their technical competence
and physical ability, but also, no less important, to their total personality, including their patterns of behavior, moral fibers, and social attitude.
Applying this stringent norm to the facts in this case, therefore, the lower court rightly adjudged the defendant carrier liable pursuant to Art.
1759 of the Civil Code. The dismissal of the claim against the defendant driver was also correct. Plaintiff's action was predicated on breach of
contract of carriage7 and the cab driver was not a party thereto. His civil liability is covered in the criminal case wherein he was convicted by final
judgment.

15. G.R. No. L-51910 August 10, 1989

LITONJUA SHIPPING COMPANY INC., petitioner
vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.
Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping Corporation ('Fairwind). The M/V Dufton Bay is
an ocean-going vessel of foreign registry owned by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the
Dufton Bay was in the port of Cebu and while under charter by Fairwind, the vessel's master contracted the services of, among others, private
respondent Gregorio Candongo to serve as Third Engineer for a period of twelve (12) months with a monthly wage of US$500.00. This
agreement was executed before the Cebu Area Manning Unit of the NSB. Thereafter, private respondent boarded the vessel.
On 28 December 1976, before expiration of his contract, private respondent was required to disembark at Port Kelang, Malaysia, and was
returned to the Philippines on 5 January 1977. The cause of the discharge was described in his Seaman's Book as 'by owner's arrange".1
Shortly after returning to the Philippines, private respondent filed a complaint before public respondent NSB, for violation of contract, against
Mullion as the shipping company and petitioner Litonjua as agent of the shipowner and of the charterer of the vessel.
In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent NSB declaring the charterer Fairwind as
employer of private respondent, and for whose liability petitioner was made responsible, as constituting a grave abuse of discretion amounting
to lack of jurisdiction.
Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private respondent; and that liability for damages
cannot be imposed upon petitioner which was a mere agent of the charterer.
It is insisted that private respondent's contract of employment and affidavit of undertaking clearly showed that the party with whom he had
contracted was none other than Mullion, the shipowner, represented by the ship's master. 7 Petitioner Litonjua thus argues that being the agent
of the charterer and not of the shipowner, it accordingly should not have been held liable on the contract of employment of private respondent.
ISSUE: whether or not the charterer Fairwind was properly regarded as the employer of private respondent Candongo. (thus making Litonjua
liable as agent of Fairwind).
HELD: YES
The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the charterer. In modern maritime law and
usage, there are three (3) distinguishable types of charter parties: (a) the "bareboat" or "demise" charter; (b) the "time" charter; and (c) the
"voyage" or "trip" charter.
It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac vice of the vessel, the charterer assuming in
large measure the customary rights and liabilities of the shipowner in relation to third persons who have dealt with him or with the vessel. 10 In
such case, the Master of the vessel is the agent of the charterer and not of the shipowner.11 The charterer or owner pro hac vice, and not the
general owner of the vessel, is held liable for the expenses of the voyage including the wages of the seamen.12
Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed to show that it was not such, we believe and so hold that petitioner
Litonjua, as Philippine agent of the charterer, may be held liable on the contract of employment between the ship captain and the private
respondent.
There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the contract of employment of private respondent.
The charterer of the vessel, Fairwind, clearly benefitted from the employment of private respondent as Third Engineer of the Dufton
Bay.Moreover, there is also no question that petitioner Litonjua did assist the Master of the vessel in locating and recruiting private respondent
as Third Engineer of the vessel as well as ten (10) other Filipino seamen as crew members. In so doing, petitioner Litonjua certainly in effect
represented that it was taking care of the crewing and other requirements of a vessel chartered by its principal, Fairwind.15
Last, but certainly not least, there is the circumstance that extreme hardship would result for the private respondent if petitioner Litonjua, as
Philippine agent of the charterer, is not held liable to private respondent upon the contract of employment. Clearly, the private respondent, and
the other Filipino crew members of the vessel, would be defenseless against a breach of their respective contracts. While wages of crew
members constitute a maritime lien upon the vessel, private respondent is in no position to enforce that lien. If only because the vessel, being
one of foreign registry and not ordinarily doing business in the Philippines or making regular calls on Philippine ports cannot be effectively held
to answer for such claims in a Philippine forum.
We conclude that private respondent was properly regarded as an employee of the charterer Fairwind and that petitioner Litonjua may be held
to answer to private respondent for the latter's claims as the agent in the Philippines of Fairwind. We think this result, which public respondent
reached, far from constituting a grave abuse of discretion, is compelled by equitable principles and by the demands of substantial justice.

16. COMPAÑIA MARITIMA, petitioner, vs.

COURT OF APPEALS and VICENTE CONCEPCION, respondents.
G.R. No. L-31379
August 29, 1988

FACTS:
Private respondent Vicente E. Concepcion, a civil engineer, had a contract with the Civil Aeronautics Administration (CAA) sometime in 1964 for
the construction of the airport in Cagayan de Oro City Misamis Oriental. Being a Manila — based contractor, Vicente E. Concepcion had to ship
his construction equipment to Cagayan de Oro City. Having shipped some of his equipment through petitioner, Concepcion negotiated anew
with petitioner, thru its collector, Pacifico Fernandez, on August 28, 1964 for the shipment to Cagayan de Oro City of one (1) unit payloader, four
(4) units 6x6 Reo trucks and two (2) pieces of water tanks. He was issued Bill of Lading 113 on the same date upon delivery of the equipment at
the Manila North Harbor.
These equipment were loaded aboard the MV Cebu in its Voyage No. 316, which left Manila on August 30, 1964 and arrived at Cagayan
de Oro City in the afternoon of September 1, 1964. The Reo trucks and water tanks were safely unloaded within a few hours after arrival, but
while the payloader was about two (2) meters above the pier in the course of unloading, the swivel pin of the heel block of the port block of
Hatch No. 2 gave way, causing the payloader to fall. 3 The payloader was damaged and was thereafter taken to petitioner's compound in
Cagayan de Oro City.
Petitioner shipped the payloader to Manila where it was weighed at the San Miguel Corporation. Finding that the payloader weighed 7.5
tons and not 2.5 tons as declared in the B-111 of Lading, petitioner denied the claim for damages, contending that had Vicente E. Concepcion
declared the actual weight of the payloader, damage to their ship as well as to his payloader could have been prevented.

ISSUE:

Whether or not the act of private respondent Vicente E. Concepcion in furnishing petitioner Compañia Maritima with an inaccurate
weight of 2.5 tons instead of the payloader's actual weight of 7.5 tons was the proximate and only cause of the damage on the Oliver Payloader
OC-12 when it fell while being unloaded by petitioner's crew, as would absolutely exempt petitioner from liability for damages under paragraph
3 of Article 1734 of the Civil Code

HELD:
NO, petitioner in not exempt from liability because it seems to have overlooked the extraordinary diligence required of common carriers in the
vigilance over the goods transported by them. The Court of Appeals is not persuaded by the proffered explanation of petitioner alleged to be the
proximate cause of the fall of the payloader while it was being unloaded at the Cagayan de Oro City pier. Petitioner seems to have overlooked
the extraordinary diligence required of common carriers in the vigilance over the goods transported by them by virtue of the nature of their
business, which is impressed with a special public duty.
Petitioner, upon the testimonies of its own crew, failed to take the necessary and adequate precautions for avoiding damage to, or
destruction of, the payloader entrusted to it for safe carriage and delivery to Cagayan de Oro City, it cannot be reasonably concluded that the
damage caused to the payloader was due to the alleged misrepresentation of private respondent Concepcion as to the correct and accurate
weight of the payloader. As found by the respondent Court of Appeals, the fact is that petitioner used a 5-ton capacity lifting apparatus to lift
and unload a visibly heavy cargo like a payloader. Private respondent has, likewise, sufficiently established the laxity and carelessness of
petitioner's crew in their methods of ascertaining the weight of heavy cargoes offered for shipment before loading and unloading them, as is
customary among careful persons.
While the act of private respondent in furnishing petitioner with an inaccurate weight of the payloader cannot successfully be used as an
excuse by petitioner to avoid liability to the damage thus caused, said act constitutes a contributory circumstance to the damage caused on the
payloader, which mitigates the liability for damages of petitioner in accordance with Article 1741 of the Civil Code.

DOCTRINES:

The general rule under Articles 1735 and 1752 of the Civil Code is that common carriers are presumed to have been at fault or to have
acted negligently in case the goods transported by them are lost, destroyed or had deteriorated. To overcome the presumption of liability for
the loss, destruction or deterioration of the goods under Article 1735, the common carriers must prove that they observed extraordinary
diligence as required in Article 1733 of the Civil Code. The responsibility of observing extraordinary diligence in the vigilance over the goods is
further expressed in Article 1734 of the same Code, the article invoked by petitioner to avoid liability for damages.

Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier, and of their arrival at the place of
destination in bad order, makes out prima facie case against the common carrier, so that if no explanation is given as to how the loss,
deterioration or destruction of the goods occurred, the common carrier must be held responsible. 10 Otherwise stated, it is incumbent upon the
common carrier to prove that the loss, deterioration or destruction was due to accident or some other circumstances inconsistent with its
liability.

Under 1736 of the Civil Code, the responsibility to observe extraordinary diligence commences and 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 the right to receive them without prejudice to the provisions of Article 1738.
17. EASTERN SHIPPING LINES, INC., petitioner, vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents.
150 SCRA 469

FACTS:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner Eastern Shipping Lines, Inc.,
(referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28
packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75, consigned to
Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated value with respondent Development Insurance and
Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics and accessories, in two (2)
containers, consigned to Mariveles Apparel Corporation, and two cases of surveying instruments consigned to Aman Enterprises and General
Merchandise. The 128 cartons were insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the
2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US $11,385.00.
 Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and cargo. The respective
respondent Insurers paid the corresponding marine insurance values to the consignees concerned and were thus subrogated unto the rights of
the latter as the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for short), having been
subrogated unto the rights of the two insured companies, filed suit against petitioner Carrier for the recovery of the amounts it had paid to the
insured. Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous event, hence, it is not liable
under the law. On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts of P256,039.00 and
P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of
Appeals which, on August 14, 1984, affirmed.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and Dowa Fire & Marine Insurance Co., Ltd.
(DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner Carrier for the recovery of the insured value of the cargo lost,
imputing unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner Carrier. Petitioner Carrier denied liability on
the principal grounds that the fire which caused the sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of
Goods by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving negligence of the vessel is shifted to the cargo
shipper. On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts of US $46,583.00 and US
$11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the amount recoverable by DOWA to US $1,000.00
because of $500 per package limitation of liability under the COGSA.

ISSUES:

1. Which law should govern in case of loss, destruction or deterioration of goods transported? The Civil Code or the Carriage of Goods
by Sea Act?

2. Who has the burden of proof to show negligence of the carrier?

HELD:
 1. The law of the country to which the goods are to be transported governs the liability of the common carrier in case of their loss,
destruction or deterioration. As the cargoes in question were transported from Japan to the Philippines, the liability of Petitioner Carrier is
governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and obligations of common carrier shall be
governed by the Code of Commerce and by special laws. Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of
the Civil Code.

2. Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over goods, according to all the circumstances of each case. Common carriers are responsible for the loss,
destruction, or deterioration of the goods unless the same is due to any of the following causes only: “(1)Flood, storm, earthquake, lightning or
other natural disaster or calamity; xxx xxxxxx”
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase "natural disaster or calamity."
However, we are of the opinion that fire may not be considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. It does not fall within the category of an act of God unless caused by lightning or by other natural disaster
or calamity. It may even be caused by the actual fault or privity of the carrier.
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction
of the rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection
policy towards agriculture.
As the peril of the fire is not comprehended within the exception in Article 1734, Article 1735 of the Civil Code provides that all cases
than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary diligence required by law.

DOCTRINES:

Petitioner Carrier failed to prove that it has exercised the extraordinary diligence required by law:

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the transported goods have been lost.
Petitioner Carrier has also proved that the loss was caused by fire. The burden then is upon Petitioner Carrier to prove that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana
noticed that smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; that the fire
must have started twenty-four (24) hours before the same was noticed; that carbon dioxide was ordered released and the crew was ordered to
open the hatch covers of No. 2 hold for commencement of firefighting by sea water: that all of these effort were not enough to control the fire.
 Pursuant to Article 1733, common carriers are bound to extraordinary diligence in the vigilance over the goods. The evidence of the
defendant did not show that extraordinary vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2 and 3.
Defendant's evidence did not likewise show he amount of diligence made by the crew, on orders, in the care of the cargoes. What appears is
that after the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage. Consequently, the
crew could not have even explain what could have caused the fire. The defendant, in the Court's mind, failed to satisfactorily show that
extraordinary vigilance and care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common carrier, is liable
to the consignees for said lack of diligence required of it under Article 1733 of the Civil Code. 15 Having failed to discharge the burden of proving
that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil Code, it is required under
Article 1739 of the same Code that the "natural disaster" must have been the "proximate and only cause of the loss," and that the carrier has
"exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster.” This Petitioner Carrier has also
failed to establish satisfactorily.

Circumstances showing Petitioner Carrier’s negligence:

1. There was actual fault of the carrier shown by lack of diligence in that “when the smoke was noticed, the fire was already big; the fire
must have started twenty-four (24) hours before the same was noticed;”
2. “After the cargoes were stored in the hatches, no regular inspection was made as to their condition during the voyage.”

The foregoing suffices to show that the circumstances under which the fire originated and spread are such as to show that Petitioner
Carrier or its servants were negligent in connection therewith. Consequently, the complete defense afforded by COGSA when loss results from
fire is unavailing.

18. Sulpicio Lines v Curso

Gr no. 157009
Facts:
Dr. Curso boarded a vessel operated by petitioner w/c was bound for Tacloban City. Unfortunately, due to inclement sea and weather conditions
caused by Typhoon Unsang, the vessel sank. This resulted in the deaths of many passengers including Dr. Curso. Respondents in this case are the
surviving brothers and sisters of Dr. Curso who filed an action for damages against petitioner for breach of contract of carriage by sea, averring
that the latter had acted negligently thus making them liable even though there was force majeure. The RTC dismissed the complaint but this
was reversed by the CA w/c said that due to weather reports before the voyage, the crew of the vessel should have had the foresight to know
that the typhoon was affecting their intended route and should have acted accordingly. There was also an issue of the ship’s hydraulic system
w/c broke down mid-voyage that negated the ship’s seaworthiness. The CA awarded moral damages to the respondents.
Issue: WON the respondents are entitled to moral damages.
Held:

No. The SC held that moral damages may be recovered in an action upon breach of contract of carriage only when: (a) where death of a
passenger results, or (b) it is proved that the carrier was guilty of fraud and bad faith, even if death does not result. Article 2206 of the Civil Code
entitles the descendants, ascendants, illegitimate children, and surviving spouse of the deceased passenger to demand moral damages for
mental anguish by reason of the death of the deceased.
Since the respondents are the siblings of the deceased, they are not entitled to moral damages.
The petitioner has correctly relied on the holding in Receiver for North Negros Sugar Company, Inc. v. Ybaez, to the effect that in case of death
caused by quasi-delict, the brother of the deceased was not entitled to the award of moral damages based on Article 2206 of the Civil Code.
Essentially, the purpose of moral damages is indemnity or reparation, that is, to enable the injured party to obtain the means, diversions, or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the tragic event. According to Villanueva v. Salvador,
the conditions for awarding moral damages are: (a) there must be an injury, whether physical, mental, or psychological, clearly substantiated by
the claimant; (b) there must be a culpable act or omission factually established; (c) the wrongful act or omission of the defendant must be the
proximate cause of the injury sustained by the claimant; and (d) the award of damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.

19. Westwind Shipping v UCPB Gen. Insurance

Gr no. 200289
Facts:
Petitioner had a vessel w/c transported metal containers/skids of tine-free steel from Japan to the Philippines. The Consignee was San Miguel
Corporation w/c engaged the services of UCPB in order to insure the cargo. Upon arrival at the port of Manila, ATI was in charge of unloading the
cargo from the ship onto the port as arrastre. It was found that there were 6 containers that were damaged by ATI’s forklifts. Upon delivery to
SMC’s factory in Laguna, an additional 9 containers were found to be damaged. SMC therefore instituted an action against Westwind, UCPB and
ATI. UCPB paid 200k+ Php to SMC and subrogated the latter. UCPB then filed a case against Westwind and ATI for damaging the containers. The
RTC dismissed the case but the CA reversed the same, claiming that the 2 were liable.
Issue: WON Westwind and ATI are liable.
Held:
Yes. The SC held that common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.
The mere proof of delivery of goods in good order to the carrier, and their arrival in the place of destination in bad order, make out a prima facie
case against the carrier, so that if no explanation is given as to how the injury occurred, the carrier must be held responsible. It is incumbent
upon the carrier to prove that the loss was due to accident or some other circumstances inconsistent with its liability. Thus Westwind is liable.
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as
an ancillary activity. The contention, therefore, of petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner
undertakes to deliver the goods for pecuniary consideration. Thus ATI is liable.

20. Air France v Gillego

Gr no. 165266
Facts:
Gillego boarded a plane operated by AF going to Budapest as a keynote speaker in a human rights conference. Upon his arrival, his luggage was
nowhere to be found at the airport and so he complained to AF who assured him that his belongings would be delivered to his hotel w/in the
day. This was not done and so Gillego made several attempts at getting back his luggage but was ignored by AF. Gillego filed a complaint for
damages against AF for negligence and breach of obligation to transport and deliver his luggage. He claims that his luggage contained his
medicine and notes for the speeches he was supposed to give at the conference. Due to the loss, he had to endure physical and emotional
anguish due to making new speeches and having hypertension. Gillego asked for moral damages of 1M Php, exemplary damages of 500k and
other costs. This was granted by the RTC and the CA.
Issue: WON AF is liable for moral and exemplary damages.
Held:
Yes but the amounts are excessive.
In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible
acted fraudulently or with malice or bad faith.[25] Not every case of mental anguish, fright or serious anxiety calls for the award of moral
damages.[26] Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages
is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have reasonably
foreseen. In such a case the liability does not include moral and exemplary damages.
Bad faith should be established by clear and convincing evidence. The settled rule is that the law always presumes good faith such that any
person who seeks to be awarded damages due to the acts of another has the burden of proving that the latter acted in bad faith or with ill
motive.
Due to AF’s willful ignorance of Gillego’s inquiries and failure to establish a reason for the loss, they are liable for moral and exemplary damages.
Insurance

1. Eternal Gardens Memorial Park Corp vs. Phil. American Life Insurance Co., April 9, 2008
FACTS:
Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner Eternal Gardens Memorial Park Corporation
(Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the purchased burial lots. The relevant provisions of the policy “The
insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance
if the application of the Lot Purchaser is not approved by the Company.”
One of the insured lot purchasers was John Chuang. Eternal sent a letter to Philamlife, which served as an insurance claim for Chuang’s death.
ISSUE:
Whether Philamlife should pay the insurance proceeds.
HELD:
Yes. An examination of the provision of the POLICY under effective date of benefit, would show ambiguity between its two sentences.
The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with
Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.
An insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order
to safeguard the latter’s interest.

2. Philamcare Health Systems Inc. vs. CA March 18, 2002

FACTS:
Ernani Trinos applied for a health care coverage with Philam Health Care Sysems. Ernani suffered a heart attack and was confined in the hospital,
so his wife tried to claim the benefits under the health care agreement. Philam denied her claim thus she instituted an action for damages
against Philaml. Philam contended that there was no indemnification unlike in insurance contracts. It further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of
Health.
ISSUE:
Whether a health care agreement is an insurance contract.
HELD:
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following
elements concur:
i) The insured has an insurable interest;
ii) The insured is subject to a risk of loss by the happening of the designated peril;
iii) The insurer assumes the risk;
iv) Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and
v) In consideration of the insurer’s promise, the insured pays a premium.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health care
agreement was 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.

3. ATI vs First Lepanto-Taisho Insurance Corp, G.R. No. 185964, June 16, 2014
FACTS:
A shipment was insured against all risks by Grand Asian Sales, Inc. (GASI) with FIRST LEPANTO. It arrived in Manila and was discharged
into the possession and custody of Asian Terminals, Inc. (ATI). Upon receipt of the shipment, GASI subjected the same to inspection and found
that the delivered goods incurred shortages and spillage. FIRST LEPANTO paid GASI the insurance indemnity, as subrogee, it demanded from
COSCO, its shipping agency in the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. On appeal, ATI
argued that there was no valid subrogation because FIRST LEPANTO failed to present a valid, existing and enforceable Marine Open Policy or
insurance contract.
ISSUE:
Whether the presentation of insurance policy is indispensable in proving the right of FIRST LEPANTO to be subrogated to the right of the
consignee.
HELD:
The non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to collect reimbursement as the subrogee of
GASI. 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. Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted
exceptions by declaring that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the insurer because the
loss of the cargo undoubtedly occurred while on board the petitioner’s vessel.
With ATI’s liability having been positively established, to strictly require the presentation of the insurance contract will run counter to the
principle of equity upon which the doctrine of subrogation is premised. Subrogation is designed to promote and to accomplish justice and is the
mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.

4. Spouses Cha vs. CA, (August 18, 1997);

FACTS:
Spouses Cha and CKS Development Corporation entered a 1 year lease contract with a stipulation not to insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent
and approval of the lessor. The spouses insured against loss by fire their merchandise inside the leased premises with the United Insurance Co.,
Inc. without the written consent of CKS. On the day the lease contract was to expire, fire broke out inside the leased premises. CKS upon
learning that the spouses procured an insurance wrote to United to have the proceeds be paid directly to them.
ISSUE:
Whether CKS has insurable interest in the goods and merchandise inside the leased premises because the spouses Cha violated the stipulation in
the lease contract.
HELD:
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. CKS
cannot, under the Insurance Code, be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy
to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy.

5. Gaisano Cagayan, Inc. vs. Insurance Company of North America, June 8, 2006).
FACTS:
Intercapitol Marketing Corporation (IMC) and Levi Strauss Phils. Inc. (LSPI) separately obtained from respondent Insurance Company of North
America (ICNA) fire insurance policies for their book debt endorsements related to their ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid4 5 days after the time of the loss.
Gaisano Cagayan, Inc. is a customer and dealer of IMC and LSPI products. It owns the Gaisano Superstore Complex, which was consumed by fire
in 1991. Included in the items destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
ISSUE:
Who bears the risk of loss?
HELD:
IMC and LSPI. A vendor or seller retains an insurable interest in the property until full payment of the value of the delivered goods. Unlike the
civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one’s
interest is not determined by concept of title, but whether insured has substantial economic interest in the property.

6. Sun Life of Canada [Philippines], Inc. vs. Sibya, 793 SCRA 45, G.R. No. 211212 June 8, 2016

FACTS:
On January 10, 2001, Atty. Jesus Sibya, Jr. applied for life insurance with Sun Life. In his Application for Insurance, he indicated that he had
sought advice for kidney problems. Sun Life approved the application and issued Insurance Policy No. 031097335.
The policy indicated the respondents as beneficiaries and entitles them to a death benefit of P1,000,000.00 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. As such, Ma. Daisy filed a Claimant’s Statement with Sun Life to seek the
death benefits indicated in his insurance policy.

However, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.’s medical history were not disclosed in his application.
Simultaneously, Sun Life tendered a check representing the refund of the premiums paid by Atty. Jesus.

The respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his application for insurance.

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.

ISSUE:
Whether or not there was concealment or misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.

RULING:
In Manila Bankers Life Insurance Corporation v. Aban, 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. The Court
held:

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 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 of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the death of the
insured within the two-year period will render the right of the insurer to rescind the policy nugatory. As such, the incontestability period will
now set in.

As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment. Moreover, he executed an
authorization in favor of Sun Life to conduct investigation in reference with his medical history.

Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the insurance contract. Concealment as a
defense for the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer. In the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is therefore liable
to pay the proceeds of the insurance.

7. Geagonia vs. CA, (February 6, 1995);

FACTS:
Geagonia, owner of a store, obtained fire insurance policy from Country Bankers covering the stock trading of dry goods. The policy
contains an "other insurance" clause (condition that the insured shall give notice to the Company of any insurance or insurances already
affected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured). When petitioners’ stocks were destroyed by fire, he filed a claim that was subsequently denied because
Geagonia’s stocks were covered by two other fire insurance policies issued by PFIC which were not disclosed by Geagonia. The fire insurance
policies issued by the PFIC name Geagonia as the assured and contain a mortgage clause which reads: Loss, if any, shall be payable to MESSRS.
TESING TEXTILES, Cebu City as their interest may appear subject to the terms of this policy.
ISSUES:
Whether Geagonia is prohibited from recovering the insurance proceeds because of his violation of the insurance policy.

HELD:
No. Section 75 of the Insurance Code provides that "[a] policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy." It is commonly known as the additional or "other insurance" clause
and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to
constitute a violation, the other insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, double
insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest.
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be
one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. A mortgagor may, however,
take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may be made the beneficial payee in several
ways. He may become the assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the original policy
may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may appear" may be attached; or a
"standard mortgage clause," containing a collateral independent contract between the mortgagee and insurer, may be attached; or the policy,
though by its terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the proceeds.
In the case at bar, the fire insurance policies issued by the PFIC contain a simple loss payable clause, not a standard mortgage clause.
Consequently, the insurable interests of the mortgagor Geagonia and the mortgagee Tesing Textiles on the mortgaged property (stock trading of
dry goods )are distinct and separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of Country
Bankers Insurance Corporation, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right
to recover on the private respondent's policy.

8. The Insular Life Assurance Company, Ltd. v. Paz Y. Khu, et al G.R. No. 195176; April 18, 2016

Facts:
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter's 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 Policy Number A000015683 with a face value of PI million. This took effect on June 22, 1997.

On June 23, 1999, Felipe's 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

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[8] and on December 27, 1999 paid the agreed additional premium of P3,054.50

On September 22, 2001, Felipe died

On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively, Felipe's beneficiaries or respondents) filed with Insular Life a
claim for benefit under the reinstated policy. This claim was denied.

Issues:
Insular Life countered 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... whether Felipe's reinstated life insurance policy is already incontestable at the time of his death.

Ruling:
this Court adopts the interpretation favorable to the insured in determining the date when the reinstatement was approved.

We deny the Petition.

Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be considered as reinstated on
June 22, 1999. This finding must be upheld not only because it accords with the evidence, but also because this is favorable to the insured who
was not responsible for causing the ambiguity or obscurity in the insurance contract.

WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and December 13, 2010 Resolution of the Court of Appeals in CA-GR.
CV No. 81730 are AFFIRMED.

Principles:

that given the obscurity/ambiguity in the language of these two documents, the construction/interpretation that favors the insured's right to
recover should be adopted; a... that the CA erred in declaring that resort to the principles of statutory construction is still necessary to resolve
that question given that the Application for Reinstatement,... The court below is correct. Given the obscurity of the language, the construction
favorable to the insured will be adopted by the courts.

9. Vda. de Maglana vs. Hon. Consolacion (August 6, 1992);

FACTS:
Lope Maglana met an accident that resulted to his death. The jeep that bumped Maglana was operated by Destrajo. He was sued together with
the insurer of the jeep, Afisco Insurance Corporation (AFISCO).
ISSUE:
Whether AFISCO was solidarily liable with Destrajo.
HELD:
No. While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can
directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that
of the insured is based on tort.
10. Tiu vs. Arriesgado (GR No. 138060, 01 September 2004)
FACTS:
Spouses Arriesgado were passengers of a bus owned by Tiu. They sustained injuries when the bus collided with a cargo truck. When Arriesgado
then filed a complaint for breach of contract of carriage against the D Rough Riders bus operator William Tiu and his driver Laspias, Tiu filed a
Third-Party Complaint against Tiu’s insurer Philippine Phoenix Surety and Insurance, Inc. (PPSII), the registered owner of the cargo truck Candor
and the driver of the truck Sergio. PPSII admitted that it had an existing contract with petitioner Tiu, but averred that it could not accede to the
claim of respondent Arriesgado, as such claim was way beyond the scheduled indemnity as contained in the contract of insurance.
ISSUE:
In third party liability insurance, would it be possible for a third party to sue the insurer and could the insurer be made solidarily liable with the
insured?
HELD:
The victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and
those required by law. The nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide compensation
for the death or bodily injuries suffered by innocent third parties or passengers as a result of the negligent operation and use of motor vehicles.
The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.
While it is true that where the insurance contract provides for indemnity against liability to third persons, and such persons can directly sue the
insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable
in solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that of the insured carrier
or vehicle owner is based on tort.

11. Jaime T. Gaisano

Vs. Development Insurance and Surety Corporation

Facts: Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777 (vehicle), while respondent is a domestic
corporation engaged in the insurance business. On September 27, 1996, respondent issued a comprehensive commercial vehicle policy to
petitioner in the amount of Pl,500,000.00 over the vehicle for a period of one year commencing on September 27, 1996 up to September 27,
1997. Respondent also issued two other commercial vehicle policies to petitioner covering two other motor vehicles for the same period. 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. The check bearing
the amount of Pl40,893.50 represents payment for the three insurance policies,
with P55,620.60 for the premium and other charges over the vehicle. However,
nobody from Trans-Pacific picked up the check that day (September 27) because
its president and general manager, Rolando Herradura, was celebrating his
birthday. Trans-Pacific informed Noah's Ark that its messenger would get the
check the next day, September 28. In the evening of September 27, 1996, while
under the official custody of Noah's Ark marketing manager Achilles Pacquing
(Pacquing) as a service company vehicle, the vehicle was stolen in the vicinity
of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the
Philippine National Police Traffic Management Command at Camp Crame in Quezon
City. Despite search and retrieval efforts, the vehicle was not recovered.
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 Trans Pacific for Pl40,893.50 was
deposited with Metrobank for encashment on October 1, 1996.

Issue: Whether there is a binding insurance contract between petitioner and respondent.

Ruling: The court deny the petition. Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. Just like any other contract, it requires a cause or consideration. The
consideration is the premium, which must be paid at the time and in the way and manner specified in the policy. If not so paid, the policy will
lapse and be forfeited by its own terms. The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding.

Section 77 of the Insurance Code,

applicable at the time of the issuance of the policy, provides: Sec. 77. An
insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. 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, except in
the case of a life or an industrial life policy whenever the grace period
provision applies.

12. Roque vs. IAC November 11, 1985

FACTS:
In a contract of carriage of logs from Palawan to Manila, Pioneer Insurance insured the subject goods. The goods sank with the barge.
During the pendency of the case, the common carrier Manila Bay Lighterage Corporation (Manila Bay) has ceased operating as a firm and
nothing may be recovered from it. The cargo owner Isabela Roque is now trying to recover their losses from the insurer.

ISSUE: Is Pioneer Insurance liable?

HELD:
The term "cargo" can be the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness immediately
attaches to whoever is insuring the cargo whether he be the shipowner or not. In marine cases, the risks insured against are "perils of the
sea". The term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements, and does not embrace all
losses happening at sea. In the present case the entrance of the sea water into the ship's hold through the defective pipe was not due to any
accident, which happened during the voyage, but to the failure of the ship's owner properly to repair a defect of the existence of which he was
apprised. The loss was therefore more analogous to that which directly results from simple unseaworthiness than to that which results from the
perils of the sea.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the
obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy condition. By parity of reasoning the
insurer is not liable.

13. Manulife Philippines, Inc. vs. Ybañez, 810 SCRA 516, G.R. No. 204736 November 28, 2016

Facts:

• It is alleged in the Complaint that Insurance Policy Nos. 6066517-1 and 6300532-6 (subject insurance policies) which Manulife issued on
October 25, 2002 and on July 25, 2003, respectively, both in favor of Dr. Gumersindo Solidum Ybañez (insured), were void due to concealment or
misrepresentation of material facts in the latter's applications for life insurance, particularly the forms entitled Non-Medical Evidence dated
August 28, 2002 (NME), Medical Evidence Exam dated September 10, 2002 (MEE),and the Declaration of Insurability in the Application for Life
Insurance (DOI) dated July 9, 2003;
• That Hermenegilda, wife of the said insured, was revocably designated as beneficiary in the subject insurance policies; that on
November 17, 2003, when one of the subject insurance policies had been in force for only one year and three months, while the other for only
four months, the insured died; that on December 10, 2003;

• Hermenegilda, now widow to the said insured, filed a Claimant's Statement-Death Claim with respect to the subject insurance policies;
that the Death Certificate dated November 17, 2003 stated that the insured had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid
Nephropathy; SAM Nephropathy recurrent malignant pleural effusion; NASCVC";

• That Manulife conducted an investigation into the circumstances leading to the said insured's death, in view of the aforementioned
entries in the said insured's Death Certificate; that Manulife thereafter concluded that the insured misrepresented or concealed material facts at
the time the subject insurance policies were applied for; and that for this reason Manulife accordingly denied Hermenegilda's death claims and
refunded the premiums that the insured paid on the subject insurance policies;

• BPI Family filed a Manifestation praying that either it be dropped from the case or that the case be dismissed with respect to it, since no
objection was interposed to this prayer by either Manulife or Hermenegilda, the RTC granted the prayer. Manulife presented its sole witness in
the person of Ms. Jessiebelle Victoriano (Victoriano), the Senior Manager of its Claims and Settlements Department. The oral testimony of this
witness chiefly involved identifying herself as the Senior Manager of Manulife's Claims and Settlements Department and also identifying the
evidence. After due proceedings, the RTC dismissed Manulife's Complaint. The RTC found no merit at all in Manulife's Complaint for rescission of
the subject insurance policies because it utterly failed to prove that the insured had committed the alleged misrepresentation/s or
concealment/s. The CA affirmed the decision of RTC.

Issue:
Whether the CA committed any reversible error in affirming the RTC Decision dismissing Manulife's Complaint for rescission of insurance
contracts for failure to prove concealment on the part of the insured.

Held:
No. The RTC correctly held that the CDH's medical records that might have established the insured's purported misrepresentation/s or
concealment/s was inadmissible for being hearsay, given the fact that Manulife failed to present the physician or any responsible official of the
CDH who could confirm or attest to the due execution and authenticity of the alleged medical records. Manulife had utterly failed to prove by
convincing evidence that it had been beguiled, inveigled, or cajoled into selling the insurance to the insured who purportedly with malice and
deceit passed himself off as thoroughly sound and healthy, and thus a fit and proper applicant for life insurance. Manulife's sole witness gave no
evidence at all relative to the particulars of the purported concealment or misrepresentation allegedly perpetrated by the insured.
In fact, Victoriano merely perfunctorily identified the documentary exhibits adduced by Manulife; she never testified in regard to the
circumstances attending the execution of these documentary exhibits much less in regard to its contents. Of course, the mere mechanical act of
identifying these documentary exhibits, without the testimonies of the actual participating parties thereto, adds up to nothing. These
documentary exhibits did not automatically validate or explain themselves. "The fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer." For failure of Manulife to prove intent to defraud
on the part of the insured, it cannot validly sue for rescission of insurance contracts.

14. SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. SANDRA TAN KIT AND THE ESTATE OF THE DECEASED NORBERTO TAN KIT,
Respondents.

Facts: Sandra Tan Kit was a beneficiary of a life insurance policy obtained by Norberto Tan Kit with the petitioner insurer with a face value of
300,000 pesos which was registered on October 28 1999. Norberto died of disseminated gastric carcinoma on February 19 2001 (within the 2
year contestability period). Consequently, respondent Tan Kit filed a claim under the subject policy. Sun Life denied such claim on the ground
that Norberto failed to fully and faithfully disclose his medical history, in particular his smoking habit. Norberto denied in the application for the
policy that he has smoked within the past 12 months prior his application. Sun Life alleges that there are several medical reports from Dr. Anna
Chua wherein Norberto had consulted for illness in which he has disclosed that he only stopped smoking on August 1999. Sun Life offered to
return the premiums paid. Respondent refused, prompting Sun Life to file a complaint for Rescission of Insurance Contract before RTC-Makati.

RTC ruled in favor of respondents, saying that Sun Life through its agent Irma Javelosa cleared Norberto of his misrepresentation as Javelosa did
not admit the fact that Norberto smoked which could have affected his insurability despite the fact that Javelosa personally knows Norberto. It is
also noted that Norberto has already an existing policy with Sun Life prior to the denied claim, so it was incumbent upon petitioner to ascertain
the health condition of Norberto.

CA reversed the decision of RTC, it found Norberto guilty of concealment as it found in the records that Norberto consulted 2 physicians (Dr.
Chua and Dr. Ledesma) in which he disclosed that he only stopped smoking on 1999, contrary to his denial during the time of his application of
policy. Respondents failed to deny the said pieces of evidence despite notice therefore the court admitted the same. It ordered Sun Life to
return the sum of P13,080.93 representing the premium with interest rate of 12% p.a from the time of death of Norberto until fully paid

Issue 1: Whether or not Norberto committed concealment/material misrepresentation?

Ruling: Yes. The records are clear that Norberto has committed concealment/material representation
Issue 2: Whether or not Sun Life is liable for paying 12% per annum interest in the refund of premium?

Ruling: No. Sun Life has already attached a check representing the premium refund upon the denial of the respondents claim. There can only be
interest when there is delay or there is actual use or forbearance of money. SC modified the ruling, wherein it issued an interest rate of 6% p.a
which shall only apply if Sun Life failed to pay said refund within 15 days after the finality of the decision

15. Florendo v. Philam Plans, February 22, 2012

FACTS:
Philam Plans, Inc. (Philam Plans) issued a comprehensive pension plan with life insurance coverage, containing a one-year incontestability period
to Manuel Florendo. Eleven months later after the issuance Florendo died of blood poisoning. Lourdes filed a claim for the payment of the
benefits under her husband’s plan but Philam Plans declined her claim on the ground of concealment. Lourdes points out that, seeing the
unfilled spaces in Manuel’s pension plan application relating to his medical history, Philam Plans should have returned it to him for completion.
Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s part. She claims that any defect or
insufficiency in the information provided by his pension plan application should be deemed waived after the same has been approved, the policy
has been issued, and the premiums have been collected.
ISSUE:
Whether Florendo is guilty of concealing his illness when he kept blank and did not answer questions in his pension plan application and
whether Philam Plan’s approval of Florendo’s pension plan application and acceptance of his premium payments precluded it from denying
Lourde’s claim.
HELD:
In signing the application without filling in the details regarding his continuing treatments for heart condition and diabetes, the assumption is
that he has never been treated for the said illnesses in the last five years preceding his application. Since Philam Plans waived medical
examination for Florendo, it had to rely largely on his stating the truth regarding his health in his application. It is clear from these
representations that there was concealment.
The insurance plan contains an incontestability clause, which precludes the insurer from disowning liability under the policy it issued on the
ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance. Since Florendo died on the eleventh
month following the issuance of his plan, the one-year incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husbands pension plan.

16. Loadstar Shipping Company, Incorporated vs. Malayan Insurance Company, Incorporated

Facts:
This resolves the Motion for Reconsideration[1] of the Decision[2] dated November 26, 2014 of the Court in the above-captioned case filed by
respondent Malayan Insurance Company, Incorporated (Malayan). Malayan alleges that in ruling in favor of Loadstar Shipping Company,
Incorporated and Loadstar International Shipping Company, Incorporated (petitioners), the Court disregarded the conclusion of the Court of
Appeals that the petitioners acted as a common carrier; that there was a breach of the contract of affreightment; and that the petitioners failed
to produce evidence of a calamity to be exculpated from liability.[3] In their Comment,[4] the petitioners contend that the grounds raised by
Malayan are no longer relevant because as found by the Court, Malayan did not adduce proof of pecuniary loss to the insured Philippine
Associated Smelting and Refining Corporation (PASAR).[5] PASAR has not established by an iota of evidence the amount of loss or actual damage
it suffered by reason of seawater wettage of the 777.29 metric tons of copper concentrates. In spite of no proof of loss, Malayan, with seeming
hastiness paid the claim of PASAR in the amount of P33,934,948.75.[6] According to the petitioners, Malayan cannot make them answerable for
its mistake in indemnifying PASAR.[7] On June 10, 2015, Malayan filed a Motion to Refer the Case to the Court en banc[8] alleging that the
Decision dated November 26, 2014 of the Third Division deviated from the doctrine enunciated in Delsan Transport Lines, Inc., v. CA.[9] Malayan
contends that in Delsan, the Court held that upon payment by the insurance company of the insurance claim, the insurance company should be
subrogated to the rights of the insured; it is not even necessary to present the insurance policy because subrogation is a matter of equity.

Issues:

Delsan involved the sinking of a vessel which took down with it the entire cargo of fuel it was carrying. Hence, the fact of total loss was
completely and undisputedly established. The burden of proof was upon the common carrier to prove that it was not liable for the loss, which it
failed to discharge. It was only but logical for the Court to hold the common carrier liable to the insurance company that paid the insured owner
of the lost cargo as the latter's subrogee.

Malayan argues that since the petitioners and PASAR agreed in their Contract of Affreightment that copper concentrates are easily
contaminated with seawater, the contaminated parts should be considered as totally damaged;[12] and that when the petitioners failed to
provide a seaworthy ship under 25 years of age as agreed upon, they should be held liable for damages.

Ruling:

In comparison with Delsan, the facts of the instant case are not as straightforward. Here, the copper concentrates were delivered by the
petitioners to the consignee PASAR although part thereof was contaminated with seawater. To be clear, PASAR did not simply reject the
contaminated goods (on the basis that these were no longer fit for the intended purpose), claim the value thereof from Malayan and leave
things at that - it bought back the goods which it had already rejected. Meanwhile, Malayan opted to cash in the situation by selling the
contaminated copper concentrates to the very same consignee who already rejected the goods as total loss. After denying the petitioners of
opportunity to participate in the disposal or sale of the goods,[11] Malayan sought to recover the total value of the wet copper concentrates
from them. Malayan and PASAR's extraneous actuations are inconsistent with the alleged fact of total loss. Verily, Delsan cannot be applied
given the contradistinctive circumstances obtaining in this case.

the Court reiterates the principle that actual damages are not presumed; it cannot be anchored on mere surmises, speculations or
conjectures.[14] As the Court discussed in the Decision dated November 26, 2014, Malayan was not able to prove the pecuniary loss suffered by
PASAR for which the latter was indemnified. This is in line with the principle that a subrogee steps into the shoes of the insured and can recover
only if the insured likewise could have recovered.

As common carriers, the petitioners are bound to observe extraordinary diligence in their vigilance over the goods they transport, as required by
the nature of their business and for reasons of public policy.[16] "Extraordinary diligence is that extreme measure of care and caution which
persons of unusual prudence and circumspection use for securing and preserving their own property or rights."

When the copper concentrates delivered were contaminated with seawater, the petitioners have failed to exercise extraordinary diligence in the
carriage thereof.

the Court deems it proper to award nominal damages to Malayan... in recognition of the breach of contract committed by the petitioners. "So
long as there is a violation of the right of the plaintiff—whether based on law, contract or other sources of obligations—an award of nominal
damages is proper."

Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Article 2222. The court may
award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has
been invaded.

"Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no
actual present loss of any kind or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been
or can be shown."

"The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances."... the amount
of P1,769,374.725, which is equivalent to six percent (6%) of the sum being claimed by Malayan less the residual value of the copper
concentrates, is sufficient as damages.

Finally, the Court also takes the opportunity to make it clear that this disposition does not in any way undermine the principle of subrogation;
rather, the Court takes into consideration all the circumstances in this case, inasmuch as Malayan and PASAR's dealings post-delivery of the
copper concentrates were unwarranted. While the breach of contract committed by the petitioners should not be tolerated, the undue haste, as
well as the other doubtful circumstances under which the sale of the wet copper concentrates was made, is not lost on the Court.

II. Subrogation of Malayan to the rights of PASAR

Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR as consignee of the allegedly damaged goods.
The right of subrogation stems from Article 2207 of the New Civil Code which states:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong
doer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
"The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer."20 The right of subrogation is however, not absolute. "There are a few recognized
exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from
liability, the insurer’s right of subrogation is defeated. x x x Similarly, where the insurer pays the assured the value of the lostgoods without
notifying the carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on both the assured and the insurer, and
the latter cannot bring an action against the carrier on his right of subrogation. x x x And where the insurer pays the assured for a loss which is
not a risk covered by the policy, thereby effecting ‘voluntary payment,’ the former has no right of subrogation against the third party liable for
the loss x x x."21
The rights of a subrogee cannot be superior to the rights possessed by a subrogor. "Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or 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. The rights to which the subrogee succeeds are the same as, but not greaterthan, those of the person for
whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only ifthe insured
likewise could have recovered."22 Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually suffered from.
If there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the insured. Should the insurer pay the insured and
it turns out that indemnification is not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek
recompense from the alleged wrongdoer. This is because the supposed subrogor did not possessthe right to be indemnified and therefore, no
right to collect is passed on to the subrogee

The word “loss” refers to the act or fact of losing, or failure to keep possession, while the word “damage” means deterioration or injury to
property. Therefore, petitioner cannot exclude the loss of Castor’s vehicle under the insurance policy under paragraph 4 of “Exceptions to
Section III”, since the same refers only to “malicious damage”, or more specifically, “injury” to the motor vehicle caused by a person under the
insured’s service. Paragraph 4 clearly does not contemplate “loss of property”.
17. Alpha Insurance and Surety Co v. Castor, G.R. No. 198174, September 2, 2013

FACTS: Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota Revo DLX DSL with Alpha Insurance and Surety Co (Alpha). The
contract of insurance obligates the petitioner to pay the respondent the amount of P630,000 in case of loss or damage to said vehicle during the
period covered.

On April 16, 2007, respondent instructed her driver, Jose Joel Salazar Lanuza to bring the vehicle to nearby auto-shop for a tune up. However,
Lanuza no longer returned the motor vehicle and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent
promptly reported the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of the insurance
proceeds.

Alpha, however, denied the demand of Castor claiming that they are not liable since the culprit who stole the vehicle is employed with Castor.
Under the Exceptions to Section III of the Policy, the Company shall not be liable for (4) any malicious damage caused by the insured, any
member of his family or by “A PERSON IN THE INSURED’S SERVICE”.

Castor filed a Complaint for Sum of Money with Damages against Alpha before the Regional Trial Court of Quezon City. The trial court rendered
its decision in favor of Castor which decision is affirmed in toto by the Court of Appeals. Hence, this Petition for Review on Certiorari.

ISSUE: Whether or not the loss of respondent’s vehicle is excluded under the insurance policy

HELD: NO. The words “loss” and “damage” mean different things in common ordinary usage.

A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park
Corporation vs. Philippine American Life Insurance Company, this Court ruled that it must be remembered that an insurance contract is a
contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s
interest.

18. Malayan Insurance vs. Lin

G.R. No. 207277, January 16, 2017

FACTS: Emma Concepcion Lin filed a Complaint for Collection of Sum of Money with Damages against the petitioners. Lin obtained various loans
secured by six clustered warehouses. 5 warehouses, which were insured with Malayan, were gutted by fire. The Bureau of Fire Protection
determined that the cause of fire was accidental. Malayan denied her demand for payment of her insurance claim since its forensic investigators
claimed that the cause of the fire was arson and not accidental. The Insurance Commission (IC) recommended that Malayan pay Lin's insurance
claim and/or accord great weight to the BFP's findings.

Some five months later, Lin filed an administrative case against Malayan, claiming that it should be held liable for unfair claim settlement
practice due to its unjustified refusal to settle her claim; and that Malayan’s license to operate as a non-life insurance company should be
revoked or suspended, until such time that it fully complies with the IC Resolution.

Malayan filed a motion to dismiss the Civil Case based on forum shopping, which the RTC denied. On appeal, the CA upheld the RTC.

ISSUE: Whether or not the CA erred in not dismissing the Civil Case on the ground of willful and deliberate forum shopping despite the fact that
the civil case and the administrative case both seek the payment of the same fire insurance claim.

HELD: A civil case before the trial court involving recovery of payment of the insured's insurance claim plus damages, can proceed
simultaneously with an administrative case before the IC.

True, the parties are the same, and both actions are predicated on the same set of facts, and will require identical evidence. But the issues to be
resolved, the quantum of evidence, the procedure to be followed, and the reliefs to be adjudged by these two bodies are different.

The causes of action in the Civil Case are predicated on the insurers' refusal to pay her fire insurance claims. The principal issue that must be
resolved is WON petitioner is entitled to the payment of her insurance claims and damages. On the other hand, the core, if not the sole bone of
contention in the administrative case is the issue of WON there was unfair claim settlement practice due to unjustified refusal to settle the
claim, and if in the affirmative, WON that would justify the suspension or revocation of the insurers' licenses. Moreover, in Civil Case, petitioner
must establish her case by a preponderance of evidence. In Administrative Case, the degree of proof required is substantial evidence. In
addition, the procedure to be followed by the trial court is governed by the Rules of Court. While the IC has its own set of rules and it is not
bound by the rigidities of technical rules of procedure.
Comm Rev Zara – Banking

BANKING CASES

VITUG vs. COURT OF APPEALS

GR NO. 82027, March 29, 1990

FACTS:
Spouses Dolores and Romarico Vitug entered into a survivorship agreement with the Bank of American National Trust and Savings Association.
The sadi agreement contained the following stipulations:
1. All money deposited and to be deposited with the bank in their joint savings current account shall be both their property and shall be payable
to and collectible or withdrawable by either or any of them during their lifetime and
2. After the death of one of them, the same shall belong to and be the sole property of the surviving spouse and payable to and collectible or
withdrawable by such survivor
Dolores died naming Rowena Corona in her wills as executrix. Romarico later filed a motion asking authority to sell certain shares of stock and
real property belonging to the estate to cover his advances to the estate which he claimed were personal funds withdrawn from their savings
account. Rowena opposed on the ground that the same funds withdrawn from the savings account were conjugal partnership properties and
part of the estate. Hence, there should be no reimbursement. On the other hand, Romarico insists that the same are his exclusive property
acquired through the survivorship agreement.

ISSUE:
WON the funds of the savings account subject of the survivorship agreement were conjugal partnership properties and part of the estate
RULING:
No. The court ruled that a Survivorship Agreement is neither a donation mortis causa nor a donation inter vivos. It is in the nature of aleatory
contract whereby one or both of the parties reciprocally bind themselves to give or to do something in consideration of that the other shall give
or do upon the happening of an event which is to occur at an indeterminate time or is uncertain, such as death. The court further ruled that a
survivorship agreement is per se not contrary to law and thus is valid unless its operation or effect may be violative of a law such as in the
following instances: (1) It is used as a mere cloak to hide an inofficious donation; (2) it is used to transfer property in fraud of creditors; (3) It is
used to defeat the legitime of a compulsory heir. In the instant case, none of the foregoing instances were present. Consequently, the Court
upheld the validity of the survivorship agreement entered into by the spouses Vitug. As such, Romarico, being the surviving spouse, acquire a
vested right over the amounts under the savings account, which became his exclusive property upon death of his wife pursuant to the
survivorship agreement.

2. KAREN E. SALVACION, minor, thru Federico N. Salvacion, Jr., father and Natural Guardian, and Spouses FEDERICO N. SALVACION, JR., and
EVELINA E. SALVACION vs.
CENTRAL BANK OF THE PHILIPPINES, CHINA BANKING CORPORATION and GREG BARTELLI y NORTHCOTT

SHORT TITLE: Salvacion vs. Central Bank G.R. No. 94723

August 21, 1997
TORRES, JR., J.:

FACTS: On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured petitioner Karen Salvacion, then 12 years old to go
with him to his apartment. Therein, Greg Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to rape the child
once on February 4, and three times each day on February 5, 6, and 7, 1989. On February 7, 1989, after policemen and people living nearby,
rescued Karen, Greg Bartelli was arrested and detained at the Makati Municipal Jail. The policemen recovered from Bartelli the following items:
1.) Dollar Check 2.) COCOBANK Bank (Peso Acct.); 3.) Dollar Account — China Banking Corp.,;4.) ID-122-30-8877; 5.) Philippine Money (P234.00)
cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.

Greg Bartelli was charged of four counts of rape and serious illegal detention against Karen Salvacion. He however, able to escape from prison. In
a civil case filed against him, the trial court awarded Salvacion moral, exemplary and attorney’s fees amounting to almost P1,000,000.00.

Salvacion tried to execute the judgment on the dollar deposit of Bartelli with the China Banking Corp. but the latter refused arguing that Section
11 of Central Bank Circular No. 960 exempts foreign currency deposits from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever. Salvacion therefore filed this action for declaratory relief in
the Supreme Court.

ISSUE: Whether the strict letter of Section 113 of Central Bank Circular No. 960 and Section 8 of the Foreign Currency Deposit Act on the secrecy
of deposits be made applicable to this foreigner.

RULING: NO.

The provisions of Section 113 of Central Bank Circular No. 960 and PD No. 1246, insofar as it amends Section 8 of Republic Act No. 6426, are
hereby held to be INAPPLICABLE to this case because of its peculiar circumstances. Respondents are hereby required to comply with the writ of
execution issued in the civil case and to release to petitioners the dollar deposit of Bartelli in such amount as would satisfy the judgment.

Supreme Court ruled that the questioned law makes futile the favorable judgment and award of damages that Salvacion and her parents fully
deserve. It then proceeded to show that the economic basis for the enactment of RA No. 6426 is not anymore present; and even if it still exists,
the questioned law still denies those entitled to due process of law for being unreasonable and oppressive. The intention of the law may be good
when enacted. The law failed to anticipate the iniquitous effects producing outright injustice and inequality such as the case before us.

The SC adopted the comment of the Solicitor General who argued that the Offshore Banking System and the Foreign Currency Deposit System
were designed to draw deposits from foreign lenders and investors and, subsequently, to give the latter protection. However, the foreign
currency deposit made by a transient or a tourist is not the kind of deposit encouraged by PD Nos. 1034 and 1035 and given incentives and
protection by said laws because such depositor stays only for a few days in the country and, therefore, will maintain his deposit in the bank only
for a short time. Considering that Bartelli is just a tourist or a transient, he is not entitled to the protection of Section 113 of Central Bank Circular
No. 960 and PD No. 1246 against attachment, garnishment or other court processes.
Further, the SC said: “the application of the law depends on the extent of its justice. Eventually, if we rule that the questioned Section 113 of
Central Bank Circular No. 960 which exempts from attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever, is applicable to a foreign transient, injustice would result especially to a citizen
aggrieved by a foreign guest like accused Greg Bartelli. This would negate Article 10 of the New Civil Code which provides that "in case of doubt
in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail. "Ninguno non deue
enriquecerse tortizeramente con dano de otro." Simply stated, when the statute is silent or ambiguous, this is one of those fundamental
solutions that would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377).

It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be used as a device by accused Greg Bartelli for
wrongdoing, and in so doing, acquitting the guilty at the expense of the innocent.

Call it what it may — but is there no conflict of legal policy here? Dollar against Peso? Upholding the final and executory judgment of the lower
court against the Central Bank Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a transient alien depositor
against injustice to a national and victim of a crime? This situation calls for fairness against legal tyranny.

We definitely cannot have both ways and rest in the belief that we have served the ends of justice.”

3. EJERCITO v. SANDIGANBAYAN
G.R. Nos. 157294-95; November 30, 2006
Carpio-Morales, J.

FACTS: The case at bar springs from the plunder case of former president Joseph Estrada. During the course of the Estrada case, the Special
Prosecution Panel filed before the Sandiganbayan a request for issuance of subpoena duces tecum, directing the President of Export and
Industry Bank or his/her authorized representative to produce documents namely, Trust Account and Savings Account belonging to petitioner
Joseph Victor Ejercito (JV Ejercito), and statement of accounts of one named "Jose Velarde" and to testify during the hearings. The
Sandiganbayan granted both requests and subpoenas were accordingly issued. Sandiganbayan also granted and issued subpoenas duces
tecum/ad testificandum prayed for by the Prosecution Panel in another later date.

During one of the hearings, petitioner, not an accused in the Estrada case, expressed his concern over the possible violations of the Prosecution's
requests as to his bank accounts relative to the Bank Secrecy Law. He filed a motion quash, which was denied.

Respondent People of the Philippines argued that the Trust Account may be inquired because it falls under the exceptions to the coverage of the
Bank Secrecy Law, as much as a "trust account" is not even contemplated in the law. The People added that the law applies only to deposits
which strictly means the money delivered to the bank by which a creditor-debtor relationship is created between the depositor and the bank.
Hence, the petition.

ISSUES:
(1) Whether or not the trust accounts of petitioner are covered by the term “deposits” as used in R.A. No. 1405

(2) Whether or not plunder is neither bribery nor dereliction of duty not exempted from protection of R.A. No. 1405

(3) Whether or not the unlawful examination of bank accounts shall render the evidence obtained therefrom inadmissible in evidence.

HELD:
(1) YES. The contention that trust accounts are not covered by the term deposits, as used in R.A. 1405, by the mere fact that they do not entail a
creditor-debtor relationship between the trustor and the bank, does not lie. An examination of the law shows that the term deposits used
therein is to be understood broadly and not limited only to accounts which give rise to a creditor-debtor relationship between the depositor and
the bank.

Trust Account No. 858 is, without doubt, one such account. The Trust Agreement between petitioner and Urban Bank provides that the trust
account covers “deposit, placement or investment of funds” by Urban Bank for and in behalf of petitioner. The money deposited under the Trust
Account was intended not merely to remain with the bank but to be invested by it elsewhere. To hold that this type of account is not protected
by R.A. 1405 would encourage private hoarding of funds, contrary to the policy behind the law.

Section 2 of the same law also shows that the term “deposits” was intended to be understood broadly. The phrase “of whatever nature”
proscribes any restrictive interpretation of “deposits.” It is clear that the law applies not only to deposited money, but also to those which are
invested. Clearly, R.A. 1405 is broad enough to cover Trust Account No. 858.

(2) NO. Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two classes of cases
cannot be excepted from the rule which makes bank deposits confidential. The policy as to one cannot be different from the policy as to the
other.

An examination of the overt or criminal acts as described in Section 1(d) of R.A. No. 7080 (Plunder Law) would make the similarity between
plunder and bribery even more pronounced since bribery is essentially included among these criminal acts.

All the overt acts in plunder are similar to bribery such that, in each case, it may be said that no reason is seen why these two classes of cases
cannot be excepted from the rule which makes bank deposits confidential.
The crime of bribery and the overt acts constitutive of plunder are crimes committed by public officers, and in either case the noble idea that a
public office is a public trust and any person who enters upon its discharge does so with the full knowledge that his life is open to public scrutiny
applies with equal force. Plunder being thus analogous to bribery, the exception to R.A. 1405 applicable in cases of bribery must also apply to
cases of plunder.

As regards petitioner's claim that the money in his bank accounts is not the subject matter of the litigation, the meaning of the phrase subject
matter of the litigation means that "where the money deposited was the subject matter of the litigation . . . the money deposited was the very
thing in dispute."

(3) NO. Petitioner’s attempt to make the exclusionary rule applicable to the instant case fails. R.A. 1405, it bears noting, nowhere provides that
an unlawful examination of bank accounts shall render the evidence obtained therefrom inadmissible in evidence. Section 5 of R.A. 1405 only
states that “[a]ny violation of this law will subject the offender upon conviction, to an imprisonment of not more than five years or a fine of not
more than twenty thousand pesos or both, in the discretion of the court.”

Even assuming arguendo, however, that the exclusionary rule applies in principle to cases involving R.A. 1405, the Court finds no reason to apply
the same in this particular case. Clearly, the “fruit of the poisonous tree” doctrine presupposes a violation of law. If there was no violation of R.A.
1405 in the instant case, then there would be no “poisonous tree” to begin with, and, thus, no reason to apply the doctrine.

4. Development Bank of the Philippines vs. Arcilla,

G.R. No. 161397, 30 June 2005
CALLEJO, SR., J.

FACTS: Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the Philippines (DBP) in October 1981. About five or six months
thereafter, he was assigned to the legal department, and thereafter, decided to avail of a loan under the Individual Housing Project (IHP) of the
bank. On September 12, 1983, DBP and Arcilla executed a Deed of Conditional Sale over a parcel of land, as well as the house to be constructed
thereon, for the price of P160,000.00. Arcilla borrowed the said amount from DBP for the purchase of the lot and the construction of a
residential building thereon. He obliged himself to pay the loan in 25 years, with a monthly amortization of P1,417.91, with 9% interest per
annum, to be deducted from his monthly salary.

The monthly amortization was increased to P1,468.92 in November 1984, and to P1,691.51 beginning January 1985. However, Arcilla opted to
resign from the bank in December 1986. Conformably with the Deed of Conditional Sale, the bank informed him, on June 11, 1987, that the
balance of his loan account with the bank had been converted to a regular housing loan.
On July 24, 1987, Arcilla signed three Promissory Notes for the total amount of P186,364.15. He was also obliged to pay service charge and
interests.

However, he failed to pay his loan account, advances, penalty charges and interests which, as of October 31, 1990, amounted to P241,940.93.
DBP rescinded the Deed of Conditional Sale by notarial act on November 27, 1990. Nevertheless, it wrote Arcilla, on January 3, 1992, giving him
until October 24, 1992, within which to repurchase the property upon full payment of the current appraisal or updated total, whichever is lesser;
in case of failure to do so, the property would be advertised for bidding. DBP reiterated the said offer on October 7, 1992. Arcilla failed to
respond. Consequently, the property was advertised for sale at public bidding on February 14, 1994.

Arcilla filed a complaint against DBP with the Regional Trial Court (RTC) of Antipolo, Rizal, on February 21, 1994. He alleged that DBP failed to
furnish him with the disclosure statement required by Republic Act (R.A.) No. 3765 and Central Bank (CB) Circular No. 158 prior to the
execution of the deed of conditional sale and the conversion of his loan account with the bank into a regular housing loan account.

In its answer to the complaint, the DBP alleged that it substantially complied with R.A. No. 3765 and CB Circular No. 158 because the details
required in said statements were particularly disclosed in the promissory notes, deed of conditional sale and the required notices sent to Arcilla.
In any event, its failure to comply strictly with R.A. No. 3765 did not affect the validity and enforceability of the subject contracts or transactions.
DBP interposed a counterclaim for the possession of the property.

ISSUE: whether or not petitioner DBP complied with the disclosure requirement of R.A. No. 3765 and CB Circular No. 158, Series of 1978, in the
execution of the deed of conditional sale, the supplemental deed of conditional sale, as well as the promissory notes.

Ruling: The petition of Arcilla has no merit.

The Court is convinced that Arcilla's claim of not having been furnished the data/information required by R.A. No. 3765 and CB Circular No. 158
was but an afterthought. Despite the notarial rescission of the conditional sale in 1990, and DBP's subsequent repeated offers to repurchase the
property, the latter maintained his silence. Arcilla filed his complaint only on February 21, 1994, or four years after the said notarial rescission.

“After a careful perusal of the records, We find that the appellee had been sufficiently informed of the terms and the requisite charges
necessarily included in the subject loan.

It must be stressed that the Truth in Lending Act (R.A. No. 3765), was enacted primarily "to protect its citizens from a lack of awareness of the
true cost of credit to the user 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" (Emata vs. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No. 3765).
Contrary to appellee's claim that he was not sufficiently informed of the details of the loan, the records disclose that the required informations
were readily available in the three (3) promissory notes he executed. Precisely, the said promissory notes were executed to apprise appellee
of the remaining balance on his loan when the same was converted into a regular housing loan. And on its face, the promissory notes signed
by no less than the appellee readily shows all the data required by the Truth in Lending Act (R.A. No. 3765).

Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent as to sign documents without knowing
fully well the legal implications and consequences of his actions, and that appellee was a former employee of appellant. As such employee, he
is as well presumed knowledgeable with matters relating to appellant's business and fully cognizant of the terms of the loan he applied for,
including the charges that had to be paid.”

the case at bar, considering appellee's education and training, We must hold, in the light of the evidence at hand, that he was duly
informed of the necessary charges and fully understood their implications and effects. Consequently, the trial court's annulment of the
rescission anchored on this ground was unjustified.

5. SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners, vs. PHILIPPINE VETERANS BANK, respondent.
On March 3, 1980, petitioner spouses contracted a monetary loan with respondent Philippine Veterans Bank in the amount of
P135,000.00, evidenced by a promissory note, secured by a Real Estate Mortgage executed on their lot.
Respondent bank went bankrupt and was placed under receivership/liquidation by the Central Bank. The bank, through Francisco Go,
sent the spouses a demand letter for "accounts receivable in the total amount of P6,345.00 as of August 15, 1984," which pertains to the
insurance premiums advanced by respondent bank over the mortgaged property of petitioners.
On August 23, 1995, more than fourteen years from the time the loan became due and demandable, respondent bank filed a petition for
extrajudicial foreclosure of mortgage of petitioners' property. The property was sold in a public auction with Philippine Veterans Bank as the
lone bidder.
Petitioners filed a complaint with the RTC, Cebu City, to declare the extra-judicial foreclosure and the subsequent sale thereof to
respondent bank null and void for being filed out of time.
In the pre-trial conference, the parties agreed to limit the issue to whether or not the period within which the bank was placed under
receivership and liquidation was a fortuitous event which suspended the running of the ten-year prescriptive period in bringing actions.
On April 17, 1998, the RTC rendered its decision dismissing the complaint for lack of merit. It reasoned that defendant bank was placed
under receivership by the Central Bank from April 1985 until 1992. From April 1985 until July 1992, defendant bank was restrained from doing its
business. The defendant bank was given authority by the Central Bank to operate as a private commercial bank and became fully operational
only on August 3, 1992.
ISSUE: Whether or not the period within which the respondent bank was placed under receivership and liquidation proceedings may be
considered a fortuitous event which interrupted the running of the prescriptive period in bringing actions;
HELD: NO.
One characteristic of a fortuitous event is that its occurrence must be such as to render it impossible for a party to fulfill his obligation in
a normal manner.
Respondent's claims that because of a fortuitous event, it was not able to exercise its right to foreclose the mortgage on petitioners'
property; and that since it was banned from pursuing its business and was placed under receivership from April 25, 1985 until August 1992, it
could not foreclose the mortgage on petitioners' property within such period since foreclosure is embraced in the phrase "doing business," are
without merit.
While it is true that foreclosure falls within the broad definition of "doing business," that is:
. . . a continuity of commercial dealings and arrangements and contemplates to that extent, the performance of acts
or words or the exercise of some of the functions normally incident to and in progressive prosecution of the purpose and
object of its organization.
it should not be considered included, however, in the acts prohibited whenever banks are "prohibited from doing business" during
receivership and liquidation proceedings.
This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and preserve the assets of the bank in
substitution of its former management, and prevent the dissipation of its assets to the detriment of the creditors of the bank.
6. FIDELITY SAVINGS AND MORTGAGE BANK vs. HON. PEDRO D. CENZON
Facts: on May 16, 1968, here in plaintiffs deposited with the defendant Fidelity Savings Bank the amount of FIFTY THOUSAND PESOS
(P50,000.00) under Savings Account No. 16-0536; that likewise, sometime on July 6, 1968, herein plaintiff,- deposited with the defendant Fidelity
Savings and Mortgage Bank the amount of FIFTY THOUSAND PESOS (P50,000.00) under Certificate of Time Deposit No. 0210; that the aggregate
amount of deposits of the plaintiffs with the defendant Fidelity Savings and Mortgage Bank is ONE HUNDRED THOUSAND PESOS (P100,000.00);
On February 18, 1969, the Monetary Board, after finding the condition of the defendant Fidelity Savings and Mortgage Bank is one of
insolvency, issued Resolution No. 350 deciding, among others, as follows: 1) To forbid the Fidelity Savings Bank to do business in the Philippines;
2) To instruct the Acting Superintendent of Banks to take charge, in the name of the Monetary Board, of the Bank's assets. Pursuant to
instructions of the Monetary Board, the Superintendent of Banks took charge in the name of the Monetary Board, of the assets of defendant
Fidelity Savings Bank on February 19, 1969. On October 10, 1969 the Philippine Deposit Insurance Corporation paid the plaintiffs the amount of
TEN THOUSAND PESOS (P10,000.00) on the aggregate deposits of P100,000.00 pursuant to Republic Act No. 5517, thereby leaving a deposit
balance of P90,000.00;
That on December 9, 1969, the Monetary Board issued its Resolution No. 2124 directing the liquidation of the affairs of defendant
Fidelity Savings Bank. Before the liquidation proceedings has been terminated, herein plaintiffs, through their counsel, sent demand letters to
herein defendants, demanding the immediate payment of the aforementioned savings and time deposits. Private respondents instituted this
present action for a sum of money with damages against Fidelity Savings and Mortgage Bank.

Issue: WoN an insolvent bank like the Fidelity Savings and Mortgage Bank may be adjudged to pay interest on unpaid deposits even after
its closure by the Central Bank by reason of insolvency without violating the provisions of the Civil Code on preference of credits.
Held: No. It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered closed by the
Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued during the period when the bank is actually
closed and non-operational.
In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, we held that:
It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money
deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank
can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other
banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay
stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks
are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the
obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted
authority, the Central Bank.
This was reiterated in the subsequent case of The Overseas Bank of Manila vs. The Hon. Court of Appeals and Julian R. Cordero. and in
the recent cases of Integrated Realty Corporation, et al. vs. Philippine National Bank, et al. and the Overseas Bank of Manila vs. Court of appeals,
et al.
From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest on bank deposits which accrued from the
time it was prohibited by the Central Bank to continue with its banking operations, that is, when Resolution No. 350 to that effect was issued on
February 18, 1969.
 The order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the claims of depositors and creditors to earn
interest up to the date of its closure on February 18, 1969, in line with the doctrine laid down in the jurisprudence above cited.

7. PNB vs VILA:
FACTS:
Sps Cornista obtained a loan from Traders Bank secured by a parcel of land registered under their name.

For failure of the Spouses Cornista to make good of their loan obligation after it has become due, Traders Bank foreclosed the mortgage
constituted on the security of the loan. Respondent Vila emerged as the highest bidder.

Despite the lapse of the redemption period and the fact of issuance of a Certificate of Final Sale to Vila, the Spouses Cornista were nonetheless
allowed to buy back the subject property. A certificate of redemption was issued for this purpose.

Claiming that the Spouses Cornista already lost their right to redeem the subject property, Vila filed an action for nullification of redemption. A
Notice of Lis Pendens was issued for this purpose and was duly recorded in the certificate of title of the property.

The action for nullification of redemption was ruled in favor of Vila.

By unfortunate turn of events, the Sheriff could not successfully enforce the decision because the certificate of title covering the subject
property was no longer registered under the names of the Spouses Cornista.

Upon investigation it was found out that during the interregnum the Spouses Cornista were able to secure a loan from the PNB using the same
property subject of litigation as security. The Real Estate Mortgage (REM) was recorded a month before the Notice of Lis Pendens was
annotated.

Eventually, the Spouses Cornista defaulted in the payment of their loan obligation with the PNB prompting the latter to foreclose the property
offered as security. The bank emerged as the highest bidder during the public sale as shown at the Certificate of Sale issued by the Sheriff. As
with the prior mortgage, the Spouses Cornista once again failed to exercise their right of redemption within the required period allowing PNB to
consolidate its ownership over the subject property. Accordingly, a TCT in the name of the Spouses Cornista was cancelled and a new one under
name of the PNB was issued.
The foregoing turn of events left Vila with no other choice but to commence another round of litigation against the Spouses Cornista and PNB
for the nullification of the TCT issued under the name of PNB.

To refute the allegations of Vila, PNB pounded that it was a mortgagee in good faith pointing the fact that at the time the subject property was
mortgaged to it, the same was still free from any liens and encumbrances and the Notice of Lis Pendens was registered only a month after the
REM was annotated on the title. PNB meant to say that at the time of the transaction, the Spouses Cornista were still the absolute owners of the
property possessing all the rights to mortgage the same to third persons. PNB also harped on the fact that a close examination of title was
conducted and nowhere was it shown that there was any cloud in the title of the Spouses Cornista, the latter having redeemed the property
after they have lost it in a foreclosure sale.

The trial and appellate courts ruled that PNB is a mortgagee in bad faith.

ISSUE:
WON PNB is a mortgagee in good faith

RULING:
The court ruled that the mortgagee is in bad faith.

Before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the genuineness of the title to determine the real owner 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.

In Land Bank of the Philippines v. Belle Corporation, it was held that When the purchaser or the mortgagee is a bank, the rule on innocent
purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the banking business-is impressed with public interest, they are expected to be
more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings, even those involving
registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot assume that, xxx the title offered as security
is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the
properties to be mortgaged. As expected, 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 the bank's operations.

PNB clearly failed to observe the required degree of caution in readily approving the loan and accepting the collateral offered by the Spouses
Cornista without first ascertaining the real ownership of the property. It should not have simply relied on the face of title but went furthef to
physically ascertain the actual condition of the property. That the propprty offered as security was in the possession of the person other than
the lone applying for the loan and the taxes were declared not in their names could have raised a suspicion. A person who deliberately ignores a
significant fact that could create suspicion in an otherwise reasonable person is not an innocent purchaser for value.

8. SORIANO VS. PEOPLE

FACTS:
Spouses Enrico and Amalia Carlos appeared to have an outstanding loan of P8 million with the Rural Bank of San Miguel, Inc. (RBSM), but had
never applied for nor received such loan. It was petitioner, who was then president of RBSM who had ordered, facilitated, and received the
proceeds of the loan. The P8 million loan had never been authorized by RBSM’s Board of Directors and no report thereof had ever been
submitted to the Department of Rural Banks, Supervision and Examination Sector of the BSP.
Two separate informations were filed against petitioner.
In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial documents, the information alleged that petitioner and his co-
accused, in abuse of the confidence reposed in them as RBSM officers, caused the falsification of a number of loan documents, making it appear
that one Enrico Carlos filled up the same, and thereby succeeded in securing a loan and converting the loan proceeds for their personal gain and
benefit.
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information alleged that, in his capacity as President of RBSM, petitioner
indirectly secured an P8 million loan with RBSM, for his personal use and benefit, without the written consent and approval of the bank's Board
of Directors, without entering the said transaction in the bank's records, and without transmitting a copy of the transaction to the supervising
department of the bank. His ruse was facilitated by placing the loan in the name of an unsuspecting RBSM depositor, one Enrico Carlos.
Essentially, the petitioner theorized that the characterization of possession is different in the two offenses. If petitioner acquired the loan as
DOSRI, he owned the loaned money and therefore, cannot misappropriate or convert it as contemplated in the offense of estafa. Conversely, if
petitioner committed estafa, then he merely held the money in trust for someone else and therefore, did not acquire a loan in violation of DOSRI
rules.

ISSUE:
Whether a loan transaction within the ambit of the DOSRI law (violation of Section 83 of RA 337, as amended) could also be the subject of Estafa
under Article 315 (1) (b) of the Revised Penal Code.
HELD: YES.
The bank money (amounting to P8 million) which came to the possession of petitioner was money held in trust or administration by him for the
bank, in his fiduciary capacity as the President of said bank.
It is not accurate to say that petitioner became the owner of the P8 million because it was the proceeds of a loan. That would have been correct
if the bank knowingly extended the loan to petitioner himself. But that is not the case here. According to the information for estafa, the loan was
supposed to be for another person, a certain Enrico Carlos; petitioner, through falsification, made it appear that said Enrico Carlos applied for
the loan when in fact he (Enrico Carlos) did not. Through such fraudulent device, petitioner obtained the loan proceeds and converted the same.
Under these circumstances, it cannot be said that petitioner became the legal owner of the P8 million. Thus, petitioner remained the banks
fiduciary with respect to that money, which makes it capable of misappropriation or conversion in his hands.
The prohibition in Section 83 is broad enough to cover various modes of borrowing. It covers loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or agent of others. It applies even if the
director or officer is a mere guarantor, indorser or surety for someone else's loan or is in any manner an obligor for money borrowed from the
bank or loaned by it. The covered transactions are prohibited unless the approval, reportorial and ceiling requirements under Section 83 are
complied with. The prohibition is intended to protect the public, especially the depositors, from the overborrowing of bank funds by bank
officers, directors, stockholders and related interests, as such overborrowing may lead to bank failure.
A direct borrowing is obviously one that is made in the name of the DOSRI himself or where the DOSRI is a named party, while an indirect
borrowing includes one that is made by a third party, but the DOSRI has a stake in the transaction. The latter type indirect borrowing applies
here.
The broad interpretation of the prohibition in Section 83 is justified by the fact that it even expressly covers loans to third parties where the third
parties are aware of the transaction (such as principals represented by the DOSRI), and where the DOSRIs interest does not appear to be
beneficial but even burdensome (such as in cases when the DOSRI acts as a mere guarantor or surety).

9. Philippine National Bank vs. Cheah Chee Chong G.R. No. 170865 April 25, 2012

Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a conversation in the latter’s office when Adelina’s friend, Filipina
Tuazon (Filipina), approached her to ask if she could have Filipina’s check cleared and encashed for a service fee of 2.5%. The check is Bank of
America under the account of Alejandria Pineda and Eduardo Rosales and drawn by Atty. Eduardo Rosales against Bank of America Alhambra
Branch in California, USA, with a face amount of $300,000.00, payable to cash. Because Adelina does not have a dollar account in which to
deposit the check, she asked Ofelia if she could accommodate Filipina’s request since she has a joint dollar savings account with her Malaysian
husband Cheah Chee Chong (Chee Chong) with PNB Buendia Branch. Ofelia agreed.

Ofelia and Adelina went to PNB Buendia Branch. PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank. Five
days later, PNB received a credit advice8 from Philadelphia National Bank that the proceeds of the subject check had been temporarily credited
to PNB’s account. Filipina received all the proceeds.

A SWIFT message from PNB informing PNB of the return of the subject check for insufficient funds. Informed about the bounced check and
upon demand by PNB Buendia Branch to return the money withdrawn, Ofelia immediately contacted Filipina to get the money back. But the
latter told her that all the money had already been given to several people who asked for the check’s encashment. In their effort to recover the
money, spouses Cheah then sought the help of the NBI able to apprehend some of the beneficiaries of the proceeds of the check and recover
from them$20,000.00.

the spouses Cheah have been constantly meeting with the bank officials to discuss matters regarding the incident and the recovery of the value
of the check pending the case. Chee Chong in the end signed a PNB drafted19 letter20 which states that the spouses Cheah are offering their
condominium units as collaterals for the amount withdrawn. Under this setup, the amount withdrawn would be treated as a loan account.

Although some of the officers of PNB were amenable to the proposal,21 the same did not materialize. Subsequently, PNB sent a demand letter
to spouses Cheah for the return of the amount of the check,22 froze their peso and dollar deposits in the amounts of ₱275,166.80 and
$893.46,23and filed a complaint24against them for Sum of Money

The RTC ruled in PNB’s favor

CA - PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah spouses the amount due to them. the CA ratiocinated that
PNB Buendia Branch’s non-receipt of the SWIFT message from Philadelphia National Bank within the 15-day clearing period is not an acceptable
excuse. Applying the last clear chance doctrine, the CA held that PNB had the last clear opportunity to avoid the impending loss of the money
and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds without exhausting the 15-day clearing period which has always
been a standard banking practice as testified to by PNB’s own officers

ISSUE: W/N PNB is liable

HELD:
Yes
PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss. Here,while
PNB highlights Ofelia’s fault in accommodating astranger’s check and depositing it to the bank, it remains mum in its release of the proceeds
thereof without exhausting the 15-dayclearingperiod,an act which contravened established banking rules and practice. This Court already held
that the payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a
foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice. The delay in the receipt by PNB Buendia
Branch of the November 13, 1992 SWIFT message notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia
Branch waited for the expiration of the clearing period and had never released during that time the proceeds of the check, it would have already
been duly notified of its dishonor. Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by
bad checks had brought upon itself the injury of losing a significant amount of money.

It bears stressing that "the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest
degree of diligence is expected."39 PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence.
The disregard of its own banking policy amounts to gross negligence, which the law defines as "negligence characterized by the want of even
slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious
indifference to consequences in so far as other persons may be affected."40 With regard to collection or encashment of checks, suffice it to say
that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their
genuineness and regularity." The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and
the law thus holds it to a high standard of conduct." A bank is expected to be an expert in banking procedures and it has the necessary means to
ascertain whether a check, local or foreign, inssufficiently funded.

The CA found Ofelia’s credulousness blameworthy. We agree. Indeed, Ofelia failed to observe caution in giving her full trust in accommodating a
complete stranger and this led her and her husband to be swindled.

In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s client, Ofelia was the one who dealt with PNB and
negotiated the check such that its value was credited in her and her husband’s account. Being the ones in privity with PNB, the spouses Cheah
are therefore the persons who should return to PNB the money released to them.
Nego – Cases- comm rev Zara

MBTC v BA Finance
G.R. No. 179952

Facts:
Bitanga obtained a loan worth 330K from BA finance and mortgaged his car as security. As part of the loan agreement, Bitanga insured the car
with BA finance as the beneficiary. The car was stolen and so Bitanga filed a claim with Malayan Insurance for the proceeds w/c was granted.
The crossed check was drawn against China Bank and was payable to the order of Bitanga and BA Finance.
W/out the indorsement of the BA, Bitanga deposited said check into his account with Asianbank w/c has now merged w/ MBTC. Bitanga
withdrew the entirety of the proceeds from his account. When his loan became due, he failed to pay despite demands by BA.
When BA learned of the loss of the car and the crossed check, they demanded payment from Asianbank but to no avail and so a suit was filed by
BA for a sum of money and damages.

Issue: WON BA Finance has a cause of action against petitioners despite the check not having been delivered to them.
Held:
Yes. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing
has authority to indorse for the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of
authority of Bitangas co-payee BA Finance to endorse it on its behalf.
Asianbank acted with gross negligence in allowing such check to be deposited despite the fact that it was a crossed check and the absence of the
other payee’s indorsement.

RCBC SAVINGS BANK VS NOEL ODRADA

GR No. 219037 October 19, 2016

Facts:

In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One Million
Five Hundred Ten Thousand Pesos (P1,510,000). Of the total consideration, Six Hundred Ten Thousand Pesos (P610,000) was initially paid by Lim
and the balance of Nine Hundred Thousand Pesos (P900,000) was financed by petitioner RCBC Savings Bank (RCBC) through a car loan obtained
by Lim.4 As a requisite for the approval of the loan, RCBC required Lim to submit the original copies of the Certificate of Registration (CR) and
Official Receipt (OR) in his name. Unable to produce the Montero's OR and CR, Lim requested RCBC to execute a letter addressed to Odrada
informing the latter that his application for a car loan had been approved.

On 5 April 2002, RCBC issued a letter that the balance of the loan would be delivered to Odrada upon submission of the OR and CR. Following
the letter and initial down payment, Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of
the Montero.

When RCBC received the documents, RCBC issued two manager's checks dated 12 April 2002 payable to Odrada for Nine Hundred Thousand
Pesos (P900,000) and Thirteen Thousand Five Hundred Pesos (P13,500). After the issuance of the manager's checks and their turnover to Odrada
but prior to the checks' presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding the roadworthiness of
the Montero. In the said letter, Lim informed Odrada not to encash the checks until he has clarified and satisfied his complaints therein.
 A meeting was set by Lim, however, Odrada did not attend the said meeting. The latter deposited the manager’s checks for encashment. The
checks were dishonored by reason of Lim’s cancellation of the loan after the latter discovered the defects in the automobile sold by Odrada.
Thereafter, Odrada filed a collection suit against the RCBC and Lim to which both the RTC and CA ruled his favor.

Issue:

WON Odrada is considered a holder in due course of the checks despite being informed of the cancellation of the loan.

Held:

The court ruled in the negative. To be a holder in due course, the law requires that a party must have acquired the instrument in good faith and
for value. A holder in due course as one 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 has 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.
Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on the
instrument and that at the time he,took the instrument, the holder has no knowledge of any defect or infirmity of the instrument. To constitute
notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument would amount to bad faith.

Value, on the other hand, is defined as any consideration sufficient to support a simple contract.

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. Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he
was already formally notified by RCBC the previous day of the cancellation of Lim's auto loan transaction.
VICENTE R. DE OCAMPO & CO. V. ANITA GATCHALIAN, ET AL

Facts:
The action is for recovery of the value of a check for P600 payable to De Ocampo and drawn by Gatchalian. Plaintiff received it in payment of the
indebtedness of one Matilde Gonzales, wife of Manuel Gonzales. Ocampo, upon receiving the check gave Matilde P158.25, the difference
between the face value of the check and Matilde’s indebtedness.

Gatchalian averred that she was shown and offered a car by Manuel Gonzales. Gonzales requested a check which will be shown to the owner as
evidence of good faith in the intention to purchase the said car, the said check to be for safekeeping only of Gonzales and to be returned to
Gatchalian the following day when Gonalzes brings the car. Gatchalian drew and issued a check in compliance.

That on the failure of Gonzales to appear the day following and on his failure to bring the car and its certificate of registration, Gatchalian issued
a “Stop Payment Order”
Gatchalian further alleged that they had no arrangements with the Ocampo Clinic at any time prior to on or after September 9, 1953 for the
hospitalization of the wife of Gonzales

Issue:
Whether Ocampo is a holder in due course

Held:
The stipulation of facts expressly states that De Ocampo was not aware of the circumstances under which the check was delivered to Gonzales,
but we agree with Gatchalian that the circumstances indicated by them in their briefds, such as the fact that appellants had no obligation or
liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde to Ocampo and that the
check had two parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be
converted into case – all these circumstances should have put the plaintiff-appellee to inquiry. It was payee’s duty to ascertain from the holder
Gonzales what the nature of the latter’s title to the check was or the nature of his possession. Having failed in this respect, we must declare that
Ocampo was guilty of gross neglect in not finding out the nature of the title and possession of Gonzales amounting to legal absence in good
faith, and it may not be considered as a holder of the check in good faith.

The rule that a possessor of the instrument is prima facie holder in due course does not apply because there was a defect in the title of the
holder (Manuel Gonzales), because the instrument is not payable to him or the bearer. On the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he
had the check in his possession and why he was using it for the payment of his own personal account – show that holder’s title was defective or
suspicious, to say the least.

Equitable v. Special Steel

Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling steel products. Its co-respondent Augusto L. Pardo (Pardo)
is SSPIs President and majority stockholder.

International Copra Export Corporation (Interco) is its regular customer.

Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-in-law of its majority
stockholderô.

Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged in banking and is the depository bank of
Interco and of Uy.

In 1991, SSPI sold welding electrodes to Interco, as evidenced by sales invoices. The invoices provided that Interco would pay interest at the rate
of 36% per annum in case of delay.

In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI on July 10, 1991, July 16, 1991, and July
29, 1991. Each check was crossed with the notation account payee only and was drawn against Equitable. The records do not identify the
signatory for these three checks, or explain how Uy, Intercos purchasing officer, came into possession of these checks.

The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and claimed that he had good title
thereto. He demanded the deposit of the checks in his personal accounts in Equitable

Equitable acceded to Uys demands on the assumption that Uy, as the son-in-law of Intercos majority stockholder, was acting pursuant to
Intercos orders. The bank also relied on Uys status as a valued client. Thus, Equitable accepted the checks for deposit in Uys personal accounts
and stamped ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT GUARANTEED on their dorsal portion. Uy promptly withdrew the
proceeds of the checks.

In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting to P985,234.98.
Interco replied that it had already issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these checks.

On June 30, 1993 (twenty-three months after the issuance of the three checks), Interco finally paid the value of the three checks to SSPI, but
only a portion of the accrued interests.

SSPI and its president, Pardo, filed a complaint for damages against Uy and Equitable Bank. The complaint alleged that the three crossed checks,
all payable to the order of SSPI and with the notation account payee only, could be deposited and encashed by SSPI only.

Equitable further argued that it is not liable to SSPI because it accepted the three crossed checks in good faith. Equitable averred that, due to
Uys close relations with the drawer of the checks, the bank had basis to assume that the drawer authorized Uy to countermand the original
order stated in the check (that it can only be deposited in the named payees account).
Uy answered that the checks were negotiated to him; that he is a holder for value of the checks and that he has a good title thereto. He did not,
however, explain how he obtained the checks.

Equitable argues that SSPI cannot assert a right against the bank based on the undelivered checks. It cites provisions from the Negotiable
Instruments Law and the case of Development Bank of Rizal v. Sima Wei to argue that a payee, who did not receive the check, cannot require the
drawee bank to pay it the sum stated on the checks.

Issue: Whether or not a crossed check with the notation account payee can only be deposited in the named payees account.

Held: Yes. Equitable’s argument is misplaced and beside the point. SSPIs cause of action is not based on the three checks. Instead, it asserts a
cause of action based on quasi-delict. A quasi-delict is an act or omission, there being fault or negligence, which causes damage to another.
Quasi-delicts exist even without a contractual relation between the parties. The courts below correctly ruled that SSPI has a cause of action for
quasi-delict against Equitable.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order, and contained the notation account payee only.
This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be
averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payees account
only and no other. At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend
more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account.
Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances.

The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard. It
should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him. Considering however,
that the named payee does not have an account with Equitable (hence, the latter has no specimen signature of SSPI by which to judge the
genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uys word that he had a good title to the three
checks. Such misplaced reliance on empty words is tantamount to gross negligence, which is the absence of or failure to exercise even slight care
or diligence.

Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco, made it safe to assume that
the drawer authorized Uy to countermand the order appearing on the check. It is troubling that Equitable proceeded with the transaction based
only on its knowledge that Uy had close relations with Interco. The bank did not even make inquiries with the drawer, Interco (whom the bank
considered a valued client), to verify Uys representation. Had it only exercised due diligence, Equitable could have saved both Interco and the
named payee, SSPI, from the trouble that the banks mislaid trust wrought for them.

These are crossed checks, whose manner of discharge, in banking practice, is restrictive and specific. Uys name does not appear anywhere on
the crossed checks. Equitable, not knowing the named payee on the check, had no way of verifying for itself the alleged genuineness of the
indorsement to Uy. The checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy. Uys relationship to
Intercos majority stockholder will not justify disregarding what is clearly ordered on the checks.

BDO Unibank, Inc. Vs. Engr. Selwyn Lao

G.R. No. 227005; June 19, 2017

FACTS:
Engineer Lao entered into a transaction with Ever link, through its authorized representative, Wu,
under which, Everlink would supply him with "HCG sanitary wares"; and that for the down payment, he issued two (2) Equitable crossed checks
payable to Everlink.

Lao averred that when the checks were encashed, he contacted Everlink for the immediate delivery of the sanitary wares, but the latter failed to
perform its obligation. Later, Lao learned that the checks were deposited in two different bank accounts at respondent Unionbank. He was later
informed that the two bank accounts belonged to Wu and a company named New Wave.
Consequently, Lao was prompted to file a complaint against Everlink and Wu for their failure to comply with their obligation and against BDO for
allowing the encashment of the two (2) checks. He filed an Amended Complaint, wherein he impleaded Union Bank as additional defendant for
allowing the deposit of the crossed checks in two bank accounts other than the payee's, in violation of its obligation to deposit the same only to
the payee's account.

The RTC Ruling

The RTC absolved BDO from any liability, but ordered Union Bank to pay Lao the amount representing the value of the Check, moral damages,
exemplary damages and attorney's fees.

It adjudged that BDO could not be held liable because of Union Bank's warranty when it stamped on the check that "all prior endorsement
and/or lack of endorsement guaranteed. Aggrieved, Union Bank elevated an appeal to the CA.

The CA Ruling
The CA affirmed, with modification, the ruling of the RTC. the CA explained that BDO violated its duty to charge to the drawer's account only
those authorized by the latter when it paid the value of Check No. 0127-242250. Thus, it held that BDO was liable for the amount charged to the
drawer's account.

ISSUE: Whether or not a collecting bank assumes responsibility for a crossed check as a general endorser in accordance with Section 66 of the
Negotiable Instruments Law.

HELD: Yes.
The liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that
all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.

A crossed check is one where two parallel lines are drawn across its face or across the comer thereof. A check may be crossed generally or
specially. A check is crossed especially when the name of a particular banker or company is written between the parallel lines drawn. It is
crossed generally when only the words "and company" are written at all between the parallel lines.

Jurisprudence dictates that the effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that
the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose. The effects of crossing a check, thus, relate to the mode of payment, meaning that the drawer had intended the check for deposit only
by the rightful person, i.e., the payee named therein.

It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written between the parallel lines appearing on the face
of the instrument. This indicated that Lao, the drawer, had intended the same for deposit only to the account of Everlink, the payee named
therein. Despite this clear intention, however, Union Bank negligently allowed the deposit of the proceeds of the said check in the account of
New Wave. N

Generally, BDO must be ordered to pay Lao the value of the subject check; fzzwƒhereas, Union Bank would be ordered to reimburse BDO the
amount of the check. The aforesaid sequence of recovery, however, is not applicable in the present case due to the presence of certain factual
peculiarities.

BDO was not impleaded as a party in Union Bank's appeal before the CA. Moreover, in their respective briefs before the appellate court, neither
Lao nor Union Bank made any statement or raised any issue on BDO's liability and its inclusion as a party in the appeal. The finality of the RTC
Decision as to BDO, which absolved it from any liability, necessarily means that it could not be prejudiced or adversely affected by the decision
rendered in the appeal.

Thus, following Associated Bank, the proceedings for recovery must be simplified and Lao should be allowed to recover directly from Union
Bank.

PNB v. Rodriguez

FACTS: Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a discounting arrangement with the
Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. The association maintained current and
savings accounts with Philippine National Bank (PNB). PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds.

As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members. It was PEMSLA’s
policy not to approve applications for loans of members with outstanding debts. Some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of
the latter. The officers carried this out by forging the indorsement of the named payees in the checks

Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. This
became the usual practice for the parties.

The spouses issued 69 checks totalling to P2,345,804. These were payable to 47 individual payees who were all members of PEMSLA. PNB
eventually found out about these fraudulent acts. PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the
spouses were returned or dishonored for the reason “Account Closed.” The amounts were duly debited from the Rodriguez account

Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB.

PNB credited the checks to the PEMSLA account even without indorsements . PNB violated its contractual obligation to them as depositors - so
PNB should bear the losses. RTC ruled in favor of Rodriguez. PNB appealed the decision of the trial court to the CA on the principal ground that
the disputed checks should be considered as payable to bearer and not to order. The CA ruled that the checks were payable to order.

ISSUE: Whether or not the subject checks are payable to order or to bearer and who bears the loss.

RULING: As a general rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a
bearer instrument (Sections 8 and 9 of the NIL). However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The
exception will cause it to bear the loss.

The distinction between bearer and order instruments lies in their manner of negotiation:

An order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument requires mere
delivery.

When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. As an underlying
theory, one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. The lack of knowledge on the part of the
payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’
proceeds

In the case at bar, PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or otherwise. It was negligent
in the selection and supervision of its employees.

ASSOCIATED BANK VS. CA

G.R. NO. 107612
JANUARY 31, 1996

FACTS:

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are
deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of
the Sangguniang Bayan.

A portion of the funds of the province is allocated to the Concepcion Emergency Hospital, drawn to the order of the hospital and received by its
administrative officer and cashier. When an audit was conducted, it was discovered that 30 checks were not received by the hospital. It was
discovered that Fausto Pangilinan drawn the checks, forging the signature of Dr. Adena Canlas in order to indorse the instrument. The
Associated Bank also guaranteed all prior indorsements.

RTC ruled in favor of the Province of Tarlac, and ordered PNB to pay the money, and also ordered Associated Bank to reimburse PNB. The CA
affirmed the decision of the RTC.

PNB now contends that they should not be the only party liable for the return of the money, because the LGU was also at fault in issuing the
checks to the then-retired Fausto, and the one whose act was the cause of the loss must bear the loss.

ISSUE:

Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?

HELD:
 PNB (drawee) and Associated Bank (collecting bank) shall pay the amount proportionately. However, the presence of fault must always be
determined.

The Province of Tarlac was also at fault, for releasing the checks to Fausto even though the new cashier of the hospital already claims other
checks to them – which should have created a confusion to them, considering that they were knew the fact that Fausto already retired from
service. Hence, the Province can only recover 50% of the amount to PNB due to their negligence.

PNB, likewise, can recover only 50% of the amount to Associated Bank (collecting bank). It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the
payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA BANKING CORPORATION, respondents.
[G.R. No. 139130. November 27, 2002]

Facts:
Petitioner is a businessman in charge of 20 corporations. Due to the nature of his work, he is frequently out of the country. As such, his credit
cards and check books were entrusted to Katherine Egenio.
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal account about seventeen
(17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not
bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio
immediately, and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private
respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial
documents against Eugenio on the basis of petitioners statement that his signatures in the checks were forged.
Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed
but respondent bank refused. Hence, petitioner filed the instant case.
Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the genuineness of the signatures appearing
on the checks. However, in a letter dated March 25, 1987, the NBI informed the trial court that they could not conduct the desired examination
for the reason that the standard specimens submitted were not sufficient for purposes of rendering a definitive opinion. The NBI then suggested
that petitioner be asked to submit seven (7) or more additional standard signatures executed before or about, and immediately after the dates
of the questioned checks. Petitioner, however, failed to comply with this request.
Issue:
1. whether or not petitioner has a cause of action against private respondent; and
2. whether or not private respondent, in filing an estafa case against petitioners secretary, is barred from raising the defense that the fact
of forgery was not established.
Held:
1. No. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the
discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his
specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional
specimen signatures as requested by the National Bureau of Investigation from which to draw a conclusive finding regarding forgery. The
Court of Appeals found that petitioner, by his own inaction, was precluded from setting up forgery.

2. No. The fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not
been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a
criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State.[25] Thus, under Section 2, Rule 110 of the
Rules of Court the complaint or information filed in court is required to be brought in the name of the People of the Philippines
NATIVIDAD GEMPESAW vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS
Facts:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores and maintains a checking account with the respondent
drawee Bank. To facilitate payment of debts to her suppliers, petitioner draws checks against her checking account with the respondent bank as
drawee. Her customary practice of issuing checks in payment of her suppliers was as follows: the checks were prepared and filled up as to all
material particulars by her trusted bookkeeper, Alicia Galang, an employee for more than eight (8) years. After the bookkeeper prepared the
checks, the completed checks were submitted to the petitioner for her signature, together with the corresponding invoice receipts which
indicate the correct obligations due and payable to her suppliers. Petitioner signed each and every check without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The
issuance and delivery of the checks to the payees named therein were left to the bookkeeper. Petitioner admitted that she did not make any
verification as to whether or not the checks were delivered to their respective payees. In the course of her business operations covering a period
of two years, petitioner issued, following her usual practice stated above, a total of eighty-two (82) checks in favor of several suppliers. These
checks were all presented by the indorsees as holders thereof to, and honored by, the respondent drawee Bank. Respondent drawee Bank
correspondingly debited the amounts thereof against petitioner's checking account. Most of the aforementioned checks were for amounts in
excess of her actual obligations to the various payees as shown in their corresponding invoices.
Practically, all the checks issued and honored by the respondent drawee bank were crossed checks. Daily notice given to the petitioner by the
respondent drawee Bank and it is furnished with a monthly statement of her transactions, attaching thereto all the cancelled checks she had
issued and which were debited against her current account. It was only after the lapse of more two (2) years that petitioner found out about the
fraudulent manipulations of her bookkeeper.
Petitioner made a written demand on respondent drawee Bank to credit her account with the money value of the eighty-two (82) checks
totalling P1,208.606.89 for having been wrongfully charged against her account which was then refused by the bank. This prompted the
petiitioner to file a complaint against the respondent bank.

Issue:
Whether or not the negligence of the drawer is the proximate cause of the resulting injury making it precluded from setting up forgery as a
defense.

Held: Yes
Forgery is a real or absolute defense by the party whose signature is forged. A party whose signature to an instrument was forged was never a
party and never gave his consent to the contract which gave rise to the instrument. Since his signature does not appear in the instrument, he
cannot be held liable thereon by anyone, not even by a holder in due course. Thus, if a person's signature is forged as a maker of a promissory
note, he cannot be made to pay because he never made the promise to pay. Or where a person's signature as a drawer of a check is forged, the
drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. And said section
does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. It covers also a forged indorsement,
i.e., the forged signature of the payee or indorsee of a note or check. Since under said provision a forged signature is "wholly inoperative", no
one can gain title to the instrument through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any
right as against any party whose name appears prior to the forgery. Although rights may exist between and among parties subsequent to the
forged indorsement, not one of them can acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all
subsequent parties as against parties prior to the forgery. However, the law makes an exception to these rules where a party is precluded from
setting up forgery as a defense.

One thing is clear from the records — that the petitioner failed to examine her records with reasonable diligence whether before she signed the
checks or after receiving her bank statements. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account.

However, In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any
contract it enters into with any of its depositors. When it violated its internal rules that second endorsements, which should not be allowed in
cases of cross checks, are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of
Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence.
We hold that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount
importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence. Surely, respondent
drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way We can allow it now to escape liability for
such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and
supervision of its employees is of no moment.

Respondent drawee Bank is therfore adjudged liable to share the loss with the petitioner on a fifty-fifty ratio.
Fria Digest

MBTC v BA Finance
G.R. No. 179952

Facts:
Bitanga obtained a loan worth 330K from BA finance and mortgaged his car as security. As part of the loan agreement, Bitanga insured the car
with BA finance as the beneficiary. The car was stolen and so Bitanga filed a claim with Malayan Insurance for the proceeds w/c was granted.
The crossed check was drawn against China Bank and was payable to the order of Bitanga and BA Finance.
W/out the indorsement of the BA, Bitanga deposited said check into his account with Asianbank w/c has now merged w/ MBTC. Bitanga
withdrew the entirety of the proceeds from his account. When his loan became due, he failed to pay despite demands by BA.
When BA learned of the loss of the car and the crossed check, they demanded payment from Asianbank but to no avail and so a suit was filed by
BA for a sum of money and damages.

Issue: WON BA Finance has a cause of action against petitioners despite the check not having been delivered to them.

Held:
Yes. Section 41 of the Negotiable Instruments Law provides:
Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing
has authority to indorse for the others. (emphasis and underscoring supplied)
Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of
authority of Bitangas co-payee BA Finance to endorse it on its behalf.
Asianbank acted with gross negligence in allowing such check to be deposited despite the fact that it was a crossed check and the absence of the
other payee’s indorsement.

RCBC SAVINGS BANK VS NOEL ODRADA

GR No. 219037 October 19, 2016
 Facts:

In April 2002, respondent Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to Teodoro L. Lim (Lim) for One Million
Five Hundred Ten Thousand Pesos (P1,510,000). Of the total consideration, Six Hundred Ten Thousand Pesos (P610,000) was initially paid by Lim
and the balance of Nine Hundred Thousand Pesos (P900,000) was financed by petitioner RCBC Savings Bank (RCBC) through a car loan obtained
by Lim.4 As a requisite for the approval of the loan, RCBC required Lim to submit the original copies of the Certificate of Registration (CR) and
Official Receipt (OR) in his name. Unable to produce the Montero's OR and CR, Lim requested RCBC to execute a letter addressed to Odrada
informing the latter that his application for a car loan had been approved.

On 5 April 2002, RCBC issued a letter that the balance of the loan would be delivered to Odrada upon submission of the OR and CR. Following
the letter and initial down payment, Odrada executed a Deed of Absolute Sale on 9 April 2002 in favor of Lim and the latter took possession of
the Montero.

When RCBC received the documents, RCBC issued two manager's checks dated 12 April 2002 payable to Odrada for Nine Hundred Thousand
Pesos (P900,000) and Thirteen Thousand Five Hundred Pesos (P13,500). After the issuance of the manager's checks and their turnover to Odrada
but prior to the checks' presentation, Lim notified Odrada in a letter dated 15 April 2002 that there was an issue regarding the roadworthiness of
the Montero. In the said letter, Lim informed Odrada not to encash the checks until he has clarified and satisfied his complaints therein.

A meeting was set by Lim, however, Odrada did not attend the said meeting. The latter deposited the manager’s checks for encashment. The
checks were dishonored by reason of Lim’s cancellation of the loan after the latter discovered the defects in the automobile sold by Odrada.
Thereafter, Odrada filed a collection suit against the RCBC and Lim to which both the RTC and CA ruled his favor.

Issue:

WON Odrada is considered a holder in due course of the checks despite being informed of the cancellation of the loan.

Held:

The court ruled in the negative. To be a holder in due course, the law requires that a party must have acquired the instrument in good faith and
for value. A holder in due course as one 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 has 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.
Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on the
instrument and that at the time he,took the instrument, the holder has no knowledge of any defect or infirmity of the instrument. To constitute
notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument would amount to bad faith.

Value, on the other hand, is defined as any consideration sufficient to support a simple contract.

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. Moreover, when Odrada redeposited the manager's checks on 19 April 2002, he
was already formally notified by RCBC the previous day of the cancellation of Lim's auto loan transaction.

VICENTE R. DE OCAMPO & CO. V. ANITA GATCHALIAN, ET AL

Facts:
The action is for recovery of the value of a check for P600 payable to De Ocampo and drawn by Gatchalian. Plaintiff received it in payment of the
indebtedness of one Matilde Gonzales, wife of Manuel Gonzales. Ocampo, upon receiving the check gave Matilde P158.25, the difference
between the face value of the check and Matilde’s indebtedness.

Gatchalian averred that she was shown and offered a car by Manuel Gonzales. Gonzales requested a check which will be shown to the owner as
evidence of good faith in the intention to purchase the said car, the said check to be for safekeeping only of Gonzales and to be returned to
Gatchalian the following day when Gonalzes brings the car. Gatchalian drew and issued a check in compliance.

That on the failure of Gonzales to appear the day following and on his failure to bring the car and its certificate of registration, Gatchalian issued
a “Stop Payment Order”
Gatchalian further alleged that they had no arrangements with the Ocampo Clinic at any time prior to on or after September 9, 1953 for the
hospitalization of the wife of Gonzales

Issue:
Whether Ocampo is a holder in due course

Held:
The stipulation of facts expressly states that De Ocampo was not aware of the circumstances under which the check was delivered to Gonzales,
but we agree with Gatchalian that the circumstances indicated by them in their briefds, such as the fact that appellants had no obligation or
liability to the Ocampo Clinic; that the amount of the check did not correspond exactly with the obligation of Matilde to Ocampo and that the
check had two parallel lines in the upper left hand corner, which practice means that the check could only be deposited but may not be
converted into case – all these circumstances should have put the plaintiff-appellee to inquiry. It was payee’s duty to ascertain from the holder
Gonzales what the nature of the latter’s title to the check was or the nature of his possession. Having failed in this respect, we must declare that
Ocampo was guilty of gross neglect in not finding out the nature of the title and possession of Gonzales amounting to legal absence in good
faith, and it may not be considered as a holder of the check in good faith.

The rule that a possessor of the instrument is prima facie holder in due course does not apply because there was a defect in the title of the
holder (Manuel Gonzales), because the instrument is not payable to him or the bearer. On the other hand, the stipulation of facts indicated by
the appellants in their brief, like the fact that the drawer had no account with the payee; that the holder did not show or tell the payee why he
had the check in his possession and why he was using it for the payment of his own personal account – show that holder’s title was defective or
suspicious, to say the least.

Equitable v. Special Steel

Respondent Special Steel Products, Inc. (SSPI) is a private domestic corporation selling steel products. Its co-respondent Augusto L. Pardo (Pardo)
is SSPIs President and majority stockholder.

International Copra Export Corporation (Interco) is its regular customer.

Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-in-law of its majority
stockholderô.

Petitioner Equitable Banking Corporation (Equitable or bank) is a private domestic corporation engaged in banking and is the depository bank of
Interco and of Uy.

In 1991, SSPI sold welding electrodes to Interco, as evidenced by sales invoices. The invoices provided that Interco would pay interest at the rate
of 36% per annum in case of delay.

In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI on July 10, 1991, July 16, 1991, and July
29, 1991. Each check was crossed with the notation account payee only and was drawn against Equitable. The records do not identify the
signatory for these three checks, or explain how Uy, Intercos purchasing officer, came into possession of these checks.

The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and claimed that he had good title
thereto. He demanded the deposit of the checks in his personal accounts in Equitable

Equitable acceded to Uys demands on the assumption that Uy, as the son-in-law of Intercos majority stockholder, was acting pursuant to
Intercos orders. The bank also relied on Uys status as a valued client. Thus, Equitable accepted the checks for deposit in Uys personal accounts
and stamped ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT GUARANTEED on their dorsal portion. Uy promptly withdrew the
proceeds of the checks.

In October 1991, SSPI reminded Interco of the unpaid welding electrodes, amounting to P985,234.98.
Interco replied that it had already issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these checks.

On June 30, 1993 (twenty-three months after the issuance of the three checks), Interco finally paid the value of the three checks to SSPI, but
only a portion of the accrued interests.

SSPI and its president, Pardo, filed a complaint for damages against Uy and Equitable Bank. The complaint alleged that the three crossed checks,
all payable to the order of SSPI and with the notation account payee only, could be deposited and encashed by SSPI only.

Equitable further argued that it is not liable to SSPI because it accepted the three crossed checks in good faith. Equitable averred that, due to
Uys close relations with the drawer of the checks, the bank had basis to assume that the drawer authorized Uy to countermand the original
order stated in the check (that it can only be deposited in the named payees account).
Uy answered that the checks were negotiated to him; that he is a holder for value of the checks and that he has a good title thereto. He did not,
however, explain how he obtained the checks.

Equitable argues that SSPI cannot assert a right against the bank based on the undelivered checks. It cites provisions from the Negotiable
Instruments Law and the case of Development Bank of Rizal v. Sima Wei to argue that a payee, who did not receive the check, cannot require the
drawee bank to pay it the sum stated on the checks.

Issue: Whether or not a crossed check with the notation account payee can only be deposited in the named payees account.

Held: Yes. Equitable’s argument is misplaced and beside the point. SSPIs cause of action is not based on the three checks. Instead, it asserts a
cause of action based on quasi-delict. A quasi-delict is an act or omission, there being fault or negligence, which causes damage to another.
Quasi-delicts exist even without a contractual relation between the parties. The courts below correctly ruled that SSPI has a cause of action for
quasi-delict against Equitable.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order, and contained the notation account payee only.
This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be
averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payees account
only and no other. At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend
more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account.

Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances.

The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard. It
should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him. Considering however,
that the named payee does not have an account with Equitable (hence, the latter has no specimen signature of SSPI by which to judge the
genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uys word that he had a good title to the three
checks. Such misplaced reliance on empty words is tantamount to gross negligence, which is the absence of or failure to exercise even slight care
or diligence.

Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco, made it safe to assume that
the drawer authorized Uy to countermand the order appearing on the check. It is troubling that Equitable proceeded with the transaction based
only on its knowledge that Uy had close relations with Interco. The bank did not even make inquiries with the drawer, Interco (whom the bank
considered a valued client), to verify Uys representation. Had it only exercised due diligence, Equitable could have saved both Interco and the
named payee, SSPI, from the trouble that the banks mislaid trust wrought for them.
These are crossed checks, whose manner of discharge, in banking practice, is restrictive and specific. Uys name does not appear anywhere on
the crossed checks. Equitable, not knowing the named payee on the check, had no way of verifying for itself the alleged genuineness of the
indorsement to Uy. The checks bear nothing on their face that supports the belief that the drawer gave the checks to Uy. Uys relationship to
Intercos majority stockholder will not justify disregarding what is clearly ordered on the checks.

BDO Unibank, Inc. Vs. Engr. Selwyn Lao

G.R. No. 227005; June 19, 2017

FACTS:
Engineer Lao entered into a transaction with Ever link, through its authorized representative, Wu,
under which, Everlink would supply him with "HCG sanitary wares"; and that for the down payment, he issued two (2) Equitable crossed checks
payable to Everlink.

Lao averred that when the checks were encashed, he contacted Everlink for the immediate delivery of the sanitary wares, but the latter failed to
perform its obligation. Later, Lao learned that the checks were deposited in two different bank accounts at respondent Unionbank. He was later
informed that the two bank accounts belonged to Wu and a company named New Wave.

Consequently, Lao was prompted to file a complaint against Everlink and Wu for their failure to comply with their obligation and against BDO for
allowing the encashment of the two (2) checks. He filed an Amended Complaint, wherein he impleaded Union Bank as additional defendant for
allowing the deposit of the crossed checks in two bank accounts other than the payee's, in violation of its obligation to deposit the same only to
the payee's account.

The RTC Ruling

The RTC absolved BDO from any liability, but ordered Union Bank to pay Lao the amount representing the value of the Check, moral damages,
exemplary damages and attorney's fees.

It adjudged that BDO could not be held liable because of Union Bank's warranty when it stamped on the check that "all prior endorsement
and/or lack of endorsement guaranteed. Aggrieved, Union Bank elevated an appeal to the CA.

The CA Ruling
The CA affirmed, with modification, the ruling of the RTC. the CA explained that BDO violated its duty to charge to the drawer's account only
those authorized by the latter when it paid the value of Check No. 0127-242250. Thus, it held that BDO was liable for the amount charged to the
drawer's account.

ISSUE: Whether or not a collecting bank assumes responsibility for a crossed check as a general endorser in accordance with Section 66 of the
Negotiable Instruments Law.

HELD: Yes.
The liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that
all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting.

A crossed check is one where two parallel lines are drawn across its face or across the comer thereof. A check may be crossed generally or
specially. A check is crossed especially when the name of a particular banker or company is written between the parallel lines drawn. It is
crossed generally when only the words "and company" are written at all between the parallel lines.

Jurisprudence dictates that the effects of crossing a check are: (1) that the check may not be encashed but only deposited in the bank; (2) that
the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose. The effects of crossing a check, thus, relate to the mode of payment, meaning that the drawer had intended the check for deposit only
by the rightful person, i.e., the payee named therein.

It is undisputed that Check No. 0127-242250 had been crossed generally as nothing was written between the parallel lines appearing on the face
of the instrument. This indicated that Lao, the drawer, had intended the same for deposit only to the account of Everlink, the payee named
therein. Despite this clear intention, however, Union Bank negligently allowed the deposit of the proceeds of the said check in the account of
New Wave. N

Generally, BDO must be ordered to pay Lao the value of the subject check; fzzwƒhereas, Union Bank would be ordered to reimburse BDO the
amount of the check. The aforesaid sequence of recovery, however, is not applicable in the present case due to the presence of certain factual
peculiarities.

BDO was not impleaded as a party in Union Bank's appeal before the CA. Moreover, in their respective briefs before the appellate court, neither
Lao nor Union Bank made any statement or raised any issue on BDO's liability and its inclusion as a party in the appeal. The finality of the RTC
Decision as to BDO, which absolved it from any liability, necessarily means that it could not be prejudiced or adversely affected by the decision
rendered in the appeal.
Thus, following Associated Bank, the proceedings for recovery must be simplified and Lao should be allowed to recover directly from Union
Bank.

PNB v. Rodriguez

FACTS: Spouses Erlando and Norma Rodriguez were engaged in the informal lending business and had a discounting arrangement with the
Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees. The association maintained current and
savings accounts with Philippine National Bank (PNB). PEMSLA regularly granted loans to its members. Spouses Rodriguez would rediscount the
postdated checks issued to members whenever the association was short of funds.

As was customary, the spouses would replace the postdated checks with their own checks issued in the name of the members. It was PEMSLA’s
policy not to approve applications for loans of members with outstanding debts. Some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of unknowing members, without the knowledge or consent of
the latter. The officers carried this out by forging the indorsement of the named payees in the checks

Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from the named payees. This was an
irregular procedure made possible through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller in the PNB Branch. This
became the usual practice for the parties.

The spouses issued 69 checks totalling to P2,345,804. These were payable to 47 individual payees who were all members of PEMSLA. PNB
eventually found out about these fraudulent acts. PNB closed the current account of PEMSLA. As a result, the PEMSLA checks deposited by the
spouses were returned or dishonored for the reason “Account Closed.” The amounts were duly debited from the Rodriguez account

Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Cooperative of Philnabankers (MCP), and PNB.

PNB credited the checks to the PEMSLA account even without indorsements . PNB violated its contractual obligation to them as depositors - so
PNB should bear the losses. RTC ruled in favor of Rodriguez. PNB appealed the decision of the trial court to the CA on the principal ground that
the disputed checks should be considered as payable to bearer and not to order. The CA ruled that the checks were payable to order.
ISSUE: Whether or not the subject checks are payable to order or to bearer and who bears the loss.

RULING: As a general rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a
bearer instrument (Sections 8 and 9 of the NIL). However, there is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The
exception will cause it to bear the loss.

The distinction between bearer and order instruments lies in their manner of negotiation:

An order instrument requires an indorsement from the payee or holder before it may be validly negotiated. A bearer instrument requires mere
delivery.

When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. As an underlying
theory, one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. The lack of knowledge on the part of the
payees, however, was not tantamount to a lack of intention on the part of respondents-spouses that the payees would not receive the checks’
proceeds

In the case at bar, PNB did not obey the instructions of the drawers when it accepted absent indorsement, forged or otherwise. It was negligent
in the selection and supervision of its employees.

ASSOCIATED BANK VS. CA

G.R. NO. 107612
JANUARY 31, 1996

FACTS:

The Province of Tarlac maintains a current account with the Philippine National Bank (PNB) Tarlac Branch where the provincial funds are
deposited. Checks issued by the Province are signed by the Provincial Treasurer and countersigned by the Provincial Auditor or the Secretary of
the Sangguniang Bayan.
 A portion of the funds of the province is allocated to the Concepcion Emergency Hospital, drawn to the order of the hospital and received by its
administrative officer and cashier. When an audit was conducted, it was discovered that 30 checks were not received by the hospital. It was
discovered that Fausto Pangilinan drawn the checks, forging the signature of Dr. Adena Canlas in order to indorse the instrument. The
Associated Bank also guaranteed all prior indorsements.

RTC ruled in favor of the Province of Tarlac, and ordered PNB to pay the money, and also ordered Associated Bank to reimburse PNB. The CA
affirmed the decision of the RTC.

PNB now contends that they should not be the only party liable for the return of the money, because the LGU was also at fault in issuing the
checks to the then-retired Fausto, and the one whose act was the cause of the loss must bear the loss.

ISSUE:

Where thirty checks bearing forged endorsements are paid, who bears the loss, the drawer, the drawee bank or the collecting bank?

HELD:

PNB (drawee) and Associated Bank (collecting bank) shall pay the amount proportionately. However, the presence of fault must always be
determined.

The Province of Tarlac was also at fault, for releasing the checks to Fausto even though the new cashier of the hospital already claims other
checks to them – which should have created a confusion to them, considering that they were knew the fact that Fausto already retired from
service. Hence, the Province can only recover 50% of the amount to PNB due to their negligence.

PNB, likewise, can recover only 50% of the amount to Associated Bank (collecting bank). It is liable on its warranties as indorser of the checks
which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the
payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payee's indorsement.

RAMON K. ILUSORIO, petitioner, vs. HON. COURT OF APPEALS, and THE MANILA BANKING CORPORATION, respondents.
[G.R. No. 139130. November 27, 2002]

Facts:
Petitioner is a businessman in charge of 20 corporations. Due to the nature of his work, he is frequently out of the country. As such, his credit
cards and check books were entrusted to Katherine Egenio.
Between the dates September 5, 1980 and January 23, 1981, Eugenio was able to encash and deposit to her personal account about seventeen
(17) checks drawn against the account of the petitioner at the respondent bank, with an aggregate amount of P119,634.34. Petitioner did not
bother to check his statement of account until a business partner apprised him that he saw Eugenio use his credit cards. Petitioner fired Eugenio
immediately, and instituted a criminal action against her for estafa thru falsification before the Office of the Provincial Fiscal of Rizal. Private
respondent, through an affidavit executed by its employee, Mr. Dante Razon, also lodged a complaint for estafa thru falsification of commercial
documents against Eugenio on the basis of petitioners statement that his signatures in the checks were forged.
Petitioner then requested the respondent bank to credit back and restore to its account the value of the checks which were wrongfully encashed
but respondent bank refused. Hence, petitioner filed the instant case.
Manila Bank also sought the expertise of the National Bureau of Investigation (NBI) in determining the genuineness of the signatures appearing
on the checks. However, in a letter dated March 25, 1987, the NBI informed the trial court that they could not conduct the desired examination
for the reason that the standard specimens submitted were not sufficient for purposes of rendering a definitive opinion. The NBI then suggested
that petitioner be asked to submit seven (7) or more additional standard signatures executed before or about, and immediately after the dates
of the questioned checks. Petitioner, however, failed to comply with this request.
Issue:
1. whether or not petitioner has a cause of action against private respondent; and
2. whether or not private respondent, in filing an estafa case against petitioners secretary, is barred from raising the defense that the fact
of forgery was not established.
Held:
1. No. To be entitled to damages, petitioner has the burden of proving negligence on the part of the bank for failure to detect the
discrepancy in the signatures on the checks. It is incumbent upon petitioner to establish the fact of forgery, i.e., by submitting his
specimen signatures and comparing them with those on the questioned checks. Curiously though, petitioner failed to submit additional
specimen signatures as requested by the National Bureau of Investigation from which to draw a conclusive finding regarding forgery. The
Court of Appeals found that petitioner, by his own inaction, was precluded from setting up forgery.

2. No. The fact that Manila Bank had filed a case for estafa against Eugenio would not estop it from asserting the fact that forgery has not
been clearly established. Petitioner cannot hold private respondent in estoppel for the latter is not the actual party to the criminal action. In a
criminal action, the State is the plaintiff, for the commission of a felony is an offense against the State.[25] Thus, under Section 2, Rule 110 of the
Rules of Court the complaint or information filed in court is required to be brought in the name of the People of the Philippines
NATIVIDAD GEMPESAW vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS
Facts:
Petitioner Natividad O. Gempesaw (petitioner) owns and operates four grocery stores and maintains a checking account with the respondent
drawee Bank. To facilitate payment of debts to her suppliers, petitioner draws checks against her checking account with the respondent bank as
drawee. Her customary practice of issuing checks in payment of her suppliers was as follows: the checks were prepared and filled up as to all
material particulars by her trusted bookkeeper, Alicia Galang, an employee for more than eight (8) years. After the bookkeeper prepared the
checks, the completed checks were submitted to the petitioner for her signature, together with the corresponding invoice receipts which
indicate the correct obligations due and payable to her suppliers. Petitioner signed each and every check without bothering to verify the
accuracy of the checks against the corresponding invoices because she reposed full and implicit trust and confidence on her bookkeeper. The
issuance and delivery of the checks to the payees named therein were left to the bookkeeper. Petitioner admitted that she did not make any
verification as to whether or not the checks were delivered to their respective payees. In the course of her business operations covering a period
of two years, petitioner issued, following her usual practice stated above, a total of eighty-two (82) checks in favor of several suppliers. These
checks were all presented by the indorsees as holders thereof to, and honored by, the respondent drawee Bank. Respondent drawee Bank
correspondingly debited the amounts thereof against petitioner's checking account. Most of the aforementioned checks were for amounts in
excess of her actual obligations to the various payees as shown in their corresponding invoices.

Practically, all the checks issued and honored by the respondent drawee bank were crossed checks. Daily notice given to the petitioner by the
respondent drawee Bank and it is furnished with a monthly statement of her transactions, attaching thereto all the cancelled checks she had
issued and which were debited against her current account. It was only after the lapse of more two (2) years that petitioner found out about the
fraudulent manipulations of her bookkeeper.
Petitioner made a written demand on respondent drawee Bank to credit her account with the money value of the eighty-two (82) checks
totalling P1,208.606.89 for having been wrongfully charged against her account which was then refused by the bank. This prompted the
petiitioner to file a complaint against the respondent bank.

Issue:
Whether or not the negligence of the drawer is the proximate cause of the resulting injury making it precluded from setting up forgery as a
defense.

Held: Yes
Forgery is a real or absolute defense by the party whose signature is forged. A party whose signature to an instrument was forged was never a
party and never gave his consent to the contract which gave rise to the instrument. Since his signature does not appear in the instrument, he
cannot be held liable thereon by anyone, not even by a holder in due course. Thus, if a person's signature is forged as a maker of a promissory
note, he cannot be made to pay because he never made the promise to pay. Or where a person's signature as a drawer of a check is forged, the
drawee bank cannot charge the amount thereof against the drawer's account because he never gave the bank the order to pay. And said section
does not refer only to the forged signature of the maker of a promissory note and of the drawer of a check. It covers also a forged indorsement,
i.e., the forged signature of the payee or indorsee of a note or check. Since under said provision a forged signature is "wholly inoperative", no
one can gain title to the instrument through such forged indorsement. Such an indorsement prevents any subsequent party from acquiring any
right as against any party whose name appears prior to the forgery. Although rights may exist between and among parties subsequent to the
forged indorsement, not one of them can acquire rights against parties prior to the forgery. Such forged indorsement cuts off the rights of all
subsequent parties as against parties prior to the forgery. However, the law makes an exception to these rules where a party is precluded from
setting up forgery as a defense.

One thing is clear from the records — that the petitioner failed to examine her records with reasonable diligence whether before she signed the
checks or after receiving her bank statements. Under Section 23 of the NIL, she is now precluded from using the forgery to prevent the bank's
debiting of her account.

However, In the performance of its obligation, the drawee bank is bound by its internal banking rules and regulations which form part of any
contract it enters into with any of its depositors. When it violated its internal rules that second endorsements, which should not be allowed in
cases of cross checks, are not to be accepted without the approval of its branch managers and it did accept the same upon the mere approval of
Boon, a chief accountant, it contravened the tenor of its obligation at the very least, if it were not actually guilty of fraud or negligence.

We hold that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount
importance such that the appropriate standard of diligence must be a high degree of diligence, if not the utmost diligence. Surely, respondent
drawee Bank cannot claim it exercised such a degree of diligence that is required of it. There is no way We can allow it now to escape liability for
such negligence. Its liability as obligor is not merely vicarious but primary wherein the defense of exercise of due diligence in the selection and
supervision of its employees is of no moment.

Respondent drawee Bank is therfore adjudged liable to share the loss with the petitioner on a fifty-fifty ratio.
Comm Rev Corpo Digest 2019

1.NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND DEVELOPMENT, INC., AND MCARTHUR MINING, INC., Petitioners,
v. REDMONT CONSOLIDATED MINES CORP., Respondent.

Facts:

Petitioners Narra, Tesoro and Mcarthur are opposing the decision of the CA to deny their application for Mineral Production Sharing
Agreements (MPSAs) on the ground that the CA’s application of the grandfather rule in this case was erroneous due to undermining the result
of the control test used to determine whether an entity is entitled to enter into businesses w/c the Constitution has deemed to be exclusive to
Filipino Corporations.
The Constitution clearly provides that the exploration, development, and utilization of natural resources is reserved to Filipino citizens and
“corporations or associations at least sixty per centum of whose capital is owned by such citizens.”

As found by the CA, MBMI w/c is a 100% Canadian-owned firm effectively owns 60% of the common stocks of the petitioners by owning
equity interest of petitioners’ other majority corporate shareholders. This was the basis of its denial for the MPSA.

Issue: WON the grandfather rule was applied correctly in this case.

Held:

Yes. 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.

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 involved in this case or the operation of public
utilities as in Gamboa or Bayantel.

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 corporation’s 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.

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.

2. INDIAN CHAMBER OF COMMERCE VS. FILIPINO INDIAN CHAMBER

FACTS:

 Filipino-Indian Chamber of Commerce of the Philippines was originally registered with SEC as Indian Chamber of Commerce of Manila,
Inc.
 It amended its corporate name into Indian Chamber of Commerce of the Philippines and further amended it into Filipino-Indian
Chamber of Commerce of the Philippines.
 On January 20, 2005, Mr. Naresh Mansukhani reserved the corporate name “Filipino Commerce in the Philippines, Inc." for the
period from January 20, 2005 to April 20, 2005, with the Company Registration and Monitoring Department of the SEC.
 In an opposition letter dated April 1, 2005, Ram Sitaldas, claiming to be a representative of the defunct FICCPI, alleged that the
corporate name has been used by the defunct FICCPI since 1951, and that the reservation by another person who is not its member or
representative is illegal.
 The CRMD called the parties for a conference and required them to submit their position papers.
 Subsequently, on May 27, 2005, the CRMD rendered a decision granting Mansukhani's reservation, holding that he possesses the
better right over the corporate name.
 The CRMD ruled that the defunct FICCPI has no legal personality to oppose the reservation of the corporate name by Mansukhani.
After the expiration of the defunct FICCPFs corporate existence, without any act on its part to extend its term, its right over the name
ended. Thus, the name "Filipino Indian Chamber of Commerce in the Philippines, Inc." is free for appropriation by any party.
 Sitaldas appealed the decision of the CRMD to the SEC En Banc, which appeal was docketed as SEC.
 Meanwhile, on December 8, 2005, Mr. Pracash Dayacanl, who allegedly represented the defunct FICCPI, filed an application with the
CRMD for the reservation of the corporate name "Indian Chamber of Commerce Phils., Inc." (ICCPI).
 Upon knowledge, Mansukhani, in a letter dated February 14, 2006, formally opposed the application. Mansukhani cited the SEC En
Banc decision in SEC Case No. 05-008 recognizing him as the one possessing the better right over the corporate name "Filipino
Chamber of Commerce in the Philippines, Inc. In a letter dated April 5, 2006 the CRMD denied Mansukhani's opposition.
 It stated that the name "Indian Chamber of Commerce Phils., Inc." is not deceptively or confusingly similar to "Filipino Indian
Chamber of Commerce in the Philippines, Inc." On the same date, the CRMD approved and issued the Certificate of Incorporation of
petitioner ICCPI.
 Thus, respondent FICCPI, through Mansukhani, appealed the CRMD's decision to the SEC En Banc.
  Citing Section 18 of the Corporation Code, the SEC En Banc made a finding that "both from the standpoint of their [ICCPI and FICCPI]
corporate names and the purposes for which they were established, there exists a similarity that could inevitably lead to confusion.
 It also ruled that "oppositor [FICCPI] has the prior right to use its corporate name to the exclusion of the others. It was registered with
the Commission on March 14, 2006 while respondent [ICCPI] was registered on April 05, 2006. By virtue of oppositor's [FICCPI] prior
appropriation and use of its name, it is entitled to protection against the use of identical or similar name of another corporation.

ISSUE:
WON the Honorable Court of Appeals committed serious error when it held that there is similarity between the petitioner
and the respondent’s corporate name that would inevitably lead to confusion and respondent’s corporate name did not acquire
secondary meaning.

HELD:

Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is identical or deceptively or confusingly similar to
that of any existing corporation.

No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of
incorporation under the amended name.

In this case, FICCPI was incorporated on March 14, 2006. On the other hand, ICCPI was incorporated only on April 5, 2006, or a month after
FICCPI registered its corporate name. Thus, applying the principle in the Refractories case, we hold that FICCPI, which was incorporated
earlier, acquired a prior right over the use of the corporate name.
ICCPI cannot argue that it first incorporated and held the "Filipino Indian Chamber of Commerce,"

The name of a dissolved firm shall not be allowed to be used by other firms within three (3) years after the approval of the dissolution of the
corporation by the Commission, unless allowed by the last stockholders representing at least majority of the outstanding capital stock of the
dissolved firm.

The CA is correct when it ruled, as correctly found by the SEC en banc, the word 'Filipino' in the corporate name of the respondent [FICCPI] is
merely descriptive and can hardly serve as an effective differentiating medium necessary to avoid confusion. The other two words alluded to
by petitioner [ICCPI] that allegedly distinguishes its corporate name from that of the respondent are the words 'in' and 'the' in the
respondent's corporate name. To our mind, the presence of the words 'in' and 'the' in respondent's corporate name does not, in any way,
make an effective distinction to that of petitioner.

SEC En Banc made a finding that it is apparent that both from the standpoint of their corporate names and the purposes for which they were
established, there exist a I similarity that could inevitably lead to confusion." This finding of the SEC En Bane was fully concurred with and
adopted by the CA.
3. Gold Line Tours vs Heirs of Lacsa
G.R. No. 159108
June 18, 2012

Facts:

On August 2, 1993, Concepcion and Miriam Lacsa boarded a Goldline passenger bus – owned and operated by Travel and Tours Advisers, Inc.
- enroute from Sorsogon to Cubao. The bus, driven by Rene, collided with a passenger jeepney driven by Alejandro Belbis. As a result, a metal
part of the jeepney was detached and struck Concepcion, a fresh Nursing graduate, in the chest – causing her instant death.

The heirs, represented by Teodoro, instituted a suit before the RTC to recover damages arising from breach of contract of carriage. The heirs
alleged that the collision was due to the reckless and imprudent manner of driving the bus by Rene. Miriam also testified that Rene had been
occasionally looking up the video monitor in the front portion of the bus, despite driving his bus at a fast speed; and that the driver was
overtaking another bus during the collision; and that Miriam was helped by bystanders, and not the employees and co-passengers of the bus
who ignored Miriam’s cries for help.

William Cheng, the operator of Goldline bus, contended that he had exercised the required diligence in the selection and supervision of his
employees, with pre-training such as driving practices and demeanor, hence making it impossible for Rene to be negligently driving the bus.
Cheng also said that this was the first accident encountered by their business, and that upon being informed, Cheng immediately instructed
his personnel to contact the family of Concepcion.

The RTC ruled in favor of the plaintiff (heirs), and held that Travel and Tours Advisers, Inc. should pay the damages because they are duty-
bound to safely transport their passengers as soon as the passengers boarded the bus until the passenger reaches their destination, and that
they have failed to disprove their presumption of negligence under Article 1786 of the Civil Code, and lastly, rigid selection of employees was
not sufficient to exempt them from liability.
The defendants appealed to the CA. The CA dismissed the appeal for failure to pay the docket and other lawful fees. The plaintiffs then
moved for issuance of a Writ of Execution before the RTC. The sheriff then reported that the writ has been served to Grace Miranda, the
secretary; and that a tourist bus was levied pursuant to the writ.

The RTC directed the plaintiffs to file a verified petition for indirect contempt, as Cheng failed to obey a lawful writ of the RTC. A so-called
verified third-party claim was submitted by the petitioner; alleging that the tourist bus levied was their property and not of the Travel and
Tours Advisers, Inc. It is to be noted that petitioners’ Articles of Incorporation was amended shortly after the filing of the civil case against the
Travel and Tours. Respondents opposed, claiming that the two companies were identical entities both operated and managed by the same
person, and that petitioner was attempting to defraud its creditors and the respondents; hence, the doctrine of piercing the corporate entity
will be applicable.

RTC dismissed the verified third-party claim, observing that the two companies’ identity could not be divorced from one another. RTC denied
their motion for reconsideration. Petitioner then initiated a special civil action for certiorari before the CA which was however dismissed. CA
also denied their motion for reconsideration.

Issue:

Did the CA rightly find and conclude that the RTC did not gravely abuse its discretion in denying petitioners verified third-party claim?

Held:

Yes. The RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and the same entity, specifically:
(a) documents submitted by petitioner in the RTC showing that William Cheng, who claimed to be the operator of Travel and Tours Advisers,
Inc., was also the President/Manager and an incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had been known in
Sorsogon as Goldline. The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through the use
of the doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the ends of justice.

Also, there was sufficient evidence that petitioner and Travel and Tours Advisers, Inc. were one and the same entity. Moreover, we remind
that a petition for the writ of certiorari neither deals with errors of judgment nor extends to a mistake in the appreciation of the contending
parties evidence or in the evaluation of their relative weight.

It is timely to remind that the petitioner in a special civil action for certiorari commenced against a trial court that has jurisdiction over the
proceedings bears the burden to demonstrate not merely reversible error, but grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the respondent trial court in issuing the impugned order.
Petitioner did not discharge its burden because it failed to demonstrate that the CA erred in holding that the RTC had not committed grave
abuse of discretion. A review of the records shows, indeed, that the RTC correctly rejected petitioner’s third-party claim. Hence, the rejection
did not come within the domain of the writ of certiorari’s limiting requirement of excess or lack of jurisdiction.

4.PIONEER INSURANCE SURETY CORPORATION vs. MORNING STAR TRAVEL & TOURS, INC., ESTELITA CO WONG, BENNY H. WONG, ARSENIO
CHUA, SONNY CHUA, AND WONG YAN TAK
G.R. No. 198436

DOCTRINE: A separate corporate personality shields corporate officers acting in good faith and within their scope of authority from personal
liability except for situations enumerated by law and jurisprudence. Piercing the corporate veil in order to hold corporate officers personally
liable for the corporation’s debts requires that "the bad faith or wrongdoing of the director must be established clearly and convincingly [as]
[b]ad faith is never presumed."

FACTS: This case originated from a Complaint for Collection of Sum of Money and Damages filed by Pioneer Insurance & Surety Corporation
(Pioneer) against Morning Star Travel & Tours, Inc. (Morning Star) for the amounts Pioneer paid the International Air Transport Association
under its credit insurance policy. The amounts of P100,479,171.59 and US$457,834.14 represent Morning Star’s overdue remittances to the
International Air Transport Association. Pioneer filed this Petition for Review assailing the Court of Appeals’ February 28, 2011 Decision "only
insofar as it absolved the individual respondents of their joint and solidary liability to petitioner" and August 31, 2011 Resolution8 denying
reconsideration.

Morning Star is a travel and tours agency with Benny Wong, Estelita Wong, Arsenio Chua, Sonny Chua, and Wong Yan Tak as shareholders
and members of the board of directors. International Air Transport Association is a Canadian corporation licensed to do business in the
Philippines "to promote safe, regular and economical air transport for all people, among others."

International Air Transport Association appointed Morning Star as an accredited travel agent. Morning Star "availed of the privilege of getting
on credit . . . air transport tickets from various airline companies [to be sold] to passengers at prices fixed by the airline companies." Morning
Star and International Air Transport Association entered a Passenger Sales Agency Agreement such that Morning Star must report all air
transport ticket sales to International Air Transport Association and account all payments received through the centralized system called
Billing and Settlement Plan. Morning Star only holds in trust all monies collected as these belong to the airline companies.

International Air Transport Association obtained a Credit Insurance Policy from Pioneer to assure itself of payments by accredited travel
agents for ticket sales and monies due to the airline companies under the Billing and Settlement Plan. The policy was for the period from
November 1, 2001 to December 31, 2002, renewed for the period from January 1, 2003 to December 31, 2003.The policy was made known to
the accredited travel agents. Morning Star, through its President, Benny Wong, was among those that declared itself liable to indemnify
Pioneer for any and all claims under the policy. He executed a registration form under the Credit Insurance Program for BSP-Philippines
Agents.

Morning Star had an accrued billing of P49,051,641.80 and US$325,865.35 for the period from December 16, 2002 to December 31, 2002. It
failed to remit these amounts through the Billing and Settlement Plan, prompting the International Air Transport Association to send a letter
dated January 17, 2003 advising on the overdue remittance. International Air Transport Association again declared Morning Star in default by
a letter dated January 20, 2003 for its overdue account covering the period from January 1, 2003 to January 20, 2003.

Pursuant to the credit insurance policies, International Air Transport Association demanded from Pioneer the sums of P109,728,051.00 and
US$457,834.14 representing Morning Star’s overdue account as of April 30, 2003. Pioneer investigated, ascertained, and validated the claims,
then paid International Air Transport Association the amounts of P100,479,171.59 and US$457,834.14. Consequently, Pioneer demanded
these amounts from Morning Star through a letter dated September 23, 2003. International Air Transport Association executed in Pioneer’s
favor a Release of Claim and Subrogation Receipt on December 23, 2003. On November 10, 2005, Pioneer filed a Complaint for Collection of
Sum of Money and Damages against Morning Star and its shareholders and directors.

Trial court: Ruled in favor of Pioneer, ordering defendants to jointly and severally pay plaintiff.
CA: Affirmed trial court’s decision with modification in that only Morning Star was liable to pay petitioner

Pioneer’s contention: its Petition falls under the exceptions to the general rule that petitions for review may raise only questions of law.
Pioneer raises conflicting findings and conclusions by the lower courts regarding solidary liability, and misapprehension of facts by the Court
of Appeals. It argues that "the individual respondents were, at the very least, grossly negligent in running the affairs of respondent Morning
Star by knowingly allowing it to amass huge debts to [International Air Transport Association] despite its financial distress, thus, giving
sufficient ground for the court to pierce the corporate veil and hold said individual respondents personally liable." It cites Section 31 of the
Corporation Code on the liability of directors "guilty of gross negligence or bad faith in directing the affairs of the corporation[.]" It also cites
jurisprudence on the requisites for the doctrine of piercing the corporate veil to apply. It submits that all requisites are present, thus, the
individual respondents should be held solidarily liable with Morning Star. It contends that the abnormally large indebtedness to International
Air Transport Association was incurred in fraud and bad faith, with Morning Star having no intention to pay its debt.

ISSUES:
1. Whether this case involves an exception to the general rule that petitions for review are limited to questions of law
2. Whether the doctrine of piercing the corporate veil applies to hold the individual respondents solidarily liable with respondent Morning
Star Travel and Tours, Inc. to pay the award in favor of petitioner Pioneer Insurance & Surety Corporation.
HELD:
1. The Court of Appeals then enumerated the exceptional circumstances warranting solidary liabilities by corporate agents based on
jurisprudence, and found none to be present in this case.

Only questions of law may be raised in a petition for review. Factual findings of the Court of Appeals are generally "final and conclusive, and
cannot be reviewed on appeal by [this court], provided they are borne out by the record or based on substantial evidence." Issues such as
whether the separate and distinct personality of a corporation was used for fraudulent ends, or whether the evidence warrants a piercing of
the corporate veil, involve questions of fact. Jurisprudence established exceptions from the general rule against a factual review by this court.
These exceptions include cases when the judgment appears to be based on a "patent misappreciation of facts."

2. The Court of Appeals ruled that the general rule on separate corporate personality and against personal liability by corporate officers
applies since petitioner failed to prove bad faith amounting to fraud by the corporate officers:

“The mere fact that Morning Star has been incurring huge losses and that it has no assets at the time it contracted large financial obligations
to IATA, cannot be considered that its officers, Defendants-Appellants Estelita Co Wong, Benny H. Wong, Arsenio Chua, Sonny Chua and
Wong Yan Tak, acted in bad faith or such circumstance would amount to fraud, warranting personal and solidary liability of its corporate
officers. The same is also true with the fact that Morning Star Management Ventures Corporation and Pic ‘N Pac Mart, Inc., corporations
having the same set of officers as Morning Star, were doing relatively well during the time that the former incurred huge losses. Thus, only
Morning Star should be held personally liable to Plaintiff- Appellee, and not its corporate officers.”

Piercing the corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires that "the bad faith or
wrongdoing of the director must be established clearly and convincingly [as] [b]ad faith is never presumed."

A separate corporate personality shields corporate officers acting in good faith and within their scope of authority from personal liability
except for situations enumerated by law and jurisprudence, thus:

Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a
rule, only when —

‘1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict
of interest, resulting in damages to the corporation, its stockholders or other persons;

‘2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto;
‘3. He agrees to hold himself personally and solidarily liable with the corporation; or

‘4. He is made, by a specific provision of law, to personally answer for his corporate action.

5.Roy III v. Herbosa, G.R. No. 207246 (Resolution), [April 18, 2017]
Doctrine:
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[fJull [and legal] beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights x x x must rest in the hands of Filipino nationals x x x." 11
And, precisely that is what SEC-MC No. 8 provides, viz.: "x x x For purposes of determining compliance [with the constitutional or statutory
ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock
entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote x x x."

Facts:
Before the Court is the Motion for Reconsideration dated January 19, 2017 (the Motion) filed by petitioner Jose M. Roy III (movant) seeking
the reversal and setting aside of the Decision dated November 22, 2016 (the Decision) which denied the movant's petition, and declared that
the Securities and Exchange Commission (SEC) did not commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013
(SEC-MCNo. 8) as the same was in compliance with, and in fealty to, the decision of the Court in Gamboa v. Finance Secretary
Teves, (Gamboa Decision) and the resolution denying the Motion for Reconsideration.

ISSUE:
Whether or not SEC commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013
HELD:
NO. The Court reasoned that "in the absence of a definitive ruling by the SEC on PLDT's compliance with the capital requirement pursuant
to the Gamboa Decision and Resolution, any question relative to the inexistent ruling is premature."
In resolving the other substantive issue raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural issues were conceded in favor of petitioners, the petitions, being anchored on
Rule 65, must nonetheless fail because the SEC did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to
the Gamboa Decision and Resolution.
To belabor the point, movant's petition is not a continuation of the Gamboa case as the Gamboa Decision attained finality on October 18,
2012, and thereafter Entry of Judgment was issued on December 11, 2012.
 The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in the Gamboa Resolution that the
constitutional requirement on Filipino ownership should "apply uniformly and across the board to all classes of shares, regardless of
nomenclature and category, comprising the capital of a corporation."
(recit) The Court stated that:
[T]he fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite, clear and
unequivocal. While there is a passage in the body of the Gamboa Resolution that might have appeared contrary to the
fallo of the Gamboa Decision x x x the definiteness and clarity of thefallo of the Gamboa Decision must control over the
obiter dictum in the Gamboa Resolution regarding the application of the 60-40 Filipino-foreign ownership requirement to
"each class of shares, regardless of differences in voting rights, privileges and restrictions."
To the Court's mind and, as exhaustively demonstrated in the Decision, the dispositive portion of the Gamboa Decision
was in no way modified by the Gamboa Resolution.
The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which provides: "No franchise, certificate,
or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such
citizens x x x."
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[f]ull [and legal] beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights x x x must rest in the hands of Filipino nationals x x
x." And, precisely that is what SEC-MC No. 8 provides, viz.: "x x x For purposes of determining compliance [with the constitutional or
statutory ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of
stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote x x
x."

6. ANDAYA v. RURAL BANK OF CABADBARAN, INC.

G.R. No. 188769; August 3, 2016

FACTS: Petitioner Joseph Omar Andaya bought from Concepcion Chute 2,200 shares of stock in respondent Rural Bank of Cabadbaran, Inc. for
P220,000. Chute duly endorsed and delivered the certificates of stock to Andaya, and requested the Bank to register the transfer and issue
new stock certificates in favor of petitioner.

The Bank’s corporate secretary, respondent Demosthenes Oraiz, wrote Chute that he could not register the transfer due to a previous
stockholder’s Resolution, wherein existing stockholders were given priority (i.e. right of first refusal) to buy the shares of others in the event
that the shares would be for sale. He then asked Chute if she, instead, wished to have her shares offered to existing stockholders.
Meanwhile, the Bank’s legal counsel, respondent Ricardo Gonzalez, informed Andaya that the latter’s request had been referred to the
bank’s board of directors for evaluation. Andaya argued that the purported restriction on the transfer of shares of stock agreed upon during
the 2001 stockholders’ meeting, citing Section 98 of the Corporation Code, could not deprive him of his right as a transferee.

The Bank still refused the transfer arguing that it may refuse to accept a competitor as one of its stockholders as pronounced in Gokongwei v.
Securities and Exchange Commission.

Andaya instituted an action for mandamus and damages against respondent Bank, which was dismissed by the Regional Trial Court, holding
that Andaya had no standing to compel the bank to register the transfer and issue stock certificates in his name.

Andaya directly elevated a petition for review before the Supreme Court on questions of law. Hence, the petition.

ISSUE: Whether Andaya, as a transferee of shares of stock, may initiate an action for mandamus compelling the Rural Bank of Cabadbaran to
record the transfer of shares in its stock and transfer book, as well as issue new stock certificates in his name.

HELD: YES. According to Price v. Martin, a person who has purchased stock, and who desires to be recognized as a stockholder, for the
purpose of voting, must secure a standing by having the transfer recorded upon the books. If the transfer is not duly made upon request, he
has, as his remedy, to compel it to be made. The registration of a transfer of shares of stock is a ministerial duty on the part of the
corporation.

At the crux of this petition are the registration of the transfer and the issuance of the corresponding stock certificates. Requiring petitioner to
register the transaction before he could institute a mandamus suit is a palpable error. It leads to an absurd, circuitous situation in which
Andaya is prevented from causing the registration of the transfer, ironically because the shares had not been registered. With the logic
resorted to by the RTC, transferees of shares of stock would never be able to compel the registration of the transfer and the issuance of new
stock certificates in their favor. They would first be required to show the registration of the transfer in their names -- the ministerial act that
is the subject of the mandamus suit in the first place.

Respondents primarily challenge the mandamus suit on the grounds that the transfer violated the Bank stockholders’ right of first refusal,
and that petitioner was a buyer in bad faith. Both parties refer to Section 98 of the Corporation Code. It must be noted that Section 98 applies
only to close corporations. Hence, before the Court can allow the operation of this section in the case at bar, there must first be a factual
determination that respondent Bank is indeed a close corporation. In this regard, the case is remanded to the RTC.

7.) ANNA TENG vs SECURITIES AND EXCHANGE COMMISSION (SEC) AND TING PING LAY
G.R. No. 184332, February 17, 2016

DOCTRINE:
(1) 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. 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.
(2)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.

FACTS: Respondent Ting Ping purchased 480 shares of TCL Sales Corporation (TCL) from Peter Chiu (Chiu); 1,400 shares 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).

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 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. Lie 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.

SEC- Ordered [TCL and Teng] to issue corresponding new certificates of stocks (sic) in the name of [Ting Ping] + damages
SEC en banc- On appeal, it affirmed above decision
CA- dismissed the petition for having been filed out of time and for finding no cogent and justifiable grounds to disturb the findings of the SEC
en banc.

After the finality of the Court's decision, the SEC issued a writ of execution addressed to the Sheriff of the Regional Trial Court (RTC) of
Manila. Teng, however filed a complaint for interpleader with the RTC of Manila, Branch 46, where Teng sought to compel Henry and Ting
Ping to interplead and settle the issue of ownership over the 1,400 shares, which were previously owned by Teng Ching. Thus, the deputized
sheriff held in abeyance the further implementation of the writ of execution pending outcome of the civil case.

RTC- Henry has better right to the shares of stocks formerly owned by Teng Ching, except those covered under Certificate of Stocks No 11
An Ex Parte Motion for the Issuance of Alias Writ of Execution was filed by Ting Ping where he sought the partial satisfaction of SEC en banc
where it ordered CL and Teng to record the 480 shares he acquired from Chiu and the 1,440 shares he acquired from Maluto, and for Teng's
payment of the damages awarded in his favor. SEC issued an alias writ of execution granting partial enforcement and satisfaction.

Teng and TCL filed their respective motions to quash the alias writ of execution, which was opposed by Ting Ping, who also expressed his
willingness to surrender the original stock certificates of Chiu and Maluto to facilitate and expedite the transfer of the shares in his favor.
Teng pointed out, however, that the annexes in Ting Ping's opposition did not include the subject certificates of stock, surmising that they
could have been lost or destroyed. Ting Ping belied this, claiming that his counsel Atty. Simon V. Lao already communicated with TCL's
counsel regarding the surrender of the said certificates of stock. Teng then filed a counter manifestation where she pointed out a discrepancy
between the total shares of Maluto based on the annexes, which is only 1305 shares, as against the 1440 shares acquired by Ting Ping based
on the SEC Order.

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.
A certificate of stock is a written instrument signed by the proper officer of a corporation stating or acknowledging that the person named in
the document is the owner of a designated number of shares of its stock. It is prima facie evidence that the holder is a shareholder of a
corporation. A certificate, however, is merely a tangible evidence of ownership of shares of stock. It is not a stock in the corporation and
merely expresses the contract between the corporation and the stockholder. The shares of stock evidenced by said certificates, meanwhile,
are regarded as property and the owner of such shares may, as a general rule, dispose of them as he sees fit, unless the corporation has been
dissolved, or unless the right to do so is properly restricted, or the owner's privilege of disposing of his shares has been hampered by his own
action.

Section 63 of the Corporation Code prescribes the manner by which a share of stock may be transferred. Under the provision, 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. 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." 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. "Shares of
stock may be transferred by delivery 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.

To be valid against third parties and the corporation, the transfer must be recorded or registered in the books of corporation. There are
several reasons why registration of the transfer is necessary: one, to enable the transferee to exercise all the rights of a stockholder; two, to
inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the
liabilities of a stockholder; and three, to avoid fictitious or fraudulent transfers, among others. In this case, given the Court's decision,
registration of the transfer of Chiu's and Maluto's shares in Ting Ping's favor is a mere formality in confirming the latter's status as a
stockholder of TCL. Upon registration of the transfer in the books of the corporation, the transferee may now then exercise all the rights of a
stockholder, which include the right to have stocks transferred to his name.

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.

In the case at bench, Ting Ping manifested from the start his intention to surrender the subject certificates of stock to facilitate the
registration of the transfer and for the issuance of new certificates in his name. It would be sacrificing substantial justice if the Court were to
grant the petition simply because Ting Ping is yet to surrender the subject certificates for cancellation instead of ordering in this case such
surrender and cancellation, and the issuance of new ones in his name.

On the other hand, Teng, and TCL for that matter, have already deterred for so long Ting Ping's enjoyment of his rights as a stockholder.
Respondent Ting Ping Lay is hereby ordered to surrender the certificates of stock covering the shares respectively transferred by Ismaelita
Maluto and Peter Chiu. Petitioner Anna Teng or the incumbent corporate secretary of TCL Sales Corporation, on the other hand, is hereby
ordered, under pain of contempt, to immediately cancel Ismaelita Maluto's and Peter Chiu's certificates of stock and to issue new ones in the
name of Ting Ping Lay, which shall include Ismaelita Maluto's shares not covered by any existing certificate of stock but otherwise validly
transferred to Ting Ping Lay. Costs against petitioner Anna Teng.

8. JOSE A. BERNAS, CECILE H. CHENG, VICTOR AFRICA, JESUS B. MARAMARA, JOSE T. FRONDOSO, IGNACIO T. MACROHON, JR., and PAULINO
T. LIM, acting in their capacity as individual Directors of MAKATI SPORTS CLUB, INC., and on behalf of the Board of Directors of MAKATI
SPORTS CLUB, petitioners, vs. JOVENCIO F. CINCO, VICENTE R. AYLLON, RICARDO G. LIBREA, SAMUEL L. ESGUERRA, ROLANDO P. DELA
CUESTA, RUBEN L. TORRES, ALEX Y. PARDO, MA. CRISTINA SIM, ROGER T. AGUILING, JOSE B. QUIMSON, CELESTINO L. ANG, ELISEO V.
VILLAMOR, FELIPE L. GOZON, CLAUDIO B.
G.R. Nos. 163368-69. July 1, 2015.*

DOCTRINE:: Textually, only the President and the Board of Directors are authorized by the bylaws to call a special meeting. In cases where the
person authorized to call a meeting refuses, fails or neglects to call a meeting, then the stockholders representing at least 100 shares, upon
written request, may file a petition to call a special stockholder’s meeting.

FACTS: the MSC Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas Group, who were
then incumbent officers of the corporation, to resign from their respective positions to pave the way for the election of new set of officers.
The stockholders of the corporation representing at least 100 shares who sought the assistance of the MSCOC to call for a special
stockholders meeting. Pursuant to such request, the MSCOC called a Special Stockholders’ Meeting and sent out notices6 to all stockholders
and members stating therein the time, place and purpose of the meeting. the meeting proceeded wherein Jose A. Bernas, Cecile H. Cheng,
Victor Africa, and others were removed. Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities
Investigation and Clearing Department (SICD) seeking for the nullification of the 17 December 1997 Special Stockholders Meeting on the
ground that it was improperly called
Reason: he authority to call a meeting lies with the Corporate Secretary and not with the MSCOC which functions merely as an oversight body
and is not vested with the power to call corporate meetings

For their part, the Cinco Group insisted that the 17 December 1997 Special Stockholders’ Meeting is sanctioned by the Corporation Code and
the MSC bylaws
Reason: Section 25 of the MSC bylaws merely authorized the Corporate Secretary to issue notices of meetings and nowhere does it state that
such authority solely belongs to him

Meanwhile, the newly elected directors initiated an investigation on the alleged anomalies in administering the corporate affairs and after
finding Bernas guilty of irregularities, the Board resolved to expel him from the club. Prior to the resolution of SEC Case No. 5840, an Annual
Stockholders’ Meeting was held on 20 April 1998 pursuant to Section 8 of the MSC bylaws. which was attended by 1,017 stockholders
representing 2/3 of the outstanding shares, the majority resolved to approve, confirm and ratify, among others, the calling and holding of 17
December 1997 Special Stockholders’ Meeting. The conduct of the 17 December 1997 Special Stockholders’ Meeting was likewise ratified by
the stockholders during the 2000 Annual Stockholders’ Meeting which was held on 17 April 2000

SICD: Held among others among others, that the 17 December 1997 Special Stockholders’ Meeting and the Annual Stockholders’ Meeting
conducted on 20 April 1998 and 19 April 1999 are invalid. The SICD likewise nullified the expulsion of Bernas from the corporation and the
sale of his share at the public auction

SEC en banc: reversed the findings of the SICD and validated the holding of the 17 December 1997 Special Stockholders’ Meeting as well as
the Annual Stockholders’ Meeting held on 20 April 1998 and 19 April 1999

CA: rendered a Decision declaring the 17 December 1997 Special Stockholders’ Meeting invalid for being improperly called but affirmed the
actions taken during the Annual Stockholders’ Meeting held on 20 April 1998, 19 April 1999 and 17 April 2000.

ISSUE:
a.) Whether or not the 1997 special stockholders meeting was valid
b.) Whether the removal of the petitioners were valid

HELD:
a.) No, The Corporation Code laid down the rules on the removal of the Directors of the corporation by providing, inter alia, the persons
authorized to call the meeting and the number of votes required for the purpose of removal
SEC 28- x x x x x x x
A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of
them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least
a majority of the outstanding capital stock

Textually, only the President and the Board of Directors are authorized by the bylaws to call a special meeting. In cases where the person
authorized to call a meeting refuses, fails or neglects to call a meeting, then the stockholders representing at least 100 shares, upon written
request, may file a petition to call a special stockholder’s 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 bylaws 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 bylaws on the President or the Board of Directors
b.) No, such Special Stockholders’ Meeting called by the Oversight Committee cannot have any legal effect. The removal of the Bernas Group,
as well as the election of the Cinco Group, effected by the assembly in that improperly called meeting is void, and since the Cinco Group has
no legal right to sit in the board, their subsequent acts of expelling Bernas from the club and the selling of his shares at the public auction, are
likewise invalid.

9. PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION vs. LIM

G.R. No. 172948, October 5, 2016

FACTS: Philippine Associated Smelting and Refining Corporation (PASAR) is a corporation duly organized and existing under the laws of the
Philippines and is engaged in copper smelting and refining. Pablito Lim, Manuel Agcaoili and Consuelo Padilla were former senior officers and
presently shareholders of PASAR holding 500 shares each.

An amended Petition for Injunction and Damages with prayer for Preliminary Injunction and/or TRO was filed by PASAR seeking to restrain
Lim, Agcaoili and Padilla from demanding inspection of its confidential and inexistent records. RTC issued an Order granting PASAR’s prayer
for a writ of preliminary injunction. RTC held that the right to inspect book should not be denied to the stockholders, however, the same may
be restricted. The right to inspect should be limited to the ordinary records as identified and classified by PASAR. Thus, pending the
determination of which records are confidential or inexistent, the petitioners should be enjoined from inspecting the books.
Lim, Agcaoili and Padilla filed a Motion for Dissolution of the Writ of Preliminary Injunction on the ground that the petition is insufficient.
They also claim that the enforcement of the right to inspect book should be on the stockholders and not on PASAR. RTC denied the Motion to
Dismiss on the ground that it is a prohibited pleading.
Lim, Agcaoili and Padilla filed before the CA a Petition for Certiorari questioning the propriety of the writ of preliminary injunction. CA held
that there was no basis to issue and injunctive writ and the proper remedy available for the enforcement of the right of inspection in writ of
mandamus to be filed by the stockholders and not a petition for injunction filed by the corporation.

ISSUE: Whether or not injunction properly lies to prevent respondents from invoking their right to inspect?

HELD: No.
For an action for injunction to prosper, the applicant must show the existence of a right, as well as the actual or threatened violation of his
right. Sec 3 Rule 58 of the Rules of Court provides:
Sec 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is established:
a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or
continuance of the act or acts complained of, or in requiring the performance of an act or acts either for a limited period or perpetually;
b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice
to the applicant; or
c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done some act or acts
probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual.
A writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected during the pendency of the
principal action. The twin requirements of a valid injunction are the existence of a right and its actual or threatened violation. Thus, to be
entitled to an injunctive writ, the right to be protected and the violation against that right must be shown. In the absence of a clear legal
right, the issuance of the injunctive writ constitutes grave abuse of discretion.
Corporations may raise their objections to the right of inspection through affirmative defense in an ordinary civil action for specific
performance or damages, or through a comment in a petition for mandamus. The corporation still carries the burden of proving a) that the
stockholder has improperly used information before; b) lack of good faith; or c) lack of legitimate purpose.
Good faith and a legitimate purpose are presumed. It is the duty of the corporation to allege and prove with sufficient evidence the facts that
give rise to a claim of bad faith as to the existence of an illegitimate purpose. Courts must be convinced that the scope or manner of the
request and the conditions under which it was made are so frivolous that the huge cost to the business will, in equity, be unfair to the other
stockholders. There is no iota of evidence that this happened here.

10. AGDAO RESIDENTS INC., THE DIRECTORS LANDLESS LANDLESS ASSOCIATION vs. MARAMION, G.R. Nos. 188642 & 189425,
October 17, 2016

DOCTRINE: 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. A derivative suit, on the other hand, is one which is instituted by a shareholder or a member of a
corporation, for and in behalf of the corporation for its protection from acts committed by directors, trustees, corporate officers, and
even third persons. The whole purpose of the law authorizing a derivative suit is to allow the stockholders/members to enforce rights
which are derivative (secondary) in nature.

FACTS: Dakudao & Sons, Inc. (Dakudao) executed six Deeds of Donation in favor of ALRAI covering 46 titled lots (donated lots). One Deed
of Donation prohibits ALRAI, as donee, from partitioning or distributing individual certificates of title of the donated lots to its members,
within a period of five years from execution, unless a written authority is secured from Dakudao. A violation of the prohibition will render
the donation void, and title to and possession of the donated lot will revert to Dakudao. The other five Deeds of Donation do not provide
for the five-year restriction.

In the board of directors and stockholders meetings, members of ALRAI resolved to directly transfer 10 of the donated lots to individual
members and non members of ALRAI. TCTs were transferred to Romeo Dela Cruz, petitioner Javonillo, the president of ALRAI,
Armentano, the secretary of ALRAI, and Alcantara, the widow of the fanner legal counsel of ALRAI. The donated lot was sold to Lily Loy
(Loy).

Respondents filed a Complaint against petitioners; that they expelled them as members of ALRAI, and that petitioners are abusing their
powers as officers. Respondents further alleged that petitioners were engaged in the following anomalous and illegal acts, some of which
are partially distributing the lands donated by Dakudao to some officers of ALRAI and to some non-members in violation of the Deeds of
Donation; and illegally expelling them as members of ALRAI without due process.

In their Answer, petitioners alleged that ALRAI transferred lots to Alcantara as attorney's fees ALRAI owed to her late husband. On the
other hand, Javonillo and Armentano, as president and secretary of ALRAI, respectively, made a lot of sacrifices for ALRAI, while Dela Cruz
provided financial assistance to ALRAI. Petitioners also alleged that respondents who are non-members of ALRAI have no personality to
sue. They also claimed that the members who were removed were legally ousted due to their absences in meetings. The RTC ruled in
favour of the complainants. CA affirmed.

ISSUES:

1. Whether respondents should be reinstated as members of ALRAI?

2. Whether or not the respondents were correct in fling individual suits?

3. Whether the transfers of the donated lots are valid?

HELD:

I. Legality of respondents' termination

Petitioners argue that respondents were validly dismissed for violation of the ALRAI Constitution particularly for non-payment of
membership dues and absences in the meetings. Petitioners' argument is without merit. We agree with the CA's finding that respondents
were illegally dismissed from ALRAI.
Section 91 of the Corporation Code of the Philippines (Corporation Code) provides that membership in a non-stock, non-profit
corporation (as in petitioner ALRAI in this case) shall be terminated in the manner and for the cases provided in its articles of
incorporation or the by-laws.

In tum, Section 5, Article II of the ALRAI Constitution states:

Sec. 5. - Termination of Membership - Membership may be lost in any of the following: a) Delinquent in the payment of monthly dues; b)
failure to [attend] any annual or special meeting of the association for three consecutive times without justifiable cause…

Petitioners allege that the membership of respondents in ALRAI was terminated due to (a) non-payment of membership dues and (b)
failure to consecutively attend meetings. However, petitioners failed to substantiate these allegations. In fact, the court a quo found that
respondents submitted several receipts showing their compliance with the payment of monthly dues.63 Petitioners likewise failed to
prove that respondents' absences from meetings were without any justifiable grounds to result in the loss of their membership in ALRAI.
Even assuming that petitioners were able to prove these allegations, the automatic termination of respondents' membership in ALRAI is
still not warranted. As shown above, Section 5 of the ALRAI Constitution does not state that the grounds relied upon by petitioners will
cause the automatic termination of respondents' membership.

II. Individual Suit vs. Derivative Suit

At the onset, we find that the cause of action and the reliefs sought in the complaint pertaining to the donated lands (ALRAI's corporate
property) strictly call for the filing of a derivative suit, and not an individual suit which respondents filed.

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.

A derivative suit, on the other hand, is one which is instituted by a shareholder or a member of a corporation, for and in behalf of the
corporation for its protection from acts committed by directors, trustees, corporate officers, and even third persons.79 The whole
purpose of the law authorizing a derivative suit is to allow the stockholders/members to enforce rights which are derivative (secondary)
in nature, i.e., to enforce a corporate cause of action.
In this case, the reliefs sought do 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 Therefore, the occasion for the strict application of the rule that a derivative suit
should be brought in order to protect and vindicate the interest of the corporation does not obtain under the circumstances of this case.

Even though the action should have been brought up through a derivative suit, the individual suits are treated as individual suits based on
the following:

a. The RTC, where the case was originally filed, has jurisdiction over the controversy;

b. Petitioners did not object to the institution of the case (on the ground that a derivative suit should have been lodged instead of an
individual suit) in any of the proceedings before the court
a quo or before the CA.

c. a reading of the complaint shows that respondents do not pray for reliefs for their personal benefit; but in fact, for the benefit of
the corporation.

III. On the validity of the donated lots

Javonillo, as a director, signed the Board Resolutions confirming the transfer of the corporate properties to himself, and to
Armentano. Petitioners cannot argue that the transfer of the corporate properties to them is valid by virtue of the Resolution by the
general membership of Agdao confirming the transfer for tJ-iree reasons.

“Sec. 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the option of such corporation, unless all of the following conditions are present:

1. That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to
constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;

3. That the contract is fair and reasonable under the circumstances; and

4. That in case of an officer, the contract has been previously authorized by the board of directors.”
 Section 32 requires that the contract should be ratified by a vote representing at least two-thirds of the members in a meeting called
for the purpose. Records of this case do not show whether the Resolution was indeed voted by the required percentage of
membership. There is also no showing that there was full disclosure of the adverse interest of the directors involved when the
Resolution was approved. Full disclosure is required under the aforecited Section 32 of the Corporation Code. Section 32 requires that
the contract be fair and reasonable under the circumstances. As previously discussed, the transfer of the corporate properties to the
individual petitioners is not fair and reasonable for ( 1) want of legitimate corporate purpose, and for (2) the breach of the fiduciary
nature of the positions held by Javonillo and Armentano. Lacking any of these (full disclosure and a showing that the contract is fair
and reasonable), ratification by the two-thirds vote would be of no avail.

11. Aguirre II vs. FQB+7, Inc., 688 SCRA 242, G.R. No. 170770 January 9, 2013

Facts: This case is about FQB+7, Inc. of w/c Vitaliano Aguirre was originally a subscriber as reflected in the Articles of Inc. To VA’s knowledge,
there has been no other changes to their subscriber membership other than the deaths of 2 subscribers. VA later discovered that a General
Information Sheet was submitted to the SEC where he was no longer listed as a subscriber and changed the date of the annual meeting. And
so he filed a case w/ the SEC for damages and right to inspect the corporate records w/c was assigned to the RTC of Manila. The RTC ruled in
VA’s favor due to the respondent’s lack of participation and so a writ of preliminary injunction was granted stopping the corporation from
proceeding w/ the corporation’s business. FQB+7 answered that the case should be dismissed since the SEC had already revoked their
Certificate of Registration due to failure to comply w/ reportorial requirements. They claim that the case is no longer an intracorporate
dispute since there was no longer a corporation thus no w/in the jurisdiction of the RTC as a commercial court.

Issue: WON the dissolution of a corporation changes the relationship of the parties in this case as corporate characters.

Held: No. The dissolution of the corporation simply prohibits it from continuing its business. However, despite such dissolution, the parties
involved in the litigation are still corporate actors. The dissolution does not automatically convert the parties into total strangers or change
their intra-corporate relationships. Neither does it change or terminate existing causes of action, which arose because of the corporate ties
between the parties. Thus, a cause of action involving an intra-corporate controversy remains and must be filed as an intra-corporate dispute
despite the subsequent dissolution of the corporation.
It bears reiterating that Section 145 of the Corporation Code protects, among others, the rights and remedies of corporate actors against
other corporate actors. The statutory provision assures an aggrieved party that the corporation’s dissolution will not impair, much less
remove, his/her rights or remedies against the corporation, its stockholders, directors or officers. It also states that corporate dissolution will
not extinguish any liability already incurred by the corporation, its stockholders, directors, or officers. In short, Section 145 preserves a
corporate actor’s cause of action and remedy against another corporate actor. In so doing, Section 145 also preserves the nature of the
controversy between the parties as an intra-corporate dispute.
12. Mary Lim vs. Moldex Land, Inc.

FACTS: On July 21, 2012 Condocor (Condominium Corporation) a non-stock, non-profit corporation, which is the registered condominium
corporation for the Golden Empire Tower held its annual general membership meeting. Moldex became a member of Condocor on the basis
of its ownership of the 220 unsold units in the Golden Empire Tower.
During the meeting, an existence of a quorum was declared even though only 29 of the 108 unit buyers were present. The declaration was
based on the presence of the majority of the voting rights, including those pertaining to the 220 unsold units held by Moldex through its
representatives. Lim, through her attorney-in-fact, objected to the validity of the meeting. The objection was denied. Thus, Lim and all the
other unit owners present, except for one, walked out and left the meeting.
Despite the walkout, the individual respondents and the other unit owner proceeded with the meeting and elected the new members of the
Board of Directors for 2012-2013. All four (4) individual respondents (JAMINOLA, MACALINTAL, MILANES, and ROMAN) were voted as
members of the board, together with other 3 members.
Consequently, Lim filed an election protest before the RTC. Lim claimed that herein respondents are not entitled to be members of the Board
of Directors because they are non-unit buyers. However, said court ruled in favor for the respondents. Not in conformity, Lim filed the
present petition.

ISSUES:
1) Whether or not the July 21, 2012 membership meeting was valid.
2) Whether or not Moldex can be deemed a member of Condocor.
3) Whether or not representatives of Moldex who are non-members can be elected as a member of the Board of Directors of Condocor.

HELD:
I
No. The July 21, 2012 membership meeting was not valid.
A stockholders' or members' meeting must comply with the following requisites to be
valid:

1. The meeting must be held on the date fixed in the ByLaws or in accordance with law;
2. Prior written notice of such meeting must be sent to all stockholders/members of record;
3. It must be called by the proper party;
4. It must be held at the proper place; and
5. Quorum and voting requirements must be met.
Of these five ( 5) requirements, the existence of a quorum is crucial. Any act or transaction made during a meeting without quorum is
rendered of no force and effect, thus, not binding on the corporation or parties concerned. In relation thereto, Section 52 of the Corporation
Code of the Philippines (Corporation Code) provides:
Section 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations.
Thus, for stock corporations, the quorum is based on the number of outstanding voting stocks while for non-stock corporations, only those
who are actual, living members with voting rights shall be counted in determining the existence of a quorum.
The By-Laws of Condocor has no rule different from that provided in the Corporation Code with respect the determination of the existence of
a quorum. The quorum during the July 21, 2012 meeting should have been majority of Condocor's members in good standing. Accordingly,
there was no quorum during the July 21, 2012 meeting considering that only 29 of the 108 unit buyers were present. As there was no
quorum, any resolution passed during the July 21,2012 annual membership meeting was null and void and, therefore, notbinding upon the
corporation or its members. The meeting being null andvoid, the resolution and disposition of other legal issues emanating from the null and
void July 21, 2012 membership meeting has been rendered unnecessary.
II
Yes. Moldex can be deemed a member of Condocor.
Lim asserted that only unit buyers are entitled to become members of Condocor. Respondents, for their part, countered that a registered
owner of a unit in a condominium project or the holders of duly issued condominium certificate of title (CCT), automatically becomes a
member of the condominium corporation, relying on Sections 2 and 10 of the Condominium Act, the Master Deed and Declaration of
Restrictions, as well as the By-Laws of Condocor. For said reason, respondents averred that as Moldex is the owner of 220 unsold units and
the parking slots and storage areas attached thereto, it automatically became a member of Condocor upon the latter's creation.
On this point, respondents are correct. Section 2 of the Condominium Act states:
Sec. 2. A condominium is an interest in real property consisting of separate interest in a unit in a residential, industrial or commercial building
and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. A
condominium may include, in addition, a separate interest in other portions of such real property. Title to the common areas, including the
land, or the appurtenant interests in such areas, may be held by a corporation specially formed for the purpose (hereinafter known as the
"condominium corporation") in which the holders of separate interest shall automatically be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest of their respective units in the common areas
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.
III
No. Representatives of Moldex who are non-members cannot be elected as a member of the Board of Directors of Condocor.
A corporation can act only through natural persons duly authorized for the purpose or by a specific act of its board of directors.45 Thus, in
order for
Moldex to exercise its membership rights and privileges, it necessarily has to appoint its representatives. However, individual respondents
who are non-members cannot be elected as directors and officers of the Condocor.
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 proxyndominium
corporation.

13. AIR CANADA vs.COMMISSIONER OF INTERNAL REVENUE G.R. No. 169507

FACTS: Air Canada, a foreign corporation organized and existing under the laws of Canada, was granted authority to operate as an offline
carrier by the Civil Aeronautics Board upto April 24, 2005, subject to certain conditions. As such, it did not have flights originating from or
coming to the Philippines and did not operate any airplanes in the Philippines.

In 1999, Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as its general sales agent in the Philippines.

During the 3rd quarter of 2000 upto the 2nd quarter of 2002, Air Canada thru Aerotel filed quarterly and annual income tax returns and paid
the income tax on Gross Philippine Billings, amounting to P5,185,676.77.

In 2002, Air Canada filed a claim for refund of alleged erroneously paid income taxes, and Petition for Review before the CTA, on the basis of
the revised definition of “Gross Philippine Billings” under Section 28(A)(3)(a) of the 1997 National Internal Revenue Code:

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. -
....
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two and onehalf percent (2
1/2%) on its ‘Gross Philippine Billings’ as defined hereunder:
(a) International Air Carrier. - ‘Gross Philippine Billings’ refers to the amount of gross revenue derived from carriage of persons,
excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of
sale or issue and the place of payment of the ticket or passage document: Provided, That tickets revalidated, exchanged and/or
indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in
the Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of passenger takes place
at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown
from the Philippines to the point of transshipment shall form part of Gross Philippine Billings. (Emphasis supplied)
The CTA found that Air Canada was engaged in business in the Philippines through a local agent that sells airline tickets on its behalf. As such,
it should be taxed as a resident foreign corporation at the regular rate of 32%. Further, according to the Court of Tax Appeals First Division,
Air Canada was deemed to have established a "permanent establishment” in the Philippines under Article V(2)(i) of the Republic of the
Philippines-Canada Tax Treaty by the appointment of the local sales agent, "in which [the] petitioner uses its premises as an outlet where
sales of [airline] tickets are made[.]"

Air Canada filed a Motion for Reconsideration, but the Motion was denied for lack of merit. The First Division held that while Air Canada was
not liable for tax on its Gross Philippine Billings under Section 28(A)(3), it was nevertheless liable to pay the 32% corporate income tax on
income derived from the sale of airline tickets within the Philippines pursuant to Section 28(A)(1).

Air Canada appealed to the CTA En Banc, which affirmed the findings of the First Division.

ISSUE: Whether petitioner Air Canada, as an offline international carrier selling passage documents through a general sales agent in the
Philippines, is a resident foreign corporation within the meaning of Section 28(A)(1) of the 1997 National Internal Revenue Code

RULING: Yes

Petitioner, an offline carrier, is a resident foreign corporation for income tax purposes. Petitioner falls within the definition of resident
foreign corporation under Section 28(A)(1) of the 1997 National Internal Revenue Code, thus, it may be subject to 32% 53 tax on its taxable
income:
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
(1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be subject to an income tax equivalent to thirty-five percent (35%) of the
taxable income derived in the preceding taxable year from all sources within the Philippines: Provided, That effective January 1, 1998, the
rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and effective
January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%54). (Emphasis supplied)
The definition of "resident foreign corporation" has not substantially changed throughout the amendments of the National Internal Revenue
Code. All versions refer to "a foreign corporation engaged in trade or business within the Philippines."

Commonwealth Act No. 466, known as the National Internal Revenue Code and approved on June 15, 1939, defined "resident foreign
corporation" as applying to "a foreign corporation engaged in trade or business within the Philippines or having an office or place of business
therein."
Section 24(b)(2) of the National Internal Revenue Code, as amended by Republic Act No. 6110, approved on August 4, 1969, reads:
Sec. 24. Rates of tax on corporations. — . . .
(b) Tax on foreign corporations. — . . .
(2) Resident corporations. — A corporation organized, authorized, or existing under the laws of any foreign country, except a foreign life
insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the
total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied)

Presidential Decree No. 1158-A took effect on June 3, 1977 amending certain sections of the 1939 National Internal Revenue Code. Section
24(b)(2) on foreign resident corporations was amended, but it still provides that "[a] corporation organized, authorized, or existing under the
laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section
upon the total net income received in the preceding taxable year from all sources within the Philippines[.]"

There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light
of its peculiar environmental circumstances. The term implies acontinuity of commercial dealings and arrangements, and contemplates, 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 for the purpose and object of the business organization. "In order that a foreign corporation may be regarded as doing
business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a
local agent, and not one of a temporary character.

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)

Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the Philippines.

Aerotel performs acts or works or exercises functions that are incidental and beneficial to the purpose of petitioner’s business. The activities
of Aerotel bring direct receipts or profits to petitioner. There is nothing on record to show that Aerotel solicited orders alone and for its own
account and without interference from, let alone direction of, petitioner. On the contrary, Aerotel cannot "enter into any contract on behalf
of [petitioner Air Canada] without the express written consent of [the latter,]" and it must perform its functions according to the standards
required by petitioner. Through Aerotel, petitioner is able to engage in an economic activity in the Philippines.

Further, petitioner was issued by the Civil Aeronautics Board an authority to operate as an offline carrier in the Philippines for a period of five
years, or from April 24, 2000 until April 24, 2005.

Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived from sources within the Philippines. Petitioner’s
income from sale of airline tickets, through Aerotel, is income realized from the pursuit of its business activities in the Philippines.

14. G.R. No. 171995 April 18, 2012

STEELCASE, INC., Petitioner,
vs.
DESIGN INTERNATIONAL SELECTIONS, INC., Respondent.

Facts:
Steelcase, a foreign corporation existing under the laws of Michigan, orally entered into a dealership agreement with Design International
Selections, Inc. (DISI), registered under Philippine Laws, whereby Steelcase granted DISI the right to market, sell, distribute, install, and
service its products to end-user customers within the Philippines. The business relationship continued smoothly until it was terminated
sometime in January 1999 after the agreement was breached with neither party admitting any fault

On January 18, 1999, Steelcase filed a complaint6 for sum of money against DISI alleging, among others, that DISI had an unpaid account of
US$600,000.00. Steelcase prayed that DISI be ordered to pay actual or compensatory damages, exemplary damages, attorney’s fees, and
costs of suit.

DISI argues that (Steelcase) was doing business in the Philippines without the required license to do so and that the complaint should be
dismissed because of Steelcase’s lack of legal capacity to sue in Philippine courts.

RTC and CA ruled in favor of DISI. The CA stated that the following acts of Steelcase showed its intention to pursue and continue the conduct
of its business in the Philippines: (1) sending a letter to Phinma, informing the latter that the distribution rights for its products would be
established in the near future and directing other questions about orders for Steelcase products to Steelcase International; (2) cancelling
orders from DISI’s customers, particularly Visteon, Phils., Inc. (Visteon); (3) continuing to send its products to the Philippines through
Modernform Group Company Limited (Modernform), as evidenced by an Ocean Bill of Lading; and (4) going beyond the mere appointment of
DISI as a dealer by making several impositions on management and operations of DISI. Thus, the CA ruled that Steelcase was barred from
access to our courts for being a foreign corporation doing business here without the requisite license to do so.

The Issues
(1) Whether or not Steelcase is doing business in the Philippines without a license; and
(2) Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.

The Court’s Ruling

Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines. The appointment of a distributor in the Philippines is
not sufficient to constitute "doing business" unless it is under the full control of the foreign corporation. DISI is independently owned and
distributes products other than those of Steelcase.

The CA apparently misinterpreted the acts of Steelcase. Instead of supporting the claim that Steelcase was doing business in the country, the
said acts prove otherwise. (1) and (2) Its decision to voluntarily cease to sell its products in the absence of a local distributor indicates its
refusal to engage in activities which might be construed as "doing business." (3) Despite the admission by Steelcase that it owns 25% of
Modernform, with the remaining 75% being owned and controlled by Thai stockholders, 20 it is grossly insufficient to justify piercing the veil of
corporate fiction and declare that Modernform acted as the alter ego of Steelcase to enable it to improperly conduct business in the
Philippines. (4) The imposition of minimum standards concerning sales, marketing, finance and operations is nothing more than an exercise
of sound business practice to increase sales and maximize profits for the benefit of both Steelcase and its distributors. For as long as these
requirements do not impinge on a distributor’s independence, then there is nothing wrong with placing reasonable expectations on them.

All things considered, it has been sufficiently demonstrated that DISI was an independent contractor which sold Steelcase products in its own
name and for its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a
distributor as it falls under one of the exceptions under R.A. No. 7042.

Even if for argument’s sake, Steelcase had been doing business in the Philippines without a license, DISI would nonetheless be estopped from
challenging the former’s legal capacity to sue. By acknowledging the corporate entity of Steelcase and entering into a dealership agreement
with it and even benefiting from it, DISI is estopped from questioning Steelcase’s existence and capacity to sue

15. VICMAR DEVELOPMENT CORPORATION Petitioners, v. CAMILO ELARCOSA et al.

Doctrine:

Where it appears that business enterprises are owned, conducted and controlled by the same parties, law and equity will disregard the legal
fiction that these corporations are distinct entities and shall treat them as one. This is in order to protect the rights of third persons, as in this
case, to safeguard the rights of respondents.

Facts:

Respondents alleged that Vicmar, a domestic corporation engaged in manufacturing of plywood for export and for local sale, employed them in
various capacities - as boiler tenders, block board receivers, waste feeders, plywood checkers, plywood sander, and plant maintenance. They
averred that Vicmar has two branches, Top Forest Developers, Incorporated (TFDI) and Greenwood International Industries, Incorporated (GUI)
located in the same compound where Vicmar operated.

Respondents claimed that they were illegally dismissed after "vicmar learned that they instituted the subject Complaint through the simple
expedience of not being scheduled for work. Even those persons associated with them were dismissed. They also asserted that Vicmar did not
comply with the twin notice requirement in dismissing employees.

Furthermore, respondents contended that while Vicmar, TFDI and Gin were separately registered with the SEC,30 they were involved in the same
business, located in the same compound, owned by one person, had one resident manager, and one and the same administrative department,
personnel and finance sections. They claimed that the employees of these companies were identified as employees of Vicmar even if they were
assigned in TFDI or GIII.

Executive Labor Arbiters dismissed the complaints in NLRC. Consequently, respondents filed a Notice of Appeal with Motion to Consolidate
Cases. the NLRC affirmed the Decisions.

Respondents filed with the CA a Petition for Certiorari maintaining that they were regular employees of Vicmar and that the latter illegally
dismissed them. They insisted that the labor contractors engaged by Vicmar were "labor-only" contractors, as they have no equipment and
facilities of their own. the CA rendered the assailed Decision granting the Petition for Certiorari

Issue:

W/N CA Vicmar is the employer of respondents

Held:
The Court also gives merit to the finding of the CA that Vicmar is the employer of respondents despite the allegations that a number of them
were assigned to the branches of Vicmar. Petitioners failed to refute the contention that Vicmar and its branches have the same owner and
management - which included one resident manager, one administrative department, one and the same personnel and finance sections.
Notably, all respondents were employed by the same plant manager, who signed their identification cards some of whom were under Vicmar,
and the others under TFDI.

Where it appears that business enterprises are owned, conducted and controlled by the same parties, law and equity will disregard the legal
fiction that these corporations are distinct entities and shall treat them as one. This is in order to protect the rights of third persons, as in this
case, to safeguard the rights of respondents.

16. DUTCH MOVERS, INC., CESAR LEE and YOLANDA LEE, petitioners,
vs.
EDILBERTO LEQUIN, CHRISTOPHER R. SALVADOR, REYNALDO L. SINGSING, and RAFFY B. MASCARDO, respondents.

Doctrine:

In considering the foregoing events, the Court is not unmindful of the basic tenet that a corporation has a separate and distinct
personality from its stockholders, and from other corporations it may be connected with. However, such personality may be
disregarded, or the veil of corporate fiction may be pierced attaching personal liability against responsible person if the
corporation's personality "is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws

FACTS:

This case is an offshoot of the illegal dismissal Complaint filed by Edilberto Lequin (Lequin), Christopher Salvador, Reynaldo Singsing,
and Raffy Mascardo (respondents) against Dutch Movers, Inc. (DMI), and/or spouses Cesar Lee and Yolanda Lee (petitioners), its
alleged President/Owner, and Manager respectively.
DMI, a domestic corporation engaged in hauling liquefied petroleum gas, employed Lequin as truck driver, and the rest of
respondents as helpers; on December 28, 2004, Cesar Lee, through the Supervisor Nazario Furio, informed them that DMI would
cease its hauling operation for no reason; as such, they requested DMI to issue a formal notice regarding the matter but to no avail.
Later, upon respondents' request, the DOLE NCR issued a certification revealing that DMI did not file any notice of business closure.
Thus, respondents argued that they were illegally dismissed as their termination was without cause and only on the pretext of
closure.
On October 28, 2005, LA Aliman D. Mangandog dismissed the case for lack of cause of action.

On November 23, 2007, the NLRC reversed and set aside the LA Decision. It ruled that respondents were illegally dismissed because
DMI simply placed them on standby, and no longer provide them with work.
The NLRC Decision became final and executory on December 30, 2007. And, on February 14, 2008, the NLRC issued an Entry of
Judgment on the case.
Consequently, respondents filed a Motion for Writ of Execution.

Pending resolution of these motions, respondents filed a Manifestation and Motion to Implead stating that upon investigation, they
discovered that DMI no longer operates. They, nonetheless, insisted that petitioners — who managed and operated DMI, and
consistently represented to respondents that they were the owners of DMI — continue to work at Toyota Alabang, which they
(petitioners) also own and operate. They further averred that the Articles of Incorporation (AOI) of DMI ironically did not include
petitioners as its directors or officers; and those named directors and officers were persons unknown to them. They likewise claimed
that per inquiry with the SEC and the DOLE, they learned that DMI did not file any notice of business closure; and the creation and
operation of DMI was attended with fraud making it convenient for petitioners to evade their legal obligations to them.
Given these developments, respondents prayed that petitioners, and the officers named in DMI's AOI, which included Edgar N. Smith
and Millicent C. Smith (spouses Smith), be impleaded, and be held solidarily liable with DMI in paying the judgment awards.

In their Opposition to Motion to Implead, spouses Smith alleged that as part of their services as lawyers, they lent their names to
petitioners to assist them in incorporating DMI. Allegedly, after such undertaking, spouses Smith promptly transferred their
supposed rights in DMI in favor of petitioners.

ISSUE:

Whether or not Sps LEE may be impleaded and be held solidarily liable with DMI in paying the judgment awards.

RULING:

The Court denies the Petition.

In considering the foregoing events, the Court is not unmindful of the basic tenet that a corporation has a separate and distinct
personality from its stockholders, and from other corporations it may be connected with. However, such personality may be
disregarded, or the veil of corporate fiction may be pierced attaching personal liability against responsible person if the
corporation's personality "is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws
Here, the veil of corporate fiction must be pierced and accordingly, petitioners should be held personally liable for judgment awards
because the peculiarity of the situation shows that they controlled DMI; they actively participated in its operation such that DMI
existed not as a separate entity but only as business conduit of petitioners. As will be shown below, petitioners controlled DMI by
making it appear to have no mind of its own, and used DMI as shield in evading legal liabilities, including payment of the judgment
awards in favor of respondents.
I
First, petitioners and DMI jointly filed their Position Paper, Reply, and Rejoinder in contesting respondents' illegal dismissal.
Perplexingly, petitioners argued that they were not part of DMI and were not privy to its dealings; yet, petitioners, along with DMI,
collectively raised arguments on the illegal dismissal case against them.
If only to prove that they were not part of DMI, petitioners could have revealed who operated it, and from whom they derived the
information embodied in their pleadings. Such failure to reveal thus gives the Court reasons to give credence to respondents' firm
stand that petitioners are no strangers to DMI, and that they were the ones who managed and operated it.
Second, the declarations made by spouses Smith further bolster that petitioners and no other controlled DMI.
Spouses Smith categorically identified petitioners as the owners and managers of DMI. In their Motion to Quash, however,
petitioners neither denied the allegation of spouses Smith nor adduced evidence to establish that they were not the owners and
managers of DMI. They simply insisted that they could not be held personally liable because of the immutability of the final and
executory NLRC Decision, and of the separate and distinct personality of DMI.

Clearly, petitioners should be held liable for the judgment awards as they resorted to such scheme to countermand labor laws by
causing the incorporation of DMI but without any indication that they were part thereof. While such device to defeat labor laws may
be deemed ingenious and imaginative, the Court will not hesitate to draw the line, and protect the right of workers to security of
tenure, including ensuring that they will receive the benefits they deserve when they fall victims of illegal dismissal.

17. Federated LPG Dealers Association vs. Ma. Cristina l. del Rosario, et al.

Doctrine - Mere membership in the Board of Directors in a corporation cannot hold such director liable for the corporation’s probable
violation of BP 33. If one is not the President, General Manager or Managing Partner, it is imperative that it first be shown that he/she falls
under the catch-all “such other officer charged with the management of the business affairs” before he/she can be prosecuted.

Facts: On June 1, 2006, petitioner, through counsel Atty. Genesis M. Adarlo (Atty. Adarlo) of Joaquin Adarlo and Caoile, sought assistance
from the Criminal Investigation and Detection Group, Anti-Fraud and Commercial Crimes Division (CIDG-AFCCD) of the Philippine National
Police in the surveillance, investigation, apprehension, and prosecution of certain persons and establishments within Metro Manila
reportedly committing acts violative of Batas Pambansa Blg. 33 (BP 33), as amended by Presidential Decree No. 1865 (PD 1865), to wit:
(1) refilling of Liquefied Petroleum Gas (LPG) cylinders branded as Shellane, Petron Gasul, Caltex, Totalgaz and Superkalan Gaz without any
written authorization from the companies which own the said brands in violation of Section 2 (a), in relation to Sections 3 7 and 4;
(2) underfilling of LPG products or possession of underfilled LPG cylinders for the purpose of sale, distribution, transportation, exchange or
barter in violation of Section 2 (c), in relation to Sections 3 and 4; and,
(3) refilling LPG cylinders without giving any receipt therefor, or giving out receipts without indicating the brand name, tare weight, gross
weight and/or price thereof, among others, again in violation of Section 2 (a) in relation to Sections 3 (b) 11 and 4.

Among the suspected violators of the said law is ACCS Ideal Gas Corporation. CIDG led by P/Supt. Esguerra has conducted surveillance and
test-buy operations against said company which found them illegally refilling LPG cylinders belonging to Shellane, Petron Gasul, Totalgaz, and
Superkalan Gaz. It was also found that the illegally refilled cylinders were likewise underfilled.

CIDG then filed with the Regional Trial Court (RTC) of Manila applications for search warrant against the officers of ACCS, to wit; Antonio G.
Del Rosario (Antonio) and, respondents Ma. Cristina L. Del Rosario, Celso E. Escobido II, and Shiela M. Escobido. Such warrant was granted
and upon implementation, several items such as LPG cylinders were seized. Thereafter, CIDG filed with the Department of Justice (DOJ)
Complaints-Affidavits against Antonio and respondents for illegal trading of petroleum products and for underfilling of LPG cylinders under
Section 2 (a) and 2 (c), respectively, of BP 33, as amended.

Respondents for their part averred in the DOJ that ACCS is not involved in such illegal activities filed against the corporation. Antonio serves
as the general manager, while the other respondents are mere incorporators and does not involve themselves in the day to day operations of
the corporation.
The DOJ ruled that only Antonio who shall be criminally charged as law specifies the persons to be charged in case where violations of B.P.
Blg. 33 are committed by a corporation, to wit, the president, general manager, officer charged with the management of the business affairs
thereof, or employee responsible therefor. P/Supt. Esguerra appealed such ruling before the Secretary of Justice which only affirmed the
decision of their state prosecutors. The decision was then appealed before the Court of Appeals which just reaffirmed the decision of the
DOJ.

Issue: Can respondents, as members of the Board of Directors of ACCS, be criminally prosecuted for the latter's alleged violation/s of BP 33 as
amended?

Ruling: NO. The CA ratiocinated that by the election or designation of Antonio as General Manager of ACCS, the daily business operations of
the corporation were vested in his hands and had ceased to be the responsibility of respondents as members of the Board of Directors.
Respondents, therefore, were not officers charged with the management of the business affairs who could be held liable pursuant to
paragraph 3, Section 4 of BP 33, as amended, which states that:
When the offender is a corporation, partnership, or other juridical person, the president, the general manager, managing partner, or such
other officer charged with the management of the business affairs thereof, or employee responsible for the violation shall be criminally
liable.
Petitioner, on the other hand, insists that the Board of Directors, by law, is responsible for the general management of the business affairs of
a corporation. Conversely, respondents as members of the Board of Directors of ACCS fall under the classification of officers charged with the
management of business affairs.

As clearly enunciated in Ty v. NBI Supervising Agent De Jemil.: a member of the Board of Directors of a corporation, cannot, by mere reason
of such membership, be held liable for the corporation's probable violation of BP 33. If one is not the President, General Manager or
Managing Partner, it is imperative that it first be shown that he/she falls under the catch-all "such other officer charged with the
management of the business affairs," before he/she can be prosecuted. However, it must be stressed, that the matter of being an officer
charged with the management of the business affairs is a factual issue which must be alleged and supported by evidence. Here, there is no
dispute that neither of the respondents was the President, General Manager, or Managing Partner of ACCS. Hence, it becomes incumbent
upon petitioner to show that respondents were officers charged with the management of the business affairs.

Antonio, who serves as general manager of ACCS shall be the only one charged.

18. California Manufacturing Inc vs. Advanced Technology System Inc

FACTS:
Petitioner CMCI is a domestic corporation engaged in the food and beverage manufacturing business. Respondent ATSI is also a domestic
corporation that fabricates and distributes food processing machinery and equipment, spare parts, and its allied products.
In August 200 I, CMCI leased from ATSI a Prodopak machine which was used to pack products in 20-ml. pouches. The parties agreed to a
monthly rental of ₱98,000 exclusive of tax. Upon receipt of an open purchase order on 6 August 2001, ATSI delivered the machine to
CMCI's plant at Gateway Industrial Park, General Trias, Cavite on 8 August 2001.
In November 2003, ATSI filed a Complaint for Sum of Money against CMCI to collect unpaid rentals for the months of June, July, August,
and September 2003. ATSI alleged that CMCI was consistently paying the rents until June 2003 when the latter defaulted on its obligation
without just cause. ATSI also claimed that CMCI ignored all the billing statements and its demand letter. Hence, in addition to the unpaid
rents A TSI sought payment for the contingent attorney's fee equivalent to 30% of the judgment award.
CMCI moved for the dismissal of the complaint on the ground of extinguishment of obligation through legal compensation. The RTC,
however, ruled that the conflicting claims of the parties required trial on the merits. It therefore dismissed the motion to dismiss and
directed CMCI to file an Answer.
In its Answer, CMCI averred that ATSI was one and the same with Processing Partners and Packaging Corporation (PPPC), which was a toll
packer of CMCI products. To support its allegation, CMCI submitted copies of the Articles of Incorporation and General Information
Sheets (GIS) of the two corporations. CMCI pointed out that ATSI was even a stockholder of PPPC as shown in the latter's GIS.
CMCI argued that the proposal was binding on both PPPC and A TSI because Felicisima was an officer and a majority stockholder of the
two corporations. Moreover, in a letter dated 16 September 2003, she allegedly represented to the new management of CMCI that she
was authorized to request the offsetting of PPPC's obligation with ATSI's receivable from CMCI.
The trial court ruled that legal compensation did not apply because PPPC had a separate legal personality from its individual stockholders,
the Spouses Celones, and ATSI. Moreover, there was no board resolution or any other proof showing that Felicisima's proposal to set-off
the unpaid mobilization fund with CMCI 's rentals to A TSI for the Prodopak Machine had been authorized by the two corporations.
Consequently, the RTC ruled that CMCI's financial obligation to pay the rentals for the Prodopak machine stood and that its claim against
PPPC could be properly ventilated in the proper proceeding upon payment of the required docket fees.

ISSUE:
WON CA erred in affirming the ruling of the RTC that legal compensation between ATSI's claim against CMCI on the one hand, and the
latter's claim against PPPC on the other hand, has not set in.

HELD:
We have reviewed the evidence on record and have found no cogent reason to disturb the findings of the co mis a quo that A TSI is
distinct and separate from PPPC, or from the Spouses Celones.
Any piercing of the corporate veil must be done with caution. As the CA had correctly observed, it must be ce11ain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. Moreover, the
wrongdoing must be clearly and convincingly established. Sarona v. NLRC instructs, thus:
Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.
However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil
when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair
objectives.
 The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify
a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
CMCI has not presented any credible proof, or even just an exact computation, of the supposed debt of PPPC. It claims that the
mobilization fund that it had advanced to PPPC was in the amount of ₱4 million. Yet, Felicisima's proposal to conduct offsetting in her
letter dated 30 July 2001 pertained to a ₱3.2 million debt of PPPC to CMCI. Meanwhile, in its Answer to ATSI's complaint, CMCI sought to
set off its unpaid rentals against the alleged ₱10 million debt of PPPC. The uncertainty in the supposed debt of PPPC to CMCI negates the
latter's invocation of legal compensation as justification for its non-payment of the rentals for the subject Prodopak machine.

19. Joselito Bustos vs. Millians Shoes Inc.

FACTS:

Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate of Title (TCT) No. N-126668. On 6 January
2004, the City Government of Marikina levied the property for nonpayment of real estate taxes. The Notice of Levy was annotated on the
title on 8 January 2004. On 14 October 2004, the City Treasurer of Marikina auctioned off the property, with petitioner Joselito Hernand M.
Bustos emerging as the winning bidder.
Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the Regional Trial Court, Marikina City, Branch 273,
rendered a final and executory Decision ordering the cancellation of the previous title and the issuance of a new one under the name of
petitioner. Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9 February 2005.

These markings indicated that SEC Corp. Case No. 036-04, which was filed before the RTC and involved the rehabilitation proceedings for MSI,
covered the subject property and included it in the Stay Order issued by the RTC dated 25 October 2004. On 26 September 2006, petitioner
moved for the exclusion of the subject property from the Stay Order.[8] He claimed that the lot belonged to Spouses Cruz who were mere
stockholders and officers of MSL He further argued that since he had won the bidding of the property on 14 October 2004, or before the
annotation of the title on 9 February 2005, the auctioned property could no longer be part of the Stay Order.

The RTC denied the entreaty of petitioner. It ruled that because the period of redemption up to 15 October 2005 had not yet lapsed at the
time of the issuance of the Stay Order on 25 October 2004, the ownership thereof had not yet been transferred to petitioner.
Petitioner moved for reconsideration, but to no avail. He then filed an action for certiorari before the CA. He asserted that the Stay Order
undermined the taxing powers of the local government unit. He also reiterated his arguments that Spouses Cruz owned the property, and
that the lot had already been auctioned to him.

In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the suspension orders undermined the power to tax. As
regards petitioner's main contention, the CA ruled as follows:

In the case at bar, the delinquent tax payers were the Cruz Spouses who were the registered owners of the said parcel of land at the time of
the delinquency sale. The sale was held on October 14, 2004 and the Cruz Spouses had until October 15, 2005 within which to redeem the
parcel of land. The stay order was issued on October 25, 2004 and inscribed at the back of the title on February 9, 2005, which is within the
redemption period. The Cruz Spouses were still the owners of the land at the time of the issuance of the stay order.

The said parcel of land which secured several mortgage liens for the account of MSI remains to be an asset of the Cruz Spouses, who are the
stockholders and/or officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e. personally liable
for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and
obligations.

The CA maintained its ruling and even held that his prayer to exclude the property was time-barred by the 10-day reglementary period to
oppose rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation.

In their Comment, respondents do not contest that Spouses Cruz own the subject property. Rather, respondents assert that as stockholders
and officers of a close corporation, they are personally liable for its debts and obligations. Furthermore, they argue that since the
Rehabilitation Plan of MSI has been approved, petitioner can no longer assail the same.

ISSUE:

WON the CA correctly considered the properties of Spouses Cruz answerable for the obligations of MSI.

HELD:

We set aside rulings of the CA for lack of basis.

In finding the subject property answerable for the obligations of MSI, the CA characterized respondent spouses as stockholders of a close
corporation who, as such, are liable for its debts. This conclusion is baseless.
Here, neither the CA nor the RTC showed its basis for finding that MSI is a close corporation. The courts a quo did not at all refer to the
Articles of Incorporation of MSI. The Petition submitted by respondent in the rehabilitation proceedings before the RTC did not even include
those Articles of Incorporation among its attachments.

In effect, the CA and the RTC deemed MSI a close corporation based on the allegation of Spouses Cruz that it was so. However, mere
allegation is not evidence and is not equivalent to proof. For this reason alone, the CA rulings should be set aside. Furthermore, we find that
the CA seriously erred in portraying the import of Section 97 of the Corporation Code. Citing that provision, the CA concluded that "in a close
corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e.
personally liable for corporate debts and obligations."

However, 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 do we find any inference that stockholders of a close corporation are automatically liable for corporate
debts and obligations.

We thus apply the general doctrine of separate juridical personality, which provides that a corporation has a legal personality separate and
distinct from that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the
corporate debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does not make one's property the
property also of the corporation.

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.

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.

Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs creditors of the debtor to file an opposition to
petitions for rehabilitation within 10 days before the initial hearing of rehabilitation proceedings. Since petitioner does not hold any claim
over the properties owned by MSI, the time-bar rule does not apply to him.

20. Lim Tong Lim v. Philippine Fishing Gear, Inc.

G.R. No. 136448. November 3, 1999
Facts:
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045.
Four hundred pieces of floats worth P68,000 were also sold to the Corporation.

However, they were unable to pay PFGI and so they were sued in their own names because apparently OQFC is a non-existent corporation.
Chua admitted liability and asked for some time to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because he
was not aware that Chua and Yao represented themselves as a corporation; that the two acted without his knowledge and consent.

Issues:
1. Was there a partnership amongst them?
2.Is Petitioner Lim liable?
3.Was the seizure proper?

Ruling:
1 & 2. Yes.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed with borrowed money, fell under the term “common fund” under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had indeed
formed a partnership.

Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to Yao and Chua. Unquestionably, Lim Tong
Lim benefited from the use of the nets found in his boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua
and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation
and those benefited by it, knowing it to be without valid existence, are held liable as general partners.
The Court was not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua
and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent
to the sale proved that there was a pre-existing partnership among all three.

Also, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition
and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three
of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his
own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person
the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

3. Moot and academic since it was already established that there is partnership amongst them.

21. Mindanao Savings v. Willkom

DOCTRINE:
Issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks the moment when the
consequences of a merger take place.

FACTS: The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc. (DSLAI) are domestic
corporations primarily engaged in the business of granting loans and receiving deposits from the general public, and treated as banks. In
1985, they entered into a merger, with DSLAI as the surviving corporation. Due to incomplete documentation, it was unregistered. DSLAI
changed to MSLAI by way of an amendment, and was approved by the SEC.

The business of MSLAI, however, failed. The Monetary Board ordered the liquidation of MSLAI, with PDIC as its liquidator. It appears that
prior to the closure of MSLAI, Uy filed with the RTC, Branch 3 of Iligan City, an action for collection of sum of money against FISLAI. RTC issued
a summary decision in favor of Uy, directing defendants therein (which included FISLAI) to pay the former the sum of ₱136,801.70, plus
interest until full payment, 25% as attorney’s fees, and the costs of suit. CA modified, further ordering the third-party defendant therein to
reimburse the payments that would be made by the defendants.
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro City, and the notice of sale was
subsequently published. During the public auction on May 17, 1993, Willkom was the highest bidder. A certificate of sale was issued and
eventually registered with the Register of Deeds of Cagayan de Oro City. Upon the expiration of the redemption period, sheriff Bantuas
issued the sheriff’s definite deed of sale. New certificates of title covering the subject properties were issued in favor of Willkom. On
September 20, 1994, Willkom sold one of the subject parcels of land to Go.

On June 14, 1995, MSLAI, represented by PDIC, filed a complaint for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of
Properties against respondents. MSLAI alleged that the sale on execution of the subject properties was conducted without notice to it and
PDIC; also because the assets of an institution placed under receivership or liquidation such as MSLAI should be deemed in custodia legis and
should be exempt from any order of garnishment, levy, attachment, or execution.

Respondents averred that MSLAI had no cause of action because MSLAI is a separate and distinct entity from FISLAI. An unofficial merger did
not take effect since it failed to comply with the formalities and procedure as prescribed by the Code.

RTC dismissed for lack of jurisdiction. CA affirmed on the ground of unofficial merger. The CA went on to say that even if there had been a de
facto merger between FISLAI and MSLAI (formerly DSLAI), Willkom, having relied on the clean certificates of title, was an innocent purchaser
for value, whose right is superior to that of MSLAI. Furthermore, the alleged assignment of assets and liabilities executed by FISLAI in favor of
MSLAI was not binding on third parties because it was not registered. Finally, the CA said that the validity of the auction sale could not be
invalidated by the fact that the sheriff had no authority to conduct the execution sale. MR was denied. Hence, this petition.

ISSUE:
1) W/N CA refused to recognize the validity and effectivity of the merger.
2) Was there a novation of the obligation by substituting the person of the debtor?

HELD:
1) NO. The merger does not become effective upon the mere agreement of the constituent corporations. There must be express provision of
the law authorizing them (Sec. 76-79). It becomes effective upon the issuance of a certificate of merger by the SEC. The issuance of the
certificate of merger is crucial because not only does it bear out SEC’s approval but it also marks the moment when the consequences of a
merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation. Thus, in the instant case, as
far as third parties are concerned, the assets of FISLAI remain as its assets and cannot be considered as belonging to DSLAI and MSLAI,
notwithstanding the Deed of Assignment wherein FISLAI assigned its assets and properties to DSLAI, and the latter assumed all the liabilities
of the former. Respondents cannot, therefore, be faulted for enforcing their claim against FISLAI on the properties registered under its name.
Accordingly, MSLAI, as the successor-in-interest of DSLAI, has no legal standing to annul the execution sale over the properties of FISLAI. With
more reason can it not cause the cancellation of the title to the subject properties of Willkom and Go.

2) NO. Petitioner cannot also anchor its right to annul the execution sale on the principle of novation.1avvphi1 While it is true that DSLAI
(now MSLAI) assumed all the liabilities of FISLAI, such assumption did not result in novation as would release the latter from liability, thereby
exempting its properties from execution. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor. Article 1293 of the Civil Code is explicit, thus: Novation
which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.
In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI) would assume the
liabilities of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI transferred to DSLAI remained subject to execution to
satisfy the judgment claim of Uy against FISLAI. The subsequent sale of the properties by Uy to Willkom, and of one of the properties by
Willkom to Go, cannot, therefore, be questioned by MSLAI. Since novation implies a waiver of the right which the creditor had before the
novation, such waiver must be express.
Comm Rev SRC Digest

1. SEC vs. Price Richardson Corp.

GR No. 197032
July 26, 2017

Facts:
Avelino, a former employee of Price Richardson (a domestic corporation), executed a sworn affidavit at the NBI-Interpol Division, alleging that
Price Richardson was "engaged in boiler room operations, wherein the company sells non-existent stocks to investors using high pressure sales
tactics". Whenever this activity was discovered, the company would close and emerge under a new company name. Avelino worked as a
telemarketer who calls prospective investors, mostly foreigners.

Avelino said that a salesman will then contact these investors, and will do high-pressure sales tactics to sell non-existent stocks. However, no
hard copy of the stocks or certificates will be issued for in truth and in fact there was no actual sale or transfer of stocks or certificates for they
are non-existent. In the event that the investor would then sell his certificates or stocks, the salesman would try to convince the investor not to
sell in order not to release the money. Eventually, the company would disappear and would spring up under a new name. The salesmen are all
foreigners of various nationalities, who are not registered with SEC and uses aliases for their identities.

Rillo corroborated Avelino's claims. She was a former employee of Capital International, a corporation that allegedly merged with Price
Richardson. She claimed that their calls to prospective investors should be in Price Richardson's name. She also testified that both companies are
engaged in the illegal trading of stocks to its clients.

RTC Makati issued 3 search warrants against Capital International and Price Richardson for violation of the SRC. The SEC then filed a complaint
before the DOJ against Richardson, and its directors and officers, as well as Velarde-Albert and Resnick who acted as broker, salesman or
associated person without prior registration with the Commission, alleging that Price Richardson was neither licensed nor registered "to engage
in the business of buying and selling securities within the Philippines or act as salesman, or an associated person of any broker or dealer." As
shown by the seized documents and equipment, Price Richardson engaged in seeking clients for the buying and selling of securities, thereby
violating the SRC; and a charge for Estafa under the RPC. The incorporators and directors denied knowing or agreeing to the offenses charged.
They countered that they already transferred their respective shares to various individuals, as shown by their registered Deeds of Absolute Sale
of Shares of Stock.

State Prosecutor Reyes issued a Resolution dismissing the SEC’s complaint for lack of probable cause, and relieved Velarde-Albert and Resnick
from their charges.

In the meantime, those defrauded individuals have filed their complaints before the DOJ. The MR was denied by the State Prosec. The SEC filed a
Petition for Review before the DOJ, which was also denied, as well as the MR thereafter. On their Petition for Certiorari before the CA, the Court
ruled that there was no grave abuse of discretion on the part of Secretary Gonzalez and found that the affidavits executed by Price Richardson's
employees were merely surmises. They did not have personal knowledge of the security trading since their jobs were limited to persuading
people to get newsletter subscriptions. Indeed, the documents seized showed “no clear and specific acts of buying or selling of securities were
alleged and substantiated by the SEC".
The alleged investors' affidavits were not sufficient to find probable cause because the alleged transactions transpired over the phone and while
these investors were not in the Philippines. Moreover, since the traded stocks were not of domestic corporations or from corporations doing
business in the Philippines, Philippine penal laws could not be applied.

Price Richardson insists that Section 28 of the SRC prohibits anyone from engaging in the business of buying and selling securities without
registration from the SEC if those transactions are offered "to the public within the Philippines, and that this provision does not apply in this case
because the alleged buyers of securities were not citizens of or resided in the Philippines. Additionally, the allegedly sold or offered securities
were registered outside the Philippines, where the alleged sales also transpired. Hence, these sales are not under the Philippine jurisdiction.

Issue:

Whether or not courts may pass upon the prosecutor's determination of probable cause; and whether there is probable cause to indict
respondents for violation of SRC and RPC.

Held:

Courts may pass upon the prosecutor's determination of probable cause only upon a showing of grave abuse of discretion. If the public
prosecutor finds probable cause to charge a person with a crime, he or she causes the filing of an information before the court. The court may
not pass upon or interfere with the prosecutor's determination of the existence of probable cause to file an information regardless of its
correctness. However, if the public prosecutor erred in its determination of probable cause, an appeal can be made before the Department of
Justice Secretary. Simultaneously, the accused may move for the suspension of proceedings until resolution of the appeal. This determination is
independent of the prosecutor's determination of probable cause and is a function of courts for purposes of issuance of a warrant of arrest. In
this case, grave abuse of discretion exists, which warrants this Court's interference in the conduct of the executive determination of probable
cause.

An examination of the records reveals that probable cause exists to file an information against respondent Price Richardson for violating the
laws. Based on the Certification110 dated October 11, 2001 issued by the Market Regulation Department of the Securities and Exchange
Commission, respondent Price Richardson "has never been issued any secondary license to act as broker/dealer in securities, investment house
and dealer in government securities". Petitioner also certified that respondent Price Richardson "is not, under any circumstances, authorized or
licensed to engage and/or solicit investments from clients”. However, the documents seized from respondent Price Richardson's office show
possible sales of securities. Petitioner further supports its charges by submitting the complaint-affidavits and letters of individuals who
transacted with Price Richardson. The evidence gathered by petitioner and the statement of respondent Price Richardson are facts sufficient
enough to support a reasonable belief that respondent is probably guilty of the offense charged.
However, respondents Velarde-Albert and Resnick who acted as broker, salesman or associated person without prior registration with the
Commission, cannot be indicted. The evidence at hand merely proves that the above-named respondents were not licensed to act as broker,
salesman or associated person. No further proof, however, was presented showing that said respondents have indeed acted as such in trading
securities. A corporation's personality is separate and distinct from its officers, directors, and shareholders. To be held criminally liable for the
acts of a corporation, there must be a showing that its officers, directors, and shareholders actively participated in or had the power to prevent
the wrongful act.

2. ABACUS SECURITIES CORPORATION, vs. RUBEN U. AMPIL

G.R. No. 160016 | February 27, 2006
PANGANIBAN, CJ:

FACTS: Petitioner is engaged in business as a broker and dealer of securities of listed companies at the Philippine Stock Exchange Center. On
April 8, 1997, respondent opened a cash account with petitioner for his transactions in securities. Respondent’s purchases were consistently
unpaid from April 10 to 30, 1997. Subsequently, upon petitioner’s demand, respondent failed to pay in full, or even just his deficiency, for the
transactions on April 10 and 11, 1997.

Despite respondent’s failure to cover his initial deficiency, petitioner subsequently purchased and sold securities for respondent’s account on
April 25 and 29 and petitioner did not cancel or liquidate a substantial amount of respondent’s stock transactions until May 6, 1997. After the
sale of respondent’s securities and application of the proceeds thereof against his account, respondent’s remaining unsettled obligation to
[petitioner] was ₱3,364,313.56. Petitioner, through counsel, demanded the respondent to settle his obligation plus the agreed penalty charges
accruing thereon. Respondent acknowledged receipt of petitioner’s demand letter and admitted his unpaid obligation and at the same time
requested for 60 days to raise funds to pay the same, which was granted by petitioner.

Despite lapse of said requested extension, respondent failed and/or refused to pay his accountabilities to petitioner. Respondent claims that he
was induced to trade in a stock security with petitioner because the latter allowed offset settlements wherein he is not obliged to pay the
purchase price. Rather, it waits for the customer to sell. And if there is a loss, petitioner only requires the payment of the deficiency. In addition,
it charges a commission for brokering the sale. If the customer sells and there is a profit, petitioner deducts the purchase price and delivers only
the surplus – after charging its commission.

Respondent further claims that all his trades with petitioner were not paid in full in cash at anytime after purchase or within the T+4 [4 days
subsequent to trading] and none of these trades was cancelled by petitioner. Neither did petitioner apply with either the Philippine Stock
Exchange or the SEC for an extension of time for the payment or settlement of his cash purchases. This was not brought to his attention by his
broker and so with the requirement of collaterals in margin account. Thus, his trade under an offset transaction with petitioner is unlimited
subject only to the discretion of the broker.
Respondent also affirmed that this is not in accordance with RSA [Rule 25-1 par. C, which mandates that if you do not pay for the first] order, you
cannot subsequently make any further order without depositing the cash price in full. So, if RSA Rule 25-1, par. C, was applied, he was limited
only to the first transaction.

RTC ruled that petitioner violated Sections 23 and 25 of the RSA and Rule 25-1 of the Rules Implementing the Act when it failed to: 1) require the
respondent to pay for his stock purchases within three (T+3) or four days (T+4) from trading; and 2) request from the appropriate authority an
extension of time for the payment of respondent’s cash purchases. According to the RTC, by allowing respondent to trade his account actively
without cash, petitioner effectively induced him to purchase securities thereby incurring excessive credits.

The trial court also found respondent to be equally at fault, by incurring excessive credits and waiting to see how his investments turned out
before deciding to invoke the RSA. Thus, the RTC concluded that petitioner and respondent were in pari delicto and therefore without recourse
against each other.

The CA upheld the lower court’s finding that the parties were in pari delicto. It castigated petitioner for allowing respondent to keep on trading
despite the latter’s failure to pay his outstanding obligations.

ISSUE: Whether or not the pari delicto principle is applicable and up to what extent is respondent liable for payment to petitioner for the
securities trading transactions?

HELD: The pari delicto principle applies ONLY to transactions entered into by the parties subsequent to the initial trades of April 10 and 11, 1997.
Thus, the court held that petitioner can still collect from respondent to the extent of the difference between the latter’s outstanding obligation
as of April 11, 1997 less the proceeds from the mandatory sell out of the shares pursuant to the RSA Rules.

The provisions governing the above transactions are Sections 23 and 25 of the RSA and Rule 25-1 of the RSA Rules. Under Section 23(b), the
alleged violation of petitioner which provides the basis for respondent’s defense -- makes it unlawful for a broker to extend or maintain credit on
any securities other than in conformity with the rules and regulations issued by SEC. Section 25 lays down the rules to prevent indirect violations
of Section 23 by brokers or dealers. RSA Rule 25-1 prescribes in detail the regulations governing cash accounts.

The law places the burden of compliance with margin requirements primarily upon the brokers and dealers. Sections 23 and 25 and Rule 25-1,
otherwise known as the "mandatory close-out rule," clearly vest upon petitioner the obligation, not just the right, to cancel or otherwise
liquidate a customer’s order, if payment is not received within three days from the date of purchase. The word "shall" as opposed to the word
"may," is imperative and operates to impose a duty, which may be legally enforced. For transactions subsequent to an unpaid order, the broker
should require its customer to deposit funds into the account sufficient to cover eachpurchase transaction prior to its execution. These duties
are imposed upon the broker to ensure faithful compliance with the margin requirements of the law, which forbids a broker from extending
undue credit to a customer.

The right to collect cannot be denied to petitioner as the initial transactions were entered pursuant to the instructions of respondent. The
obligation of respondent for stock transactions made and entered into on April 10 and 11, 1997 remains outstanding. These transactions were
valid and the obligations incurred by respondent concerning his stock purchases on these dates subsist. At that time, there was no violation of
the RSA yet. Petitioner’s fault arose only when it failed to: 1) liquidate the transactions on the fourth day following the stock purchases, or on
April 14 and 15, 1997; and 2) complete its liquidation no later than ten days thereafter, applying the proceeds thereof as payment for
respondent’s outstanding obligation.

In securities trading, the brokers are essentially the counterparties to the stock transactions at the Exchange. Since the principals of the broker
are generally undisclosed, the broker is personally liable for the contracts thus made. Hence, petitioner had to advance the payments for
respondent’s trades. Brokers have a right to be reimbursed for sums advanced by them with the express or implied authorization of the
principal, in this case, respondent.

In the present case, petitioner obviously failed to enforce the terms and conditions of its Agreement with respondent, specifically paragraph 8
thereof, purportedly acting on the plea of respondent to give him time to raise funds therefor. These stipulations, in relation to paragraph 4,
constituted faithful compliance with the RSA. By failing to ensure respondent’s payment of his first purchase transaction within the period
prescribed by law, thereby allowing him to make subsequent purchases, petitioner effectively converted respondent’s cash account into a credit
account. However, extension or maintenance of credits on nonmargin transactions, are specifically prohibited under Section 23(b). Thus,
petitioner was remiss in its duty and cannot be said to have come to court with "clean hands" insofar as it intended to collect on transactions
subsequent to the initial trades of April 10 and 11, 1997.

On the other hand, the Supreme Court find respondent equally guilty in entering into the transactions in violation of the RSA and RSA Rules.
According to the court, respondent is an experienced and knowledgeable trader who is well versed in the securities market and who made his
own investment decisions. In fact, in the Account Opening Form (AOF), he indicated that he had excellent knowledge of stock investments; had
experience in stocks trading, considering that he had similar accounts with other firms. Obviously, he knowingly speculated on the market, by
taking advantage of the "no-cash-out" arrangement extended to him by petitioner.

In the final analysis, both parties acted in violation of the law and did not come to court with clean hands with regard to transactions subsequent
to the initial trades made on April 10 and 11, 1997. The pari delicto rule refuses legal remedy to either party to an illegal agreement and leaves
them where they were. In this case, the pari delicto rule applies only to transactions entered into after the initial trades made on April 10 and 11,
1997.
NOTE: Definition of margin account: “In a margin account, the securities company extends credit. A margin account is covered by a margin
agreement which stipulates the terms and conditions for maintaining such an account. Under the present law, the amount of credit that may be
initially extended is limited to 50% of the current market price of the security. A margin account is one in which the broker lends the customer
cash with which to purchase securities. Unlike a cash account, a margin account allows an investor to but securities with money that he does not
have, by borrowing the money from the broker. The RSA limits margin borrowing to a maximum of 50% of the amount invested. The margin
requirements set out in the RSA are primarily intended to achieve a macroeconomic purpose – the protection of the overall economy from
excessive speculation in securities, ad their recognized secondary purpose is to protect small investors.

3. SECURITIES AND EXCHANGE COMMISSION v. INTERPORT RESOURCES CORPORATION

G.R. No. 135808; October 6, 2008
Chico-Nazario, J.

FACTS: The Board of Directors of IRC approved the MOA with Ganda Holdings Berhad (GHB) under which IRC acquired 100% or the entire capital
stock of Ganda Energy Holdings Inc. (GEHI), which would run and operate a 102-megawatt gas turbine power-generating barge. The MOA
stipulates that GEHI would assume a 5-year power purchase contract with National Power Corp. (Napocor). At that time, GEHI's power-
generating barge was 97% complete and wou go online by mid-September 1994. In exchange, IRC will issue to GHB 55% of the expanded capital
stock of IRC amounting to 40.88 billion shares which had a total par value of P448.4 million. On the side, IRC would acquire 67% of entire capital
stocl of Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati. Under the MOA, GHB shall extend or
arrange loan required to pay for the proposed acquisition by IRC of PRCI.

IRC alleged that a press release announcing the approval of MOA was sent through fax to Philippine Stock Exchange and the Securities and
Exchange Commission, but the facsimile machine of SEC could not receive it. Upon advice of SEC, IRC sent the press release on morning of
AUgust 9, 1994. SEC averred that IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors heavily
traded IRC shares utilizing this material insider information. SEC chairman issued a directing requiring IRC to submit a copy of its MOA with GHB
and directing all principal officers to appear at hearing before Brokers and Exchanges Department (BED) to explain. IRC sent a letter to SEC
attaching thereto copies of MOA and its directirs appeared before the SEC.

SEC issued an order finding IRC violated the Rules on Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it
failed to make timely disclosure of its negotiations with GHB. It also held that some IRC's officers and directors entered into transactions
involving IRC shares in violation of Section 30, in relation to Section 36 of the Revised Securities Act. Respondents filed an Omnibus Motion
alleging that SEC had no authority to investigate the subject matter, since under Section 8 of PD 902-A, as amended by PD 1758, jurisdiction was
conferred upon the Prosecution and Enforcement Department (PED) of SEC. The CA found no statutory authority for SEC to file and initiate any
suit for civil liability under Sections 8, 30, and 36 of the Revised Securities Act.
ISSUE: Whether or not SEC has authority to initiate and file any suit against IRC and its directors with respect to Sections 30 ajd 36 of the Revised
Securities Act.

HELD: YES. Section 53 of the SRC clearly proveds that criminal complaints for violations of rules and regulations enforced or administered by SEC
shall be referred to DOJ for preliminary investigation, wile SEC nevertheless retains limited investigatory powers. Additionally, SEC may still
impose appropriate administrative sanctions under Section 54 of the said law.

SEC already commenced the investigative proceedins against respondents as early as 1994. Respondents were called to appear before the SEC
and explan their failure to disclose pertinent information. Thereafter, SEC chairman, having already made initial findings that resopondents
failed to make timely disclosures, ordered a special investigative panel to hear the case. The investigative proceedings were interrupted only by
the writ of preliminary injunction issued by CA, which became permanent. During the pendency of this case, the SRC repealed the Revised
Securities Act. The repeal cannot deprive the SEC of its jurisdiction to continue investigating the case; or the RTC, to hear any case which may
later be filed against the respondents.

4 MANUEL V. BAVIERA, Petitioner, vs. ESPERANZA PAGLINAWAN, in her capacity as Department of Justice State Prosecutor et.al. G.R. No.
168380 February 8, 2007

DOCTRINE: A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred to an
administrative agency of special competence, i.e., the SEC. The Securities Regulation Code is a special law. Its enforcement is particularly vested
in the SEC. Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the SEC. Where
the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation and prosecution as provided in
Section 53.1 earlier quoted.

FACTS: Manuel Baviera, petitioner in these cases, was the former head of the HR Service Delivery and Industrial Relations of Standard Chartered
Bank-Philippines (SCB), one of herein respondents. SCB is a foreign banking corporation duly licensed to engage in banking, trust, and other
fiduciary business in the Philippines. Pursuant to Resolution No. 1142 dated December 3, 1992 of the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP), the conduct of SCB’s business in this jurisdiction is subject to the following conditions: 1. At the end of a one-year period from the
date the SCB starts its trust functions, at least 25% of its trust accounts must be for the account of non-residents of the Philippines and that
actual foreign exchange had been remitted into the Philippines to fund such accounts or that the establishment of such accounts had reduced
the indebtedness of residents (individuals or corporations or government agencies) of the Philippines to non-residents. At the end of the second
year, the above ratio shall be 50%, which ratio must be observed continuously thereafter; 2. The trust operations of SCB shall be subject to all
existing laws, rules and regulations applicable to trust services, particularly the creation of a Trust Committee; and 3. The bank shall inform the
appropriate supervising and examining department of the BSP at the start of its operations. Apparently, SCB did not comply with the above
conditions. Instead, as early as 1996, it acted as a stock broker, soliciting from local residents foreign securities called "GLOBAL THIRD PARTY
MUTUAL FUNDS" (GTPMF), denominated in US dollars. These securities were not registered with the Securities and Exchange Commission (SEC).
These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore.

SCB’s counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the bank to proceed with the selling of the foreign
securities although unregistered with the SEC, under the guise of a "custodianship agreement;" and should it be questioned, it shall invoke
Section 72 of the General Banking Act (Republic Act No.337). In sum, SCB was able to sell GTPMF securities worth around ₱6 billion to some 645
investors.

Investment Capital Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the Revised Securities Act,
particularly the provision prohibiting the selling of securities without prior registration with the SEC; and that its actions are potentially damaging
to the local mutual fund industry.

In its answer, SCB denied offering and selling securities, contending that it has been performing a "purely informational function" without
solicitations for any of its investment outlets abroad; that it has a trust license and the services it renders under the "Custodianship Agreement"
for offshore investments are authorized by Section 72 of the General Banking Act; that its clients were the ones who took the initiative to invest
in securities; and it has been acting merely as an agent or "passive order taker" for them.

BSP directed SCB not to include investments in global mutual funds issued abroad in its trust investments portfolio without prior registration
with the SEC. On August 31, 1998, SCB sent a letter to the BSP confirming that it will withdraw third-party fund products which could be directly
purchased by investors.

However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell GTPMF securities in this country. This
prompted petitioner to enter into an Investment Trust Agreement with SCB wherein he purchased US$8,000.00 worth of securities upon the
bank’s promise of 40% return on his investment and a guarantee that his money is safe. After six (6) months, however, petitioner learned that
the value of his investment went down to US$7,000.00. He tried to withdraw his investment but was persuaded by Antonette de los Reyes of
SCB to hold on to it for another six (6) months in view of the possibility that the market would pick up.

Petitioner filed with the DOJ a complaint for violation of Section 8.1 of the Securities Regulation Code against private respondents, docketed as
I.S. No. 2004-229.

DOJ dismissed petitioner’s complaint in I.S. No. 2004-229 (violation of Securities Regulation Code), holding that it should have been filed with the
SEC.
ISSUE: Whether the Court of Appeals erred in concluding that the DOJ did not commit grave abuse of discretion in dismissing petitioner’s
complaint in I.S. 2004-229 for violation of Securities Regulation Code

HELD: Section 53.1 of the Securities Regulation Code provides: SEC. 53. Investigations, Injunctions and Prosecution of Offenses.– 53. 1. The
Commission may, in its discretion, make such investigation as it deems necessary to determine whether any person has violated or is about to
violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing
agency, other selfregulatory organization, and may require or permit any person to file with it a statement in writing, under oath or otherwise,
as the Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. xxx That all criminal complaints
for violations of this Code and the implementing rules and regulations enforced or administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and prosecution before the proper court xxx

The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or rule administered by the SEC must first
be filed with the latter. If the Commission finds that there is probable cause, then it should refer the case to the DOJ. Since petitioner failed to
comply with the foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint in I.S. No. 2004-229.

A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred to an administrative
agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will not determine a controversy involving a
question within the jurisdiction of the administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact.12 The
Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation of the Code
and its implementing rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the
complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier quoted. We thus agree with the Court of
Appeals that petitioner committed a fatal procedural lapse when he filed his criminal complaint directly with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in dismissing petitioner’s complaint.

On petitioner’s complaint for violation of the Securities Regulation Code, suffice it to state that, as aptly declared by the Court of Appeals, he
should have filed it with the SEC, not the DOJ. Again, there is no indication here that in dismissing petitioner’s complaint, the DOJ acted
capriciously or arbitrarily. WHEREFORE, we DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals in CAG.R. SP No. 87328
and in CA-G.R. SP No. 85078.

5. CEMCO HOLDINGS, INC., Petitioner, v. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., Respondent.
Facts
Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders - UCHC, a non-listed company, with shares
amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC's stocks were owned by BCI with 21.31% and ACC with 29.69%.
Cemco, on the other hand, owned 9% of UCHC stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to
sell to Cemco BCI's stocks in UCHC equivalent to 21.31% and ACC's stocks in UCHC equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of petitioner Cemco's acquisition of BCI and ACC's
shares in UCHC, petitioner's total beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the
shares of UCC.
As a consequence of this disclosure, the PSE, inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the
Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC.
In a letter dated 16 July 2004, Director Justina Callangan of the SEC's Corporate Finance Department responded to the query of the PSE that
while it was the stance of the department that the tender offer rule was not applicable, the matter must still have to be confirmed by the SEC en
banc.
Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc had resolved that the Cemco
transaction was not covered by the tender offer rule.
Aggrieved by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter
to Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.
Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, as buyer.
National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to declare the purchase agreement of Cemco
void and praying that the mandatory tender offer rule be applied to its UCC shares. Cemco, UCC, UCHC, BCI and ACC were uniform in arguing
that the tender offer rule applied only to a direct acquisition of the shares of the listed company and did not extend to an indirect acquisition
arising from the purchase of the shares of a holding company of the listed firm.

SEC ruled in favor of the respondent and directed Cemco to make a tender offer for UCC shares to NLICP and other holders of UCC shares
similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of the Securities Regulation Code. CA Affirmed. MR denied.

ISSUES
Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company, in this case, the indirect
acquisition by Cemco of 36% of UCC, a publicly-listed company, through its purchase of the shares in UCHC, a non-listed company.
Petitioner asserts that the mandatory tender offer rule applies only to direct acquisition of shares in the public company.
HELD
This contention is not meritorious.
Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public
company. A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00
and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company. Stated differently, a tender offer is
an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer.
Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the
minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same
price as those of the majority shareholders.

Under existing SEC Rules,16 the 15% and 30% threshold acquisition of shares under the Tender Offer provision was increased to thirty-five
percent (35%). It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the
purchase would result in ownership of over 51% of the total outstanding equity securities of the public company.

The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-
listed UCHC shares is covered by the mandatory tender offer rule.

6, PHIL VET BANK VS, CALLANGAN

FACTS:

On March 17, 2004, respondent Justina F. Callangan, the Director of the Corporation Finance Department of the Securities and Exchange
Commission (SEC), sent the Bank a letter, informing it that it qualifies as a “public company” under Section 17.2 of the Securities Regulation Code
(SRC) in relation with Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC. The Bank is thus required to comply with the
reportorial requirements set forth in Section 17.1 of the SRC.

The Bank responded by explaining that it should not be considered a “public company” because it is a private company whose shares of stock
are available only to a limited class or sector, i.e., to World War II veterans, and not to the general public.

In a letter dated April 20, 2004, Director Callangan rejected the Bank’s explanation and assessed it a total penalty of One Million Nine Hundred
Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for failing to comply with the SRC reportorial requirements
from 2001 to 2003.

The Bank moved for the reconsideration of the assessment, but Director Callangan denied the motion in SEC-CFD Order No. 085, Series of 2005
dated July 26, 2005. When the SEC En Banc also dismissed the Bank’s appeal for lack of merit in its Order dated August 31, 2006, prompting the
Bank to file a petition for review with the Court of Appeals (CA).
On March 6, 2008, the CA dismissed the petition and affirmed the assailed SEC ruling, with the modification that the assessment of the penalty
be recomputed from May 31, 2004.

The CA also denied the Bank’s motion for reconsideration, opening the way for the Bank’s petition for review on certiorari filed with this Court.

On June 16, 2010, the Court denied the Bank’s petition for failure to show any reversible error in the assailed CA decision and resolution.

ISSUE:

Whether or not the reportorial requirements of the SEC are applicable to Banks.

HELD:

The Securities and Exchange Commission (SEC) required the Bank to comply with the reportorial requirements under Section 17.1 of SRC since it
qualifies as a “public company” under Section 17.2 of the SRC.

The Bank argued that it is a private company and not a public company because its shares are available only to a limited class or sector.

The Supreme Court held that “public company,” as contemplated by the SRC, is not limited to a company whose shares of stocks are publicly
listed; even companies like the Bank, whose shares are offered only to a specific group of people, are considered a public company, provided
they meet the requirement as required under the SRC.

Public Company” need not be open to the General Public Under the Amended Implementing Rules and Regulations of the Securities Regulation
Code (“IRR”), a company with (i) any class of company listed on an exchange; or (ii) a company with (a) assets of at least PhP 50,000,0000, and
(b) have two hundred or more shareholders with 100 shares of a class of the company’s equity securities is a “public company”, and subject to
the reportorial requirements of a public company.

The Supreme Court considered the Philippine Veterans Bank as a public company because it meets the requisites of a public company under the
IRR and notwithstanding that its shares are limited only to a limited class or sector, i.e., World War II veterans and their widows, orphans, and
compulsory heirs, and not the general public.

7. SECURITIES AND EXCHANGE COMMISSION vs.

PROSPERITY COM, INC.,
G.R. No. 164197, January 25, 2012

Facts:
In this case, Prosperity Com, Inc (PCI) sold computer software and hosted websites without providing internet service. To make a profit, PCI
devised a scheme in which a buyer could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by referring to
PCI his own down-line buyers, a first time buyer could earn commissions, interest in real estate in the Philippines and in the United States, and
insurance coverage.

In 2001, disgruntled elements of GVI filed a complaint wilh the SEC against PCI, alleging that the latter had taken over GVl's operations. After
hearing, the SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC ruled that PCI's scheme constitutes an
Investment contract and, following the Securities Regulations Code, it should have first registered such contract or securities with the SEC
pursuant to R.A. 8799.

PCI filed with the Court of Appeals and CA rendered a decision, granting PCI's petition and setting aside the SEC-Issued CDO. The CA ruled that,
following the Howey test, PCI's scheme dld not constitute an investment contract that needs registration pursuant to R.A. 8799, hence, this
petition by the SEC.

Issue:
Whether or not PCI's scheme constitutes an investment contract that requires registration under R.A. 8799.

Ruling:
No. The Supreme Court DENIED the petition and AFFIRMED the decision of the Court of Appeals. PCI's scheme does not require registratlan
under R.A. 8799. The Uniled States Supreme Court held in Securities and Exchange Commission vs. W.J. Howey Co. that, for an investment
contract to exist, the following elements, referred to as the Howey test must concur:

(1) a contract transaction, or scheme

(2) an investment of money
(3) investment is made in a common enterprise
(4) expectation of profits and
(5) profits arising primarily from the efforts of others.

Thus, to sustain the SEC's position in this case, PCl's scheme or contract with its buyers must
have all these elements.
Here, PCI's clients do not make such Investments. They buy a product of some value to them: an internet website of a 15 MB capacity. The client
can use the website to enable the people to have internet access to what he is to offer them, say for example some skin cream. The buyers of
the website do not invest money in PCI that it could use for running some business that would enable profits for the investors.

The price of US$234 00 is what the buyer pays for the use af the website, a tangible asset that PCI creates, using its computer facilities and
technical skills. The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme that PCI has adopted.
Evidently, it is PCI that expects profit from the network markeng of its products. PCI is correct in saying that the US $234 it gets from its clients is
merely a consideration for the sale of the
websites that it provides.

9. YUJUICO VS QUIAMBAO
GR No. 180416 June 2, 2014

Facts:

During the annual stockholder’s meeting of STRADEC, petitioner Yujuico was elected as president and chairman of the company. Yujuico
replaced Quiambao, the respondent. STRADEC appointed Sumbilla as Treasurer and Blando as Corporate Secretary. During the
stockholders’ meeting, Yujuico 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 and caused the removal of the corporate records of
STRADEC from the company’s principal office. Blando likewise demanded Pilapil, the previous corporate secretary, for the turnover of the stock
and transfer book of STRADEC. Pilapil refused. Thus, the petitioners filed a complaint against respondents for the violation of Section 74 in
relation to Section 144 of the Corporation Code.

Issue:
Whether the respondents can be held liable under Section 74 in relation to Section 144 of the Corporation Code

Ruling:
No. A criminal action based on the violation of a stockholder’s right to examine or inspect the corporate records and the stock and transfer book
of a corporation under the 2nd and 4th paragraphs of Section 74 of the Corporation Code can only be maintained against corporate officers or
any other persons acting on behalf of such corporation. Violations of the 2nd
and 4th paragraphs of Sec. 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 petitioner’s complaint failed to
establish that respondents were acting on behalf of STRADEC. Instead, it was revealed that respondents are merely outgoing officers of STRADEC
who, for some reason, withheld and refused to turn-over the company records of STRADEC, and that STRADEC is actually merely trying to
recover custody of the withheld records. Thus, petitioners are not actually invoking their right to inspect the records and the stock and transfer
book of STRADEC under Sec. 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 2nd
and 4th paragraphs of Sec. 74. Therefore, the criminal case is dismissed for lack of probable cause.

10. GSIS v CA
Facts:
The GSIS initiated a case with the SEC in order to invalidate the proxy validation proceedings held by Meralco. The reason was due to the person
presiding over the proceedings was not the official corporate secretary, Vitug, but his assistant corp. sec., Rosete. Meralco then filed an appeal
w/ the CA w/c rendered the SEC judgment in favor of GSIS as void due to lack of jurisdiction. The GSIS filed an appeal w/ the SC claiming
otherwise using the SRC as a legal ground.
Issue: WON the SEC has jurisdiction over this case.
Held:
Yes. 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.
Since the Meralco meeting was only for the purpose of proxy solicitation, this case was not to be heard by the SEC.

11. SEC vs Performance Foreign Exchange Corporation GR No 154131 July 20, 2006

Facts:

Performance Foreign Exchange Corporation is a domestic corporation duly registered with SEC, whose primary purpose is to operate as a
broker/agent between market participants in transactions involving, but not limited to, foreign exchange, deposits, interest rate instruments,
and similar or derivative products, other than acting as a broker for the trading of securities pursuant to the Revised Securities Act of the
Philippines, their secondary purpose is that of exchanging foreign currencies. A letter from the SEC requiring Performance Foreign Exchange
Corporation to appear before the Compliance and Enforcement Department (CED) for a clarificatory conference regarding its business
operations was received by PFEC. The Director of CED thereafter issued a Cease and Desist Order on the ground of a possible violation of The
Securities Regulation Code arising from the outcome of the inquiry showing that respondent is engaged in the trading of foreign currency futures
contracts in behalf of its clients without the necessary license which may be deemed as a direct violation of Section 11 of R.A. No. 8799. The
respondent then filed a motion to SEC to lift the said order. A letter was sent to the BSP by the SEC Chairman requesting a definitive statement
that respondent’s business transactions are a form of financial derivatives and, therefore, can only be undertaken by banks or non-bank financial
intermediaries performing quasi-banking functions.
However, without waiting for BSP’s determination of the matter the SEC issued an Order denying the motion of the respondent for the lifting of
the Cease and Desist Order. Thereafter, the SEC issued an order making the Cease and Desist Order permanent. A Petition for Certiorari was filed
by the respondent alleging that the SEC committed grave abuse of discretion when it issued the Cease and Desist Order and its subsequent
Order making the same permanent without waiting for the BSP’s determination of the real nature of its business operations and as such violated
its fundamental right to due process. BSP, in its answer to the SEC Chairman’s letter-request stated that respondent’s business activity "does not
fall under the category of futures trading"and"can not be classified as financial derivatives transactions," The CA ruled that SEC acted with grave
abuse of discretion when it issued its challenged Orders without a positive factual finding that respondent violated the Securities Regulation
Code.

ISSUE: WON acted with grave abuse of discretion in issuing the Cease and Desist Order and its subsequent Order making it permanent.

HELD:
Yes. Section 64 of R.A. No. 8799, provides: Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification,
motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in
its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury
or prejudice to the investing public. x x x. (Underscoring supplied) Under the above provision, there are two essential requirements that must be
complied with by the SEC before it may issue a cease and desist order: First, it must conduct proper investigation or verification; and Second,
there must be a finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public. In this case the first requirement is lacking. No proper investigation was conducted by the
SEC before it issued the challenged orders. 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 Petitioner’s act of referring the matter to the BSP is an essential part of the
investigation and verification process. However, such investigation and verification, to be proper, must be conducted by petitioner before,
issuing the Cease and Desist Order in question. And without the determination of the on the nature of respondent’s business, there was no
factual and legal basis to justify the issuance of such order.
Furthermore, the second requirement states that before a cease and desist order may be issued by the SEC, there must be a showing that the
act or practice sought to be restrained will operate as a fraud on investors or is likely to cause grave, irreparable injury or prejudice to the
investing public. Such requirement implies that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can only be determined after the BSP shall have submitted its
findings to petitioner.

12. THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix, SYLVIA S. TY, petitioner, vs. COURT OF APPEALS

FACTS:
Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent Alejandro B. Ty, on January 11, 1981. Alexander died of
leukemia on May 19, 1988 and was survived by his wife, petitioner Sylvia, and only child, Krizia Katrina. In the settlement of his estate, petitioner
was appointed administratrix of her late husband’s intestate estate. On November 4, 1992, petitioner filed a motion for leave to sell or
mortgage estate property in order to generate funds for the payment of deficiency estate taxes. Private respondent Alejandro Ty then filed two
complaints for the recovery of the property in Regional Trial Court of Quezon City. Private respondent claimed in both cases that even if said
property were placed in the name of deceased Alexander, they were acquired through private respondent’s money, without any cause or
consideration from deceased Alexander. Motions to dismiss were filed by petitioner. Both motions alleged lack of jurisdiction of the trial court,
claiming that the cases involved intra-corporate dispute cognizable by the Securities and Exchange Commission (SEC). Petitioner then filed
petitions for certiorari in the Court of Appeals, which were also dismissed for lack of merit.

ISSUE:
w/n the SEC has jurisdiction over the case
HELD:
No. In the cases at bar, the relationship of private respondent when he sold his shares of stock to his son was one of vendor and vendee, nothing
else. The question raised in the complaints is whether or not there was indeed a sale in the absence of cause or consideration. The proper forum
for such a dispute is a regular trial court. The Court agrees with the ruling of the Court of Appeals that no special corporate skill is necessary in
resolving the issue of the validity of the transfer of shares from one stockholder to another of the same corporation. Both actions, although
involving different property, sought to declare the nullity of the transfers of said property to the decedent on the ground that they were not
supported by any cause or consideration, and thus, are considered void ab initio for being absolutely simulated or fictitious. 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. Disputes concerning the application of the Civil Code are properly cognizable by courts of general
jurisdiction. No special skill is necessary that would require the technical expertise of the SEC.
It should also be noted that under the newly enacted Securities Regulation Code (Republic Act No. 8799), this issue is now moot and academic
because whether or not the issue is intra-corporate, it is the regional trial court and not longer the SEC that takes cognizance of the controversy.
Under Section 5.2 of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide cases involving intra-corporate controversies
have been transferred to courts of general jurisdiction or the appropriate regional trial court.
Comm Rev Written Digest

1. G.R. No. 227005

BDO UNIBANK, INC., Petitioner
vs.
ENGR. SELWYN LAO, doing business under the name and style "SELWYN F. LAO CONSTRUCTION" AND "WING AN CONSTRUCTION AND
DEVELOPMENT CORPORATION" and INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE PHILIPPINES),, Respondents
Facts:
Lao was doing business under the name and style of "Selwyn Lao Construction"; he entered into a transaction with Ever link, through its
authorized representative Wu, under which, Everlink would supply him with "HCG sanitary wares"; and that for the down payment, he issued
two (2) Equitable crossed checks payable to Everlink.
Everlink failed to perform its obligation. Later, Lao learned that the checks were deposited in two different bank accounts at respondent
International Exchange Bank, now respondent Union Bank of the Philippines (UnionBank). He was later informed that the two bank accounts
belonged to Wu and a company named New Wave Plastic (New Wave).
Lao was prompted to file a complaint against BDO for allowing the encashment of the two (2) checks.
Lao filed an Amended Complaint, wherein he impleaded Union Bank as additional defendant for allowing the deposit of the crossed checks in
two bank accounts other than the payee's, in violation of its obligation to deposit the same only to the payee's account.
Union Bank argued that Check No. 0127-242250 was validly negotiated by Everlink to New Wave.
Issue: Whether or not BDO, as drawee bank, was liable for the amount charged to the drawer’s account.
Held: Yes.
The Court agrees with the appellate court that in cases of unauthorized payment of checks to a person other than the payee named therein, the
drawee bank may be held liable to the drawer. The drawee bank, in turn, may seek reimbursement from the collecting bank for the amount of
the check. This rule on the sequence of recovery in case of unauthorized check transactions had already been deeply embedded in
jurisprudence.
The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter's accounts only those payables
authorized by him. A drawee bank is under strict liability to pay the check only to the payee or to the payee's order. When the drawee bank pays
a person other than the payee named in the check, it does not comply with the terms of the check and violates its duty to charge the drawer's
account only for properly payable items.
On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the
Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that he has good
title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and subsisting."
It has been repeatedly held that in check transactions, the collecting bank generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties made by the collecting
bank turns out to be false, then the drawee bank may recover from it up to the amount of the check.

2. G.R. No. 192159

COMMUNICATION AND INFORMATION SYSTEMS CORPORATION, Petitioner,
vs.
MARK SENSING AUSTRALIA PTY. LTD., MARK SENSING PHILIPPINES, INC. and OFELIA B. CAJIGAL, Respondents.
Facts:
<<<Petitioner Communication and Information Systems Corporation (CISC) and respondent Mark Sensing Australia Pty. Ltd. (MSAPL) entered
into a Memorandum of Agreement (MOA) dated March 1, 2002 whereby MSAPL appointed CISC as "the exclusive AGENT of [MS APL] to PCSO
during the [lifetime] of the recently concluded Memorandum of Agreement entered into between [MSAPL], PCSO and other parties”

As a result of MSAPL's refusal to pay commissions, CISC filed a complaint before the RTC in Quezon City for specific performance against MS APL,
Mark Sensing Philippines, Inc. (MSPI), Atty. Ofelia Cajigal, and PCS0. It also asked the RTC to issue a writ of preliminary mandatory injunction
and/or writ of attachment.

On September 10, 2007, the RTC granted CISC's application for issuance of a writ of preliminary attachment. But the RTC limited the attachment
to ₱4,861,312.00, which is the amount stated in .the complaint, instead of the amount sought to be attached by CISC, i.e., P113,197,309.10.
CISC moved to amend the order of attachment to include unpaid commissions in excess of the amount stated in the complaint.1âwphi1 On April
13, 2009, the RTC, acting on the partial motions for reconsideration by both CISC and MSAPL, modified the amount covered by the writ to reflect
the correct amount prayed for by CISC in its previous motion to amend the attachment order conditioned upon the latter's payment of
additional docket fees. >>>

On July 8, 2009, CISC posted a bond in the amount of ₱113,197,309.10 through Plaridel Surety and Insurance Company (Plaridel) in favor of
MSAPL, which the RTC approved on the same date. Two days later, MSAPL filed a motion to determine the sufficiency of the bond because of
questions regarding the financial capacity of Plaridel. But before the RTC could act on this motion, MSAPL, apparently 'getting hold of Plaridel' s
latest financial statements, moved to recall and set aside the approval of the ahttachment bond on the ground that Plaridel had no capacity to
underwrite the bond pursuant to Section 215 of the old Insurance Code because its net worth was only P214,820,566.00 and could therefore
only underwrite up to P42,964, 113.20. On September 4, 2009, the RTC denied MSAPL's motion, finding that although Plaridel cannot
underwrite the bond by itself, the amount covered by the attachment bond "was likewise re-insured to sixteen other insurance companies."
However, "for the best interest of both parties," the RTC ordered Plaridel to submit proof that the amount of ₱95,8 l 9,770.91 was reinsured.
Plaridel submitted its compliance on September 11, 2009, attaching therein the reinsurance contracts.

On September 18, 2009, MSAPL, MSPI and Atty. Ofelia Cajigal filed a petition for certiorari before the CA assailing the Orders of the RTC. Noting
that the posting of the attachment bond is a jurisdictional requirement, the CA concluded that since Plaridel's capacity for single risk coverage is
limited to 20% of its net worth, or ₱57,866,599.80, the RTC "should have set aside the second writ outright for non-compliance with Sections 3
and 4 of Rule 57."

After the CA perfunctorily denied CISC's motion for reconsideration on April 23, 2010, it filed this petition for review on certiorari.

Issue: whether or not the RTC committed grave abuse of discretion when it approved the attachment bond whose face amount exceeded the
retention limit of the surety.

Held: No. the approval of the attachment bond by the RTC was in order.

Section 215 of the old Insurance Code, the law in force at the time Plaridel issued the attachment bond, limits the amount of risk that insurance
companies can retain to a maximum of 20% of its net worth. However, in computing the retention limit, risks that have been ceded to
authorized reinsurers are ipso jure deducted. In mathematical terms, the amount of retained risk is computed by deducting ceded/reinsured risk
from insurable risk. If the resulting amount is below 20% of the insurer's net worth, then the retention limit is not breached.

Therefore, the approval of the attachment bond by the RTC was in order. Apparently, MSAPL failed to appreciate that by dividing the risk
through reinsurance, Plaridel's attachment bond actually became more reliable-as it is no longer dependent on the financial stability of one
company-and, therefore, more beneficial to MSAPL.

We reverse the CA and so hold that the reinsurance contracts were correctly issued in favor of Plaridel. A contract of reinsurance is one by which
an insurer (the "direct insurer" or "cedant") procures a third person (the "reinsurer") to insure him against loss or liability by reason of such
original insurance. It is a separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in the
reinsurance agreement. The reinsurer's contractual relationship is with the direct insurer, not the original insured, and the latter has no interest
in and is generally not privy to the contract of reinsurance. Put simply, reinsurance is the "insurance of an insurance."

3) Jaime T. Gaisano vs. Development Insurance and Surety Corporation

G.R. No. 190702 February 27, 2017

Facts: Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate number GTJ-777 (vehicle), while respondent is a domestic
corporation engaged in the insurance business. On September 27, 1996, respondent issued a comprehensive commercial vehicle policy to
petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year commencing on September 27, 1996 up to September 27,
1997.

Respondent also issued two other commercial vehicle policies to petitioner covering two other motor vehicles for the same period. 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.

The check bearing the amount of P140,893.50 represents payment for the three insurance policies, with P55,620.60 for the premium and other
charges over the vehicle. However, nobody from Trans-Pacific picked up the check that day (September 27) because its president and general
manager, Rolando Herradura, was celebrating his birthday. Trans-Pacific informed Noah's Ark that its messenger would get the check the next
day, September 28.

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager Achilles Pacquing (Pacquing) as a
service company vehicle, the vehicle was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the
Philippine National Police Traffic Management Command at Camp Crame in Quezon City. Despite search and retrieval efforts, the vehicle was
not recovered.

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 Trans
Pacific for P140,893.50 was deposited with Metrobank for encashment on October 1, 1996.

Issue: Whether or not there is a binding insurance contract between petitioner and respondent, and that petitioner is entitled to insurance
proceeds? NO.

Held: Petitioner is not entitled to the insurance proceeds because no insurance policy became effective for lack of premium payment. Insurance
is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. Just like any other contract, it requires a cause or consideration. The consideration is the premium, which must be paid at the
time and in the way and manner specified in the policy. If not so paid, the policy will lapse and be forfeited by its own terms. The law, however,
limits the parties' autonomy as to when payment of premium may be made for the contract to take effect. The general rule in insurance laws is
that unless the premium is paid, the insurance policy is not valid and binding. Section 77 of the Insurance Code, applicable at the time of the
issuance of the policy, provides: Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. 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, except in the case of a life or an industrial life policy whenever the grace period
provision applies.

Moreover, the policy itself states that the insured's application for the insurance is subject to the payment of the premium. There is no waiver of
pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent cannot be placed in estoppel.

4) Loadstar Shipping Co., Inc. v. Malayan Insurance Co., Inc., G.R. No. 185565 (Resolution) April 26, 2017

FACTS: This resolves the Motion for Reconsideration of the Decision dated November 26, 2014 of the Court in the above-captioned case filed by
respondent Malayan. Malayan alleges that in ruling in favor of Loadstar Shipping Company, Incorporated and Loadstar International Shipping
Company, Incorporated (petitioners), the Court disregarded the conclusion of the Court of Appeals that the petitioners acted as a common
carrier; that there was a breach of the contract of affreightment; and that the petitioners failed to produce evidence of a calamity to be
exculpated from liability.

The petitioners contend that the grounds raised by Malayan are no longer relevant because as found by the Court, Malayan did not adduce
proof of pecuniary loss to the insured Philippine Associated Smelting and Refining Corporation (PASAR). PASAR has not established by an iota of
evidence the amount of loss or actual damage it suffered by reason of seawater wettage of the 777.29 metric tons of copper concentrates. In
spite of no proof of loss, Malayan, with seeming hastiness paid the claim of PASAR in the amount of P33,934,948.75. According to the
petitioners, Malayan cannot make them answerable for its mistake in indemnifying PASAR.

On June 10, 2015, Malayan filed a Motion to Refer the Case to the Court en banc alleging that the Decision dated November 26, 2014 of the
Third Division deviated from the doctrine enunciated in Delsan Transport Lines, Inc. v. CA. Malayan contends that in Delsan, the Court held that
upon payment by the insurance company of the insurance claim, the insurance company should be subrogated to the rights of the insured; it is
not even necessary to present the insurance policy because subrogation is a matter of equity.

ISSUE:
1. Whether or not the doctrine in Delsan v. CA can be applied to the claim? NO.
2. Whether or not Malayan should be subrogated to the rights of PASAR, and can claim actual damages from Loadstar Shipping? NO.
HELD:
1) Delsan involved the sinking of a vessel which took down with it the entire cargo of fuel it was carrying. Hence, the fact of total loss was
completely and undisputedly established. The burden of proof was upon the common carrier to prove that it was not liable for the loss, which it
failed to discharge. It was only but logical for the Court to hold the common carrier liable to the insurance company that paid the insured owner
of the lost cargo as the latter's subrogee.
The facts of the instant case are not as straightforward as in Delsan. Here, the copper concentrates were delivered by the petitioners to
the consignee PASAR although part thereof was contaminated with seawater. PASAR did not simply reject the contaminated goods (on the basis
that these were no longer fit for the intended purpose), claim the value thereof from Malayan and leave things at that. It bought back the goods
which it had already rejected. Meanwhile, Malayan opted to cash in the situation by selling the contaminated copper concentrates to the very
same consignee who already rejected the goods as total loss.
After denying the petitioners of opportunity to participate in the disposal or sale of the goods, Malayan sought to recover the total value
of the wet copper concentrates from them. Malayan and PASAR's extraneous actuations are inconsistent with the alleged fact of total loss.
Verily, Delsan cannot be applied given the contradistinctive circumstances obtaining in this case. Notably, PASAR and Malayan were even able to
come up and agree on a residual value. Needless to say, the mere fact that there was a residual value negates the verity of total loss sustained
by PASAR.

2) As the Court discussed in the Decision dated November 26, 2014, Malayan was not able to prove the pecuniary loss suffered by PASAR for
which the latter was indemnified, so Malayan cannot claim actual damages from Loadstar Shipping. This is in line with the principle that a
subrogee steps into the shoes of the insured and can recover only if the insured likewise could have recovered. Actual damages are not
presumed; it cannot be anchored on mere surmises, speculations or conjectures.

Nonetheless, the Court notes that the petitioners failed to comply with some of the terms of their contract of affreightment with PASAR. It was
stipulated that the vessel to be used must not exceed 25 years of age, yet the vessel, MV Bobcat, was more than that age when the subject
copper concentrates were transported. Additionally, the petitioners failed to keep the cargo holds and hatches of MV Bobcat clean and fully
secured as agreed upon, which resulted in the wettage of the cargo. When the copper concentrates delivered were contaminated with
seawater, the petitioners have failed to exercise extraordinary diligence in the carriage thereof.

The Court deems it proper to award nominal damages to Malayan. This is in recognition of the breach of contract committed by the petitioners.
"So long as there is a violation of the right of the plaintiff — whether based on law, contract or other sources of obligations — an award of
nominal damages is proper."

"Nominal damages are recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no
actual present loss of any kind or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been
or can be shown." "The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances." To the mind of the Court, the amount of P1,769,374.725, which is equivalent to six percent (6%) of the sum being claimed by
Malayan less the residual value of the copper concentrates, is sufficient as damages.

5. LTFRB VS GV TRANSPORT

Facts:

A vehicular accident occurred at the Mountain Province involving a public utility bus coming from Sampaloc, Manila, bound for Poblacion Bontoc
and bearing a "G.V. Florida" body mark with License Plate No. TXT-872. The mishap claimed the lives of fifteen (15) passengers and injured
thirty-two (32) others.

An initial investigation report showed that based on the records of the Land Transportation Office (LTO) and herein petitioner, License Plate No.
TXT-872 actually belongs to a different bus owned by and registered under the name of a certain Norberto Cue, Sr. (Cue) and that the bus
involved in the accident is not duly authorized to operate as a public transportation. Thus, an order suspending their Certificate of Public
Convenience was issued.

The bus, on the other hand, was registered as private, and its plate number belongs to a different owner; that the true registered owner of the
bus is Dagupan Bus, and not GV Florida. Subsequently, Dagupan Bus filed its Answer claiming that: it is not the owner of the bus which was
involved in the accident; the owner is G.V. Florida; Dagupan Bus entered into a Memorandum of Agreement with G.V. Florida, which, among
others, facilitated the exchange of its CPC covering the Cagayan route for the CPC of Florida covering the Bataan route; and the subsequent
registration of the subject bus in the name of Dagupan Bus is a mere preparatory act on the part of G.V. Florida to substitute the old authorized
units of Dagupan Bus plying the Cagayan route which are being operated under the abovementioned CPC which has been exchanged with G. V.
Florida.

LTFRB then rendered its decision canceling Cue's CPC No. 2007-0407 and suspending the operation of respondent's 186 buses under 28 of its
CPCs for a period of six (6) months. The CA modified the decision of the LTFRB, setting aside the suspension for 6 months, as well as the
impounding of the vehicles.

Issue:

Whether or not LTFRB is justified in suspending respondent's 28 CPCs for a period of six (6) months. In other words, is the suspension within the
powers of the LTFRB to impose and is it reasonable?

Held:
Yes. Section 16(n) of Commonwealth Act. No. 146, otherwise known as the Public Service Act, provides that the LTFRB has the power:

(n) To suspend or revoke any certificate issued under the provisions of this Act whenever the holder thereof has violated or willfully and
contumaciously refused to comply with any order rule or regulation of the Commission or any provision of this Act: Provided, That the
Commission, for good cause, may prior to the hearing suspend for a period not to exceed thirty days any certificate or the exercise of any right
or authority issued or granted under this Act by order of the Commission, whenever such step shall in the judgment of the Commission be
necessary to avoid serious and irreparable damage or inconvenience to the public or to private interests.

Also, Section 5(b) of E.O. 202 states:

b. To issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the operation of public land
transportation services provided by motorized vehicles, and to prescribe the appropriate terms and conditions therefor;

The suspension of the 28 CPCs was also brought about by respondent's wanton disregard and obstinate defiance of the regulations issued by
petitioner, which is tantamount to a willful and contumacious refusal to comply with the requirements of law or of the orders, rules or
regulations issued by petitioner and which is punishable, under the law, by suspension or revocation of any of its CPCs.

The suspension of respondent's CPCs finds relevance in light of the series of accidents met by different bus units owned by different operators in
recent events. This serves as a reminder to all operators of public utility vehicles that their franchises and CPCs are mere privileges granted by
the government. As such, they are sternly warned that they should always keep in mind that, as common carriers, they bear the responsibility of
exercising extraordinary diligence in the transportation of their passengers. Moreover, they should conscientiously comply with the
requirements of the law in the conduct of their operations, failing which they shall suffer the consequences of their own actions or inaction.

6. JAMES IENT v. TULLETT PREBON, GR No. 189158, 2017-01-11

Facts: Petitioners Ient and Schulze were tasked with the establishment of a Philippine subsidiary of Tradition Asia to be known as Tradition
Financial Services Philippines... registered with the Securities and Exchange Commission (SEC) on September 19, 2008
Tullett, through one of its directors, Gordon Buchan, filed a Complaint-Affidavit
Ient and Schulze, Jaime Villalon (Villalon), who was formerly President and Managing Director of Tullett, Mercedes Chuidian (Chuidian), who was
formerly a member of Tullett's Board of Directors, and other John and Jane Does.
Villalon and Chuidian were charged with using their former positions in Tullett to sabotage said company by orchestrating the mass resignation
of staff to join Tradition Philippines
Villalon alleged that frustration with management changes in Tullett Prebon motivated his personal decision to move from Tullett... to enlist
with the Tradition Group... he informed them of his move contemporaneously with the tender of his resignation letter and claimed that his
meetings with the brokers was not done in bad faith as it was but natural, in light of their long working relationship
Chuidian claimed that she left Tullett simply to seek greener pastures. She also insisted the complaint did not allege any act on her part that is
illegal or shows her participation in any conspiracy. She merely exercised her right to exercise her chosen profession and pursue a better life.
In her Counter-Affidavit,[17] petitioner Schulze denied the charges against her. She argued that "[s]ince the Corporation Code does not expressly
provide that the provisions of the Revised Penal Code shall be made to apply suppletorily, nor does it adopt the nomenclature of penalties of the
Revised Penal Code
Ient claimed that (a) there could be no violation of Sections 31 and 34 of the Corporation as these sections refer to corporate acts or corporate
opportunity; (b) Section 144 of the same Code cannot be applied to Sections 31 and 34 which already contains the penalties or remedies for
their violation; and (c) conspiracy under the Revised Penal Code cannot be applied to the Sections 31 and 34 of the Corporation Code.
In a Resolution[28] dated February 17, 2009, State Prosecutor Cresencio F. Delos Trinos, Jr. (Prosecutor Delos Trinos), Acting City Prosecutor of
Makati City, dismissed the criminal complaints. He reasoned that: Their cited actuations certainly did not involve voting for or assenting to
patently unlawful acts of [Tullett] nor could the same be construed as gross negligence or bad faith in directing the affairs of [Tullett].
Consequently, Tullett filed a petition for review with the Secretary of Justice to assail the foregoing resolution of the Acting City Prosecutor of
Makati City. In a Resolution[32] dated April 23, 2009, then Secretary of Justice Raul M. Gonzalez reversed and set aside Prosecutor Delos Trinos's
resolution and directed the latter to file the information for violation of Sections 31 and 34 in relation to Section 144 of the Corporation Code
against Villalon, Chuidian, Harvey, Schulze, and Ient before the proper court
Issues: Whether or not there was probable cause to hold petitioners, in conspiracy with certain former directors and officers of respondent
Tullet Prebon (Philippines), Inc. (Tullett), criminally liable for violation of Sections 31 and 34 in relation to Section 144 of the Corporation Code.

Ruling: The main bone of disagreement among the parties in this case is the applicability of Section 144 of the Corporation Code to Sections 31
and 34 of the same statute such that criminal liability attaches to violations of Sections 31 and 34.
We do not agree with respondent Tullett that previous decisions of this Court have already settled the matter in controversy in the consolidated
cases at bar. The declaration of the Court in Home Insurance Company v. Eastern Shipping Lines[73] that "[t]he prohibition against doing
business without first securing a license [under Section 133] is now given penal sanction which is also applicable to other violations of the
Corporation Code under the general provisions of Section 144 of the Code" is unmistakably obiter dictum
With respect to the minutiae of other arguments cited in the parties' pleadings, it is no longer necessary for the Court to pass upon the same in
light of our determination that there is no clear, categorical legislative intent to define Sections 31 and 34 as offenses under Section 144 of the
Corporation Code.
WHEREFORE, the consolidated petitions are GRANTED. The Decision dated August 12, 2009 of the Court of Appeals in CA-G.R. SP No. 109094
and the Resolutions dated April 23, 2009 and May 15, 2009 of the Secretary of Justice in I.S. No. 08-J-8651 are REVERSED and SET ASIDE.SO
ORDERED.
7. Wesleyan University-Philippines vs. Guillermo T. Maglaya

FACTS: WUP is a non-stock, non-profit, non-sectarian educational corporation duly organized and existing under the Philippine laws. Respondent
Atty. Guillermo T. Maglaya, Sr. was appointed as a corporate member and was elected as a member of the Board of Trustees, both for a period
of five (5) years. He was elected as President of the University for a five-year term. He was re-elected as a trustee.
In a Memorandum, the incumbent Bishops of the United Methodist Church apprised all the corporate members of the expiration of their tenns
on December 31, 2008, unless renewed by the former. The said members, including Maglaya, sought the renewal of their membership in the
WUP's Board, and signified their willingness to serve the corporation.
Dr. Dominador Cabasal, Chairman of the Board, informed the Bishops of the cessation of corporate terms of some of the members and/or
trustees since the by-laws provided that the vacancy shall only be filled by the Bishops upon the recommendation of the Board. Maglaya learned
that the Bishops created an Ad Hoc Committee to plan the efficient and orderly turnover of the administration of the WUP in view of the alleged
"gentleman's agreement", and that the Bishops have appointed the incoming corporate members and trustees. He clarified that there was no
agreement and any discussion of the turnover because the corporate members still have valid and existing corporate terms.
In this case, the Bishops, through a formal notice to all the officers, deans, staff, and employees of WUP, introduced the new corporate
members, trustees, and officers. In the said notice, it was indicated that the new Board met, organized, and elected the new set of officers.
Manuel Palomo, the new Chairman of the Board, informed Maglaya of the termination of his services and authority as the President of the
University.
Thereafter, Maglaya and other fonner members of the Board filed a Complaint for Injunction and Damages before the Regional Trial Court of
Cabanatuan City.The RTC dismissed the case declaring the same as a nuisance or harassment suit prohibited under Section l(b), Rule 1 of the
Interim Rules for Intra-Corporate Controversies. The RTC observed that it is clear from the by-laws of WUP that insofar as membership in the
corporation is concerned, which can only be given by the College of Bishops of the United Methodist Church, it is a precondition to a seat in the
WUP Board. Consequently, the expiration of the terms of the plaintiffs, including Maglaya, as corporate members carried with it their
termination as members of the Board. Moreover, their continued stay in their office beyond their terms was only in hold-over capacities, which
ceased when the Bishops appointed new members of the corporation and the Board.
The CA affirmed the decision of the RTC, and dismissed the petition for certiorari filed by the plaintiffs for being the improper remedy.
Thereafter, Maglaya filed the present illegal dismissal case against WUP, Palomo, Bishop Lito C. Tangonan and Bishop Leo A. Soriano. He claimed
that he was unceremoniously dismissed in a wanton, reckless, oppressive and malevolent manner.
The Labor Arbiter ruled in favor of WUP. The LA held that the action between employers and employees where the employer-employee
relationship is merely incidental is within the exclusive and original jurisdiction of the regular courts.
The National Labor Relations Commission reversed and set aside the Decision of the LA ruling that the illegal dismissal case falls within the
jurisdiction of the labor tribunals. Since the reasons for his termination cited by WUP were not among the just causes provided under Article 282
(now Article 297) of the Labor Code, Maglaya was illegally dismissed.
Thereafter, the NLRC denied the motion for reconsideration filed by WUP and the CA dismissed the petition for certiorari filed by WUP. The CA
noted that the decision and resolution of the NLRC became final and executor.
ISSUE: The Court of Appeals committed an error of law when it summarily dismissed the special civil action for certiorari raising lack of
jurisdiction of the NLRC filed by [WUP] where it was very clear that the NLRC had no jurisdiction over the case involving a corporate officer and
where the nature of the controversy is an intra-corporate dispute.

RULING: The Court find the instant petition impressed with merit.
WUP alleges that while the NLRC decision became final and executory, it did not mean that the said decision had become immutable and
unalterable as the CA ruled. WUP maintains that the remedy of the aggrieved party against a final and executory decision of the NLRC is the
filing of the petition for certiorari under Rule 65 of the Rules of Court. As such, it was able to meet the conditions set forth in filing the said
remedy before the CA.
"Corporate officers" in the context of Presidential Decree No. 902- A are those officers of the corporation who are given that character by the
Corporation Code or by the corporation's by-laws. There are three specific officers whom a corporation must have under Section 25 of the
Corporation Code. These are the president, secretary and the treasurer. The number of officers is not limited to these three. A corporation may
have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager.
The number of corporate officers is thus limited by law and by the corporation's by-laws.
Since this Court is now reversing the challenged decision of the CA and affirming the decision of the LA in dismissing the case for want of
jurisdiction, Maglaya is not entitled to collect the amount of ₱2,505,208.75 awarded from the time the NLRC decision became final and
executory up to the time the CA dismissed WUP's petition for certiorari.
In sum, this Court finds that the NLRC erred in assuming jurisdiction over, and thereafter in failing to dismiss, Maglaya's complaint for illegal
dismissal against WUP, since the subject matter of the instant case is an intra-corporate controversy which the NLRC has no jurisdiction.

8. Mary Lim vs. Moldex Land, Inc.

FACTS: On July 21, 2012 Condocor (Condominium Corporation) a non-stock, non-profit corporation, which is the registered condominium
corporation for the Golden Empire Tower held its annual general membership meeting. Moldex became a member of Condocor on the basis of
its ownership of the 220 unsold units in the Golden Empire Tower.
During the meeting, an existence of a quorum was declared even though only 29 of the 108 unit buyers were present. The declaration was based
on the presence of the majority of the voting rights, including those pertaining to the 220 unsold units held by Moldex through its
representatives. Lim, through her attorney-in-fact, objected to the validity of the meeting. The objection was denied. Thus, Lim and all the other
unit owners present, except for one, walked out and left the meeting.
Despite the walkout, the individual respondents and the other unit owner proceeded with the meeting and elected the new members of the
Board of Directors for 2012-2013. All four (4) individual respondents (JAMINOLA, MACALINTAL, MILANES, and ROMAN) were voted as members
of the board, together with other 3 members.
Consequently, Lim filed an election protest before the RTC. Lim claimed that herein respondents are not entitled to be members of the Board of
Directors because they are non-unit buyers. However, said court ruled in favor for the respondents. Not in conformity, Lim filed the present
petition.

ISSUES:
1) Whether or not the July 21, 2012 membership meeting was valid.
2) Whether or not Moldex can be deemed a member of Condocor.
3) Whether or not representatives of Moldex who are non-members can be elected as a member of the Board of Directors of Condocor.

HELD:
I
No. The July 21, 2012 membership meeting was not valid.
A stockholders' or members' meeting must comply with the following requisites to be
valid:

1. The meeting must be held on the date fixed in the ByLaws or in accordance with law;
2. Prior written notice of such meeting must be sent to all stockholders/members of record;
3. It must be called by the proper party;
4. It must be held at the proper place; and
5. Quorum and voting requirements must be met.

Of these five ( 5) requirements, the existence of a quorum is crucial. Any act or transaction made during a meeting without quorum is rendered
of no force and effect, thus, not binding on the corporation or parties concerned. In relation thereto, Section 52 of the Corporation Code of the
Philippines (Corporation Code) provides:
Section 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporations.
Thus, for stock corporations, the quorum is based on the number of outstanding voting stocks while for non-stock corporations, only those who
are actual, living members with voting rights shall be counted in determining the existence of a quorum.
The By-Laws of Condocor has no rule different from that provided in the Corporation Code with respect the determination of the existence of a
quorum. The quorum during the July 21, 2012 meeting should have been majority of Condocor's members in good standing. Accordingly, there
was no quorum during the July 21, 2012 meeting considering that only 29 of the 108 unit buyers were present. As there was no quorum, any
resolution passed during the July 21,2012 annual membership meeting was null and void and, therefore, notbinding upon the corporation or its
members. The meeting being null andvoid, the resolution and disposition of other legal issues emanating from the null and void July 21, 2012
membership meeting has been rendered unnecessary.
II
Yes. Moldex can be deemed a member of Condocor.
Lim asserted that only unit buyers are entitled to become members of Condocor. Respondents, for their part, countered that a registered owner
of a unit in a condominium project or the holders of duly issued condominium certificate of title (CCT), automatically becomes a member of the
condominium corporation, relying on Sections 2 and 10 of the Condominium Act, the Master Deed and Declaration of Restrictions, as well as the
By-Laws of Condocor. For said reason, respondents averred that as Moldex is the owner of 220 unsold units and the parking slots and storage
areas attached thereto, it automatically became a member of Condocor upon the latter's creation.
On this point, respondents are correct. Section 2 of the Condominium Act states:
Sec. 2. A condominium is an interest in real property consisting of separate interest in a unit in a residential, industrial or commercial building
and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. A
condominium may include, in addition, a separate interest in other portions of such real property. Title to the common areas, including the land,
or the appurtenant interests in such areas, may be held by a corporation specially formed for the purpose (hereinafter known as the
"condominium corporation") in which the holders of separate interest shall automatically be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest of their respective units in the common areas
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.
III
No. Representatives of Moldex who are non-members cannot be elected as a member of the Board of Directors of Condocor.
A corporation can act only through natural persons duly authorized for the purpose or by a specific act of its board of directors.45 Thus, in order
for
Moldex to exercise its membership rights and privileges, it necessarily has to appoint its representatives. However, individual respondents who
are non-members cannot be elected as directors and officers of the Condocor.
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 proxyndominium corporation.

9. Metropolitan Bank and trust Company v. Liberty Corrugated Boxes Manufacturing Corporation
G.R. No. 184317
January 25, 2017

Ponente: Leonen, J.
Respondent Liberty Corrugated Boxes Manufacturing Corp. is a domestic corporation that produces corrugated boxes. It obtained various credit
accommodations and loan facilities from petitioner Metropolitan Bank and Trust Company (Metrobank) amounting P19,940,000. To secure its
loan respondent bank mortgaged to Metrobank 12 lots in Valenzuela City.

Respondent defaulted on the loans and filed a Petition for Corporate Rehabilitation before the RTC of Malabon City. It claimed that it could not
meet its obligations to Metrobank because of the Asian Financial Crisis and the serious sickness of its Founder and President, Ki Kiao Koc.

RTC, finding the Petition sufficient ain form and substance, issued a Stay Order and set an initial hearing for the Petition.

Respondent’s Rehabilitiation plan consisted of: a) a debt moratorium; b) renewal of marketing efforts; c) resumption of operations; and d) entry
into condominium development, a new business.

Metrobank filed its Comment/Oppostiiton and it argued the following:

a) Respondent Liberty was not qualified for corporate rehabilitation;
b) that Respondent’s Petition for rehabilitation and rehabilitation plan was defective;
c) and that the Rehabilitation plan was not feasible; and
d) it also claimed that Respondent Liberty filed Petition solely to avoid its obligations to the bank.

Afterwards, the RTC issued an Order giving due course to the Petition and referred the rehabilitation plan to a Rehabilitation Receiver Rafael
Chris F. Teston who recommended the approval of the plan, provided that Liberty would initiate construction on the property in Valenzuela
within 12 months from approval.

RTC approved the Rehabilitation Plan and found that Liberty was capable of being rehabilitated and that the rehabilitation plan was feasible and
viable.

Upon appeal, the Court of Appeals affirmed the RTC’s findings and that it correctly approved the rehabilitation plan.

Hence, this case.

Petitioner argues the following:

1) That respondent Liberty can no longer file a petition for corporate rehabilitation for Rule 4, Section 1 of the Interim Rules restricts the kind of
debtor who can file such petition and that the phrase “who foresees the impossibility of meeting its debts when they respectively fall due” must
be construed plainly to mean that an element of foresight is required. Because foresight is required, the debts of the corporation should not
have matured.

2) That RTC’s approval of the Rehabilitation Plan is contrary to Rule 4, Sec. 23 of the Interim Rules. It states that the court may approve the
rehabilitation plan over the opposition of the creditor only when the two elements concur: a) when the court finds the rehabilitation plan of the
petitioner if feasible; and 2) when the opposition of the creditors is “manifestly unreasonable.” Petitioner claims that the RTC did not declare the
manifest unreasonableness of petitioner’s opposition.

3) That the Petition was defective for the Petition and the attached inventory of accounts receivable failed to disclosed the maturity dates of the
accounts in violation of Rule 4, Section 2 of the Interim Rules.

4)That the plan lacked material financial commitments required under rule 4, Section 5 of the Interim rules.

Respondent Liberty contends that it qualifies for rehabilitation and argues the following:
1) That Petitioner’s reading of Rule 4, Section 1 of the interim Rules is restrictive and in support cites Section 6 on stay order, which may assume
that cases have been filed to collect on matured debts, may be granted.

Issues:
First. Whether respondent, a debtor in default is qualified to file a petition for rehabilitation.
Second. Whether respondent’s Petition for Rehabilitation is sufficient in form and substance and rehabilitation plan is feasible.

Ruling:
First. Yes. A corporation that may seek corporate rehabilitation is characterized not by its debt but by its capacity to pay this debt.

Rule 4, Section 1 of the Interim Rules provides: Who May Petition. — Any debtor who foresees the impossibility of meeting its debts when they
respectively fall due, or any creditor or creditors holding at least twenty-five percent (25%) of the debtor's total liabilities, may petition the
proper Regional Trial Court to have the debtor placed under rehabilitation.
Rehabilitation is the process of restoring "the debtor to a position of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the
corporation continues as a going concern that if it is immediately liquidated." It contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and solvency.

Rule 4, Section 1 of the Interim Rules does not specify what kind of debtor may seek rehabilitation. The provision allows creditors holding 25% of
the debtor corporation's total liabilities to petition for the corporation's rehabilitation.
Likewise, in Abrera v. Hon. Barza, College Assurance Plan Philippines, Inc. (CAP) sold pre-need educational plans, which guaranteed the payment
of tuition and other standard school fees.

This Court held that CAP, a pre-need corporation already in default of its obligationsto the planholders, could file for rehabilitation:
Under the Interim rules,"debtor" shall mean "any corporation, partnership, or association, whether supervised or regulated by the Securities
and Exchange Commission or other government agencies, on whose behalf a petition for rehabilitation has been filed under these Rules."

Second. YES. his Court is not a trier of facts. The factual Findings of the lower courts are accorded great weight and respect. This is especially so
in corporate rehabilitation proceedings, to which commercial courts are designated on account of their expertise and specialized knowledge.

Petitioner’s contention that the Court of Appeals ignored respondent's failure to attach the maturity datesand merely relied on respondent's
self-serving assertion, fails to convince.

The Court of Appeals had legal and factual bases for approving the Petition for rehabilitation.
The Interim Rules does not specify that courts must make a written declaration that a creditor's opposition is manifestly unreasonable.
Rule 4, Section 5 of the Interim Rules outlines the requisites of a rehabilitation plan:
Rehabilitation Plan. — The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the
rehabilitation;
(b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of
secured creditors;
(c) the material 􏰀nancial commitments to support the rehabilitation plan;
(d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity,
restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest;
(e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor's properties
were liquidated; and
(f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.

10. Philippine Numismatic and Antiquarian Society v. Genesis Aquino

G.R. No. 206617
January 30, 2017
Ponente: Peralta, J.

Facts:
Petitioner Philippine Numismatic and Antiquarian Society, Inc. (PNAS) is a non-stock, non-profit domestic corporation duly organized in
accordance with Philippine laws.

Two Petitions were filed.

FIRST petition filed: On October 29, 2009, petitioner, represented by ATTY. FAUSTINO S. TUGADE, filed a complaint with the RTC praying for the
issuance of a writ of a preliminary injunction against respondents.

SECOND petition filed: On December 22, 2009, another complaint was filed by petitioner and the verification was signed by ATTY. WILLIAM L.
VILLAREAL who alleged that he is the President of PNAS.

On January 26, 2010, considering that there were two different parties claiming to be representative of petitioner, the RTC issued a Joint Order
directing the parties to submit within 15 days from notice the appropriate pleadings as to who are the true officers of PNAS and to submit all
documentary exhibits in support of their respective positions.

Only the private respondents complied with the aforesaid Joint Order and they alleged that Atty. William F. Villareal who signed the verification
of the complaint was not authorized by the Board of Directors of PNAS to institute an action in behalf of petitioner corporation, and that his
action in filing the complaint is an ultra vires act and was in violation of Section 23 of the Corporation Code.

On March 15, 2010, the RTC dismissed the complaint for failure of plaintiff as represented by Atty. Wiiliam F. Villareal to comply with the Joint
Order.

Upon appeal, CA affirmed the dismissal.

Hence, this petition.

Issue:
1) Whether or not the CA is correct in dismissing the case.
2) Whether or not Atty. William L. Villareal was indeed authorized through the Board Resolution to represent PNAS in filing a case.
Ruling:
1) YES. There is no question that a litigation should be disallowed immediately if it involves a person without any interest at stake, for it would be
futile and meaningless to still proceed and render a judgment where there is no actual controversy to be thereby determined. Courts of law in
our judicial system are not allowed to delve on academic issues or to render advisory opinions. They only resolve actual controversies involving
rights that are legally demandable and enforceable.
The Rules of Court, specifically Section 2 of Rule 3 thereof, requires that unless otherwise authorized by law or the Rules of Court, every action
must be prosecuted or defended in the name of the real party-in-interest, thus:
Sec. 2. Parties-in-interest. — A real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of
the real party-in-interest.

This provision has two requirements:

(1) to institute an action, the plaintiff must be the real party-in-interest; and
(2) the action must be prosecuted in the name of the real party-in-interest. Interest within the meaning of the Rules of Court means material
interest or an interest in issue to be affected by the decree or judgment of the case, as distinguished from mere curiosity about the question
involved. One having no material interest to protect cannot invoke the jurisdiction of the court as the plaintiff in an action.

The Interim Rules of Procedure for Intra-Corporate Controversies under Republic Act No. 8799 in A.M. No. 01-2-04-SC, effective on April 1, 2001
considers the suppletory application of the Rules of Court under Section 2, Rule 1, thus:
Section 2. Suppletory application of the Rules of Court. — The Rules of Court, in so far as they may be applicable and are not inconsistent with
these Rules, are hereby adopted to form an integral part of these Rules.

In the case at bar, PNAS, as a corporation, is the real party-in-interest because its personality is distinct and separate from the personalities of its
stockholders. A corporation has no power, except those expressly conferred on it by the Corporation Code and those that are implied or
incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly-authorized officers and
agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that
exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors. It necessarily follows that "an individual
corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors."

Section 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are exercised, all business conducted, and
all properties controlled by the board of directors. A corporation has a separate and distinct personality from its directors and officers and can
only exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any
corporate power pertaining to the corporation without authority from the board of directors. Absent the said board resolution, a petition may
not be given due course. The application of the rules must be the general rule, and the suspension or even mere relaxation of its application, is
the exception. This Court may go beyond the strict application of the rules only on exceptional cases when there is truly substantial compliance
with the rule, and the suspension or even mere relaxation of its application, is the exception. This Court may go beyond the strict application of
the rules only on exceptional cases when there is truly substantial compliance with the rule.

Hence, since petitioner is a corporation, the certification attached to its complaint filed with the RTC must be executed by an officer or member
of the board of directors or by one who is duly authorized by a resolution of the board of directors; otherwise, the complaint will have to be
dismissed.

2) NO. Respondents Genesis Aquino, Angelo Bernardo, Jr., Li Vi Ju, and Raymundo Santos aver that Atty. Villareal was President in 2007 and was
never re-elected from then on.
If indeed Atty. Villareal was authorized to file the complaint, he could have simply presented a Board Resolution to prove that he was
authorized.
the records would show that Atty. Villareal ceased to be a director in 2009, not in 2008 as erroneously found by the CA. But what is material is
that he was not anymore a director in 2009 at the time he filed the complaint. This is evidenced by the notarized Certificate of Elections.

SC denied the petition.

11. Pilipinas Shell Petroleum Corp. vs. Royal Ferry Services, Inc.

Facts : On August 28, 2005, Royal Ferry Services Inc. filed a petition for Voluntary Insolvency before the Regional Trial Court of Manila. In its
Petition stated therein , in the year 2000, the company suffered business losses. Efforts were made to revive its financial condition but failed.
The business ceased its operations. A special board meeting was held and was approved and authorized by the members of the board to allow
the company to file a Petition for insolvency.

In retrospect of the company, it is a corporation duly organized and existing under the Philippine Laws and was holding its principal
business office address in Bangkal Street, Makati City but holds its Office at Room 203 at Bf condominium Building , Intramuros , Manila at the
time the Petition was filed.
 On December 19, 2005, the Regional Trial Court of Manila issued an order, granting the petition declaring the Royal Ferry Services
insolvent.

The Court orders :

The Branch Sheriff to take possession of, and safely keep until the appointment, of an Assignee all the deeds, vouchers, books of accounts,
papers, notes, bills and securities of the petitioner and all its real and personal properties, estates and effects not exempt from execution;

All persons and entities owing money to petitioner are hereby forbidden to make payment for its accounts or to deliver or transfer any property
to petitioner except to the duly elected Assignee;

All civil proceedings against petitioner are deemed stayed;

For purposes of electing an Assignee, a meeting of all creditors of the petitioner is hereby set on February 24, 2006 at 8:30 a.m. before this
Court, at Room 435, Fourth Floor, Manila City Hall Building.

The said order was published in a newspaper of general circulation for three consecutive weeks furnishing copies to all creditors of the
company in the schedule of creditors.

On December 23, 2005, Pilipinas Shell Petroleum filed before the Regional Trial Court of Manila a Formal Notice of Claim and a Motion
to Dismiss claiming that the respondent Royal Ferry Services Inc owes them the amount of P 2,769,387.67 and the Petition for Insolvency was
filed erroneously filed in a wrong venue. The petitioners argued that in Insolvency Law, a petition for Insolvency should be filed before he Court
with territorial jurisdiction over the company's residence. In its Article of Incorporation, respondent's principal business address is situated in
Makati City would it be the Petition for Insolvency should be filed before the Court of Makati.

The petitioners Motion was denied by the Court on January 30, 2006 for lack of merit. Thereafter, Pilipinas Shell moved for a
reconsideration on February 24, 2006.
On June 15, 2006, Regional Trial Court reconsidered the denial of Pilipinas Shell Motion to Dismiss and reconsider its order dated
January 30, 2006. The Petition for Voluntary Insolvency was ordered DISMISSED.

The respondent filed a Notice of Appeal on October 26, 2006 and the records was forwarded to the Court of Appeals.

The Appellate Court ruled reinstating the Insolvency proceedings setting aside the Trial Court order dated June 15, 2006.

ISSUES : Whether or not the Petition for Voluntary Insolvency was filed in a proper venue where the company's residence is situated.
RULING: The Supreme Court ruled, AFFIRMED the decision of the Court of Appeals reinstating the Petition for Voluntary Insolvency filed
by the respondent before the Regional Trial Court of Manila.

The Petition for certiorari filed by Pilipinas Shell was ordered Denied.

The respondent Royal Ferry Services is a resident of Manila in its actual operations of its business when the Petition for Insolvency was
filed. It was not opposed as stated in the Articles of Incorporation of the respondent that its principal business address is situated in Makati is no
longer accurate and existing.

Facts has been proven that the actual use and venue of the respondent's business operations is in Manila when the Court Sheriff
implemented the order of the Court dated December 19, 2005.

12. Pilipinas Shell Petroleum Corporation Vs. Carlos Duque & Teresa Duque

FACTS: The instant petition arose from an Information for violation of Batas Pambansa Big. 22 (BP 22) filed with the Metropolitan Trial Court
(MeTC) of Makati City against herein respondents.

Pilipinas Shell Petroleum Corporation (PSPC) is a lessee of a building known as Shell House at 156 Valero Street, Salcedo Village, Makati City. On
August 23, 2000, PSPC subleased a 500-meter portion of the 2nd Floor of the Shell Building to the The Fitness Center (TFC). Thereafter, TFC
encountered problems in its business operations. Thus, with the conformity of PSPC, TFC assigned to Fitness Consultants, Inc, (FCI) all its rights
and obligations under the contract of sublease executed by PSPC in its favor. Respondent Carlos Duque is the proprietor, while respondent
Teresa Duque is the corporate secretary of FCI. Subsequently, FCI failed to pay its rentals to PSPC. FCI subsequently issued a check, with
respondents as signatories, which would supposedly cover FCI's obligations to PSPC. However, the check was dishonored, thus, leading to the
filing of a criminal complaint against respondents for their alleged violation of BP 22. The parties then went to trial, which subsequently resulted
in a verdict finding herein respondents guilty as charged. A Fine and civil indemnity to the private complainant was imposed. Respondents
appealed the MeTC Decision with the RTC of Makati. On March 16, 2011, the RTC of Makati City, Branch 143, rendered judgment acquitting
respondents. However the Court maintains the civil liability to be indemnified to the complainant. Respondents filed a Motion for Partial
Reconsideration of the RTC Decision contending that they could not be held civilly liable because their acquittal was due to the failure of the
prosecution to establish the elements of the offense charged. In addition, they assert that they, being corporate officers, may not be held
personally and civilly liable for the debts of the corporation they represent, considering that they had been acquitted of criminal liability. In an
Order dated September 2, 2011, the RTC found merit in respondents' Motion for Partial Reconsideration. On March 23, 2012, the RTC issued an
Order granting PSPC's motion for reconsideration, thus, reviving the RTC Decision of March 16, 2011. Respondents filed a petition for review
with the CA. The CA basically held that, upon acquittal, the civil liability of a corporate officer in a BP 22 case is extinguished with the criminal
liability, without prejudice to an independent civil action which may be pursued against the corporation. Petitioner filed a motion for
reconsideration, but the CA denied it in its Resolution dated January 14, 2015.

ISSUE: Whether or not the respondents, as corporate officers, may still be held civilly liable despite their acquittal from the criminal charge of
violation of BP 22.

HELD: No. The Court rules in the negative.

In the case of Gosiaco v. Ching, this Court enunciated the rule that a corporate officer who issues a bouncing corporate check can only be held
civilly liable when he is convicted. When a corporate officer issues a worthless check in the corporate name he may be held personally liable for
violating a penal statute. The statute imposes criminal penalties on anyone who with intent to defraud another of money or property, draws or
issues a check on any bank with knowledge that he has no sufficient funds in such bank to meet the check on presentment. Moreover, the
personal liability of the corporate officer is predicated on the principle that he cannot shield himself from liability from his own acts on the
ground that it was a corporate act and not his personal act.

It is clear that the civil liability of the corporate officer for the issuance of a bouncing corporate check attaches only if he is convicted. Conversely,
therefore, it will follow that once acquitted of the offense of violating BP 22; a corporate officer is discharged from any civil liability arising from
the issuance of the worthless check in the name of the corporation he represents. This is without regard as to whether his acquittal was based
on reasonable doubt or that there was a pronouncement by the trial court that the act or omission from which the civil liability might arise did
not exist.
Moreover, in the present case, nothing in the records at hand would show that respondents made themselves personally nor solidarily liable for
corporate obligations either as accommodation parties or sureties. On the contrary, there is no dispute that respondents signed the subject
check in their capacity as corporate officers and that the check was drawn in the name of FCI as payment for the obligation of the corporation
and not for the personal indebtedness of respondents. Neither is there allegation nor proof that the veil of corporate fiction is being used by
respondents for fraudulent purposes. The rule is that juridical entities have personalities separate and distinct from its officers and the persons
composing it. Generally, the stockholders and officers are not personally liable for the obligations of the corporation except only when the veil of
corporate fiction is being used as a cloak or cover for fraud or illegality, or to work injustice, which is not the case here. Hence, respondents
cannot be held liable for the value of the checks issued in payment for FCI's obligation.

13.
Philippine National Construction Co. v. The Members of the Board of Directors of the Philippine National Construction Company, G.R. No.
225943 (Notice, [February 22, 2017]
Doctrine:
Where a corporation is an injured party, its power to sue is lodged in its board of directors or board of trustees; but an individual stockholder
may be permitted to institute a derivative suit on behalf of the corporation in order to protect or vindicate corporate rights whenever the
officials of the corporation refuse to sue, or are the ones to be sued, or hold control of the corporation.
FACTS:
Public school teachers Lea Faith B. David, Anne Rosalie V. Besin, and Lessley C. Beaño (petitioners) — claiming themselves to be members of
the Government Service Insurance System (GSIS) — directly came to the Court by petition for review on certiorari to appeal the order issued
on July 12, 2016 in Civil Case No. 2016-04 by the Regional Trial Court (RTC), Branch 258, in Parañaque City dismissing their suit for and in
behalf of the GSIS as a stockholder of the Philippine National Construction Corporation (PNCC) "for being a nuisance or harassment suit."
The antecedents follow.
PNCC, through its Board of Directors (BOD), entered into a Performance Agreement with the Government Commission for Government-
Owned or — Controlled Corporations (GCGOCC). According to the petitioners, the disposition undertaken by the PNCC BOD, would result in
the disposal of substantially all of the properties of the PNCC. Allegedly, the GSIS owned 47,490,383 shares of PNCC, translating to 27.22%
stake in the latter. The petitioners argued that they had a direct interest in PNCC's affairs as members of the GSIS, and, as such, they would
be directly and adversely affected by the implementation of the Performance Agreement.
The petitioners wrote to the GSIS Board of Trustees (BOT) demanding that the GSIS should bring an action against the PNCC upon the matter,
but the GSIS BOT refused to accede to their demand opining that the petitioners' fear regarding the financial viability of the GSIS to provide
retirement pay and pension to its members was unfounded. Accordingly, they instituted their complaint for the declaration of nullity of contract.
RTC issued the assailed order on July 12, 2016 dismissing the case "for being a nuisance or harassment suit." Hence, this direct appeal to the
Court, with the petitioners asserting that the RTC thereby committed reversible error.
ISSUE:
W/N Public school teachers has a legal standing in the derivative suit.
HELD:
NO. Civil Case No. 2016-04 is unquestionably a derivative action because it was initiated by the petitioners as supposed members of the GSIS, a
shareholder of the PNCC, in order to enforce a corporate cause of action. Under the Corporation Code, where a corporation is an injured party,
its power to sue is lodged in its board of directors or board of trustees; but an individual stockholder may be permitted to institute a derivative
suit on behalf of the corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse to sue, or are
the ones to be sued, or hold control of the corporation. In a derivative suit, the corporation is the real party-in-interest; the suing stockholder, on
behalf of the corporation, is only a nominal party.
The fact alone that the petitioners were not themselves stockholders of the PNCC clearly indicated their lack of legal standing to initiate the
action as a derivative suit on behalf of the PNCC. As correctly emphasized by the RTC, the derivative suit could not prosper without the
petitioners first complying with the legal requisites for its institution.
(for recit purpose)
Section 1, Rule 8 of the Interim Rules of Procedure for Intra-Corporate Controversies (A.M. No. 01-2-04-SC, March 13, 2001), which enumerates
the requisites for a proper derivative suit,
Section 1. Derivative Action. — A stockholder or member may bring an action in the name of a corporation or association, as
the case may be, provided that:
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the
action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the 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; aScITE
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.

14.
Roy III v. Herbosa, G.R. No. 207246 (Resolution), [April 18, 2017]
Doctrine:
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[fJull [and legal] beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights x x x must rest in the hands of Filipino nationals x x x." 11
And, precisely that is what SEC-MC No. 8 provides, viz.: "x x x For purposes of determining compliance [with the constitutional or statutory
ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to
vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote x x x."

Facts:
Before the Court is the Motion for Reconsideration dated January 19, 2017 (the Motion) filed by petitioner Jose M. Roy III (movant) seeking the
reversal and setting aside of the Decision dated November 22, 2016 (the Decision) which denied the movant's petition, and declared that the
Securities and Exchange Commission (SEC) did not commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013 (SEC-
MCNo. 8) as the same was in compliance with, and in fealty to, the decision of the Court in Gamboa v. Finance Secretary Teves, (Gamboa
Decision) and the resolution denying the Motion for Reconsideration.

ISSUE:
Whether or not SEC commit grave abuse of discretion in issuing Memorandum Circular No. 8, Series of 2013
HELD:
NO. The Court reasoned that "in the absence of a definitive ruling by the SEC on PLDT's compliance with the capital requirement pursuant to
the Gamboa Decision and Resolution, any question relative to the inexistent ruling is premature."
In resolving the other substantive issue raised by petitioners, the Court held that:
[E]ven if the resolution of the procedural issues were conceded in favor of petitioners, the petitions, being anchored on Rule
65, must nonetheless fail because the SEC did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC No. 8 to have been issued in fealty to the
Gamboa Decision and Resolution.
To belabor the point, movant's petition is not a continuation of the Gamboa case as the Gamboa Decision attained finality on October 18,
2012, and thereafter Entry of Judgment was issued on December 11, 2012.
The Decision has painstakingly explained why it considered as obiter dictum that pronouncement in the Gamboa Resolution that the
constitutional requirement on Filipino ownership should "apply uniformly and across the board to all classes of shares, regardless of
nomenclature and category, comprising the capital of a corporation."
(recit) The Court stated that:
[T]he fallo or decretal/dispositive portions of both the Gamboa Decision and Resolution are definite, clear and unequivocal.
While there is a passage in the body of the Gamboa Resolution that might have appeared contrary to the fallo of the
Gamboa Decision x x x the definiteness and clarity of thefallo of the Gamboa Decision must control over the obiter dictum in
the Gamboa Resolution regarding the application of the 60-40 Filipino-foreign ownership requirement to "each class of
shares, regardless of differences in voting rights, privileges and restrictions."
To the Court's mind and, as exhaustively demonstrated in the Decision, the dispositive portion of the Gamboa Decision was
in no way modified by the Gamboa Resolution.
The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution, which provides: "No franchise, certificate, or
any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens x x x."
The Gamboa Decision already held, in no uncertain terms, that what the Constitution requires is "[f]ull [and legal] beneficial ownership of 60
percent of the outstanding capital stock, coupled with 60 percent of the voting rights x x x must rest in the hands of Filipino nationals x x
x." And, precisely that is what SEC-MC No. 8 provides, viz.: "x x x For purposes of determining compliance [with the constitutional or
statutory ownership], the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of
stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote x
x x."
15. Joselito Bustos vs. Millians Shoes Inc.

FACTS:

Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate of Title (TCT) No. N-126668. On 6 January
2004, the City Government of Marikina levied the property for nonpayment of real estate taxes. The Notice of Levy was annotated on the
title on 8 January 2004. On 14 October 2004, the City Treasurer of Marikina auctioned off the property, with petitioner Joselito Hernand M.
Bustos emerging as the winning bidder.
Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the Regional Trial Court, Marikina City, Branch 273,
rendered a final and executory Decision ordering the cancellation of the previous title and the issuance of a new one under the name of
petitioner. Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9 February 2005.

These markings indicated that SEC Corp. Case No. 036-04, which was filed before the RTC and involved the rehabilitation proceedings for
MSI, covered the subject property and included it in the Stay Order issued by the RTC dated 25 October 2004. On 26 September 2006,
petitioner moved for the exclusion of the subject property from the Stay Order.[8] He claimed that the lot belonged to Spouses Cruz who
were mere stockholders and officers of MSL He further argued that since he had won the bidding of the property on 14 October 2004, or
before the annotation of the title on 9 February 2005, the auctioned property could no longer be part of the Stay Order.

The RTC denied the entreaty of petitioner. It ruled that because the period of redemption up to 15 October 2005 had not yet lapsed at the
time of the issuance of the Stay Order on 25 October 2004, the ownership thereof had not yet been transferred to petitioner.

Petitioner moved for reconsideration, but to no avail. He then filed an action for certiorari before the CA. He asserted that the Stay Order
undermined the taxing powers of the local government unit. He also reiterated his arguments that Spouses Cruz owned the property, and
that the lot had already been auctioned to him.

In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the suspension orders undermined the power to tax. As
regards petitioner's main contention, the CA ruled as follows:

In the case at bar, the delinquent tax payers were the Cruz Spouses who were the registered owners of the said parcel of land at the time of
the delinquency sale. The sale was held on October 14, 2004 and the Cruz Spouses had until October 15, 2005 within which to redeem the
parcel of land. The stay order was issued on October 25, 2004 and inscribed at the back of the title on February 9, 2005, which is within the
redemption period. The Cruz Spouses were still the owners of the land at the time of the issuance of the stay order.

The said parcel of land which secured several mortgage liens for the account of MSI remains to be an asset of the Cruz Spouses, who are the
stockholders and/or officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e. personally liable
for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and
obligations.

The CA maintained its ruling and even held that his prayer to exclude the property was time-barred by the 10-day reglementary period to
oppose rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation.

In their Comment, respondents do not contest that Spouses Cruz own the subject property. Rather, respondents assert that as stockholders
and officers of a close corporation, they are personally liable for its debts and obligations. Furthermore, they argue that since the
Rehabilitation Plan of MSI has been approved, petitioner can no longer assail the same.

ISSUE:

WON the CA correctly considered the properties of Spouses Cruz answerable for the obligations of MSI.

HELD:

We set aside rulings of the CA for lack of basis.

In finding the subject property answerable for the obligations of MSI, the CA characterized respondent spouses as stockholders of a close
corporation who, as such, are liable for its debts. This conclusion is baseless.
Here, neither the CA nor the RTC showed its basis for finding that MSI is a close corporation. The courts a quo did not at all refer to the
Articles of Incorporation of MSI. The Petition submitted by respondent in the rehabilitation proceedings before the RTC did not even include
those Articles of Incorporation among its attachments.

In effect, the CA and the RTC deemed MSI a close corporation based on the allegation of Spouses Cruz that it was so. However, mere
allegation is not evidence and is not equivalent to proof. For this reason alone, the CA rulings should be set aside. Furthermore, we find that
the CA seriously erred in portraying the import of Section 97 of the Corporation Code. Citing that provision, the CA concluded that "in a close
corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e.
personally liable for corporate debts and obligations."

However, 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 do we find any inference that stockholders of a close corporation are automatically liable for corporate
debts and obligations.

We thus apply the general doctrine of separate juridical personality, which provides that a corporation has a legal personality separate and
distinct from that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the
corporate debt is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does not make one's property the
property also of the corporation.

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.

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.

Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs creditors of the debtor to file an opposition to
petitions for rehabilitation within 10 days before the initial hearing of rehabilitation proceedings. Since petitioner does not hold any claim
over the properties owned by MSI, the time-bar rule does not apply to him.

16. California Manufacturing Inc vs. Advanced Technology System Inc

FACTS:
Petitioner CMCI is a domestic corporation engaged in the food and beverage manufacturing business. Respondent ATSI is also a domestic
corporation that fabricates and distributes food processing machinery and equipment, spare parts, and its allied products.
In August 200 I, CMCI leased from ATSI a Prodopak machine which was used to pack products in 20-ml. pouches. The parties agreed to a
monthly rental of ₱98,000 exclusive of tax. Upon receipt of an open purchase order on 6 August 2001, ATSI delivered the machine to CMCI's
plant at Gateway Industrial Park, General Trias, Cavite on 8 August 2001.
In November 2003, ATSI filed a Complaint for Sum of Money against CMCI to collect unpaid rentals for the months of June, July, August, and
September 2003. ATSI alleged that CMCI was consistently paying the rents until June 2003 when the latter defaulted on its obligation
without just cause. ATSI also claimed that CMCI ignored all the billing statements and its demand letter. Hence, in addition to the unpaid
rents A TSI sought payment for the contingent attorney's fee equivalent to 30% of the judgment award.
CMCI moved for the dismissal of the complaint on the ground of extinguishment of obligation through legal compensation. The RTC,
however, ruled that the conflicting claims of the parties required trial on the merits. It therefore dismissed the motion to dismiss and
directed CMCI to file an Answer.
In its Answer, CMCI averred that ATSI was one and the same with Processing Partners and Packaging Corporation (PPPC), which was a toll
packer of CMCI products. To support its allegation, CMCI submitted copies of the Articles of Incorporation and General Information Sheets
(GIS) of the two corporations. CMCI pointed out that ATSI was even a stockholder of PPPC as shown in the latter's GIS.
CMCI argued that the proposal was binding on both PPPC and A TSI because Felicisima was an officer and a majority stockholder of the two
corporations. Moreover, in a letter dated 16 September 2003, she allegedly represented to the new management of CMCI that she was
authorized to request the offsetting of PPPC's obligation with ATSI's receivable from CMCI.
The trial court ruled that legal compensation did not apply because PPPC had a separate legal personality from its individual stockholders,
the Spouses Celones, and ATSI. Moreover, there was no board resolution or any other proof showing that Felicisima's proposal to set-off
the unpaid mobilization fund with CMCI 's rentals to A TSI for the Prodopak Machine had been authorized by the two corporations.
Consequently, the RTC ruled that CMCI's financial obligation to pay the rentals for the Prodopak machine stood and that its claim against
PPPC could be properly ventilated in the proper proceeding upon payment of the required docket fees.

ISSUE:
WON CA erred in affirming the ruling of the RTC that legal compensation between ATSI's claim against CMCI on the one hand, and the
latter's claim against PPPC on the other hand, has not set in.

HELD:
We have reviewed the evidence on record and have found no cogent reason to disturb the findings of the co mis a quo that A TSI is distinct
and separate from PPPC, or from the Spouses Celones.
Any piercing of the corporate veil must be done with caution. As the CA had correctly observed, it must be ce11ain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. Moreover, the
wrongdoing must be clearly and convincingly established. Sarona v. NLRC instructs, thus:
Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However,
any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is
misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.
 The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.
CMCI has not presented any credible proof, or even just an exact computation, of the supposed debt of PPPC. It claims that the mobilization
fund that it had advanced to PPPC was in the amount of ₱4 million. Yet, Felicisima's proposal to conduct offsetting in her letter dated 30 July
2001 pertained to a ₱3.2 million debt of PPPC to CMCI. Meanwhile, in its Answer to ATSI's complaint, CMCI sought to set off its unpaid
rentals against the alleged ₱10 million debt of PPPC. The uncertainty in the supposed debt of PPPC to CMCI negates the latter's invocation of
legal compensation as justification for its non-payment of the rentals for the subject Prodopak machine.

17
[G.R. No. 210032. April 25, 2017.]
DUTCH MOVERS, INC., CESAR LEE and YOLANDA LEE, petitioners,
vs.
EDILBERTO LEQUIN, CHRISTOPHER R. SALVADOR, REYNALDO L. SINGSING, and RAFFY B. MASCARDO, respondents.

Doctrine:

In considering the foregoing events, the Court is not unmindful of the basic tenet that a corporation has a separate and distinct
personality from its stockholders, and from other corporations it may be connected with. However, such personality may be
disregarded, or the veil of corporate fiction may be pierced attaching personal liability against responsible person if the
corporation's personality "is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws

FACTS:

This case is an offshoot of the illegal dismissal Complaint filed by Edilberto Lequin (Lequin), Christopher Salvador, Reynaldo Singsing,
and Raffy Mascardo (respondents) against Dutch Movers, Inc. (DMI), and/or spouses Cesar Lee and Yolanda Lee (petitioners), its alleged
President/Owner, and Manager respectively.
DMI, a domestic corporation engaged in hauling liquefied petroleum gas, employed Lequin as truck driver, and the rest of respondents
as helpers; on December 28, 2004, Cesar Lee, through the Supervisor Nazario Furio, informed them that DMI would cease its hauling
operation for no reason; as such, they requested DMI to issue a formal notice regarding the matter but to no avail. Later, upon
respondents' request, the DOLE NCR issued a certification revealing that DMI did not file any notice of business closure. Thus,
respondents argued that they were illegally dismissed as their termination was without cause and only on the pretext of closure.

On October 28, 2005, LA Aliman D. Mangandog dismissed the case for lack of cause of action.

On November 23, 2007, the NLRC reversed and set aside the LA Decision. It ruled that respondents were illegally dismissed because
DMI simply placed them on standby, and no longer provide them with work.
The NLRC Decision became final and executory on December 30, 2007. And, on February 14, 2008, the NLRC issued an Entry of
Judgment on the case.
Consequently, respondents filed a Motion for Writ of Execution.

Pending resolution of these motions, respondents filed a Manifestation and Motion to Implead stating that upon investigation, they
discovered that DMI no longer operates. They, nonetheless, insisted that petitioners — who managed and operated DMI, and
consistently represented to respondents that they were the owners of DMI — continue to work at Toyota Alabang, which they
(petitioners) also own and operate. They further averred that the Articles of Incorporation (AOI) of DMI ironically did not include
petitioners as its directors or officers; and those named directors and officers were persons unknown to them. They likewise claimed
that per inquiry with the SEC and the DOLE, they learned that DMI did not file any notice of business closure; and the creation and
operation of DMI was attended with fraud making it convenient for petitioners to evade their legal obligations to them.
Given these developments, respondents prayed that petitioners, and the officers named in DMI's AOI, which included Edgar N. Smith
and Millicent C. Smith (spouses Smith), be impleaded, and be held solidarily liable with DMI in paying the judgment awards.

In their Opposition to Motion to Implead, spouses Smith alleged that as part of their services as lawyers, they lent their names to
petitioners to assist them in incorporating DMI. Allegedly, after such undertaking, spouses Smith promptly transferred their supposed
rights in DMI in favor of petitioners.

ISSUE:

Whether or not Sps LEE may be impleaded and be held solidarily liable with DMI in paying the judgment awards.

RULING:

The Court denies the Petition.

In considering the foregoing events, the Court is not unmindful of the basic tenet that a corporation has a separate and distinct
personality from its stockholders, and from other corporations it may be connected with. However, such personality may be
disregarded, or the veil of corporate fiction may be pierced attaching personal liability against responsible person if the
corporation's personality "is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws
Here, the veil of corporate fiction must be pierced and accordingly, petitioners should be held personally liable for judgment awards
because the peculiarity of the situation shows that they controlled DMI; they actively participated in its operation such that DMI existed
not as a separate entity but only as business conduit of petitioners. As will be shown below, petitioners controlled DMI by making it
appear to have no mind of its own, and used DMI as shield in evading legal liabilities, including payment of the judgment awards in
favor of respondents.
I
First, petitioners and DMI jointly filed their Position Paper, Reply, and Rejoinder in contesting respondents' illegal dismissal.
Perplexingly, petitioners argued that they were not part of DMI and were not privy to its dealings; yet, petitioners, along with DMI,
collectively raised arguments on the illegal dismissal case against them.
If only to prove that they were not part of DMI, petitioners could have revealed who operated it, and from whom they derived the
information embodied in their pleadings. Such failure to reveal thus gives the Court reasons to give credence to respondents' firm stand
that petitioners are no strangers to DMI, and that they were the ones who managed and operated it.
Second, the declarations made by spouses Smith further bolster that petitioners and no other controlled DMI.
Spouses Smith categorically identified petitioners as the owners and managers of DMI. In their Motion to Quash, however, petitioners
neither denied the allegation of spouses Smith nor adduced evidence to establish that they were not the owners and managers of DMI.
They simply insisted that they could not be held personally liable because of the immutability of the final and executory NLRC Decision,
and of the separate and distinct personality of DMI.

Clearly, petitioners should be held liable for the judgment awards as they resorted to such scheme to countermand labor laws by
causing the incorporation of DMI but without any indication that they were part thereof. While such device to defeat labor laws may be
deemed ingenious and imaginative, the Court will not hesitate to draw the line, and protect the right of workers to security of tenure,
including ensuring that they will receive the benefits they deserve when they fall victims of illegal dismissal.

18

[G.R. No. 211108. June 7, 2017.]

ALEJANDRO D.C. ROQUE, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.

DOCTRINE:

The revocation of a corporation's Certificate of Registration does not automatically warrant the extinction of the corporation itself such
that its rights and liabilities are likewise altogether extinguished. The Court explained that the termination of the life of a juridical entity
does not, by itself, cause the extinction or diminution of the rights and liabilities of such entity nor those of its owners and creditors.

FACTS:

On November 17, 1993, Barangay Mulawin Tricycle Operators and Drivers Association, Inc. (BMTODA) became a corporation duly
registered with the Securities and Exchange Commission (SEC).
Sometime in August 2003, Oscar Ongjoco (Ongjoco), a member of BMTODA, learned that BMTODA's funds were missing. In a letter,
Ongjoco requested copies of the Association's documents pursuant to his right to examine records under Section 74 of theCorporation
Code of the Philippines (Corporation Code).However, Singson, the Secretary of BMTODA, denied his request.
Ongjoco also learned that the incumbent officers were holding office for three years already, in violation of the one-year period
provided for in BMTODA's by-laws. He then requested from Roque, the President of BMTODA, a copy of the list of its members with the
corresponding franchise numbers of their respective tricycle fees and the franchise fees paid by each member, but Roque denied
Ongjoco's request.
Ongjoco filed an Affidavit-Complaint against Roque and Singson for violation of Section 74 in relation to Section 144 of theCorporation
Code because of their refusal to furnish him copies of records pertaining to BMTODA.
After the prosecution rested its case, Roque and Singson filed a Motion for Leave of Court to File Demurrer to Evidence with Motion to
Dismiss by way of Demurrer to Evidence. The prosecution failed to file any comment thereon.
The RTC granted the motion and gave due course to Roque and Singson's demurrer to evidence. The RTC ruled that said association
failed to prove its existence as a corporation. Hence, a violation under theCorporation Code cannot be made applicable against its
officers.
On appeal, the CA reversed and set aside the Order dated November 12, 2008 of the RTC. The CA ruled that BMTODA is a duly
registered corporation. The CA stated that a Petition to Lift Order of Revocation and the SEC Order Lifting the Revocation were
presented in evidence; and that logic dictates that such documentary evidence presupposes a duly registered and existing entity.
ISSUE:

Petitioner contends that there is want of evidence to prove that BMTODA is a corporation duly established and organized under the
Corporation Code; thus, he cannot be prosecuted under the penal provisions of the said code.

RULING:

The appeal lacks merit.

Section 74 of the Corporation Code provides for the liability for damages of any officer or agent of the corporation for refusing to allow
any director, trustee, stockholder or member of the corporation to examine and copy excerpts from its records or minutes. Section 144
of the same Code further provides for other applicable penalties in case of violation of any provision of theCorporation Code.
Clearly, Ongjoco, as a member of BMTODA, had a right to examine documents and records pertaining to said association. To recall,
Ongjoco made a prior demand in writing for copy of pertinent records of BMTODA from Roque and Singson. However, both of them
refused to furnish Ongjoco copies of such pertinent records.
Roque argues that when the letters were received by him and Singson, BMTODA's registration was already revoked. Hence, BMTODA
ceased to exist as a corporation.

We are not persuaded.

While it appears that the registration of BMTODA as a corporation with the SEC was revoked on September 30, 2003, the letter-request
of Ongjoco to Singson, which was dated while BMTODA's registration was revoked, was actually received by Singsonafter the revocation
was lifted. In a Letter dated October 11, 2004, the General Counsel of the SEC made it clear that the SEC lifted the revocation of
BMTODA's registration on August 30, 2004. As the CA correctly observed, the letter-request was received by Singson on September 23,
2004 when BMTODA had regained its active status.

In any case, the revocation of a corporation's Certificate of Registration does not automatically warrant the extinction of the
corporation itself such that its rights and liabilities are likewise altogether extinguished. In the case of Clemente v. Court of Appeals, the
Court explained that the termination of the life of a juridical entity does not, by itself, cause the extinction or diminution of the rights
and liabilities of such entity nor those of its owners and creditors.
Thus, the revocation of BMTODA's registration does not automatically strip off Ongjoco of his right to examine pertinent documents
and records relating to such association.
Also, since Roque admitted the revocation of BMTODA's registration, he cannot come forward and disclaim BMTODA's registration with
the SEC as a corporation. It is logical to presume that a registration precedes the revocation thereof; as any registration cannot be
revoked without its valid existence.
19.DIVINA PALAO, petitioner, vs. FLORENTINO III INTERNATIONAL, INC., respondent.([G.R. No. 186967. January 18, 2017.])

FACTS: In its Petition for Cancellation, The respondent Florentino III International Inc.'s (Florentino) filed a petition for cancellation of a Letters
Patent pertaining to "A Ceramic Tile Installation on Non-Concrete Substrate Base Surfaces Adapted to Form Part of Furniture, Architectural
Components and the Like." Florentino claimed that the utility model was not original, new, or patentable, as it had been publicly known or
used in the Philippines and had even been the subject of several publications. It added that it, as well as many others, had been using the
utility model well before Palao's application for a patent. The Bureau of Legal Affairs of the Intellectual Property Office denied Florentino's
Petition for Cancellation. It noted that the testimony and pictures, which Florentino offered in evidence, failed to establish that the utility
model was publicly known or used before Palao's application for a patent. In its Resolution, the Bureau of Legal Affairs of the Intellectual
Property Office denied Florentino's Motion for Reconsideration.Florentino then appealed to the Office of the Director General of the
Intellectual Property Office.The appeal's Verification and Certification of Non-Forum Shopping was signed by Atty. John Labsky P. Maximo
(Atty. Maximo) of the firm Balgos and Perez. However, Florentino failed to attach to its appeal a secretary's certificate or board resolution
authorizing Balgos and Perez to sign the Verification and Certification of Non-Forum Shopping. Thus, the Office of the Director General issued
the Order requiring Florentino to submit proof that Atty. Maximo or Balgos and Perez was authorized to sign the Verification and Certification
of Non-Forum Shopping. Florentino submitted a copy of the Certificate executed on August 15, 2008 by Florentino's Corporate Secretary,
Melanie Marie A. C. Zosa-Tan, supposedly showing its counsel's authority to sign. In his Order, Intellectual Property Office Director General
Adrian S. Cristobal, Jr. (Director General Cristobal) dismissed Florentino's appeal. He noted that the Secretary's Certificate pertained to an
August 14, 2008 Resolution issued by Florentino's Board of Directors, and reasoned that the same Certificate failed to establish the authority
of Florentino's counsel to sign the Verification and Certification of Non-Forum Shopping as of the date of the filing of Florentino's appeal.
Florentino then filed before the Court of Appeals a Petition for Review under Rule 43 of the 1997 Rules of Civil Procedure.The Court of Appeals
faulted Director General Cristobal for an overly strict application of procedural rules. Thus, it reversed Director General Cristobal's Order and
reinstated Florentino's appeal. Petitioner — in her pleadings before the Court and Director General Cristobal in his September 2, 2008 Order
— cite Decisions of this Court (namely: Philippine Public School Teachers Association v. Heirs of Iligan and Philippine Airlines, Inc. v. Flight
Attendants & Stewards Association of the Philippines) to emphasize the need for precise compliance with the rule on appending a certification
of non-forum shopping.

ISSUE: 1. Whether or not the Director General of the Intellectual Property Office have been so rigid in applying a procedural rule and
dismissing respondent's appeal.
2. Whether or not there is a need for precise compliance with the rule on appending a certification of non-forum shopping.
 HELD: 1. Yes. the Intellectual Property Office's own Regulations on Inter Partes Proceedings (which governs petitions for cancellations of a
mark, patent, utility model, industrial design, opposition to registration of a mark and compulsory licensing, and which were in effect when
respondent filed its appeal) specify that the Intellectual Property Office "shall not be bound by the strict technical rules of procedure and
evidence.” Administrative bodies are not bound by the technical niceties of law and procedure and the rules obtaining in courts of law.
Administrative tribunals exercising quasi-judicial powers are unfettered by the rigidity of certain procedural requirements, subject to the
observance of fundamental and essential requirements of due process in justiciable cases presented before them. In administrative
proceedings, technical rules of procedure and evidence are not strictly applied and administrative due process cannot be fully equated with
due process in its strict judicial sense. In conformity with this liberality, Section 5 (b) of the Intellectual Property Office's Uniform Rules on
Appeal expressly enables appellants, who failed to comply with Section 4's formal requirements, to subsequently complete their compliance.
2. No. As pointed out by the Court of Appeals, respondent's counsel, Balgos and Perez, has been representing respondent (and signing
documents for it) "since the original Petition for Cancellation of Letter Patent No. UM-7789 was filed." Thus, its act of signing for
respondent, on appeal before the Director General of the Intellectual Property Office, was not an aberration. It was a mere continuation of
what it had previously done. It is reasonable, therefore — consistent with the precept of liberally applying procedural rules in administrative
proceedings, and with the room allowed by jurisprudence for substantial compliance with respect to the rule on certifications of non-forum
shopping — to construe the error committed by respondent as a venial lapse that should not be fatal to its cause. There is no "wanton
disregard of the rules or [the risk of] caus[ing] needless delay in the administration of justice." On the contrary, construing it as such will
enable a full ventilation of the parties' competing claims. As with Philippine Public School Teachers Association,it permissible to set aside, pro
hac vice, the procedural defect.

20.SERI SOMBOONSAKDIKUL, petitioner, vs. ORLANE S.A., respondent.||| (G.R. No. 188996, [February 1, 2017])

FACTS: On September 23, 2003, petitioner Seri Somboonsakdikul (petitioner) filed an application for registration of the mark LOLANE
with the IPO for goods classified under Class 3 (personal care products) of the International Classification of Goods and Services for the
Purposes of the Registration of Marks (International Classification of Goods). Orlane S.A. (respondent) filed an opposition to petitioner's
application, on the ground that the mark LOLANE was similar to ORLANE in presentation, general appearance and pronunciation, and
thus would amount to an infringement of its mark. Respondent alleged that: (1) it was the rightful owner of the ORLANE mark which
was first used in 1948; (2) the mark was earlier registered in the Philippines on July 26, 1967 under Registration No. 129961 with the
following goods: perfumes, toilet water, face powders, lotions, essential oils, cosmetics, lotions for the hair, dentifrices, eyebrow
pencils, make-up creams, cosmetics & toilet preparations under Registration No. 12996 and (3) on September 5, 2003, it filed another
application for use of the trademark on its additional products. Petitioner denied that the LOLANE mark was confusingly similar to the
mark ORLANE. He averred that he was the lawful owner of the mark LOLANE which he has used for various personal care products sold
worldwide. He alleged that the first worldwide use of the mark was in Vietnam on July 4, 1995. Petitioner also alleged that he had
continuously marketed and advertised Class 3 products bearing LOLANE mark in the Philippines and in different parts of the world and
that as a result, the public had come to associate the mark with him as provider of quality personal care products.Petitioner maintained
that the marks were distinct and not confusingly similar either under the dominancy test or the holistic test. The Bureau of Legal Affairs
(BLA) rejected petitioner's application in a Decision dated February 27, 2007, finding that respondent's application was filed, and its
mark registered, much earlier. The BLA ruled that there was likelihood of confusion based on the following observations: (1) ORLANE
and LOLANE both consisted of six letters with the same last four letters - LANE; (2) both were used as label for similar products; (3) both
marks were in two syllables and that there was only a slight difference in the first syllable; and (4) both marks had the same last syllable
so that if these marks were read aloud, a sound of strong similarity would be produced and such would likely deceive or cause
confusion to the public as to the two trademarks. Petitioner filed a motion for reconsideration but this was denied by the Director of
the BLA on May 7, 2007. On appeal, the Director General of the IPO affirmed the Decision of the BLA Director. Thus, petitioner filed a
petition for review before the CA arguing that there is no confusing similarity between the two marks. The Court of Appeals denied the
petition and held that there exists colorable imitation of respondent's mark by LOLANE. The CA accorded due respect to the Decision of
the Director General and ruled that there was substantial evidence to support the IPO's findings of fact. Applying the dominancy test,
the CA ruled that LOLANE' s mark is confusingly or deceptively similar to ORLANE.

ISSUE: Whether or not there is confusing similarity between ORLANE and LOLANE which would bar the registration of LOLANE before
the IPO.

HELD: No. There is no colorable imitation between the marks LOLANE and ORLANE which would lead to any likelihood of confusion to
the ordinary purchasers. A trademark is defined under Section 121.1 of RA 8293 as any visible sign capable of distinguishing the goods.
It is susceptible to registration if it is crafted fancifully or arbitrarily and is capable of identifying and distinguishing the goods of one
manufacturer or seller from those of another. In determining the likelihood of confusion, the Court must consider: [a] the resemblance
between the trademarks; [b] the similarity of the goods to which the trademarks are attached; [c] the likely effect on the purchaser and
[d] the registrant's express or implied consent and other fair and equitable considerations. In determining colorable imitation, we have
used either the dominancy test or the holistic or totality test. The dominancy test considers the similarity of the prevalent or dominant
features of the competing trademarks that might cause confusion, mistake, and deception in the mind of the purchasing public. More
consideration is given on the aural and visual impressions created by the marks on the buyers of goods, giving little weight to factors
like process, quality, sales outlets, and market segments. On the other hand, the holistic test considers the entirety of the marks as
applied to the products, including the labels and packaging, in determining confusing similarity. The focus is not only on the
predominant words but also on the other features appearing on the labels.

The suffix LANE is not the dominant feature of petitioner's mark. Neither can it be considered as the dominant feature of
ORLANE which would make the two marks confusingly similar.First, an examination of the appearance of the marks would show that
there are noticeable differences in the way they are written or printed as shown below: As correctly argued by petitioner in his answer
before the BLA, there are visual differences between LOLANE and ORLANE since the mark ORLANE is in plain block upper case letters
while the mark LOLANE was rendered in stylized word with the second letter L and the letter A co-joined. Second, as to the aural aspect
of the marks, LOLANE and ORLANE do not sound alike because appeals to the ear in pronouncing ORLANE and LOLANE are dissimilar.
The first syllables of each mark, i.e., OR and LO do not sound alike, while the proper pronunciation of the last syllable LANE — "LEYN"
for LOLANE and "LAN" for ORLANE, being of French origin, also differ. We take exception to the generalizing statement of the Director
General, which was affirmed by the CA, that Filipinos would invariably pronounce ORLANE as "ORLEYN." Respondent failed to show
proof that the suffix LANE has registered in the mind of consumers that such suffix is exclusively or even predominantly associated with
ORLANE products. Notably and as correctly argued by petitioner, the IPO previously allowed the registration of the mark GIN LANE for
goods also falling under Class 3, i.e., perfume, cologne, skin care preparations, hair care preparations and toiletries. The colorable
imitation by LOLANE of the mark ORLANE, is absent in this case. Resemblance between the marks is a separate requirement from, and
must not be confused with, the requirement of a similarity of the goods to which the trademarks are attached. Finding that LOLANE is
not a colorable imitation of ORLANE due to distinct visual and aural differences using the dominancy test, the court no longer find it
necessary to discuss the contentions of the petitioner as to the appearance of the marks together with the packaging, nature of the
goods represented by the marks and the price difference, as well as the applicability of foreign judgments. The court ruled that the
mark LOLANE is entitled to registration.

21. FORIETRANS MANUFACTURING CORP. vs. DAVIDOFF ET. CIE SA & JAPAN TOBACCO, INC.
G.R. No. 197482. March 6, 2017
JARDELEZA, J:

Facts: Petitioner Forietrans Manufacturing Corporation (FMC) is a domestic corporation while Respondets Davidoff Et. Cie SA (Davidoff) and
Japan Tobacco, Inc. (JTI) [collectively, respondents] are non-resident foreign corporations organized and existing under the laws of Switzerland
and Japan, respectively. Respondents also retained Business Profiles, Inc. (BPI) as their private investigator in the Philippines.

BPI reported to respondents that "there were counterfeit Davidoff and JTI products, or products bearing colorable imitation of Davidoff and JTI
products, or which are confusingly or deceivingly similar to Davidoff and JTI registered trademarks, being manufactured and stored" in FMC's
warehouses.

Upon investigation, the CIDG confirmed the report of BPI. Four separate search warrants were issued.

During their separate raids, the CIDG teams seized several boxes containing raw tobacco, cigarettes, cigarette packs, and cigarette reams bearing
the name DAGETA and DAGETA International. Petitioner Agerico Calaquian, president of FMC, was allegedly apprehended at the premises along
with four Chinese nationals. Thereafter, three separate Complaint-Affidavits were filed before the Office of the Provincial Prosecutor of San
Fernando, Pampanga charging FMC and its employees with violation of Republic Act No. 8293, or the Intellectual Property Code of the
Philippines (IP Code).

Calaquian denied the charges against him and FMC. He asserted that FMC is an eco-zone export enterprise registered with the Philippine
Economic Zone Authority (PEZA), and is duly authorized by the National Tobacco Administration to purchase, import and export tobacco. FMC
would not have passed PEZA's strict rules and close monitoring if it had engaged in trademark infringement.

In a Joint Resolution 23 dated September 12, 2005, Second Assistant Provincial Prosecutor Otto B. Macabulos dismissed the criminal complaints
contending that there was clearly insufficient to show probable cause to search FMC's premises for fake JTI or Davidoff products. Respondents
thereafter filed a Petition for Review before then Secretary of Justice Raul M. Gonzalez but the latter affirmed the ruling of Prosecutor
Macabulos.

Respondents elevated the case to the CA via a petition for certiorari. The CA reversed the resolutions of Secretary Gonzalez. It adjudged that
Secretary Gonzalez acted with grave abuse of discretion in affirming Prosecutor Macabulos' finding that no probable cause exists against FMC.
The CA explained that Secretary Gonzalez assumed the function of the trial judge of calibrating the evidence on record. According to the CA, the
foregoing involve evidentiary matters which can be better resolved in the course of the trial, and Secretary Gonzalez was not in a competent
position to pass judgment on substantive matters. Petitioners filed a partial motion for reconsideration, but this was denied by the CA. Hence,
this petition.

Issue: Whether the CA erred in ruling that Secretary Gonzalez committed grave abuse of discretion in finding no probable cause to charge
petitioners with trademark infringement and false designation of origin.

Held: We find that Secretary Gonzalez committed grave abuse of discretion when he disregarded evidence on record and sustained the Joint
Resolution of Prosecutor Macabulos dismissing the criminal complaints against petitioners. The determination of probable cause by the judge
should not be confused with the determination of probable cause by the prosecutor. The first is made by the judge to ascertain whether a
warrant of arrest should be issued against the accused, or for purposes of this case, whether a search warrant should be issued. The second is
made by the prosecutor during preliminary investigation to determine whether a criminal case should be filed in court. The prosecutor has no
power or authority to review the determination of probable cause by the judge, just as the latter does not act as the appellate court of the
former. Here, as correctly argued by respondents, Prosecutor Macabulos focused on the evidence submitted before Judge Sunga to support the
issuance of search warrants. He lost sight of the fact that as a prosecutor, he should evaluate only the evidence presented before him during the
preliminary investigation.

The records show that a prima facie case for trademark infringement and false designation of origin exists against petitioners. Section 155 of the
IP Code enumerates the instances when infringement is committed. 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.

Both Prosecutor Macabulos and Secretary Gonzalez disregarded the foregoing evidence of respondents and confined their resolutions on the
finding that there is an obvious difference between the names "Davidoff" and "Dageta." While we agree that no confusion is created insofar as
the names "Davidoff" and "Dageta" are concerned, we cannot say the same with respect to the cigarettes' packaging. Indeed there might be
differences when the two are compared. We have, in previous cases, noted that defendants in cases of infringement do not normally copy but
only make colorable changes. The most successful form of copying is to employ enough points of similarity to confuse the public, with enough
points of difference to confuse the courts.

22. WILTON DY vs. KONINKLIJKE PHILIPS ELECTRONICS, N.V.

March 22, 2017 G.R. No. 186088
SERENO, CJ.:

Facts: Petitioner PHILITES filed a trademark application covering its fluorescent bulb, incandescent light, starter and ballast. Respondent
Koninklijke Philips Electronics, N .V. ("PHILIPS") filed a Verified Notice of Opposition on the ground that it is tantamount to fraud as it seeks to
register and obtain legal protection for an identical or confusingly similar mark that clearly infringes upon the established rights of the
[respondent] over its registered and internationally well-known mark. Petitioner filed a Verified Answer, stating that its PHILITES & LETTER P
DEVICE trademark and respondent's PHILIPS have vast dissimilarities in terms of spelling, sound and meaning.

IPP BLA rendered a Decision denying the Opposition filed by respondent PHILIPS which was affirmed by IPP-DG. It was concluded that the
PHILIPS and PHILITES marks were so unlike, both visually and aurally. It held that no confusion was likely to occur, despite their
contemporaneous use.

Upon intermediate appellate review, the CA reversed the decision reasoned that the "drawing of the trademark submitted by [petitioner] has a
different appearance from that of [petitioner's] actual wrapper or packaging that contain the light bulbs, which We find confusingly similar with
that of [respondent's] registered trademark and packaging. Of all the marks that [petitioner] could possibly think of for his light bulbs, it is odd
that [petitioner] chose a mark with the letters 'PHILI,' which are the same prevalent or dominant five letters found in [respondent's] trademark
'PHILIPS' for the same products, light bulbs.” Petitioner filed a Motion for Reconsideration, which was denied in a Resolution. Hence, this
petition.

Issues:
1. Whether or not respondent's mark is a registered and well-known mark in the Philippines; and
2. Whether or not the mark applied for by petitioner is identical or confusingly similar with that of respondent.

Ruling:
1. Respondent's mark is a registered and well-known mark in the Philippines. There is no question that respondent's mark PHILIPS is already a
registered and well-known mark in the Philippines.

As we have said in Fredco Manufacturing Corporation v. Harvard University, "[i]ndeed, Section 123.l(e) of R.A. No. 8293 now categorically states
that 'a mark which is considered by the competent authority of the Philippines to be well-known internationally and in the Philippines, whether
or not it is registered here,' cannot be registered by another in the Philippines. " We thus affirm the following findings of the CA, inasmuch as the
trademark of PHILIPS is a registered and well-known mark, as held in the Supreme Court Decision in Philips Export B. V, v. CA.

2. Petitioner seeks to register a mark nearly resembling that of respondent, which may likely to deceive or cause confusion among consumers. In
determining similarity and likelihood of confusion, jurisprudence has developed two tests: the dominancy test, and the holistic or totality test.

On one hand, the dominancy test focuses on "the similarity of the prevalent or dominant features of the competing trademarks that might cause
confusion, mistake, and deception in the mind of the purchasing public. Duplication or imitation is not necessary; neither is it required that the
mark sought to be registered suggests an effort to imitate. Given more consideration are the aural and visual impressions created by the marks
on the buyers of goods, giving little weight to factors like prices, quality, sales outlets, and market segments. "

On the other hand, the holistic or totality test necessitates a "consideration of the entirety of the marks as applied to the products, including the
labels and packaging, in determining confusing similarity. The discerning eye of the observer must focus not only on the predominant words, but
also on the other features appearing on both labels so that the observer may draw conclusion on whether one is confusingly similar to the
other."

Applying the dominancy test to this case requires us to look only at the mark submitted by petitioner in its application, while we give importance
to the aural and visual impressions the mark is likely to create in the minds of the buyers. We agree with the findings of the CA that the mark
"PHILITES" bears an uncanny resemblance or confusing similarity with respondent's mark "PHILIPS. 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. At bottom, the
letters "PHILI'' visually catch the attention of the consuming public and the use of respondent's trademark will likely deceive or cause confusion.
Most importantly, both trademarks are used in the sale of the same goods, which are light bulbs.
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.

23. MANG INASAL PHILIPPINES, INC., Petitioner vs. IFP MANUFACTURING CORPORATION, Respondent
G.R. No. 221717
FACTS
Respondent is a local manufacturer of snacks and beverages. On May 26, 2011, respondent filed with the Intellectual Property Office (IPO) an
application for the registration of the mark "OK Hotdog Inasal Cheese Hotdog Flavor Mark" (OK Hotdog Inasal mark) in connection with goods
under Class 30 of the Nice Classification.4 The said mark, which respondent intends to use on one of its curl snack products. The application of
respondent was opposed by petitioner contending that the registration is prohibited under Section 123.l (d)(iii) of Republic Act No. (RA) 8293
share similarities-both as to their appearance and as to the goods or services that they represent which tend to suggest a false connection or
association between the said marks and, in that regard, would likely cause confusion on the part of the public. the IPO-BLA issued a Decision
dismissing petitioner's opposition. Petitioner appealed the Decision of IPO-BLA to the Director General (DG) of the IPO also dismissing the
appeal of petitioner. The CA issued a Resolution denying the appeal of petitioner. Petitioner filed a motion for reconsideration, but this too was
denied by the CA. Hence, the instant appeal.

ISSUE W/N the OK Hotdog Inasal mark is confusingly similar to the Mang Inasal mark and insists that the trademark application of respondent
ought to be denied for that reason

HELD
Yes, the respondent's OK Hotdog Inasal mark is, indeed, likely to cause deception or confusion on the part of the public.
DOCTRINE
A mark that is similar to a registered mark or a mark with an earlier filing or priority date (earlier mark) and which is likely to cause confusion on
the part of the public cannot be registered with the IPO. Such is the import of Sec. 123.l(d)(iii) of RA 8293. The concept of confusion, which is at
the heart of the proscription, could either refer to confusion of goods or confusion of business. Verily, to fall under the ambit of Sec. 123. l(d)(iii)
and be regarded as likely to deceive or cause confusion upon the purchasing public, a prospective mark must be shown to meet two (2)
minimum conditions:
1. The prospective mark must nearly resemble or be similar to an earlier mark; and
2. The prospective mark must pertain to goods or services that are either identical, similar or related to the goods or services represented by the
earlier mark.
In determining whether there is similarity or colorable imitation between two marks, authorities employ either the dominancy test or the holistic
test. The Dominancy Test focuses on the similarity of the prevalent features of the competing trademarks which might cause confusion or
deception, and thus infringement. If the competing trademark contains the main, essential or dominant features of another, and confusion or
deception is likely to result, infringement takes place. On the other hand, the Holistic Test requires that the entirety of the marks in question be
considered in resolving confusing similarity. Comparison of words is not the only determining factor. The trademarks in their entirety as they
appear in their respective labels or hang tags must also be considered in relation to the goods to which they are attached.
There are currently no fixed rules as to which of the two tests can be applied in any given case. However, recent case law on trademark seems to
indicate an overwhelming judicial preference towards applying the dominancy test.
The second condition of the proscription requires that the prospective mark pertain to goods or services that are either identical, similar or
related to the goods or services represented by the earlier mark. While there can be no quibble that the curl snack product for which the
registration of the OK Hotdog Inasal mark is sought cannot be considered as identical or similar to the restaurant services represented by the
Mang Inasal mark, there is ample reason to conclude that the said product and services may nonetheless be regarded as related to each other.
In determining whether goods or services are related, several factors may be considered. Some of those factors recognized in our jurisprudence
are: 29
1. the business (and its location) to which the goods belong;
2. the class of product to which the goods belong;
3. the product's quality, quantity, or size, including the nature of the package, wrapper or container;
4. the nature and cost of the articles;
5. the descriptive properties, physical attributes or essential characteristics with reference to their form, composition, texture or quality;
6. the purpose of the goods;
7. whether the article is bought for immediate consumption, that is, day-to-day household items;
8. the fields of manufacture;
9. the conditions under which the article is usually purchased, and
10. the channels of trade through which the goods flow, how they are distributed, marketed, displayed and sold.
we hold that the curl snack product for which the registration of the OK Hotdog Inasal mark is sought is related to the restaurant services
represented by the Mang !nasal mark, in such a way that may lead to a confusion of business. In holding so, we took into account the specific
kind of restaurant business that petitioner is engaged in, the reputation of the petitioner's mark, and the particular type of curls sought to be
marketed by the respondent

24. NSC HOLDINGS (PHILIPPINES), INC., Petitioner vs TRUST INTERNATIONAL PAPER CORPORATION (TIPCO) and ATTY. MONICO JACOB,
Respondents
G.R. No. 193069
FACTS
TIPCO is a pulp and paper manufacturing company organized and existing under the laws of the Republic of the Philippines. TIPCO filed a
"Petition for Corporate Rehabilitation with Prayer for Suspension of Payments" before the RTC. The trial court subsequently issued a Stay Order
directing, among others, the appointment of respondent Atty. Monico Jacob as the rehabilitation receiver (Receiver). NSC filed its "Comment
with Motion," alleging that certain receivables, as well as the authority to collect payments for these receivables, were being held by TIPCO for
and on behalf of NSC as its agent. This was pursuant to a Trade Receivables Purchase and Sale Agreement (TRPSA) entered into by both parties.
NSC claimed that under the TRPSA, it entered into a Certificate of Assignment with TIPCO. In that agreement, the latter sold and assigned
receivables to NSC in the total amount of ₱l55,380,590. SC claimed that it was a trustor, not a creditor, of TIPCO. As such, it moved that TIPCO be
directed to segregate the receivables held by the latter on behalf of NSC. These receivables would thereby be excluded from TlPCO's list of
assets and payables that would be subject to the rehabilitation plan. During the initial hearing, the Court summarily heard NSC's contentions13
as well as TIPCO's counter-argument that the true agreement was really one of a loan.14 Afterwards, the RTC issued an Order15 holding that both
parties had "agreed to submit the issue that receivables transferred to NSC should not be included as TIPCO's assets for the resolution of the
Court-appointed Rehabilitation Receiver, subject to the Court's approval. the Receiver submitted to the RTC his "Evaluation and
Recommendation Report" (Report) which addressed NSC's contentions. He stated therein that after a review of the documents, he found that
NSC was an unsecured creditor, and that the receivables were covered by the rehabilitation plan.
First order - The RTC approved TIPCO's proposed rehabilitation plan as amended and modified by the "Evaluation and Recommendation Report.
Second order - The RTC then issued an Omnibus Order dated 21 February 2006 (Second Order), which treated NSC's prior Motion as a motion for
reconsideration.
Third order - The RTC agreed with the Receiver's recommendations.
Petitioner NSC appealed the Third Order before the CA. The former argued that there was no legal or jurisprudential basis for the RTC's ruling
that the Receiver was not competent to determine whether the receivables should be excluded from TIPCO's assets. The CA dismissed NSC's
appeal.

ISSUE
whether or not petitioner could still raise the issue before the CA of its inclusion as a creditor in the approved rehabilitation plan, considering
that the RTC had already resolved this issue in the First Order

HELD
No, The issues raised by petitioner center on its inclusion as a creditor in the approved rehabilitation plan. the First Order is valid, final, and
executory. Certain fundamental principles must be considered. First, a court order is final in character if it puts an end to the particular matter
resolved or definitely settles the matter disposed therein, such that no further questions can come before the court except the execution of that
order. it is an established rule that the perfection of an appeal within the period and in the manner prescribed by law is jurisdictional.
Noncompliance with such legal requirements is fatal and has the effect of rendering the judgment final and executory. In the present case, the
RTC in its First Order determined that NSC was a creditor whose claims must be paid in accordance with the approved rehabilitation plan. It must
be emphasized that this determination was made after addressing NSC's contentions and TIPCO's counter-allegations with respect to the
receivables in the initial hearing as well as in the Receiver's. The Second and the Third Orders were acts of the RTC that were distinct and
separate from the First Order. They did not reverse or modify it. Nowhere did the foregoing orders modify the validity, content, or immediate
enforceability of the First Order or the approved rehabilitation plan.
DOCTRINE
The terms of the approved rehabilitation plan were therefore not conditioned on the results of the separate litigation. The plan stands on its
own, whether or not a separate action was initiated by the parties. Should they opt to initiate such action and a decision be issued on the issue,
only then will the RTC resolve the effect of the decision on the approved rehabilitation plan. Until then, the matter remains beyond the appellate
jurisdiction of this Court.

25. LAND BANK OF THE PHILIPPINES, Petitioner, v. WEST BAY COLLEGES, INC., PBR MANAGEMENT AND DEVELOPMENT CORPORATION AND
BCP TRADING CO., INC., Respondents.
G.R. No. 211287, April 17, 2017
Facts:
Respondents West Bay, PBR and BCP for the Chiongbian Group of Companies. In 1996, West Bay and PBR applied for loan with Petitioner LBP.
The same was secured by a mortgage on WB’s training vessel and the parties also secured an insurance policy on the vessel for 26M in favor of
LBP.
Later the vessel sank due to a typhoon and so the insurer released to LBP 21.98M as indemnification.

Due to financial difficulties, WB and PBR proposed a restructuring of its debts w/ LBP w/c they later finalized.
However, the CGC later filed for Corporate Rehabilitation w/ the RTC of Muntinlupa and a stay order was issued w/c stayed the enforcement of
claims against WB.
In the rehab plan, WB transferred the application of the 21.98M insurance proceeds to the loans of PBR and BCP w/c was approved by the court.
LBP then asked to be substituted in the rehab proceedings by Phil. Distressed Asset Asia Pacific (PDAAP), a special purpose vehicle. This was
granted but PDAAP did not agree in the application of the insurance proceeds to PBR’s loan.
WB is now asking for LBP to reimburse them the 21.98M insurance proceeds since PDAAP did not agree to the alternative application to PBR’s
loan.

Issue: WON the WB is entitled to reimbursement.

Held:
Yes. As the CA pointed out, despite several amendments to the rehabilitation plan which repeatedly provided for the application of the
insurance proceeds to the debts of West Bay, then to PBR and BCP, there is no showing that Land Bank applied the amount thereof to the
aforementioned loans. The Court is inclined to uphold this finding – for if Land Bank had in fact deducted the amount of the insurance proceeds
from the loan obligations of either West Bay or PBR and BCP, this information would have reflected on the rehabilitation plans of the CGC. In
other words, if the insurance proceeds were indeed applied to West Bay's and PBR's account in January and June 2002 as Land Bank espoused,
then P21,980,000.00 should have been subtracted from the obligations of the said companies. Verily, Land Bank negated its own claim when it
failed to present evidence of reduction in the outstanding balances of the respondents, whether singly or collectively.

Also, a belated application of the insurance proceeds to the obligations of West Bay or PBR and BCP would violate the Stay Order dated July 10,
2002 issued by the RTC. Section 6 of Rule 4 of the 2000 Interim Rules of Procedure on Corporate Rehabilitation, which was in force at the time of
the filing of the petition for corporate rehabilitation, provides:

SEC. 6. Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the
petition, issue an Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with
the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the
ordinary course of business; (d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the
petition; (e) prohibiting the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of
business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the
payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier
than forty-five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper
of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including
the Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting
affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so
will bar them from participating in the proceedings; and (j) directing the creditors and interested parties to secure from the court copies of the
petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the
initial hearing of the petition.

26. BUREAU OF INTERNAL REVENUE, ASSISTANT COMMISSIONER ALFREDO V. MISAJON, GROUP SUPERVISOR ROLANDO M. BALBIDO, and
EXAMINER REYNANTE DP. MARTIREZ, Petitioners,
vs.
LEPANTO CERAMICS, INC., Respondent.
G.R. No. 224764 April 24, 2017
Facts:
Respondent LCU filed a petition for corporate rehab under the FRIA due to its insolvency. Apparently, LCI had liabilities amounting to 4B Pesos
and assets only worth 1.1B. The RTC of Calamba approved the petition and issued a commencement order.

The BIR, despite the order, sent LCI a notice of informal conference for the latter’s deficiency tax liabilities. The court-appointed receiver
informed BIR that LCI was undergoing corporate rehab and as provided by the FRIA, there was a suspension order w/c prohibited LCI’s creditors
from enforcing their claims on LCI.
The BIR, undaunted by this later send a Formal Letter of Demand w/c prompted the receiver to have the former cited for indirect contempt.

Issue: WON the BIR may enforce its claims against LCI.
Held:
No. Petitioners' insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes;
and (b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given
any credence. As aptly put by the RTC Br. 35, they could have easily tolled the running of such prescriptive period, and at the same time, perform
their functions as officers of the BIR, without defying the Commencement Order and without violating the laudable purpose of RA 10142 by
simply ventilating their claim before the Rehabilitation Court. After all, they were adequately notified of the LCI's corporate rehabilitation and
the issuance of the corresponding Commencement Order. In sum, it was improper for Misajon, et al. to collect, or even attempt to collect,
deficiency taxes from LCI outside of the rehabilitation proceedings concerning the latter, and in the process, willfully disregard the
Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br. 35 correctly cited them for indirect contempt.
Comm Rev Finals

1) G.R. No. 215910

MANUEL C. UBAS, SR., Petitioner
vs.
WILSON CHAN, Respondent

Facts:

a Complaint for Sum of Money with Application for Writ of Attachment (Complaint) was filed by petitioner against respondent Wilson Chan
(respondent) before the Regional Trial Court of Catarman, Northern Samar. In his Complaint, petitioner alleged that respondent, "doing business
under the name and style of UNIMASTER," was indebted to him in the amount of ₱1,500,000.00, representing the price of boulders, sand,
gravel, and other construction materials allegedly purchased by respondent from him for the construction of the Macagtas Dam in Barangay
Macagtas, Catarman, Northern Samar (Macagtas Dam project). He claimed that the said kobligation has long become due and demandable and
yet, respondent unjustly refused to pay the same despite repeated demands. Further, he averred that respondent had issued three (3) bank
checks, payable to "CASH" in the amount of ₱500,000.00 each, on January 31, 1998, March 13, 1998, and April 3, 1998, respectively (subject
checks), but when petitioner presented the subject checks for encashment on June 29, 1998, the same were dishonored due to a stop payment
order. As such, respondent was guilty of fraud in incurring the obligation.

Respondent admitted to having issued the subject checks. However, he claimed that they were not issued to petitioner, but to Engr. Merelos for
purposes of replenishing the project's revolving fund.

RTC: in favor of petitioner

CA: set aside the RTC's ruling, dismissing petitioner's complaint on the ground of lack of cause of action. It held that respondent was not the
proper party defendant in the case, considering that the drawer of the subject checks was Unimasters, which, as a corporate entity, has a
separate and distinct personality from respondent.

Accordingly, Unimasters is an indispensable party, and since it was not impleaded, the court had no jurisdiction over the case.

Issue: whether or not the CA erred in dismissing petitioner's complaint for lack of cause of action.
Ruling: Yes.

the Court holds that the CA erred in dismissing petitioner's complaint against respondent on the ground of lack of cause of action. Respondent
was not able to overcome the presumption of consideration under Section 24 of the NIL and establish any of his affirmative defenses. On the
other hand, as the holder of the subject checks which are presumed to have been issued for a valuable consideration, and having established his
privity of contract with respondent, petitioner has substantiated his cause of action by a preponderance of evidence. "'Preponderance of
evidence' is a phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to the court as worthy of
belief than that which is offered in opposition thereto." Consequently, petitioner's Complaint should be granted.

Jurisprudence holds that "in a suit for a recovery of sum of money, as here, the plaintiff-creditor [(petitioner in this case)] has the burden of
proof to show that defendant [(respondent in this case)] had not paid [him] the amount of the contracted loan. However, it has also been long
established that where the plaintiff-creditor possesses and submits in evidence an instrument showing the indebtedness, a presumption that the
credit has not been satisfied arises in [his] favor. Thus, the defendant is, in appropriate instances, required to overcome the said presumption
and present evidence to prove the fact of payment so that no judgment will be entered against him. This presumption stems from Section 24 of
the NIL, which provides that:

Section 24. Presumption of Consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration;
and every person whose signature appears thereon to have become a party thereto for value.

Besides, Section 16 of the NIL provides that when an instrument is no longer in the possession of the person who signed it and it is complete in
its terms, "a valid and intentional delivery by him is presumed until the contrary is proved," as in this case.

2. Great White Shark vs Danilo Caralde

GR No. 192294
November 21, 2012

FACTS:

On July 31, 2002, Caralde filed before the Bureau of Legal Affairs (BLA), IPO a trademark application seeking to register the mark "SHARK &
LOGO" for his manufactured goods under Class 25, such as slippers, shoes and sandals. Petitioner Great White Shark Enterprises, Inc. (Great
White Shark), a foreign corporation domiciled in Florida, USA, opposed the application claiming to be the owner of the mark consisting of a
representation of a shark in color, known as "GREG NORMAN LOGO" (associated with apparel worn and promoted by Australian golfer Greg
Norman). It alleged that, being a world famous mark which is pending registration before the BLA since February 19, 2002, the confusing
similarity between the two (2) marks is likely to deceive or confuse the purchasing public into believing that Caralde's goods are produced by or
originated from it, or are under its sponsorship, to its damage and prejudice.

In his Answer, Caralde explained that the subject marks are distinctively different from one another and easily distinguishable. When compared,
the only similarity in the marks is in the word "shark" alone, differing in other factors such as appearance, style, shape, size, format, color, ideas
counted by marks, and even in the goods carried by the parties.

Great White Shark’s trademark application was granted and it was issued a Certificate of Registration. In its ruling, the BLA Director rejected
Caralde’s application, ruling that their dominant features are of such degree that the overall impression in create is that they are strikingly
similar to each other, thus causing confusion - even considering that they offer the same class of goods. But the BLA Director rejected the claim
that Great White Shark’s mark is famous and well-known.

On appeal, the IPO Dir. General affirmed the rejection. The CA reversed and set aside the decision and directed the IPO to grant Caralde’s
application for registration, as they found no confusing similarity. The CA observed that Caralde’s mark is more fanciful and colorful, thus easily
distinguishable from the Great White Shark, along with the price disparity between the two.

Issue:
Whether or not the CA erred in reversing the rulings of the IPO and BLA

Held:
No, the CA is correct.

A trademark device is susceptible to registration if it is crafted fancifully or arbitrarily and is capable of identifying and distinguishing the goods of
one manufacturer or seller from those of another. Apart from its commercial utility, the benchmark of trademark registrability is distinctiveness.
Thus, a generic figure, as that of a shark in this case, if employed and designed in a distinctive manner, can be a registrable trademark device,
subject to the provisions of the IP Code.

Corollarily, Section 123.1(d) of the IP Code provides that a mark cannot be registered if it is identical with a registered mark belonging to a
different proprietor with an earlier filing or priority date, with respect to the same or closely related goods or services, or has a near
resemblance to such mark as to likely deceive or cause confusion.
In determining similarity and likelihood of confusion, case law has developed the Dominancy Test and the Holistic or Totality Test. The
Dominancy Test focuses on the similarity of the dominant features of the competing trademarks that might cause confusion, mistake, and
deception in the mind of the ordinary purchaser, and gives more consideration to the aural and visual impressions created by the marks on the
buyers of goods, giving little weight to factors like prices, quality, sales outlets, and market segments. In contrast, the Holistic or Totality Test
considers the entirety of the marks as applied to the products, including the labels and packaging, and focuses not only on the predominant
words but also on the other features appearing on both labels to determine whether one is confusingly similar to the other as to mislead the
ordinary purchaser. The "ordinary purchaser" refers to one "accustomed to buy, and therefore to some extent familiar with, the goods in
question."

Irrespective of both tests, the Court finds no confusing similarity between the subject marks. While both marks use the shape of a shark, the
Court noted distinct visual and aural differences between them.

As may be gleaned from the foregoing, the visual dissimilarities between the two (2) marks are evident and significant, negating the possibility of
confusion in the minds of the ordinary purchaser, especially considering the distinct aural difference between the marks.

Finally, there being no confusing similarity between the subject marks, the matter of whether Great White Shark’s mark has gained recognition
and acquired becomes unnecessary.

3.

BIRKENSTOCK ORTHOPAEDIE GMBH AND CO. KG (formerly BIRKENSTOCK ORTHOPAEDIE GMBH) v. PHILIPPINE SHOE EXPO MARKETING
CORPORATION
G.R. No. 194307; November 20, 2013
Perlas-Bernabe, J.

FACTS: Petitioner Birkenstock Orthopaedie GMBH and Co. KG is a corporation duly organized and existingunder the laws of Germany. It applied
for various trademarkregistrations before the Intellectual Property Office (IPO) for the trademark "Birkenstock." However, registration
proceedings were suspended because of an existing registration of the mark "BIRKENSTOCK AND DEVICE in the name of ShoeTown International
and Industrial Corporation, the predecessor-in-interest of respondent Philippine Shoe Expo Marketing Corporation.

Petitioner filed a petition for cancellation on the ground that it is the lawful and rightful owner of the Birkenstock marks. During its pendency,
however, respondent failed to file the required 10th Year Declaration of Actual Use (10th Year DAU), thereby resulting in the cancellation of such
mark. The cancellation of Philippine Shoe's registration paved the way for the publication of petitioner's applications in the IPO. Respondent
opposed the subject applications.
The Bureau of Legal Affairs of the IPO sustained respondent’s opposition, thus, ordering the rejection of the subject applications. It ruled that
the competing marks of the parties are confusingly similar since they contained the word "BIRKENSTOCK" and are used on the same and related
goods. It found respondent and its predecessor-in-interest as the prior user and adopter of "BIRKENSTOCK" in the Philippines.

On appeal, the IPO Director General reversed and set aside the BLA ruling, thus allowing Birkenstock's registration of the applications. He held
that with the cancellation of respondent's registration due to its failure to file the 10th Year DAU, there is no more reason to reject Birkenstock's
applications. O

On further appeal, the Court of Appeals reversed and set aside the ruling of the IPO Director General because respondent submitted substantial
evidence showing its continued use, promotion and advertisement thereof up to the present." Hence, the petition.

ISSUE: Whether or not the subject marks should be allowed registration in the name of petitioner.

HELD: YES. Preliminarily, the Rules on Inter Partes Proceedings, which requires certified true copies of documents and evidence presented by
parties in lieu of originals. The rules of procedure are mere tools aimed at facilitating the attainment of justice, rather than its frustration. A strict
and rigid application of the rules must always be eschewed when it would subvert the primary objective of the rules, that is, to enhance fair
trials and expedite justice. Technicalities should never be used to defeat the substantive rights of the other party. In the case at bar, while
petitioner submitted mere photocopies as documentary evidence in the Consolidated Opposition Cases, it should be noted that the IPO had
already obtained the originals of such documentary evidence. The IPO Director General’s relaxation of procedure was a valid exercise of his
discretion in the interest of substantial justice.

On the merits, Republic Act 166 requires that within one year following the fifth, tenth and fifteenth anniversaries of the date of issue of the
certificate of registration, the registrant shall file the DAU in the Patent Office an affidavit showing that the mark or trade-name is still in use.
Failure to file the DAU within the requisite period results in the automatic cancellation of registration of a trademark. In turn, such failure is
tantamount to the abandonment or withdrawal of any right or interest the registrant has over his trademark.

In this case, respondent admitted that it failed to file the 10th Year DAU for Registration No. 56334 within the requisite period. As a
consequence, it was deemed to have abandoned or withdrawn any right or interest over the mark "BIRKENSTOCK."

Besides, petitioner has duly established its true and lawful ownership of the mark "BIRKENSTOCK." Section 2 of RA 166 requires that in order to
register a trademark, one must be the owner thereof and must have actually used the mark in commerce in the Philippines for two months prior
to the application for registration. Section 2-A provides how one goes about acquiring ownership of the trademark. It is clear that actual use in
commerce is also the test of ownership but the provision went further by saying that the mark must not have been so appropriated by another.
Section 2-A does not require that the actual use of a trademark must be within the Philippines.
The prima facie presumption brought about by the registration of a mark may be challenged and overcome in an appropriate action by evidence
of prior use by another person, i.e. , it will controvert a claim of legal appropriation or of ownership based on registration by a subsequent user.
This is because a trademark is a creation of use and belongs to one who first used it in trade or commerce.

In the instant case, petitioner was able to establish that it is the owner of the mark "BIRKENSTOCK." It submitted evidence relating to the origin
and history of "BIRKENSTOCK" and its use in commerce long before respondent was able to register the same here in the Philippines. It has
sufficiently proven that "BIRKENSTOCK" was first adopted in Europe in 1774 by its inventor, Johann Birkenstock, a shoemaker, on his line of
quality footwear and thereafter, numerous generations of his kin continuously engaged in the manufacture and sale of shoes and sandals
bearing the mark "BIRKENSTOCK" until it became the entity now known as the petitioner.

The Court finds the petitioner to be the true and lawful owner of the mark "BIRKENSTOCK" and entitled to its registration, and that respondent
was in bad faith in having it registered in its name.

4. Shang Properties Realty Corp vs. St. Francis Devt Corp

GR No. 190706
July 21, 2014

Facts:

Respondent filed separate complaints against petitioners before the IPO-BLA foe an intellectual property violation case for the use and filing of
applications for the registration of the marks “The St. Francis Towers” and “St. Francis Shangri-La Square” and an inter partes case opposing the
petitioner’s application for the two marks. Respondent alleged that it has used the mark St. Francis to identify its numerous property
development projects in Ortigas Center, and had gained substantial goodwill with the public, and that the usage of said marks will constitute
unfair competition as well as false or fraudulent declaration.

Petitioners contend that respondent is barred from claiming ownership and exclusive use of the mark because the same is geographically
descriptive of the goods or services for which it is intended to be used. This is because respondent’s as well as petitioners’ 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 ruled that the petitioners committed acts of unfair competition by the use of “St. Francis Towers” only, but refused to award damages
as there was failure to produce evidence that would substantiate the claim for damages. The BLA found that “St, Francis”, being a Catholic saint,
may be considered as an arbitrary mark capable of registration when used in real estate development projects.

It must nevertheless be pointed out that respondent has been known to be the only real estate firm to transact business using such name within
the Ortigas Center vicinity. Accordingly, the BLA considered respondent 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.

The BLA denied the application for the “St. Francis Towers” since it is confusingly similar to the St. Francis’ marks registered with the DTI.
However, a year later, the registration for the mark “The St. Francis Shangri-La Place” was allowed as the use of St. Francis has not been
attended with exclusivity, and that the words “Shangri-La” removed any likelihood of confusion.

The IPO Dir. General affirmed the BLA rulings, but reversed the finding of unfair competition through the use of the mark “St. Francis Towers” as
it is a geographically descriptive mark, and that the registration with the DTI is irrelevant, as it is the IPO trademark registration that will be
controlling.

The issue on unfair competition was elevated to the CA, which ruled that petitioners are guilty of unfair competition as to both marks used, and
did not adhere to the IPO’s ruling that St. Francis’ mark is geographically descriptive; and ruled that respondent must be protected against
indiscriminate usage, pursuant to the Doctrine of Secondary Meaning.

Issue:
Whether or not there is unfair competition

Held:
No. 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.

Here, the Court finds the element of fraud to be wanting; hence, there can be no unfair competition. The CA’s contrary conclusion was faultily
premised on its impression that respondent had the right to the exclusive use of the mark "ST. FRANCIS," for which the latter had purportedly
established considerable goodwill. What the CA appears to have disregarded or been mistaken in its disquisition, however, is the
geographicallydescriptive nature of the mark "ST. FRANCIS" which thus bars its exclusive appropriability, unless a secondary meaning is acquired.

A ‘geographically descriptive term’ is any noun or adjective that designates geographical location and would tend to be regarded by buyers as
descriptive of the geographic location of origin of the goods or services. A geographically descriptive term can indicate any geographic location
on earth, such as continents, nations, regions, states, cities, streets and addresses, areas of cities, rivers, and any other location referred to by a
recognized name. In order to determine whether or not the geographic term in question is descriptively used, the following question is relevant:
(1) Is the mark the name of the place or region from which the goods actually come? If the answer is yes, then the geographic term is probably
used in a descriptive sense, and secondary meaning is required for protection."

Secondary meaning is established when a descriptive mark no longer causes the public to associate the goods with a particular place, but to
associate the goods with a particular source.In other words, it is not enough that a geographically-descriptive mark partakes of the name of a
place known generally to the public to be denied registration as it is also necessary to show that the public would make a goods/place
association – that is, to believe that the goods for which the mark is sought to be registered originate in that place.

The records are bereft of any showing that petitioners gave their goods/services the general appearance that it was respondent which was
offering the same to the public. Neither did petitioners employ any means to induce the public towards a false belief that it was offering
respondent’s goods/services. Nor did petitioners make any false statement or commit acts tending to discredit the goods/services offered by
respondent. Accordingly, the element of fraud which is the core of unfair competition had not been established.

Verily, records would reveal that while it is true that respondent 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 specifically mentioned.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 respondent. Thus, absent any showing that there exists a clear goods/service-association
between the realty projects located in the aforesaid area and herein respondent as the developer thereof, the latter cannot be said to have
acquired a secondary meaning as to its use of the "ST. FRANCIS" mark.

5. Co. v. Spouses Yeung

G.R. No. 212705
September 10, 2014

Facts:
Private respondent Keng Huan Jerry Yeung owns Greenstone Pharmaceutical, a traditional Chinese medicine manufacturing firm based in Hong
Kong which manufactures Greenstone Medicated Oil item No. 16 and his wife, private respondent Emma Yeung owns Taka Trading which is
exclusively importing and distributing said product in the Philippines.
On April 24, 2000, Emma’s brother, Jose Ruivivar III, bought a bottle of Greestone from Royal Chinese Drug Store in Binondo, Manila, owned by
Ling Na Lau. However, when he used the product discovered that it is not authentic because it had different smell, and the heat it produced was
not as strong as the original Greenstone he frequently used.

Having been informed by his brother, Yeung, together with his son, John Philip, went to Royal to investigate and found seven bottles of
counterfeit Greenstone on display. He was told by the stole proprietor that the items came from petitioner Roberto Co of Kia An Chinese Drug
Store and conspiring with Leus.

In his defense, Co denied having supplied counterfeit items to Royal and maintained that the stocks of Greenstone came only from Taka Trading.

Spouses Yeung filed a case for unfair competition and trademark infringement.

Issues:
1) Whether or not petitioner Roberto Co committed acts of unfair competition.
2) Whether or not there is trademark infringement.

Ruling:
1) Yes. 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.
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.

2) No. 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.

6. F&S Velasco Co Inc. v. Madrid

FACTS: FSVCI was duly organized and registered as a corporation, 2 incorporators died, and their daughter, Angela, inherited their shares,
thereby giving her control of 70.82% of FSVCI's total shares of stock. Angela died intestate and without issue. Madrid, as Angela's spouse,
executed an Affidavit of Self-Adjudication covering the latter's estate which includes her FSVCI's shares of stock. Believing that he is already the
controlling stockholder of FSVCI by virtue of such self-adjudication, Madrid called for a Special Stockholders' and Re-Organizational Meeting to
be held on November 18, 2009.

Meanwhile, Seva, in his then-capacity as FSVCI corporate secretary, sent a Notice of an Emergency Meeting to FSVCI's remaining stockholders
for the purpose of electing a new president and vice-president, as well as the opening of a bank account. Such meeting was held on November 6,
2009 during which, Saturnino was recognized as a member of the FSVCI Board of Directors and thereafter, as FSVCI President, while Scribner was
elected FSVCI Vice-President.

Despite the election conducted by the Saturnino Group, the Madrid Group proceeded with the Special Stockholders' and Re-Organizational
Meeting on November 18, 2009.

In view of the November 18, 2009 Meeting, the Saturnino Group filed a petition for Declaration of Nullity of Corporate Election with Preliminary
Injunction and Temporary Restraining Order (TRO) against the Madrid Group before the RTC, which was acting as a Special Commercial Court.

The RTC declared both the November 6, 2009 and November 18, 2009 Meetings null and void. It found the November 6, 2009 Meeting invalid
because: (a) it was conducted without a quorum as only two attended the same, and that Scribner cannot attend by proxy as the Corporation
Code expressly prohibits proxy attendance in Board meetings.

On the other hand, in ruling on the invalidity of the November 18, 2009 Meeting, Madrid only has an equitable right over Angela's 70.82%
ownership of FSVCI's shares of stock.

Aggrieved, the Madrid Group appealed before the CA contesting the RTC's declaration of invalidity of the November 18, 2009 Meeting.

The CA modified the RTC ruling: (a) declaring the November 18, 2009 Meeting conducted by the Madrid Group valid. It held that Madrid's
execution of the Affidavit of Self-Adjudication already conferred upon him the ownership of Angela's 70.82% ownership of FSVCI's shares of
stock, resulting in total ownership of 74.98%.

Dissatisfied, the Saturnino Group moved for reconsideration25 which was, however, denied in a Resolution hence, the instant petition.

Issue: Whether or not the CA correctly ruled that the November 18, 2009 Meeting organized by Madrid is legal and valid.
HELD: The petition is partly meritorious.

At the outset, the Court notes that after Madrid executed his Affidavit of Self-Adjudication, he then filed a petition for letters of administration
regarding Angela's estate RTC of Makati City, Branch 59. RTC-Makati Br. 59 already recognized Madrid as Angela's sole heir to the exclusion of
others Such ruling of the Court had already attained finality as evidenced by an Entry of Judgment. In view of the foregoing, the Court is
constrained to view that Madrid is indeed Angela's sole heir.

Be that as it may, it must be clarified that Madrid's inheritance of Angela's shares of stock does not ipso facto afford him the rights accorded to
such majority ownership of FSVCI's shares of stock. Section 63 of the Corporation Code governs the rule on transfers of shares of stock. No
transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names
of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred.

Verily, all transfers of shares of stock must be registered in the corporate books in order to be binding on the corporation.

Stock corporations must also keep a book to be known as the "stock and transfer book", in which must be kept a record of all stocks in the
names of the stockholders alphabetically arranged xxxxx The stock and transfer book shall be kept in the principal office of the corporation or in
the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on
business days.

In this regard, the case of Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga38 instructs that an owner of shares of stock cannot be accorded the
rights pertaining to a stockholder - such as the right to call for a meeting and the right to vote, or be voted for - if his ownership of such shares is
not recorded in the Stock and Transfer Book.

In the case at bar, records reveal that at the time Madrid called for the November 18, 2009 Meeting, as well as the actual conduct thereof, he
was already the owner of 74.98% shares of stock. However, records are bereft of any showing that the transfer of Angela's shares of stock to
Madrid had been registered in FSVCFs Stock and Transfer Book when he made such call and when the November 18, 2009 Meeting was held.
Thus, the CA erred in holding that Madrid complied with the required registration of transfers of shares of stock through mere reliance on
FSVCI's GIS dated November 18, 2009.

If a transferee of shares of stock who failed to register such transfer in the Stock and Transfer Book of the Corporation could not exercise the
rights granted unto him by law as stockholder, with more reason that such rights be denied to a person who is not a stockholder of a
corporation.
In light of the foregoing, Madrid could not have made a valid call of the November 18, 2009 Meeting as his stock ownership of FSVCI as
registered in the Stock and Transfer Book is only 4.16% in view of the nonregistration of Angela's shares of stock in the FSVCI Stock and Transfer
Book in his favor. As there was no showing that he was able to remedy the situation by the time the meeting was held, the conduct of such
meeting, as well as the matters resolved therein, including the reorganization of the FSVCI Board of Directors and the election of new corporate
officers, should all be declared null and void.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated March 1, 2013 and the Resolution dated August 7, 2013 of the Court of
Appeals (CA) in CA-G.R. SP No. 113279 are hereby REVERSED and SET ASIDE. The Special Stockholders' Meeting of petitioner by Madrid is
declared NULL and VOID.

7. Richard K. Tom v. Samuel N. Rodriguez; G.R. 215764; July 13,2016

Doctrine:
Exercise of Management and Control- All business conducted and all property of such corporations is controlled and held by the board of
directors or trustees
Facts:
Golden Dragon International Terminals, Inc. (GDITI) is the exclusive Shore Reception Facility (SRF) Service Provider of the Philippine Ports
Authority (PPA) tasked to collect, treat, and dispose of all ship-generated oil wastes in all bases and private ports under the PPA.
Records show that sometime in December 2008, Fidel Cu (Cu) sold via Deed of Conditional Sale his 17,237 shares of stock in GDITI to Virgilio S.
Ramos (Ramos) and Cirilo C. Basalo, Jr. (Basalo). When the latter failed to pay the purchase price, Cu.. sold 15,233 of the same shares through a
Deed of Sale in favor of Edgar D. Lim (Lim), Eddie C. Ong (Ong), and Arnold Gunnacao (Gunnacao), who also did not pay the consideration
therefor.
On September 11, 2009, the following were elected as officers of GDITI: Lim as President and Chairman of the Board, Basalo as Vice President for
Visayas and Mindanao, Ong as Treasurer and Vice President for Luzon, and Gunnacao as Director, among others. However, a group led by Ramos
composed of individuals who were not elected as officers of GDITI – which included Tom – forcibly took over the GDITI offices and performed
the functions of its officers. This prompted GDITI, through its duly-elected Chairman and President, Lim, to file an action for injunction and
damages against Ramos, et al., before the Regional Trial Court of Manila, Branch 46 (RTC-Manila), docketed as Civil Case No. 09-122149
Thereafter, herein respondent Samuel N. Rodriguez (Rodriguez) filed a Complaint-in-Intervention, alleging that in a Memorandum of Agreement
(MOA) dated May 2, 2012, Basalo authorized him to take over, manage, and control the operations of GDITI in the Luzon area, and, in such
regard, effectively revoked whatever powers Basalo had previously given to Mancao. In the said MOA, Basalo and Rodriguez agreed to divide
between them the monthly net profit of GDITI equally. However, as Basalo purportedly refused to honor the terms and conditions of the MOA
despite demand, Rodriguez sought to intervene in the specific performance case to compel Basalo to faithfully comply with his undertaking.
Likewise, Rodriquez prayed for the issuance of a writ of preliminary injunction directing Basalo, his agents, deputies, and successors, and all
other persons acting for and on his behalf, to honor his obligations under the MOA by: (a) giving the management and control of GDITI in the
Luzon area to Rodriguez; (b) allocating the power to administer and manage the Visayas and Mindanao regions of GDITI to Rodriguez in the
concept of a partner; (c) granting to Rodriguez the right to provide the manpower services for the operations of GDITI; and (d) giving to
Rodriguez his share in the net proceeds of GDITI. Finally, he prayed that after trial, such injunction be made permanent.
Basalo failed to present any evidence to contradict Rodriguez’s allegations, despite having been given the opportunity to do so.
RTC-Nabunturan granted Rodriguez’s application for the issuance of a writ of preliminary mandatory injunction, conditioned on the filing of a
bond in the amount of 1,000,000.00.
CA, without touching upon the merits of the case, denied Tom’s prayer for the issuance of a TRO and/or writ of preliminary injunction, finding no
extreme urgency on the matter raised by Tom, and that no clear and irreparable injury would be suffered if the injunctive writ was not granted.
Issue:
Whether or not the CA committed grave abuse of discretion in denying Tom’s prayer for the issuance of a TRO and/or writ of preliminary
injunction, against the exercise of Management and Control by Rodriguez
Held:
CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in denying Tom’s prayer for the issuance of a TRO and/or writ
of preliminary injunction. The issuance of an injunctive writ is warranted to enjoin the RTC-Nabunturan from implementing its November 13,
2013 and December 11, 2013 Orders in the specific performance case placing the management and control of GDITI to Rodriguez, among other
directives. This pronouncement follows the well-entrenched rule that a corporation exercises its powers through its board of directors and/or its
duly authorized officers and agents, except in instances where the Corporation Code requires stockholders’ approval for certain specific acts. As
statutorily provided for in Section 23 of Batas Pambansa Bilang 68, otherwise known as "The Corporation Code of the Philippines":
SEC. 23. The board of directors or trustees. – Unless otherwise provided in this Code, the corporate powers of all corporations formed under this
Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to
be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for
one (1) year until their successors are elected and qualified.
Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his
name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation
of which he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be members thereof. A majority of the
directors or trustees of all corporations organized under this Code must be residents of the Philippines.
Accordingly, it cannot be doubted that 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 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.
Thus, by denying Tom's prayer for the issuance of a TRO and/or writ of preliminary injunction, the CA effectively affirmed the RTC's Order placing
the management and control of GDITI to Rodriguez, a mere intervenor, on the basis of a MOA between the latter and Basalo, in violation of the
foregoing provision of the Corporation Code. In so doing, the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction,
which is correctible by certiorari.
As a final point, it is apt to clarify that Tom has legal standing to seek the issuance of an injunctive writ, considering that he is the original party-
defendant in the specific performance case pending before the RTC-Nabunturan from which this petition arose, and in which Rodriguez merely
intervened. It likewise appears from the records that pending these proceedings, Tom has been elected as a member of the current Board of
Directors of GDITI, hence, the injunctive writ must issue in line with the above-disquisition, without prejudice to the resolution on the merits of
the specific performance case pending before the RTC-Nabunturan of which the the instant petition is but a mere incident.

8. SUMIFRU (PHILIPPINES) CORP. VS BAYA

FACTS:

•The instant case stemmed from a complaint for, inter alia, illegal/constructive dismissal filed by Baya against AMSFC and DFC before
the NLRC.
•Baya alleged that he had been employed by AMSFC since February 5, 1985, and from then on, worked his way to a supervisory rank on
September 1, 1997. As a supervisor, Baya joined the union of supervisors, and eventually, formed AMS Kapalong Agrarian Reform
Beneficiaries Multipurpose Cooperative (AMSKARBEMCO), the basic agrarian reform organization of the regular employees of AMSFC.
•In June 1999, Baya was reassigned to a series of supervisory positions in AMSFC’s sister company, DFC, where he also became a
member of the latter’s supervisory union while at the same time, remaining active at AMSKARBEMCO.
•ARBs held a referendum in order to choose as to which group between AMSKARBEMCO or SAFFPAI, an association of pro-company
beneficiaries, they wanted to belong. 280 went to AMSKARBEMCO while 85 joined SAFFPAI.
•When AMSFC learned that AMSKARBEMCO entered into an export agreement with another company, it summoned AMSKARBEMCO
officers, including Baya, to lash out at them and even threatened them that the ARBs’ takeover of the lands would not push through.
Thereafter, Baya was again summoned, this time by a DFC manager, who told the former that he would be putting himself in a “difficult
situation” if he will not shift his loyalty to SAFFPAI; this notwithstanding, Baya politely refused to betray his cooperative.
•A few days later, Baya received a letter stating that his secondment with DFC has ended, thus, ordering his return to AMSFC. However,
upon Baya’s return to AMSFC on August 30, 2002, he was informed that there were no supervisory positions available; thus, he was
assigned to different rank-and-file positions instead.
•Baya filed a Complaint. LA ruled in Baya’s favor.
•NLRC found that the termination of Baya’s employment was not caused by illegal/ constructive dismissal, but by the cessation of
AMSFC’s business operation or undertaking in large portions of its banana plantation due to the implementation of the agrarian reform
program.
•Thus, the NLRC opined that Baya is not entitled to separation pay as such cessation was not voluntary, but rather involuntary, on the
part of AMSFC as it was an act of the State, i.e., the agrarian reform program, that caused the same.
•In their defense, AMSFC and DFC maintained that they did not illegally/constructively dismiss Baya, considering that his termination
from employment was the direct result of the ARBs’ takeover of AMSFC’s banana plantation through the government’s agrarian reform
 program. They even shifted the blame to Baya himself, arguing that he was the one who formed AMSKARBEMCO and, eventually,
caused the ARBs’ aforesaid takeover.

ISSUE:

Whether or not the corporation is liable for monetary awards arising from the labor dispute.

HELD:

Yes. Section 80 of the Corporation Code of the Philippines clearly states that one of the effects of a merger is that the surviving company
shall inherit not only the assets, but also the liabilities of the corporation it merged with, to wit:

Section 80. Effects of merger or consolidation. — The merger or consolidation shall have the following effects:

1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated
in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all
the duties and liabilities of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and
franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account,
including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each
constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or
deed; and

5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent
corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and
any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the
surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not
be impaired by such merger or consolidation.
In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive of constructive dismissal performed against Baya. As
such, they should be deemed as solidarily liable for the monetary awards in favor of Baya. Meanwhile, Sumifru, as the surviving entity in its
merger with DFC, must be held answerable for the latter’s liabilities, including its solidary liability with AMSFC arising herein. Verily,
jurisprudence states that “in the merger of two existing corporations, one of the corporations survives and continues the business, while the
other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation,” as in this case.

9. BIR vs Lepanto

G.R. No. 224764. April 24, 2017

BUREAU OF INTERNAL REVENUE, ASSISTANT COMMISSIONER ALFREDO V. MISAJON, GROUP SUPERVISOR ROLANDO M. BALBIDO, and
EXAMINER REYNANTE DP. MARTIREZ, petitioners, vs. LEPANTO CERAMICS, INC., respondent.

BIR vs. Lepanto

Doctrine:
It was improper for Misajon, (BIR). to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings
concerning the latter, and in the process, willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the
RTC Br. 35 correctly cited them for indirect contempt

FACTS:

On December 23, 2011, respondent Lepanto Ceramics, Inc. (LCI) — a corporation duly organized and existing under Philippine Laws with
principal office address in Calamba City, Laguna — filed a petition 4 for corporate rehabilitation pursuant to Republic Act No. (RA)
10142, otherwise known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010," docketed before the RTC of Calamba City, Branch
34, the designated Special Commercial Court in Laguna (Rehabilitation Court). Essentially, LCI alleged that due to the financial difficulties it has
been experiencing dating back to the Asian financial crisis, it had entered into a state of insolvency considering its inability to pay its obligations
as they become due and that its total liabilities amounting to P4,213,682,715.00 far exceed its total assets worth P1,112,723,941.00. Notably, LCI
admitted in the annexes attached to the aforesaid Petition its tax liabilities to the national government in the amount of at least P6,355,368.00.
On January 13, 2012, the Rehabilitation Court issued a Commencement Order, which, inter alia: (a) declared LCI to be under corporate
rehabilitation; (b)suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from
making any payment of its liabilities outstanding as of even date, except as may be provided under RA 10142; and (d) directed the BIR to file and
serve on LCI its comment or opposition to the petition, or its claims against LCI. Accordingly, the Commencement Order was published in a
newspaper of general circulation and the same, together with the petition for corporate rehabilitation, were personally served upon LCI's
creditors, including the BIR.
Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner, respectively, of the BIR's Large
Taxpayers Service, sent LCI a notice of informal conference informing the latter of its deficiency internal tax liabilities for the Fiscal Year ending
June 30, 2010. In response, LCI's court-appointed receiver, Roberto L. Mendoza, sent BIR a letter-reply, reminding the latter of the pendency of
LCI's corporate rehabilitation proceedings, as well as the issuance of a Commencement Order in connection therewith. Undaunted, the BIR sent
LCI a Formal Letter of Demand requiring LCI to pay deficiency taxes.This prompted LCI to file a petition for indirect contempt against petitioners
before RTC Br. 35. In said petition, LCI asserted that petitioners' act of pursuing the BIR's claims for deficiency taxes against LCI outside of the
pending rehabilitation proceedings in spite of the Commencement Order issued by the Rehabilitation Court is a clear defiance of the aforesaid
Order. As such, petitioners must be cited for indirect contempt in accordance with Rule 71 of the Rules of Court in relation to Section 16 of RA
10142.
ISSUE:
Whether or not the RTC Br. 35 correctly found Misajon, et al. to have defied the Commencement Order and, accordingly, cited them for indirect
contempt.

RULING
The petition is without merit.
Section 4 (gg) of RA 10142 states: AIDSTE
Section 4. Definition of Terms. — As used in this Act, the term:
xxx xxx xxx
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan,
more if the debtor continues as a going concern than if it is immediately liquidated.
xxx xxx xxx
"[C]ase law has defined corporate rehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the hope of
its eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and liquidity."
Verily, the inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed corporation during the
rehabilitation period by providing the best possible framework for the corporation to gradually regain or achieve a sustainable operating
form. "[It] enable[s] the company to gain a new lease in life and thereby allow creditors to be paid [t]heir claims from its earnings. Thus,
rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is economically more feasible and its
creditors can recover, by way of the present value of payments projected in the plan, more, if the corporation continues as a going concern than
if it is immediately liquidated.
In order to achieve such objectives, Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order — which
includes a Stay or Suspension Order — (1) all claims of the government, whether national or local, including taxes, tariffs and customs duties;
…That, this inclusion does not prohibit the creditors or third parties from filing cases against the directors and officers acting in their personal
capacities."
To clarify, however, creditors of the distressed corporation are not without remedy. They may still submit their claims to the rehabilitation court
for proper consideration so that they may participate in the proceedings. In other words, the creditors must ventilate their claims before the
rehabilitation court, and any "[a]ttempts to seek legal or other resource against the distressed corporation shall be sufficient to support a finding
of indirect contempt of court."
Petitioners' insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes; and
(b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given any
credence. As aptly put by the RTC Br. 35, they could have easily tolled the running of such prescriptive period, and at the same time, perform
their functions as officers of the BIR, without defying the Commencement Order and without violating the laudable purpose of FRIA by simply
ventilating their claim before the Rehabilitation Court. After all, they were adequately notified of the LCI's corporate rehabilitation and the
issuance of the corresponding Commencement Order.
In sum, it was improper for Misajon, et al. to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation
proceedings concerning the latter, and in the process, willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court.
Hence, the RTC Br. 35 correctly cited them for indirect contempt.

10. BPI FAMILY SAVINGS BANK, INC., petitioner, vs. ST. MICHAEL MEDICAL CENTER, INC., respondent. [G.R. No. 205469. March 25, 2015.

Doctrine: Rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis or mismanagement had
become distressed or insolvent, i.e., that it is generally unable to pay its debts as they fall due in the ordinary course of business or has
liability that are greater than its assets.45 Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the distressed corporation,46 all with a view of effectively restoring it to a state of solvency or to its
former healthy financial condition through the adoption of a rehabilitation plan.

Facts: Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors of St. Michael Diagnostic and Skin Care Laboratory
Services and Hospital (St. Michael Hospital), a 5-storey secondary level hospital built on their property located in Molino 2, Bacoor, Cavite. 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 Hospital’s operations. In May 2004, construction of a new hospital building on the adjoining properties commenced, with
Sps. Rodil contributing personal funds as initial capital for the project which was estimated to cost at least P100,000,000.00. To finance the costs
of construction, SMMCI applied for a loan with petitioner BPI Family Savings Bank, Inc. (BPI Family) which gave a credit line of up to
P35,000,000.00,7 secured by a Real Estate Mortgage8 (mortgage) over three (3) parcels of land belonging to Sps. Rodil, on a portion of which
stands the hospital building being constructed. SMMCI was able to draw the aggregate amount of P23,700,000.00, with interest at the rate of
10.25% per annum (p.a.) and a late payment charge of 3% per month accruing on the overdue amount, for which Sps. Rodil, who agreed to be
co-borrowers on the loan, executed and signed a Promissory Note. In the meantime, after suffering financial losses due to problems with the
first building contractor, Sps. Rodil temporarily deferred the original construction plans for the 11-storey hospital building and, instead, engaged
the services of another contractor for the completion of the remaining structural works of the unfinished building up to the 5th floor. 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. SMMCI then filed a Petition for Corporate Rehabilitation. Further, it was averred that while St. Michael Hospital,
whose operations were to be eventually absorbed by SMMCI, was operating profitably, it was saddled with the burden of paying the loan
obligation of SMMCI and Sps. Rodil to BPI Family, which it cannot service together with its current obligations to other persons and/or entities.
While several persons approached Sps. Rodil signifying their interest to invest in the corporation, they needed enough time to complete their
audit and due diligence of the company, hence, the Rehabilitation Petition. In an Order dated August 4, 2011, the RTC approved the
Rehabilitation Plan with the modifications. In a Decision dated August 30, 2012, the CA affirmed the RTC’s approval of the Rehabilitation Plan.
Hence before the Court is a petition for review on certiorari.
Issue: Whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC.

Held: No. Restoration is the central idea behind the remedy of corporate rehabilitation. In common parlance, to “restore” means “to bring back
to or put back into a former or original state.”Case law explains that corporate rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to
enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings. In other words, rehabilitation
assumes that the corporation has been operational but for some reasons like economic crisis or mismanagement had become distressed or
insolvent. In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a position of successful operation and solvency at
the time the Rehabilitation Petition was filed on August 11, 2010. While it had indeed “commenced business” through the preparatory act of
opening a credit line with BPI Family to finance the construction of a new hospital building for its future operations, SMMCI itself admits that it
has not formally operated nor earned any income since its incorporation. This simply means that there exists no viable business concern to be
restored. Perforce, the remedy of corporate rehabilitation is improper, thus rendering the dispositions of the courts a quo infirm. The Decision
dated August 30, 2012 and the Resolution dated January 18, 2013 of the Court of Appeals in CA-G.R. SP No. 121004 upholding the Order dated
August 4, 2011 of the Regional Trial Court of Imus, Cavite, Branch 21 approving the Rehabilitation Plan of respondent St. Michael Medical
Center, Inc. (SMMCI) are hereby REVERSED and SET ASIDE. Accordingly, SMMCI’s Petition for Corporate Rehabilitation is DISMISSED.

11. PHILIPPINE ASSET GROWTH TWO, INC. vs. FASTECH SYNERGY PHILIPPINES, INC.
G.R. No. 206528. June 28, 2016
PERLAS-BERNABE, J.:

Facts: Respondents filed a verified Joint Petition for corporate rehabilitation (rehabilitation petition). They claimed that: (a) their business
operations and daily affairs are being managed by the same individuals; (b) they share a majority of their common assets; and (c) they have
common creditors and common liabilities.

Respondents submitted for the court's approval their proposed Rehabilitation Plan, which sought: (a) a waiver of all accrued interests and
penalties; (b) a grace period of two (2) years to pay the principal amount of respondents' outstanding loans, with the interests accruing during
the said period capitalized as part of the principal, to be paid over a twelve (12)-year period after the grace period; and (c) an interest rate of
four percent (4%) and two percent (2%) per annum (p.a.) for creditors whose credits are secured by real estate and chattel mortgages,
respectively.

In a Resolution dated December 9, 2011, the RTC-Makati dismissed the rehabilitation petition despite the favorable recommendation of its
appointed Rehabilitation Receiver. It found the facts and figures submitted by respondents to be unreliable in view of the disclaimer of opinion
of the independent auditors who reviewed respondents' 2009 financial statements, which it considered as amounting to a "straightforward
unqualified adverse opinion." Aggrieved, respondents appealed to the CA.

The court-appointed Rehabilitation Receiver submitted a manifestation before the CA, maintaining that the rehabilitation of respondents is
viable since the financial projections and procedures set forth to accomplish the goals in their Rehabilitation Plan are attainable. The CA
rendered a Decision reversing and setting aside the RTC-Makati ruling. It ruled that the RTC-Makati grievously erred in disregarding the
report/opinion of the Rehabilitation Receiver that respondents may be successfully rehabilitated, despite being highly qualified to make an
opinion on accounting in relation to rehabilitation matters. It likewise observed that the RTC-Makati failed to distinguish the difference between
an adverse or negative opinion and a disclaimer or when an auditor cannot formulate an opinion with exactitude for lack of sufficient data.
Finally, the CA declared that the Rehabilitation Plan is feasible and should be approved, finding that respondents would be able to meet their
obligations to their creditors within their operating cash profits and other assets without disrupting their business operations, which will be
beneficial to their creditors, employees, stockholders, and the economy.

Issue: Whether or not the Rehabilitation Plan is feasible.

Held: No. Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new
lease on life and allow its creditors to be paid their claims out of its earnings. Thus, the basic issues in rehabilitation proceedings concern the
viability and desirability of continuing the business operations of the distressed corporation, all with a view of effectively restoring it to a state of
solvency or to its former healthy financial condition through the adoption of a rehabilitation plan.

In the present case, however, the Rehabilitation Plan failed to comply with the minimum requirements, i.e.: (a) material financial commitments
to support the rehabilitation plan; and (b) a proper liquidation analysis, under Section 18, Rule 3 of the 2008 Rules of Procedure on Corporate
Rehabilitation (Rules), which Rules were in force at the time respondents' rehabilitation petition was filed on April 8, 2011.

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.

There appears to be no concrete plan to build on respondents' beleaguered financial position through substantial investments as the plan for
rehabilitation appears to be pegged merely on financial reprieves. Anathema to the true purpose of rehabilitation, a distressed corporation
cannot be restored to its former position of successful operation and regain solvency by the sole strategy of delaying payments/waiving accrued
interests and penalties at the expense of the creditors.

Respondents likewise failed to include any liquidation analysis in their Rehabilitation Plan. The total liquidation assets and the estimated
liquidation return to the creditors, as well as the fair market value vis-à-vis the forced liquidation value of the fixed assets were not shown. As
such, the Court could not ascertain if the petitioning debtor's creditors can recover by way of the present value of payments projected in the
plan, more if the debtor continues as a going concern than if it is immediately liquidated.

The failure of the Rehabilitation Plan to state any material financial commitment to support rehabilitation, as well as to include a liquidation
analysis, renders the CA's considerations for approving the same, i.e., that: (a) respondents would be able to meet their obligations to their
creditors within their operating cash profits and other assets without disrupting their business operations; (b) the Rehabilitation Receiver's
opinion carries great weight; and (c) rehabilitation will be beneficial for respondents' creditors, employees, stockholders, and the economy, as
actually unsubstantiated, and hence, insufficient to decree the feasibility of respondents' rehabilitation. 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.

Even if the Court were to set aside the failure of the Rehabilitation Plan to comply with the fundamental requisites of material financial
commitment to support the rehabilitation and an accompanying liquidation analysis, a review of the financial documents presented by
respondents fails to convince the Court of the feasibility of the proposed plan.

12. PATRICIA CABRIETO DELA TORRE, REPRESENTED BY BENIGNO T. CABRIETO, JR. vs. PRIMETOWN PROPERTY GROUP, INC.

G.R. No. 221932, February 14, 2018

Facts: Primetown Property Group, Inc., engaged in holding, owning and developing real estate, in both Makati and Cebu, filed a petition for
corporate rehabilitation with prayer for suspension of payments and actions when its ascent was arrested and experienced financial difficulties
due to rhe Asian financial crisis. The Court approved the same and issued a stay order on August 15, 2003.

On October 15, 2004, petitioner Patricia Cabrieto dela Torre filed a Motion for Leave to Intervene seeking judicial order for specific performance,
i.e., for respondent to execute in her favor a deed of sale covering Unit 3306, Makati Prime Citadel Condominium which she bought from the
former as she had allegedly fully paid the purchase price. Respondent however contended that such motion was filed out of time since it should
have been filed not later than ten days before the initial hearing.

RTC ruled in favor of petitioner while the CA reversed such.

Issue: Was petitioner's motion to intervene filed out of time and its claim against respondent suspended with the issuance of the Stay Order?

Held: Yes. It must be noted that rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate adjudication of
claims that must be threshed out in ordinary court proceedings. It must be solved quickly and expeditiously for the sake of the corporate debtor,
its creditors and other interested parties. Thus, the Interim Rules incorporate the concept of prohibited pleadings. Aside from being filed out of
time, motion to intervene is a prohibited pleading.

Moreover, the RTC had already issued a Stay Order on August 15, 2003. By virtue of the authority of the Court under Section 6 of the Interim
Rules of Procedure on Corporate Rehabilitation, it is ordered that enforcement of all claims against the petitioner, whether for money or
otherwise, and whether such enforcement is by court action or otherwise, its guarantors or sureties not solidarity, liable with the petitioner, be
stayed.

Petitioner is prohibited (a) from selling, encumbering, transferring or disposing in any manner of any of its properties, except in the ordinary
course of business and (b) from making any payment of its liabilities, outstanding as of July 2, 2003, the date of the filing of the petition.

Clearly, while respondent is undergoing rehabilitation, the enforcement of all claims against it is stayed. Rule 2, Section 1 of the Interim Rules
defines a claim as referring to all claims or demands of whatever nature or character against a debtor or its property, whether for money or
otherwise. The definition is all-encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or exemptions.

13)
DEMETRIO ELLAO Y DELA VEGA, Petitioner, v. BATANGAS I ELECTRIC COOPERATIVE, INC. (BATELEC I), RAQUEL ROWENA RODRIGUEZ BOARD
PRESIDENT, Respondents.
G.R. No. 209166, July 09, 2018
DOCTRINE:
With the advent of Republic Act No. 8799 (R.A. 8799) or The Securities Regulation Code, the SEC's jurisdiction over all intra-corporate disputes
was transferred to the regional trial courts.

FACTS:
BATELEC I is an electric cooperative organized and existing under Presidential Decree No. 269 (P.D. 269) and is engaged in the business of
distributing electric power or energy. respondent Raquel Rowena Rodriguez is the President of BATELEC I's Board of Directors. Ellao was
employed by BATELEC I initially as Office Supplies and Equipment Control Officer until he was appointed as General Manager. A complaint was
filed by Nestor de Sagun and Conrado Cornejo against Ellao, charging him of committing irregularities in the discharge of his functions as General
Manager. A fact-finding body was created to investigate these charges and in the meantime, Ellao was placed under preventive suspension. On
March 13, 2009, the Board of Directors adopted and issued Board Resolution terminating Ellao as General Manager on the grounds of gross and
habitual neglect of duties and responsibilities and willful disobedience or insubordination resulting to loss of trust and confidence. Ellao was
formally informed of his dismissal from employment. Ellao filed a Complaint for illegal dismissal and money claims before the Labor Arbiter
against BATELEC I and/or its President Rowena A. Rodriguez Alleging illegal dismissal, Ellao complained that the charges against him were
unsubstantiated and that there was no compliance with procedural due process as he was not afforded the opportunity to explain and there was
no written notice of termination specifying the grounds of his termination. BATELEC I, on the other hand, moved to dismiss Ellao's complaint on
the ground that it is the NEA and not the NLRC which has jurisdiction over the complaint. The Labor Arbiter rendered his Decision affirming
jurisdiction over the complaint and held that while Presidential Decree No. 279 (P.D. 279), the law creating the NEA, as amended by Presidential
Decree No. 1645 (P.D. 1645), granted NEA the power to suspend or dismiss any employee of electric cooperatives, the same does not authorize
NEA to hear and decide a labor termination case which power is exclusively vested by Presidential Decree No. 442 or the Labor Code, to Labor
Arbiters. BATELEC I interposed its appeal18 before the NLRC and held that BATELEC I is not a corporation registered with the SEC, but that it was
formed and organized pursuant to P.D. 269 and that Ellao is not an officer but a mere employee. BATELEC I interposed its certiorari petition25
before the CA reiterating its argument that the Labor Arbiter and the NLRC lacked jurisdiction over Ellao's complaint, the latter being a corporate
officer. The CA found merit in BATELEC I's certiorari petition and found that Ellao, as BATELEC I's General Manager, is a corporate officer.
ISSUE:
whether or not jurisdiction over Ellao's complaint for illegal dismissal belong to the labor tribunals.

HELD:
No. Complaints for illegal dismissal filed by a cooperative officer constitute an intra-cooperative controversy, jurisdiction over which belongs to
the regional trial courts.
Organization under P.D. 269 sufficiently vests upon electric cooperatives' juridical personality enjoying corporate powers. Registration with the
SEC becomes relevant only when a non-stock, non-profit electric cooperative decides to convert into and register as a stock corporation.35 As
such, and even without choosing to convert and register as a stock corporation, electric cooperatives already enjoy powers and corporate
existence akin to a corporation.
By jurisprudence, termination disputes involving corporate officers are treated differently from illegal dismissal cases lodged by ordinary
employees. Oft-cited is the case of Tabang v. NLRC36 distinguishing between "officers" and "employees" as follows:
xxx an "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an
"employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee.37
As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the labor arbiter pursuant to Article
217 (a)2 of the Labor Code, as amended.
By way of exception, where the complaint for illegal dismissal involves a corporate officer, the controversy falls under the jurisdiction of the SEC,
because the controversy arises out of intra-corporate or partnership relations between and among stockholders, members, or associates, or
between any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates,
respectively; and between such corporation, partnership, or association and the State insofar as the controversy concerns their individual
franchise or right to exist as such entity; or because the controversy involves the election or appointment of a director, trustee, officer, or
manager of such corporation, partnership, or association. With the advent of Republic Act No. 8799 (R.A. 8799) or The Securities Regulation
Code, the SEC's jurisdiction over all intra-corporate disputes was transferred to the regional trial courts. Since Ellao filed his Complaint for illegal
dismissal on February 23, 2011, after the passage and approval of R.A. 8799, his complaint may either fall under the jurisdiction of the labor
arbiter or the regional trial courts, depending on his position. If Ellao is determined to be a corporate officer then jurisdiction over his complaint
for illegal dismissal is to be treated as an intra-corporate dispute, hence jurisdiction belongs to the regional trial courts.

14) STEPHEN Y. KU vs. RCBC SECURITIES, INC.

G.R. No. 219491. October 17, 2018
PONENTE: PERALTA, J p:
DOCTRINES:
a) Jurisdiction over intra-corporate controversies is transferred by law (RA 8799) from the SEC to the RTCs in general, but the authority to
exercise such jurisdiction is given by the Supreme Court, in the exercise of its rule-making power under the Constitution, to RTCs which are
specifically designated as Special Commercial Courts.
b) In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests, namely, the relationship test and
the nature of the controversy test.
FACTS:
Stephen Y. Ku opened a trade account with RCBC Securities on June 5, 2007, for the purchase and sale of securities. On February 22, 2013, Ku
filed with the RTC of Makati a Complaint for Sum of Money and Specific Performance with Damages against RCBC. Ku alleged that: a) unknown
to him, the name of M.G. Valbuena ("MGV") was deliberately inserted beside the name of Ivan L. Zalameda as one of the agents of the
account after Ku completed and signed the Agreement; b) In the course of Ku’s trading transactions with RSEC, MGV represented herself as a
Sales Director of RSEC, duly authorized to transact business on behalf of the latter; c) In the beginning, Ku’s dealings with RSEC through MGV
went on smoothly; d) Sometime in January 2012, it came to the knowledge of Ku that his account with RSEC was subject of mismanagement;
and e) After an audit, the report showed that RSEC owes him the total amount of Php70,064,426.88 as of 31 October 2012. Ku demanded
payment for the said amounts. Without any valid and justifiable reason, however, RSEC refused to heed plaintiff's demand.
The Complaint, docketed as Civil Case No. 13-171, was raffled-off to Branch 63, RTC of Makati. On May 29, 2013, RCBC filed a Motion to
Dismiss. After conducting several hearings on the Motion to Dismiss, the RTC of Makati, Branch 63, issued its questioned Order dated
September 12, 2013, re-raffling the case to Branch 149 of the RTC of Makati, as the case allegedly involved trading of securities which should
be heard and tried before a Special Commercial Court.
Thereafter, in its Order dated October 25, 2013, the RTC of Makati, Branch 149, denied the Motion to Dismiss for lack of merit. Aggrieved,
RCBC filed with the CA a petition for certiorari under Rule 65 of the Rules of Court. On October 9, 2014, the CA granted the petition for
Certiorari and reversed the Orders issued by the Regional Trial Court of Makati City, Branches 63 and 149, respectively, thereafter ruling that
the case of Stephen K. Yu (sic) v. RCBC Securities, Inc. is DISMISSED for lack of jurisdiction.

ISSUES:
a) WON RTC Branch 63 has subject matter jurisdiction over the case even though it is not a Special Commercial Court
b) WON the claims of an investor against a brokerage firm is an ordinary civil action and not an intra-corporate dispute

HELD:
a) YES.
In this regard, it is worthy to reiterate this Court's ruling in Gonzales, et al. v. GJH Land, Inc., et al.:
As a basic premise, let it be emphasized that a court's acquisition of jurisdiction over a particular case's subject matter is
different from incidents pertaining to the exercise of its jurisdiction. Jurisdiction over the subject matter of a case is
conferred by law, whereas a court's exercise of jurisdiction, unless provided by the law itself, is governed by the Rules of
Court or by the orders issued from time to time by the Court. In Lozada v. Bracewell, it was recently held that the matter of
 whether the RTC resolves an issue in the exercise of its general jurisdiction or of its limited jurisdiction as a special court is
only a matter of procedure and has nothing to do with the question of jurisdiction.
xxx xxx xxx
For further guidance, the Court finds it apt to point out that the same principles apply to the inverse situation of ordinary
civil cases filed before the proper RTCs but wrongly raffled to its branches designated as Special Commercial Courts. In such
a scenario, the ordinary civil case should then be referred to the Executive Judge for re-docketing as an ordinary civil case;
thereafter, the Executive Judge should then order the raffling of the case to all branches of the same RTC, subject to
limitations under existing internal rules, and the payment of the correct docket fees in case of any difference. Unlike the
limited assignment raffling of a commercial case only to branches designated as Special Commercial Courts in the scenarios
stated above, the re-raffling of an ordinary civil case in this instance to all courts is permissible due to the fact that a
particular branch which has been designated as a Special Commercial Court does not shed the RTC's general jurisdiction over
ordinary civil cases under the imprimatur of statutory law, i.e., Batas Pambansa Bilang (BP) 129.
In short, jurisdiction over intra-corporate controversies is transferred by law (RA 8799) from the SEC to the RTCs in general, but the authority
to exercise such jurisdiction is given by the Supreme Court, in the exercise of its rule-making power under the Constitution, to RTCs which are
specifically designated as Special Commercial Courts. On the other hand, the cases enumerated under Section 19 of BP 129, as amended, are
taken cognizance of by the RTCs in the exercise of their general jurisdiction.

b) YES, it is an ordinary civil action.

In the case of Medical Plaza Makati Condominium Corporation v. Cullen, this Court held as follows:
In determining whether a dispute constitutes an intra-corporate controversy, the Court uses two tests, namely, the
relationship test and the nature of the controversy test.
An intra-corporate controversy is one which pertains to any of the following relationships: (1) between the corporation,
partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as its
franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its
stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves. Thus, under
the relationship test, the existence of any of the above intra-corporate relations makes the case intra-corporate.
Under the nature of the controversy test, "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." In other words, jurisdiction
should be determined by considering both the relationship of the parties as well as the nature of the question involved.
Applying the above tests, the Court finds, and so holds, that the case is not an intra-corporate dispute and, instead, is an ordinary civil action.
There are no intra-corporate relations between the parties. Petitioner is neither a stockholder, partner, member or officer of respondent
corporation. The parties' relationship is limited to that of an investor and a securities broker. Moreover, the questions involved neither pertain
to the parties' rights and obligations under the Corporation Code, if any, nor to matters directly relating to the regulation of the corporation.

CONCLUSION:
Since the Complaint filed by petitioner partakes of the nature of an ordinary civil action, it is clear that it was correctly raffled-off to Branch 63.
Hence, it is improper for it (Branch 63) to have ordered the re-raffle of the case to another branch of the Makati RTC. Nonetheless, the
September 12, 2013 Order of Branch 63, although erroneous, was issued in the valid exercise of the RTC's jurisdiction. Such mistaken Order
can, thus, be considered as a mere procedural lapse which does not affect the jurisdiction which the RTC of Makati had already acquired.
Moreover, while designated as a Special Commercial Court, Branch 149, to which it was subsequently re-raffled, retains its general jurisdiction
to try ordinary civil cases such as petitioner's Complaint. In addition, after its re-raffle to Branch 149, the case remained docketed as an
ordinary civil case. Thus, the Order dated October 12, 2013 was, likewise issued by Branch 149 in the valid exercise of the RTC's jurisdiction. In
sum, it is error to conclude that the questioned Orders of Branches 63 and 149 are null and void on the ground of lack of jurisdiction, because,
in fact, both branches of the Makati RTC have jurisdiction over the subject matter of petitioner's Complaint.