2020 CHAIR’S CASES

INSURANCE LAW

Alar 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,

UNION BANK OF THE PHILIPPINES VS. HEIRS OF ALVAREZ, G.R. NO. 210156 OCTOBER 3,
2018
IN GOVERNMENT SERVICE INSURANCE SYSTEM V. MANILA RAILROAD, THE SUPREME
COURT 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


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

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

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,

AN AIR PASSENGER HAS THE CORRELATIVE DUTY TO EXERCISE ORDINARY CARE IN THE
CONDUCT OF 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

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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

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

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,

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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

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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

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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

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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

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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”;

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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

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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

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

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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

25


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

26


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

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

27


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

28


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

29


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

30


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

31


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

32


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,

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

33


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

34


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 Philippines, Inc. (now known as Chevron Geothermal Philippines Holdings,
Inc.), 804 SCRA 286,

35


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 Philippines Inc.

36


ALTHOUGH THE ABSORBED EMPLOYEES ARE RETAINED AS EMPLOYED 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
Philippines, Inc. (now known as Chevron Geothermal Philippines Holdings, Inc.), 804 SCRA 286

R.A. NO. 7042 OR THE FOREIGN INVESTMENTS ACTS 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

37


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

38


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

39


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

40


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

41


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;

42


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

43


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

44


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

45


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

46


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

47


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,

48


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

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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

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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

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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.

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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

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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.
Ricarden Development Corp, 838 SCRA 303

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

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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

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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

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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

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SECURITIES REGULATION 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

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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

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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

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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,

______________________________________________________________________________________

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

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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

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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

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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

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INTELLECTUAL PROPERTY CODE

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

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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

83


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

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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

85


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

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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

87


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

88


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

89


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

90


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

91


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

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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

95


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

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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

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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

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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

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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

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

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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

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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

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