2022 BAR REVIEW COMMERCIAL LAW

CHAIR’S CASES Handout No. 28

Justice Alfredo Benjamin S. Caguioa

INSURANCE LAW

In an insurance contract, founded on the autonomy of contracts, the parties are generally not
prevented from imposing the terms and conditions that determine the contract’s obligatory
force.

Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to the effect
that mere demand letters, affidavits, and statements of accounts are enough proof of actual
damages — that more direct and concrete proofs of expenditures by the petitioner such as
official receipts have been dispensed with in order to prove actual losses. As to why the parties
agreed on the sufficiency of the listed requirements under the MOA goes into the motives of the
parties, which is not hard to understand, considering that the covered transactions, i.e., the
processing of applications of nurses in the U.S., are generally not subject to the issuance of official
receipts by the U.S. government and its agencies. Considering the foregoing, the question is
crystallized: Can the parties stipulate on the requirements that must be presented in order to
claim against a surety bond? And the answer is a definite YES, pursuant to the autonomy
characteristic of contracts, they can. In an insurance contract, founded on the autonomy of
contracts, the parties are generally not prevented from imposing the terms and conditions that
determine the contract’s obligatory force.

A contract of suretyship shall be deemed an insurance contract within the contemplation of the
Insurance Code if made by a surety which is doing an insurance business.

While placing utmost concentration on Article 2199 of the Civil Code in ruling that competent
proof is required for the payment of the subject claims, the assailed Decision of the CA failed to
take into consideration the applicable provisions of the Insurance Code. The subject agreement
of the parties indubitably contemplates a surety agreement, which is governed mainly by the
Insurance Code, considering that a contract of suretyship shall be deemed an insurance contract
within the contemplation of the Insurance Code if made by a surety which is doing an insurance
business. In this case, the surety, i.e., respondent Country Bankers, is admittedly an insurance
company engaged in the business of insurance. In fact, the CA itself in its assailed Decision
mentioned that a contract of suretyship is defined and covered by the Insurance Code.

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

It is the duty of the insurer to indicate the defects on the proofs of loss given, so that the
deficiencies may be supplied by the insured.

The Insurance Code specifically provides applicable provisions on suretyship, stating that
pertinent provisions of the Civil Code shall only apply suppletorily whenever necessary in
interpreting the provisions of a contract of suretyship. Jurisprudence also holds that a specific
law should prevail over a law of general character. Hence, in the resolution of the instant case,
the CA erred in not considering the applicable provisions under the Insurance Code on the
required proof of loss and when such requirement is waivable. Therefore, Section 92 of the
Insurance Code must be taken into consideration. The said provision states that all defects in the
proof of loss, which the insured might remedy, are waived as grounds for objection when the
insurer omits to specify to him without unnecessary delay. It is the duty of the insurer to indicate
the defects on the proofs of loss given, so that the deficiencies may be supplied by the insured.
When the insurer recognizes his liability to pay the claim, there is waiver by the insurer of any
defect in the proof of loss. Industrial Personnel and Management Services, Inc. vs. Country
Bankers Insurance Corporation, 883 SCRA 404, G.R. No. 194126 October 17, 2018

TRANSPORTATION LAW

Article 1735 of the Civil Code states that if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as required in Article 1733. In turn, Article
1733 states that 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.

Hence, jurisprudence holds that a common carrier is presumed to have been negligent if it fails
to prove that it exercised extraordinary vigilance over the goods it transported. When the goods
shipped are either lost or arrived in damaged condition, a presumption arises against the carrier
of its failure to observe that diligence, and there need not be an express finding of negligence to
hold it liable. To overcome the presumption of negligence, the common carrier must establish by
adequate proof that it exercised extraordinary diligence over the goods. It must do more than
merely show that some other party could be responsible for the damage. Unitrans International
Forwarders, Inc. vs. Insurance Company of North America, G.R. 203865, March 13, 2019

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

CORPORATION LAW

In the Philippine setting, the following cases are illustrative of the application of the trust fund
doctrine where the debtor is insolvent.

In the 1923 case of Philippine Trust Company v. Rivera (Philippine Trust Co.), the Court allowed
Philippine Trust Company, as assignee in insolvency of La Cooperativa Naval Filipina, to collect
the balance of P22,500.00 that was due upon the subscription of Marciano Rivera, the defendant
therein, to the capital stock of said insolvent corporation, viz.:

It appears in evidence that in 1918 the Cooperativa Naval Filipina was duly incorporated under the laws of
the Philippine Islands, with a capital of P100,000, divided into one thousand shares of a par value of P100
each. Among the incorporators of this company was numbered the defendant Marciano Rivera, who
subscribed for 450 shares representing a value of P45,000, the remainder of the stock being taken by other
persons. The articles of incorporation were duly registered in the Bureau of Commerce and Industry on
October 30 of the same year.

In the course of time the company became insolvent and went into the hands of the Philippine Trust
Company, as assignee in bankruptcy; and by it this action was instituted to recover one-half of the stock
subscription of the defendant, which admittedly has never been paid.

The reason given for the failure of the defendant to pay the entire subscription is, that not long after the
Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a
resolution was adopted to the effect that the capital should be reduced by 50 per centum and the
subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per
centum of the same. As a result of this resolution it seems to have been supposed that the subscriptions of
the various shareholders had been cancelled to the extent stated; and fully paid certificates were issued to
each shareholder for one--half of his subscription. It does not appear that the formalities prescribed in
section 17 of the Corporation Law (Act No. 1459), as amended, relative to the reduction of capital stock in
corporations were observed, and in particular it does not appear that any certificate was at any time filed
in the Bureau of Commerce and Industry, showing such reduction.

His Honor, the trial judge, therefore held that the resolution relied upon by the defendant was without
effect and that the defendant was still liable for the unpaid balance of his subscription. In this we think his
Honor was clearly right.

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which
creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain
an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco
vs. Poizat, 37 Phil., 802.) A corporation has no power to release an original subscriber to its capital stock
from the obligation of paying for his shares, without a valuable consideration for such release; and as
against creditors a reduction of the capital stock can take place only in the manner and under the conditions
prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with
the statutory regulations is necessary (14 C. J., 498, 620).

In the case before us the resolution releasing the shareholders from their obligation to pay 50 per centum
of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon which

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

the company's creditors were entitled ultimately to rely and, having been effected without compliance with
the statutory requirements, was wholly ineffectual.

The 1918 case of Velasco v. Poizat cited in Philippine Trust Co. also involved recovery of unpaid
subscriptions in an insolvent company, viz.:

From the amended complaint filed in this cause upon February 5, 1915, it appears that the plaintiff, as
assignee in insolvency of "The Philippine Chemical Product Company" (Ltd.) is seeking to recover of the
defendant, Jean M. Poizat, the sum of P1,500, upon a subscription made by him to the corporate stock of
said company. It appears that the corporation in question was originally organized by several residents of
the city of Manila, where the company had its principal place of business, with a capital of P50,000, divided
into 500 shares. The defendant subscribed for 20 shares of the stock of the company, and paid in upon his
subscription the sum of P500, the par value of 5 shares. The action was brought to recover the amount
subscribed upon the remaining shares.

xxxx

No attempt is made in the Corporation Law to define the precise conditions under which an action may be
maintained upon a stock subscription, as such conditions should be determined with reference to the rules
governing contract liability in general; and where it appears as in this case that a matured stock subscription
is unpaid, none of the provisions contained in sections 38 to 48, inclusive, of Act No. 1459 can be permitted
to obstruct or impede the action to recover thereon. By virtue of the first subsection of section 36 of the
Insolvency Law (Act No. 1956) the assignee of the insolvent corporation succeeds to all the corporate rights
of action vested in the corporation prior to its insolvency; and the assignee therefore has the same freedom
with respect to suing upon a stock subscription as the directors themselves would have had under section
49 above cited.

But there is another reason why the present plaintiff must prevail in this case, even supposing that the
failure of the directors to comply with the requirements of the provisions of sections 38 to 48, inclusive, of
Act No. 1459 might have been an obstacle to a recovery by the corporation itself. That reason is this: When
insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up, all unpaid stock
subscriptions become payable on demand, and are at once recoverable in an action instituted by the
assignee or receiver appointed by the court. This rule apparently had its origin in a recognition of the
principle that a court of equity, having jurisdiction of the insolvency proceedings, could, if necessary, make
the call itself, in its capacity as successor to the powers exercised by the board of directors of the defunct
company. Later a further rule gained recognition to the effect that the receiver or assignee, in an action
instituted by proper authority, could himself proceed to collect the subscription without the necessity of
any prior call whether. This conclusion is well supported by reference to the following authorities:

"... a court of equity may enforce payment of stock subscriptions, although there have been no calls for
them by the company." (Hatch vs. Dana, 101 U.S., 205.)

"It is again insisted that plaintiffs cannot recover because the suit was not preceded by a call or assessment
against the defendant as a subscriber, and that until this is done no right of action accrues. In a suit by a
solvent going corporation to collect a subscription, and in certain suits provided by statute this would be
true; but it is now quite well settled that when the corporation becomes insolvent, with proceedings
instituted by creditors to wind up and distribute its assets, no call or assessment is necessary before the
institution of suits to collect unpaid balances on subscription." (Ross-Meehan Shoe F. Co. vs. Southern

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

Malleable Iron Co., 72 Fed., 957, 960; see also Henry vs. Vermillion etc. R. R. Co., 17 Ohio, 187, and
Thompson on Corporations, 2d ed., vol. 3, sec. 2697.)

It evidently cannot be permitted that a subscriber should escape from his lawful obligation by reason of the
failure of the officers of the corporation to perform their duty in making a call; and when the original mode
of making the call becomes impracticable, the obligation must be treated as due upon demand. If the
corporation were still an active entity, and this action should be dismissed for irregularity in the making of
the call, other steps could be taken by the board to cure the defect and another action could be brought;
but where the company is being wound up, no such procedure would be practicable. The better doctrine is
that when insolvency supervenes all unpaid subscriptions become at once due and enforceable.44
(Emphasis supplied)

In Philippine National Bank v. Bitulok Sawmill, Inc., et al., the Court allowed Philippine National
Bank, as creditor, to substitute the receiver of Philippine Lumber Distributing Agency in the
actions for the recovery from defendant lumber producers the balance of their stock
subscriptions and ordered the payment by the latter of their unpaid subscriptions, applying the
trust fund doctrine, viz.:

In Philippine Trust Co. v. Rivera, citing their leading case of Velasco v. Poizat, this Court held: "It is
established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors
have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action
upon any unpaid stock subscription in order to realize assets for the payment of its debt.... A corporation
has no power to release an original subscriber to its capital stock from the obligation of paying for his shares,
without a valuable consideration for such release; and as against creditors a reduction of the capital stock
can take place only in the manner and under the conditions prescribed by the statute or the charter or the
articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary...." The
Poizat doctrine found acceptance in latter cases. One of the latest cases, Lingayen Gulf Electric Power v.
Baltazar, speaks to this effect: "In the case of Velasco v. Poizat, the corporation involved was insolvent, in
which case all unpaid stock subscriptions become payable on demand and are immediately recoverable in
an action instituted by the assignee."

In Steinberg v. Velasco, the trust fund doctrine was impliedly applied in a situation wherein the
debtor corporation was not only insolvent, but its directors also acted in fraud of creditors when
they authorized the purchases of the corporation's capital stock from the stockholders and even
purchased and distributed dividends to the stockholders, leaving the creditors unpaid, viz.:

It is very apparent that on June 24, 1922, the board of directors acted on the assumption that, because it
appeared from the books of the corporation that it had accounts receivable of the face value of P19,126.02,
therefore it had a surplus over and above its debts and liabilities. But as stated there is no stipulation as to
the actual cash value of those accounts, and it does appear from the stipulation that on February 28, 1924,
P12,512.47 of those accounts had but little, if any, value, and it must be conceded that, in the purchase of
its own stock to the amount of P3,300 and in declaring the dividends to the amount of P3,000, the real
assets of the corporation were diminished P6,300. It also appears from paragraph 4 of the stipulation that
the corporation had a "surplus profit" of P3,314.72 only. It is further stipulated that the dividends should
"be made in installments so as not to affect financial condition of the corporation." In other words, that the
corporation did not then have an actual bona fide surplus from which the dividends could be paid, and that
the payment of them in full at that time would "affect the financial condition of the corporation."

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

It is, indeed, peculiar that the action of the board in purchasing the stock from the corporation and in
declaring the dividends on the stock was all done at the same meeting of the board of directors, and it
appears in those minutes that both Ganzon and Mendaros were formerly directors and resigned before the
board approved the purchase and declared the dividends, and that out of the whole 330 shares purchased,
Ganzon sold 100 and Mendaros 200, or a total of 300 shares out of the 330, which were purchased by the
corporation, and for which it paid P3,300. In other words, that the directors were permitted to resign so
that they could sell their stock to the corporation. As stated, the authorized capital stock was P20,000
divided into 2,000 shares of the par value of P10 each, of which only P10,030 was subscribed and paid.
Deducting the P3,300 paid for the purchase of the stock, there would be left P7,000 of paid up stock, from
which deduct P3,000 paid in dividends, there would be left P4,000 only. In this situation and upon this state
of facts, it is very apparent that the directors did not act in good faith or that they were grossly ignorant of
their duties.

Upon each of those points, the rule is well stated in Ruling Case Law, vol. 7, p. 473, section 454, where it is
said:

"General Duty to Exercise Reasonable Care. - The directors of a corporation are bound to care for its
property and manage its affairs in good faith, and for a violation of these duties resulting in waste of its
assets or injury to the property they are liable to account the same as other trustees. And there can be no
doubt that if they do acts clearly beyond their power, whereby loss ensues to the corporation, or dispose
of its property or pay away its money without authority, they will be required to make good the loss out of
their private estates. This is the rule where the disposition made of money or property of the corporation
is one either not within the lawful power of the corporation, or, if within the power of the corporation, is
not within the power or authority of the particular officer or officers."

And section 458 which says:

"Want of Knowledge, Skill, or Competency. - It has been said that directors are not liable for losses resulting
to the corporation from want of knowledge on their part; or for mistakes of judgment, provided they were
honest, and provided they are fairly within the scope of the powers and discretion confided to the managing
body. But the acceptance of the office of a director of a corporation implies a competent knowledge of the
duties assumed, and directors cannot excuse imprudence on the ground of their ignorance or inexperience;
and if they commit an error of judgment through mere recklessness or want of ordinary prudence or skill,
they may be held liable for the consequences. Like a mandatory, to whom he has been likened, a director
is bound not only to exercise proper care and diligence, but ordinary skill and judgment As he is bound to
exercise ordinary skill and judgment, he cannot set up that he did not possess them."

Creditors of a corporation have the right to assume that so long as there are outstanding debts and
liabilities, the board of directors will not use the assets of the corporation to purchase its own stock, and
that it will not declare dividends to stockholders when the corporation is insolvent.

From the foregoing disquisition, it is clear that a corporate creditor cannot immediately invoke
the trust fund doctrine to proceed against unpaid subscriptions of stockholders of the debtor
corporation without alleging and proving the corporation's insolvency or any of the other
acceptable grounds where the trust fund doctrine, theory or principle has been applied. The
observation that a corporation has the beneficial or equitable as well as the legal title of its capital
stock and is in business to make money for itself and its stockholders and not for its creditors is

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

well-taken. As well, the capital stock of a corporation is a trust to be managed during its corporate
life for the benefit of stockholders. It is only in the event of its dissolution or insolvency, does the
capital stock become a trust fund for the benefit of its creditors. Enano-Bote, et. al. vs. Alvarez,
G.R. 223572, November 10, 2020

The Court notes that the wording of the RCC reinforces the Court's interpretation that a
violation of Section 31 of the Corporation Code, now Section 30 of the RCC, is not covered by
Section 144 of the Corporation Code, now Section 170 of the RCC.

While Section 170 of the RCC now clarifies that the said Section applies to "Other Violations of
the Code" or "[violations of any of the other provisions of this Code or its amendments not
otherwise specifically penalized therein" and provides for "Separate Liability" to the effect that
"[l]iability for any of the foregoing offenses [or such violations] shall be separate from any other
administrative, civil, or criminal liability under this Code and other laws," such language is still
consistent with the violations contemplated under Section 144 of the Corporation Code —
"[v]iolations of any of the provisions of this Code or its amendments not otherwise specifically
penalized therein," the operative phrase "not otherwise specifically penalized therein" being
retained. Also, the civil liability provided under Section 31 of the Corporation Code — "liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons" and "liable as a trustee for the corporation and
must account for the profits which otherwise would have accrued to the corporation" — is
phrased similarly in Section 30 of the RCC. In either Section, no administrative or criminal liability
is provided. However, as stated earlier, under the RCC, there is now Section 158 on administrative
sanctions, above quoted, that the Commission can impose if, after due notice and hearing, it finds
that any provision of the RCC has been violated. Thus, under the RCC, the Commission has now
the authority to impose any or all of the foregoing sanctions in case "any provision of [the RCC,]
rules or regulations, or any of the Commission's orders has been violated x x x, taking into
consideration the extent of participation, nature, effects, frequency and seriousness of the
violation." UCPB vs. Secretary of Justice, G.R. No. 209601, January 12, 2021

As defined in the Implementing Rules and Regulations of the Securities Regulation Code (SRC-
IRR), beneficial owner or beneficial ownership means any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has or shares
voting power and/or investment returns or power.

The “beneficial owner or beneficial ownership” definition in the Implementing Rules and
Regulations of the Securities Regulation Code (SRC-IRR) is understood only in determining the

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

respective nationalities of the outstanding capital stock of a public utility corporation in order to
determine its compliance with the percentage of Filipino ownership required by the Constitution.
Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

The term “full beneficial ownership” found in the Foreign Investment Act-Implementing Rules
and Regulations (FIA-IRR) is to be understood in the context of the entire paragraph defining
the term “Philippine national.” Mere legal title is not enough to meet the required Filipino
equity, which means that it is not sufficient that a share is registered in the name of a Filipino
citizen or national, i.e., he should also have full beneficial ownership of the share.

If the voting right of a share held in the name of a Filipino citizen or national is assigned or
transferred to an alien, that share is not to be counted in the determination of the required
Filipino equity. In the same vein, if the dividends and other fruits and accessions of the share do
not accrue to a Filipino citizen or national, then that share is also to be excluded or not counted.
Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

If a “specific stock” is owned by a Filipino in the books of the corporation, but the stock’s voting
power or disposing power belongs to a foreigner, then that “specific stock” will not be deemed
as “beneficially owned” by a Filipino.

Given that beneficial ownership of the outstanding capital stock of the public utility corporation
has to be determined for purposes of compliance with the 60% Filipino ownership requirement,
the definition in the SRC-IRR can now be applied to resolve only the question of who is the
beneficial owner or who has beneficial ownership of each “specific stock” of the said corporation.
Thus, if a “specific stock” is owned by a Filipino in the books of the corporation, but the stock’s
voting power or disposing power belongs to a foreigner, then that “specific stock” will not be
deemed as “beneficially owned” by a Filipino. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246
November 22, 2016

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Justice Alfredo Benjamin S. Caguioa

If the Filipino has the “specific stock’s” voting power, or the Filipino has the investment power
over the “specific stock,” or he has both, then such Filipino is the “beneficial owner” of that
“specific stock” and that “specific stock” is considered as part of the sixty percent (60%) Filipino
ownership of the corporation.

If the Filipino has the “specific stock’s” voting power (he can vote the stock or direct another to
vote for him), or the Filipino has the investment power over the “specific stock” (he can dispose
of the stock or direct another to dispose it for him), or he has both (he can vote and dispose of
the “specific stock” or direct another to vote or dispose it for him), then such Filipino is the
“beneficial owner” of that “specific stock” — and that “specific stock” is considered (or counted)
as part of the 60% Filipino ownership of the corporation. In the end, all those “specific stocks”
that are determined to be Filipino (per definition of “beneficial owner” or “beneficial ownership”)
will be added together and their sum must be equivalent to at least 60% of the total outstanding
shares of stock entitled to vote in the election of directors and at least 60% of the total number
of outstanding shares of stock, whether or not entitled to vote in the election of directors. Roy
III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

On the application of the sixty-forty (60-40) Filipino-foreign ownership

To be sure, the application of the 60-40 Filipino-foreign ownership requirement separately to

each class of shares, whether common, preferred nonvoting, preferred voting or any other class
of shares fails to understand and appreciate the nature and features of stocks as financial
instruments. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

That stock corporations are allowed to create shares of different classes with varying features
is a flexibility that is granted, among others, for the corporation to attract and generate capital
(funds) from both local and foreign capital markets.

That stock corporations are allowed to create shares of different classes with varying features is
a flexibility that is granted, among others, for the corporation to attract and generate capital
(funds) from both local and foreign capital markets. This access to capital — which a stock
corporation may need for expansion, debt relief/repayment, working capital requirement and
other corporate pursuits — will be greatly eroded with further unwarranted limitations that are
not articulated in the Constitution. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November
22, 2016

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Justice Alfredo Benjamin S. Caguioa

As mandated by Section 11, Article XII of the Constitution, all the executive and managing
officers of a public utility company must be Filipinos. Thus, the all-Filipino management team
must first be convinced that any of the eight (8) corporate actions in Section 6 of the
Corporation Code will be to the best interest of the company.

In this regard, it should be noted that the 8 corporate matters enumerated in Section 6 of the
Corporation Code require, at the outset, a favorable recommendation by the management to the
board. As mandated by Section 11, Article XII of the Constitution, all the executive and managing
officers of a public utility company must be Filipinos. Thus, the all-Filipino management team
must first be convinced that any of the 8 corporate actions in Section 6 will be to the best interest
of the company. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

Allowing stockholders holding preferred shares without voting rights to vote in the eight (8)
corporate matters enumerated in Section 6 of the Corporation Code is an acknowledgment of
their right of ownership.

If the owners of preferred shares without right to vote/elect directors are not allowed to vote in
any of those 8 corporate actions, then they will not be entitled to the appraisal right provided
under Section 81 of the Corporation Code in the event that they dissent in the corporate act. Roy
III vs. Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

A too restrictive definition of “capital” will surely have a dampening effect on the business
milieu by eroding the flexibility inherent in the issuance of preferred shares with varying terms
and conditions.

As acknowledged in the Gamboa v. Teves, 652 SCRA 690 (2011) (Gamboa Decision), preferred
shareholders are merely investors in the company for income in the same manner as
bondholders. Without a lucrative package, including an attractive return of investment, preferred
shares will not be subscribed and the much-needed additional capital will be elusive. A too
restrictive definition of “capital,” one which was never contemplated in the Gamboa Decision,
will surely have a dampening effect on the business milieu by eroding the flexibility inherent in
the issuance of preferred shares with varying terms and conditions. Roy III vs. Herbosa, 810 SCRA
1, G.R. No. 207246 November 22, 2016

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CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

INTELLECTUAL PROPERTY

Dominancy Test has been incorporated in the IP Code.

Unfortunately, jurisprudence has not been consistent in saying what test should be used under
what circumstances such that either or both tests may viably be employed by the IPO or the
courts in finding resemblance between marks. As expertly outlined by Associate Justice Marvic
M.V.F. Leonen, there are contradictory lines of jurisprudence advocating the use of the
Dominancy Test alone, the Holistic Test alone, or both tests. There is also at least one case where
the Court did not use either test.

Needless to say, the current state of jurisprudence in deciding the resemblance of marks is
unclear. Out of the two tests, however, only the Dominancy Test has been incorporated in the IP
Code. This was discussed in McDonald's Corporation v. L.C. Big Mak Burger, Inc., where the Court
also observed its own reliance on the dominancy test, thus:

This Court, however, has relied on the dominancy test rather than the holistic test. The
dominancy test considers the dominant features in the competing marks in determining
whether they are confusingly similar. Under the dominancy test, courts give greater
weight to the similarity of the appearance of the product arising from the adoption of the
dominant features of the registered mark, disregarding minor differences. Courts will
consider more the aural and visual impressions created by the marks in the public mind,
giving little weight to factors like prices, quality, sales outlets and market segments.

xxxx

The test of dominancy is now explicitly incorporated into law in Section 155.1 of the
Intellectual Property Code which defines infringement as the "colorable imitation of a
registered mark x x x or a dominant feature thereof."

More than an indicator of a mere preference for the Dominancy Test, it appears that the
legislative intent in explicitly adopting the Dominancy Test was to abandon the Holistic Test
altogether, as can be seen in the legislative deliberations.

xxxx

Considering the adoption of the Dominancy Test and the abandonment of the Holistic Test, as
confirmed by the provisions of the IP Code and the legislative deliberations, the Court hereby
makes it crystal clear that the use of the Holistic Test in determining the resemblance of marks
has been abandoned. Kolin Electronics Co., Inc. vs. Kolin Philippines International, Inc., G.R.
228165, February 9, 2021

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

OTHER COMMERCIAL LAW RELATED CASES

Banks are required to exercise the highest degree of diligence in the conduct of their affairs.

It bears stressing that banks are required to exercise the highest degree of diligence in the
conduct of their affairs. The Court explained this exacting requirement in the recent case of
Philippine National Bank v. Vila, 799 SCRA 90 (2016), thus: In Land Bank of the Philippines v. Belle
Corporation, the Court exhorted banks to exercise the highest degree of diligence in its dealing
with properties offered as securities for the loan obligation: When the purchaser or the
mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more
strictly. Being in the business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the banking business is
impressed with public interest, they are expected to be more cautious, to exercise a higher
degree of diligence, care and prudence, than private individuals in their dealings, even those
involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence,
they cannot assume that, x x x the title offered as security is on its face free of any encumbrances
or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect
the properties to be mortgaged. As expected, the ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and indispensable part of the
bank’s operations. x x x We never fail to stress the remarkable significance of a banking
institution to commercial transactions, in particular, and to the country’s economy in general.
The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
and saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Consequently, the highest degree of diligence is expected,
and high standards of integrity and performance are even required, of it.

The Bank’s failure to exercise the diligence required of it constitutes negligence, and negates
its assertion that it is a mortgagee in good faith.

In loan transactions, banks have the particular obligation of ensuring that clients comply with all
the documentary requirements pertaining to the approval of their loan applications and the
subsequent release of their proceeds. If only the Bank exercised the highest degree of diligence
required by the nature of its business as a financial institution, it would have discovered that (i)
Golden Dragon did not comply with the approval requirement imposed by Section 18 of PD 957,
and (ii) that Rapanot already paid a reservation fee and had made several installment payments
in favor of Golden Dragon, with a view of acquiring Unit 2308-B2. The Bank’s failure to exercise
the diligence required of it constitutes negligence, and negates its assertion that it is a mortgagee
in good faith.

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

In the course of its everyday dealings, the Bank has surely been made aware of the approval
and notice requirements under Section 18 of Presidential Decree (PD) No. 957.

The Court can surely take judicial notice of the fact that commercial banks extend credit
accommodations to real estate developers on a regular basis. In the course of its everyday
dealings, the Bank has surely been made aware of the approval and notice requirements under
Section 18 of PD 957. At this juncture, this Court deems it necessary to stress that a person who
deliberately ignores a significant fact that could create suspicion in an otherwise reasonable
person cannot be deemed a mortgagee in good faith. The nature of the Bank’s business precludes
it from feigning ignorance of the need to confirm that such requirements are complied with prior
to the release of the loan in favor of Golden Dragon, in view of the exacting standard of diligence
it is required to exert in the conduct of its affairs. Prudential Bank (now Bank of the Philippine
Islands) vs. Rapanot, 814 SCRA 334, G.R. No. 191636 January 16, 2017

The sixty (60)-day prescriptive period under Section 28 of the Public Service Act can be availed
of as a defense only in criminal proceedings filed under Chapter IV thereof and not in
proceedings pertaining to the regulatory or administrative powers of the National
Telecommunications Commission (NTC) over a public service utility’s observance of the terms
and conditions of its Provisional Authority.

The Sambrano v. Public Service Commission, 6 SCRA 245 (1962), cited by petitioner GMA, has
already settled that the 60-day prescriptive period under Section 28 of the Public Service Act can
be availed of as a defense only in criminal proceedings filed under Chapter IV thereof and not in
proceedings pertaining to the regulatory or administrative powers of the NTC over a public
service utility’s observance of the terms and conditions of its Provisional Authority: This Court
has already held, in Collector of Internal Revenue el al. v. Buan, G.R. L-11438; and Sambrano v.
Public Service Commission, G.R. L-11439 and L-11542, decided on July 31, 1958, that the 60-day
prescriptive period fixed by Section 28 of the Public Service Law is available as a defense only in
criminal or penal proceedings filed under Chapter IV of the Act. Consequently, the Public Service
Commission is not barred from receiving evidence of the prescribed violations for the purpose of
determining whether an operator has or has not faithfully kept the conditions of his certificate
of permit, whether he failed or not to render the services he is required to furnish to the
customers, and whether or not the infractions are sufficient cause to cancel or modify the
certificate. Proceedings of this kind are held primarily to ensure adequate and efficient service as
well as to protect the public against the operator’s malfeasances or abuses; they are not penal in
character. True, the cancellation of the certificates may mean for an operator actual financial
hardship; yet the latter is merely incidental to the protection of the traveling public. Hence, in
refusing to admit evidence of prescribed violations as part of the complainant’s case against the
Philippine Rabbit Lines for a modification or cancellation of the latter’s permit, we hold that the

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

Commission committed error. GMA Network, Inc. vs. National Telecommunications

Commission, 839 SCRA 549, G.R. Nos. 192128 & 192135-36 September 13, 2017

A Provisional Authority refers to an authority given to an entity qualified to operate a public

utility for a limited period during the pendency of its application for, or before the issuance of
its Certificate of Public Convenience (CPC). It has a general scope because it is akin to a
provisional CPC in that it gives a public utility provider power to operate as such and be bound
by the laws and rules governing public utilities, pending issuance of its actual CPC.

Petitioner GMA finally insists that the subject broadcasting stations were operated with the
knowledge and direct authority of respondent NTC, as evidenced by the temporary permits
issued in their behalf. But this argument was likewise disregarded in GMA Network, Inc. v.
National Telecommunications Commission, 717 SCRA 435 (2014), when the Court ruled that a
temporary permit does not substitute for a Provisional Authority, viz.: [A] [Provisional Authority]
refers to an authority given to an entity qualified to operate a public utility for a limited period
during the pendency of its application for, or before the issuance of its Certificate of Public
Convenience (CPC). It has a general scope because it is akin to a provisional CPC in that it gives a
public utility provider power to operate as such and be bound by the laws and rules governing
public utilities, pending issuance of its actual CPC. On the other hand, a [T]emporary [P]ermit is
a document containing the call sign, authorized power, frequency/channel, class station, hours
of operation, points of communication and equipment particulars granted to an authorized
public utility. Its scope is more specific than a [Provisional Authority] because it contains details
and specifications under which a public utility [like petitioner] should operate [its tv/radio
station] pursuant to a previously updated [Provisional Authority]. GMA Network, Inc. vs.
National Telecommunications Commission, 839 SCRA 549, G.R. Nos. 192128 & 192135-36
September 13, 2017

The Supreme Court (SC) has held that the respondent National Telecommunications
Commission (NTC), being the government agency entrusted with the regulation of activities
coming under its special and technical forte, and possessing the necessary rulemaking power
to implement its objectives, is in the best position to interpret its own rules, regulations and
guidelines.

The Court has held that the respondent NTC, being the government agency entrusted with the
regulation of activities coming under its special and technical forte, and possessing the necessary
rulemaking power to implement its objectives, is in the best position to interpret its own rules,
regulations and guidelines. The Court has consistently yielded and accorded great respect to the

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 2022 BAR REVIEW COMMERCIAL LAW
CHAIR’S CASES Handout No. 28
Justice Alfredo Benjamin S. Caguioa

interpretation by administrative agencies of their own rules unless there is an error of law, abuse
of power, lack of jurisdiction or grave abuse of discretion clearly conflicting with the letter and
spirit of the law. GMA Network, Inc. vs. National Telecommunications Commission, 839 SCRA
549, G.R. Nos. 192128 & 192135-36 September 13, 2017

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