2020 Bar Review: Chair'S Cases Commercial Law

2020 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 14

Justice Marvic Mario Victor F. Leonen
INSURANCE LAW
Title VI, Section 49 of Presidential Decree No. 612 or the Insurance Code defines an insurance
policy as “the written instrument in which a contract of insurance is set forth.” Section 50 of
this Code provides that the policy, which is required to be in printed form, “may contain blank
spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance shall be written on the blank spaces.”
Any rider, clause, warranty, or endorsement attached and referred to in the policy by its
descriptive title or name is considered part of this policy or contract of insurance and binds the
insured. Section 51 of the Insurance Code prescribes the information that must be stated in the
policy, namely: the parties in the insurance contract, amount insured, premium, property or life
insured, risks insured against, and period of insurance.
However, there is nothing in the law that prohibits the parties from agreeing to other terms and
conditions that would govern their relationship, in which case the general rules of the Civil Code
regulating contracts will apply. Steamship Mutual Underwriting Association (Bermuda) Limited
vs. Sulpicio Lines, Inc., 840 SCRA 203, G.R. No. 196072, G.R. No. 208603 September 20, 2017
When an abundance of available documentary evidence can be referenced to demonstrate a

design to defraud, presenting a singular document with an erroneous entry does not qualify as
clear and convincing proof of fraudulent intent.
Neither does belatedly invoking just one other document, which was not even authored by the
alleged miscreant. The Insular Assurance Co., Ltd., vs. Heirs of Alvarez, G.R. No. 207526 October
3, 2018; Union Bank of the Philippines vs. Heirs of Alvarez, G.R. No. 210156 October 3, 2018
The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to
concealment, but not so in cases of rescission due to false representations.
This is neither because intent to defraud is intrinsically irrelevant in concealment, nor because
concealment has nothing to do with fraud. To the contrary, it is because in insurance contracts,
concealing material facts is inherently fraudulent: "if a material fact is actually known to the
[insured], its concealment must of itself necessarily be a fraud." When one knows a material fact
and conceals it, "it is difficult to see how the inference of a fraudulent intent or intentional
concealment can be avoided." Thus, a concealment, regardless of actual intent to defraud, "is
equivalent to a false representation." The Insular Assurance Co., Ltd., vs. Heirs of Alvarez, G.R.
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No. 207526 October 3, 2018; Union Bank of the Philippines vs. Heirs of Alvarez, G.R. No. 210156
October 3, 2018
A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as
easily have been an isolated mistake.
Alvarez must have accomplished and submitted many other documents when he applied for the
housing loan and executed supporting instruments like the promissory note, real estate
mortgage, and Group Mortgage Redemption Insurance. A design to defraud would have
demanded his consistency. He needed to maintain appearances across all documents. Otherwise,
he would doom his own ruse.
He needed to have been consistent, not only before Insular Life, but even before UnionBank.
Even as it was only Insular Life's approval that was at stake with the Group Mortgage Redemption
Insurance, Alvarez must have realized that as it was an accessory agreement to his housing loan
with UnionBank. Insular Life was well in a position to verify information, whether through simple
cross referencing or through concerted queries with UnionBank.
Despite these circumstances, the best that Insular Life could come up with before the Regional
Trial Court and the Court of Appeals was a single document. The Court of Appeals was
straightforward, i.e., the most basic document that Alvarez accomplished in relation to Insular
Life must have been an insurance application form. Strangely, Insular Life failed to adduce even
this document—a piece of evidence that was not only commonsensical, but also one which has
always been in its possession and disposal. The Insular Assurance Co., Ltd., vs. Heirs of Alvarez,
G.R. No. 207526 October 3, 2018; Union Bank of the Philippines vs. Heirs of Alvarez, G.R. No.
210156 October 3, 2018
In Government Service Insurance System v. Manila Railroad Company, 1 SCRA 553 (1961), the
Supreme Court (SC) held that the provisions of a gate pass or of an arrastre management
contract are binding on an insurer-subrogee even if the latter is not a party to it.
The question whether plaintiff is bound by the stipulation in the Management Contract, Exhibit
1, requiring the filing of a claim within 15 days from discharge of the goods, as a condition
precedent to the accrual of a cause of action against the defendants, has already been settled in
Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253, Mendoza v. Phil. Air Lines, Inc. (9 Phil.
836), and Freixas & Co. v. Pacific Mail Steamship Co. (42 Phil. 199), adversely to plaintiff’s
pretense. We have repeatedly held that, by availing himself of the services of the arrastre

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operator and taking delivery therefrom in pursuance of a permit and a pass issued by the latter,
which were “subject to all the terms and conditions” of said management contract, including,
inter alia, the requirement thereof that “a claim is filed with the Company within 15 days from
the date of arrival of the goods,” the consignee — and, hence, the insurer, or plaintiff herein, as
successor to the rights of the consignee — became bound by the provisions of said contract. The
second assignment of error is, therefore, untenable. Oriental Assurance Corporation vs. Ong,
842 SCRA 337, G.R. No. 189524 October 11, 2017
As subrogee, petitioner merely stepped into the shoes of the consignee and may only exercise
those rights that the consignee may have against the wrongdoer who caused the damage.
“It can recover only the amount that is recoverable by the assured.” And since the right of action
of the consignee is subject to a precedent condition stipulated in the Gate Pass, which includes
by reference the terms of the Management Contract, necessarily a suit by the insurer is subject
to the same precedent condition. Oriental Assurance Corporation vs. Ong, 842 SCRA 337, G.R.
No. 189524 October 11, 2017
The purpose of the time limitation for filing claims is “to apprise the arrastre operator of the
existence of a claim and enable it to check on the validity of the claimant’s demand while the
facts are still fresh for recollection of the persons who took part in the undertaking and the
pertinent papers are still available.”
Despite the changes introduced in the Management Contract on filing claims, the purpose is still
the same. This Court, in a number of cases, has liberally construed the requirement for filing a
formal claim and allowed claims filed even beyond the 15-day prescriptive period after finding
that the request for bad order survey or the provisional claim filed by the consignee had
sufficiently served the purpose of a formal claim. Oriental Assurance Corporation vs. Ong, 842
SCRA 337, G.R. No. 189524 October 11, 2017
TRANSPORTATION LAW
The notion of common carriers is synonymous with public service under Commonwealth Act No.
146 or the Public Service Act. Due to the public nature of their business, common carriers are
compelled to exercise extraordinary diligence since they will be burdened with the externalities

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or the cost of the consequences of their contract of carriage if they fail to take the precautions
expected of them.
Common carriers are mandated to internalize or shoulder the costs under the contracts of
carriage. This is so because a contract of carriage is structured in such a way that passengers or
shippers surrender total control over their persons or goods to common carriers, fully trusting
that the latter will safely and timely deliver them to their destination. In light of this inherently
inequitable dynamics— and the potential harm that might befall passengers or shippers if
common carriers exercise less than extraordinary diligence— the law is constrained to intervene
and impose sanctions on common carriers for the parties to achieve allocative efficiency. Tan vs.
Great Harvest Enterprises, Inc., G.R. No. 220400 March 20, 2019
When a common carrier, through its ticketing agent, has not yet issued a ticket to the
prospective passenger, the transaction between them is still that of a seller and a buyer. The
obligation of the airline to exercise extraordinary diligence commences upon the issuance of
the contract of carriage.
Ticketing, as the act of issuing the contract of carriage, is necessarily included in the exercise of
extraordinary diligence. A contract of carriage is defined as “one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place
to another for a fixed price.” In Cathay Pacific Airways v. Reyes, 699 SCRA 725 (2013): [W]hen an
airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract
of carriage arises, and the passenger has every right to expect that he would fly on that flight and
on that date. If he does not, then the carrier opens itself to a suit for breach of contract of
carriage. Once a plane ticket is issued, the common carrier binds itself to deliver the passenger
safely on the date and time stated in the ticket. The contractual obligation of the common carrier
to the passenger is governed principally by what is written on the contract of carriage. Manay,
Jr. vs. Cebu Air, Inc., 788 SCRA 155, G.R. No. 210621 April 4, 2016
Even assuming that the ticketing agent encoded the incorrect flight information, it is incumbent
upon the purchaser of the tickets to at least check if all the information is correct before making
the purchase. Once the ticket is paid for and printed, the purchaser is presumed to have agreed
to all its terms and conditions.
In Ong Yiu v. Court of Appeals, 91 SCRA 223 (1979): While it may be true that petitioner had not
signed the plane ticket, he is nevertheless bound by the provisions thereof. “Such provisions have
been held to be a part of the contract of carriage, and valid and binding upon the passenger

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regardless of the latter’s lack of knowledge or assent to the regulation.” It is what is known as a
contract of “adhesion,” in regards which it has been said that contracts of adhesion wherein one
party imposes a ready made form of contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. Manay, Jr. vs. Cebu Air, Inc., 788 SCRA 155,
G.R. No. 210621 April 4, 2016
An air passenger has the correlative duty to exercise ordinary care in the conduct of his or her
affairs.
As correctly observed by the lower court, the plane ticket issued to petitioner clearly reflected
the departure date and time, contrary to petitioner’s contention. The travel documents,
consisting of the tour itinerary, vouchers and instructions, were likewise delivered to petitioner
two days prior to the trip. Respondent also properly booked petitioner for the tour, prepared the
necessary documents and procured the plane tickets. It arranged petitioner’s hotel
accommodation as well as food, land transfers and sightseeing excursions, in accordance with its
avowed undertaking. Therefore, it is clear that respondent performed its prestation under the
contract as well as everything else that was essential to book petitioner for the tour. Had
petitioner exercised due diligence in the conduct of her affairs, there would have been no reason
for her to miss the flight. Needless to say, after the travel papers were delivered to petitioner, it
became incumbent upon her to take ordinary care of her concerns. This undoubtedly would
require that she at least read the documents in order to assure herself of the important details
regarding the trip. Manay, Jr. vs. Cebu Air, Inc., 788 SCRA 155, G.R. No. 210621 April 4, 2016
The Air Passenger Bill of Rights recognizes that a contract of carriage is a contract of adhesion,
and thus, all conditions and restrictions must be fully explained to the passenger before the
purchase of the ticket.
WHEREAS, such a contract of carriage creates an asymmetrical relationship between an air carrier
and a passenger, considering that, while a passenger has the option to buy or not to buy the
service, the decision of the passenger to buy the ticket binds such passenger, by adhesion, to all
the conditions and/or restrictions attached to the air carrier ticket on an all-or-nothing basis,
without any say, whatsoever, with regard to the reasonableness of the individual conditions and
restrictions attached to the air carrier ticket. Section 4.4 of the Air Passenger Bill of Rights
requires that “all rebooking, refunding, baggage allowance and check-in policies” must be stated
in the tickets. Manay, Jr. vs. Cebu Air, Inc., 788 SCRA 155, G.R. No. 210621 April 4, 2016

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The duty of an airline to disclose all the necessary information in the contract of carriage does
not remove the correlative obligation of the passenger to exercise ordinary diligence in the
conduct of his or her affairs.
The passenger is still expected to read through the flight information in the contract of carriage
before making his or her purchase. If he or she fails to exercise the ordinary diligence expected
of passengers, any resulting damage should be borne by the passenger. Manay, Jr. vs. Cebu Air,
Inc., 788 SCRA 155, G.R. No. 210621 April 4, 2016
A provision in a contract of carriage requiring the filing of a formal claim within a specified
period is a valid stipulation.
Petitioner disclaims liability because of respondents’ failure to comply with a condition

precedent, that is, the filing of a written notice of a claim for nondelivery or misdelivery within
45 days from acceptance of the shipment. The Regional Trial Court found the condition precedent
to have been substantially complied with and attributed respondents’ noncompliance to FedEx
for giving them a runaround. This Court affirms this finding. A provision in a contract of carriage
requiring the filing of a formal claim within a specified period is a valid stipulation. Jurisprudence
maintains that compliance with this provision is a legitimate condition precedent to an action for
damages arising from loss of the shipment. Federal Express Corporation vs. Antonino, 868 SCRA
450, G.R. No. 199455 June 27, 2018
“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.”
Consistent with the mandate of extraordinary diligence, the Civil Code stipulates that in case of
loss or damage to goods, common carriers are presumed to be negligent or at fault, except in the
following instances: (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 or competent public authority. In all other cases, common carriers
must prove that they exercised extraordinary diligence in the performance of their duties, if they
are to be absolved of liability. Federal Express Corporation vs. Antonino, 868 SCRA 450, G.R. No.
199455 June 27, 2018

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The responsibility of common carriers to exercise extraordinary diligence lasts from the time
the goods are unconditionally placed in their possession until they are delivered “to the
consignee, or to the person who has a right to receive them.”
Thus, part of the extraordinary responsibility of common carriers is the duty to ensure that
shipments are received by none but “the person who has a right to receive them.” Common
carriers must ascertain the identity of the recipient. Failing to deliver shipment to the designated
recipient amounts to a failure to deliver. The shipment shall then be considered lost, and liability
for this loss ensues. Federal Express Corporation vs. Antonino, 868 SCRA 450, G.R. No. 199455
June 27, 2018
PUBLIC UTILITIES
Electricity is “a basic necessity whose generation and distribution is imbued with public interest,
and its provider is a public utility subject to strict regulation by the State in the exercise of police
power.”
As found by the Court of Appeals, Meralco failed to comply with the 48-hour disconnection notice
rule. Meralco claims that the statements in its demand letters, that failure to pay would result in
disconnection, were sufficient notice. However, pursuant to Section 97 of Revised General Order
No. 1, the governing rule when the disconnection occurred, disconnection due to nonpayment
of bills requires that a 48-hour written notice be given to the customer. It must be emphasized
that electricity is “a basic necessity whose generation and distribution is imbued with public
interest, and its provider is a public utility subject to strict regulation by the State in the exercise
of police power.” The serious consequences on a consumer, whose electric supply has been cut
off, behoove a distribution utility to strictly comply with the legal requisites before disconnection
may be done. This is all the more true considering Meralco’s dominant position in the market
compared to its customers’ weak bargaining position. Manila Electric Company vs. Nordec
Philippines, 861 SCRA 515, G.R. No. 196020 April 18, 2018
CORPORATION LAW
A sole proprietorship does not possess a juridical personality separate and distinct from the
personality of the owner of the enterprise.
The law merely recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual and requires its proprietor or owner to

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secure licenses and permits, register its business name, and pay taxes to the national
government. The law does not vest a separate legal personality on the sole proprietorship or
empower it to file or defend an action in court. Thus, Stanley Fine, being a sole proprietorship,
does not have a personality separate and distinct from its owner, Elena Briones. Elena, being the
proprietress of Stanley Fine, can be considered as a real party-in-interest and has standing to file
this petition for review. Stanley Fine Furniture vs. Gallano, 743 SCRA 306, G.R. No. 190486
November 26, 2014
The corporate legal structure draws its “economic superiority” from key features such as a
separate corporate personality. Unlike other business associations such as partnerships, the
corporate framework encourages investment by allowing even small capital contributors to be
part of a big business endeavor made possible by the aggregation of their capital funds.
The consequent limited liability feature, since corporate assets will answer for corporate debts,
also proves attractive for investors. However, this legal structure should not be abused. The
corporate legal structure draws its “economic superiority” from key features such as a separate
corporate personality. Unlike other business associations such as partnerships, the corporate
framework encourages investment by allowing even small capital contributors to be part of a big
business endeavor made possible by the aggregation of their capital funds. The consequent
limited liability feature, since corporate assets will answer for corporate debts, also proves
attractive for investors. However, this legal structure should not be abused. Pioneer Insurance
Surety Corporation vs. Morning Star Travel and Tours, Inc., 762 SCRA 283, G.R. No. 198436 July
8, 2015
Control Test for purposes of Alter Ego Doctrine
Petitioner failed to plead and prove the circumstances that would pass the following control test
for the operation of the alter ego doctrine:
1) Control, not mere majority or complete stock control, but complete domination, not only
of finances but of policy and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiff’s legal right; and

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3) The aforesaid control and breach of duty must [have] proximately caused the injury or
unjust loss complained of.
The records do not show that the individual respondents controlled Morning Star Tour Planners,
Inc. and that such control was used to commit fraud against petitioner. Neither does this
suspicion support petitioner’s position that the individual respondents were in bad faith or gross
negligence in directing the affairs of respondent Morning Star. Pioneer Insurance Surety
Corporation vs. Morning Star Travel and Tours, Inc., 762 SCRA 283, G.R. No. 198436 July 8, 2015
It is basic that a corporation has a personality separate and distinct from that of its individual
stockholders. Thus, a stockholder does not automatically assume the liabilities of the
corporation of which he is a stockholder.
As explained in Philippine National Bank v. Hydro Resources Contractors Corporation, 693 SCRA
294 (2013): A corporation is an artificial entity created by operation of law. It possesses the right
of succession and such powers, attributes, and properties expressly authorized by law or incident
to its existence. It has a personality separate and distinct from that of its stockholders and from
that of other corporations to which it may be connected. As a consequence of its status as a
distinct legal entity and as a result of a conscious policy decision to promote capital formation, a
corporation incurs its own liabilities and is legally responsible for payment of its obligations. In
other words, by virtue of the separate juridical personality of a corporation, the corporate debt
or credit is not the debt or credit of the stockholder. This protection from liability for shareholders
is the principle of limited liability. In fact, even the ownership by a single stockholder of all or
nearly all the capital stock of a corporation is not, in and of itself, a ground for disregarding a
corporation’s separate personality. Aboitiz Equity Ventures, Inc. vs. Chiongbian, 729 SCRA 580,
G.R. No. 197530 July 9, 2014
AEV’s status as ATSC’s stockholder is, in and of itself, insufficient to make AEV liable for ATSC’s
obligations.
Moreover, the SPA does not contain any stipulation which makes AEV assume ATSC’s obligations.
It is true that Section 6.8 of the SPA stipulates that the rights and obligations arising from Annex
SL-V are not terminated. But all that Section 6.8 does is recognize that the obligations under
Annex SL-V subsist despite the termination of the January 8, 1996 Agreement. At no point does
the text of Section 6.8 support the position that AEV steps into the shoes of the obligor under
Annex SL-V and assumes its obligations. Aboitiz Equity Ventures, Inc. vs. Chiongbian, 729 SCRA
580, G.R. No. 197530 July 9, 2014

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A corporation, in the legal sense, is an individual with a personality that is distinct and separate
from other persons including its stockholders, officers, directors, representatives, and other
juridical entities.
A corporation is an artificial entity created by fiction of law. This means that while it is not a
person, naturally, the law gives it a distinct personality and treats it as such. A corporation, in the
legal sense, is an individual with a personality that is distinct and separate from other persons
including its stockholders, officers, directors, representatives, and other juridical entities. The law
vests in corporations rights, powers, and attributes as if they were natural persons with physical
existence and capabilities to act on their own. For instance, they have the power to sue and enter
into transactions or contracts. Lanuza, Jr. vs. BF Corporation, 737 SCRA 275, G.R. No. 174938
October 1, 2014
A consequence of a corporation’s separate personality is that consent by a corporation through

its representatives is not consent of the representative, personally.
Its obligations, incurred through official acts of its representatives, are its own. A stockholder,
director, or representative does not become a party to a contract just because a corporation
executed a contract through that stockholder, director or representative. Hence, a corporation’s
representatives are generally not bound by the terms of the contract executed by the
corporation. They are not personally liable for obligations and liabilities incurred on or in behalf
of the corporation. Lanuza, Jr. vs. BF Corporation, 737 SCRA 275, G.R. No. 174938 October 1,
2014
As a general rule, therefore, a corporation’s representative who did not personally bind himself
or herself to an arbitration agreement cannot be forced to participate in arbitration
proceedings made pursuant to an agreement entered into by the corporation. He or she is
generally not considered a party to that agreement.
However, there are instances when the distinction between personalities of directors, officers,
and representatives, and of the corporation, are disregarded. We call this piercing the veil of
corporate fiction. Lanuza, Jr. vs. BF Corporation, 737 SCRA 275, G.R. No. 174938 October 1, 2014

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Piercing the corporate veil is warranted when “[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues.”
It is also warranted in 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.” When corporate veil is pierced, the corporation and persons
who are normally treated as distinct from the corporation are treated as one person, such that
when the corporation is adjudged liable, these persons, too, become liable as if they were the
corporation. Among the persons who may be treated as the corporation itself under certain
circumstances are its directors and officers. Lanuza, Jr. vs. BF Corporation, 737 SCRA 275, G.R.
No. 174938 October 1, 2014
Solidary liability of directors and officers
A director, trustee, or officer of a corporation may be made solidarily liable with it for all damages
suffered by the corporation, its stockholders or members, and other persons in any of the
following cases:
a) The director or trustee willfully and knowingly voted for or assented to a patently
unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.
Solidary liability with the corporation will also attach in the following instances:
a) “When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto”;
b) “When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation”; and
c) “When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.” Lanuza, Jr. vs. BF Corporation, 737 SCRA 275, G.R. No. 174938
October 1, 2014

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When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons and
the corporation should be treated as one. Without a trial, courts and tribunals have no basis
for determining whether the veil of corporate fiction should be pierced.
This is because when the court or tribunal finds that circumstances exist warranting the piercing
of the corporate veil, the corporate representatives are treated as the corporation itself and
should be held liable for corporate acts. The corporation’s distinct personality is disregarded, and
the corporation is seen as a mere aggregation of persons undertaking a business under the
collective name of the corporation. Lanuza, Jr. vs. BF Corporation, 737 SCRA 275, G.R. No.
174938 October 1, 2014
When the courts disregard the corporation’s distinct and separate personality from its directors
or officers, the courts do not say that the corporation, in all instances and for all purposes, is
the same as its directors, stockholders, officers, and agents.
It does not result in an absolute confusion of personalities of the corporation and the persons
composing or representing it. Courts merely discount the distinction and treat them as one, in
relation to a specific act, in order to extend the terms of the contract and the liabilities for all
damages to erring corporate officials who participated in the corporation’s illegal acts. This is
done so that the legal fiction cannot be used to perpetrate illegalities and injustices. Lanuza, Jr.
vs. BF Corporation, 737 SCRA 275, G.R. No. 174938 October 1, 2014
Respondent Riza A. Moises may not be held personally liable for the illegal termination of
petitioner’s employment. As we explained in Saudi Arabian Airlines v. Rebesencio, 746 SCRA
140 (2015): A corporation has a personality separate and distinct from those of the persons
composing it.
Thus, as a rule, corporate directors and officers are not liable for the illegal termination of a
corporation’s employees. It is only when they acted in bad faith or with malice that they become
solidarily liable with the corporation. In Ever Electrical Manufacturing, Inc. (EEMI) v. Samahang
Manggagawa ng Ever Electrical, this court clarified that “[b]ad faith does not connote bad
judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty through some motive or interest or ill will; it
partakes of the nature of fraud.” Petitioner has not produced proof to show that respondent Riza
A. Moises acted in bad faith or with malice as regards the termination of his employment. Thus,

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she did not incur any personal liability. Rivera vs. Genesis Transport Service, Inc., 764 SCRA 653,
G.R. No. 215568 August 3, 2015
Mere membership in the Board or being President per se does not mean knowledge, approval,
and participation in the act alleged as criminal. There must be a showing of active participation,
not simply a constructive one.
Under principles of criminal law, the principals of a crime are those “who take a direct part in the
execution of the act; [t]hose who directly force or induce others to commit it; [or] [t]hose who
cooperate in the commission of the offense by another act without which it would not have been
accomplished.” There is conspiracy “when two or more persons come to an agreement
concerning the commission of a felony and decide to commit it.” ABS-CBN Corporation vs.
Gozon, 753 SCRA 1, G.R. No. 195956 March 11, 2015
The board of directors may validly delegate its functions and powers to its officers or agents.
As a corporation, Ricarcen exercises its powers and conducts its business through its board of
directors, as provided for by Section 23 of the Corporation Code: Section 23. The board of
directors or trustees. Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property
of such corporations controlled and held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year until their successors are elected and qualified.
However, the board of directors may validly delegate its functions and powers to its officers or
agents. The authority to bind the corporation is derived from law, its corporate bylaws, or directly
from the board of directors, “either expressly or impliedly by habit, custom or acquiescence in
the general course of business.” Calubad vs. Ricarcen Development Corporation, 838 SCRA 303,
G.R. No. 202364 August 30, 2017
The doctrine of apparent authority provides that even if no actual authority has been conferred
on an agent, his or her acts, as long as they are within his or her apparent scope of authority,
bind the principal.
However, the principal’s liability is limited to third persons who are reasonably led to believe that
the agent was authorized to act for the principal due to the principal’s conduct. Apparent

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authority is determined by the acts of the principal and not by the acts of the agent. Thus, it is
incumbent upon Calubad to prove how Ricarcen’s acts led him to believe that Marilyn was duly
authorized to represent it. Calubad vs. Ricarcen Development Corporation, 838 SCRA 303, G.R.
No. 202364 August 30, 2017
The rule that knowledge of an officer is considered knowledge of the corporation applies only
when the officer is acting within the authority given to him or her by the corporation.
In Francisco v. Government Service Insurance System, 7 SCRA 577 (1963): Knowledge of facts
acquired or possessed by an officer or agent of a corporation in the course of his employment,
and in relation to matters within the scope of his authority, is notice to the corporation, whether
he communicates such knowledge or not. The public should be able to rely on and be protected
from the representations of a corporate representative acting within the scope of his or her
authority. This is why an authorized officer’s knowledge is considered knowledge of corporation.
However, just as the public should be able to rely on and be protected from corporate
representations, corporations should also be able to expect that they will not be bound by
unauthorized actions made on their account. University of Mindanao, Inc. vs. Bangko Sentral ng
Pilipinas, 778 SCRA 458, G.R. Nos. 194964-65 January 11, 2016
The doctrine of apparent authority does not go into the question of the corporation’s
competence or power to do a particular act. It involves the question of whether the officer has
the power or is clothed with the appearance of having the power to act for the corporation.
A finding that there is apparent authority is not the same as a finding that the corporate act in
question is within the corporation’s limited powers. The rule on apparent authority is based on
the principle of estoppel. The Civil Code provides: ART. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. ART. 1869. Agency may be express, or implied
from the acts of the principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without authority. Agency may be
oral, unless the law requires a specific form. A corporation is estopped by its silence and acts of
recognition because we recognize that there is information asymmetry between third persons
who have little to no information as to what happens during corporate meetings, and the
corporate officers, directors, and representatives who are insiders to corporate affairs. University
of Mindanao, Inc. vs. Bangko Sentral ng Pilipinas, 778 SCRA 458, G.R. Nos. 194964-65 January
11, 2016

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A corporation may exercise its powers only within those definitions. Corporate acts that are
outside those express definitions under the law or articles of incorporation or those “committed
outside the object for which a corporation is created” are ultra vires.
Corporations are artificial entities granted legal personalities upon their creation by their
incorporators in accordance with law. Unlike natural persons, they have no inherent powers.
Third persons dealing with corporations cannot assume that corporations have powers. It is up
to those persons dealing with corporations to determine their competence as expressly defined
by the law and their articles of incorporation.
The only exception to this rule is when acts are necessary and incidental to carry out a
corporation’s purposes, and to the exercise of powers conferred by the Corporation Code and
under a corporation’s articles of incorporation. University of Mindanao, Inc. vs. Bangko Sentral
ng Pilipinas, 778 SCRA 458, G.R. Nos. 194964-65 January 11, 2016
Securing loans is not an adjunct of the educational institution’s conduct of business.
Petitioner does not have the power to mortgage its properties in order to secure loans of other
persons. As an educational institution, it is limited to developing human capital through formal
instruction. It is not a corporation engaged in the business of securing loans of others. Hiring
professors, instructors, and personnel; acquiring equipment and real estate; establishing housing
facilities for personnel and students; hiring a concessionaire; and other activities that can be
directly connected to the operations and conduct of the education business may constitute the
necessary and incidental acts of an educational institution.
Securing FISLAI’s loans by mortgaging petitioner’s properties does not appear to have even the
remotest connection to the operations of petitioner as an educational institution. Securing loans
is not an adjunct of the educational institution’s conduct of business. It does not appear that
securing third party loans was necessary to maintain petitioner’s business of providing instruction
to individuals. University of Mindanao, Inc. vs. Bangko Sentral ng Pilipinas, 778 SCRA 458, G.R.
Nos. 194964-65 January 11, 2016

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Respondents do not dispute that Article VIII(3) of the PSI’s by-laws fixed the annual meeting of
stockholders on the third Friday of March of every year. This Court takes judicial notice that
March 15, 2002 was the third Friday of March 2002. Furthermore, the agenda for the meeting,
which includes the elections of the new board of directors and ratification of acts of the
incumbent board of directors and management, was the standard order of business in a regular
annual meeting of stockholders of a corporation.
Thus, this Court holds that the March 15, 2002 annual stockholders’ meeting was a regular
meeting. Hence, the requirement to state the object and purpose in case of a special meeting as
provided for in Article VIII(5) of the PSI’s bylaws does not apply to the Notice for the March 15,
2002 annual stockholders’ meeting. Lao vs. Yao Bio Lim, G.R. No. 201306 August 9, 2017
By its express terms, the Corporation Code allows “the shortening (or lengthening) of the period
within which to send the notice to call a special (or regular) meeting.”
In this case, the PSI’s by-laws providing only for a five (5)-day prior notice must prevail over the
two (2)-week notice under the Corporation Code. By its express terms, the Corporation Code
allows “the shortening (or lengthening) of the period within which to send the notice to call a
special (or regular) meeting.” Thus, the mailing of the Notice to respondents on March 5, 2002
calling for the annual stockholders’ meeting to be held on March 15, 2002 is not irregular, since
it complies with what was stated in PSI’s by-laws. Lao vs. Yao Bio Lim, 836 SCRA 341, G.R. No.
201306 August 9, 2017
The right to inspect under Section 74 of the Corporation Code is subject to certain limitations.
However, these limitations are expressly provided as defenses in actions filed under Section 74.
Thus, this Court has held that a corporation’s objections to the right to inspect must be raised as
a defense: 2) the person demanding to examine and copy excerpts from the corporation’s records
and minutes has not improperly used any information secured through any previous examination
of the records of such corporation; and 3) the demand is made in good faith or for a legitimate
purpose. The latter two limitations, however, must be set up as a defense by the corporation if
it is to merit judicial cognizance. As such, and in the absence of evidence, the PCGG cannot
unilaterally deny a stockholder from exercising his statutory right of inspection based on an
unsupported and naked assertion that private respondent’s motive is improper or merely for
curiosity or on the ground that the stockholder is not in friendly terms with the corporation’s
officers. Philippine Associated Smelting and Refining Corporation vs. Lim, 804 SCRA 600, G.R.
No. 172948 October 5, 2016

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Specifically, stockholders cannot be prevented from gaining access to the (a) records of all
business transactions of the corporation; and (b) minutes of any meeting of stockholders or the
board of directors, including their various committees and subcommittees.
The grant of legal personality to a corporation is conditioned on its compliance with certain
obligations. Among these are its fiduciary responsibilities to its stockholders. Providing
stockholders with access to information is a fundamental basis for their intelligent participation
in the governance of the corporation as a business organization that they partially own.
The law is agnostic with respect to the amount of shares required. Generally, each individual
stockholder should be given reasonable access so that he or she can assess or share his or her
assessment of the management of the corporation with other stockholders. The separate legal
personality of a corporation is not so absolutely separate that it divorces itself from its
responsibility to its constituent owners. Philippine Associated Smelting and Refining
Corporation vs. Lim, 804 SCRA 600, G.R. No. 172948 October 5, 2016
The confidentiality of business transactions is not a magical incantation that will defeat the
request of a stockholder to inspect the records. Although it is true that the business is entitled
to the protection of its trade secrets and other intellectual property rights, facts must be
pleaded to convince the court that a specific stockholder’s request for inspection, under certain
conditions, would violate the corporation’s own legal right.
Furthermore, the discomfort caused to the management of a corporation when a request for
inspection is claimed is part of the regular matters that a business wanting to ensure good
governance must endure. The range between discomfort and vexation is a broad one, which may
tend to be located in the personalities of those involved. Certainly, by themselves, these are not
sufficient factual basis to conclude bad faith on the part of the requesting stockholder.
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. Philippine
Associated Smelting and Refining Corporation vs. Lim, 804 SCRA 600, G.R. No. 172948 October
5, 2016

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A merger is a consolidation of two or more corporations, which results in one or more

corporations being absorbed into one surviving corporation. The separate existence of the
absorbed corporation ceases, and the surviving corporation “retains its identity and takes over
the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed
corporation(s).”
If respondent is a subsidiary of Unocal California, which, in turn, is a subsidiary of Unocal

Corporation, then the merger of Unocal Corporation with Blue Merger and Chevron does not
affect respondent or any of its employees. Respondent has a separate and distinct personality
from its parent corporation. Philippine Geothermal, Inc. Employees Union vs. Unocal
Philippines, Inc. (now known as Chevron Geothermal Philippines Holdings, Inc.), 804 SCRA 286,
G.R. No. 190187 September 28, 2016
Effects of merger or consolidation
The merger or consolidation, as provided in the preceding sections 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 taken and deemed to be
transferred to and vested in such surviving or consolidated corporation without further
act or deed; and
5) The surviving or the 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 claim, action or proceeding pending by or against any of such
constituent corporations may be prosecuted by or against the surviving or consolidated
corporation, as the case may be. Neither the rights of creditors nor any lien upon the

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property of any of such constituent corporations shall be impaired by such merger or

consolidation.
Although this provision does not explicitly state the merger’s effect on the employees of the
absorbed corporation, Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-
Federation of Unions in BPI Unibank, 658 SCRA 828 (2011), has ruled that the surviving
corporation automatically assumes the employment contracts of the absorbed corporation, such
that the absorbed corporation’s employees become part of the manpower complement of the
surviving corporation. Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc.
(now known as Chevron Geothermal Philippines Holdings, Inc.), 804 SCRA 286, G.R. No. 190187
September 28, 2016
The surviving corporation shall possess all the rights, privileges, properties, and receivables due
of the absorbed corporation. Moreover, all interests of, belonging to, or due to the absorbed
corporation “shall be taken and deemed to be transferred to and vested in such surviving or
consolidated corporation without further act or deed.”
The surviving corporation likewise acquires all the liabilities and obligations of the absorbed
corporation as if it had itself incurred these liabilities or obligations. This acquisition of all assets,
interests, and liabilities of the absorbed corporation necessarily includes the rights and
obligations of the absorbed corporation under its employment contracts. Consequently, the
surviving corporation becomes bound by the employment contracts entered into by the
absorbed corporation. These employment contracts are not terminated. They subsist unless their
termination is allowed by law. Philippine Geothermal, Inc. Employees Union vs. Unocal
G.R. No. 190187 September 28, 2016
The surviving corporation automatically assumes the employment contracts of the absorbed
corporation. The absorbed corporation’s employees are not impliedly dismissed, but become
part of the manpower complement of the surviving corporation.
The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied
termination of the employment of petitioner’s members. Assuming respondent is a party to the
merger, its employment contracts are deemed to subsist and continue by “the combined
operation of the Corporation Code and the Labor Code under the backdrop of the labor and social
justice provisions of the Constitution.” Philippine Geothermal, Inc. Employees Union vs. Unocal

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G.R. No. 190187 September 28, 2016
Although the absorbed employees are retained as employees of the merged corporation, the
employer retains the right to terminate their employment for a just or authorized cause.
Likewise, the employees are not precluded from severing their employment through resignation
or retirement. The freedom to contract and the prohibition against involuntary servitude is still,
thus, preserved in this sense. This is the manner by which the consent of the employees is
considered by the law. Philippine Geothermal, Inc. Employees Union vs. Unocal Philippines, Inc.
(now known as Chevron Geothermal Philippines Holdings, Inc.), 804 SCRA 286, G.R. No. 190187
September 28, 2016
Merger is not one of the circumstances where the employees may claim separation pay.
The only instances where separation pay may be awarded to petitioner are: (a) reduction in
workforce as a result of redundancy; (b) retrenchment or installation of labor-saving devices; or
(c) closure and cessation of operations. Philippine Geothermal, Inc. Employees Union vs. Unocal
G.R. No. 190187 September 28, 2016
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

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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.
While Section 3(d) above states that “appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account” is not considered
as “doing business,” the Implementing Rules and Regulations of Republic Act No. 7042 clarifies
that “doing business” includes “appointing representatives or distributors, operating under full
control of the foreign corporation, domiciled in the Philippines or who in any calendar year stay
in the country for a period or periods totaling one hundred eighty (180) days or more[.]” Air
Canada vs. Commissioner of Internal Revenue, 778 SCRA 131, G.R. No. 169507 January 11, 2016
Offline Carrier
An offline carrier is “any foreign air carrier not certificated by the [Civil Aeronautics] Board, but
who maintains office or who has designated or appointed agents or employees in the Philippines,
who sells or offers for sale any air transportation in behalf of said foreign air carrier and/or others,
or negotiate for, or holds itself out by solicitation, advertisement, or otherwise sells, provides,
furnishes, contracts, or arranges for such transportation.” “Anyone desiring to engage in the
activities of an offline carrier [must] apply to the [Civil Aeronautics] Board for such authority.”
Each offline carrier must file with the Civil Aeronautics Board a monthly report containing
information on the tickets sold, such as the origin and destination of the passengers, carriers
involved, and commissions received. Petitioner is undoubtedly “doing business” or “engaged in
trade or business” in the Philippines. Air Canada vs. Commissioner of Internal Revenue, 778
SCRA 131, G.R. No. 169507 January 11, 2016
By its own admission, Saudia, while a foreign corporation, has a Philippine office. Section 3(d)
of Republic Act No. 7042, otherwise known as the Foreign Investments Act of 1991, provides
the following: The phrase “doing business” shall include . . . opening offices, whether called
“liaison” offices or branches; . . . 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.
A plain application of Section 3(d) of the Foreign Investments Act leads to no other conclusion
than that Saudia is a foreign corporation doing business in the Philippines. As such, Saudia may

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be sued in the Philippines and is subject to the jurisdiction of Philippine tribunals. Saudi Arabian
Airlines (Saudia) vs. Rebesencio, 746 SCRA 140, G.R. No. 198587 January 14, 2015
Transnational transactions entail differing laws on the requirements for the validity of the
formalities and substantive provisions of contracts and their interpretation.
These transactions inevitably lend themselves to the possibility of various fora for litigation and
dispute resolution. As observed by an eminent expert on transnational law: The more
jurisdictions having an interest in, or merely even a point of contact with, a transaction or
relationship, the greater the number of potential fora for the resolution of disputes arising out
of or related to that transaction or relationship. In a world of increased mobility, where business
and personal transactions transcend national boundaries, the jurisdiction of a number of
different fora may easily be invoked in a single or a set of related disputes. Saudi Arabian Airlines
(Saudia) vs. Rebesencio, 746 SCRA 140, G.R. No. 198587 January 14, 2015
A derivative suit is an action filed by stockholders to enforce a corporate action. It is an

exception to the general rule that the corporation’s power to sue is exercised only by the board
of directors or trustees.
Individual stockholders may be allowed to sue on behalf of the corporation whenever the
directors or officers of the corporation refuse to sue to vindicate the rights of the corporation or
are the ones to be sued and are in control of the corporation. It is allowed when the “directors
[or officers] are guilty of breach of . . . trust, [and] not of mere error of judgment.” In derivative
suits, the real party-in-interest is the corporation, and the suing stockholder is a mere nominal
party. Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881 September 24, 2014
Five Requisites for Filing a Derivative Suit
Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (Interim
Rules) provides the five (5) requisites for filing derivative suits: 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;

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2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint,
to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;
3) No appraisal rights are available for the act or acts complained of; and
4) The suit is not a nuisance or harassment suit. In case of nuisance or harassment suit, the
court shall forthwith dismiss the case.
The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in
the first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder
or member must be “in the name of [the] corporation or association. . . .” This requirement has
already been settled in jurisprudence. Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881
September 24, 2014
Among the basic requirements for a derivative suit to prosper is that the minority shareholder
who is suing for and on behalf of the corporation must allege in his complaint before the proper
forum that he is suing on a derivative cause of action on behalf of the corporation and all other
shareholders similarly situated who wish to join him.
This principle on derivative suits has been repeated in, among other cases, Tam Wing Tak v. Hon.
Makasiar and De Guia, 350 SCRA 475 (2001), and in Chua v. Court of Appeals, 443 SCRA 259
(2004), which was cited in Hi-Yield Realty, Incorporated v. Court of Appeals, 590 SCRA 548 (2009).
Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881 September 24, 2014
Not only is the corporation an indispensable party, but it is also the present rule that it must be
served with process.
The reason given is that the judgment must be made binding upon the corporation in order that
the corporation may get the benefit of the suit and may not bring a subsequent suit against the
same defendants for the same cause of action. In other words, the corporation must be joined
as party because it is its cause of action that is being litigated and because judgment must be a
res judicata against it. Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881 September 24,
2014

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An allegation that appraisal rights were not available for the acts complained of is another
requisite for filing derivative suits under Rule 8, Section 1(3) of the Interim Rules.
Section 82 of the Corporation Code provides that the stockholder may exercise the right if he or
she voted against the proposed corporate action and if he made a written demand for payment
on the corporation within thirty (30) days after the date of voting. Villamor, Jr. vs. Umale, 736
SCRA 325, G.R. No. 172881 September 24, 2014
Individual suits are filed when the cause of action belongs to the individual 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. Villamor, Jr. vs. Umale, 736 SCRA 325, G.R. No. 172881 September 24, 2014
For a dispute to be “intra-corporate,” it must satisfy the relationship and nature of controversy
tests.
The relationship test requires that the dispute be between a corporation/partnership/association

and the public; a corporation/partnership/association and the state regarding the entity’s
franchise, permit, or license to operate; a corporation/partnership/association and its
stockholders, partners, members, or officers; and among stockholders, partners, or associates of
the entity. The nature of the controversy test requires that the action involves the enforcement
of corporate rights and obligations. Courts and tribunals must consider both the parties’
relationship and the nature of the controversy to determine whether they should assume
jurisdiction over a case. Securities and Exchange Commission vs. Subic Bay Golf and Country
Club, Inc., 752 SCRA 481, G.R. No. 179047 March 11, 2015
Villareal and Filart alleged in their letter-complaint that the world-class golf course that was
promised to them when they purchased shares did not materialize. This is an intra-corporate
matter that is under the designated Regional Trial Court’s (RTC’s) jurisdiction.
Villareal and Filart’s right to a refund of the value of their shares was based on SBGCCI and
UIGDC’s alleged failure to abide by their representations in their prospectus. Specifically, Villareal

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and Filart alleged in their letter-complaint that the world-class golf course that was promised to
them when they purchased shares did not materialize. This is an intra-corporate matter that is
under the designated Regional Trial Court’s jurisdiction. It involves the determination of a
shareholder’s rights under the Corporation Code or other intra-corporate rules when the
corporation or association fails to fulfill its obligations. Securities and Exchange Commission vs.
Subic Bay Golf and Country Club, Inc., 752 SCRA 481, G.R. No. 179047 March 11, 2015
A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken

through directors, associates, officers, or other persons) may sue in any of three (3) capacities:
as an individual; as part of a group or specific class of stockholders; or as a representative of
the corporation.
Individual suits are filed when the cause of action belongs to the individual 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. Villamor, Jr. further
explained that a derivative suit “is an action filed by stockholders to enforce a corporate action.”
A derivative suit, therefore, concerns “a wrong to the corporation itself.”
The real party-in-interest is the corporation, not the stockholders filing the suit. The stockholders
are technically nominal parties but are nonetheless the active persons who pursue the action for
and on behalf of the corporation. Remedies through derivative suits are not expressly provided
for in our statutes — more specifically, in the Corporation Code and the Securities Regulation
Code — but they are “impliedly recognized when the said laws make corporate directors or
officers liable for damages suffered by the corporation and its stockholders for violation of their
fiduciary duties.” They are intended to afford reliefs to stockholders in instances where those
responsible for running the affairs of a corporation would not otherwise act. Florete, Jr. vs.
Florete, Sr., 781 SCRA 255, G.R. No. 174909, G.R. No. 177275 January 20, 2016
The fact that stockholders suffer from a wrong done to or involving a corporation does not vest
in them a sweeping license to sue in their own capacity.
The recognition of derivative suits as a vehicle for redress distinct from individual and
representative suits is an acknowledgment that certain wrongs may be addressed only through
acts brought for the corporation: Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his interest therein would be impaired,

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this fact of itself is not sufficient to give him an individual cause of action since the corporation is
a person distinct and separate from him, and can and should itself sue the wrongdoer. Florete,
Jr. vs. Florete, Sr., 781 SCRA 255, G.R. No. 174909, G.R. No. 177275 January 20, 2016
A violation of Sections 23 and 25 of the Corporation Code — on how decision-making is vested

in the board of directors and on the board’s quorum requirement — implies that a decision was
wrongly made for the entire corporation, not just with respect to a handful of stockholders.
Section 65 specifically mentions that a director’s or officer’s liability for the issuance of watered
stocks in violation of Section 62 is solidary “to the corporation and its creditors,” not to any
specific stockholder. Transfers of shares made in violation of the registration requirement in
Section 63 are invalid and, thus, enable the corporation to impugn the transfer. Notably, those
in the Marcelino, Jr. Group have not shown any specific interest in, or unique entitlement or right
to, the shares supposedly transferred in violation of Section 63. Florete, Jr. vs. Florete, Sr., 781
SCRA 255, G.R. No. 174909, G.R. No. 177275 January 20, 2016
In derivative suits, the corporation concerned must be impleaded as a party.
As explained in Asset Privatization Trust v. Court of Appeals, 300 SCRA 579 (1998): Not only is the
corporation an indispensable party, but it is also the present rule that it must be served with
process. The reason given is that the judgment must be made binding upon the corporation in
order that the corporation may get the benefit of the suit and may not bring a subsequent suit
against the same defendants for the same cause of action. In other words the corporation must
be joined as party because it is its cause of action that is being litigated and because judgment
must be a res ajudicata [sic] against it. We have already discussed Go v. Distinction Properties
Development and Construction, Inc., 671 SCRA 461 (2012), where this court concluded that an
action brought by three individual stockholders was, in truth, a derivative suit. There, this court
further explained that a case cannot prosper when the proper party is not impleaded. Florete, Jr.
vs. Florete, Sr., 781 SCRA 255, G.R. No. 174909, G.R. No. 177275 January 20, 2016

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As a rule, a corporation is not entitled to moral damages because, not being a natural person,
it cannot experience physical suffering or sentiments like wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception to this rule is when the corporation has a
reputation that is debased, resulting in its humiliation in the business realm.
But in such a case, it is imperative for the claimant to present proof to justify the award. It is
essential to prove the existence of the factual basis of the damage and its causal relation to
petitioner’s acts. In the present case, the records are bereft of any evidence that the name or
reputation of [T.E.A.M. Electronics Corporation/Technology Electronics Assembly and
Management Pacific Corporation] has been debased as a result of petitioner’s acts. Besides, the
trial court simply awarded moral damages in the dispositive portion of its decision without stating
the basis thereof. Manila Electric Company vs. Nordec Philippines, 861 SCRA 515, G.R. No.
196020 April 18, 2018
Capitol is a juridical entity with its own, distinct personality. Consistent with Article 46 of the
Civil Code, it may “acquire and possess property’’ such as the lot put up for a tax delinquency
sale.
As owner, it exclusively enjoyed the entire bundle of rights associated with dominion over this
parcel. Though having its own personality, as a golf and country club, Capitol primarily exists for
the utility and benefit of its members. While legal title in its properties is vested in Capitol,
beneficial use redounds to its membership. Apart from this, proprietary interest in Capitol is
secured through club shares. Alvarado vs. Ayala Land, Inc., 840 SCRA 351, G.R. No. 208426
September 20, 2017
Capitol’s loss of legal title was tantamount to the loss of the quintessence of their membership
and holdings in Capitol.
As members and shareholders, individual respondents Alexander P. Aguirre, Horacio Paredes,

Ricardo F. De Leon, Reynato Y. Sawit, Agustin N. Perez, Geronimo M. Collado, Emmanuel C. Ching,
Macabangkit Lanto, Manuel Dizon, Tarcisio Calilung, Irineo Aguirre, Ernesto Ortiz Luis, Bernardo
Jambalos III, Francisco Arcillana, Luis S. Tanjangco, and Pablito Villegas held the right to use and
enjoy, as well as the limited right to possess Capitol’s premises and facilities. Any right of
dominion that Capitol held over the parcel was ultimately for their and other members’ benefit.
It was in this capacity as members that they initiated the Complaint assailing the validity of the
tax delinquency sale. They did this because, by the transfer of ownership to petitioner, they stood
to be deprived of the capacity to use and enjoy the entire 15,598-square-meter parcel which

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“covers the entire Hole No.5 of the 18-Hole Capitol Golf Course and part of the road way called
Mactan Road.” Capitol is a juridical entity with its own, distinct personality. Consistent with
Article 46 of the Civil Code, it may “acquire and possess property’’ such as the lot put up for a tax
delinquency sale. As owner, it exclusively enjoyed the entire bundle of rights associated with
dominion over this parcel. Though having its own personality, as a golf and country club, Capitol
primarily exists for the utility and benefit of its members. While legal title in its properties is
vested in Capitol, beneficial use redounds to its membership. Apart from this, proprietary interest
in Capitol is secured through club shares. Alvarado vs. Ayala Land, Inc., 840 SCRA 351, G.R. No.
208426 September 20, 2017
As members and shareholders, individual respondents Alexander P. Aguirre, Horacio Paredes,

Ricardo F. De Leon, Reynato Y. Sawit, Agustin N. Perez, Geronimo M. Collado, Emmanuel C.
Ching, Macabangkit Lanto, Manuel Dizon, Tarcisio Calilung, Irineo Aguirre, Ernesto Ortiz Luis,
Bernardo Jambalos III, Francisco Arcillana, Luis S. Tanjangco, and Pablito Villegas held the right
to use and enjoy, as well as the limited right to possess Capitol’s premises and facilities.
Any right of dominion that Capitol held over the parcel was ultimately for their and other
members’ benefit. It was in this capacity as members that they initiated the Complaint assailing
the validity of the tax delinquency sale. They did this because, by the transfer of ownership to
petitioner, they stood to be deprived of the capacity to use and enjoy the entire 15,598-square-
meter parcel which “covers the entire Hole No.5 of the 18-Hole Capitol Golf Course and part of
the road way called Mactan Road.” Capitol’s loss of legal title was tantamount to the loss of the
quintessence of their membership and holdings in Capitol. Alvarado vs. Ayala Land, Inc., 840
SCRA 351, G.R. No. 208426 September 20, 2017
It is difficult to impute confusion and bad faith, which are states of mind appropriate for a
natural individual person, to an entire corporation. The fiction where corporations are granted
both legal personality separate from its owners and a capacity to act should not be read as
endowing corporations with a single mind. In truth, a corporation is a hierarchical community
of groups of persons both in the governing board and in management.
Corporations have different minds working together including its lawyers, auditors, and, in some
cases, their compliance officers. To grant the argument that a corporation, like a natural person,
was confused or not in bad faith is to extend to it too much analogy and to endow it more of the
human characteristics beyond its legal fiction. This Court is not endowed with such god-like
qualities of a creator or should allow illicit extensions of legal fiction to cause injustice.
Respondent, through a preponderance of evidence, was able to prove its claim that the Master

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Deed and Deed of Transfer failed to capture the true intentions of the parties; hence, it is but
right that the instruments be reformed to accurately reflect the agreement of the parties. Makati
Tuscany Condominium Corporation vs. Multi-Ready Development Corporation, 861 SCRA 448,
G.R. No. 185530 April 18, 2018
When the separate juridical personality of a corporation is used “to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons.”
The Sandiganbayan has proven beyond reasonable doubt that petitioners conspired with each
other to forego the required bidding process and to purchase grossly overpriced construction
materials from Geomiche. There is sufficient basis to pierce the corporate veil, and Dela Cruz, as
Geomiche’s president, should be held equally liable as her coconspirators. Granada vs. People,
818 SCRA 381, G.R. No. 184092, G.R. No. 186084, G.R. No. 186272, G.R. No. 186488, G.R. No.
18657 February 22, 2017
The clear weight of jurisprudence clarifies that to be considered a corporate officer, first, the
office must be created by the charter of the corporation, and second, the officer must be elected
by the board of directors or by the stockholders.
Petitioner Malcaba was an incorporator of the corporation and a member of the Board of
Directors. Respondent corporation’s By-Laws creates the office of the President. Malcaba vs.
ProHealth Pharma Philippines, Inc., 864 SCRA 518, G.R. No. 209085 June 6, 2018
For a corporate act of the Philippine Postal Corporation to be valid, it must have the vote of at
least a majority of the members in a meeting where there is a quorum.
Ideally, there would have been minutes taken after the conduct of the board meeting. In its
absence, as in this case, the transcript may be resorted to in order to determine the Board of
Directors’ action on a particular measure. For a corporate act of the Philippine Postal Corporation
to be valid, it must have the vote of at least a majority of the members in a meeting where there
is a quorum. In this instance, six (6) out of seven (7) members were present during the April 29,
2004 Special Board Meeting. However, the Board of Directors never actually took a vote on
whether or not it should renew its contract with Aboitiz One for the outsourcing of its mail
deliveries. A “no comment” from two (2) of the directors present cannot be considered as a

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unanimous approval. One (1) of the directors even required the presentation of the draft contract
before its approval. There was also no board resolution issued after approving it. As there was
no majority vote or a board resolution, respondent was not authorized to enter into the contract
dated May 7, 2004. A contract entered into by corporate officers who exceed their authority
generally does not bind the corporation except when the contract is ratified by the Board of
Director. Office of the Ombudsman vs. De Guzman, 841 SCRA 616, G.R. No. 197886 October 4,
2017
The general rule is that, “[i]n the absence of an authority from the board of directors, no person,
not even the officers of the corporation, can validly bind the corporation.”
A corporation is a juridical person, separate and distinct from its stockholders and members,
having “powers, attributes and properties expressly authorized by law or incident to its
existence.” Section 23 of the Corporation Code provides that “the corporate powers of all
corporations . . . shall be exercised, all business conducted and all property of such corporations
[shall] be controlled and held by the board of directors[.]” Development Bank of the Philippines
vs. Sta. Ines Melale Forest Products Corporation, 816 SCRA 425, G.R. No. 193068, G.R. No.
193099 February 1, 2017
The board of directors may validly delegate its functions and powers to its officers or agents.
The authority to bind the corporation is derived from law, its corporate by-laws, or directly from
the board of directors, “either expressly or impliedly by habit, custom or acquiescence in the
general course of business.” Calubad vs. Ricarcen Development Corporation, 838 SCRA 303, G.R.
No. 202364 August 30, 2017
The general principles of agency govern the relationship between a corporation and its
representatives.
Article 1317 of the Civil Code similarly provides that the principal must delegate the necessary
authority before anyone can act on his or her behalf. Nonetheless, law and jurisprudence
recognize actual authority and apparent authority as the two (2) types of authorities conferred
upon a corporate officer or agent in dealing with third persons. Actual authority can either be
express or implied. Express actual authority refers to the power delegated to the agent by the
corporation, while an agent’s implied authority can be measured by his or her prior acts which

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have been ratified by the corporation or whose benefits have been accepted by the corporation.
Calubad vs. Ricarcen Development Corporation, 838 SCRA 303, G.R. No. 202364 August 30, 2017
The doctrine of apparent authority provides that even if no actual authority has been conferred
on an agent, his or her acts, as long as they are within his or her apparent scope of authority,
bind the principal.
However, the principal’s liability is limited to third persons who are reasonably led to believe that
the agent was authorized to act for the principal due to the principal’s conduct. Apparent
authority is determined by the acts of the principal and not by the acts of the agent. Thus, it is
incumbent upon Calubad to prove how Ricarcen’s acts led him to believe that Marilyn was duly
authorized to represent it. Calubad vs. Ricarcen Development Corporation, 838 SCRA 303, G.R.
No. 202364 August 30, 2017
As the former president of Ricarcen, it was within Marilyn's scope of authority to act for and
enter into contracts in Ricarcen's behalf.
Her broad authority from Ricarcen can be seen with how the corporate secretary entrusted her
with blank yet signed sheets of paper to be used at her discretion. She also had possession of the
owner's duplicate copy of the land title covering the property mortgaged to Calubad, further
proving her authority from Ricarcen.
Calubad could not be faulted for continuing to transact with Marilyn, even agreeing to give out
additional loans, because Ricarcen clearly clothed her with apparent authority. Likewise, it
reasonably appeared that Ricarcen's officers knew of the mortgage contracts entered into by
Marilyn in Ricarcen's behalf as proven by the issued Banco De Oro checks as payments for the
monthly interest and the principal loan. Calubad vs. Ricarcen Development Corporation, 838
SCRA 303, G.R. No. 202364 August 30, 2017
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.
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,

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directors, and shareholders actively participated in or had the power to prevent the wrongful act.
Securities and Exchange Commission vs. Price Richardson Corporation, 832 SCRA 560, G.R. No.
197032 July 26, 2017
Petitioner failed to allege the specific acts of respondents Velarde-Albert and Resnick that could
be interpreted as participation in the alleged violations.
There was also no showing, based on the complaints, that they were deemed responsible for
Price Richardson's violations. As found by State Prosecutor Reyes in his March 13, 2002
Resolution:
[T]here is no sufficient evidence to substantiate SEC's allegation that individual respondents,

Connie Albert and Gordon Resnick, acted as broker, salesman or associated person without prior
registration with the Commission. 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. Although complainant SEC presented several confirmation of trade receipts and
documents intended to establish respondents Albert and Resnick illegal activities, the said
documents, standing alone as heretofore stated, could not warrant the indictment of the two
respondents for the offense charged.” Securities and Exchange Commission vs. Price Richardson
Corporation, 832 SCRA 560, G.R. No. 197032 July 26, 2017
In case the petitioner is a private corporation, the verification and certification may be signed,
for and on behalf of this corporation, by a specifically authorized person, including its retained
counsel, who has personal knowledge of the facts required to be established by the documents.
The reason is that: A corporation, such as the petitioner, has no powers except those expressly
conferred on it by the Corporation Code and those that are implied by or are incidental to its
existence. In turn, a corporation exercises said powers through its board of directors and/or its
duly authorized officers and agents. Physical acts, 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. Steamship Mutual Underwriting Association (Bermuda)
Limited vs. Sulpicio Lines, Inc., 840 SCRA 203, G.R. No. 196072, G.R. No. 208603 September 20,
2017

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In intra-corporate controversies, all orders of the trial court are immediately executory: Section
4. Executory nature of decisions and orders.—All decisions and orders issued under these Rules
shall immediately be executory except the awards for moral damages, exemplary damages and
attorney’s fees, if any. No appeal or petition taken therefrom shall stay the enforcement or
implementation of the decision or order, unless restrained by an appellate court.
Interlocutory orders shall not be subject to appeal. Questioning the trial court orders does not
stay its enforcement or implementation. There is no showing that the trial court orders were
restrained by the appellate court. Hence, petitioners could not refuse to comply with the trial
court orders just because they opined that they were invalid. It is not for the parties to decide
whether they should or should not comply with a court order.
Petitioners did not obtain any injunction to stop the implementation of the trial court orders nor
was there an injunction to prevent the trial court from hearing and ruling on the contempt case.
Petitioners’ stubborn refusal cannot be excused just because they were convinced of its
invalidity. Their resort to the processes of questioning the orders does not show that they are in
good faith. Oca vs. Custodio, 832 SCRA 615, G.R. No. 199825 July 26, 2017
Applying the relationship test, the Supreme Court notes that both Belo and Santos are named
shareholders in Belo Medical Group’s Articles of Incorporation and General Information Sheet
for 2007. The conflict is clearly intra-corporate as it involves two (2) shareholders, although the
ownership of stocks of one (1) stockholder is questioned.
Unless Santos is adjudged as a stranger to the corporation because he holds his shares only in
trust for Belo, then both he and Belo, based on official records, are stockholders of the
corporation. Belo Medical Group argues that the case should not have been characterized as
intra-corporate because it is not between two shareholders as only Santos or Belo can be the
rightful stockholder of the 25 shares of stock. This may be true. But this finding can only be made
after trial where ownership of the shares of stock is decided.
The trial court cannot classify the case based on potentialities. The two defendants in that case
are both stockholders on record. They continue to be stockholders until a decision is rendered
on the true ownership of the 25 shares of stock in Santos’ name. If Santos’ subscription is
declared fictitious and he still insists on inspecting corporate books and exercising rights
incidental to being a stockholder, then, and only then, shall the case cease to be intra-corporate.
Belo Medical Group, Inc. vs. Santos, 838 SCRA 142, G.R. No. 185894 August 30, 2017

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Applying the nature of the controversy test, this is still an intra-corporate dispute. The
Complaint for interpleader seeks a determination of the true owner of the shares of stock
registered in Santos’ name.
Ultimately, however, the goal is to stop Santos from inspecting corporate books. This goal is so
apparent that, even if Santos is declared the true owner of the shares of stock upon completion
of the interpleader case, Belo Medical Group still seeks his disqualification from inspecting the
corporate books based on bad faith. Therefore, the controversy shifts from a mere question of
ownership over movable property to the exercise of a registered stockholder’s proprietary right
to inspect corporate books. Belo Medical Group, Inc. vs. Santos, 838 SCRA 142, G.R. No. 185894
August 30, 2017
Under Section 25 of the Corporation Code, the President of a corporation is considered a

corporate officer. The dismissal of a corporate officer is considered an intra-corporate dispute,
not a labor dispute. Thus, in Tabang v. National Labor Relations Commission, 266 SCRA 462
(1997): A corporate officer’s dismissal is always a corporate act, or an intra-corporate
controversy, and the nature is not altered by the reason or wisdom with which the Board of
Directors may have in taking such action.
Also, an intra-corporate controversy is one which arises between a stockholder and the
corporation. There is no distinction, qualification, nor any exemption whatsoever. The provision
is broad and covers all kinds of controversies between stockholders and corporations. Malcaba
vs. ProHealth Pharma Philippines, Inc., 864 SCRA 518, G.R. No. 209085 June 6, 2018
SECURITIES REGULATIONS CODE
In relation to securities, the Securities and Exchange Commission’s (SEC’s) regulatory power
pertains to the approval and rejection, and suspension or revocation, of applications for
registration of securities for, among others, violations of the law, fraud, and
misrepresentations.
The Securities and Exchange Commission is organized in line with the policy of encouraging and
protecting investments. It also administers the Securities Regulation Code, which was enacted to
“promote the development of the capital market, protect investors, ensure full and fair disclosure
about securities, [and] minimize if not totally eliminate insider trading and other fraudulent or
manipulative devices and practices which create distortions in the free market.” Pursuant to
these policies, the Securities and Exchange Commission is given regulatory powers and “absolute

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jurisdiction, supervision and control over all corporations, partnership or association.” Securities
and Exchange Commission vs. Subic Bay Golf and Country Club, Inc., 752 SCRA 481, G.R. No.
179047 March 11, 2015
The SEC’s power to suspend or revoke registrations and to impose fines and other penalties
provides the public with a certain level of assurance that the securities contain representations
that are true, and that misrepresentations if later found, would be detrimental to the erring
corporation.
Any fraud or misrepresentation in the issuance of securities injures the public. The Securities and
Exchange Commission’s power to suspend or revoke registrations and to impose fines and other
penalties provides the public with a certain level of assurance that the securities contain
representations that are true, and that misrepresentations if later found, would be detrimental
to the erring corporation. It creates risks to corporations that issue securities and adds cost to
errors, misrepresentations, and violations related to the issuance of those securities. This
protects the public who will rely on representations of corporations and partnerships regarding
financial instruments that they issue. The Securities and Exchange Commission’s regulatory
power over securities-related activities is tied to the government’s duty to protect the investing
public from illegal and fraudulent instruments. Securities and Exchange Commission vs. Subic
Bay Golf and Country Club, Inc., 752 SCRA 481, G.R. No. 179047 March 11, 2015
However, The Securities and Exchange Commission’s regulatory power does not include the
authority to order the refund of the purchase price of Villareal’s and Filart’s shares in the golf
club. The issue of refund is intra-corporate or civil in nature.
Similar to issues such as the existence or inexistence of appraisal rights, pre-emptive rights, and
the right to inspect books and corporate records, the issue of refund is an intra-corporate dispute
that requires the court to determine and adjudicate the parties’ rights based on law or contract.
Injuries, rights, and obligations involved in intra-corporate disputes are specific to the parties
involved. They do not affect the Securities and Exchange Commission or the public directly.
Securities and Exchange Commission vs. Subic Bay Golf and Country Club, Inc., 752 SCRA 481,
G.R. No. 179047 March 11, 2015

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Effective on August 8, 2000, upon the passage of Republic Act (RA) No. 8799, otherwise known
as The Securities Regulation Code, the Securities and Exchange Commission’s (SEC’s) jurisdiction
over all intra-corporate disputes was transferred to the Regional Trial Court (RTC), pursuant to
Section 5.2 of RA No. 8799.
Section 5.2 of RA No. 8799: 5.2. The Commission’s jurisdiction over all cases enumerated under
Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the
exercise of its authority may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases
involving intra-corporate disputes submitted for final resolution which should be resolved within
one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed. Malcaba vs. ProHealth Pharma Philippines, Inc., 864 SCRA 518, G.R. No. 209085 June
6, 2018
BANKING LAWS
Money is “what is generally acceptable in exchange for goods.” It can take many forms, most
commonly as coins and banknotes. Despite its myriad forms, its key element is its general
acceptability.
Laws usually define what can be considered as a generally acceptable medium of exchange. In
the Philippines, Republic Act No. 7653, otherwise known as The New Central Bank Act, defines
“legal tender” as follows: All notes and coins issued by the Bangko Sentral shall be fully
guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private: Provided, however, That, unless otherwise fixed
by the Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00)
for denomination of Twenty-five centavos and above, and in amounts not exceeding Twenty
pesos (P20.00) for denominations of Ten centavos or less. Federal Express Corporation vs.
Antonino, 868 SCRA 450, G.R. No. 199455 June 27, 2018
Banks assume a degree of prudence and diligence higher than that of a good father of a family,
because their business is imbued with public interest and is inherently fiduciary.
Thus, banks have the obligation to treat the accounts of its clients “meticulously and with the
highest degree of care.” With respect to its fiduciary duties, this Court explained: The law imposes

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on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No.
8791 (“RA 8791”), which took effect on 13 June 2000, declares that the State recognizes the
“fiduciary nature of banking that requires high standards of integrity and performance.” This new
provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme
Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding
that “the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship.” This fiduciary relationship
means that the bank’s obligation to observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a
good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from
banks — that banks must observe “high standards of integrity and performance” in servicing their
depositors. Poole-Blunden vs. Union Bank of the Philippines, 847 SCRA 146, G.R. No. 205838
November 29, 2017
In the same way that banks are “presumed to be familiar with the rules on land registration,”
given that they are in the business of extending loans secured by real estate mortgage, banks
are also expected to exercise the highest degree of diligence.
This is especially true when investigating real properties offered as security, since they are aware
that such property may be passed on to an innocent purchaser in the event of foreclosure.
Indeed, “the ascertainment of the status or condition of a property offered to it as security for a
loan must be a standard and indispensable part of a bank’s operations.” Poole-Blunden vs. Union
Bank of the Philippines, 847 SCRA 146, G.R. No. 205838 November 29, 2017
Credit investigations are standard practice for banks before approving loans and admitting
properties offered as security. It entails the assessment of such properties: an appraisal of their
value, an examination of their condition, a verification of the authenticity of their title, and an
investigation into their real owners and actual possessors.
Whether it was unaware of the unit’s actual interior area; or, knew of it, but wrongly thought
that its area should include common spaces, respondent’s predicament demonstrates how it
failed to exercise utmost diligence in investigating the Unit offered as security before accepting
it. This negligence is so inexcusable; it is tantamount to bad faith. Poole-Blunden vs. Union Bank
of the Philippines, 847 SCRA 146, G.R. No. 205838 November 29, 2017

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Petitioner’s defense that it could not have known the criminal action since it was not a party to
the case and that there was no notice of lis pendens filed by respondent Musni, is unavailing.
This Court held in Heirs of Gregorio Lopez v. Development Bank of the Philippines, 741 SCRA
153 (2014): The rule on “innocent purchasers or [mortgagees] for value” is applied more strictly
when the purchaser or the mortgagee is a bank.
Banks are expected to exercise higher degree of diligence in their dealings, including those
involving lands. Banks may not rely simply on the face of the certificate of title. Had petitioner
exercised the degree of diligence required of banks, it would have ascertained the ownership of
one of the properties mortgaged to it. Land Bank of the Philippines vs. Musni, 818 SCRA 442,
G.R. No. 206343 February 22, 2017
Once the amount represented by the telegraphic transfer order is credited to the account of the
payee or appears in the name of the payee in the books of the receiving bank, the ownership
of the telegraphic transfer order is deemed to have been transmitted to the receiving bank.
The local bank is deemed to have fully executed the telegraphic transfer and is no longer the
owner of this telegraphic transfer order. It is undisputed that on September 13, 2004, the funds
were remitted to Citibank-New York through petitioner’s paying bank, Union Bank of California.
Citibank-New York, in turn, credited Citibank-Cairo, Egypt, Heliopolis Branch. Chinatrust (Phils.)
Commercial Bank vs. Turner, 828 SCRA 499, G.R. No. 191458 July 3, 2017
A closed bank under receivership can only sue or be sued through its receiver, the Philippine
Deposit Insurance Corporation. Under Republic Act No. 7653, when the Monetary Board finds
a bank insolvent, it may “summarily and without need for prior hearing forbid the institution
from doing business in the Philippines and designate the Philippine Deposit Insurance
Corporation as receiver of the banking institution.”
Before the enactment of Republic Act No. 7653, an insolvent bank under liquidation could not
sue or be sued except through its liquidator. In Hernandez v. Rural Bank of Lucena, 81 SCRA 75
(1978): [A]n insolvent bank, which was under the control of the finance commissioner for
liquidation, was without power or capacity to sue or be sued, prosecute or defend, or otherwise
function except through the finance commissioner or liquidator. This Court in Manalo v. Court of
Appeals, 366 SCRA 752 (2001), reiterated this principle: A bank which had been ordered closed
by the monetary board retains its juridical personality which can sue and be sued through its
liquidator. The only limitation being that the prosecution or defense of the action must be done
through the liquidator. Otherwise, no suit for or against an insolvent entity would prosper. Under

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the old Central Bank Act, or Republic Act No. 265, as amended, the same principle applies to the
receiver appointed by the Central Bank. The law explicitly stated that a receiver shall “represent
the [insolvent] bank personally or through counsel as he [or she] may retain in all actions or
proceedings for or against the institution.” Banco Filipino Savings and Mortgage Bank vs.
Bangko Sentral ng Pilipinas, 864 SCRA 32, G.R. No. 200678 June 4, 2018
Considering that the receiver has the power to take charge of all the assets of the closed bank
and to institute for or defend any action against it, only the receiver, in its fiduciary capacity,
may sue and be sued on behalf of the closed bank.
The relationship between the Philippine Deposit Insurance Corporation and a closed bank is
fiduciary in nature. Section 30 of Republic Act No. 7653 directs the receiver of a closed bank to
“immediately gather and take charge of all the assets and liabilities of the institution” and
“administer the same for the benefit of its creditors.” The law likewise grants the receiver “the
general powers of a receiver under the Revised Rules of Court.” Under Rule 59, Section 6 of the
Rules of Court, “a receiver shall have the power to bring and defend, in such capacity, actions in
his [or her] own name.” Thus, Republic Act No. 7653 provides that the receiver shall also “in the
name of the institution, and with the assistance of counsel as [it] may retain, institute such
actions as may be necessary to collect and recover accounts and assets of, or defend any action
against, the institution.” Banco Filipino Savings and Mortgage Bank vs. Bangko Sentral ng
Pilipinas, 864 SCRA 32, G.R. No. 200678 June 4, 2018
Powers of the Philippine Deposit Insurance Corporation (PDIC) as Receiver
Republic Act No. 3591, or the Philippine Deposit Insurance Corporation Charter, as amended,
grants Philippine Deposit Insurance Corporation the following powers as a receiver: (c) In addition
to the powers of a receiver pursuant to existing laws, the Corporation is empowered to: (1) bring
suits to enforce liabilities to or recoveries of the closed bank; . . . . (6) hire or retain private
counsels as may be necessary; . . . . (9) exercise such other powers as are inherent and necessary
for the effective discharge of the duties of the Corporation as a receiver. Balayan Bay Rural Bank
summarized, thus: [T]he legal personality of the petitioner bank is not ipso facto dissolved by
insolvency; it is not divested of its capacity to sue and be sued after it was ordered by the
Monetary Board to cease operation. The law mandated, however, that the action should be
brought through its statutory liquidator/receiver which in this case is the PDIC. The authority of
the PDIC to represent the insolvent bank in legal actions emanates from the fiduciary relation
created by statute which reposed upon the receiver the task of preserving and conserving the

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properties of the insolvent for the benefit of its creditors. Banco Filipino Savings and Mortgage
Bank vs. Bangko Sentral ng Pilipinas, 864 SCRA 32, G.R. No. 200678 June 4, 2018
It was speculative on petitioner’s part to presume that it could file this Petition without joining
its receiver on the ground that Philippine Deposit Insurance Corporation might not allow the
suit. At the very least, petitioner should have shown that it attempted to seek Philippine
Deposit Insurance Corporation’s authorization to file suit.
It was possible that Philippine Deposit Insurance Corporation could have granted its permission
to be joined in the suit. If it had refused to allow petitioner to file its suit, petitioner still had a
remedy available to it. Under Rule 3, Section 10 of the Rules of Court, petitioner could have made
Philippine Deposit Insurance Corporation an unwilling co-petitioner and be joined as a
respondent to this case. Petitioner’s suit concerned its Business Plan, a matter that could have
affected the status of its insolvency. Philippine Deposit Insurance Corporation’s participation
would have been necessary, as it had the duty to conserve petitioner’s assets and to examine any
possible liability that petitioner might undertake under the Business Plan. Philippine Deposit
Insurance Corporation also safeguards the interests of the depositors in all legal proceedings.
Most bank depositors are ordinary people who have entrusted their money to banks in the hopes
of growing their savings. When banks become insolvent, depositors are secure in the knowledge
that they can still recoup some part of their savings through Philippine Deposit Insurance
Corporation. Thus, Philippine Deposit Insurance Corporation’s participation in all suits involving
the insolvent bank is necessary and imbued with the public interest. Banco Filipino Savings and
Mortgage Bank vs. Bangko Sentral ng Pilipinas, 864 SCRA 32, G.R. No. 200678 June 4, 2018
When petitioner was placed under receivership, the powers of its Board of Directors and its
officers were suspended. Thus, its Board of Directors could not have validly authorized its
Executive Vice Presidents to file the suit on its behalf.
The Petition, not having been properly verified, is considered an unsigned pleading. A defect in
the certification of non-forum shopping is likewise fatal to petitioner’s cause. Considering that
the Petition was filed by signatories who were not validly authorized to do so, the Petition does
not produce any legal effect. Being an unauthorized pleading, this Court never validly acquired
jurisdiction over the case. The Petition, therefore, must be dismissed. Banco Filipino Savings and
Mortgage Bank vs. Bangko Sentral ng Pilipinas, 864 SCRA 32, G.R. No. 200678 June 4, 2018

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It has been concluded that foreign exchange leverage trading is known to be risky and may
lead to substantial losses for investors.
Petitioners, who were experienced in this kind of trading, should have been more careful in the
conduct of their affairs. Currency trading adds no new good or service into the market that would
be of use to real persons. Instead, it has the tendency to alter the price of real goods and services
to the detriment of those who manufacture, labor, and consume products. It may alter the real
value of goods and services on the basis of a rumor or anything else that will cause a herd of
speculative traders to move one way or the other.
Put in another way, those who participate in it must be charged with knowledge that getting rich
in this way is accompanied with great risk. Given its real effects on the real economy and on real
people, it will be unfair for this Court to provide greater warranties to the parties in currency
trading. They should bear their own risks perhaps to learn that their capital is better invested
more responsibly and for the greater good of society.
Be that as it may, to arrive at these conclusions, this Court has to extensively review the evidence
submitted by the parties. If, as petitioners claim, the Petition only raised pure questions of law,
there would have been no need to reexamine the evidence. As it stands, the Petition must be
denied. Cancio vs. Performance Foreign Exchange Corporation, 864 SCRA 247, G.R. No. 182307
June 6, 2018
INTELLECTUAL PROPERTY
Inter Partes Proceedings
The Intellectual Property Office’s (IPO’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 IPO “shall not be bound by the strict technical rules of procedure
and evidence.” Palao vs. Florentino III International, Inc., 814 SCRA 448, G.R. No. 186967
January 18, 2017

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Under the Intellectual Property Code (IPC), “works are protected by the sole fact of their
creation, irrespective of their mode or form of expression, as well as of their content, quality
and purpose.” These include “[a]udiovisual works and cinematographic works and works
produced by a process analogous to cinematography or any process for making audiovisual
recordings.”
Contrary to the old copyright law, the Intellectual Property Code does not require registration of
the work to fully recover in an infringement suit. Nevertheless, both copyright laws provide that
copyright for a work is acquired by an intellectual creator from the moment of creation. It is true
that under Section 175 of the Intellectual Property Code, “news of the day and other
miscellaneous facts having the character of mere items of press information” are considered
unprotected subject matter. ABS-CBN Corporation vs. Gozon, 753 SCRA 1, G.R. No. 195956
March 11, 2015
News, as expressed in a video footage, is entitled to copyright protection.
Broadcasting organizations are entitled to several rights and to the protection of these rights
under the Intellectual Property Code. Respondents’ argument that the subject news footage is
not copyrightable is erroneous. The Court of Appeals, in its assailed Decision, correctly recognized
the existence of ABS-CBN’s copyright over the news footage: Surely, private respondent has a
copyright of its news coverage. Seemingly, for airing said video feed, petitioner GMA is liable
under the provisions of the Intellectual Property Code, which was enacted purposely to protect
copyright owners from infringement. News as expressed in a video footage is entitled to
copyright protection. Broadcasting organizations have not only copyright on but also neighboring
rights over their broadcasts. Copyrightability of a work is different from fair use of a work for
purposes of news reporting. ABS-CBN Corporation vs. Gozon, 753 SCRA 1, G.R. No. 195956
March 11, 2015
Fair Use Doctrine
This court defined fair use as “a privilege to use the copyrighted material in a reasonable manner
without the consent of the copyright owner or as copying the theme or ideas rather than their
expression.” Fair use is an exception to the copyright owner’s monopoly of the use of the work
to avoid stifling “the very creativity which that law is designed to foster.” ABS-CBN Corporation
vs. Gozon, 753 SCRA 1, G.R. No. 195956 March 11, 2015

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Section 185 of the Intellectual Property Code (IPC) lists four (4) factors to determine if there was
fair use of a copyrighted work.
Determining fair use requires application of the four-factor test. Section 185 of the Intellectual
Property Code lists four (4) factors to determine if there was fair use of a copyrighted work: a.
The purpose and character of the use, including whether such use is of a commercial nature or is
for nonprofit educational purposes; b. The nature of the copyrighted work; c. The amount and
substantiality of the portion used in relation to the copyrighted work as a whole; and d. The effect
of the use upon the potential market for or value of the copyrighted work. ABS-CBN Corporation
vs. Gozon, 753 SCRA 1, G.R. No. 195956 March 11, 2015
Infringement under the Intellectual Property Code is malum prohibitum.
The Intellectual Property Code is a special law. Copyright is a statutory creation: Copyright, in the
strict sense of the term, is purely a statutory right. It is a new or independent right granted by
the statute, and not simply a preexisting right regulated by the statute. Being a statutory grant,
the rights are only such as the statute confers, and may be obtained and enjoyed only with
respect to the subjects and by the persons, and on terms and conditions specified in the statute.
The general rule is that acts punished under a special law are malum prohibitum. “An act which
is declared malum prohibitum, malice or criminal intent is completely immaterial.” ABS-CBN
Corporation vs. Gozon, 753 SCRA 1, G.R. No. 195956 March 11, 2015
Unlike other jurisdictions that require intent for a criminal prosecution of copyright
infringement, the Philippines does not statutorily support good faith as a defense.
Unlike other jurisdictions that require intent for a criminal prosecution of copyright infringement,
the Philippines does not statutorily support good faith as a defense. Other jurisdictions provide
in their intellectual property codes or relevant laws that mens rea, whether express or implied,
is an element of criminal copyright infringement. ABS-CBN Corporation vs. Gozon, 753 SCRA 1,
G.R. No. 195956 March 11, 2015

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Infringement of a copyright is a trespass on a private domain owned and occupied by the owner
of the copyright, and, therefore, protected by law, and infringement of copyright, or piracy,
which is a synonymous term in this connection, consists in the doing by any person, without the
consent of the owner of the copyright, of anything the sole right to do which is conferred by
statute on the owner of the copyright.
We look at the purpose of copyright in relation to criminal prosecutions requiring willfulness:

Most importantly, in defining the contours of what it means to willfully infringe copyright for
purposes of criminal liability, the courts should remember the ultimate aim of copyright.
Copyright is not primarily about providing the strongest possible protection for copyright owners
so that they have the highest possible incentive to create more works. The control given to
copyright owners is only a means to an end: the promotion of knowledge and learning. Achieving
that underlying goal of copyright law also requires access to copyrighted works and it requires
permitting certain kinds of uses of copyrighted works without the permission of the copyright
owner. While a particular defendant may appear to be deserving of criminal sanctions, the
standard for determining willfulness should be set with reference to the larger goals of copyright
embodied in the Constitution and the history of copyright in this country. In addition, “[t]he
essence of intellectual piracy should be essayed in conceptual terms in order to underscore its
gravity by an appropriate understanding thereof. ABS-CBN Corporation vs. Gozon, 753 SCRA 1,
G.R. No. 195956 March 11, 2015
A patent is granted to provide rights and protection to the inventor after an invention is
disclosed to the public.
It also seeks to restrain and prevent unauthorized persons from unjustly profiting from a
protected invention. E.I. Dupont de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No.
174379 August 31, 2016
The Intellectual Property Code states that all patent applications must be published in the
Intellectual Property Office (IPO) Gazette.
The Intellectual Property Code now states that all patent applications must be published in the
Intellectual Property Office Gazette and that any interested party may inspect all documents
submitted to the Intellectual Property Office. The patent application is only confidential before
its publication. E.I. Dupont de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379
August 31, 2016

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The right of priority given to a patent applicant is only relevant when there are two (2) or more
conflicting patent applications on the same invention.
Because a right of priority does not automatically grant letters patent to an applicant, possession
of a right of priority does not confer any property rights on the applicant in the absence of an
actual patent. E.I. Dupont de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379
August 31, 2016
Right of Priority
Under Section 31 of the Intellectual Property Code, a right of priority is given to any patent
applicant who has previously applied for a patent in a country that grants the same privilege to
Filipinos. E.I. Dupont de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379 August
31, 2016
The grant of a patent is to provide protection to any inventor from any patent infringement.
Once an invention is disclosed to the public, only the patent holder has the exclusive right to
manufacture, utilize, and market the invention. E.I. Dupont de Nemours and Co. vs. Francisco,
801 SCRA 629, G.R. No. 174379 August 31, 2016
A patent holder has the right to restrain, prohibit and prevent any unauthorized person or
entity from manufacturing, selling or importing any product derived from the patent.
However, after a patent is granted and published in the Intellectual Property Office Gazette, any
interested third party “may inspect the complete description, claims, and drawings of the
patent.” E.I. Dupont de Nemours and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379 August
31, 2016

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After the publication of the patent, any person may examine the invention and develop it into
something further than what the original patent holder may have envisioned.
The grant of a patent provides protection to the patent holder from the indiscriminate use of the
invention. However, its mandatory publication also has the correlative effect of bringing new
ideas into the public consciousness. E.I. Dupont de Nemours and Co. vs. Francisco, 801 SCRA
629, G.R. No. 174379 August 31, 2016
A patent holder of inventions relating to food or medicine does not enjoy absolute monopoly
over the patent.
Both Republic Act No. 165 and the Intellectual Property Code provide for compulsory licensing.
Compulsory licensing is defined in the Intellectual Property Code as the “grant a license to exploit
a patented invention, even without the agreement of the patent owner.” E.I. Dupont de Nemours
and Co. vs. Francisco, 801 SCRA 629, G.R. No. 174379 August 31, 2016
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 (IPO), 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. We see
here no “wanton disregard of the rules or [the risk of] caus[ing] needless delay in the
administration of justice.” On the contrary, construing it as such will enable a full ventilation of
the parties’ competing claims. As with Philippine Public School Teachers Association v. Heirs of
Carolina P. Iligan, 496 SCRA 817 (2006), we consider it permissible to set aside, pro hac vice, the
procedural defect. Thus, we sustain the ruling of the Court of Appeals. Palao vs. Florentino III
International, Inc., 814 SCRA 448, G.R. No. 186967 January 18, 2017

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To aid in determining the similarity and likelihood of confusion between marks, our
jurisprudence has developed two (2) tests: the dominancy test and the holistic test.
Petitioner insists that respondent’s mark cannot be registered because it is confusingly similar to
its own set of marks. Thus, granting the petition rests solely on the question of likelihood of
confusion between petitioner’s and respondent’s respective marks. There is no objective test for
determining whether the confusion is likely. Likelihood of confusion must be determined
according to the particular circumstances of each case. Citigroup, Inc. vs. Citystate Savings Bank,
Inc. , 866 SCRA 185, G.R. No. 205409 June 13, 2018
This Court explained these tests in Coffee Partners, Inc. v. San Francisco Coffee & Roastery, Inc.,
614 SCRA 113 (2010): The dominancy test focuses on the similarity of the prevalent features of
the competing trademarks that might cause confusion and deception, thus constituting
infringement. If the competing trademark contains the main, essential, and dominant features
of another, and confusion or deception is likely to result, infringement occurs. Exact duplication
or imitation is not required.
The question is whether the use of the marks involved is likely to cause confusion or mistake in
the mind of the public or to deceive consumers. In contrast, the holistic test entails a
consideration of the entirety of the marks as applied to the products, including the labels and
packaging, in determining confusing similarity. The discerning eye of the observer must focus not
only on the predominant words but also on the other features appearing on both marks in order
that the observer may draw his conclusion whether one is confusingly similar to the other. x x x
With these guidelines in mind, this Court considered “the main, essential, and dominant
features” of the marks in this case, as well as the contexts in which the marks are to be used. This
Court finds that the use of the “CITY CASH WITH GOLDEN LION’S HEAD” mark will not result in
the likelihood of confusion in the minds of customers. Citigroup, Inc. vs. Citystate Savings Bank,
Inc., 866 SCRA 185, G.R. No. 205409 June 13, 2018

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Applying the dominancy test, the Supreme Court sees that the prevalent feature of
respondent’s mark, the golden lion’s head device, is not present at all in any of petitioner’s
marks. Applying the dominancy test, this Court sees that the prevalent feature of respondent’s
mark, the golden lion’s head device, is not present at all in any of petitioner’s marks. The only
similar feature between respondent’s mark and petitioner’s collection of marks is the word
“CITY” in the former, and the “CITI” prefix found in the latter.
This Court agrees with the findings of the Court of Appeals that this similarity alone is not enough
to create a likelihood of confusion. The dissimilarities between the two marks are noticeable and
substantial. Respondent’s mark, “CITY CASH WITH GOLDEN LION’S HEAD,” has an insignia of a
golden lion’s head at the left side of the words “CITY CASH,” while petitioner’s “CITI” mark usually
has an arc between the two I’s. A further scrutiny of the other “CITI” marks of petitioner would
show that their font type, font size, and color schemes of the said “CITI” marks vary for each
product or service. Most of the time, petitioner’s “CITI” mark is joined with another term to form
a single word, with each product or service having different font types and color schemes. On the
contrary, the trademark of respondent consists of the words “CITY CASH,” with a golden lion’s
head emblem on the left side. It is, therefore, improbable that the public would immediately and
naturally conclude that respondent’s “CITY CASH WITH GOLDEN LION’S HEAD” is but another
variation under petitioner’s “CITI” marks. Verily, the variations in the appearance of the “CITI”
marks by petitioner, when conjoined with other words, would dissolve the alleged similarity
between them and the trademark of respondent. These dissimilarities, and the insignia of a
golden lion’s head before the words “CITY CASH” in the mark of the respondent would sufficiently
acquaint and apprise the public that respondent’s trademark “CITY CASH WITH GOLDEN LION’S
HEAD” is not connected with the “CITI” marks of petitioner. Citigroup, Inc. vs. Citystate Savings
Bank, Inc. , 866 SCRA 185, G.R. No. 205409 June 13, 2018
In intellectual property law, a registered trademark owner has the right to prevent others from
the use of the same mark (brand) for identical goods or services.
The use of an identical or colorable imitation of a registered trademark by a person for the same
goods or services or closely related goods or services of another party constitutes infringement.
It is a form of unfair competition because there is an attempt to get a free ride on the reputation
and selling power of another manufacturer by passing of one’s goods as identical or produced by
the same manufacturer as those carrying the other mark (brand). Commissioner of Internal
Revenue vs. San Miguel Corporation, 815 SCRA 563, G.R. No. 205045, G.R. No. 205723 January
25, 2017

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SECURED TRANSACTIONS
Under Section 175 of Presidential Decree No. 612 or the Insurance Code, a contract of suretyship
is defined as an agreement where “a party called the surety guarantees the performance by
another party called the principal or obligor of an obligation or undertaking in favor of a third
party called the obligee.”
A performance bond is a kind of suretyship agreement. It is “designed to afford the project owner
security that the . . . contractor, will faithfully comply with the requirements of the contract . . .
and make good [on the] damages sustained by the project owner in case of the contractor’s
failure to so perform.” FGU Insurance Corporation vs. Roxas, 836 SCRA 16, G.R. No. 189526, G.R.
No. 189656 August 9, 2017
A surety’s liability is joint and several with the principal.
“Article 2047 of the Civil Code provides that suretyship arises upon the solidary binding of a
person deemed the surety with the principal debtor for the purpose of fulfilling an obligation.”
Although the surety’s obligation is merely secondary or collateral to the obligation contracted by
the principal, this Court has nevertheless characterized the surety’s liability to the creditor of the
principal as “direct, primary, and absolute[;] [i]n other words, the surety is directly and equally
bound with the principal.” FGU Insurance Corporation vs. Roxas, 836 SCRA 16, G.R. No. 189526,
G.R. No. 189656 August 9, 2017
Liability under a surety bond is “limited to the amount of the bond” and is determined strictly
in accordance with the particular terms and conditions set out in this bond.
Liability under a surety bond is “limited to the amount of the bond” and is determined strictly in
accordance with the particular terms and conditions set out in this bond. It is, thus, necessary to
look into the actual terms of the peformance bond. FGU Insurance Corporation vs. Roxas, 836
SCRA 16, G.R. No. 189526, G.R. No. 189656 August 9, 2017

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While Article 1280 specifically pertains to a guarantor, the provision nonetheless applies to a
surety. Contracts of guaranty and surety are closely related in the sense that in both, “there is
a promise to answer for the debt or default of another.”
The difference lies in that “a guarantor is the insurer of the solvency of the debtor and thus binds
himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he
obligates himself to pay if the principal does not pay.” FGU Insurance Corporation vs. Roxas, 836
SCRA 16, G.R. No. 189526, G.R. No. 189656 August 9, 2017
“Accommodation Party” and “Compensated Surety,” Distinguished.
Respondent Ortiz’s claim that he is a mere accommodation party is immaterial and does not
discharge him as a surety. He remains to be liable according to the character of his undertaking
and the terms and conditions of the Continuing Suretyship, which he signed in his personal
capacity and not in representation of Erma.
The Court has elucidated on the distinction between an accommodation and a compensated
surety and the reasons for treating them differently: The law has authorized the formation of
corporations for the purpose of conducting surety business, and the corporate surety differs
significantly from the individual private surety. First, unlike the private surety, the corporate
surety signs for cash and not for friendship. The private surety is regarded as someone doing a
rather foolish act for praiseworthy motives; the corporate surety, to the contrary, is in business
to make a profit and charges a premium depending upon the amount of guaranty and the risk
involved. Second, the corporate surety, like an insurance company, prepares the instrument,
which is a type of contract of adhesion whereas the private surety usually does not prepare the
note or bond which he signs. Third, the obligation of the private surety often is assumed simply
on the basis of the debtor’s representations and without legal advice, while the corporate surety
does not bind itself until a full investigation has been made. For these reasons, the courts
distinguish between the individual gratuitous surety and the vocational corporate surety. In the
case of the corporate surety, the rule of strictissimi juris is not applicable, and courts apply the
rules of interpretation . . . of appertaining to contracts of insurance. Erma Industries, Inc. vs.
Security Bank Corporation, 848 SCRA 34, G.R. No. 191274 December 6, 2017

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FINANCIAL REHABILITATION AND INSOLVENCY ACT
Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010
when Republic Act (RA) No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act of 2010, took effect.
Republic Act No. 10142 now provides for court proceedings in the rehabilitation or liquidation of
debtors, both juridical and natural persons, in a “timely, fair, transparent, effective and efficient”
manner. The purpose of insolvency proceedings is “to encourage debtors . . . and their creditors
to collectively and realistically resolve and adjust competing claims and property rights” while
“maintain[ing] certainty and predictability in commercial affairs, preserv[ing] and maximiz[ing]
the value of the assets of these debtors, recogniz[ing] creditor rights and respect[ing] priority of
claims, and ensur[ing] equitable treatment of creditors who are similarly situated.” It has also
been provided that whenever rehabilitation is no longer feasible, “it is in the interest of the State
to facilitate a speedy and orderly liquidation of [the] debtors’ assets and the settlement of their
obligations.” Metropolitan Bank and Trust Company vs. S.F. Naguiat Enterprises, Inc., 753 SCRA
474, G.R. No. 178407 March 18, 2015
With the declaration of insolvency of the debtor, insolvency courts “obtain full and complete
jurisdiction over all property of the insolvent and of all claims by and against it.”
It follows that the insolvency court has exclusive jurisdiction to deal with the property of the
insolvent. Consequently, after the mortgagor-debtor has been declared insolvent and the
insolvency court has acquired control of his estate, a mortgagee may not, without the permission
of the insolvency court, institute proceedings to enforce its lien. In so doing, it would interfere
with the insolvency court’s possession and orderly administration of the insolvent’s properties.
Metropolitan Bank and Trust Company vs. S.F. Naguiat Enterprises, Inc., 753 SCRA 474, G.R. No.
178407 March 18, 2015
A corporation may be placed under receivership, or management committees may be created

to preserve properties involved in a suit and to protect the rights of the parties under the control
and supervision of the court.
A corporation may be placed under receivership, or management committees may be created to

preserve properties involved in a suit and to protect the rights of the parties under the control
and supervision of the court. Management committees and receivers are appointed when the
corporation is in imminent danger of “(1) [d]issipation, loss, wastage or destruction of assets or

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other properties; and (2) [p]aralysation of its business operations that may be prejudicial to the
interest of the minority stockholders, parties-litigants, or the general public.” Villamor, Jr. vs.
Umale, 736 SCRA 325, G.R. No. 172881 September 24, 2014
The Regional Trial Court (RTC) has original and exclusive jurisdiction to hear and decide intra-
corporate controversies, including incidents of such controversies.
The Court of Appeals has no power to appoint a receiver or management committee. The
Regional Trial Court has original and exclusive jurisdiction to hear and decide intra-corporate
controversies, including incidents of such controversies. These incidents include applications for
the appointment of receivers or management committees. “The receiver and members of the
management committee . . . are considered officers of the court and shall be under its control
and supervision.” They are required to report to the court on the status of the corporation within
sixty (60) days from their appointment and every three (3) months after. Villamor, Jr. vs. Umale,
736 SCRA 325, G.R. No. 172881 September 24, 2014
Corporate rehabilitation is a special proceeding. The proceeding seeks to establish the “inability
of the corporate debtor to pay its debts when they fall due so that a rehabilitation plan,
containing the formula for the successful recovery of the corporation, may be approved in the
end.” There is no relief sought for “an injury caused by another party.”
Corporate rehabilitation is one of the remedies that a financially stressed company can opt for
to raise itself from insolvency: [It] is one of many statutorily provided remedies for businesses
that experience a downturn. Rather than leave the various creditors unprotected, legislation now
provides for an orderly procedure of equitably and fairly addressing their concerns. Corporate
rehabilitation allows a court-supervised process to rejuvenate a corporation. Rehabilitation
proceedings allow the financially stressed company “to gain a new lease on life and . . . allow
creditors to be paid their claims from its earnings.” Metropolitan Bank & Trust Company vs. G &
P Builders, Incorporated., 775 SCRA 198, G.R. No. 189509 November 23, 2015
In general, insolvency proceedings provide for predictability that commercial obligations will
be met despite business downturns.
Stability in the economy results when there is assurance to the investing public that obligations
will be reasonably paid. It is considered state policy to encourage debtors, both juridical and

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natural persons, and their creditors to collectively and realistically resolve and adjust competing
claims and property rights[.] . . . [R]ehabilitation or liquidation shall be made with a view to ensure
or maintain certainty and predictability in commercial affairs, preserve and maximize the value
of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure
equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible,
it is in the interest of the State to facilitate a speedy and orderly liquidation of these debtors’
assets and the settlement of their obligations. Viva Shipping Lines, Inc. vs. Keppel Philippines
Marine, Inc., 784 SCRA 173, G.R. No. 177382 February 17, 2016
Liquidation allows the corporation to wind up its affairs and equitably distribute its assets
among its creditors.
Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same

time. In rehabilitation, corporations have to maintain their assets to continue business
operations. In liquidation, on the other hand, corporations preserve their assets in order to sell
them. Without these assets, business operations are effectively discontinued. The proceeds of
the sale are distributed equitably among creditors, and surplus is divided or losses are
reallocated. Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, G.R. No.
177382 February 17, 2016
An appeal to a corporate rehabilitation case may deprive creditor-stakeholders of property.

Due process dictates that these creditors be impleaded to give them an opportunity to protect
the property owed to them. Creditors are indispensable parties to a rehabilitation case, even if
a rehabilitation case is non-adversarial.
A corporate rehabilitation case cannot be decided without the creditors’ participation. The
court’s role is to balance the interests of the corporation, the creditors, and the general public.
Impleading creditors as respondents on appeal will give them the opportunity to present their
legal arguments before the appellate court. The courts will not be able to balance these interests
if the creditors are not parties to a case. Ruling on petitioner’s appeal in the absence of its
creditors will not result in judgment that is effective, complete, and equitable. This court cannot
exercise its equity jurisdiction and allow petitioner to circumvent the requirement to implead its
creditors as respondents. Tolerance of such failure will not only be unfair to the creditors, it is
contrary to the goals of corporate rehabilitation, and will invalidate the cardinal principle of due
process of law. Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, G.R.
No. 177382 February 17, 2016

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The failure of petitioner to implead its creditors as respondents cannot be cured by serving
copies of the Petition on its creditors. Since the creditors were not impleaded as respondents,
the copy of the Petition only serves to inform them that a petition has been filed before the
appellate court.
Their participation was still significantly truncated. Petitioner’s failure to implead them deprived
them of a fair hearing. The appellate court only serves court orders and processes on parties
formally named and identified by the petitioner. Since the creditors were not named as
respondents, they could not receive court orders prompting them to file remedies to protect
their property rights. Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173,
G.R. No. 177382 February 17, 2016
The opportunity to rehabilitate the affairs of an economic entity, regardless of the status of its
debts, redounds to the benefit of its creditors, owners, and to the economy in general.
To adopt petitioner’s interpretation would undermine the purpose of the Interim Rules. There is
no reason why corporations with debts that may have already matured should not be given the
opportunity to recover and pay their debtors in an orderly fashion. Metropolitan Bank and Trust
Company vs. Liberty Corrugated Boxes Manufacturing Corporation, 815 SCRA 458, G.R. No.
184317 January 25, 2017
Rule 4, Section 1 of the Interim Rules does not specify what kind of debtor may seek
rehabilitation. The provision allows creditors holding twenty-five percent (25%) of the debtor
corporation’s total liabilities to petition for the corporation’s rehabilitation.
Further, Rule 4, Section 6 of the Interim Rules provides for a stay order “staying enforcement of
all claims, whether for money or otherwise and whether such enforcement is by court action or
otherwise.” A stay order, however, only applies to the suspension of the enforcement of claims.
Hence, claims, if proper, can still be instituted in other proceedings. There may already be
pending claims against a debtor corporation for debts already matured. Metropolitan Bank and
Trust Company vs. Liberty Corrugated Boxes Manufacturing Corporation, 815 SCRA 458, G.R.
No. 184317 January 25, 2017

0917 – 894 53 56
Page 54 of 55
Where a literal meaning would lead to absurdity, contradiction, or injustice, or otherwise

defeat the clear purpose of the lawmakers, the spirit and reason of the statute may be
examined to determine the true intention of the provision.
In this case, the phrase “any debtor who foresees the impossibility of meeting its debts when
they respectively fall due” in Rule 4, Section 1 of the Interim Rules need not refer to a specific
period or point in time when the debts mature. It may refer to the debtor corporation’s general
realization that it will not be able to fulfill its obligations — a realization that may come before
default. Metropolitan Bank and Trust Company vs. Liberty Corrugated Boxes Manufacturing
Corporation, 815 SCRA 458, G.R. No. 184317 January 25, 2017
Respondent, as a debtor corporation, may file for rehabilitation despite having defaulted on its
obligations to petitioner.
Based on his assessment, the Rehabilitation Receiver noted that the funds required to finance
the first year of the rehabilitation plan would be much less than that the amount stated in the
Petition. Respondent put forth in detail its financial commitments. Metropolitan Bank and Trust
Company vs. Liberty Corrugated Boxes Manufacturing Corporation, 815 SCRA 458, G.R. No.
184317 January 25, 2017

0917 – 894 53 56
Page 55 of 55

2020 Bar Review: Chair'S Cases Commercial Law

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2020 BAR REVIEW COMMERCIAL LAW

CHAIR’S CASES Handout No. 14

When an abundance of available documentary evidence can be referenced to demonstrate a

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Petitioner disclaims liability because of respondents’ failure to comply with a condition

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Control Test for purposes of Alter Ego Doctrine

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A consequence of a corporation’s separate personality is that consent by a corporation through

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Solidary liability of directors and officers

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Securing loans is not an adjunct of the educational institution’s conduct of business.

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A merger is a consolidation of two or more corporations, which results in one or more

If respondent is a subsidiary of Unocal California, which, in turn, is a subsidiary of Unocal

Effects of merger or consolidation

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property of any of such constituent corporations shall be impaired by such merger or

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A derivative suit is an action filed by stockholders to enforce a corporate action. It is an

Five Requisites for Filing a Derivative Suit

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The relationship test requires that the dispute be between a corporation/partnership/association

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A stockholder suing on account of wrongful or fraudulent corporate actions (undertaken

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A violation of Sections 23 and 25 of the Corporation Code — on how decision-making is vested

In derivative suits, the corporation concerned must be impleaded as a party.

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As members and shareholders, individual respondents Alexander P. Aguirre, Horacio Paredes,

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As members and shareholders, individual respondents Alexander P. Aguirre, Horacio Paredes,

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[T]here is no sufficient evidence to substantiate SEC's allegation that individual respondents,

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Under Section 25 of the Corporation Code, the President of a corporation is considered a

SECURITIES REGULATIONS CODE

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Powers of the Philippine Deposit Insurance Corporation (PDIC) as Receiver

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