2022 FORECAST Commercial Law (Atty Aquino) - 1

COMMERCIAL LAW
from the doctrines and cases cited

during the lecture of Atty. Timoteo B. Aquino
Oct. 15, 2022
Article 2011 of the Civil Code expressly provides that insurance contracts shall be governed by
special laws; i.e., the Insurance Code; The only persons entitled to claim the insurance proceeds
are either the insured, if still alive or the beneficiary if the insured is already deceased upon the
maturation of the policy; Exception is where the insurance contract was intended to benefit
third persons who are not parties to the same in the form of favorable stipulations or indemnity.
It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that insurance
contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance
Code states—SECTION 53. The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made unless otherwise specified
in the policy. Pursuant thereto, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased,
upon the maturation of the policy. The exception to this rule is a situation where the insurance
contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from
the insurer. Heirs of Loreto C. Maramag vs. Maramag, 588 SCRA 774, G.R. No. 181132 June 5,
2009
No legal proscription exists in naming as beneficiaries the children of illicit relationships by the
insured.
The revocation of Eva as a beneficiary in one policy and her disqualification as such in another
are of no moment considering that the designation of the illegitimate children as beneficiaries in
Loreto’s insurance policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured, the shares of Eva in the insurance
proceeds, whether forfeited by the court in view of the prohibition on donations under Article
739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts,
must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion
of petitioners. It is only in cases where the insured has not designated any beneficiary, or when
the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the insured. Heirs of Loreto C. Maramag
vs. Maramag, 588 SCRA 774, G.R. No. 181132 June 5, 2009
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The general rule in insurance laws is that unless the premium is paid, the insurance policy is not
valid and binding.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. Just like any other
contract, it requires a cause or consideration. The consideration is the premium, which must be
paid at the time and in the way and manner specified in the policy. If not so paid, the policy will
lapse and be forfeited by its own terms. The law, however, limits the parties’ autonomy as to
when payment of premium may be made for the contract to take effect. The general rule in
insurance laws is that unless the premium is paid, the insurance policy is not valid and binding.
Gaisano vs. Development Insurance and Surety Corporation, 818 SCRA 603, G.R. No. 190702
February 27, 2017
The notice of the availability of the check, by itself, does not produce the effect of payment of
the premium.
Here, there is no dispute that the check was delivered to and was accepted by respondent’s
agent, Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made
at the time of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-
Pacific was informed that the check was ready for pickup on September 27, 1996, the notice of
the availability of the check, by itself, does not produce the effect of payment of the premium.
Trans-Pacific could not be considered in delay in accepting the check because when it informed
petitioner that it will only be able to pick up the check the next day, petitioner did not protest to
this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment
of premium yet to make the insurance policy effective. There are, of course, exceptions to the
rule that no insurance contract takes effect unless premium is paid. Gaisano vs. Development
Insurance and Surety Corporation, 818 SCRA 603, G.R. No. 190702 February 27, 2017
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by

an insurance company is valid and binding unless and until the premium thereof has been paid.
We cannot sustain petitioner’s claim that the parties agreed that the insurance contract is
immediately effective upon issuance despite nonpayment of the premiums. Even if there is a
waiver of prepayment of premiums, that in itself does not become an exception to Section 77,
unless the insured clearly gave a credit term or extension. This is the clear import of the fourth
exception in the UCPB General Insurance Co., Inc. v. Masagana Telemart, Inc., 356 SCRA 307
(2001). To rule otherwise would render nugatory the requirement in Section 77 that

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“[n]otwithstanding any agreement to the contrary, no policy or contract of insurance issued by

an insurance company is valid and binding unless and until the premium thereof has been paid.
Gaisano vs. Development Insurance and Surety Corporation, 818 SCRA 603, G.R. No. 190702
February 27, 2017
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Fraud is not to be presumed, for “otherwise, courts would be indulging in speculations and
surmises.”
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, “[i]t must be established by clear
and convincing evidence. . . [; a] 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. The Insular Assurance Co., Ltd. vs. Heirs of Jose H. Alvarez, 881 SCRA 516, G.R. No.
207526 October 3, 2018
A concealment, regardless of actual intent to defraud, “is equivalent to a false representation.”
Insular Life correctly notes that proof of fraudulent intent is unnecessary for the rescission of an
insurance contract on account of concealment. This is neither because intent to defraud is
intrinsically irrelevant in concealment, nor because concealment has nothing to do with fraud.
To the contrary, it is because in insurance contracts, concealing material facts is inherently
fraudulent: “if a material fact is actually known to the [insured], its concealment must of itself
necessarily be a fraud.” When one knows a material fact and conceals it, “it is difficult to see how
the inference of a fraudulent intent or intentional concealment can be avoided.” Thus, a
concealment, regardless of actual intent to defraud, “is equivalent to a false representation.” The
Insular Assurance Co., Ltd. vs. Heirs of Jose H. Alvarez, 881 SCRA 516, G.R. No. 207526 October
3, 2018

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Section 26 defines concealment as “[a] neglect to communicate that which a party knows and
ought to communicate.”
Section 26 defines concealment as “[a] neglect to communicate that which a party knows and
ought to communicate.” However, Alvarez did not withhold information on or neglect to state
his age. He made an actual declaration and assertion about it. The Insular Assurance Co., Ltd. vs.
Heirs of Jose H. Alvarez, 881 SCRA 516, G.R. No. 207526 October 3, 2018
A representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations.
What this case involves, instead, is an allegedly false representation. Section 44 of the Insurance
Code states, “A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.” If indeed Alvarez misdeclared his age such that his assertion fails to
correspond with his factual age, he made a false representation, not a concealment. The Insular
Assurance Co., Ltd. vs. Heirs of Jose H. Alvarez, 881 SCRA 516, G.R. No. 207526 October 3, 2018
Concealment applies only with respect to material facts.
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. The Insular Assurance Co., Ltd. vs. Heirs of Jose H. Alvarez, 881 SCRA 516, G.R.
No. 207526 October 3, 2018

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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. There may be a mistaken
impression, on the part of the insured, on the extent to which precision on one’s age may alter
the calculation of risks with definitiveness. Deliberation attendant to an apparently inaccurate
declaration is vital to ascertaining fraud. The Insular Assurance Co., Ltd. vs. Heirs of Jose H.
Alvarez, 881 SCRA 516, G.R. No. 207526 October 3, 2018
Bank clients are generally unaware of insurance policies such as a mortgage redemption
insurance unless brought to their knowledge by a bank.
The Regional Trial Court was correct in emphasizing that Alvarez entered into the Group
Mortgage Redemption Insurance entirely upon UnionBank’s prodding. Bank clients are generally
unaware of insurance policies such as a mortgage redemption insurance unless brought to their
knowledge by a bank. The processing of a mortgage redemption insurance was within
UnionBank’s regular course of business. It knew the import of truthfully and carefully
accomplished applications. To facilitate the principal contract of the loan and its accessory
obligations such as the real estate mortgage and the mortgage redemption insurance, UnionBank
completed credit appraisals and background checks. Thus, the Regional Trial Court was correct
in noting that UnionBank had been in possession of materials sufficient to inform itself of
Alvarez’s personal circumstances. The Insular Assurance Co., Ltd. vs. Heirs of Jose H. Alvarez,
881 SCRA 516, G.R. No. 207526 October 3, 2018
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In Manila Bankers Life Insurance Corporation v. Aban, 702 SCRA 417 (2013), the Supreme Court
(SC) held that if the insured dies within the two (2)-year contestability period, the insurer is
bound to make good its obligation under the policy, regardless of the presence or lack of
concealment or misrepresentation.
The Court held: Section 48 serves a noble purpose, as it regulates the actions of both the insurer
and the insured. Under the provision, an insurer is given two years — from the effectivity of a life
insurance contract and while the insured is alive — to discover or prove that the policy is void ab
initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the
insured or his agent. After the two-year period lapses, or when the insured dies within the period,
the insurer must make good on the policy, even though the policy was obtained by fraud,
concealment, or misrepresentation. This is not to say that insurance fraud must be rewarded, but
that insurers who recklessly and indiscriminately solicit and obtain business must be penalized,
for such recklessness and lack of discrimination ultimately work to the detriment of bona fide
takers of insurance and the public in general. Sun Life of Canada (Philippines), Inc. vs. Sibya, 793
SCRA 45, G.R. No. 211212 June 8, 2016
Concealment as a defense for the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the provider
or insurer.
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission
of the insurance contract. Concealment as a defense for the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In the present case, Sun Life failed to clearly and
satisfactorily establish its allegations, and is therefore liable to pay the proceeds of the insurance.
Sun Life of Canada (Philippines), Inc. vs. Sibya, 793 SCRA 45, G.R. No. 211212 June 8, 2016
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Subrogation’s legal effects under Article 2207 of the Civil Code are primarily between the
subrogee-insurer and the subrogor-insured: by virtue of the former’s payment of indemnity to
the latter, it is able to acquire, by operation of law, all rights of the subrogor-insured against
the debtor.
To expound, subrogation’s legal effects under Article 2207 of the Civil Code are primarily between
the subrogee-insurer and the subrogor-insured: by virtue of the former’s payment of indemnity
to the latter, it is able to acquire, by operation of law, all rights of the subrogor-insured against
the debtor. The debtor is a stranger to this juridical tie because it only remains bound by its
original obligation to its creditor whose rights, however, have already been assumed by the
subrogee. In Vector’s case, American Home was able to acquire ipso jure all the rights Caltex had
against Vector under their contract of affreightment by virtue of its payment of indemnity. If at
all, subrogation had the effect of obliging Caltex to respect this assumption of rights in that it
must now recognize that its rights against the debtor, i.e., Vector, had already been transferred
to American Home as the subrogee-insurer. In other words, by operation of Article 2207 of the
Civil Code, Caltex cannot deny American Home of its right to claim against Vector. However, the
subrogation of American Home to Caltex’s rights did not alter the original obligation between
Caltex and Vector. Henson, Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No.
223134 August 14, 2019
Subrogation, under Article 2207 of the Civil Code, operates as a form of “equitable assignment”
whereby “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.”
Despite its error, Vector had aptly cited the case of Pan Malayan Insurance Corporation v. CA
(Pan Malayan), 184 SCRA 54 (1990), wherein it was explained that subrogation, under Article
2207 of the Civil Code, operates as a form of “equitable assignment” whereby “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.” It is characterized as an
“equitable assignment” since it is an assignment of credit without the need of consent — as it
was, in fact, mentioned in Pan Malayan, “[t]he 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.” It is only to this extent that the equity
aspect of subrogation must be understood. Indeed, subrogation under Article 2207 of the Civil
Code allows the insurer, as the new creditor who assumes ipso jure the old creditor’s rights
without the need of any contract, to go after the debtor, but it does not mean that a new
obligation is created between the debtor and the insurer. Properly speaking, the insurer, as the
new creditor, remains bound by the limitations of the old creditor’s claims against the debtor,

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which includes, among others, the aspect of prescription. Hence, the debtor’s right to invoke the
defense of prescription cannot be circumvented by the mere expedient of successive payments
of certain insurers that purport to create new obligations when, in fact, what remains subsisting
is only the original obligation. Verily, equity should not be stretched to the prejudice of another.
Henson, Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No. 223134 August 14,
2019
To better understand the concept of legal subrogation under Article 2207 of the Civil Code as a
form of “equitable assignment,” it deserves mentioning that there exist intricate differences
between assignment and subrogation, both in their legal and conventional senses.
To better understand the concept of legal subrogation under Article 2207 of the Civil Code as a
form of “equitable assignment,” it deserves mentioning that there exist intricate differences
between assignment and subrogation, both in their legal and conventional senses. In Ledonio v.
Capitol Development Corporation, 526 SCRA 379 (2007): An assignment of credit has been
defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a
legal cause — such as sale, dation in payment or exchange or donation — and without need of
the debtor’s consent, transfers that credit and its accessory rights to another (known as the
assignee), who acquires the power to enforce it, to the same extent as the assignor could have
enforced it against the debtor. On the other hand, subrogation, by definition, is the transfer of
all the rights of the creditor to a third person, who substitutes him in all his rights. It may either
be legal or conventional. Legal subrogation is that which takes place without agreement but by
operation of law because of certain acts. Conventional subrogation is that which takes place by
agreement of parties. Henson, Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No.
223134 August 14, 2019
“Subrogation” and “Assignment of Credit,” Distinguished.
In an assignment of credit, the consent of the debtor is not necessary in order that the assignment
may fully produce legal effects (as notice to the debtor suffices); also, in assignment, no new
contractual relation between the assignee/new creditor and debtor is created. On the other
hand, in conventional subrogation, an agreement between all the parties concerning the
substitution of the new creditor is necessary. Meanwhile, legal subrogation produces the same
effects as assignment and also, no new obligation is created between the subrogee/new creditor
and debtor. As observed in commentaries on the subject: The effect of legal subrogation is to
transfer to the new creditor the credit and all the rights and actions that could have been
exercised by the former creditor either against the debtor or against third persons, be they

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guarantors or mortgagors. Simply stated, except only for the change in the person of the creditor,
the obligation subsists in all respects as before the novation. x x x Unlike assignment, however,
legal subrogation, to produce effects, does not need to be agreed upon by the subrogee and
subrogor, unlike the need of an agreement between the assignee and assignor. As mentioned,
“[l]egal subrogation is that which takes place without agreement but by operation of law because
of certain acts,” as in the case of payment of the insurer under Article 2207 of the Civil Code.
Henson, Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No. 223134 August 14,
2019
The insurer can take nothing by subrogation but the rights of the insured, and is subrogated
only to such rights as the insured possesses.
In sum, as legal subrogation is not equivalent to conventional subrogation, no new obligation is

created by virtue of the insurer’s payment under Article 2207 of the Civil Code; also, as legal
subrogation is not the same as an assignment of credit (as the former is in fact, called an
“equitable assignment”), no privity of contract is needed to produce its legal effects. Accordingly,
“the insurer can take nothing by subrogation but the rights of the insured, and is subrogated only
to such rights as the insured possesses. This principle has been frequently expressed in the form
that the rights of the insurer against the wrongdoer cannot rise higher than the rights of the
insured against such wrongdoer, since the insurer as subrogee, in contemplation of law, stands
in the place of the insured and succeeds to whatever rights he may have in the matter. Therefore,
any defense which a wrongdoer has against the insured is good against the insurer subrogated
to the rights of the insured,” and this would clearly include the defense of prescription. Henson,
Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No. 223134 August 14, 2019
Following the principles of subrogation, the insurer only steps into the shoes of the insured and
therefore, for purposes of prescription, inherits only the remaining period within which the
insured may file an action against the wrongdoer.
The Court must heretofore abandon the ruling in Vector that an insurer may file an action against
the tortfeasor within ten (10) years from the time the insurer indemnifies the insured. Following
the principles of subrogation, the insurer only steps into the shoes of the insured and therefore,
for purposes of prescription, inherits only the remaining period within which the insured may file
an action against the wrongdoer. To be sure, the prescriptive period of the action that the insured
may file against the wrongdoer begins at the time that the tort was committed and the loss/injury
occurred against the insured. The indemnification of the insured by the insurer only allows it to
be subrogated to the former’s rights, and does not create a new reckoning point for the cause of

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action that the insured originally has against the wrongdoer. Be that as it may, it should, however,
be clarified that this Court’s abandonment of the Vector doctrine should be prospective in
application for the reason that judicial decisions applying or interpreting the laws or the
Constitution, until reversed, shall form part of the legal system of the Philippines. Unto this Court
devolves the sole authority to interpret what the law means, and all persons are bound to follow
its interpretation. Henson, Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No.
223134 August 14, 2019
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Piercing the Veil of Corporate Fiction
Although a corporation has a personality separate and distinct from those of its stockholders,
directors, or officers, such separate and distinct personality is merely a fiction created by law for
the sake of convenience and to promote the ends of justice. The corporate personality may be
disregarded, and the individuals composing the corporation will be treated as individuals, if the
corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a
wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.
As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason
to the contrary appears. Thus, the courts always presume good faith, and for that reason accord
prime importance to the separate personality of the corporation, disregarding the corporate
personality only after the wrongdoing is first clearly and convincingly established. It thus
behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil
shall be done. Halley vs. Printwell, Inc., 649 SCRA 116, G.R. No. 157549 May 30, 2011
Trust Fund Doctrine
Under the trust fund doctrine, a corporation has no legal capacity to release an original subscriber
to its capital stock from the obligation of paying for his shares, in whole or in part, without a
valuable consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to
maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the
corporation for the satisfaction of its debt. Halley vs. Printwell, Inc., 649 SCRA 116, G.R. No.
157549 May 30, 2011

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The prevailing rule is that a stockholder is personally liable for the financial obligations of the
corporation to the extent of his unpaid subscription.
The prevailing rule is that a stockholder is personally liable for the financial obligations of the
corporation to the extent of his unpaid subscription. In view of the petitioner’s unpaid
subscription being worth P262,500.00, she was liable up to that amount. Halley vs. Printwell,
Inc., 649 SCRA 116, G.R. No. 157549 May 30, 2011
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It is the act of registration with Securities Exchange Commission (SEC) through the issuance of
a certificate of incorporation that marks the beginning of an entity’s corporate existence.
Jurisprudence settled that “[t]he filing of articles of incorporation and the issuance of the
certificate of incorporation are essential for the existence of a de facto corporation.” In fine, it is
the act of registration with SEC through the issuance of a certificate of incorporation that marks
the beginning of an entity’s corporate existence. Missionary Sisters of Our Lady of Fatima (Peach
Sisters of Laguna) vs. Alzona, 876 SCRA 309, G.R. No. 224307 August 6, 2018
A person who has assumed an obligation in favor of a nonexistent corporation, having

transacted with the latter as if it was duly incorporated, is prevented from denying the
existence of the latter to avoid the enforcement of the contract.
The doctrine of corporation by estoppel is founded on principles of equity and is designed to

prevent injustice and unfairness. It applies when a nonexistent corporation enters into contracts
or dealings with third persons. In which case, the person who has contracted or otherwise dealt
with the nonexistent corporation is estopped to deny the latter’s legal existence in any action
leading out of or involving such contract or dealing. While the doctrine is generally applied to
protect the sanctity of dealings with the public, nothing prevents its application in the reverse, in
fact the very wording of the law which sets forth the doctrine of corporation by estoppel permits
such interpretation. Such that a person who has assumed an obligation in favor of a nonexistent
corporation, having transacted with the latter as if it was duly incorporated, is prevented from
denying the existence of the latter to avoid the enforcement of the contract. Missionary Sisters
of Our Lady of Fatima (Peach Sisters of Laguna) vs. Alzona, 876 SCRA 309, G.R. No. 224307
August 6, 2018

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Jurisprudence dictates that the doctrine of corporation by estoppel applies for as long as there
is no fraud and when the existence of the association is attacked for causes attendant at the
time the contract or dealing sought to be enforced was entered into, and not thereafter.
Jurisprudence dictates that the doctrine of corporation by estoppel applies for as long as there is
no fraud and when the existence of the association is attacked for causes attendant at the time
the contract or dealing sought to be enforced was entered into, and not thereafter. In this
controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident from
the fact that Purificacion executed two (2) documents conveying her properties in favor of the
petitioner — first, on October 11, 1999 via handwritten letter, and second, on August 29, 2001
through a Deed; the latter having been executed the day after the petitioner filed its application
for registration with the SEC. Missionary Sisters of Our Lady of Fatima (Peach Sisters of Laguna)
vs. Alzona, 876 SCRA 309, G.R. No. 224307 August 6, 2018
The doctrine of corporation by estoppel rests on the idea that if the Supreme Court (SC) were
to disregard the existence of an entity which entered into a transaction with a third party,
unjust enrichment would result as some form of benefit have already accrued on the part of
one of the parties.
Thus, in that instance, the Court affords upon the unorganized entity corporate fiction and
juridical personality for the sole purpose of upholding the contract or transaction. In this case,
while the underlying contract which is sought to be enforced is that of a donation, and thus
rooted on liberality, it cannot be said that Purificacion, as the donor failed to acquire any benefit
therefrom so as to prevent the application of the doctrine of corporation by estoppel. To recall,
the subject properties were given by Purificacion, as a token of appreciation for the services
rendered to her during her illness. In fine, the subject deed partakes of the nature of a
remuneratory or compensatory donation, having been made “for the purpose of rewarding the
donee for past services, which services do not amount to a demandable debt.” Missionary Sisters
of Our Lady of Fatima (Peach Sisters of Laguna) vs. Alzona, 876 SCRA 309, G.R. No. 224307
August 6, 2018
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The main difference between a Health Maintenance Organization (HMO) and an insurance
company is that HMOs undertake to provide or arrange for the provision of medical services
through participating physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed limit.
The Court said that the main difference between an HMO and an insurance company is that
HMOs undertake to provide or arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit. In the present case, the VAT is a tax on the value
added by the performance of the service by the taxpayer. It is, thus, this service and the value
charged thereof by the taxpayer that is taxable under the NIRC. To be sure, there are pros and
cons in subjecting the entire amount of membership fees to VAT. But the Court’s task however
is not to weigh these policy considerations but to determine if these considerations in favor of
taxation can even be implied from the statute where the CIR purports to derive her authority.
This Court rules that they cannot because the language of the NIRC is pretty straightforward and
clear. Medicard Philippines, Inc. vs. Commissioner of Internal Revenue, 822 SCRA 444, G.R. No.
222743 April 5, 2017
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Definition of Common Carriers
The Civil Code defines “common carriers” in the following terms: “Article 1732. Common carriers
are persons, corporations, firms, or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air for compensation, offering their
services to the public.” The above article makes no distinction between one whose principal
business activity is the carrying of persons or goods or both, and one who does such carrying only
as an ancillary activity (in local idiom, as “a sideline”). Article 1732 also carefully avoids making
any distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such service on an occasional, episodic or unscheduled basis.
Neither does Article 1732 distinguish between a carrier offering its services to the “general
public,” i.e., the general community or population, and one who offers services or solicits
business only from a narrow segment of the general population. We think that Article 1733
deliberately refrained from making such distinctions. De Guzman vs. Court of Appeals, 168 SCRA
612, No. L-47822 December 22, 1988

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The concept of “common carrier” under Art. 1732 coincides with the notion of “Public Service”
under the Public Service Act (CA No. 1416).
So understood, the concept of “common carrier” under Article 1732 may be seen to coincide
neatly with the notion of “public service,” under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth in
the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, “public service” includes:
“x x x every person that now or hereafter may own, operate, manage, or control in the
Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier, railroad,
street railway, traction railway, subway motor vehicle, either for freight or passenger, or both,
with or without fixed route and whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard, marine repair shop,
wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat
and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services.
x x x.” De Guzman vs. Court of Appeals, 168 SCRA 612, No. L-47822 December 22, 1988
A certificate of public convenience is not a requisite for the incurring of liability under the Civil
Code provisions governing common carriers.
The Court of Appeals referred to the fact that private respondent held no certificate of public
convenience, and concluded he was not a common carrier. This is palpable error. A certificate of
public convenience is not a requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm acts as a common
carrier, without regard to whether or not such carrier has also complied with the requirements
of the applicable regulatory statute and implementing regulations and has been granted a
certificate of public convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary certificate of public
convenience, would be offensive to sound public policy; that would be to reward private
respondent precisely for failing to comply with applicable statutory requirements. The business
of a common carrier impinges directly and intimately upon the safety and well being and property
of those members of the general community who happen to deal with such carrier. The law
imposes duties and liabilities upon common carriers for the safety and protection of those who
utilize their services and the law cannot allow a common carrier to render such duties and
liabilities merely facultative by simply failing to obtain the necessary permits and authorizations.
De Guzman vs. Court of Appeals, 168 SCRA 612, No. L-47822 December 22, 1988

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Liability of common carriers in case of loss, destruction or deterioration or destruction of goods

they carry
Common carriers, “by the nature of their business and for reasons of public policy,” are held to a
very high degree of care and diligence (“extraordinary diligence”) in the carriage of goods as well
as of passengers. The specific import of extraordinary diligence in the care of goods transported
by a common carrier is, according to Article 1733, “further expressed in Articles 1734, 1735 and
1745, numbers 5, 6 and 7” of the Civil Code. Article 1734 establishes the general rule that
common carriers are responsible for the loss, destruction or deterioration of the goods which
they carry, “unless the same is due to any of the following causes only: (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; and (5) Order or act of
competent public authority.” It is important to point out that the above list of causes of loss,
destruction or deterioration which exempt the common carrier for responsibility therefor, is a
closed list. Causes falling outside the foregoing list, even if they appear to constitute a species of
force majeure, fall within the scope of Article 1735. De Guzman vs. Court of Appeals, 168 SCRA
612, No. L-47822 December 22, 1988
The hijacking of the carriers truck does not fall within any of the five (5) categories of exempting
causes in Art. 1734.
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged
in the instant case—the hijacking of the carrier’s truck—does not fall within any of the five (5)
categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking
of the carrier’s vehicle must be dealt with under the provisions of Article 1735, in other words,
that the private respondent as common carrier is presumed to have been at fault or to have acted
negligently. This presumption, however, may be overthrown by proof of extraordinary diligence
on the part of private respondent. De Guzman vs. Court of Appeals, 168 SCRA 612, No. L-47822
December 22, 1988
Under Art. 1745(6), a common carrier is held responsible even for acts of strangers like thieves
or robbers except where such thieves or robbers acted “with grave or irresistible threat,
violence or force.”
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article
1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745,

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numbers 4, 5 and 6. Article 1745 provides in relevant part: “Any of the following or similar
stipulations shall be considered unreasonable, unjust and contrary to public policy: xxx xxx xxx
(5) that the common carrier shall not be responsible for the acts or omissions of his or its
employees; (6) that the common carrier’s liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished;
and (7) that the common carrier shall not responsible for the loss, destruction or deterioration
of goods on account of the defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage.” Under Article 1745 (6) above, a common carrier is
held responsible and will not be allowed to divest or to diminish such responsibility—even for
acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted “with
grave or irresistible threat, violence or force.” We believe and so hold that the limits of the duty
of extraordinary diligence in the vigilance over the goods carried are reached where the goods
are lost as a result of a robbery which is attended by “grave or irresistible threat, violence or
force.” De Guzman vs. Court of Appeals, 168 SCRA 612, No. L-47822 December 22, 1988
Common carriers are not made absolute insurers against all risks of travel and of transport of
goods and are not liable for fortuitous events.
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as
quite beyond the control of the common carrier and properly regarded as a fortuitous event. It
is necessary to recall that even common carriers are not made absolute insurers against all risks
of travel and of transport of goods, and are not held liable for acts or events which cannot be
foreseen or are inevitable, provided that they shall have complied with the rigorous standard of
extraordinary diligence. We, therefore, agree with the result reached by the Court of Appeals
that private respondent Cendaña is not liable for the value of the undelivered merchandise which
was lost because of an event entirely beyond private respondent’s control. De Guzman vs. Court
of Appeals, 168 SCRA 612, No. L-47822 December 22, 1988
x-----------------------------------------------------------------------x
Reasonable time to leave carrier’s premises as construed.
Plaintiffs, husband and wife together with their minor daughters, namely, Milagros, 13 years old,
Raquel, about 4½ years old, and Fe, over 2 years old, boarded a Pambusco Bus, Upon reaching
their destination, plaintiffs and all their daughters alighted from the bus and the father led his

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companions to a shaded spot about four or five meters away f rom the vehicle. Father returned
to the bus to get a piece of baggage which was not unloaded when they alighted from the bus.
Raquel, the child that she was, must have followed the father. However although the father was
still on the running board of the bus awaiting for the conductor to give him the bag or bayong,
the bus started to run, so that the father had to jump down from the moving vehicle. It was at
this instance that the child, who must be near the bus, was run over and killed. Held: In the
circumstances, it cannot be said that the carrier’s agent had exercised to utmost diligence of a
very cautions person required by Article 1755 of the Civil Code to be observed by a common
carrier in the discharge of its obligation to transport safely its passengers. In the first place, the
driver, although stopping the bus, nevertheless did not put off the engine. Secondly, he started
to run the bus even before the bus conductor gave him the signal to go and while the latter was
still unloading part of the baggage of the passengers Mariano Beltran and family. The presence
of said passengers near the bus was not unreasonable and they are, therefore, to be considered
still passengers of the carrier, entitled to protection under their contract of carriage. La Mallorca
vs. Court of Appeals, et al., 17 SCRA 739, No. L-20761 July 27, 1966
x-----------------------------------------------------------------------x
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.

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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
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

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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
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

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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."
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

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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
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
x-----------------------------------------------------------------------x
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

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"[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
x-----------------------------------------------------------------------x
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
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

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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
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”)

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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
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

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COMMERCIAL LAW
Oct. 15, 2022
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
x-----------------------------------------------------------------------x
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

0917 – 894 53 56
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COMMERCIAL LAW
Oct. 15, 2022
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

0917 – 894 53 56
Page 26 of 26

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COMMERCIAL LAW

from the doctrines and cases cited

Legal Edge Bar Review 0942 – 949 91 76

Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by

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“[n]otwithstanding any agreement to the contrary, no policy or contract of insurance issued by

A concealment, regardless of actual intent to defraud, “is equivalent to a false representation.”

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Concealment applies only with respect to material facts.

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Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

“Subrogation” and “Assignment of Credit,” Distinguished.

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In sum, as legal subrogation is not equivalent to conventional subrogation, no new obligation is

Legal Edge Bar Review 0942 – 949 91 76

Piercing the Veil of Corporate Fiction

Trust Fund Doctrine

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A person who has assumed an obligation in favor of a nonexistent corporation, having

The doctrine of corporation by estoppel is founded on principles of equity and is designed to

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Definition of Common Carriers

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Legal Edge Bar Review 0942 – 949 91 76

Liability of common carriers in case of loss, destruction or deterioration or destruction of goods

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Reasonable time to leave carrier’s premises as construed.

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Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

And section 458 which says:

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Legal Edge Bar Review 0942 – 949 91 76

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

Legal Edge Bar Review 0942 – 949 91 76

Dominancy Test has been incorporated in the IP Code.

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

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