THESE NOTES ARE MEANT TO BE SHARED! SHARING THEM IS A GOOD THING!

SHARING THEM
IS A GOOD KARMA WAITING TO HAPPEN! 
THE JUSTICE LEONEN CASE DOCTRINES IN MERCANTILE LAW
THE JUSTICE MARVIC M.V.F. LEONEN
• Chairperson, 2021 Bar Examinations
PROF. E.H. BALMES 1
• Deputy Commissioner, Insurance Commission.
• MCLE Lecturer, Integrated Bar of the Philippines (IBP) MCLE Lectures.
• Bar Reviewer in Legal Ethics and Commercial Law - Jurists Bar Review Center, Villasis Bar
Review, Chan Robles Internet Review, PCU Bar Review, the Magnificus Review Center, Legal
Edge Review Center , the University of Cebu Bar Review, the University of San Jose Recoletos
Bar Review, the University of Santo Tomas Bar Review, the PUP Bar Review, the UP LAW Center
Bar Review Institute and the Arellano University Bar Review.
• Member, COMMITTEE ON SUGGESTED ANSWERS in LEGAL AND JUDICIAL ETHICS , UP Law
Center.
• Author, 300 QUESTIONS AND ANSWERS IN LEGAL AND JUDICIAL ETHICS, A Pre Week
Companion. (2021). www.central.com.ph
•The compiler wishes to thank ATTY. CHESCA CABRAL, PATRICIA ARBOLADO, EENAH JOELLE
PADILLA, CRICHELLE SY, ROMEO LANZARROTE, and ANDREI “TONY” ELINZANO for their valued
contribution in researching the cases used in this compilation.

 CASE DOCTRINES IN MERCANTILE LAW PREPARED BY: PROF. ERICKSON H. BALMES

NATIONAL FEDERATION OF HOG FARMERS, INC., REPRESENTED BY MR. DANIEL P.

JAVELLANA, et., al. vs VS. BOARD OF INVESTMENTS et., al. G.R. No. 205835, June 23, 2020
Nationalism is not a mindless ideal. It should not unreasonably exclude people of a different
citizenship from participating in our economy. If it were so, nationalism will not foster social
justice; rather, it will sponsor a kind of racism quite like what our ancestors had suffered from in
our colonial past.
While the Constitution does not bar foreign investors from setting up shop in the Philippines,
neither does it encourage their unbridled entry. Thus, it has empowered Congress to determine
which areas of investment to reserve to Filipinos and which areas may be opened to foreign
investors. The constitutional line demarcating privileges for our citizens over foreigners is a
delicate one. We must adjudicate where such line is drawn only with a grounded consciousness
of the facts of an actual case rather than through fiery passions of general advocacy. We will
not evade the responsibility to adjudicate when that case comes. Sadly, this is not the case.
This Petition should be dismissed. Not only is it not justiciable, but this Court also does not have
original jurisdiction over it. The grounds raised reveal that the invocation of grave abuse of
discretion is mere subterfuge to a claimed "irregular or illegal" grant of an application for
registration under Book I, Chapter III of Executive Order No. 226, or the Omnibus Investments
Code of 1987.
E.O. No. 226 apparently allows two avenues of appeal from an action or decision of the BOI,
depending on the nature of the controversy. One mode is to elevate an appeal to the Office of
the President when the action or decision pertains to either of these two instances: first, in the
decisions of the BOI over controversies concerning the implementation of the relevant
provisions of E.O No. 226 that may arise between registered enterprises or investors and
government agencies under Article 7; and second, in an action of the BOI over applications for
registration under the investment priorities plan under Article 36.
Another mode of review is to elevate the matter directly to judicial tribunals. For instance,
under Article 50, E.O. No. 226, a party adversely affected by the issuance of a license to do
business in favor of an alien or a foreign firm may file with the proper Regional Trial Court an
action to cancel said license. Then, there is Article 82, E.O. No. 226, which, in its broad
phraseology, authorizes the direct appeal to the Supreme Court from any order or decision of
respondent BOI "involving the provisions of E.O. No. 226.
Thus, under Article 36 of Executive Order No. 226, actions made by the Board of Investments
over applications for registration under the Investment Priorities Plan are appealable to the
Office of the President.
The quasi-judicial power to assess and approve applications for registration was bestowed
exclusively on the Board of Governors, owing to its expertise over which industries need the
added boost of investments and its in-depth knowledge on the requirements for registration.
After all, it drafted the rules and regulations implementing Executive Order No. 226.
Thus, under the doctrine of primary administrative jurisdiction, jurisdiction over the approval of
applications for registration lies exclusively with the Board of Investments, subject to appeal to
the Office of the President. Hence, this Court is precluded from taking cognizance of the
present Petition.
Goods or services are said to be in the same relevant market if both factors are present: (1) a
reasonable interchangeability of the offerings to consumers; and (2) a significant cross-elasticity
of demand, such that a price change in one party's goods or services will lead to a price change
in the other party's goods or services. Thus, petitioners' alleged injury, purportedly caused by
the entry of new players in the relevant market, still requires a factual finding. The Petition,
therefore, is ultimately premature.
The claim of unfair competition is primarily factual in nature.
There should be objective, scientific, and economic standards to determine whether goods or
services offered by two parties are so related that there is a likelihood of confusion. In a market,
the relatedness of goods or services may be determined by consumer preferences. When two
goods are proved to be perfect substitutes, where the marginal rate of substitution, or the
"consumer's willingness to substitute one good for another while maintaining the same level of
satisfaction" is constant, then it may be concluded that the goods are related for the purposes
of determining likelihood of confusion. Even goods or services, which superficially appear
unrelated, may be proved related if evidence is presented showing that these have significant
crosselasticity of demand, such that changes of price in one party's goods or services change
the price of the other party's goods and services. Should it be proved that goods or services
belong to the same relevant market, they may be found related even if their classes, physical
attributes, or purposes are different.
Even if products are found to be in the same market, in all cases of unfair competition,
competition should be presumed. Courts should take care not to interfere in a free and fair
market, or to foster monopolistic practices. Instead, they should confine themselves to prevent
fraud and misrepresentation on the public.
Protection against unfair competition is not intended to create or foster a monopoly and the
court should always be careful not to interfere with free and fair competition, but should
confine itself, rather, to preventing fraud and imposition resulting from some real resemblance
in name or dress of goods. Nothing less than conduct tending to pass off one man's goods or
business as that of another will constitute unfair competition. Actual or probable deception and
confusion on the part of customers by reason of defendant's practices must always appear.
Monopolization should not be lightly inferred especially since efficient business organizations
are rewarded by the market with growth. Due to the high barriers to economic entry and long
gestation periods, it is reasonable for the government to bundle infrastructure projects. There
is, indeed, a difference between abuse of dominant position in a relevant market and
combinations in restraint of trade.
While the Constitution mandates that the State should develop a self-reliant economy, it does
not proscribe the entry of foreign investments in the local market. In fact, it recognizes the
need to develop Filipino labor, domestic materials, and locally produced goods to become
competitive.
As such, the State imposes certain conditions and restrictions on foreign investments operating
within the Philippine jurisdiction. For instance, no foreign enterprise is allowed to venture into
the mass media industry. This absolute restriction also extends to the use of natural resources
found in the archipelagic waters, territorial sea, and exclusive economic zone of the Philippines.
Further, the practice of all professions in the Philippines is reserved for Filipino citizens, save for
statutory exceptions.
While foreign participation IS absolutely prohibited m some industries, the Constitution allows
foreign participation in certain industries, such as advertising, public utilities, educational
institutions, ownership of private lands, and the exploration, development, and utilization of
natural resources.
Despite these constitutional restrictions, it is not far-fetched to consider that the Philippines
adopts a liberal approach in allowing foreign investments to enter the country. What the
Constitution only restricted from foreign investors were enterprises imbued with public
interest, such as public utilities, mass media, and use of natural resources. These restrictions
are necessary to protect the welfare of Filipino citizens by removing the possibility of
exploitation by foreign investors, who are not fully within the jurisdiction of Philippine laws.
All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor
and enterprises, at the same time, it recognizes the need for business exchange with the rest of
the world on the bases of equality and reciprocity and limits protection of Filipino enterprises
only against foreign competition and trade practices that are unfair. In other words, the
Constitution did not intend to pursue an isolationist policy. It did not shut out foreign
investments, goods and services in the development of the Philippine economy. While the
Constitution does not encourage the unlimited entry of foreign goods, services and investments
into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of
equality and reciprocity, frowning only on foreign competition that is unfair.
The constitutional policy of a "self-reliant and independent national economy" does not
necessarily rule out the entry of foreign investments, goods and services. It contemplates
neither "economic seclusion" nor "mendicancy in the international community”.
Created by Republic Act No. 5186, or the Investment Incentives Act, the Board of Investments is
the administrative agency tasked to carry out the State's policy of encouraging both local and
foreign investments in the agriculture, mining, and manufacturing industries and promote
greater economic stability by increasing national income and exports. It is also mandated with
implementing the provisions of Executive Order No. 226.
The Board of Investments exercises both quasi-legislative (or rule making) powers and quasi-
judicial (or administrative adjudicatory) functions. Its quasi-legislative functions include, among
others, preparing an annual investment priorities plan that lists the activities that can qualify for
incentives, and promulgating rules and regulations to give life to the provisions of Executive
Order No. 226.
On the other hand, its quasi-judicial functions include, among others, processing and approving
applications for registration, deciding controversies arising from the implementation of
Executive Order No. 226, and canceling registrations or suspending entitlement to incentives of
registered enterprises. Republic Act No. 7042, or the Foreign Investments Act of 1991, declares
that as much as 100% foreign ownership in domestic enterprises may be allowed, except for
areas or industries included in the negative list.
The 1987 Constitution does not rule out the entry of foreign investments, goods, and services.
While it does not encourage their unlimited entry into the country, it does not prohibit them
either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on
foreign competition that is unfair. The key, as in all economies in the world, is to strike a
balance between protecting local businesses and allowing the entry of foreign investments and
services.
More importantly, Section 10, Article XII of the 1987 Constitution gives Congress the discretion
to reserve to Filipinos certain areas of investments upon the recommendation of the NEDA and
when the national interest requires. Thus, Congress can determine what policy to pass and
when to pass it depending on the economic exigencies. It can enact laws allowing the entry of
foreigners into certain industries not reserved by the Constitution to Filipino citizens.
ANNIE TAN v. GREAT HARVEST ENTERPRISES, INC., G.R. No. 220400 March 20, 2019
Common carriers are obligated to exercise extraordinary diligence over the goods entrusted to
their care. This is due to the nature of their business, with the public policy behind it geared
toward achieving allocative efficiency and minimizing the inherently inequitable dynamics
between the parties to the transaction.
Article 1732 of the Civil Code defines common carriers as "persons, corporations, firms or
associations engaged in the business of carrying or transporting passengers or goods or both,
by land, water or air, for compensation, offering their services to the public." The Civil Code
outlines the degree of diligence required of common carriers in Articles 1733, 1755, and 1756:
ARTICLE 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case. . . . .
ARTICLE 1755. A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with
a due regard for all the circumstances.
 ARTICLE 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in articles 1733 and 1755.
Law and economics provide the policy justification of our existing jurisprudence. The
extraordinary diligence required by the law of common carriers is primarily due to the nature of
their business, with the public policy behind it geared toward achieving allocative efficiency
between the parties to the transaction.
Allocative efficiency is an economic term that describes an optimal market where customers
are willing to pay for the goods produced. Thus, both consumers and producers benefit and
stability is achieved.
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.
CEZAR YATCO REAL ESTATE SERVICES, INC., et., al. vs. BEL-AIR VILLAGE ASSOCIATION, INC.,
et., al. G.R. 211780 November 21, 2018
In contract interpretation, courts must first determine whether a stipulation is ambiguous or
susceptible of multiple interpretations. If no ambiguity is found and the terms of the contract
clearly reflect the intentions of the contracting parties, the stipulation will be interpreted as it is
written. The process of interpreting a contract requires the court to make a preliminary inquiry
as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is
susceptible of two reasonable alternative interpretations. Where the written terms of the
contract are not ambiguous and can only be read one way, the court will interpret the contract
as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the
contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.
A proxy is a form of agency created in instances when a person is unable to personally cast his
or her vote; hence, the act of voting is delegated to another person.
Section 89 of Batas Pambansa Blg. 68, or the Corporation Code of the Philippines, recognizes a
member's right to vote by proxy. Section 58 then provides that a proxy shall be in writing,
signed by the member, and filed with the corporate secretary before the scheduled meeting:
However, the Corporation Code also empowers the members to provide for their own proxy
requirements in their by-laws, as seen in Section 47(4), which provides:
Section 47. Contents of by-laws. - Subject to the provisions of the Constitution, this
Code, other special laws, and the articles of incorporation, a private corporation may
provide in its by-laws for: . . . .
 4. The form for proxies of stockholders and members and the manner of voting them[.]
Nonetheless, in the absence of additional formal requirements for proxies in the by-laws, the
basic requirements for a written proxy submitted prior to the scheduled meeting under Section
58 govern.
The Court therefore finds it whimsical for petitioners to insist that the special BAVA
membership meeting did not constitute a quorum solely based on its lame excuse that the
proxy letters during said meeting were not notarized and lacking in authority or specific grant of
power to approve the extension of the effectivity of the term of restrictions. There is no
requirement that the proxy form be notarized. Thus, the recognized rule and practice on
proxy form is summarized as follows . . . the formalities of a proxy may be provided for in the
bylaws. In the absence of any provision in the by-laws, the proxy need not comply with the
minimum requirements provided for in Section 58 .
THE INSULAR ASSURANCE CO., LTD., VS. THE HEIRS OF JOSE H. ALVAREZ. G.R. No. 207526
October 3, 2018
The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to
concealment, but not so in cases of rescission due to false representations. When an
abundance of available documentary evidence can be referenced to demonstrate a design to
defraud, presenting a singular document with an erroneous entry does not qualify as clear and
convincing proof of fraudulent intent. Neither does belatedly invoking just one other document,
which was not even authored by the alleged miscreant.
Fraud is not to be presumed, for "otherwise, courts would be indulging in speculations and
surmises." Moreover, it is not to be established lightly. Rather, "it must be established by clear
and convincing evidence. Mere preponderance of evidence is not even adequate to prove
fraud." These precepts hold true when allegations of fraud are raised as grounds justifying the
invalidation of contracts, as the fraud committed by a party tends to vitiate the other party's
consent.
When one knows a material fact and conceals it, "it is difficult to see how the inference of a
fraudulent intent or intentional concealment can be avoided." Thus, a concealment, regardless
of actual intent to defraud, "is equivalent to a false representation."
Concealment exists where the assured has knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured, but
he designedly and intentionally withholds the same.
Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a
full and fair statement of all is required. It is also held that the concealment must, in the
absence of inquiries, be not only material, but fraudulent, or the fact must have been
intentionally withheld; so it is held under English law that if no inquiries are made and no fraud
or design to conceal enters into the concealment the contract is not avoided. And it is
determined that even though silence may constitute misrepresentation or concealment it is not
of itself necessarily so as it is a question of fact. Nor is there a concealment justifying a
forfeiture where the fact of insanity is not disclosed no questions being asked concerning the
same.
The basis of the rule vitiating the contract in cases of concealment is that it misleads or
deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon;
The insurer, relying upon the belief that the assured will disclose every material fact within his
actual or presumed knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.
The principal question, therefore, must be, Was the assurer misled or deceived into entering a
contract obligation or in fixing the premium of insurance by a withholding of material
information or facts within the assured's knowledge or presumed knowledge?
It therefore follows that the assurer in assuming a risk is entitled to know every material fact of
which the assured has exclusive or peculiar knowledge, as well as all material facts which
directly tend to increase the hazard or risk which are known by the assured, or which ought to
be or are presumed to be known by him. And a concealment of such facts vitiates the policy.
The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.
Concealment applies only with respect to material facts. That is, those facts which by their
nature would clearly, unequivocally, and logically be known by the insured as necessary for the
insurer to calculate the proper risks.
The absence of the requirement of intention definitely increases the onus on the insured.
Between the insured and the insurer, it is true that the latter may have more resources to
evaluate risks. Insurance companies are imbued with public trust in the sense that they have
the obligation to ensure that they will be able to provide succor to those that enter into
contracts with them by being both frugal and, at the same time, diligent in their assessment of
the risk which they take with every insurance contract. However, even with their tremendous
resources, a material fact concealed by the insured cannot simply be considered by the
insurance company. The insurance company may have huge resources, but the law does not
require it to be omniscient.
On the other hand, when the insured makes a representation, it is incumbent on them to
assure themselves that a representation on a material fact is not false; and if it is false, that it is
not a fraudulent misrepresentation of a material fact. This returns the burden to insurance
companies, which, in general, have more resources than the insured to check the veracity of
the insured's beliefs as to a statement of fact. Consciousness in defraudation is imperative and
it is for the insurer to show this.
Deliberation attendant to an apparently inaccurate declaration is vital to ascertaining fraud. A
single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily
have been an isolated mistake.
MILAGROS P. ENRIQUEZ VS. THE MERCANTILE INSURANCE CO., INC., G.R. 210950 August 15,
2018
A surety bond remains effective until the action or proceeding is finally decided, resolved, or
terminated, regardless of whether the applicant fails to renew the bond. The applicant will be
liable to the surety for any payment the surety makes on the bond, but only up to the amount
of this bond. This condition is deemed incorporated in the contract between the applicant and
the surety, regardless of whether they failed to expressly state it.
Under the Guidelines on Corporate Surety Bonds:
VII. LIFETIME OF BONDS IN CRIMINAL AND CIVIL ACTIONS/SPECIAL PROCEEDINGS Unless and
until the Supreme Court directs otherwise, the lifetime or duration of the effectivity of any
bond issued in criminal and civil actions/special proceedings, or in any proceeding or incident
therein shall be from its approval by the court, until the action or proceeding is finally decided,
resolved or terminated. This condition must be incorporated in the terms and condition of the
bonding contract and shall bind the parties notwithstanding their failure to expressly state the
same in the said contract or agreement.
It should be noted that a replevin bond is intended to indemnify the defendant against any loss
that he may suffer by reason of its being compelled to surrender the possession of the disputed
property pending trial of the action. The same may also be answerable for damages if any when
judgment is rendered in favor of the defendant or the party against whom a writ of replevin
was issued and such judgment includes the return of the property to him. Thus, the
requirement that the bond be double the actual value of the properties litigated upon.
A contract of insurance is, by default, a contract of adhesion. It is prepared by the insurance
company and might contain terms and conditions too vague for a layperson to understand;
hence, they are construed liberally in favor of the insured.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its
terms and conditions constitute the measure of the insurer's liability and compliance therewith
is a condition precedent to the insured's right to recovery from the insurer. As it is also a
contract of adhesion, an insurance contract should be liberally construed in favor of the insured
and strictly against the insurer company which usually prepares it.
BELINA CANCIO AND JEREMY PAMPOLINA VS. PERFORMANCE FOREIGN EXCHANGE
CORPORATION G.R. No. 182307 June 6, 2018
Foreign currency exchange trading or forex trading is the speculative trade of foreign currency
for the sole purpose of gaining profit from the change in prices. The forex market is a "global,
decentralized," and essentially "an overthe-counter (OTC) market where the different currency
trading locations around the globe electronically form a unified, interconnected market entity."
Unlike a stock exchange market where the opening and closing of trades rely on only one (1) or
two (2) time zones, a forex market may have overlapping time zones. Foreign currency, due to
its decentralized nature, may be traded in different financial markets. For instance, trading
currency using US dollars would not depend on the business or banking hours only of financial
institutions in the United States.
The participants in a forex market are banks, hedge funds, investment firms, and individual
retail traders. Unlike banks, hedge funds, and investment firms that have significant amounts of
capital to engage in trade, individual retail traders often make use of brokers, who "serve as an
agent of the customer in the broader [foreign currency exchange] market, by seeking the best
price in the market for a retail order and dealing on behalf of the retail customer."
Individual retail traders also rely on "leverage trading," where traders can open margin
accounts with a financial broker or agent to make use of that broker or agent's credit line to
engage in trade.
A margin account is an account where the broker-dealer lends money to the trader to purchase
currency, using the same purchased currency as collateral. Returns will be proportional to the
amount deposited. Leverage is determined by the amount that the trader is required to
deposit. If a trader has to deposit US$1,000.00 into a margin account to trade US$100,000.00 in
currency, the margin account has a leverage of 100 to 1.This system allows the trader to control
more money in the market than what was originally deposited.
Individual retail traders make use of leverage trading and margin accounts since price
movements are usually miniscule. A "pip" is "the smallest unit of price movement in the
exchange rate of a currency pair." The goal of every trader in foreign currency exchange is to
earn pips. Forex trade is, thus, considered a lucrative but risky endeavor since every trade
multiplies profit and loss by a much higher rate than what was originally invested.
A broker is generally defined as one who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no concern; the negotiator
between other parties. never acting in his own name, but in the name of those who employed
him; he is strictly a middleman and for some purposes the agent of both parties.
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.
CITIGROUP, INC VS. CITYSTATE SAVINGS BANK, INC. G.R. No. 205409 June 13, 2018
The purpose of the law protecting a trademark cannot be overemphasized. They are to point
out distinctly the origin or ownership of the article to which it is affixed, to secure to him, who
has been instrumental in bringing into market a superior article of merchandise, the fruit of his
industry and skill, and to prevent fraud and imposition.
The legislature has enacted laws to regulate the use of trademarks and provide for the
protection thereof. Modem trade and commerce demands that depredations on legitimate
trademarks of non-nationals including those who have not shown prior registration thereof
should not be countenanced. The law against such depredations is not only for the protection
of the owner of the trademark but also, and more importantly, for the protection of purchasers
from confusion, mistake, or deception as to the goods they are buying.
The law on trademarks and tradenames is based on the principle of business integrity and
common justice. This law, both in letter and spirit, is laid upon the premise that, while it
encourages fair trade in every way and aims to foster, and not to hamper, competition, no one,
especially a trader, is justified in damaging or jeopardizing another's business by fraud, deceit,
trickery or unfair methods of any sort. This necessarily precludes the trading by one dealer
upon the good name and reputation built up by another.
A "trademark" is defined under R.A. 166, the Trademark Law, as including "any word, name,
symbol, emblem, sign or device or any combination thereof adopted and used by a
manufacturer or merchant to identify his goods and distinguish them from those manufactured,
sold or dealt in by others." This definition has been simplified in R.A. No. 8293, the Intellectual
Property Code of the Philippines, which defines a "trademark" as "any visible sign capable of
distinguishing goods." In Philippine jurisprudence, the function of a trademark is to point out
distinctly the origin or ownership of the goods to which it is affixed; to secure to him, who has
been instrumental in bringing into the market a superior article of merchandise, the fruit of his
industry and skill; to assure the public that they are procuring the genuine article; to prevent
fraud and imposition; and to protect the manufacturer against substitution and sale of an
inferior and different article as his product.
Modern authorities on trademark law view trademarks as performing three distinct functions:
(1) they indicate origin or ownership of the articles to which they are attached;
(2) they guarantee that those articles come up to a certain standard of quality; and
(3) they advertise the articles they symbolize.
Today, the trademark is not merely a symbol of origin and goodwill; it is often the most
effective agent for the actual creation and protection of goodwill. It imprints upon the public
mind an anonymous and impersonal guaranty of satisfaction, creating a desire for further
satisfaction.
In other words, the mark actually sells the goods. The mark has become the "silent salesman,"
the conduit through which direct contact between the trademark owner and the consumer is
assured. It has invaded popular culture in ways never anticipated that it has become a more
convincing selling point than even the quality of the article to which it refers.
There is also an underlying economic justification for the protection of trademarks: an effective
trademark system helps bridge the information gap between producers and consumers, and
thus, lowers the costs incurred by consumers in searching for and deciding what products to
purchase.
Brand reputation helps consumers to reduce these search costs. It enables them to draw on
their past experience and other information about products - such as advertisements and third
party consumer reviews. However, the reputation mechanism only works if consumers are
confident that they will purchase what they intend to purchase. The trademark system provides
the legal framework underpinning this confidence. It does so by granting exclusive rights to
names, signs and other identifiers in commerce.
Recognizing the significance, and to further the effectivity of our trademark system, our
legislators proscribed the registration of marks under certain circumstances:
Section 123. Registrability. - 123.1. A mark cannot be registered if it:
(a) Consists of immoral, deceptive or scandalous matter, or matter which may disparage
or falsely suggest a connection with persons, living or dead, institutions, beliefs, or
national symbols, or bring them into contempt or disrepute;
(b) Consists of the flag or coat of arms or other insignia of the Philippines or any of its
political subdivisions, or of any foreign nation, or any simulation thereof;
(c) Consists of a name, portrait or signature identifying a particular living individual
except by his written consent, or the name, signature, or portrait of a deceased
President of the Philippines, during the life of his widow, if any, except by written
consent of the widow;
(d) Is identical with a registered mark belonging to a different proprietor or a mark with
an earlier filing or priority date, in respect of:
(i) The same goods or services, or
(ii) Closely related goods or services, or
 (iii) If it nearly resembles such a mark as to be likely to deceive or cause
confusion;
(e) Is identical with, or confusingly similar to, or constitutes a translation of a mark
which is considered by the competent authority of the Philippines to be well-known
internationally and in the Philippines, whether or not it is registered here, as being
already the mark of a person other than the applicant for registration, and used for
identical or similar goods or services: Provided, That in determining whether a mark is
well known, account shall be taken of the knowledge of the relevant sector of the
public, rather than of the public at large, including knowledge in the Philippines which
has been obtained as a result of the promotion of the mark;
(f) Is identical with, or confusingly similar to, or constitutes a translation of a mark
considered well-known in accordance with the preceding paragraph, which is registered
in the Philippines with respect to goods or services which are not similar to those with
respect to which registration is applied for: Provided, That use of the mark in relation to
those goods or services would indicate a connection between those goods or services,
and the owner of the registered mark: Provided, further, That the interests of the owner
of the registered mark are likely to be damaged by such use;
(g) Is likely to mislead the public, particularly as to the nature, quality, characteristics or
geographical origin of the goods or services;
(h) Consists exclusively of signs that are generic for the goods or services that they seek
to identify;
(i) Consists exclusively of signs or of indications that have become customary or usual to
designate the goods or services in everyday language or in bona fide and established
trade practice;
(j) Consists exclusively of signs or of indications that may serve in trade to designate the
kind, quality, quantity, intended purpose, value, geographical origin, time or production
of the goods or rendering of the services, or other characteristics of the goods or
services;
(k) Consists of shapes that may be necessitated by technical factors or by the nature of
the goods themselves or factors that affect their intrinsic value;
(l) Consists of color alone, unless defined by a given form; or
(m) Is contrary to public order or morality.
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.
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. This Court
explained these tests in Coffee Partners, Inc. v. San Francisco Coffee & Roastery, Inc.:
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.
A visual comparison of the marks reveals no likelihood of confusion. Examining these marks,
this Court finds that petitioner's marks can best be described as consisting of the prefix "CITI"
added to other words.
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.
This Court also agrees with the Court of Appeals that the context where respondent's mark is to
be used, namely, for its ATM services, which could only be secured at respondent's premises
and not in an open market of ATM services, further diminishes the possibility of confusion on
the part of prospective customers.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, vs. BANGKO SENTRAL NG PILIPINAS AND
THE MONETARY BOARD, G.R. 200678 June 4, 2018
A bank which has been ordered closed by the Bangko Sentral ng Pilipinas (Bangko Sentral) is
placed under the receivership of the Philippine Deposit Insurance Corporation. As a
consequence of the receivership, the closed bank may sue and be sued only through its
receiver, the Philippine Deposit Insurance Corporation. Any action filed by the closed bank
without its receiver may be dismissed.
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.
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."
As fiduciary of the insolvent bank, Philippine Deposit Insurance Corporation conserves and
manages the assets of the bank to prevent the assets' dissipation. This includes the power to
bring and defend any action that threatens to dissipate the closed bank's assets.
The inclusion of the PDIC as a representative party in the case is therefore grounded on its
statutory role as the fiduciary of the closed bank which, under Section 30 of R.A. 7653 (New
Central Bank Act), is authorized to conserve the latter's property for the benefit of its creditors.
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.
A quasi-judicial agency or body is an organ of government other than a court and other than a
legislature, which affects the rights of private parties through either adjudication or rule-
making. The very definition of an administrative agency includes its being vested with quasi-
judicial powers. The ever increasing variety of powers and functions given to administrative
agencies recognizes the need for the active intervention of administrative agencies in matters
calling for technical knowledge and speed in countless controversies which cannot possibly be
handled by regular courts. A "quasijudicial function" is a term which applies to the action,
discretion, etc., of public administrative officers or bodies, who are required to investigate facts,
or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis
for their official action and to exercise discretion of a judicial nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial
powers or functions. As aptly observed by the Court of Appeals, the BSP Monetary Board is an
independent central monetary authority and a body corporate with fiscal and administrative
autonomy, mandated to provide policy directions in the areas of money, banking and credit. It
has power to issue subpoena, to sue for contempt those refusing to obey the subpoena without
justifiable reason, to administer oaths and compel presentation of books, records and others,
needed in its examination, to impose fines and other sanctions and to issue cease and desist
order. Section 37 of Republic Act No. 7653, in particular, explicitly provides that the BSP
Monetary Board shall exercise its discretion in determining whether administrative sanctions
should be imposed on banks and quasi-banks, which necessarily implies that the BSP Monetary
Board must conduct some form of investigation or hearing regarding the same.
Bangko Sentral's Monetary Board is a quasi-judicial agency. Its decisions, resolutions, and
orders are the decisions, resolutions, and orders of a quasijudicial agency. Any action filed
against the Monetary Board is an action against a quasi-judicial agency.
This does not mean, however, that Bangko Sentral only exercises quasijudicial functions. As an
administrative agency, it likewise exercises "powers and/or functions which may be
characterized as administrative, investigatory, regulatory, quasi-legislative, or quasi-judicial, or
a mix of these five, as may be conferred by the Constitution or by statute."
FEDERAL EXPRESS CORPORATION V. LUWALHATI R. ANTONINO AND ELIZA BETTINA RICASA
ANTONINO. G.R. No. 199455 June 27, 2018
The duty of common carriers to observe extraordinary diligence in shipping goods does not
terminate until delivery to the consignee or to the specific person authorized to receive the
shipped goods. Failure to deliver to the person authorized to receive the goods is tantamount
to loss of the goods, thereby engendering the common carrier's liability for loss. Ambiguities in
contracts of carriage, which are contracts of adhesion, must be interpreted against the
common carrier that prepared these contracts.
The Civil Code mandates common carriers to observe extraordinary diligence in caring for the
goods they are transporting:
Article 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.
"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.
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
Money is "what is generally acceptable in exchange for goods." It can take many forms, most
commonly as coins and banknotes. Despite its myriad forms, its key element is its general
acceptability. Laws usually define what can be considered as a generally acceptable medium of
exchange. In the Philippines, Republic Act No. 7653, otherwise known as The New Central Bank
Act, defines "legal tender" as follows:
All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the
Government of the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private: Provided, however, That, unless
otherwise fixed by the Monetary Board, coins shall be legal tender in amounts not
exceeding Fifty pesos (P50.00) for denomination of Twenty-five centavos and above,
and in amounts not exceeding Twenty pesos (P20.00) for denominations of Ten
centavos or less.
It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes
for money and are not legal tender; more so when the check has a named payee and is not
payable to bearer.
The prohibition against transporting money must be restrictively construed against petitioner
and liberally for respondents. Viewed through this lens, with greater reason should
respondents be exculpated from liability for shipping documents or instruments, which are
reasonably understood as not being money, and for being unable to declare them as such.
Ultimately, in shipping checks, respondents were not violating petitioner's Air Waybill. From
this, it follows that they committed no breach of warranty that would absolve petitioner of
liability.
ORIENTAL ASSURANCE CORPORATION, V. MANUEL ONG, DOING BUSINESS UNDER THE
BUSINESS NAME OF WESTERN PACIFIC TRANSPORT SERVICES AND/OR ASIAN TERMINALS,
INC., G.R. No. 189524 October 11, 2017
In Government Service Insurance System v. Manila Railroad Company, this 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.
This doctrine was reiterated in the later case of Summa Insurance Corporation v. Court
of Appeals: In the performance of its job, an arrastre operator is bound by the
management contract it had executed with the Bureau of Customs. However, a
management contract, which is a sort of a stipulation pour autrui within the meaning of
Article 1311 of the Civil Code, is also binding on a consignee because it is incorporated in
the gate pass and delivery receipt which must be presented by the consignee before
delivery can be effected to it. The insurer, as successor-in-interest of the consignee, is
likewise bound by the management contract. Indeed, upon taking delivery of the cargo,
a consignee (and necessarily its successor-in interest) tacitly accepts the provisions of
the management contract, including those which are intended to limit the liability of
one of the contracting parties, the arrastre operator.
The fact that Oriental is not a party to the Gate Pass and the Management Contract does not
mean that it cannot be bound by their provisions. Oriental is subrogated to the rights of the
consignee simply upon its payment of the insurance claim. Article 2207 of the Civil Code
provides:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of
the assured to recover from the wrongdoer to the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured operates as an equitable assignment to the former
of all remedies which the latter may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues simply upon payment of
the insurance claim by the insurer.
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.
This Court has ruled that 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."
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. Thus, "substantial compliance with the 15-day time
limitation is allowed provided that the consignee has made a provisional claim thru a request
for bad order survey or examination report."
BELO MEDICAL GROUP, INC., VS. JOSE L. SANTOS AND VICTORIA G. BELO. G.R. No. 185894
August 30, 2017
A conflict between two (2) stockholders of a corporation does not automatically render their
dispute as intra-corporate. The nature of the controversy must also be examined.
A.M. No. 01-2-04-SC, or the Interim Rules of Procedure Governing IntraCorporate
Controversies, enumerates the cases where the rules will apply:
Section 1. (a) Cases Covered - These Rules shall govern the procedure to be observed in
civil cases involving the following:
1. Devices or schemes employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the stockholders, partners, or
members of any corporation, partnership, or association;
2. Controversies arising out of intra-corporate, partnership, or association relations,
between and among stockholders, members, or associates; and between, any or all of
them and the corporation, partnership, or association of which they are stockholders,
members, or associates, respectively;
3. Controversies in the election or appointment of directors, trustees, officers, or
managers of corporations, partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.
To determine whether an intra-corporate dispute exists and whether this case requires the
application of these rules of procedure, this Court evaluated the relationship of the parties. The
types of intra-corporate relationships were reviewed in Union Glass & Container Corporation v.
Securities and Exchange Commission:
[a] between the corporation, partnership or association and the public;
[b] between the corporation, partnership or association and its stockholders, partners,
members, or officers;
[c] between the corporation, partnership or association and the state in so far as its franchise,
permit or license to operate is concerned; and
[d] among the stockholders, partners or associates themselves.
For as long as any of these intra-corporate relationships exist between the parties, the
controversy would be characterized as intra-corporate. This is known as the "relationship test."
DMRC Enterprises v. Este del Sol Mountain Reserve, Inc. employed what would later be called
as the "nature of controversy test." It became another means to determine if the dispute
should be considered as intra-corporate.
This Court now uses both the relationship test and the nature of the controversy test to
determine if an intra-corporate controversy is present.
ARTURO C. CALUBAD, VS. RICARCEN DEVELOPMENT CORPORATION. G.R. No. 202364 August
30, 2017
When a corporation intentionally or negligently clothes its agent with apparent authority to act
in its behalf, it is estopped from denying its agent's apparent authority as to innocent third
parties who dealt with this agent in good faith.
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."
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 have been ratified by the corporation or whose benefits have
been accepted by the corporation. On the other hand, apparent authority is based on the
principle of estoppel.
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.
LYDIA LAO et., al, V. YAO BIO LIM AND PHILIP KING. G.R. No. 201306 August 9, 2017
Petitioners cannot unilaterally disobey or disregard the Orders of the Securities and Exchange
Commission and of the Regional Trial Court despite their own views of the correctness or
propriety thereof.
The theory espoused by appellants that a party may, at his own choice, directly disobey a court
order which said party believes to be erroneous or beyond the court's authority is fraught with
serious consequences. This Court, speaking through Mr. Justice Enrique Fernando, has had
occasion to condemn a similar attitude in another case:
. . . The failure to abide by the orders and processes of judicial . . . agencies . . . gives, rise
to a serious concern. It engenders at the very least the well-founded suspicion that such
an attitude betrays an absence of good faith. It is indicative of a belief at war with all
that adjudication stands for.
No one may be permitted to take the law into his own hands. No one, much less the
party immediately concerned, should have the final say on the validity or lack of it of
one's course of conduct. Centuries of reliance on the judicial process repel such a notion
...
. . . Such refusal to accord due respect and yield obedience to what a court or
administrative tribunal ordains is fraught with much gravel [sic] consequences ... If such
a conduct were not condemned, some other group or groups emboldened by the
absence of any reproof or disapproval may conduct themselves similarly. The injury to
the rule of law may well-nigh be irreparable.
Law stands for order, for the peaceful and systematic adjustment of frictions and conflicts
unavoidable in a modern society with his complexities and clashing interests.
The instrumentality for such balancing or harmonization is the judiciary and other agencies
exercising quasi-judicial powers. When judicial or quasijudicial tribunals speak, what they
decree must be obeyed; what they ordain must be followed. A party dissatisfied may ask for
reconsideration and, if denied, may go on to higher tribunal. As long as the orders stand
unmodified, however, they must, even if susceptible to well-founded doubts on jurisdictional
grounds, be faithfully complied with.
LAND BANK OF THE PHILIPPINES VS. FASTECH SYNERGY PHILIPPINES, INC. (FORMERLY FIRST
ASIA SYSTEM TECHNOLOGY, INC.) et., al. G.R. No. 206150 August 9, 2017
Rehabilitation is statutorily defined under Republic Act No. 10142, otherwise known as the
"Financial Rehabilitation and Insolvency Act of 2010" (FRIA), as follows:
Section 4. Definition of Terms. — As used in this Act, the term:
....
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated. (Emphasis supplied)
Case law explains that corporate rehabilitation contemplates a continuance of corporate life
and activities in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency, the purpose being to enable the company to gain a new
lease on life and allow its creditors to be paid their claims out of its earnings. Thus, the basic
issues in rehabilitation proceedings concern the viability and desirability of continuing the
business operations of the distressed corporation, all with a view of effectively restoring it to a
state of solvency or to its former healthy financial condition through the adoption of a
rehabilitation plan. (highlighting supplied)
A material financial commitment becomes significant in gauging the resolve, determination,
earnestness, and good faith of the distressed corporation in financing the proposed
rehabilitation plan. This commitment may include the voluntary undertakings of the
stockholders or the would-be investors of the debtor-corporation indicating their readiness,
willingness, and ability to contribute funds or property to guarantee the continued successful
operation of the debtor-corporation during the period of rehabilitation.
It is well to emphasize that the remedy of rehabilitation should be denied to corporations that
do not qualify under the Rules. Neither should it be allowed to corporations whose sole
purpose is to delay the enforcement of any of the rights of the creditors.
The test in evaluating the economic feasibility of the plan was laid down in Bank of the
Philippine Islands v. Sarabia Manor Hotel Corporation (Bank of the Philippine Islands), to wit;
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative
that a thorough examination and analysis of the distressed corporation's financial data
must be conducted. If the results of such examination and analysis show that there is a
real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the other hand, if the results of
the financial examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that liquidation would,
in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert
the proceedings into one for liquidation.
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., the Court took
note of the characteristics of an economically feasible rehabilitation plan as opposed to an
infeasible rehabilitation plan: Professor Stephanie V. Gomez of the University of the Philippines
College of Law suggests specific characteristics of an economically feasible rehabilitation plan:
a. The debtor has assets that can generate more cash if used in its daily operations than
if sold.
b. Liquidity issues can be addressed by a practicable business plan that will generate
enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full implementation
of a Rehabilitation Plan that is anchored on realistic assumptions and goals.
These requirements put emphasis on liquidity: the cash flow that the distressed corporation will
obtain from rehabilitating its assets and operations. A corporation's assets may be more than
its current liabilities, but some assets may be in the form of land or capital equipment, such as
machinery or vessels. Rehabilitation sees to it that these assets generate more value if used
efficiently rather than if liquidated. On the other hand, this court enumerated the
characteristics of a rehabilitation plan that is infeasible:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the execution of the
business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full depreciation or fully depreciated.
The Financial and Rehabilitation and Insolvency Act of 2010 emphasizes on rehabilitation that
provides for better present value recovery for its creditors.
Present value recovery acknowledges that, in order to pave way for rehabilitation, the creditor
will not be paid by the debtor when the credit falls due. The court may order a suspension of
payments to set a rehabilitation plan in motion; in the meantime, the creditor remains unpaid.
By the time the creditor is paid, the financial and economic conditions will have been changed.
Money paid in the past has a different value in the future. It is unfair if the creditor merely
receives the face value of the debt. Present value of the credit takes into account the interest
that the amount of money would have earned if the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business' rehabilitation plan allows
for the closest present value recovery for its creditors. If the projected cash flow is realistic and
allows the corporation to meet all its obligations, then courts should favor rehabilitation over
liquidation. However, if the projected cash flow is unrealistic, then courts should consider
converting the proceedings into that for liquidation to protect the creditors.
The purpose of rehabilitation proceedings is not only to enable the company to gain a new
lease on life, but also to allow creditors to be paid their claims from its earnings when so
rehabilitated. Hence, the remedy must be accorded only after a judicious regard of all
stakeholders' interests; it is not a one-sided tool that may be graciously invoked to escape every
position of distress. Thus, the remedy of rehabilitation should be denied to corporations whose
insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of
any of the rights of the creditors, which is rendered obvious by:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets, and goals; and
(c) speculative capital infusion or complete lack thereof for the execution of the
business plan, as in this case.
A distressed corporation should not be rehabilitated when the results of the financial
examination and analysis clearly indicate that there lies no reasonable probability that it may
be revived, to the detriment of its numerous stakeholders which include not only the
corporation's creditors but also the public at large.
Recognizing the volatile nature of every business, the rules on corporate rehabilitation have
been crafted in order to give companies sufficient leeway to deal with debilitating financial
predicaments in the hope of restoring or reaching a sustainable operating form if only to best
accommodate the various interests of all its stakeholders, may it be the corporation's
stockholders, its creditors, and even the general public.
 SECURITIES AND EXCHANGE COMMISSION, VS. PRICE RICHARDSON CORPORATION,
CONSUELO VELARDE-ALBERT, AND GORDON RESNICK G.R. No. 197032 July 26, 2017
A corporation's personality is separate and distinct from its officers, directors, and
shareholders. To be held criminally liable for the acts of a corporation, there must be a showing
that its officers, directors, and shareholders actively participated in or had the power to prevent
the wrongful act.
ANTHONY DE SILVA CRUZ VS. PEOPLE OF THE PHILIPPINES G.R. No. 210266 June 7, 2017
The possession and use of a counterfeit credit card is considered access device fraud and is
punishable by law. To successfully sustain a conviction for possession and use of a counterfeit
access device, the prosecution must present not only the access device but also any evidence
that proves that the access device is counterfeit. Republic Act No. 8484, otherwise known as
the Access Devices Regulation Act of 1998, defines an access device as:
any card, plate, code, account number, electronic serial number, personal identification
number, or other telecommunications service, equipment, or instrumental identifier, or
other means of account access that can be used to obtain money, good, services, or any
other thing of value or to initiate a transfer of funds (other than a transfer originated
solely by paper instrument).
Since a credit card is "any card, plate, coupon book, or other credit device existing for
the purpose of obtaining money, goods, property, labor or services or anything of value
on credit," it is considered an access device.
A counterfeit access device is "any access device that is counterfeit, fictitious, altered, or
forged, or an identifiable component of an access device or counterfeit access device." Under
Section 9(a) and (e) of Republic Act No. 8484, the possession and use of an access device is not
illegal. Rather, what is prohibited is the possession and use of a counterfeit access device.
Therefore, the corpus delicti of the crime is not merely the access device, but also any evidence
that proves that it is counterfeit.
JOSE M. ROY III VS. CHAIRPERSON TERESITA HERBOSA,THE SECURITIES AND EXCHANGE
COMMISSION, AND PHILIPPINE LONG DISTANCE TELEPHONE COMPANY. G.R. No. 207246
April 18, 2017
The heart of the controversy is the interpretation of Section 11, Article XII of the Constitution,
which provides: "No franchise, certificate, or any other form of authorization for the operation
of a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens xxx."
In construing "full beneficial ownership," the Implementing Rules and Regulations of the
Foreign Investments Act of 1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals,
mere legal title is not enough to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting rights is essential. Thus,
stocks, the voting rights of which have been assigned or transferred to aliens cannot be
considered held by Philippine citizens or Philippine nationals.
In turn, "beneficial owner" or "beneficial ownership" is defined in the Implementing Rules and
Regulations of the Securities Regulation Code (SRC-IRR) as:
 Any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power (which includes
the power to vote or direct the voting of such security) and/or investment returns or
power (which includes the power to dispose of, or direct the disposition of such
security) xxx.
Thus, the definition of "beneficial owner or beneficial ownership" in the SRCIRR, which is in
consonance with the concept of "full beneficial ownership" in the FIA-IRR, is, as stressed in the
Decision, relevant in resolving only the question of who is the beneficial owner or has beneficial
ownership of each "specific stock" of the public utility company whose stocks are under review.
If the Filipino has the voting power of the "specific stock", i.e., he can vote the stock or direct
another to vote for him, or the Filipino has the investment power over the "specific stock", i.e.,
he can dispose of the stock or direct another to dispose of it for him, or both, i.e., he can vote
and dispose of that "specific stock" or direct another to vote or dispose it for him, then such
Filipino is the "beneficial owner" of that "specific stock." Being considered Filipino, that "specific
stock" is then to be counted as part of the 60% Filipino ownership requirement under the
Constitution. The right to the dividends, jus fruendi - a right emanating from ownership of that
"specific stock" necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the dividends accruing to any
particular stock are determinative of that stock's "beneficial ownership." Dividend declaration is
dictated by the corporation's unrestricted retained earnings. On the other hand, the
corporation's need of capital for expansion programs and special reserve for probable
contingencies may limit retained earnings available for dividend declaration.
PILIPINAS SHELL PETROLEUM CORPORATION, VS. ROYAL FERRY SERVICES, INC., G.R. No.
188146 February 1, 2017
The venue for a petition for voluntary insolvency proceeding under the Insolvency Law is the
Court of First Instance of the province or city where the insolvent debtor resides. A corporation
is considered a resident of the place where its principal office is located as stated in its Articles
of Incorporation. However, when it is uncontroverted that the insolvent corporation
abandoned the old principal office, the corporation is considered a resident of the city where its
actual principal office is currently found.
A corporation has no residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the articles of incorporation... The
Corporation Code precisely requires each corporation to specify in its articles of incorporation
the "place where the principal office of the corporation is to be located which must be within
the Philippines"... The purpose of this requirement is to fix the residence of a corporation in a
definite place, instead of allowing it to be ambulatory.
Requiring a corporation to go back to a place it has abandoned just to file a case is the very
definition of inconvenience. There is no reason why an insolvent corporation should be forced
to exert whatever meager resources it has to litigate in a city it has already left.
In any case, the creditors deal with the corporation's agents, officers, and employees in the
actual place of business. To compel a corporation to litigate in a city it has already abandoned
would create more confusion.
DIVINA PALAO V. FLORENTINO III INTERNATIONAL, INC., G.R. No. 186967 January 18, 2017
Administrative bodies are not bound by the technical niceties of law and procedure and the
rules obtaining in courts of law. Administrative tribunals exercising quasi-judicial powers are
unfettered by the rigidity of certain procedural requirements, subject to the observance of
fundamental and essential requirements of due process in justiciable cases presented before
them. In administrative proceedings, technical rules of procedure and evidence are not strictly
applied and administrative due process cannot be fully equated with due process in its strict
judicial sense.
Given these premises, it was an error for the Director General of the Intellectual Property Office
to have been so rigid in applying a procedural rule and dismissing respondent's appeal.
Technical rules of procedure should be rules enjoined to facilitate the orderly administration of
justice. The liberality in the application of rules of procedure may not be invoked if it will result
in the wanton disregard of the rules or cause needless delay in the administration of justice.
Indeed, it cannot be gainsaid that obedience to the requirements of procedural rule is needed if
we are to expect fair results therefrom.
METROPOLITAN BANK AND TRUST COMPANY, V. LIBERTY CORRUGATED BOXES
MANUFACTURING CORPORATION, G.R. No. 184317 January 25, 2017
A corporation with debts that have already matured may still file a petition for rehabilitation
under the Interim Rules of Procedure on Corporation Rehabilitation. A corporation that may
seek corporate rehabilitation is characterized not by its debt but by its capacity to pay this debt.
Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a position of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of payments
projected in the plan more if the corporation continues as a going concern that if it is
immediately liquidated." It contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and
solvency.
The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an
advantage or preference over another and to protect and preserve the rights of party litigants
as well as the interest of the investing public or creditors. Such suspension is intended to give
enough breathing space for the management committee or rehabilitation receiver to make the
business viable again, without having to divert attention and resources to litigations in various
fora. The stay order prevents preference or advantage of creditors over others, including the
advantage that a creditor with matured money claims may have over one whose claims are not
in yet in default.
The justification for the suspension of actions or claims, without distinction, pending
rehabilitation proceedings is to enable the management committee or rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial interference that might
unduly hinder or prevent the "rescue" of the debtor company.
PHILIPPINE ASSOCIATED SMELTING AND REFINING CORPORATION, VS. PABLITO O. LIM G.R.
No. 172948 October 5, 2016
The Corporation Code provides that a stockholder has the right to inspect the records of all
business transactions of the corporation and the minutes of any meeting at reasonable hours
on business days. The stockholder may demand in writing for a copy of excerpts from these
records or minutes, at his or her expense.
The records of all business transactions of the corporation and the minutes of any meetings
shall be open to the inspection of any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may demand, in writing, for a copy of
excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustee,
stockholder or member of the corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be guilty of an offense which shall be
punishable under Section 144 of this Code: Provided, That if such refusal is pursuant to a
resolution or order of the Board of Directors or Trustees, the liability under this section for such
action shall be imposed upon the directors or trustees who voted for such refusal: and
Provided, further, That it shall be a defense to any action under this section that the person
demanding to examine and copy excerpts from the corporation's records and minutes has
improperly used any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand. (Emphasis supplied)
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:
The stockholder's right of inspection of the corporation's books and records is based upon their
ownership of the assets and property of the corporation. It is, therefore, an incident of
ownership of the corporate property, whether this ownership or interest be termed an
equitable ownership, a beneficial ownership, or a quasi-ownership. This right is predicated
upon the necessity of self-protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him as such and must be
exercised by him with respect to his interest as a stockholder and for some purpose germane
thereto or in the interest of the corporation. In other words, the inspection has to be germane
to the petitioner's interest as a stockholder, and has to be proper and lawful in character and
not inimical to the interest of the corporation.
In Grey v. Insular Lumber, this Court held that "the right to examine the books of the
corporation must be exercised in good faith, for specific and honest purpose, and not to gratify
curiosity, or for speculative or vexatious purposes." The weight of judicial opinion appears to
be, that on application for mandamus to enforce the right, it is proper for the court to inquire
into and consider the stockholder's good faith and his purpose and motives hi seeking
inspection. Thus, it was held that "the right given by statute is not absolute and may be refused
when the information is not sought in good faith or is used to the detriment of the
corporation." But the "impropriety of purpose such as will defeat enforcement must be set up
the corporation defensively if the Court is to take cognizance of it as a qualification.
In other words, the specific provisions take from the stockholder the burden of showing
propriety of purpose and place upon the corporation the burden of showing impropriety of
purpose or motive." It appears to be the "general rule that stockholders are entitled to full
information as to the management of the corporation and the manner of expenditure of its
funds, and to inspection to obtain such information, especially where it appears that the
company is being mismanaged or that it is being managed for the personal benefit of officers or
directors or certain of the stockholders to the exclusion of others." (Emphasis supplied).
The right of the shareholder to inspect the books and records of the petitioner should not be
made subject to the condition of a showing of any particular dispute or of proving any
mismanagement or other occasion rendering an examination proper, but if the right is to be
denied, the burden of proof is upon the corporation to show that the purpose of the
shareholder is improper, by way of defense.
Among the purposes held to justify a demand for inspection are the following:
(1) To ascertain the financial condition of the company or the propriety of dividends;
(2) the value of the shares of stock for sale or investment;
(3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to obtain a mailing list of shareholders to
solicit proxies or influence voting;
(5) to obtain information in aid of litigation with the corporation or its officers as to
corporate transactions.
Among the improper purposes which may justify denial of the right of inspection are:
(1) Obtaining of information as to business secrets or to aid a competitor;
(2) to secure business "prospects" or investment or advertising lists;
(3) to find technical defects in corporate transactions in order to bring "strike suits" for
purposes of blackmail or extortion.
In general, however, officers and directors have no legal authority to close the office doors
against shareholders for whom they are only agents, and withhold from them the right to
inspect the books which furnishes the most effective method of gaining information which the
law has provided, on mere doubt or suspicion as to the motives of the shareholder. While there
is some conflict of authority, when an inspection by a shareholder is contested, the burden is
usually held to be upon the corporation to establish a probability that the applicant is
attempting to gain inspection for a purpose not connected with his interests as a shareholder,
or that his purpose is otherwise improper. The burden is not upon the petitioner to show the
propriety of his examination or that the refusal by the officers or directors was wrongful, except
under statutory provisions.
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.
The confidentiality of business transactions is not a magical incantation that will defeat the
request of a stockholder to inspect the records. Although it is true that the business is entitled
to the protection of its trade secrets and other intellectual property rights, facts must be
pleaded to convince the court that a specific stockholder's request for inspection, under certain
conditions, would violate the corporation's own legal right.
Furthermore, the discomfort caused to the management of a corporation when a request for
inspection is claimed is part of the regular matters that a business wanting to ensure good
governance must endure. The range between discomfort and vexation is a broad one, which
may tend to be located in the personalities of those involved.
THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES UNION, PETITIONER, VS. UNOCAL
PHILIPPINES, INC. (NOW KNOWN AS CHEVRON GEOTHERMAL PHILIPPINES HOLDINGS, INC.),
G.R. No. 190187 September 28, 2016
The merger of a corporation with another does not operate to dismiss the employees of the
corporation absorbed by the surviving corporation. This is in keeping with the nature and
effects of a merger as provided under law and the constitutional policy protecting the rights of
labor. The employment of the absorbed employees subsists. Necessarily, these absorbed
employees are not entitled to separation pay on account of such merger in the absence of any
other ground for its award.
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
corporations."
The effects of a merger are provided under Section 80 of the Corporation Code:
SEC. 80. Effects of merger or consolidation. — The merger or consolidation, as provided
in the preceding sections shall have the following effects:
1. The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger; and, in case
of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
2. The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and every
other interest of, or belonging to, or due to each constituent corporation, shall be taken
and deemed to be transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
5. The surviving or the consolidated corporation shall be responsible and liable for all
the liabilities and obligations of each of the constituent corporations in the same
manner as if such surviving or consolidated corporation had itself incurred such
liabilities or obligations; and any claim, action or proceeding pending by or against any
of such constituent corporations may be prosecuted by or against the surviving or
consolidated corporation, as the case may be. Neither the rights of creditors nor any lien
upon the property of any of such constituent corporations shall be impaired by such
merger or consolidation. (Emphasis supplied)
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 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.
To reiterate, Section 80 of the Corporation Code provides that 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.
E.I. DUPONT DE NEMOURS AND CO. (ASSIGNEE OF INVENTORS CARINI, DUNCIA AND WONG),
VS. DIRECTOR EMMA C. FRANCISCO (IN HER CAPACITY AS DIRECTOR GENERAL OF THE
INTELLECTUAL PROPERTY OFFICE) et., al G.R. No. 174379 August 31, 2016
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. However, ideas not covered by a patent are free for the
public to use and exploit. Thus, there are procedural rules on the application and grant of
patents established to protect against any infringement. To balance the public interests
involved, failure to comply with strict procedural rules will result in the failure to obtain a
patent.
The right of priority given to a patent applicant is only relevant when there are two or more
conflicting patent applications on the same invention. Because a right of priority does not
automatically grant letters patent to an applicant, possession of a right of priority does not
confer any property rights on the applicant in the absence of an actual patent.
A patent applicant with the right of priority is given preference in the grant of a patent when
there are two or more applicants for the same invention.
Section 29 of the Intellectual Property Code provides:
SECTION 29. First to File Rule. — If two (2) or more persons have made the invention separately
and independently of each other, the right to the patent shall belong to the person who filed an
application for such invention, or where two or more applications are filed for the same
invention, to the applicant who has the earliest filing date or, the earliest priority date. Since
both the United States and the Philippines are signatories to the Paris Convention for the
Protection of Industrial Property, an applicant who has filed a patent application in the United
States may have a right of priority over the same invention in a patent application in the
Philippines. However, this right of priority does not immediately entitle a patent applicant the
grant of a patent. A right of priority is not equivalent to a patent. Otherwise, a patent holder of
any member-state of the Paris Convention need not apply for patents in other countries where
it wishes to exercise its patent.
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.
Under the Intellectual Property Code, a patent holder has the right to "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."
The grant of a patent provides protection to the patent holder from the indiscriminate use of
the invention. However, its mandatory publication also has the correlative effect of bringing
new ideas into the public consciousness. After the publication of the patent, any person may
examine the invention and develop it into something further than what the original patent
holder may have envisioned. After the lapse of 20 years, the invention becomes part of the
public domain and is free for the public to use.
To be able to effectively and legally preclude others from copying and profiting from the
invention, a patent is a primordial requirement. No patent, no protection. The ultimate goal of
a patent system is to bring new designs and technologies into the public domain through
disclosure. Ideas, once disclosed to the public without the protection of a valid patent, are
subject to appropriation without significant restraint.
On one side of the coin is the public which will benefit from new ideas; on the other are the
inventors who must be protected.
The patent law has a three-fold purpose: "first, patent law seeks to foster and reward
invention; second, it promotes disclosures of inventions to stimulate further innovation and to
permit the public to practice the invention once the patent expires; third, the stringent
requirements for patent protection, seek to ensure that ideas in the public domain remain
therefor the free use of the public."
A patent is a monopoly granted only for specific purposes and objectives. Thus, its procedures
must be complied with to attain its social objective. Any request for leniency in its procedures
should be taken in this context.
CARAVAN TRAVEL AND TOURS INTERNATIONAL, INC., VS. ERMILINDA R. ABEJAR G.R. No.
170631 February 10, 2016
Inasmuch as persons exercising substitute parental authority have the full range of
competencies of a child's actual parents, nothing prevents persons exercising substitute
parental authority from similarly possessing the right to be indemnified for their ward's death.
The registered-owner rule was articulated as early as 1957 in Erezo, et al. v. Jepte, where this
court explained that the registration of motor vehicles, as required by Section 5(a) of Republic
Act No. 4136, the Land Transportation and Traffic Code, was necessary "not to make said
registration the operative act by which ownership in vehicles is transferred, . . . but to permit
the use and operation of the vehicle upon any public highway[.]" Its "main aim . . . is to identify
the owner so that if any accident happens, or that any damage or injury is caused by the vehicle
on the public highways, responsibility therefor can be fixed on a definite individual, the
registered owner."
A victim of recklessness on the public highways is usually without means to discover or identify
the person actually causing the injury or damage. He has no means other than by a recourse to
the registration in the Motor Vehicles Office to determine who is the owner. The protection
that the law aims to extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership.
The main aim of motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicle on the public highways,
responsibility therefor can be fixed on a definite individual, the registered owner. Instances are
numerous where vehicles running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of the owner or drivers, or with
very scant means of identification. It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest
of the determination of persons responsible for damages or injuries caused on public highways.
This disputable presumption, insofar as the registered owner of the vehicle in relation to the
actual driver is concerned, recognizes that between the owner and the victim, it is the former
that should carry the costs of moving forward with the evidence. The victim is, in many cases, a
hapless pedestrian or motorist with hardly any means to uncover the employment relationship
of the owner and the driver, or any act that the owner may have done in relation to that
employment. The registration of the vehicle, on the other hand, is accessible to the public.
No owner of a motor vehicle shall engage, employ, or hire any person to operate such motor
vehicle, unless the person sought to be employed is a duly licensed professional driver.
Due diligence in the supervision of employees, on the other hand, includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the employer has
relations through his or its employees and the imposition of necessary disciplinary measures
upon employees in case of breach or as may be warranted to ensure the performance of acts
indispensable to the business of and beneficial to their employer. To this, we add that actual
implementation and monitoring of consistent compliance with said rules should be the
constant concern of the employer, acting through dependable supervisors who should regularly
report on their supervisory functions.
In order that the defense of due diligence in the selection and supervision of employees may be
deemed sufficient and plausible, it is not enough to emptily invoke the existence of said
company guidelines and policies on hiring and supervision. As the negligence of the employee
gives rise to the presumption of negligence on the part of the employer, the latter has the
burden of proving that it has been diligent not only in the selection of employees but also in the
actual supervision of their work. The mere allegation of the existence of hiring procedures and
supervisory policies, without anything more, is decidedly not sufficient to overcome
presumption.
We emphatically reiterate our holding, as a warning to all employers, that "the mere
formulation of various company policies on safety without showing that they were being
complied with is not sufficient to exempt petitioner from liability arising from negligence of its
employees. It is incumbent upon petitioner to show that in recruiting and employing the erring
driver the recruitment procedures and company policies on efficiency and safety were
followed."
Petitioner's interest and liability is distinct from that of its driver. Regardless of petitioner's
employer-employee relationship with Bautista, liability attaches to petitioner on account of its
being the registered owner of a vehicle that figures in a mishap. This alone suffices. A
determination of its liability as owner can proceed independently of a consideration of how
Bautista conducted himself as a driver. While certainly it is desirable that a determination of
Bautista's liability be made alongside that of the owner of the van he was driving, his non-
inclusion in these proceedings does not absolutely hamper a judicious resolution of
respondent's plea for relief.
For deaths caused by quasi-delict, the recovery of moral damages is limited to the spouse,
legitimate and illegitimate descendants, and ascendants of the deceased.
Persons exercising substitute parental authority are to be considered ascendants for the
purpose of awarding moral damages. Persons exercising substitute parental authority are
intended to stand in place of a child's parents in order to ensure the well-being and welfare of a
child.
Like natural parents, persons exercising substitute parental authority are required to, among
others, keep their wards in their company, provide for their upbringing, show them love and
affection, give them advice and counsel, and provide them with companionship and
understanding.
For their part, wards shall always observe respect and obedience towards the person exercising
parental authority. The law forges a relationship between the ward and the person exercising
substitute parental authority such that the death or injury of one results in the damage or
prejudice of the other.
Moral damages are awarded to compensate the claimant for his or her actual injury, and not to
penalize the wrongdoer. Moral damages enable the injured party to alleviate the moral
suffering resulting from the defendant's actions. It aims to restore—to the extent possible
—"the spiritual status quo ante."
As exemplary damages have been awarded and as respondent was compelled to litigate in
order to protect her interests, she is rightly entitled to attorney's fees.
VIVA SHIPPING LINES, INC., VS. KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK &
TRUST COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY OF BATANGAS, CITY OF
LUCENA, PROVINCE OF QUEZON et., al. G.R. No. 177382 February 17,2016
Liberality in the application of the rules is not an end in itself. It must be pleaded with factual
basis and must be allowed for equitable ends. There must be no indication that the violation of
the rule is due to negligence or design. Liberality is an extreme exception, justifiable only when
equity exists.
Corporate rehabilitation is a remedy for corporations, partnerships, and associations "who
[foresee] the impossibility of meeting [their] debts when they respectively fall due." A
corporation under rehabilitation continues with its corporate life and activities to achieve
solvency, or a position where the corporation is able to pay its obligations as they fall due in the
ordinary course of business. Solvency is a state where the businesses' liabilities are less than its
assets.
Corporate rehabilitation is a type of proceeding available to a business that is insolvent. In
general, insolvency proceedings provide for predictability that commercial obligations will be
met despite business downturns. Stability in the economy results when there is assurance to
the investing public that obligations will be reasonably paid. It is considered state polic to
encourage debtors, both juridical and natural persons, and their creditors to collectively and
realistically resolve and adjust competing claims and property rights[.] . . . [Rehabilitation 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.
Rehabilitation assumes that assets are still serviceable to meet the purposes of the business.
The corporation receives assistance from the court and a disinterested rehabilitation receiver to
balance the interest to recover and continue ordinary business, all the while attending to the
interest of its creditors to be paid equitably. These interests are also referred to as the
rehabilitative and the equitable purposes of corporate rehabilitation.
Corporate rehabilitation 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.... It provides a
corporation's owners a sound chance to reengage the market, hopefully with more vigor and
enlightened services, having learned from a painful experience.
Courts "must endeavor to balance the interests of all the parties that had a stake in the success
of rehabilitating the debtors." These parties include the corporation seeking rehabilitation, its
creditors, and the public in general.
The public's interest lies in the court's ability to effectively ensure that the obligations of the
debtor, who has experienced severe economic difficulties, are fairly and equitably served. The
alternative might be a chaotic rush by all creditors to file separate cases with the possibility of
different; trial courts issuing various writs competing for the same assets. Rehabilitation is a
means to temper the effect of a business downturn experienced for whatever reason. In the
process, it gives entrepreneurs a second chance. Not only is it a humane and equitable relief, it
encourages efficiency and maximizes welfare in the economy.
It does not make sense to hold, suspend, or continue to devalue outstanding credits of a
business that has no chance of recovery. In such cases, the optimum economic welfare will be
achieved if the corporation is allowed to wind up its affairs in an orderly manner. 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 re-allocated.
Proceedings in case of insolvency are not limited to rehabilitation. Our laws have evolved to
provide for different procedures where a debtor can undergo judicially supervised
reorganization or liquidation of its assets.
Currently, the prevailing law and procedure for corporate rehabilitation is the Financial
Rehabilitation and Insolvency Act of 2010 (FRIA). FRIA provides procedures for the different
types of rehabilitation and liquidation proceedings. The Financial Rehabilitation Rules of
Procedure was issued by this court on August 27, 2013. However, since the Regional Trial Court
acted on petitioner's Amended Petition before FRIA was enacted, Presidential Decree No. 902-A
and the Interim Rules of Procedure on Corporate Rehabilitation were applied to this case.
There are two kinds of "liberality" with respect to the construction of provisions of law. The first
requires ambiguity in the text of the provision and usually pertains to a situation where there
can be two or more viable meanings given the factual context presented by a case. Liberality
here means a presumption or predilection to interpret the text in favor of the cause of the
party requesting for "liberality."
Then there is the "liberality" that actually means a request for the suspension of the operation
of a provision of law, whether substantive or procedural. This liberality requires equity. There
may be some rights that are not recognized in law, and if courts refuse to recognize these
rights, an unfair situation may arise. Specifically, the case may be a situation that was not
contemplated on or was not possible at the time the legal norm was drafted or promulgated.
Liberality lies within the bounded discretion of a court to allow an equitable result when the
proven circumstances require it.
Liberality acknowledges a lacuna in the text of a provision of law. This may be because those
who promulgated the rule may not have foreseen the unique circumstances of a case at bar.
Human foresight as laws and rules are prepared is powerful, but not perfect. Liberality is not an
end in itself. Otherwise, it becomes a backdoor disguising the arbitrariness or despotism of
judges and justices.
The factual antecedents of a plea for the exercise of liberality must be clear. There must also be
a showing that the factual basis for a plea for liberality is not one that is due to the negligence
or design of the party requesting the suspension of the rules. Likewise, the basis for claiming an
equitable result— for all the parties—must be clearly and sufficiently pleaded and argued.
Courts exercise liberality in line with their equity jurisdiction; hence, it may only be exercised if
it will result in fairness and justice
Bank of the Philippine Islands v. Sarabia Manor Hotel Corp. provides the test to help trial courts
evaluate the economic feasibility of a rehabilitation plan:
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative
that a thorough examination and analysis of the distressed corporation's financial data
must be conducted. If the results of such examination and analysis show that there is a
real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the other hand, if the results of
the financial examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that liquidation would,
in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert
the proceedings into one for liquidation.
A rehabilitation plan is infeasible if the assets are nearly fully or fully depreciated. This reduces
the probability that rehabilitation may restore and reinstate petitioner to its former position of
successful operation and solvency.
Disposing of the assets constituting petitioner's main business cannot result in rehabilitation. A
business primarily engaged as a shipping line cannot operate without its ships. On the other
hand, the plan to purchase new vessels sacrifices the corporation's cash flow. This is contrary to
the goal of corporate rehabilitation, which is to allow present value recovery for creditors. The
plan to buy new vessels after selling the two vessels it currently owns is neither sound nor
workable as a business plan.
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL A. MUYCO VS. ROGELIO M.
FLORETE et., al. G.R. No. 174909 January 20, 2016
A stockholder may suffer from a wrong done to or involving a corporation, but this does not
vest in the aggrieved stockholder a sweeping license to sue in his or her own capacity. The
determination of the stockholder's appropriate remedy—whether it is an individual suit, a class
suit, or a derivative suit—hinges on the object of the wrong done. When the object of the
wrong done is the corporation itself or "the whole body of its stock and property without any
severance or distribution among individual holders,” it is a derivative suit, not an individual suit
or class/representative suit, that a stockholder must resort to.
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.
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:
However, in cases of mismanagement where the wrongful acts are committed by the directors
or trustees themselves, a stockholder or member may find that he has no redress because the
former are vested by law with the right to decide whether or not the corporation should sue,
and they will never be willing to sue themselves. The corporation would thus be helpless to
seek remedy. Because of the frequent occurrence of such a situation, the common law
gradually recognized the right of a stockholder to sue on behalf of a corporation in what
eventually became known as a "derivative suit." It has been proven to be an effective remedy of
the minority against the abuses of management. Thus, an individual stockholder is permitted to
institute a derivative suit on behalf of the corporation wherein he holds stock in order to
protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are
the ones to be sued or hold the control of the corporation. In such actions, the suing
stockholder is regarded as the nominal party, with the corporation as the party in interest.
The distinction between individual and class/representative suits on one hand and derivative
suits on the other is crucial. These are not discretionary alternatives. 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.
The avenues for relief are, thus, mutually exclusive. The determination of the appropriate
remedy hinges on the object of the wrong done. When the object is a specific stockholder or a
definite class of stockholders, an individual suit or class/representative suit must be resorted to.
When the object of the wrong done is the corporation itself or "the whole body of its stock and
property without any severance or distribution among individual holders," it is a derivative suit
that a stockholder must resort to.
A derivative suit, on one hand, and individual and class suits, on the other, are mutually
exclusive. A stockholder or member may bring an action in the name of a corporation or
association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;
(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 derivative suits, the corporation concerned must be impleaded as a party.
Not only is the corporation an indispensible 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.
UNIVERSITY OF MINDANAO, INC., VS. BANGKO SENTRAL PILIPINAS, ET AL., G.R. No. 194964-
65 January 11, 2016
Acts of an officer that arc not authorized by the board of directors/trustees do not bind the
corporation unless the corporation ratifies the acts or holds the officer out as a person with
authority to transact on its behalf.
Petitioner does not have the power to mortgage its properties in order to secure loans of other
persons. As an educational institution, it is limited to developing human capital through formal
instruction. It is not a corporation engaged in the business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring equipment and real estate; establishing
housing facilities for personnel and students; hiring a concessionaire; and other activities that
can be directly connected to the operations and conduct of the education business may
constitute the necessary and incidental acts of an educational institution.
Securing FISLAI's loans by mortgaging petitioner's properties does not appear to have even the
remotest connection to the operations of petitioner as an educational institution. Securing
loans is not an adjunct of the educational institution's conduct of business. It does not appear
that securing third-party loans was necessary to maintain petitioner's business of providing
instruction to individuals.
This court upheld the validity of corporate acts when those acts were shown to be clearly
within the corporation's powers or were connected to the corporation's purposes.
The separate personality of corporations means that they are "vested with rights, powers, and
attributes [of their own] as if they were natural persons. Their assets and liabilities are their
own and not their officers', shareholders', or another corporation's. In the same vein, the assets
and liabilities of their officers and shareholders are not the corporations'. Obligations incurred
by corporations are not obligations of their officers and shareholders. Obligations of officers
and shareholders are not obligations of corporations. In other words, corporate interests are
separate from the personal interests of the natural persons that comprise corporations.
Corporations are given separate personalities to allow natural persons to balance the risks of
business as they accumulate capital. They are, however, given limited competence as a means
to protect the public from fraudulent acts that may be committed using the separate juridical
personality given to corporations.
Ratification must be knowingly and voluntarily done. Petitioner's lack of knowledge about the
mortgage executed in its name precludes an interpretation that there was any ratification on its
part. Indeed, a corporation, being a person created by mere fiction of law, can act only through
natural persons such as its directors, officers, agents, and representatives. Hence, the general
rule is that knowledge of an officer is considered knowledge of the corporation. 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.
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.
Thus, knowledge should be actually communicated to the corporation through its authorized
representatives. A corporation cannot be expected to act or not act on a knowledge that had
not been communicated to it through an authorized representative. There can be no implied
ratification without actual communication. Knowledge of the existence of contract must be
brought to the corporation's representative who has authority to ratify it. Further, "the
circumstances must be shown from which such knowledge may be presumed."
This court has recognized presumed or apparent authority or capacity to bind corporate
representatives in instances when the corporation, through its silence or other acts of
recognition, allowed others to believe that persons, through their usual exercise of corporate
powers, were conferred with authority to deal on the corporation's behalf.
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.
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.
There can be no apparent authority and the corporation cannot be estopped from denying the
binding affect of an act when there is no evidence pointing to similar acts and other
circumstances that can be interpreted as the corporation holding out a representative as having
authority to contract on its behalf.
MANUEL LUIS C. GONZALES AND FRANCIS MARTIN D. GONZALES, VS. GJH LAND, INC.
(FORMERLY KNOWN AS S.J. LAND, INC). et., al. G.R. No. 202664 November 20, 2015
The present controversy lies, however, in the procedure to be followed when a commercial
case - such as the instant intracorporate dispute -has been properly filed in the official station
of the designated Special Commercial Court but is, however, later wrongly assigned by raffle
to a regular branch of that station.
As a basic premise, let it be emphasized that a court's acquisition of jurisdiction over a
particular case's subject matter is different from incidents pertaining to the exercise of its
jurisdiction. Jurisdiction over the subject matter of a case is conferred by law, whereas a court's
exercise of jurisdiction, unless provided by the law itself, is governed by the Rules of Court or
by the orders issued from time to time by the Court.
In Lozada v. Bracewell, it was recently held that the matter of whether the RTC resolves an
issue in the exercise of its general jurisdiction or of its limited jurisdiction as a special court is
only a matter of procedure and has nothing to do with the question of jurisdiction.
The regional trial court, formerly the court of first instance, is a court of general jurisdiction. All
cases, the jurisdiction over which is not specifically provided for by law to be within the
jurisdiction of any other court, fall under the jurisdiction of the regional trial court.
History depicts that when the transfer of SEC cases to the RTCs was first implemented, they
were transmitted to the Executive Judges of the RTCs for raffle between or among its different
branches, unless a specific branch has been designated as a Special Commercial Court, in
which instance, the cases were transmitted to said branch.
It was only on November 21, 2000 that the Court designated certain RTC branches to try and
decide said SEC cases without, however, providing for the transfer of the cases already
distributed to or filed with the regular branches thereof.
Thus, on January 23, 2001, the Court issued SC Administrative Circular No. 08-2001 directing
the transfer of said cases to the designated courts (commercial SEC courts). Later, or on June
17, 2003, the Court issued A.M. No. 03-03-03-SC consolidating the commercial SEC courts and
the intellectual property courts in one RTC branch in a particular locality, i.e., the Special
Commercial Court, to streamline the court structure and to promote expediency. Accordingly,
the RTC branch so designated was mandated to try and decide SEC cases, as well as those
involving violations of intellectual property rights, which were, thereupon, required to be filed
in the Office of the Clerk of Court in the official station of the designated Special Commercial
Courts, to wit:
1. The Regional Courts previously designated as SEC Courts through the: (a) Resolutions
of this Court dated 21 November 2000, 4 July 2001, 12 November 2002, and 9 July 2002
all issued in A.M. No. 00-11-03-SC; (b) Resolution dated 27 August 2001 in A.M. No. 01-
5-298-RTC; and (c) Resolution dated 8 July 2002 in A.M. No. 01-12-656-RTC are hereby
 DESIGNATED and shall be CALLED as Special Commercial Courts to try and decide cases
involving violations of Intellectual Property Rights which fall within their jurisdiction and
those cases formerly cognizable by the Securities and Exchange Commission: x x x x
4. The Special Commercial Courts shall have jurisdiction over cases arising within their
respective territorial jurisdiction with respect to the National Capital Judicial Region and
within the respective provinces with respect to the First to Twelfth Judicial Regions.
Thus, cases shall be filed in the Office of the Clerk of Court in the official station of the
designated Special Commercial Court; x x x x
The objective behind the designation of such specialized courts is to promote expediency and
efficiency in the exercise of the RTCs' jurisdiction over the cases enumerated under Section 5
of PD 902-A. Such designation has nothing to do with the statutory conferment of jurisdiction
to all RTCs under RA 8799 since in the first place, the Court cannot enlarge, diminish, or dictate
when jurisdiction shall be removed, given that the power to define, prescribe, and apportion
jurisdiction is, as a general rule, a matter of legislative prerogative.
Here, petitioners filed a commercial case, i.e., an intra-corporate dispute, with the Office of the
Clerk of Court in the RTC of Muntinlupa City, which is the official station of the designated
Special Commercial Court, in accordance with A.M. No. 03-03-03-SC. It is, therefore, from the
time of such filing that the RTC of Muntinlupa City acquired jurisdiction over the subject
matter or the nature of the action. Unfortunately, the commercial case was wrongly raffled to
a regular branch, e.g., Branch 276, instead of being assigned to the sole Special Commercial
Court in the RTC of Muntinlupa City, which is Branch 256.
This error may have been caused by a reliance on the complaint's caption, i.e., "Civil Case for
Injunction with prayer for Status Quo Order, TRO and Damages," which, however, contradicts
and more importantly, cannot prevail over its actual allegations that clearly make out an intra-
corporate dispute.
Going back to the case at bar, the Court nonetheless deems that the erroneous raffling to a
regular branch instead of to a Special Commercial Court is only a matter of procedure - that is,
an incident related to the exercise of jurisdiction - and, thus, should not negate the jurisdiction
which the RTC of Muntinlupa City had already acquired. In such a scenario, the proper course of
action was not for the commercial case to be dismissed; instead, Branch 276 should have first
referred the case to the Executive Judge for re-docketing as a commercial case; thereafter,
the Executive Judge should then assign said case to the only designated Special Commercial
Court in the station, i.e., Branch 256.
Note that the procedure would be different where the RTC acquiring jurisdiction over the case
has multiple special commercial court branches; in such a scenario, the Executive Judge, after
re-docketing the same as a commercial case, should proceed to order its re-raffling among the
said special branches.
Meanwhile, if the RTC acquiring jurisdiction has no branch designated as a Special Commercial
Court, then it should refer the case to the nearest RTC with a designated Special Commercial
Court branch within the judicial region. Upon referral, the RTC to which the case was referred
to should redocket the case as a commercial case, and then: (a) if the said RTC has only one
branch designated as a Special Commercial Court, assign the case to the sole special branch; or
(b) if the said RTC has multiple branches designated as Special Commercial Courts, raffle off the
case among those special branches.
In all the above-mentioned scenarios, any difference regarding the applicable docket fees
should be duly accounted for. On the other hand, all docket fees already paid shall be duly
credited, and any excess, refunded.
For further guidance, the Court finds it apt to point out that the same principles apply to the
inverse situation of ordinary civil cases filed before the proper RTCs but wrongly raffled to its
branches designated as Special Commercial Courts. In such a scenario, the ordinary civil case
should then be referred to the Executive Judge for re-docketing as an ordinary civil case;
thereafter, the Executive Judge should then order the raffling of the case to all branches of
the same RTC, subject to limitations under existing internal rules, and the payment of the
correct docket fees in case of any difference . Unlike the limited assignment/raffling of a
commercial case only to branches designated as Special Commercial Courts in the scenarios
stated above, the re-raffling of an ordinary civil case in this instance to all courts is permissible
due to the fact that a particular branch which has been designated as a Special Commercial
Court does not shed the RTC's general jurisdiction over ordinary civil cases under the
imprimatur of statutory law, i.e., Batas Pambansa Bilang (BP) 129.
To restate, the designation of Special Commercial Courts was merely intended as a procedural
tool to expedite the resolution of commercial cases in line with the court's exercise of
jurisdiction. This designation was not made by statute but only by an internal Supreme Court
rule under its authority to promulgate rules governing matters of procedure and its
constitutional mandate to supervise the administration of all courts and the personnel thereof.
Certainly, an internal rule promulgated by the Court cannot go beyond the commanding
statute. But as a more fundamental reason, the designation of Special Commercial Courts is, to
stress, merely an incident related to the court's exercise of jurisdiction, which, as first
discussed, is distinct from the concept of jurisdiction over the subject matter. The RTC's general
jurisdiction over ordinary civil cases is therefore not abdicated by an internal rule streamlining
court procedure.
Furthermore, the Court hereby RESOLVES that henceforth, the following guidelines shall be
observed:
1. If a commercial case filed before the proper RTC is wrongly raffled to its regular
branch, the proper courses of action are as follows:
1.1 If the RTC has only one branch designated as a Special Commercial Court,
then the case shall be referred to the Executive Judge for re-docketing as a
commercial case, and thereafter, assigned to the sole special branch;
1.2 If the RTC has multiple branches designated as Special Commercial Courts,
then the case shall be referred to the Executive Judge for re-docketing as a
commercial case, and thereafter, raffled off among those special branches; and
1.3 If the RTC has no internal branch designated as a Special Commercial Court,
then the case shall be referred to the nearest RTC with a designated Special
Commercial Court branch within the judicial region. Upon referral, the RTC to
which the case was referred to should re- docket the case as a commercial case,
and then: (a) if the said RTC has only one branch designated as a Special
Commercial Court, assign the case to the sole special branch; or (b) if the said
RTC has multiple branches designated as Special Commercial Courts, raffle off
the case among those special branches.
2. If an ordinary civil case filed before the proper RTC is wrongly raffled to its branch
designated as a Special Commercial Court, then the case shall be referred to the
 Executive Judge for re-docketing as an ordinary civil case. Thereafter, it shall be raffled
off to all courts of the same RTC (including its designated special branches which, by
statute, are equally capable of exercising general jurisdiction same as regular branches),
as provided for under existing rules.
3. All transfer/raffle of cases is subject to the payment of the appropriate docket fees in
case of any difference. On the other hand, all docket fees already paid shall be duly
credited, and any excess, refunded.
4. Finally, to avert any future confusion, the Court requires that all initiatory pleadings
state the action's nature both in its caption and body. Otherwise, the initiatory pleading
may, upon motion or by order of the court motu proprio, be dismissed without
prejudice to its re-filing after due rectification. This last procedural rule is prospective in
application.
5. All existing rules inconsistent with the foregoing are deemed superseded.
METROPOLITAN BANK & TRUST COMPANY, VS. G & P BUILDERS, INCORPORATED et., al. G.R.
No. 189509 November 23, 2015
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.
A compromise agreement is a contract whereby the parties make reciprocal concessions in
order to resolve their differences and thus avoid litigation or to put an end to one already
commenced. Once stamped with judicial imprimatur, it becomes more than a mere contract
binding upon the parties; having the sanction of the court and entered as its determination of
the controversy, it has the force and effect of any other judgment. It has the effect and
authority of res judicata, although no execution may issue until it would have received the
corresponding approval of the court where the litigation pends and its compliance with the
terms of the agreement is thereupon decreed.
A compromise agreement once approved by final order of the court has the force of res
judicata between the parties and should not be disturbed except for vices of consent or forgery.
Hence, a decision on a compromise agreement is final and executory; it has the force of law and
is conclusive between the parties. It transcends its identity as a mere contract binding only
upon the parties thereto, as it becomes a judgment that is subject to execution in accordance
with the Rules.
LORENZO SHIPPING CORPORATION, VS. NATIONAL POWER CORPORATION G.R. No. 181683
October 7, 2015
A Master's designation as the commander of a vessel is long-settled. Jurisprudence explains
that "Master" and "Captain" are synonymous terms: "The name of captain or master is given,
according to the kind of vessel, to the person in charge of it.
"The first denomination is applied to those who govern vessels that navigate the high seas or
ships of large dimensions and importance, although they be engaged in the coastwise trade.
"Masters are those who command smaller ships engaged exclusively in the coastwise trade.
"For the purposes of maritime commerce, the words 'captain' and Q 'master' have the same
meaning; both being the chiefs or commanders of ships.
A master or captain, for purposes of maritime commerce, is one who has command of a vessel.
A captain commonly performs three (3) distinct roles:
(1) he is a general agent of the shipowner;
(2) he is also commander and technical director of the vessel; and
(3) he is a representative of the country under whose flag he navigates.
Of these roles, by far the most important is the role performed by the captain as commander of
the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive Officer"
[CEO] of a present-day corporate enterprise) has to do with the operation and preservation of
the vessel during its voyage and the protection of the passengers (if any) and crew and cargo. In
his role as general agent of the shipowner, the captain has authority to sign bills of lading, carry
goods aboard and deal with the freight earned, agree upon rates and decide whether to take
cargo. The ship captain, as agent of the shipowner, has legal authority to enter into contracts
with respect to the vessel and the trading of the vessel, subject to applicable limitations
established by statute, contract or instructions and regulations of the shipowner. To the captain
is committed the governance, care and management of the vessel. Clearly, the captain is vested
with both management and fiduciary functions.
This notwithstanding, there are recognized instances when control of a vessel is yielded to a
pilot.
Section 8 of Philippine Ports Authority (PPA) Administrative Order No. 03-85, otherwise known
as the Rules and Regulations Governing Pilotage Services, the Conduct of Pilots and Pilotage
Fees in Philippine Ports, enumerates instances when vessels are subjected to compulsory
pilotage:
Sec. 8. Compulsory Pilotage Service — For entering a harbor and anchoring thereat, or
passing through rivers or straits within a pilotage district, as well as docking and
undocking at any pier/wharf, or shifting from one berth or another, every vessel
engaged in coastwise and foreign trade shall be under compulsory pilotage.
However, in the Ports of Manila and Cebu, and in such other ports as may be allowed by
this Authority, Ship Captains may pilot their vessels engaged in coastwise trade provided
they meet / comply with the following minimum qualifications / requirements:
a) Must be properly licensed as a Harbor Pilot by the Philippine Coast Guard for Manila,
Cebu and other authorized ports;
b) Must have been a Master of an interisland vessel for at least three (3) years prior to
his application with the PPA;
c) Must be certified by a government physician as physically and mentally fit. Vessels
maneuvered by a Special Harbor Pilot shall be exempt from the payment of all pilotage
fees.
Section 9 further enumerates exceptions to compulsory pilotage:
 Sec. 9. Exemptions - In the following cases, pilotage service is not compulsory:
a) Vessels engaged in coastwise trade undocking at all ports, except at the ports of
Manila, Cebu, Iloilo, Tacloban, Davao, Zamboanga, Pulupandan, Masinloc, and San
Fernando,
b) Government vessels,
c) Vessels of foreign governments entitled to courtesy,
d) Vessels that are authorized by BOT to engage in daily ferry service plying between
two places within a port or between two ports,
e) Phil. Flag vessels engaged in coastwise trade that depart from an anchorage,
f) Vessels calling at private ports whose owners have formally waived the requirements
of compulsory pilotage.
Section 32(f) of PPA Administrative Order No. 03-85 specifies the foremost responsibility of a
Harbor Pilot, that is, the direction of the vessel being piloted. In addition, Section 32 (f) spells
out the duration within which the Harbor Pilot is to fulfill this responsibility. It likewise provides
that the Master's failure to carry out the Harbor Pilot's orders is a ground for absolving the
Harbor Pilot of liability:
Sec. 32. Duties and Responsibilities of the Pilots or Pilots' Association. — The duties and
responsibilities of the Harbor Pilot shall be as follows: ....
f) A pilot shall be held responsible for the direction of a vessel from the time he
assumes his work as a pilot thereof until he leaves it anchored or berthed safely;
Provided, however, that his responsibility shall cease at the moment the Master
neglects or refuses to carry out his order.
Consistent with the yielding of control to a pilot, Section 11 of PPA Administrative Order No. 03-
85 makes the Harbor Pilot liable for caused by his or her negligence or fault. The same
provision, however, emphasizes that "overall command" of the vessel remains in the Master of
the vessel:
Sec. 11. Control of Vessels and Liability for Damage. — On compulsory pilotage grounds,
the Harbor Pilot providing the service to a vessel shall be responsible for the damage
caused to a vessel or to life and property at ports due to his negligence or fault. He can
be absolved from liability if the accident is caused by force majeure or natural calamities
provided he has exercised prudence and extra diligence to prevent or minimize the
damage.
The Master shall retain overall command of the vessel even on pilotage grounds
whereby he can countermand or overrule the order or command of the Harbor Pilot on
board. In such event, any damage caused to a vessel or to life and property at ports by
reason of the fault or negligence of the Master shall be the responsibility and liability of
the registered owner of the vessel concerned without prejudice to recourse against said
Master.
Such liability of the owner or Master of the vessel or its pilots shall be determined by
competent authority in appropriate proceedings in the light of the facts and
circumstances of each particular case.
Accordingly, it is settled that Harbor Pilots are liable only to the extent that they can perform
their function through the officers and crew of the piloted vessel. Where there is failure by the
officers and crew to adhere to their orders, Harbor Pilots cannot be held liable. In Far Eastern
Shipping Co. V. Court of Appeals, this court explained the intertwined responsibilities of pilots
and masters:
Where a compulsory pilot is in charge of a ship, the master being required to permit him
to navigate it, if the master observes that the pilot is incompetent or physically
incapable, then it is the duty of the master to refuse to permit the pilot to act. But if no
such reasons are present, then the master is justified in relying upon the pilot, but not
blindly. Under the circumstances of this case, if a situation arose where the master,
exercising that reasonable vigilance which the master of a ship should exercise,
observed, or should have observed, that the pilot was so navigating the vessel that she
was going, or was likely to go, into danger, and there was in the exercise of reasonable
care and vigilance an opportunity for the master to intervene so as to save the ship from
danger, the master should have acted accordingly. The master of a vessel must exercise
a degree of vigilance commensurate with the circumstances.
We start our discussion of the successive issues bearing in mind the evidentiary rule in
American jurisprudence that there is a presumption of fault against a moving vessel that strikes
a stationary object such as a dock or navigational aid. In admiralty, this presumption does more
than merely require the ship to go forward and produce some evidence on the presumptive
matter. The moving vessel must show that it was without fault or that the collision was
occasioned by the fault of the stationary object or was the result of inevitable accident. It has
been held that such vessel must exhaust every reasonable possibility which the circumstances
admit and show that in each, they did all that reasonable care required. In the absence of
sufficient proof in rebuttal, the presumption of fault attaches to a moving vessel which collides
with a fixed object and makes a prima facie case of fault against the vessel. Logic and
experience support this presumption: The common sense behind the rule makes the burden a
heavy one. Such accidents simply do not occur in the ordinary course of things unless vessel has
been mismanaged in some way. It is not sufficient for the respondent to produce witnesses
who testify that as soon as the danger became apparent everything possible was done to avoid
an accident. The question remains, How then did the collision occur? The answer must be
either that, in spite of the testimony of the witnesses, what was done was too little or too late
or, if not, then the vessel was at fault for being in a position in which an unavoidable collision
would occur.
A party is entitled to adequate compensation only for such pecuniary loss actually suffered and
duly proved. Indeed, basic is the rule that to recover actual damages, the amount of loss must
not only be capable of proof but must actually be proven with a reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount thereof. The
claimant is duty-bound to point out specific facts that afford a basis for measuring whatever
compensatory damages are borne. A court cannot merely rely on speculations, conjectures, or
guesswork as to the fact and amount of damages as well as hearsay or uncorroborated
testimony whose truth is suspect.
In Republic of the Philippines v. Tuvera, this court already debunked the notion that temperate
damages are appropriate only in those cases in which pecuniary loss cannot, "by its nature," be
ascertained: Temperate or moderate damages avail when "the court finds that some pecuniary
loss has been suffered but its amount can not from the nature of the case, be proved with
certainty." The textual language might betray an intent that temperate damages do not avail
when the case, by its nature, is susceptible to proof of pecuniary loss; and certainly the
Republic could have proved pecuniary loss herein. Still, jurisprudence applying Article 2224 is
clear that temperate damages may be awarded even in instances where pecuniary loss could
theoretically have been proved with certainty.
PIONEER INSURANCE SURETY CORPORATION, VS. MORNING STAR TRAVEL & TOURS, INC., ET.
AL. G.R. No. 198436 July 8, 2015
As a general rule, a corporation has a separate and distinct personality from those who
represent it. Its officers are solidarily liable only when exceptional circumstances exist, such as
cases enumerated in Section 31 of the Corporation Code. The liability of the officers must be
proven by evidence sufficient to overcome the burden of proof borne by the plaintiff.
The law vests corporations with a separate and distinct personality from those that represent
these corporations. 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.
Bad faith "imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong, not simply bad judgment or negligence." "It means breach of a known duty through
some motive or interest or ill will; it partakes of the nature of fraud."
This court has held that the "existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations."
SECURITIES AND EXCHANGE COMMISSION, VS. SUBIC BAY GOLF AND COUNTRY CLUB, INC.
G.R. No. 179047 March 11, 2015
Intra-corporate controversies, previously under the Securities and Exchange Commission's
jurisdiction, are now under the jurisdiction of Regional Trial Courts designated as commercial
courts. However, the transfer of jurisdiction to the trial courts does not oust the Securities and
Exchange Commission of its jurisdiction to determine if administrative rules and regulations
were violated.
For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy
tests. The relationship test requires that the dispute be between a
corporation/partnership/association and the public; a corporation/partnership/association and
the state regarding the entity's franchise, permit, or license to operate; a
corporation/partnership/association and its stockholders, partners, members, or officers; and
among stockholders, partners, or associates of the entity. The nature of the controversy test
requires that the action involves the enforcement of corporate rights and obligations.
The controversy must not only be rooted in the existence of an intracorporate relationship, but
must as well pertain to the enforcement of the parties' correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory rules of the corporation.
In other words, jurisdiction should be determined by considering both the relationship of the
parties as well as the nature of the question involved.
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 jurisdiction, supervision and control over all corporations, partnerships' or
associations.
In relation to securities, the Securities and Exchange Commission's regulatory power pertains to
the approval and rejection, and suspension or revocation, of applications for registration of
securities.
To ensure compliance with the law and the rules, the Securities and Exchange Commission is
also given the power to impose fines and penalties. It may also investigate motu proprio
whether corporations comply with the Corporation Code, Securities Regulation Code, and rules
implemented by the Securities and Exchange Commission.
The Securities and Exchange Commission's approval of securities registrations signals to the
public that the securities are valid. It provides the public with basis for relying on the
representations of corporations that issue securities or financial instruments.
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.
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 intracorporate 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 intracorporate disputes are specific to the parties involved. They do not
affect the Securities and Exchange Commission or the public directly.
The implementing rules cannot be interpreted to give the Securities and Exchange Commission
the power that is more than what is provided under the Securities Regulation Code.
Implementing rules are limited by the laws they implement. The rules cannot be used to
amend, expand, or modify the law being implemented. The law shall prevail in case of
inconsistency between the law and the rules.
The power to promulgate rules in the implementation of a statute is necessarily limited to what
is provided for in the legislative enactment. Its terms must be followed for an administrative
agency cannot amend an Act of Congress. "The rule-making power must be confined to details
for regulating the mode or proceedings to carry into effect the law as it has been enacted, and
it cannot be extended to amend or expand the statutory requirements or to embrace matters
not covered by the statute." If a discrepancy occurs between the basic law and an
implementing rule or regulation, it is the former that prevails.
The rule-making power of a public administrative body is a delegated legislative power, which it
may not use either to abridge the authority given it by Congress or the Constitution or to
enlarge its power beyond the scope intended. Constitutional and statutory provisions control
what rules and regulations may be promulgated by such a body, as well as with respect to what
fields are subject to regulation by it. It may not make rules and regulations which are
inconsistent with the provisions of the Constitution or a statute, particularly the statute it is
administering or which created it, or which are in derogation of, or defeat, the purpose of a
statute.
Moreover, where the legislature has delegated to an executive or administrative officers and
boards authority to promulgate rules to carry out an express legislative purpose, the rules of
administrative officers and boards, which have the effect of extending, or which conflict with
the authority-granting statute, do not represent a valid exercise of the rule-making power but
constitute an attempt by an administrative body to legislate. "A statutory grant of powers
should not be extended by implication beyond what may be necessary for their just and
reasonable execution." It is axiomatic that a rule or regulation must bear upon, and be
consistent with, the provisions of the enabling statute if such rule or regulation is to be valid.
METROPOLITAN BANK AND TRUST COMPANY, VS. S.F. NAGUIAT ENTERPRISES, INC. G.R. No.
178407 March 18, 2015
This case calls for the determination of whether the approval and consent of the insolvency
court is required under Act No. 1956, otherwise known as the Insolvency Law, before a secured
creditor like petitioner Metropolitan Bank and Trust Company can proceed with the
extrajudicial foreclosure of the mortgaged property.
A look at the historical background of the laws governing insolvency in this country will be
helpful in resolving the questions presented before us. The first insolvency law, Act No. 1956,
was enacted on May 20, 1909. It was derived from the Insolvency Act of California (1895), with
a few provisions taken from the United States Bankruptcy Act of 1898. Act No. 1956 was
entitled "An Act Providing for the Suspension of Payments, the Relief of Insolvent Debtors, the
Protection of Creditors, and the Punishment of Fraudulent Debtors."
The remedies under the law were through a suspension of payment (for a debtor who was
solvent but illiquid) or a discharge from debts and liabilities through the voluntary or
involuntary insolvency proceedings (for a debtor who was insolvent).
The objective of suspension of payments is the deferment of the payment of debts until such
time as the debtor, which possesses sufficient property to cover all its debts, is able to convert
such assets into cash or otherwise acquires the cash necessary to pay its debts. On the other
hand, the objective in insolvency proceedings is "to effect an equitable distribution of the
bankrupt's properties among his creditors and to benefit the debtor by discharging him from his
liabilities and enabling him to start afresh with the property set apart for him as exempt."
It is the policy of Act No. 1956 to place all the assets and liabilities of the insolvent debtor
completely within the jurisdiction and control of the insolvency court without the intervention
of any other court in the insolvent debtor's concerns or in the administration of the estate. It
was considered to be of prime importance that the insolvency proceedings follow their course
as speedily as possible in order that a discharge, if the insolvent debtor is entitled to it, should
be decreed without unreasonable delay. "Proceedings of [this] nature cannot proceed properly
or with due dispatch unless they are controlled absolutely by the court having charge thereof."
In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902- A, the Securities
and Exchange Commission charter. Under its terms, jurisdiction regarding corporations that
sought suspension of payments process was taken away from the regular courts and given to
the Securities and Exchange Commission. In addition, an alternative to suspension of payments
— rehabilitation — was introduced. It enables a corporation whose assets are not sufficient to
cover its liabilities to apply to the Securities and Exchange Commission for the appointment of a
rehabilitation receiver and/or management committee[ and then to develop a rehabilitation
plan with a view to rejuvenating a financially distressed corporation. However, the procedure to
avail of the remedy was not spelled out until 20 years later when the Securities and Exchange
Commission finally adopted the Rules of Procedure on Corporate Recovery on January 4, 2000.
Shortly thereafter, with the passage of Republic Act No. 8799 or The Securities Regulation Code
on July 19, 2000, jurisdiction over corporation rehabilitation cases was reverted to the Regional
Trial Courts designated as commercial courts or rehabilitation courts. This legal development
was implemented by the Interim Rules of Procedure on Corporate Rehabilitation (made
effective in December 2000), which was later replaced by A.M. 00-8- 10-SC or the Rules of
Procedure on Corporate Rehabilitation of 2008.
Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010
when Republic Act 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
"maintaining] certainty and predictability in commercial affairs, preserving] and maximizing] the
value of the assets of these debtors, recognizing] creditor rights and respecting] priority of
claims, and ensuring] 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." Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of
the term, "insolvent":
SEC. 4. Definition of Terms. - As used in this Act, the term:
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or has liabilities
that are greater than its or his assets.
Republic Act No. 10142 also expressly categorizes different forms of debt relief available to a
corporate debtor in financial distress. These are out-of-court restructuring agreements; pre-
negotiated rehabilitation; courtsupervised rehabilitation; and liquidation (voluntary and
involuntary).[ An insolvent individual debtor can avail of suspension of payments, or liquidation.
During liquidation proceedings, a secured creditor may waive its security or lien, prove its claim,
and share in the distribution of the assets of the debtor, in which case it will be admitted as an
unsecured creditor; or maintain its rights under the security or lien.
Republic Act No. 10142 was to govern all petitions filed after it had taken effect, and all further
proceedings in pending insolvency, suspension of payments, and rehabilitation cases, except
when its application "would not be feasible or would work injustice, in which event the
procedures set forth in prior laws and regulations shall apply."
The relevant proceedings in this case took place prior to Republic Act No. 10142; hence, the
issue will be resolved according to the provisions of Act No. 1956.
Act No. 1956 impliedly requires a secured creditor to ask the permission of the insolvent
court before said creditor can foreclose the mortgaged property.
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.
Act No. 3135 is silent with respect to mortgaged properties that are in custodia legis, such as
the property in this case, which was placed under the control and supervision of the insolvency
court. This court has declared that "[a] court which has control of such property, exercises
exclusive jurisdiction over the same, retains all incidents relative to the conduct of such
property. No court, except one having supervisory control or superior jurisdiction in the
premises, has a right to interfere with and change that possession." The extrajudicial
foreclosure and sale of the mortgaged property of the debtor would clearly constitute an
interference with the insolvency court's possession of the property.
ABS-CBN CORPORATION, PETITIONER, VS. FELIPE GOZON, et., al. G.R. No. 195956 March 11,
2015
The main issue in this case is whether there is probable cause to charge respondents with
infringement under Republic Act No. 8293, otherwise known as the Intellectual Property Code.
The resolution of this issue requires clarification of the concept of "copyrightable material" in
relation to material that is rebroadcast live as a news story. We are also asked to rule on
whether criminal prosecution for infringement of copyrightable material, such as live
rebroadcast, can be negated by good faith.
The news footage is copyrightable.
The Intellectual Property Code is clear about the rights afforded to authors of various kinds of
work. Under the Code, "works are protected by the sole fact of their creation, irrespective of
their mode or form of expression, as well as of their content, quality and purpose." These
include "[audio-visual 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. However, the Code does not state that expression of the news of
the day, particularly when it underwent a creative process, is not entitled to protection.
An idea or event must be distinguished from the expression of that idea or event. An idea has
been likened to a ghost in that it "must be spoken to a little before it will explain itself." It is a
concept that has eluded exact legal definition.
To get a better grasp of the idea/expression dichotomy, the etymology of the term "idea" is
traced: There is no one legal definition of "idea" in this jurisdiction. The term "idea" is
mentioned only once in the Intellectual Property Code.
In Joaquin, Jr. v. Drilon, a television format (i.e., a dating show format) is not copyrightable
under Section 2 of Presidential Decree No. 49; it is a mere concept:
 Ideas can be either abstract or concrete. It is the concrete ideas that are generally
referred to as expression.
The copyright of a book on perspective, no matter how many drawings and illustrations it may
contain, gives no exclusive right to the modes of drawing described, though they may never
have been known or used before. By publishing the book without getting a patent for the art,
the latter is given to the public.
As recognized by this court in Joaquin, television "involves a whole spectrum of visuals and
effects, video and audio." News coverage in television involves framing shots, using images,
graphics, and sound effects. It involves creative process and originality. Television news footage
is an expression of the news.
News as expressed in a video footage is entitled to copyright protection. 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.
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."
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 non-profit 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.
The "transformative test" is generally used in reviewing the purpose and character of the usage
of the copyrighted work. This court must look into whether the copy of the work adds "new
expression, meaning or message" to transform it into something else. "Meta-use" can also
occur without necessarily transforming the copyrighted work used.
Second, the nature of the copyrighted work is significant in deciding whether its use was fair. If
the nature of the work is more factual than creative, then fair use will be weighed in favor of
the user.
Third, the amount and substantiality of the portion used is important to determine whether
usage falls under fair use. An exact reproduction of copyrighted work, compared to a small
portion of it, can result in the conclusion that its use is not fair.
Lastly, the effect of the use on the copyrighted work's market is also weighed for or against the
user. If this court finds that the use had or will have a negative impact on the copyrighted
work's market, then the use is deemed unfair.
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. "An act
which is declared malum prohibitum, malice or criminal intent is completely immaterial."
The essence of intellectual piracy should be essayed in conceptual terms in order to underscore
its gravity by an appropriate understanding thereof. 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.
In cases of infringement, copying alone is not what is prohibited. The copying must produce an
"injurious effect".
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.
Intellectual property rights, such as copyright and the neighboring right against rebroadcasting,
establish an artificial and limited monopoly to reward creativity. Without these legally
enforceable rights, creators will have extreme difficulty recovering their costs and capturing the
surplus or profit of their works as reflected in their markets. This, in turn, is based on the theory
that the possibility of gain due to creative work creates an incentive which may improve
efficiency or simply enhance consumer welfare or utility. More creativity redounds to the public
good.
An accused's participation in criminal acts involving violations of intellectual property rights is
the subject of allegation and proof. The showing that the accused did the acts or contributed in
a meaningful way in the commission of the infringements is certainly different from the
argument of lack of intent or good faith. Active participation requires a showing of overt
physical acts or intention to commit such acts. Intent or good faith, on the other hand, are
inferences from acts proven to have been or not been committed.
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.
PHILIPPINE NATIONAL BANK, VS. CARMELITA S. SANTOS et., al. G.R. No. 208293 December
10, 2014
The contractual relationship between banks and their depositors is governed by the Civil Code
provisions on simple loan. Once a person makes a deposit of his or her money to the bank, he
or she is considered to have lent the bank that money. The bank becomes his or her debtor,
and he or she becomes the creditor of the bank, which is obligated to pay him or her on
demand.
The default standard of diligence in the performance of obligations is "diligence of a good
father of a family."
"Diligence of a good father of a family" is the standard of diligence expected of, among others,
usufructuaries, passengers of common carriers, agents, depositaries, pledgees, officious
managers, and persons deemed by law as responsible for the acts of others. "The diligence of a
good father of a family requires only that diligence which an ordinary prudent man would
exercise with regard to his own property."
Other industries, because of their nature, are bound by law to observe higher standards of
diligence. Common carriers, for example, must observe "extraordinary diligence in the vigilance
over the goods and for the safety of [their] passengers" because it is considered a business
affected with public interest.
"Extraordinary diligence" with respect to passenger safety is further qualified as "carrying the
passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances."
Similar to common carriers, banking is a business that is impressed with public interest. It
affects economies and plays a significant role in businesses and commerce The public reposes
its faith and confidence upon banks, such that "even the humble wage-earner has not hesitated
to entrust his life's savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him." This is why we have recognized the fiduciary
nature of the banks' functions, and attached a special standard of diligence for the exercise of
their functions.
In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The General Banking
Law, thus:
SEC. 2. Declaration of Policy. — The State recognizes the vital role of banks in providing
an environment conducive to the sustained development of the national economy and
the fiduciary nature of banking that requires high standards of integrity and
performance. In furtherance thereof, the State shall promote and maintain a stable and
efficient banking and financial system that is globally competitive, dynamic and
responsive to the demands of a developing economy.
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.
Petitioners PNB and Aguilar disregarded their own requirements for the release of the deposit
to persons claiming to be heirs of a deceased depositor. When respondents asked for the
release of Angel C. Santos' deposit, they were required to present the following: "
(1) original or certified true copy of the Death Certificate of Angel C. Santos;
(2) certificate of payment of, or exemption from, estate tax issued by the Bureau of
Internal Revenue (BIR);
(3) Deed of Extrajudicial Settlement;
 (4) Publisher's Affidavit of publication of the Deed of Extrajudicial Settlement; and
(5) Surety bond effective for two (2) years and in an amount equal to the balance of the
deposit to be withdrawn."
Petitioners PNB and Aguilar, however, accepted Manimbo's representations, and they released
Angel C. Santos' deposit based on only the following documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos executed in favor of Bernardito
Manimbo and Angel P. Santos;
6. Personal items of Angel C. Santos, such as photocopies or originals of passport,
residence certificate for year 1990, SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306.
Based on these enumerations, petitioners PNB and Aguilar either have no fixed standards for
the release of their deceased clients' deposits or they have standards that they disregard for
convenience, favor, or upon exercise of discretion. Both are inconsistent with the required
diligence of banks.
These threaten the safety of the depositors' accounts as they provide avenues for fraudulent
practices by third persons or by bank officers themselves.
In this case, petitioners PNB and Aguilar released Angel C. Santos' deposit to Manimbo without
having been presented the BIR-issued certificate of payment of, or exception from, estate tax.
This is a legal requirement before the deposit of a decedent is released.
Presidential Decree No. 1158, the tax code applicable when Angel C. Santos died in 1991,
provides:
SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There shall
not be transferred to any new owner in the books of any corporation, sociedad anonima,
partnership, business, or industry organized or established in the Philippines, any shares,
obligations, bonds or rights by way of gift inter vivos or mortis causa, legacy, or inheritance
unless a certification from the Commissioner that the taxes fixed in this Title and due thereon
have been paid is shown.
If a bank has knowledge of the death of a person who maintained a hank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that the taxes imposed thereon
by this Title have been paid; Provided, however, That the administrator of the estate or
any one of the heirs of the decedent may upon authorization by the Commissioner of
Internal Revenue, withdraw an amount not exceeding P10,000 without the said
certification. For this purpose, all withdrawal slips shall contain a statement to the effect
that all of the joint depositors still living at the time of withdrawal by any one of the
joint depositors and such statement shall be under oath by the said depositors.
Taxes are created primarily to generate revenues for the maintenance of the government.
However, this particular tax may also serve as guard against the release of deposits to persons
who have no sufficient and valid claim over the deposits. Based on the assumption that only
those with sufficient and valid claim to the deposit will pay the taxes for it, requiring the
certificate from the BIR increases the chance that the deposit will be released only to them.
Given the circumstances, "diligence of a good father of a family" would have required
petitioners PNB and Aguilar to verify. A prudent man would have inquired why Reyme L. Santos
would issue an affidavit of self-adjudication when others had also claimed to be heirs of Angel
C. Santos.
Petitioner PNB is a bank from which a degree of diligence higher than that of a good father of a
family is expected. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the
standard of diligence of a good father of a family. Their actions and inactions constitute gross
negligence. It is for this reason that we sustain the trial court's and the Court of Appeals' rulings
that petitioners PNB and Aguilar are solidarity liable with each other.
"The bank's negligence was the result of lack of due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding business as banking."
Exemplary damages should also be awarded. "The law allows the grant of exemplary damages
by way of example for the public good. The public relies on the banks' sworn profession of
diligence and meticulousness in giving irreproachable service. The level of meticulousness must
be maintained at all times by the banking sector." Since exemplary damages are awarded and
since respondents were compelled to litigate to protect their interests, the award of attorney's
fees is also proper.
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, VS. BF CORPORATION, et., al G.R. No.
174938 October 1, 2014
Corporate representatives may be compelled to submit to arbitration proceedings pursuant to
a contract entered into by the corporation they represent if there are allegations of bad faith or
malice in their acts representing the corporation.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to avoid
litigation and settle disputes amicably and more expeditiously by themselves and through their
choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code, which was approved as
early as 1949. It was later institutionalized by the approval of Republic Act No. 876 which
expressly authorized, made valid, enforceable, and irrevocable parties' decision to submit their
controversies, including incidental issues, to arbitration.
In view of our policy to adopt arbitration as a manner of settling disputes, arbitration clauses
are liberally construed to favor arbitration. Being an inexpensive, speedy and amicable method
of settling disputes, arbitration — along with mediation, conciliation and negotiation — is
encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the
"wave of the future" in international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted. Any doubt should be resolved in favor of arbitration. [ (Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to favor
interpretations that would render effective an arbitration clause was later expressed in
Republic Act No. 9285:
SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively
promote party autonomy in the resolution of disputes, or the freedom of the party to
make their own arrangements to resolve their disputes. Towards this end, the State
shall encourage and actively promote the use of Alternative Dispute Resolution (ADR)
as an important means to achieve speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use of ADR as an efficient tool
and an alternative procedure for the resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the settlement of disputes through ADR.
This Act shall be without prejudice to the adoption by the Supreme Court of any ADR
system, such as mediation, conciliation, arbitration, or any combination thereof as a
means of achieving speedy and efficient means of resolving cases pending before all
courts in the Philippines which shall be governed by such rules as the Supreme Court
may approve from time to time. . . . .
SEC. 25. Interpretation of the Act. - In interpreting the Act, the court shall have due
regard to the policy of the law in favor of arbitration. Where action is commenced by
or against multiple parties, one or more of whom are parties who are bound by the
arbitration agreement although the civil action may continue as to those who are not
bound by such arbitration agreement. (Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration clause for purposes
of avoiding litigation and expediting resolution of the dispute, that interpretation shall be
adopted.
Petitioners' main argument arises from the separate personality given to juridical persons vis-a-
vis their directors, officers, stockholders, and agents. Since they did not sign the arbitration
agreement in any capacity, they cannot be forced to submit to the jurisdiction of the Arbitration
Tribunal in accordance with the arbitration agreement. Moreover, they had already resigned as
directors of Shangri-La at the time of the alleged default.
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. Because a corporation's existence is only
by fiction of law, it can only exercise its rights and powers through its directors, officers, or
agents, who are all natural persons. A corporation cannot sue or enter into contracts without
them.
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 submission to arbitration is a contract. As such, the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs. But only they.
Hence, when the directors, as in this case, are impleaded in a case against a corporation,
alleging malice or bad faith on their part in directing the affairs of the corporation,
complainants are effectively alleging that the directors and the corporation are not acting as
separate entities. They are alleging that the acts or omissions by the corporation that violated
their rights are also the directors' acts or omissions. They are alleging that contracts executed
by the corporation are contracts executed by the directors. Complainants effectively pray that
the corporate veil be pierced because the cause of action between the corporation and the
directors is the same.
ALFREDO L. VILLAMOR, JR. VS. JOHN S. UMALE, IN SUBSTITUTION OF HERNANDO F.
BALMORES G.R. No. 172843 September 24, 2014
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. In derivative suits, the real
party in interest is the corporation, and the suing stockholder is a mere nominal party.
The Court has recognized that a stockholder's right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. In effect,
the suit is an action for specific performance of an obligation, owed by the corporation to the
stockholders, to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to adopt suitable measures for its protection.
Not only is the corporation an indispensible 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.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal
or equitable to the corporate property; that both of. these are in the corporation itself for the
benefit of the stockholders." In other words, to allow shareholders to sue separately would
conflict with the separate corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in
the case of Evangelista v. Santos, that 'the stockholders may not directly claim those damages
for themselves for that would result in the appropriation by, and the distribution among them
of part of the corporate assets before the dissolution of the corporation and the liquidation of
its debts and liabilities, something which cannot be legally done in view of Section 16 of the
Corporation Law. . .";
(3) the filing of such suits would conflict with the duty of the management to sue for the
protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery by an individual on
the damages recoverable by the corporation for the same act.
While it is true that the basis for allowing stockholders to file derivative suits on behalf of
corporations is based on equity, the above legal requisites for its filing must necessarily be
complied with for its institution.
A wrong to the corporation does not necessarily create an individual cause of action. "A cause
of action is the act or omission by which a party violates the right of another." A cause of action
must pertain to complainant if he or she is to be entitled to the reliefs sought.
A corporation may be placed under receivership, or management committees may be created
to preserve properties involved in a suit and to protect the rights of the parties under the
control and supervision of the court. Management committees and receivers are appointed
when the corporation is in imminent danger of "
(1) [dissipation, loss, wastage or destruction of assets or other properties; and
(2) [p]aralysation of its business operations that may be prejudicial to' the interest of
the minority stockholders, parties-litigants, or the general public
Applicants for the appointment of a receiver or management committee need to establish the
confluence of these two requisites. This is because appointed receivers and management
committees will immediately take over the management of the corporation and will have the
management powers specified in law.
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.
PEOPLE’S TRANS-EAST ASIA INSURANCE CORPORATION, A.K.A. PEOPLE'S GENERAL
INSURANCE CORPORATION, VS. DOCTORS OF NEW MILLENNIUM HOLDINGS, INC., G.R. No.
172404 August 13, 2014
The liabilities of an insurer under the surety bond are not extinguished when the modifications
in the principal contract do not substantially or materially alter the principal’s obligations. The
surety is jointly and severally liable with its principal when the latter defaults from its
obligations under the principal contract.
The principal contract of the suretyship is the signed agreement.
The obligations of the surety to the principal under the surety bond are different from the
obligations of the contractor to the client under the principal contract. The surety guarantees
the performance of the contractor’s obligations. Upon the contractor’s default, its client may
demand against the surety bond even if there was no privity of contract between them. This is
the essence of a surety agreement.
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of another party, called the obligee. By its very nature, under the laws regulating
suretyship, the liability of the surety is joint and several but is limited to the amount of the
bond, and its terms are determined strictly by the terms of the contract of suretyship in relation
to the principal contract between the obligor and the obligee.
The surety is considered in law as possessed of the identity of the debtor in relation to
whatever is adjudged touching upon the obligation of the latter. Their liabilities are so
interwoven as to be inseparable. Although the contract of suretyship is, in essence, secondary
only to a valid principal obligation, the surety’s liability to the creditor is direct, primary, and
absolute; he becomes liable for the debt and duty of another although he possesses no direct
or personal interest over the obligations nor does he receive any benefit therefrom.
A suretyship consists of two different contracts:
(1) the surety contract and
(2) the principal contract which it guarantees.
Since the insurer’s liability is strictly based only on the terms stated in the surety contract in
relation to the principal contract, any change in the principal contract, which materially alters
the principal’s obligations would, in effect, constitute an implied novation of the surety
contract:
A surety is released from its obligation when there is a material alteration of the contract in
connection with which the bond is given, such as a change which imposes a new obligation on
the promising party, or which takes away some obligation already imposed, or one which
changes the legal effect of the original contract and not merely its form. A surety, however, is
not released by a change in the contract which does not have the effect of making its obligation
more onerous.
ABOITIZ EQUITY VENTURES, INC., VS. VICTOR S. CHIONGBIAN, BENJAMIN D. GOTHONG, AND
CARLOS A. GOTHONG LINES, INC. (CAGLI) G.R. No. 197530 July 9, 2014
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.
It is a settled precept in this jurisdiction that a corporation is invested by law with a personality
separate from that of its stockholders or members. It has a personality separate and distinct
from those of the persons composing it as well as from that of any other entity to which it may
be related. Mere ownership by a single stockholder or by another corporation of all or nearly all
of the capital stock of a corporation is not in itself sufficient ground for disregarding the
separate corporate personality. A corporation’s authority to act and its liability for its actions
are separate and apart from the individuals who own it.
The so-called veil of corporation fiction treats as separate and distinct the affairs of a
corporation and its officers and stockholders. As a general rule, a corporation will be looked
upon as a legal entity, unless and until sufficient reason to the contrary appears. When the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest of justice in such cases as fraud that may
work inequities among members of the corporation internally, involving no rights of the public
or third persons. In both instances, there must have been fraud and proof of it. For the separate
juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.
PRYCE CORPORATION, VS. CHINA BANKING CORPORATION G.R. No. 172302 February 18,
2014
A petition for rehabilitation does not always result in the appointment of a receiver or the
creation of a management committee. The SEC has to initially determine whether such
appointment is appropriate and necessary under the circumstances. Under Paragraph (d),
Section 6 of Presidential Decree No. 902-A, certain situations must be shown to exist before a
management committee may be created or appointed, such as:
1. when there is imminent danger of dissipation, loss, wastage or destruction of assets
or other properties; or
2. when there is paralization of business operations of such corporations or entities
which may be prejudicial to the interest of minority stockholders, parties-litigants or to
the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 [c], P.D. 902-A.)
These situations are rather serious in nature, requiring the appointment of a management
committee or a receiver to preserve the existing assets and property of the corporation in order
to protect the interests of its investors and creditors. Thus, in such situations, suspension of
actions for claims against a corporation as provided in Paragraph (c) of Section 6, of Presidential
Decree No. 902-A is necessary, and here we borrow the words of the late Justice Medialdea,
“so as not to render the SEC management Committee irrelevant and inutile and to give it
unhampered ‘rescue efforts’ over the distressed firm”.
Otherwise, when such circumstances are not obtaining or when the SEC finds no such imminent
danger of losing the corporate assets, a management committee or rehabilitation receiver need
not be appointed and suspension of actions for claims may not be ordered by the SEC. When
the SEC does not deem it necessary to appoint a receiver or to create a management
committee, it may be assumed, that there are sufficient assets to sustain the rehabilitation
plan, and that the creditors and investors are amply protected.
However, this case had been promulgated prior to the effectivity of the Interim Rules that took
effect on December 15, 2000.
Section 6 of the Interim Rules states explicitly that “[i]f the court finds the petition to be
sufficient in form and substance, it shall, not later than five (5) days from the filing of the
petition, issue an Order
(a) appointing a Rehabilitation Receiver and fixing his bond;
(b) staying enforcement of all claims x x x.”
Nowhere in the Interim Rules does it require a comprehensive discussion in the stay order on
the court’s findings of sufficiency in form and substance. The stay order and appointment of a
rehabilitation receiver dated July 13, 2004 is an “extraordinary, preliminary, ex parte remedy.”
The effectivity period of a stay order is only “from the date of its issuance until dismissal of the
petition or termination of the rehabilitation proceedings.” It is not a final disposition of the
case. It is an interlocutory order defined as one that “does not finally dispose of the case, and
does not end the Court’s task of adjudicating the parties’ contentions and determining their
rights and liabilities as regards each other, but obviously indicates that other things remain to
be done by the Court.” Thus, it is not covered by the requirement under the Constitution that a
decision must include a discussion of the facts and laws on which it is based.
Neither does the Interim Rules require a hearing before the issuance of a stay order. What it
requires is an initial hearing before it can give due course to or dismiss a petition.
Nevertheless, while the Interim Rules does not require the holding of a hearing before the
issuance of a stay order, neither does it prohibit the holding of one. Thus, the trial court has
ample discretion to call a hearing when it is not confident that the allegations in the petition are
sufficient in form and substance, for so long as this hearing is held within the five (5)- day
period from the filing of the petition — the period within which a stay order may issue as
provided in the Interim Rules.
One of the important objectives of the Interim Rules is “to promote a speedy disposition of
corporate rehabilitation cases.
The Proposed Rules remove the concept of the Interim Receiver and replace it with a
rehabilitation receiver. This is to justify the immediate issuance of the stay order because
under Presidential Decree No. 902-A, as amended, the suspension of actions takes effect only
upon appointment of the rehabilitation receiver.
Successful rehabilitation of a distressed corporation will benefit its debtors, creditors,
employees, and the economy in general. The court may approve a rehabilitation plan even over
the opposition of creditors holding a majority of the total liabilities of the debtor if, in its
judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is
manifestly unreasonable. The rehabilitation plan, once approved, is binding upon the debtor
and all persons who may be affected by it, including the creditors, whether or not such persons
have participated in the proceedings or have opposed the plan or whether or not their claims
have been scheduled.
Corporate rehabilitation 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. Its twin,
insolvency, provides for a system of liquidation and a procedure of equitably settling various
debts owed by an individual or a business. It provides a corporation’s owners a sound chance to
re-engage the market, hopefully with more vigor and enlightened services, having learned from
a painful experience.
Necessarily, a business in the red and about to incur tremendous losses may not be able to pay
all its creditors. Rather than leave it to the strongest or most resourceful amongst all of them,
the state steps in to equitably distribute the corporation’s limited resources.
The cram-down principle adopted by the Interim Rules does, in effect, dilute contracts. When it
permits the approval of a rehabilitation plan even over the opposition of creditors, or when it
imposes a binding effect of the approved plan on all parties including those who did not
participate in the proceedings, the burden of loss is shifted to the creditors to allow the
corporation to rehabilitate itself from insolvency. Rather than let struggling corporations slip
and vanish, the better option is to allow commercial courts to come in and apply the process for
corporate rehabilitation.
This option is preferred so as to avoid what Garrett Hardin called the Tragedy of Commons.
Here, Hardin submits that “coercive government regulation is necessary to prevent the
degradation of common-pool resources since individual resource appropriators receive the full
benefit of their use and bear only a share of their cost.”
By analogy to the game theory, this is the prisoner’s dilemma: “Since no individual has the right
to control or exclude others, each appropriator has a very high discount rate [with] little
incentive to efficiently manage the resource in order to guarantee future use.”
Thus, the cure is an exogenous policy to equitably distribute scarce resources. This will
incentivize future creditors to continue lending, resulting in something productive rather than
resulting in nothing.
In fact, these corporations exist within a market. The General Theory of Second Best holds that
“correction for one market imperfection will not necessarily be efficiency-enhancing unless
there is also simultaneous correction for all other market imperfections.” The correction of one
market imperfection may adversely affect market efficiency elsewhere, for instance, “a contract
rule that corrects for an imperfection in the market for consensual agreements may at the
same time induce welfare losses elsewhere.”
This theory is one justification for the passing of corporate rehabilitation laws allowing the
suspension of payments so that corporations can get back on their feet.
As in all markets, the environment is never guaranteed. There are always risks. Contracts are
indeed sacred as the law between the parties. However, these contracts exist within a society
where nothing is risk-free, and the government is constantly being called to attend to the
realities of the times.
Corporate rehabilitation is preferred for addressing social costs. Allowing the corporation room
to get back on its feet will retain if not increase employment opportunities for the market as a
whole. Indirectly, the services offered by the corporation will also benefit the market as “the
fundamental impulse that sets and keeps the capitalist engine in motion comes from [the
constant entry of new consumers’ goods, the new methods of production or transportation, the
new markets, and the new forms of industrial organization that capitalist enterprise creates.”
*****
I was with Moses, so I will be with you. I will not leave you nor forsake you. JOSHUA 1:5