Bar Pointers for Review Perez

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BAR REVIEW POINTERS FOR 2016 By: HERNANDO B. PEREZ

CORPORATION I. Mendez vs. People, 726 SCRA 203 (PP) Sole or Single Proprietorship. – A sole proprietorship is a form of business organization conducted for profit by a single individual, and requires the proprietor or owner hereof to secure licenses and permits, register the business name, and pay taxes to the national government without acquiring juridical or legal personality of its own. (Mendez vs. People, 726 SCRA 203) II. What is the meaning of the doctrine of legal entity of corporations? (PP) It means that a corporation is a juridical person with a personality separate and distinct from that of each shareholder. It also means that the stockholders of a corporation are different from the corporation itself. (Section 2; Seaoil Petroleum Corp. vs. Autocorp Group, 569 SCRA 387, Oct. 17, 2008; SEC Opinions, Jan. 18, 1993 and June 18, 1993.) III. What are the consequences of the doctrine of legal entity? The consequences of the doctrine of legal entity regarding the separate identity of the corporation and its stockholders are as follows: 1.

The stockholders are not personally liable for the debts of the corporation and vice-versa.

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The stockholders are not liable for corporate acts unless otherwise provided by law. The stockholders are not the owners of corporate properties and assets.

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The stockholders cannot sell or maintain actions in their own name in connection with corporation affairs, business or property. Neither do stockholders have the right to recover possession of corporation property or to recover damages for injury to properties belonging to the corporation, and vice-versa.

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The property belonging to the corporation cannot be attached to satisfy the debt of a stockholder and vice versa, the latter having only an indirect interest in the assets and business of the former.

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IV.

Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014. (PP)

Separate personality: A stockholder, director, or representative does not became a party to a contract just because a corporation executed a contract through that stockholder, director or representative. Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation. ( Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014.) Illustration: BF Corporation entered into a contract with Shangri-la for the construction for the latter of a mall and multi-level parking structure along EDSA. Shangri-la defaulted in the payment of the construction of the said structure. Under the contract between the parties, whenever a dispute should arise between them, the matter should be submitted to arbitration. BF initiated arbitration proceedings between BF and Shangri-la. The directors of Shangri-la were included in the arbitration proceedings. The Arbitral Tribunal rendered a decision finding that BF failed to prove the existence of circumstances that render the directors of Shangri-la solidarily liable. Was the decision correct? RULING: The decision is correct. Shangri-la’s directors are not are not liable for the contractual obligations of Shangri-la to BF Corporation. A stockholder, director, or representative does not became a party to a contract just because a corporation executed a contract through that stockholder, director or representative. Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not personally liable for obligations and liabilities incurred on or in behalf of the corporation. ( Lanuza vs. BF Corporation, 737 SCRA 275, October 1, 2014.) V.

Explain the doctrine of “piercing the veil of corporate fiction”. “Piercing the veil of corporate fiction” means that while a corporation can not generally be made liable for acts or liabilities of its stockholders or members, and vice versa because a corporation has a personality separate and distinct from its stockholders or members, however, the corporate existence is disregarded under this doctrine where the corporation is formed or used for illegitimate purposes or justify wrong or evade a just and valid obligation. In such case, the corporation and the stockholders shall be considered as one and the same. (Vicmar Development Corp. vs. Elarcosa, 777 SCRA 239, Dec. 9, 2015) The doctrine of piercing the corporate veil applies only in three (3) basic instances, namely: a) when the separate and distinct corporate personality defeats public convenience, as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; b) in fraud cases, or when the corporate entity is used to justify a wrong, protect a fraud, or defend a crime; or

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c) is used in alter ego cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation. In the absence of malice, bad faith, such corporate officer cannot be made personally liable for corporate liabilities. (Prisma Construction & Dev. Corp. vs. Menchaves, 614 SCRA 590, March 9, 2010; Timoteo H. Sarona vs. National Labor Relations Commission, Royale Security Agency, et al., G.R. No. 185280, January 18, 2012. ) VI. Guillermo vs. Uson, G. R. No. 198967, March 7, 2016 (PP) Piercing the veil of corporate fiction. When the shield of a separate corporate identity is used to commit wrongdoing and opprobriously elude responsibility, the courts and legal authorities in a labor case have not hesitated to step in and shatter the said shield and deny the usual protections to the offending party, even after final judgment. The key element is the presence of fraud, malice or bad faith. (Guillermo vs. Uson, G. R. No. 198967, March 7, 2016) Illustration: Uson filed a complaint with the NLRC for illegal dismissal against his employer, Royal Class Ventures. The Labor Arbiter ruled in favor of Uson and ordered Royal Ventures to reinstate Uson to his former position. On the third Alias Writ of Execution to satisfy judgment, Uson asked to hold Guillermo and other officers liable to satisfy the decision which was granted. It appears that Guillermo was the owner of the said corporation which was alleged to be dissolved. The Labor Arbiter ruled that it pierced the veil of the corporate fiction of Royal Class Ventures and held Guillermo, in his personal capacity, jointly and severally liable with the corporation for the enforcement of the claims of Uson. It was found that Guillermo caused the dissolution of Royal Class Ventures to avoid the judgment of the Labor Arbiter. Was it proper to pierce the veil of corporation fiction of Royal Class Ventures? Ruling: The veil of corporate fiction can be pierced and responsible corporate directors and officers or even a separate but related corporation may be made solidarily liable in a labor case, even after final judgment and on execution, so long as it is established that such persons have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud, bad faith or malice in doing so. Bad faith, to connote liability, shall mean a dishonest purpose, moral obliquity and a conscious doing of wrong. Here, bad faith was evident on the part of Guillermo who appears to be the person responsible with all the dealings of Royal Class Ventures and the malicious dismissal of Uson. He was also the person responsible for the dissolution of the corporation to avoid the judgment of the Labor Arbiter. (Guillermo vs. Uson, G. R. No. 198967, March 7, 2016) VII.

Commissioner of Customs vs. Oilink International Corporation, 728 SCRA 471, July 2, 2014. (PP)

Alter Ego principle : Union Refinery Corporation (URC) was established on Sept. 15, 1966. It imported oil products. On January 11, 1996, Oilink was incorporated for manufacturing,

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importing, exporting oil and gas. URC and Oilink has interlocking directorate. On July 8, Customs Commissioner Tan made a final demand for the payment of P138 million plus from URC and Oilink and assessed both corporations. Oilink formally protested the assessment on the ground that it was not a party liable for the assessed deficiency taxes. Was the assessment on Oilink valid? RULING: The doctrine of piercing the veil of corporate fiction has no application here because of Commissioner of Customs did not establish that Oilink had been set up to avoid the payment of taxes or duties, or for purposes that would defeat public convenience, justify wrong, protest fraud, defend crime, confuse legitimate legal or juridical issues, or circumvent the law. (Commissioner of Customs vs. Oilink International Corporation, 728 SCRA 471, July 2, 2014.) IV.

Bank of Commerce vs. Marilyn P. Nite, G. R. No. 211535, July 22, 2015; 763 SCRA 620 (PP)

Doctrine of Separate Juridical Personality: The general rule is that a corporation is invested by law with a personality separate and distinct from that of the persons composing it, or from any other legal entity that it may be related to. The obligations of a corporation, acting through its directors, officers and employees are its own sole liabilities. Therefore, the corporation’s directors, officers, or employees are generally not personally liable for the obligations of the corporation. (Bank of Commerce vs. Marilyn P. Nite, G. R. No. 211535, July 22, 2015; 763 SCRA 620). Piercing the veil of corporate fiction: To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction, the bad faith or wrongdoing of the director must be established clearly and convincingly. (Bank of Commerce vs. Marilyn P. Nite, G. R. No. 211535, July 22, 2015; 763 SCRA 620) Illustration: Respondent Nite was the president of Bancapital Development Corporation (Bancap). Bancap sold treasury bills worth P250 M as a discounted price to Bank of Commerce (Bancom). Prior to that Bancom and Bancap had been dealing with each other as buyer and seller of treasury bills since 1991. Bancom fully paid the price but Bancap was able to deliver only P88 million worth of treasury bills. Respondent Nite was prosecuted criminally for violating Sec. 19 of BP Blg. 178 and estafa. Respondent was acquitted of both crtiminal charges but was declared civilly liable to Bancom in the amount of P162, the difference between P250 which was sold and P88 which was delivered. Respondent filed a partial motion for reconsideration and claimed that the rule on separate personality could not be disregarded absent proof that Bancap was used as a tool to commit fraud, injustice, or crime against Bancom. The motion was granted and so Bancom sought to have the ruling reversed. Issue: Could

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respondent Nite be personally liable for Bancap’s failure to deliver the full amount of treasury bills sold? Ruling: The transaction between Bancom and Bancap is an ordinary sale and the liability of Bancap springs from its contractual obligation to Bancom. Respondent Nite, in this case, cannot be held personally liable for Bancap’s obligation. Piercing the veil of corporation fiction and holding a director personally liable for the debts of the corporation require clear and convincing proof of the director’s bad faith or wrongdoing. The acquittal of Nite from estafa has already resolved the issue of fraud with finality. Thus, the element of deceit being non-existent in the case, such finding is held to be conclusive. Therefore, since the prosecution failed to prove that Nite acted in bad faith, Bancap’s liability cannot be made the former’s personal liability. (Bank of Commerce vs. Marilyn P. Nite, G. r. No. 211535, July 22, 2015; 763 SCRA 620). V.

Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc., G.R. No. 177493, March 19, 2014. J. Carpio ponente (PP) Facts: Livesey was promoted as Managing Director by CBB Philippines Strategic Property Services, Inc. (CBB). His salary was not paid. Livesey filed a case against CBB. CBB’s President, Elliot entered into a compromise agreement with Livesey. CBB paid only the first installment leaving two more installments unpaid. Livesey moved for the issuance of a writ of execution but was not enforced because CBB ceased its operation and another corporation, Binswanger Philippines, Inc. was organized. The key officers of CBB including its President, Elliot transferred to Binswanger and CBB’s business assumed by Binswanger. CBB stands for Chesterton Blumenauer Binswanger. Livesey asked that the writ of execution be served on Binswanger, Phil., Inc. which raised the defense of separate personality from that of CBB’s. May the veil of corporate fiction be pierced so that CBB and Binswanger may be considered as one and the same? ` Answer: The corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or intentions, in which case, the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. There is a definite link between the CBB’s closure and Binswanger Inc.’s establishment. CBB ceased to exist only in name and it was reconnected with the Binswanger Philippines, Inc. It was not just coincidence that Binswanger is engaged in the same line of business CBB embarked on: (1) it even holds office in the same building and on the very same floor where CBB once stood; (2) CBB’s key officers, Elliot, no less, and Catral moved over to Binswanger, performing the tasks they were doing at CVB; (3) notwithstanding the CBB’s closure, Binswanger’s Web Editor in an e-mail supplied information that Binswanger is “now known” as either CBB (Chesterton Bluemenauer Binsweanger or as Chestreton Petty, Ltd.) in the Philippines; (4) Binswanger’s takeover of CBB’s project with PNB. (Eric Godfrey Stanley Livesey vs. Binswanger Philippines, Inc., G.R. No. 177493, March 19, 2014. J. Carpio ponente)

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How may a corporation be established as a mere alter ego of another corporation or person? The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporation fiction may be allowed only if the following elements concur: (1) control – not mere stock control, but complete domination- not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit fraud or a wrong doing to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of the plaintiffs legal right; (3)

the said control and breach of duty must have proximately caused the injury or unjust loss complained of.

VII.

WPM International Trading, Inc. vs. Labayen, 735 SCRA 297, Sept. 17, 2015 (PP)

Alter Ego. Question: Manlapaz was the chairman, present and treasurer of WPM International Trading (WPM). WPM entered into a contract for the renovation of its Quickbite Divisoria store with CLN. Out of the P432,876 renovation cost only the amount of P320,000 was paid to CLN. CLN filed a case against WPM and Manlapaz, claiming that WPM was a mere alter ego of Manlapaz. Should the veil of corporate fiction be pierced? Answer: The plaintiff failed to prove that Manlapaz acting as president had absolute control over WPM. Even granting that he exercised a certain degree of control over the finances, policies and practices of WPM, in view of his position, as president, chairman and treasurer of the corporation, such control does not necessarily warrant piercing the veil of corporate fiction since there was not a single proof that WPM was formed to defraud CLN, or that Manlapaz was guilty of bad faith or fraud. (WPM International Trading, Inc. vs. Labayen, 735 SCRA 297, Sept. 17, 2015). VIII. (PNB, et al vs. Hydro, G. R. 167530, March 13, 2013. Justice Leonardo-de Castro). Facts: DBP and PNB foreclosed the mortgages on the properties of Marinduque Mining and Industrial Corp. (MMIC) as a result of which, DBP and PNB acquired substantially all the assets of MMIC. DBP and PNB organized NMIC and resumed operations of MMIC. DBP and PNB owned 67% and 43% of NMIC. All the directors of NMIC were nominated either by DBP or PNB. Zosa, a director of NMIC was also Governor of DBP and was signing contracts in behalf of NMIC. NMIC engaged services of Hercon for the former’s mine stripping and road construction program. NMIC had unpaid balance in favor of Hercon which filed a case against

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NMIC, DBP and PNB claiming that NMIC was a mere alter ego of DBP and PNB. Should the action against DBP and PNB prosper? Answer: Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing the corporate veil. Nothing in the records shows that the corporate finances, policies and practices of NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to have no separate mind, will or existence of its own but a mere conduit for DBP or PNB. Hence, the action against DBP or PNB cannot prosper. (PNB, et al vs. Hydro, G. R. 167530, March 13, 2013. Justice Leonardo-de Castro). IX.

Is the mere fact that a single person owns or controls one or more corporation or substantial identity of incorporators of two corporations, sufficient to disregard the separate personalities of the corporations? Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality. The substantial identity of the incorporators of two or more corporations does not imply that there was fraud so as to justify the piercing of the writ of corporate fiction. To disregard the said separate juridical personality, the wrong doing must be proven clearly and convincingly. (Rosales, et al. vs. New A. N. J. H. Enterprises, 767 SCRA 149, August 18, 2015, J. Velasco, ponente). X. (Rosales, et al. vs. New A. N. J. H. Enterprises, 767 SCRA 149, August 18, 2015, J. Velasco, ponente). Respondent New ANJH Enterprises is a sole proprietorship owned by respondent Noel Awayan. Allegedly due to dwindling capital, on Feb. 11, 2010 Noel informed Dole as well as his employees of the impending cessation of operation effective March 5, 2010. On March 15, 2010 Noel assigned the equipment, tools and machines used by New ANJH to NH Oil, a new corporation whose articles of incorporation was prepared on Jan. 27, 2010 with Noel owning more than 2/3 of the subscribed capital stock. The remaining shares had been subscribed by Noel’s sister, Heidi and other members of the Awayan family. Petitioners filed a case for illegal dismissal on the ground that while New ANJ stopped operations, it resumed operation as NH Oil using the same machineries with the same owners and management. Issue: Should the corporate identity of NH Oil be pierced? Ruling: The application of the doctrine of piercing the veil of corporate fiction is frowned upon. However, this Court will not hesitate to disregard the corporate fiction if it is used to such an extent that injustice, fraud, or crime is committed against another in disregard of his rights. Petitioners were terminated from employment because of the impending permanent

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closure of the business. However, the buyer of the assets of their employer was a corporation owned by the same employer and members of his family. Furthermore, the business reopened in less than a month under the same management. In this case, circumstances show that the buyer of the assets of petitioners’ employer is none other than his alter ego. The court is compelled to remove NH Oil’s corporate mask as it had become and was used as, a shield for fraud, illegality and inequity against the petitioners. (Rosales, et al. vs. New A. N. J. H. Enterprises, 767 SCRA 149, August 18, 2015, J. Velasco, ponente). XI.

(Magallanes Watercraft Association, Inc. vs. Auguis, et al., G. R. No. 211485, May 30, 2016). What are the powers of a corporation? A corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest of welfare of the corporation. (Magallanes Watercraft Association, Inc. vs. Auguis, et al., G. R. No. 211485, May 30, 2016). Illustration: Petitioner Magallanes Watercraft Association, Inc. (MWAI) is a local association of motorized banca owners and operators ferrying cargoes and passengers from Magallanes, Agusan del Norte to Butuan City. Respondents Auguis and Basnig were members and officers of MWAI. For refusal of the respondents to pay the association dues and berthing fees, petitioner suspended the rights and privileges of the respondents. Respondents claimed that the petitioner did not have the power to suspend the respondents and hence, such suspension was an ultra vires act of a corporation because neither the articles of incorporation or by-laws of the petitioner vested it the power or authority to recommend disciplinary action on delinquent officers and/or members. Ruling: A corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest of welfare of the corporation. (Magallanes Watercraft Association, Inc. vs. Auguis, et al., G. R. No. 211485, May 30, 2016). XII.

University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No. 194964-65, January 11, 2016, J. Leonen, ponente.

May an educational institution secure the loans of third persons? As a rule an educational institution may not secure the loans of third persons. Securing loans of third persons is not among the purposes for which an educational institution was established. (University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No. 194964-65, January 11, 2016, J. Leonen, ponente.) Effect of act of a corporation which is not provided for in the articles of incorporation or the law. Corporations are artificial entities granted legal personalities upon their creation by their incorporators in accordance with law. Unlike natural persons, they have no inherent powers. Third persons dealing with corporations cannot assume that corporations have powers. It is up to those persons dealing with corporations to determine their competence as expressly defined by law and their articles of incorporation. A corporation may exercise its

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powers only within those definitions. Corporate acts that are outside those express definitions under the law or articles of incorporation is created are ultra vires. The only exception is when acts are necessary and incidental to carry out a corporation’s purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation’s articles of incorporation. (University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No. 194964-65, January 11, 2016, J. Leonen, ponente.) IV.

What are the tests to determine the nationality of a corporation?

Nationality of a corporation is determined either by: 1. Incorporation test wherein the nationality of a corporation is determined by the state of incorporation, regardless of the nationality of the stockholders, or 2. Domicile test wherein the nationality of a corporation is determined by the state where it is domiciled, or 3. Control test wherein the nationality of the controlling stockholders or members determines the nationality of the corporation. In the Philippines, the control test is being applied. Thus, for purposes of determining compliance with the citizenship requirements of law, the nationality of the controlling stockholders or members is the determining factor. (Narra Nickel Mining, et al., vs. Redmont Consolidated Mines, G. R. No. 195580, April 21, 2014). V.

What is the “grandfather rule” in determining the nationality of a corporation?

The “grandfather rule” of determining the nationality of a corporation traces the nationality of the stockholders of investor corporations so as to ascertain the nationality of the corporation where the investment is made. Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. Thus, if 100,000 shares are registered in the name of a corporation or partnership at least 60% of the capital stock or capital, of which belong to Filipino citizens, all of the shall be recorded as owned by Filipinos. But if less than 60%, or say, 50% of the capital stock or capital of the corporation or partnership belongs to Filipino citizens, only 50,000 shares shall be counted as owned by Filipinos and the other 50,000 shall be recorded as belonging to aliens. (Narra Nickel Mining, et al., vs. Redmont Consolidated Mines, G. R. No. 195580, April 21, 2014). The “grandfather rule” should be applied only when there is a problem on the nationality of the investor-corporation itself. Thus, if the Filipino ownership in a corporation that invests in another corporation engaged in the development or exploitation of natural resources is below the

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legal requirement of 60%, its Filipino ownership is equivalent only to same extent or percentage. However, if the investor corporation is at least 60% Filipino-owned, its entire shareholding in the investee corporation is to be considered Filipino-owned. When the 60-40 Filipino- foreign equity is not in doubt, the Grandfather Rule will not apply. (Narra Nickel Mining, et al., vs. Redmont Consolidated Mines, G. R. No. 195580, April 21, 2014). VI.

When are officers of a corporation solidarily liable with the corporation?

The solidary liability may be incurred, but only under the following exceptional circumstances: 1) When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; 3) When a director, trustee or officers has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; 4) When a director, trustee or officer is made, by specific provision of law, personally liable for his personal action. (Pioneer Insurance & Surety Corp. vs. Morning Star Travel & Tours, Inc., 762 SCRA 283, July 8, 2015. ) VII.

Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015. (PP)

Piercing the veil of corporate fiction. Piercing the corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires that the “bad faith or wrongdoing of the director must be established clearly and convincingly [as] bad faith is never presumed”. (Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015.) VIII. (Rivera vs. Genesis Transport Services, Inc., 764 SCRA, August 3, 2015; Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015.) Piercing the corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires that the “bad faith or wrongdoing of the director must be established clearly and convincingly [as] bad faith is never presumed”. (Rivera vs. Genesis Transport Services, Inc., 764 SCRA, August 3, 2015; Pioneer Insurance & Surety Corporation vs. Morning Star Travel & Tours, Inc., et al., 762 SCRA 283, July 8, 2015.)

IX.

(Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, J. Velasco, concurring).

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Q. When is there a sale of all or substantially all of the assets of the corporation? A. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. (Concurring opinion of J. Velasco in Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, citing Sec. 40, par. 2 of the Corporation Code). Nell Doctrine. The Nell Doctrine states the rule that the transfer of all the assets of a corporation to another shall not render the latter liable to the liabilities of the transferor except: (1) Where the purchaser expressly or impliedly agrees to assume such debts; (2) Where the transaction amounts to a consolidation or merger of corporations; (3) Where the purchasing corporation is merely a continuation of the selling corporation; and (4) Where the transaction is entered into fraudulently in order to escape liability for such debts. Thus, despite the sale of all corporate assets, the transferee corporation cannot be prejudiced as it is not in privity with the contracts between the transferor corporation and its creditors except in the instances mentioned above. (Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, J. Velasco, concurring). Illustration: MADCI, a real estate development corporation offered for sale shares of a golf and country club. Yu bought several shares. Upon full payment of the shares to MADCI, Yu visited the supposed site of the golf and country club and discovered that it was nonexistent. Despite demand for refund, Yu did not receive any refund. All the assets of MADCI consisting of 120 hectares of land were sold to YIL, YILPI AND YICRI (YATS Group). Issue: Should YATS Group be held jointly and severally liable to Yu despite the absence of fraud in the sale of assets and bad faith on the YATS Group. RULING: Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) Where the purchaser expressly or impliedly agrees to assume such debts; (2) Where the transaction amounts to a consolidation or merger of corporations; (3) Where the purchasing corporation is merely a continuation of the selling corporation; and (4) Where the transaction is entered into fraudulently in order to escape liability for such debts. The aforesaid principle is called the Nell Doctrine. YATS Group is liable jointly and severally to Yu because it is merely a continuation of the business of MADCI, despite the lack of fraud. (Y-I Leisure Philippines, Inc., vs. Yu, 770 SCRA 56, September 8, 2015, J. Velasco, concurring). NOTE: In the concurring opinion of Justice Velasco, he stated – The element of fraud, however is not required in order for the transferee to be liable under Section 40 of the Corporation Code, as previously mentioned. This is so since the basis for the liability thereon is not that the transfer was done in fraud of creditors but that it included the goodwill of the transferor, and to protect the creditors of the transferor since the alienation effectively removes the transferor’s properties from its creditors’ reach. The sale between MADCI and petitioners of the 120-hectare property was a business enterprise transfer contemplated under Section 40 of the Corporation Code, which results in the solidary assumption by petitioners of MADCI’s admitted obligation. (Ibid.)

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X.

Valley Golf & Country Club vs. Reyes, 774 SCRA 214, Nov. 10, 2015.

Nature of membership in non-stock corporation. Membership in a non-stock corporation is a property right and as such, public policy demands that its termination must be done in accordance with substantial justice. Since the termination of membership in a non-stock corporation is linked to the deprivation of property rights over the share, the emergence of such adverse consequences make legal and equitable standards come to fore. (Valley Golf & Country Club vs. Reyes, 774 SCRA 214, Nov. 10, 2015) Illustration: Valley Golf and Country Club is a non-stock, non-profit corporation which operates a golf course. The members and their guests are entitled to play golf and avail of the facilities and privileges provided by the golf club. The members are assessed monthly membership dues. Reyes purchased one membership share in Valley Golf. Reyes became delinquent in paying the membership dues. Desirous to transfer ownership of his share, Reyes inquired with the Club the status of his membership. He learned that Valley Golf sold his share at public auction due to delinquency in the payment of membership dues. Reyes claimed he was not notified of the sale at public auction. Valley Golf maintained that it sent notice to Reyes by registered mail but without any proof as to who received it. Was the sale of Reyes’ share valid? Ruling: Termination of membership in a non-stock corporation constitutes an infringement of property rights which one should not be deprived of without conforming with the demands of substantial justice. A person’s share in a golf club is a property right which he cannot be deprived of without affording him the benefit of due process. Hence, a delinquent member should first be afforded the opportunity to settle his unpaid obligation by notifying him of the delinquency before the penalty of termination of membership thru the sale of share in a public auction can be meted out. In other words, no sale on public auction involving the share of unduly notified shareholder can be validly conducted. The sale of Reyes’ share in Valley Golf was not valid. (Valley Golf & Country Club vs. Reyes, 774 SCRA 214, Nov. 10, 2015) XI.

GSIS Family Bank vs. BPI Family Bank. G. R. No. 175278, September 23, 2015. (PP)

Corporate name – No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name. Hence, Royal Savings Bank cannot change its name to “GSIS Family Bank” in 2002 since 17 years before, “Family Savings Bank” was incorporated and later changed to BPI Family Savings Bank in 1985 and thus, the latter has the prior right over the use of the said corporate name. (GSIS Family Bank vs. BPI Family Bank. G. R. No. 175278, September 23, 2015.)

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XII.

Bernas, et al. vs. Cinco, , G. R. Nos. 163356-57, July 1, 2015, 761 SCRA 104 (PP)

Removal of Directors: Q. How may a director be removed? A. Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation is a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote, provided that such removal shall take place either at a regular or special meeting called for the purpose. Removal may be with or without cause provided such removal may not be used to deprive minority representation. Such meeting may be called by the (1) secretary on order of the president or (2) on written demand of the stockholders representing or holding at least a majority of the outstanding capital stock or if non-stock corporation on written demand of majority of the members. (Sec. 28, Corporation Code; Bernas vs. Cinco, G. R. Nos. 163356-57, July 1, 2015, 761 SCRA 104). Illustration: As a result of alleged mishandling of corporate funds, stockholders of the Makati Sports Club (MSC) representing at least 100 shares sought the assistance of the MSC Oversight Committee (MSCOC) in calling for a special stockholders’ meeting for the purpose of electing a new set of officers, thereby removing the Bernas Group from the Board of Directors and Officers of the Corporation. The MSCOC thus called a special stockholders’ meeting wherein the members of the Bernas Group were removed from office and replaced by the Cinco Group. The term of the Bernas Group was supposed to expire in 1998 or 1999 but the Cinco Group took office after they were elected on December 17, 1997. In the annual stockholders’ meeting subsequently held on April 20, 1998, at which 2/3 of stockholders were present, the majority approved and ratified the calling and holding of December 17, 1997 special stockholders’ meeting, including the removal of the Bernas Group and the election of their replacements. The Bernas Group filed an action with the SEC claiming that the MSCOC is not vested with the power to call for the corporate meetings as the authority lies with the corporate secretary. Issues: (1) Was the removal of the Bernas Group valid? (2) Was the stockholders’ ratification of the removal of the directors valid? Ruling: (1) While directors may be removed with or without cause, however the meeting for the removal of directors must be done in accordance with the law or the by-laws of the corporation. Neither the Corporation Code nor the MSC by-laws authorizes MSCOC to exercise the power to call a special meeting for the purpose of removing directors of MSC. The defect goes into the very authority of the persons who made the call for the meeting. The removal was not valid. (2) A distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals or public policy or public duty, and are like similar transactions between individuals, void. They cannot serve as basis of a court

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action nor acquire validity by performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may became binding and enforceable when ratified by the stockholders. The December 1997 meeting is void ab initio and cannot be validated. The removal of the Bernas Group is void. (Bernas vs. Cinco, G. R. Nos. 163356-57, July 1, 2015, 761 SCRA 104). XIII. Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014 (PP) Derivative suit: A derivative suit is an action filed by stockholders to enforce a corporate action. It is an exception to the general rule that the corporation’s power to sue is exercised only by the board of directors or trustees. Individual stockholders may be allowed to sue on behalf of the corporation whenever the directors or officers of the corporation refuse to sue to vindicate the rights of the corporation. It is allowed when the “directors (or officers) are guilty of breach of trust, not of mere error of judgment. In derivative suits, the real party-ininterest is the corporation, and the suing stockholder is a mere nominal party. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014). Requisites of Derivative suit: A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time of the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws of the corporation to obtain the relief he desires; (3) No appraisal rights are available for the acts complained of and (4) The suit is not a nuisance or harassment suit, and (5) The action brought by the stockholder or member must be in the name of the corporation or association. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014). Reasons for disallowing individual suits to enforce remedies for the corporation: The reasons for disallowing direct individual suit are: (1) A stockholder in a corporation has no title legal or equitable to the corporate property; to allow shareholders to sue separately would conflict with the separate corporate entity principle; (2) Prior rights of the creditors may be prejudiced; (3) Filing of such suit would conflict with the duty of the management to sue; (3) Cause multiplicity of suits, and (5) would cause confusion in ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014). Illustration: Pasig Printing Corporation (PPC) obtained an option to lease Mid-Pasig’s property which includes the Rockland area. PPC’s board of directors issued a resolution waiving all its rights, interests and participation in the option to lease Mid-Pasig’s property in favor of Villamor. PPC received no consideration for this waiver in favor of Villamor. PPC represented by Villamor entered into a Memorandum of Agreement with MC Home Depot under which it will

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continue to occupy the area as PPC’s sub-leasee for 4 years at monthly rental of P4.5 million plus goodwill of P18 million. MC Home Depot issued postdated checks for the rentals and goodwill and gave them to Villamor who did not turn over to PPC the amount of the checks upon encashment. Balmores, a stockholder and director of PPC wrote a letter to the directors of PPC informing them that Villamor should be made deliver to PPC the value of the checks issued by MC Home Depot. Due to inaction of the directors, Balmores filed an intra-corporate controversy complaint with the Regional Trial Court against the directors and Villamor. He prayed that a receiver be appointed because PPC’s assets were not only in imminent danger, but actually been dissipated, lost, wasted and destroyed. RTC ruled against Balmores who brought the case to the Court of Appeals. The Court of Appeals ruled that the case filed by Balmores was a derivative suit because there were allegations of fraud or ultra vires acts. Was the action filed by Balmores a derivative suit? RULING: The action filed by Balmores was not a derivative suit. In derivative suits, the real party-in-interest is the corporation, and the suing stockholder is a mere nominal party. Balmores failed to show that he exhausted all administrative remedies. Though he tried to communicate with PPC’s directors about the checks in Villamor’s possession before he filed an action, Balmores was not able to show that this comprised all the remedies available under the articles of incorporation, by-laws, laws or rules governing PPC. Balmores also did not implead PPC as a party in the case nor did he allege that he was filing on behalf of the corporation. (Villamor, Jr. vs. Umale, 736 SCRA 325, September 24, 2014). XIV. Ching vs. Subic Bay Golf and Country Club, Inc., 734 SCRA 569, Sept. 10. 2014. Leonardo-de Castro, ponente (PP) Derivative suit. The legal standing of minority stockholders to bring derivative suits is not a statutory right, there being no provision in the Corporation Code or related statutes authorizing the same, but is instead a product of jurisprudence cased on equity. However, a derivative suit cannot prosper without first complying with the legal requisites for its institution. (Ching vs. Subic Bay Golf and Country Club, Inc., 734 SCRA 569, Sept. 10. 2014) Question: What is the effect of the failure of the petitioners to state with particularity in the Complaint that they had exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, bylaws, and laws or rules governing the corporation to obtain the relief they desire? Answer: Where the complaint contained no allegation whatsoever of any effort to avail of intra-corporate remedies, the case should be dismissed. Even if petitioners thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the Complaint and specified the reasons for such opinion. Failure to do allows the court to dismiss the Complaint, even motu propio. The requirement of this allegation in the Complaint is not a useless formality which may be disregarded at will. (Ching vs. Subic Bay Golf and Country Club, Inc., 734 SCRA 569, Sept. 10. 2014)

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XV.

Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, 726 SCRA 623 (PP)

Merger: In a merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved, and all its rights, properties, and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed or merged corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights, privileges, and powers, as well as their liabilities. (Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, 726 SCRA 623, Sept. 29, 2014). XVI. Anna Teng vs. SEC, G. R. No. 184332, Feb. 17, 2016. Must the stock certificate be required to be surrendered before the transfer thereof can be recorded in the books of the corporation? Under Sec. 63 of the Corporation Code, certain minimum requisites must be complied with before there could be a valid transfer of stocks, to wit: (a) there must be delivery of the stock certificate; (b) the certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be valid against third parties, the transfer must be recorded in the books of the corporation. It is the delivery of the certificate, coupled with the endorsement by the owner or his duly authorized representative that is the operative act of transfer of shares from the original owner to the transferees. The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the transferor to the transferee, that is, from the original stockholder named in the certificate to the person or entitle the stockholder was transferring the shares to, whether by sale or some other form of absolute conveyance of ownership. Shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferees by delivery of the duly indorsed certificate of stock. (Anna Teng vs. SEC, G. R. No. 184332, Feb. 17, 2016.) Illustration: Ting Ping purchased shares of stock in TCL Sales Corporation. Ting Ping requested TCL’s Corporate Secretary to enter the said transfer in the Stock and Transfer Book of the Corporation. When the Corporate Secretary refused despite repeated demands, Ting Ping filed an action for Mandamus against TCL and its Corporate Secretary, Teng. Judgment was rendered in favor of Ting Ping. Teng’s position is that Ting Ping must first surrender the certificates of stock purchased before the transfer to Ting Ping may be transferred in the books of the corporation. Ting Ping on the other hand, manifested his intention to surrender the subject certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates in his name. Issue: Is the delivery or surrender of the stock certificate from Ting Ping to TCL necessary before the conveyance may be recorded in its books? Ruling: The delivery or surrender of the stock certificates from Ting Ping to TCL is not a requisite before the conveyance

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may be recorded in it books. To compel Ting Ping to deliver to the corporation the certificates as a condition for the registration of the transfer would amount to a restriction on the right of Ting Ping to have the stocks transferred to his name, which is not sanctioned by law. The only limitation imposed by Section 63 is when the corporation holds any unpaid claim against the shares intended to be transferred. Besides Ting Ping manifested his intention to surrender the subject certificates of stock to facilitate the registration of the transfer and for the issuance of new certificates in his name. (Anna Teng vs. SEC, G. R. No. 184332, Feb. 17, 2016.) XVII. Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016. (PP) When will transfer of shares bind the corporation and third persons? A transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is mandated by law to recognize arises. (Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016.) Exception when the corporation is bound by unrecorded transfer of shares. However, Section 63 of the Corporation Code will not apply if it is the corporation itself who unduly refused to accept the tender of payments of stocks and unduly refused to recognize the assignment of rights based on Subscription Agreements it issued. This provision could not be the source of rights of corporations who employed dubious machinations to justify their refusal. (Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016.) Illustration. Oceanic and respondent R. C. Lee entered into a subscription agreement covering 5,000,000 shares of stock wherein the latter paid only 25% of the subscription. Later, Oceanic merged with Interport, the latter as surviving corporation. R. C. Lee assigned to respondent SSI the said Subscription Agreements outstanding in the name of R. C. Lee and the Oceanic official receipts showing 25% has already been paid. Later, R. C. Lee requested Interport for a list of subscription agreements and stock certificates issued in the name of R. C. Lee and other individuals named in the request, which in turn, was provided. Upon finding no record showing any transfer or assignment to SSI of the Oceanic subscription agreements, R. C. Lee paid its unpaid subscription and was accordingly issued stock certificates corresponding thereto. SSI, on the other hand, tried for several times to tender payment for the balance of the 5,000,000 shares covered by Oceanic subscription agreements. However, Interport consistently refused to accept such tender. SSI later learned that Interport had issued the 5,000,000 shares to R. C. Lee, relying on the latter’s registration as the owner of the subscription agreements in the

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books of Interport, and on affidavits of R. C. Lee that no transfers or encumbrances of the shares had been made. SSI filed an action to compel Interport to deliver the 5,000,000 shares and pay damages, alleging collusion between Interport and R. C. Lee. Interport claimed that it is not bound by the transfer of the subscription agreement from R. C. Lee to SSI because said transfer was not recorded in the books of Interport. Is Interport bound by the said transfer of the subscription to SSI? RULING: Section 63 of the Corporation Code which denies the validity of the transfer of shares, except between the parties if such transfer is not recorded in the books of the corporation is not applicable in the case at bar since it is Interport which unduly refused to recognize the assignment of shares between R. C. Lee and SSI. Interport was duly notified of the assignment when SSI tendered its payment of the 75% unpaid balance, and it could not anymore refuse to recognize the transfer of the subscription. (Interport Resources Corporation vs. Securities and Specialist, Inc., G. R. No. 154069, June 6, 2016.) XVIII. F & S Velasco, Inc. vs. Madrid, 774 SCRA 388, Nov. 10, 2015. Madrid inherited the shares of stock of his wife, Angela in F & S Velasco Co., Inc. (FSVCI) as her sole heir. As such Madrid may compel the issuance of certificates of shares in his favor as well as the registration of his wife’s stock in his name. However, Madrid’s inheritance of Angela’s shares of stock was not recorded in the books of the corporation. Issue: Will such inheritance entitle Madrid to the powers and prerogatives appurtenant to the shares? Ruling: Madrid’s inheritance of Angela’s shares does not ipso facto afford him the rights accorded to ownership of FSVCI’s shares of stock. All transfers must be registered in the corporate books in order to be binding on the corporation. (F & S Velasco, Inc. vs. Madrid, 774 SCRA 388, Nov. 10, 2015) XIX. Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, July 29, 2015. What is the nature of Stock Certificate? Is the Stock Certificate the only proof that a person is a stockholder? A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the possession of the certificate is not the sole determining factor of one’s stock ownership. A certificate of stock is merely the paper representative or tangible evidence of the stock itself and of the various interests therein. The certificate is not stock in the corporation but is merely evidence of the holder’s interest and status in the corporation, his ownership of the share represented thereby, but is not in law the equivalent of such ownership. It expresses the contract between the corporation and the stockholder, but it is not essential to the existence of a stock in stock or the creation of relation of shareholder to the corporation. (Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, July 29, 2015) Illustration: Claiming to be stockholders, petitioners sought to examine the books and records of Abra Valley Colleges, Inc. however, the latter claimed that petitioners were not stockholders of the corporation and hence, had no right of inspection. Petitioners had no stock certificates issued in their favor but they have official receipts of their payments for their subscriptions of the shares of Abra Valley; certification of the Securities and Exchange Commission stating that Abra Valley had issued shares in favor of the petitioners, such issuance

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being part of the authorized and unissued capital stock as stated in the Secretary’s Certificate and the general information sheet. Petitioners previously attended the annual stockholders’ meeting as stockholders of Abra Valley, and participated in the election of the Board of Directors at which some of them were chosen as members. Respondents allowed them to be elected and sit in the Board of Directors as members. Are the petitioners entitled to the rights of a stockholder? RULING: A person becomes a stockholder of a corporation by acquiring a share through either purchase or subscription. The petitioners acquired their shares in Abra Valley by (1) subscribing to 36 shares each from Abra Valley’s authorized and unissued capital stock, and (2) by purchasing the shareholdings of existing stockholders, as borne out by the latter’s indorsement on the stock certificates. A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but the possession of the certificate is not the sole determining factor of one’s stock ownership. Petitioners are stockholders of the corporation and may inspect the books and records of the corporation. (Insigne vs. Abra Valley Colleges, Inc., 764 SCRA 261, July 29, 2015) XX.

Terelay Investment and Development Corporation vs. Yulo, 765 SCRA 1, August 5, 2015

May a stockholder with insignificant shareholding examine the books of the corporation? The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in so doing has not required any specific amount of interest for the exercise of the right to inspect. Ubi lex non distinguit nec nos distinguere debemos. When the law has made no distinction, we ought not to recognize any distinction. Neither could the petitioner arbitrarily deny the respondent’s right to inspect the corporate books and records on the basis that her inspection would be used for a doubtful or dubious reason. Hence, the petitioners submission that the respondent’s shareholding is “insignificant holding” of only . 001% of the petitioner’s stockholdings did not justify denial of respondent’s application for inspection of the corporate books and records. (Terelay Investment and Development Corporation vs. Yulo, 765 SCRA 1, August 5, 2015).

XXI.

Alabang Development Corporation vs. Alabang Hills Village Association, G. R. No. 187456, June 2, 2014. J. Peralta ponente. (PP) Capacity to sue. ADC’s corporate registration was revoked by SEC on May 26, 2003. It filed a complaint against AHVA on October 19, 2006. May the action be allowed to continue? Answer: ADC filed its complaint not only after its corporate existence was terminated but also beyond the three-year period allowed for liquidation in Sec. 122 of the Corporation Code. Thus, it is clear that the petitioner lacks the capacity to sue as a corporation at the time of the filing of the complaint. (Alabang Development Corporation vs. Alabang Hills Village Association, G. R. No. 187456, June 2, 2014. J. Peralta ponente.)

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XXII. What is the doctrine of Forum Non Conveniens? Under the doctrine of Forum Non Convenience, a Philippine court in a conflict-of-laws case may assume jurisdiction if it chooses to do so, provided, that the following requisites are met: (1) that the Philippine Court is one to which the parties may conveniently resort to ; (2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and (3) that the Philippine Court has or is likely to have power to enforce its decision. (Continental Micronesia, Inc. vs. Basso, 771 SCRA 329, Sept. 23, 2015). (PP) XXIII. Air Canada vs. Commissioner of Internal Revenue, G. R. No. 169507, January 11, 2016. (PP) When an offline international air carrier is doing business in the Philippines. An offline international air carrier selling passage tickets in the Philippines through a general sales agent, is a resident foreign corporation doing business in the Philippines. (Air Canada vs. Commissioner of Internal Revenue, G. R. No. 169507, January 11, 2016). When subject to Gross Philippine Billings Tax. Question: Sec. 28 of the National Internal Revenue Code provides, “International Air Carrier. ‘Gross Philippine Billings’ refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the payment of payment of the ticket or passage document.” Air Canada was engaged in business in the Philippines through a local agent that sells airline tickets on its behalf. However, Air Canada does not have flights originating from or coming to the Philippines and does not operate any airplane in the Philippines. Issue: Is it subject to ‘Gross Philippine Billings’? Ruling: Section 28 of the NIRC attaches only when the carriage of persons, excess baggage, cargo and mail originated from the Philippines in a continuous and uninterrupted flight, regardless of where the passage documents were sold. Not having flights to and from the Philippines, Air Canada is not liable for the ‘Gross Philippine Billings’ tax. (Air Canada vs. Commissioner of Internal Revenue, G. R. No. 169507, January 11, 2016. J. Leonen, ponente).

SECURITIES REGULATIONS CODE I.

Jardeleza vs. Sereno, 733 SCRA 279, August 19, 2014. (PP)

Insider Trading. Insider trading involves the trading of securities based on knowledge of material information not disclosed to the public at the time. It is an offense that assaults the integrity of our vital securities market. Manipulative devices and deceptive practices, including insider trading, throw a monkey wrench right into the heart of the securities industry. When someone trades in the market with unfair advance in the form of highly valuable secret inside information, all other participants are defraud. All of the mechanisms become worthless. Given enough of the stock market scandals, coupled with the related loss of faith in the market, such

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abuses could presage a sever drain of capital. ( Jardeleza vs. Sereno, 733 SCRA 279, August 19, 2014). II.

What is a public company? Must the company be listed in the stock exchange to be a public company? (1) A public company is any corporation with a class of equity securities listed on an Exchange OR with assets in excess of P50 million and having two hundred (200) or more holders, at least two hundred (200) of which are holding at least 100 shares of a class of its equity securities. (2) Public company is not limited to a company whose shares are publicly listed. Even companies like banks whose shares are offered only to a specific group of people, are considered public provided they meet the requirements mentioned above. (Phil. Veterans Bank vs. SEC, Aug. 3, 2011).

PRESIDENTIAL DECREE NO. 902-A (As amended by Securities Regulation Code) I.

Q. What are the guidelines to be followed in case a commercial case is filed with an improper RTC which is not a Special Commercial Court? (PP) A. Should a commercial case filed before a proper RTC is erroneously raffled to its regular branch, the case shall be referred to the Executive Judge for re-docketing as a commercial case, after which, the same shall be assigned to the sole special branch if the RTC has only one Special Commercial Court or by referring it to the Executive Judge for re-docketing as a commercial case and raffle the case among its special branches if the RTC has multiple Special Commercial Courts or refer the case to the nearest RTC with a Special Commercial Court within the judicial region and upon referral, and assign the same to the sole special branch or raffle off the case among its Special Commercial Courts, as the case may be, when the RTC to where the action was filed has no internal branch designated as Special Commercial Court. ( Gonzales, et al. vs. GJH Land, Inc., et al., G. R. No. 202664, November 10, 2015, J. PerlasBernabe, ponente). II. What is an intra-corporate controversy? An intra-corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or

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associates themselves. (Philip L. Go, Pacifico Q. Lim, et al. vs. Distinction Properties Development and Construction, Inc., G.R. No. 194024, April 25, 2012.; Strategic Alliance Dev. Corp. vs. Star Infrastructure Dev. Corp., 635 SCRA 380, Nov. 17, 2010. ) III.

Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.) (PP)

IV.

Intra-corporate controversy:

Q. What is the relationship test to determine whether the conflict is intra-corporate? A. Under the relationship test, the existence of any of the following relationships makes the conflict intra-corporate: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers, and (4) among the stockholders, partners or associates themselves. (Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.) Q. What is the controversy test to determine whether the conflict is intra-corporate? A. The nature of the controversy test dictates that the “controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intracorporate regulatory rules of the corporation.” (Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.) Illustration: LMI is a corporation listed in the Philippine Stock Exchange. LMI entered into a Memorandum of Agreement with PHILCOMSAT for the latter to gain controlling interest in LMI through an increase in its authorized capital stock. LMI increased its capital stock and PHILCOMSAT subscribed to the agreed shares of LMI. LMI changed its name to PHC and applied with the Philippine Stock Exchange (PSE) for listing of the shares representing the increase in its capital stock which included the shares subscribed by PHILCOMSAT. PCGG requested PSE to defer the listing of PHC shares. POTC, owner of 100% of PHILCOMSAT asked PCGG to rescind its objection to the listing of the increase in PHC’s capital stock. The Government owns 34.9% of POTC. PCGG failed to act on the request. PHILCOMSAT filed a complaint before the Sandiganbayan against PCGG to compel the latter to withdraw its opposition to the listing of the increase in PHC’s capital stock. The Sandiganbayan dismissed the case for lack of jurisdiction. Issue: Was the dismissal the case correct? Ruling: The Sandiganbayan has no jurisdiction over the case. The controversy in the present case stems from the act of PCGG in requesting the PSE to suspend the listing of PHC’s increase in capital stock. Such request was done in pursuit of protecting the interest of the Republic of the Philippines, a legitimate stockholder in PHC’s controlling parent company, POTC. Therefore, applying the relationship test and the nature of controversy test, the dispute is an intra-corporate controversy. ( Philcomsat vs. Sandiganbayan, et al., G. R. No. 203023, June 17, 2015.)

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V.

Is an action filed by a condominium unit owner against the condominium corporation questioning the assessment made, an intra-corporate controversy? There is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno, an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799. Philip L. Go, Pacifico Q. Lim, et al. vs. Distinction Properties Development and Construction, Inc., G.R. No. 194024, April 25, 2012. Facts: Cullen purchased from MLHI a condominium unit in Medical Plaza Makati Condominium Corp., Petitioner herein. Petitioner demanded from the Cullen payment of alleged unpaid association dues. Cullen refused to pay and claimed that he had been paying association dues. Petitioner claimed that the unpaid dues were carried over from the seller of the unit, MLHI. Cullen was declared delinquent and was not allowed to run as director and vote at the election of directors. On the other hand, MLHI claimed that the association dues had been paid in full. Cullen filed an action with the regular Regional Trial Court for damages against MLHI and Medical Plaza Makati Condominium Corp. which filed motions to dismiss on the ground of lack of jurisdiction because it is HLURB that has jurisdiction over the case. Which entity has jurisdiction over the case, (a) HLURB, (b) Regular Regional Trial Court, or (c) Regional Trial Court sitting as a special commercial court? Answer: HLURB does not have jurisdiction over the case because said entity has jurisdiction only to hear and decide inter-association and/or intra-association controversies or conflicts concerning homeowners’ association. The same cannot apply to the present case as it involves a controversy between a condominium unit owner and a condominium corporation. The intra-corporate dispute between Cullen and the condominium corporation is within the jurisdiction of the RTC sitting as a special commercial court and not the HLURB. The case is dismissed and remanded to the Executive Judge of the RTC of Makati for re-raffle among the designated special commercial courts. (Medical Plaza Makati Condominium Corp, vs. Cullen, G. No. 181416, Nov. 11, 2013, Justice Peralta, ponente). VI. SEC vs. CA, 739 SCRA 99, October 22, 2014 (PP) Validation of Proxy: Omico scheduled its annual stockholders’ meeting on November 3, 2008 and the validation of proxies on October 25, 2008. Astra objected to the validation of proxies issued in favor of Tommy Kin Hing Tia representing 38% of the outstanding capital stock of Omico. Despite the objections of Astra, Omico’s Board of Inspectors declared that the proxies issued in favor of Tin were valid. Astra filed a complaint before the SEC praying for the invalidation of the proxies issued in favor of Tin. Does SEC have jurisdiction over controversies arising from the validation of proxies for the election of the directors of a corporation? RULING: While the regular courts now had the power to hear and decide cases involving controversies in

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the election of directors, it was not clear whether the Securities Regulations Code also transferred to these courts the incidental and ancillary powers of the SEC as enumerated in Section 6 of P.D. 902-A. In GSIS vs. CA, it was ruled that the jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to every potential subject that may be voted on by the shareholders, but only to the election of directors or trustees, in which stockholders are authorized to participate under Section 24 of the Corporation Code. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by virtue of Secion 5.2 of the Securities Regulations Code in relation to Section 5 (c) of Presidential Decree 902-A. (SEC vs. CA, 739 SCRA 99, October 22, 2014) VII.

BPI Family Savings Bank, Inc. vs. St. Michael Medical Center, Inc., G. R. No. 205469, March 25, 2015 (PP) Corporate Rehabilitation: Rehabilitation means that a corporation has been operational but for some reasons like economic crisis or mismanagement had become distressed or insolvent. (BPI Family Savings Bank, Inc. vs. St. Michael Medical Center, Inc., G. R. No. 205469, March 25, 2015) Question: St. Michael Medical Center commenced the construction of a new hospital building on the property of Spouses Rodil. To finance the construction, St. Michael Medical Center which is incorporated with Spouses Rodil as incorporators, obtained a loan from BPI Family Savings Bank (BPI Family) and secured the loan with a mortgage on the 3 parcels of land belonging to Spouses Rodil. Lack of funds hampered the construction of the new hospital building, and as of May 2006, St. Michael neither remained operational nor earning revenue. BPI Family demanded payment of the loan and when no payment was made, proceeded with the foreclosure of the mortgaged properties. St. Michael filed with the RTC a petition for Corporate Rehabilitation with a prayer for a stay order to its creditor, BPI Family. May the rehabilitation plan of St. Michael proper? Answer: It is not proper. Rehabilitation means that a corporation has been operational but for some reasons like economic crisis or mismanagement had become distressed or insolvent. St. Michael admits that it has not formally operated nor earned any income since its incorporation, hence there exists no viable concern to be restored, and such rehabilitation is improper. The only proposed revenue of St. Michael was its negotiations with its potential investors which were merely pending and speculative. Moreover, it also failed to include the necessary liquidation analysis, thereby preventing the court to determine the value that its creditors may recover. (BPI Family Savings Bank, Inc. vs. St. Michael Medical Center, Inc., G. R. No. 205469, March 25, 2015)

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VIII. Balayan Bay Rural Bank, Inc. v s. National Livelihood Dev. Corp., 771 SCRA 141, September 21, 2015. (PP) Is an insolvent bank dissolved when placed under conservatorship? The insolvent bank’s legal personality is not dissolved by virtue of being placed under receivership by the Monetary Board. It must be stressed that a bank retains its juridical personality even if placed under conservatorship; it is neither replaced nor substituted by the conservator who shall only take charge of the assets, liabilities and the management of the institution. It being the fact that conservator PDIC should not be considered as a substitute or as a codefendant of the petitioner bank but rather as a representative party or someone acting in fiduciary capacity, the insolvent institution shall remain in the case and shall be deemed as the real party in interest. (Balayan Bay Rural Bank, Inc. v s. National Livelihood Dev. Corp., 771 SCRA 141, September 21, 2015, Justice Perez, ponente). Are the properties of the insolvent corporation transferred to the receiver/liquidator? The properties of an insolvent bank are not transferred by operation of law to the statutory receiver/liquidator but rather these assets are just held in trust to be distributed to its creditors after the liquidation proceedings in accordance with the rules on concurrence and preference of credits. The debtor’s properties are then deemed to have been conveyed to the Liquidator in trust for the benefit of creditors, stockholders and other persons-in-interest. This notwithstanding, any lien or preference to any property shall be recognized by the Liquidator in favor of the security or lienholder, to the extent allowed by law, in the implementation of the liquidation plan. (Balayan Bay Rural Bank, Inc. v s. National Livelihood Dev. Corp., 771 SCRA 141, September 21, 2015, Justice Perez, ponente). IX. What is the effect of the appointment of a rehabilitation receiver? What is the purpose thereof? Upon appointment by the SEC (now, RTC Special Commercial Court) of a rehabilitation receiver, all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be suspended. (Garcia vs. Philippine Air Lines, Inc., 531 SCRA 574.) What are the actions that are suspended during the process of rehabilitation? The actions that are suspended cover all claims against the corporation whether for damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature. No exception in favor of labor claims is mentioned in the law.[1] No exception either is made therein in favor of maritime claims. Thus, since the law does make any exemptions or distinctions, neither should we. (Philippine Airlines, Inc. vs. Heirs of Bernardino J. Zamora, 538 SCRA 456, November 23, 2007; Negros Navigation Co., Inc. vs. Court of Appeals, 573 SCRA 434, December 10, 2008. ) X. Bank of the Philippine Islands vs. Co, 774 SCRA 28, November 9, 2015).

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Jupiter Real Estate Ventures, Inc. and spouses Co obtained a loan from Far East Bank and Trust Company (FEBTC) and to secure the loan mortgaged eight parcels of land. FEBTC merged with Bank of the Philippine Islands with the latter as the surviving corporation. Jupiter and Spouses Co defaulted in the payment of the loan. BPI foreclosed the real estate mortgage. An auction sale was held on July 12, 2000 where the mortgaged properties were sold to BPI as the highest bidder. The Certificate of Sale was registered and annotated at the back of the certificates of title on August 22, 2000. After the expiration of the period of redemption, BPI consolidated its ownership over the real properties and new titles were issued in its name. On April 29, 2003, BPI filed a petition for the issuance of a writ of possession before the Regional Trial Court. On September 22, 2003, Jupiter filed a petition for corporate rehabilitation. The RTC issued a Stay Order. On October 6, 2003, Spouses Co and Jupiter moved for suspension of the proceedings for the issuance of the writ of possession on the ground that because of the Stay Order, the writ of possession cannot be issued. On September 30, 2005, the RTC issued a writ of possession in favor of BPI. Issue: Was the writ of possession validly issued considering that a petition for rehabilitation was filed prior to the issuance of the writ of possession? RULING: The mere pendency of a petition for corporate rehabilitation and the issuance of a stay order do not and cannot enjoin the courts from the enforcement of claims. A stay order or the suspension of the enforcement of all claims against the corporation shall commence only from the time the rehabilitation receiver is appointed and a stay order is issued. In this case the auction sale on July 12, 2000, the registration and annotation of the certificate of sale on August 22, 2000 and issuance of new titles in favor of BPI in 2001, as well as the petition for the issuance of the writ of possession were all completed before the filing of the petition for rehabilitation and the issuance of the stay order in September 2003. Thus, after the redemption period expired without respondent redeeming the foreclosed property, BPI became the absolute owner of the property and it was within its right to move for the consolidation of title and the issuance of new title; thus it is entitled to the possession and enjoyment of the property. (Bank of the Philippine Islands vs. Co, 774 SCRA 28, November 9, 2015).

INSURANCE I.

What is microinsurance?

Microinsurance is a financial product or service that meets the risk protection needs of the poor where: “(a) The amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and

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“(b) The sum of guaranteed benefits is not more than one thousand (1,000) times of the current daily minimum wage rate for nonagricultural workers in Metro Manila. II.

Bank of the Philippine Islands and FGU Insurance Corp. vs. Laingo, G. R. No. 205206, March 16, 2016, J. Carpio, ponente

Question: Rheozel opened a “Platinum 1-in-1 Savings and Insurance” account with BPI. Such account is one wherein depositors are automatically covered by an insurance policy against disability or death issued by FGU. On Sept. 25, 2000, Rheozel died due to a vehicular accident. On Sept. 27, 2000, Laingo, the beneficiary of the insurance policy instructed the family’s secretary to go to BPI to inquire about the savings account of Rheozel. Laingo wanted to use the money in the savings account for Rheozel’s burial and funeral expenses. BPI allowed withdrawal from the account of Rheozel, More than two years later or on Jan. 21, 2003, Rheozel’s sister while arranging Rheozel’s personal things in his room found the Personal Accident Insurance Policy issued by FGU. Upon being informed of the existence of the insurance, Laingo sent two letters of demand to FGU which denied the claim on the ground the policy provides that the claim should have been filed within three calendar months from the death of Rheozel. Issue: Whether or not Laingo, as named beneficiary who had no knowledge of the existence of the insurance contract, is bound by the three calendar month deadline for filing a written notice of claim upon the death of the insured. RULING: The Platinum 2–in-1 Savings and Insurance account was BPI’s commercial product, offering the insurance coverage for free for every deposit account opened. Rheozel directly communicated with BPI, the agent of FGU. BPI, as agent of FGU had the primary responsibility to ensure that the 2-in-1 account be reasonably carried out with full disclosure to the parties concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to give proper notice of the existence of the insurance coverage and the stipulation in the insurance contract for filing a claim to Laingo, as Rhoezel’s beneficiary, upon the latter’s death. Since BPI is the agent of FGU then notice of death of Rhoezel to BPI is considered as notice to FGU. Both BPI and FGU shall bear the loss and must compensate Laingo for actual damages and FGU must pay the proceeds of the policy. (Bank of the Philippine Islands and FGU Insurance Corp. vs. Laingo, G. R. No. 205206, March 16, 2016, J. Carpio, ponente) III.

The Insular Life Assur. Co., Ltd., vs. Khu, et al., G. R. No. 195176, April 18, 2016.

Question: Felipe obtained a life insurance policy from Insular Life. On June 23, 1999, the policy lapsed due to non-payment of premiums. Felipe applied for reinstatement of the policy which Insular Life approved with the following changes on the policy : (1) Extra premium and (2) Waiver of the accidental death benefit and premium disability. Felipe agreed to the added conditions. Insular Life issued an endorsement stating “This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following changes are made on the policy effective June 22, 1999.” Felipe paid the adjusted premium on Dec. 27, 1999. Felipe died on Sept. 22, 2001. The beneficiaries

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filed a claim with the insurer which the latter denied on the ground of concealment and misrepresentation. The insurer claimed that the two-year period of incontestability should be counted from Dec. 27, 1999 when the additional premium was paid and from such date to the death of the insured on Sept. 22, 2001, less than 2 years had elapsed. On the other hand, the beneficiaries claimed that in the letter of acceptance and endorsement made by the insurer, the phrase “effective June 22, 1999” appeared. From June 22, 1999 to the death of the insured on Sept. 22, 2001, more than 2 years had elapsed and hence the policy is already incontestable From what time should the incontestability period be computed from, Dec. 27, 1999 when payment of the adjusted premium was made or from June 22, 1999 as stated in the insurer’s endorsement? Answer: In the first sentence of the Endorsement, it is not entirely clear whether the phrase, “effective June 22, 1999” refers to the subject of the sentence, namely, “the reinstatement of the this policy” or to the subsequent phrase, “changes are made on the policy.” Given the obscurity of the language, the construction favorable to the insured will be adopted by the courts. Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has lapsed. A contract of insurance being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer. Indeed, more than two years had elapsed from the time the subject insurance policy was reinstated on June 22, 1999 vis-à-vis Felipe’s death on Sept. 11, 2001. As such, the subject insurance policy has already become incontestable at the time of Felipe’s death. (The Insular Life Assur. Co., Ltd., vs. Paz y. Khu, G. R. No. 195176, April 18, 2016, J. del Castillo, ponente).

IV.

Question: Castor insured her Toyota Revo against loss or damage. She instructed her driver, Lanuza to bring the car to a repair shop. Lanuza did not return the car and despite diligent efforts he could not be located anymore. Castor reported this to the police and notified the insurer about the loss and demanded payment of the proceeds of the insurance. The insurer refused to pay on the ground that the person who stole the car was her under her employ and pursuant to the policy, the insurer is not liable for “any malicious damage caused by the insured, any member of his family or by A PERSON IN THE INSURED’S SERVICE.” Is the refusal correct? Answer: The insurer is liable. The court finds it puzzling that the insurer after using the word “loss” and “damage” in the entire policy, suddenly went specific by using the word “damage” only in the policy’s exception regarding “malicious damage”. The court cannot believe that the policy really intended the word “damage” in the term “malicious damage” to include the theft of the insured vehicle. “Loss” and “damage” mean different things in common ordinary usage. The word “loss” refers to the act or fact of losing, or failure to keep possession, while the word “damage” means deterioration or injury to property”. When the terms of the policy are ambiguous, equivocal or uncertain, the policy should be construed liberally in favor of the assured and strictly against the insurer. Insurance is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer. Loss is not included the

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term “damage”. (Alpha Insurance and Surety Co. vs. Arsenia Sonia Castor, G. R. No. 198174, September 2, 2013, Justice Peralta, ponente). V.

Sun Life of Canada (Phils.), Inc. vs. Sibya, et al., G. R. No. 211212, June 8, 2016, citing Manila Bankers Life Insurance Corp. v. Aban, G. R. No. 175666, July 29, 2013, J. Reyes, ponente with J. Velasco concurring). (PP) Concealment: Facts: Sibya, Jr. applied for life insurance with Sun Life. In his application for insurance, he indicated that he had sought advice for kidney problems. He indicated in his application: “Last 1987, had undergone lithoripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no recurrence as claimed.” On February 5, 2001, Sun Life approved Sibya’s application and issued the life insurance policy. On May 11, 2001, Sibya died of gunshot wound. Sun Life sought to rescind the policy on the ground of concealment. Sun Life claimed that Sibya did not disclose his previous medical treatment at the NKI in May and August 1994.The beneficiaries claimed that the insured did not commit concealment or misrepresentation and he even authorized Sun Life to inquire further into his medical history for verification purposes. Issue: Was the insured guilty of concealment or misrepresentation? Ruling: The insured did not commit concealment or misrepresentation. Sibya admitted in his application his medical treatment for kidney ailment. He even executed an authorization in favor of Sun Life to conduct investigation about his medical history. It cannot be said that he concealed his medical history. .” (Sun Life of Canada (Phils.), Inc. vs. Sibya, et al., G. R. No. 211212, June 8, 2016, citing Manila Bankers Life Insurance Corp. v. Aban, G. R. No. 175666, July 29, 2013, J. Reyes, ponente with J. Velasco concurring). Incontestable Clause: “An insurer is given two years – from the effectivity of a life insurance contract and while the insurer is alive to discover or prove that the policy is void ab initio or is rescindable 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 (Phils.), Inc. vs. Sibya, et al., G. R. No. 211212, June 8, 2016, citing Manila Bankers Life Insurance Corp. v. Aban, G. R. No. 175666, July 29, 2013, J. Reyes, ponente with J. Velasco concurring). Illustrations: (1) Facts: On July 3, 1993 Sotero took out a life insurance policy from Manila Bankers Life Insurance with Aban as beneficiary. On April 10, 1996 when the insurance policy had been in force for more than two years and seven months, Sotero died. The beneficiary filed a claim with the insurer. The insurer alleged that Sotero fraudulently obtained the policy and filed an action to rescind the policy. May the policy be rescinded? Ruling: The insurer cannot rescind the

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contract of insurance. “An insurer is given two years – from the effectivity of a life insurance contract and while the insurer is alive to discover or prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his 12agent. 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.” (Manila Bankers Life Insurance Corp. v. Aban, G. R. No. 175666, July 29, 2013, 702 SCRA 417) (2) Facts: On February 5, 2001, Sun Life approved Atty. Jesus Sibya, Jr.’s (Sibya, Jr.) application for life insurance. On May 11, 2001, Sibya., Jr. died as a result of a gunshot wound. The beneficiaries filed a claim against the insurer, Sun Life. On August 27, 2001, Sun Life denied the claim on the ground that the details of Sibya Jr.’s medical history were not revealed in his application. Sun Life tendered a check representing the refund of the premiums paid. The beneficiaries reiterated their claim which Sun Life refused and instead filed a complaint for rescission of the insurance policy. Issue: May the insurer rescind the life insurance contract after the death of the insured? Ruling: The insurer may not rescind the contract. 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. (Sun Life of Canada (Phils.), Inc. vs. Sibya, et al., G. R. No. 211212, June 8, 2016, citing Manila Bankers Life Insurance Corp. v. Aban, G. R. No. 175666, July 29, 2013. J. Reyes, ponente with J. Velasco concurring). IV. (H. H. Hollero Construction, Inc. vs. GSIS, 736 SCRA 303, September 24, 2014). Question: The policy provides that “if a claim is made and rejected and no action or suit is commenced within twelve months after rejection” “all benefits under this policy shall be forfeited”. After the claim was rejected in the first instance, the insured asked for reconsideration. From what time should the period of twelve months from final rejection be computed? Answer: Final rejection means denial by the insurer of the claims of the insured and not the rejection or denial by the insurer of the insured’s motion or request for reconsideration. The rejection referred to should be construed as the rejection in the first instance”. (H. H. Hollero Construction, Inc. vs. GSIS, 736 SCRA 303, September 24, 2014). Facts: The insured obtained a Contractors’ All Risks (CAR) Policy from GSIS. The policy provides that “all benefits thereunder shall be forfeited if no action is instituted within twelve (12) months after the rejection of the claim for loss, damage or liability.” Because of typhoons “Biring”, “Huaning” and “Saling”, the insured property was damaged and the insured made several claims for indemnity on June 30, 1988, August 25, 1988 and October 18, 1988 from GSIS. In a letter dated April 26, 1990, GSIS rejected the claims for indemnity for damages wrought by typhoons “Biring” and “Huaning”. In a letter dated June 21, 1990, GSIS

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also denied the claim for damages caused by typhoon “Saling”. In a letter dated April 18, 1991, the insured impugned the rejection of the claims and reiterated its demand for settlement of the claims. On September 27, 1991, the insured filed a complaint against GSIS. The insured claims that the GSIS letters dated April 26, 1990 and June 21, 1990 did not amount to a “final rejection” of the claim. Has the action prescribed? Answer: The insured’s causes of action accrued from its receipt of the letters dated April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Since the insured allowed more than twelve (12) months to lapse before filing the necessary action on September 27, 1991, its causes of action had already prescribed. (H. H. Hollero Construction, Inc. vs. GSIS, 736 SCRA 303, September 24, 2014). XIV. When is the insurer entitled to the payment of premium and what is the consequence of non-payment of premium? An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. 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, except in the case of a life or an industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy. V. What are the statutory exceptions to the rule that the insurer is entitled to the payment of premium as soon as the thing insured is exposed to the peril insured against? Unless the premium is paid, the policy shall not be valid and binding notwithstanding any agreement to the contrary. The statutory exceptions are:

(1) In case the insurance coverage relates to life or industrial life (health) insurance when grace period applies; (2) Whenever a ninety-day credit extension is given for the premium due; (3) When the insurer makes a written acknowledgement of the receipt of premium, this acknowledgement being a conclusive evidence of payment of premium; (4) Where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. (5) In case of industrial life insurance, the policy shall not lapse for non-payment of premium if such non-payment was due to the failure of the insurer to send its representative or agent to the insured at the residence of the insured or some place indicated by him for the

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purpose of collecting such premium. However, this does not apply when the premium on the policy remains unpaid for a period of three months or twelve weeks after the grace period has expired. VI. In property insurance, what is the consequence of payment of the loss to the insured? In property insurance, after the insured has received payment from the insurer of the loss covered by the policy, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who violated the contract. The insurer’s right to subrogation accrues upon payment of the insurance claim. Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers the situation where the insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means which the creditor may employ to enforce payment. VIII. Loadstar Shipping Company, et al vs. Malayan Insurance Company, G. R. No. 185565, Novermber 26, 2014) The right of subrogation is not dependent upon, nor does it grow out of, privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. The right of subrogation is however, not absolute. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting voluntary payment, the former has no right of subrogation against the third party for the loss.” (Loadstar Shipping Company, et al vs. Malayan Insurance Company, G. R. No. 185565, November 26, 2014) The rights of the subrogee cannot be superior to the rights possessed by the subrogor. “Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right sot that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The rights to which the subrogee succeeds are the same as but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered. (Loadstar Shipping Company, et al vs. Malayan Insurance Company, G. R. No. 185565, Novermber 26, 2014)

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Illustration: Loadstar Shipping (Loadstar) and Philippine Associated Smelting and Refining Corporation (PASAR) entered into a contract of Affreigment for domestic transport of the latter’s copper concentrates. The shipper, Philex Mining loaded the cargo of copper concentrates on the vessel of Loadstar for delivery to the consignee, PASAR. The cargo was insured with Malayan Insurance Co. (Malayan). On routine inspection, a crack on the starboard side of the vessel which caused seawater to enter the cargo hold was discovered during the voyage. Upon arrival, PASAR and Philex Mining found that the copper concentrates were contaminated by seawater. PASAR demanded payment of P32 million plus from Loadstar and Malayan. Malayan paid PASAR the amount of P32 million plus and PASAR signed a subrogation receipt in favor of Malayan. Malayan demanded reimbursement from Loadstar which refused to pay. During the trial, the Trial Court found that although contaminated by seawater, the copper concentrates can still be used. Aside therefrom, the damage was attributable to perils of the sea and not due to the fault or negligence of Loadstar. May Malayan as subrogee recover from Loadstar? Malayan cannot recover because PASAR could not also recover from Loadstar. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered. (Loadstar Shipping Company, et al vs. Malayan Insurance Company, G. R. No. 185565, November 26, 2014) IX.

Stronghold Insurance Co., Inc. vs. Container Services, et al., G. R. No. 194328, July 1, 2015, J. Perez, ponente (PP) Exempting Insurer: In exempting insurers from liability under the contract, proof thereof must be clear, credible and convincing. Fundamental is the rule that the contract is the law between the parties and, that absent any showing that its provisions are wholly or in part contrary to law, morals, good customs, public order or public policy, it shall be enforced to the letter by the courts. (Stronghold Insurance Co., Inc. vs. Container Services, et al., G. R. No. 194328, July 1, 2015, J. Perez, ponente). Illustration: The vehicle owned by respondent Gloria Dee Chong was insured with petitioner insurance company. The vehicle insured met an accident where four persons died and three were seriously injured. The vehicle was also heavily damaged. The insurer refused to pay the claim of the insured on the ground that the driver of the vehicle insured was heavily drunk at the time of the accident which exempts the insurer from liability pursuant to the provisions of the policy. At the trial, the allegation of the insurer that the driver of the vehicle insured was drunk was based on a Pagpapatunay and a medico-legal certificate which contained alterations. The police blotter did not also contain any report of the driver’s intoxication. Issue: May the insurer be exempted from liability? Ruling: In exempting insurers from liability under the contract, proof thereof must be clear, credible and convincing. Fundamental is the rule that the contract is the law between the parties and, that absent any showing that its provisions are wholly or in part contrary to law, morals, good customs, public order or public policy, it shall be enforced to the

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letter by the courts. (Stronghold Insurance Co., Inc. vs. Container Services, et al., G. R. No. 194328, July 1, 2015, J. Perez, ponente). X.

Asian Terminals, Inc. vs. First Lepantro-Taisho Insurance Corporation, 726 SCRA 415, June 16, 2014 (DONE)

Subrogation. Question: 3,000 bags of sodium tripolyphosphate contained in 100 jumbo bags were loaded on a vessl owned by COSCO, in favor of its consignee GASI. The shipment was insured against all risk with First Lepanto. When the shipment arrived, it discharged into the possession of ATI, a corporation engaged in arrastre business. Upon receipt of the shipment, GASI found that the delivered goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg. valued at P166,772.41. First Lepanto paid GASI the amount of P166,772.40 as insurance indemnity. GASI executed a Release of Claim discharging First Lepanto from and all liabilities and subrogating it to all the rights of recovery. As subrogee, First Lepanto demanded from COSCO and ATI reimbursement of the amount paid to GASI. ATI denied liability and claimed that upon arrival of the shipment, one jumbo bag sustained loss/damage while in the custody of COSCO. Aside therefrom, ATI asserted that during the trial, the insurance contract was not presented by First Lepanto and only the Certificate of Insurance and Subrogation Receipt were presented. Is the failure to present the contract of insurance during the trial fatal to the claim of First Lepanto? Answer: The non-presentation of the insurance contract is not fatal to First Lepanto’s cause of action for reimbursement as subrogee. The general rule is that the marine insurance policy needs to be presented in evidence before the insurer may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. However, such rule is not inflexible and there are exceptions to such rule. The subrogation receipt, by itself is sufficient to establish not only the relationship between the insurer and consignee, but also the amount paid to settle the insurance claim. An arrastre operator is liable for the lost shipment despite the failure of the insurance company to offer in e4vidence the insurance contract or policy as it was certain that the loss of the cargo occurred while in ATI’s custody. (Asian Terminals, Inc. vs. First LepantroTaisho Insurance Corporation, 726 SCRA 415, June 16, 2014) XI.

AFQ Shipmanagement Co., Ltd. vs. Casenas, 725 SCRA 108, June 4, 2014. (DONE)

Seaworthiness : While seaworthiness is commonly equated with the physical aspect and condition of the vessel for voyage as its ability to withstand the rigors of the sea, it must not be forgotten that a vessel should be armed with the necessary documents required by the maritime rules and regulations, both local and international. It has been written that vessel seaworthiness further extends to cover the documents required to ensure that the vessel can enter and leave ports without problems. (AFQ Shipmanagement Co., Ltd. vs. Casenas, 725 SCRA 108, June 4, 2014)

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NEGOTIABLE INSTRUMENTS I.

What is a trust receipt transaction?

A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise received under the obligation to “return” it (devolvera) to the owner. (Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013) II. Hongkong and Shanghai Banking Corporatioin vs. Commissioner of Internal Revenue, 724 SCRA 499, June 4, 2014, Ponente – J. Leonardo-de Castro. (DONE) Question: Are electronic messages of the HSBC’S investor-clients containing instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient negotiable instruments that are subject to Documentary Stamp Tax under Sec. 181 of the Tax Code which provides that: Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax . . .” ? Answer: The instructions given through electronic messages are not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the Negotiable Instruments Law. The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange, they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of e4xdchange. As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, they could have no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code. (Hongkong and Shanghai Banking Corporation vs. Commissioner of Internal Revenue, 724 SCRA 499, June 4, 2014, Ponente – J. Leonardo-de Castro.) Question: Are electronic messages of the HSBC’S investor-clients containing instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient considered as acceptance or payment of any bill of exchange that are subject to Documentary Stamp Tax under Sec.230 of the Tax Code which provides that: Upon any acceptance or payment of any bill of exchange or order for the payment of money

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purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax . . . .” Answer: The electronic messages received by HSBC from its investor-clients abroad instructing the former to debit the latter’s local and foreign currency accounts and to pay the purchase price of shares of stock or investment in securities do not properly qualify as either presentment for acceptance or presentment for payment. There being neither presentment for acceptance nor presentment for payment then there was no acceptance or payment that could have subjected to DST to speak of. There was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed manifestation of HSBC to a drawer’s order to pay money. As HSBC could not have been an acceptor, then it could not have made any payment of a bill or e4xchange or order for the payment of money drawn abroad but payable in the Philippines. There was no liability for DST. (Hongkong and Shanghai Banking Corporation vs. Commissioner of Internal Revenue, 724 SCRA 499, June 4, 2014, Ponente – J. Leonardo-de Castro.) III.Patrimonio vs. Gutierrez, et al., 724 SCRA 636, June 4, 2014. (DONE) Question: Suppose the maker or drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, (a) what is the presumed authority of the latter? (b) Who may enforce it? Answer: (a) The person to whom a pre-signed blank paper is delivered for the purpose of converting it into a negotiable instrument has prima facie authority to fill it up. It merely requires that the instrument be in the possession of a person other than the drawer or maker and from such possession, together with the fact that the instrument is wanting in a material particular, the law presumes agency to up the blanks. (b) In order that one who is not a holder in due course can enforce the instrument against a party prior to the instrument’s completion, two requisites must exists: (1) that the blank must be filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven that the instrument had not been filed up strictly in accordance with the authority given and within a reasonable timer, the maker can set this up as a personal defense and avoid liability. However, if the holder is a holder in due course, there is conclusive presumption that authority to fill it up had been given and that the same was not in excess of authority. (Patrimonio vs. Gutierrez, et al., 724 SCRA 636, June 4, 2014). Facts:Patrimonio and Gutierrez entered into a business venture under the name of Slam Dunk. In the course of their business, Patrimonio pre-signed several checks to answer for the expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or amount. The checks were entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and approval by Patrimonio. Without Patrimonio’s knowledge and

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consent, Gutierrez secured a personal loan from Marasigan. In February, 1994, Gutierrez delivered to Marasigan one of the blank checks Patrimonio pre-signed, with all the blank filledup. On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason “ACCOUNT CLOSED”. It was revealed that Patrimonio’s account had been closed since May 28, 1993. Marasigan sued Patrimonio. (a) Is Marasigan a holder in due course? (b) Can Marasigan enforce the instrument against Patrimonio? (a) Marasigan was not a holder in due course because his knowledge that the petitioner is not a party or a privy to the contract of loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith. “A holder in due course is a holder who has taken the instrument under the following conditions: x x x (c) That he took it in good faith, and for value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Gutierrez was limited to the use the checks for the operation of their business, and on the condition that Patrimonio’s prior approval be first secured. Gutierrez has exceeded the authority to fill up the blanks and use the checks. Patrimonio gave Gutierrez pre-signed checks to be used in their business provided he could only use them upon his approval. (b) Marasigan cannot hold Patrimonio liable. In order that one like Marasigan who is not a holder in due course can enforce the instrument against a party prior to the instrument’s completion, two requisites must exists: (1) that the blank must be filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time. The check was not filled up strictly in accordance with the authority given. (Patrimonio vs. Gutierrez, et al., 724 SCRA 636, June 4, 2014). IV.

Facts: Roxas sold to Rodrigo and Marissa Cawili vegetable oil. As payment therefore, spouses Cawili issued a personal check in the amount of P348,805.50. However, when Roxas tried to encash the check, it was dishonored by the drawee bank. Spouses Cawili assured him that they would replace the bounced check with a cashier’s check from BPI. Rodrigo Cawili and Roxas went to BPI branch in Mandaluyong and upon instructions of the Branch Manager, BPI Cashier’s Check in the amount of P348,805.50 was issued, drawn against the account of Marissa Cawili, payable to Roxas. Rodrigo then handed the cashier’s check to Roxas. The following day, Roxas returned to BPI’s branch in Mandaluyong to encash the cashier’s check but it was dishonored on the ground that Marissa’s account was closed on that date. Upon being sued, BPI claimed that Roxas was not a holder in due course because the latter was not a holder for value. (a) Was Roxas a holder for value and hence, a holder in due course? (b) May BPI be relieved of its liability under the cashier’s check it issued? Answer: (a) Roxas was a holder for value and a holder in due course. Roxas received the cashier’s check as payment for the vegetable oil he sold to Cawili. The fact that Rodrigo was the one who purchased the cashier’s check from BPI will not affect Roxas’ status as a holder for

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value since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Roxas is presumed to be a holder in due course and the one who claims otherwise must prove that one or more of the conditions required to constitute a holder in due course are lacking. BPI failed to prove that Roxas was not a holder for value. (b)

BPI cannot be relived of its liability under the cashier’s check it issued. A cashier’s check is really the bank’s own check and may be treated as a promissory note with the bank as maker. The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay upon demand. It is of judicial notice that a cashier’s check is deemed as cash. This is because the mere issuance of a cashier’s check is considered acceptance thereof. Hence, a bank becomes liable to the payee the moment it issued the cashier’s check. V. Areza vs. Express Savings Bank, Inc., 734 SCRA 588, September 10, 2014 (DONE) Material Alteration: Question: Areza maintained two bank accounts with Express Savings Bank. Areza received an order from Mambuay for secondhand Pajero and brand new Honda. Mambuay paid Areza with nine Philippine Veterans Affairs Office checks drawn against Philippine Veterans Bank each valued at P200,000 for a total of P1,800,000. Areza deposited the said checks in their savings account with Express Savings Bank. Express in turn deposited the checks with Equitable PCI Bank which presented the checks to Philippine Veterans Bank, which honored the checks. Upon being informed by Express Bank that the checks have been honored, Areza released the two cars to Mambuay. Later, the checks were returned by PVAO to the drawee on the ground that the checks were altered from its original amount of P4,000 to P200,000. The drawee returned the checks to Equitable PCI Bank which in turn debited the account of Express Bank. Express Bank withdrew the amount of P1,800,000 from the account of Areza. In the meantime Areza issued a check for P500,000 which was dishonored by Express Bank. What are the liabilities of the parties? Answer: The drawee bank, Philippine Veterans Bank is liable only to the extent of the amount of the check prior to its alteration. Under Section 124 of the Negotiable Instruments Law, the party prior to alteration is liable to a holder in due course according to its original tenor. The Philippine Veterans Bank may in turn, pass on its liability to Equitable PCI Bank, the collecting Bank. The collecting bank and Express arfe ultimately liable to Areza since there is no showing of negligence on the part of Areza which substantially contributed to the loss from alteration. (Areza vs. Express Savings Bank, Inc., 734 SCRA 588, September 10, 2014) VI.

Wesleyan University Philippines vs. Reyes, 731

SCRA 516 (DONE)

Crossed checks: The crossing of a check means that the check may not be encashed but only deposited in the bank. As Treasurer, respondent knew or is at least expected to be aware of and abide by this basic banking practice and commercial custom. Clearly, the issuance of a crossed check reflects management’s intention to safeguard the funds covered thereby, its special

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instruction to have the same deposited to another account and its restriction on its encashment. (Wesleyan University Philippines vs. Reyes, 731 SCRA 516, July 30, 2014). VII.

Question: Are Cashier’s or Manager’s checks subject to clearing? May payment of a Cashier’s or Manager’s check be countermanded?

Answer: Manager’s and cashier’s checks are still subject to clearing to ensure that the same have not been materially altered or otherwise completely counterfeited. However, manager’s and cashier’s check are pre-accepted by the mere issuance thereof by the bank, which is both its drawer and drawee. Thus, while manager’s and cashier’s check are still subject to clearing they cannot be countermanded for being drawn against a closed account, for being drawn against insufficient funds, or for similar reasons such as a condition not appearing on the face of the check. Long standing and accepted banking practices do not countenance the countermanding of manager’s and cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking practice is that such checks are as good as cash. (Metropolitan Bank and Trust Co. vs. Wilfred N. Chiok, G. R. 172652, and Global Business Bank, Inc. v s. Wilfred N. Chiok, G. R. No. 175394, Nov. 26, 2014.) Facts: Chiok had been engaged in dollar trading for about 6 to 8 years with Nuguid. The practice between Chiok and Nuguid was that Chiok pays Nuguid either in cash or manager’s check to be picked up by the latter or deposited in the latter’s bank account. Nuguid in turn delivers the dollars purchased either on the same day or on a later date as may be agreed upon by them. On July 5, 1995, Chiok purchased three Manager’s checks from Metropolitan Bank and Global Business Bank and deposited the same in the Nuguid’s account with the Bank of the Philippine Islands. Nuguid was supposed to deliver $1,022,288.50, the equivalent of the three checks. Nuguid failed to deliver the dollar equivalent of the checks. Chiok requested that payment on the three checks be stopped, and was advised to secure a court order within 24-hour clearing period. He filed a complaint for damages and restraining order/preliminary injunction. Issue: Is payment of the manager’s or cashier’s check subject to the condition that the payee thereof must comply with his obligations to the purchaser of the checks, or that the payment of the cashier’s or manager’s check be countermanded. Ruling: Long standing and accepted banking practices do not countenance the countermanding of manager’s and cashier’s checks on the basis of a mere allegation of failure of the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking practice is that such checks are as good as cash. (Metropolitan Bank and Trust Co. vs. Wilfred N. Chiok, G. R. 172652, and Global Business Bank, Inc. v s. Wilfred N. Chiok, G. R. No. 175394, Nov. 26, 2014.)

TRANSPORTATION I.

Philam Insurance Company, Inc. vs. Heung A Shipping Corporation (DONE)

Charter Party has been defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a

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merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight. (Philam Insurance Company, Inc. vs. Heung A Shipping Corporation, 730 SCRA 512, July 23, 2014). II.

Will charter party of a vessel belonging to a common carrier necessarily convert the carrier into a private carrier?

Answer: The public or common carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a bare-boat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned. The reason is that a shipowner in a time or voyage-charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. Planters Products, Inc. vs. Court of Appeals, 226 SCRA 476. III.

Will a common carrier’s liability be extinguished by reason of fire?

Answer: The common carrier’s liability will not be extinguished by reason of fire. Article 1734 of the Civil Code provides, common carriers are responsible for the loss, destruction, or deterioration of the goods, 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; 5) Order or act of competent public authority. Fire is not one of those enumerated under the above provision which exempts a carrier from liability for loss or destruction of the cargo. Even if fire were to be considered a natural disaster within the purview of Article 1734, it is required under Article 1739 of the same Code that the natural disaster must have been the proximate and only cause of the loss, and that the carrier has exercised due diligence to prevent or minimize the loss before, during or after the occurrence of the disaster. (DSR-Senator Lines vs. Federal Phoenix Assurance Co., Inc., 413 SCRA 14. October 7, 2003.) IV.

G. V. Florida Transport, Inc. vs. Heirs of Romeo Battung, G. R. No. 208802, October 14, 2015, J. Perlas-Bernabe, ponente. DONE

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Question: Is a common carrier always liable for all kinds of injuries sustained by a passenger? Answer: While the law requires the highest degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does not however, make the carrier an insurer of the absolute safety of its passengers. Where the injury sustained by the passenger was (1) in no way due to any defect in the means of transport or in the method of transporting, or (2) to the negligent or willful acts of the common carrier’s employees with respect to the foregoing – such as when the injury arises wholly from causes created by strangers which the carrier had no control of or prior knowledge to prevent – there would be no issue regarding the common carrier’s negligence in its duty to provide safe and suitable care, as well as competent employees in relation to its transport business, as such, the presumption of fault negligence foisted under Article 1756 of the Civil Code does not apply. (G. V. Florida Transport, Inc. vs. Heirs of Romeo Battung, G. R. No. 208802, October 14, 2015, J. Perlas-Bernabe, ponente). Facts: Battung was shot by a co-passenger while riding petitioner’s bus. While on their way, the bus driver stopped the vehicle, alighted and checked the tires. It is at that moment when a co-passenger shot the victim who was sitting at the first row and immediately went down the bus. The conductor informed the driver and they immediately brought Battung to the hospital but was declared dead on arrival. The heirs of Battung filed an action against the bus company, its driver and conductor for breach of the contract of carriage. Issue: Is the bus company liable for breach of contract of carriage ? Answer: The carrier is not liable. While the law requires the highest degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does not however, make the carrier an insurer of the absolute safety of its passengers. Where the injury sustained by the passenger was (1) in no way due to any defect in the means of transport or in the method of transporting, or (2) to the negligent or willful acts of the common carrier’s employees with respect to the foregoing – such as when the injury arises wholly from causes created by strangers which the carrier had no control of or prior knowledge to prevent – there would be no issue regarding the common carrier’s negligence in its duty to provide safe and suitable care, as well as competent employees in relation to its transport business, as such, the presumption of fault negligence foisted under Article 1756 of the Civil Code does not apply. (G. V. Florida Transport, Inc. vs. Heirs of Romeo Battung, G. R. No. 208802, October 14, 2015, J. Perlas-Bernabe, ponente). V.

What is the registered owner rule? In registered owner rule, the registered owner of a motor vehicle is liable for the consequences which the motor vehicle may be involved. This rule is further elucidated by the ruling in the case of Filcar Transport vs. Espinas, which states that it is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor driver, and is made primarily liable for the tort

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committed by the latter. (Metro Manila Transit Corporation vs. Reynaldo Cuevas, et al., G.R. No. 167797, June 15, 2015). (DONE) VI.

Philam Insurance Company, Inc. vs. Heung A Shipping Corporation, 730 SCRA 512, July 23, 2014).

Prescriptive period under COGSA – The prescriptive period for filing an action for lost/damaged goods governed by contracts of carriage by sea to and from Philippine ports in foreign trade is governed by paragraph 6, section 3 of the COGSA which states: Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery under the contract of carriage, such removal shall be prima facie evidence of delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. (Philam Insurance Company, Inc. vs. Heung A Shipping Corporation, 730 SCRA 512, July 23, 2014). VII.

Designer Baskets, Inc. vs. Air Sea Transport, Inc., G. R. No. 184513, March 9, 2016.

Bill of lading defined. A bill of lading is defined as a “written acknowledgement of the receipt of goods and an agreement to transport and to deliver them at a specified place to a person named in the order”. It may also be defined as an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it, stating the name of the consignor, the terms of the contract of carriage and agreeing or dire4cting that the freight be delivered to bearer, to order, or to a specified person at a specified place. (Designer Baskets, Inc. vs. Air Sea Transport, Inc., G. R. No. 184513, March 9, 2016, J. Jardeleza, ponente). May the common carrier release the goods to the consignee even without the surrender of the bill of lading? A carrier is allowed by law to release the goods to the consignee even without the latter’s surrender of the bill of lading. Article 363 of the Code of Commerce provides that - The legal evidence of the contract between the shipper and the carrier shall be the bills of lading, by the contents of which the disputes which may arise regarding their execution and performance shall be decided, no exceptions being admissible other than those of falsity and material error in the drafting. In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier, because of its loss or any other cause, he must give the latter a receipt for the goods delivered, this receipt producing the same effects as the return of the bill of lading. The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to the carrier and their respective obligations are considered cancelled. The law however, provides two exceptions where the goods may be released without the surrender of the bill of lading because the consignee can no longer return it. These exceptions are when the bill of lading

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gets lost or for other cause. In either case, the consignee must issue a receipt to the carrier upon the release of the goods. Such receipt shall produce the same effect as the surrender of the bill of lading. (Designer Baskets, Inc. vs. Air Sea Transport, Inc., G. R. No. 184513, March 9, 2016, J. Jardeleza, ponente).

INTELLECTUAL PROPERTY

I.

Shang Properties Realty Corporation vs. St. Francis Development Corporation, 730 SCRA 275, July 21, 2014(DONE)

Passing off – Passing off or palming off takes place where the defendant, by imitative devices on the general appearance of the goods, misleads prospective purchasers into buying his merchandise under the impression that they were buying that of this competitors. In other words, the defendant gives his goods the general appearance of the goods of his competitor with the intention of deceiving the public that the goods are those of his competitor. Shang Properties (Realty Corporation vs. St. Francis Development Corporation, 730 SCRA 275, July 21, 2014) II.

GSIS Family Bank, etc., vs. BPI Family Bank, 771 SCRA 285, September 23, 2015 (PP)

Effect of registration of a mark. The certificate of registration, of a mark shall be prima facie evidence of the validity of the registration of a mark, the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same in connection with the goods or services and those that are related thereto specified in the certificate. (GSIS Family Bank, etc., vs. BPI Family Bank, 771 SCRA 285, September 23, 2015) III.

Where should an action involving trademarks, including charges of unfair competition, cancellation of trademark and damages for violation of intellectual property rights be filed? A complaint involving trademarks, including charges of unfair competition, cancellation of trademark and damages for violation of intellectual property rights fall within the jurisdiction of the Intellectual Property Office Director of Legal Affairs and must therefore be filed in the said office. Any appeal therefrom should be filed with the Intellectual Property Office Director General. (In-N-Out Burger, Inc. vs. Sehwani, Inc., 575 SCRA 535, December 24, 2008.)

IV.

Petitioner Microsoft Corporation is a the copyright and trademark owner of all rights relating to all versions and editions of Microsoft software (computer programs). Respondent Manansala without authority from petitioner was engaged in distributing and selling Microsoft computer software programs. A search warrant was served against the respondent by the NBI which

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yielded several illegal copies of Microsoft programs. Petitioner filed a complaint with the DOJ against the respondent. The State Prosecutor dismissed the complaint on the ground that there was no proof that respondent was the one who printed or copied the products of complainant for sale in the respondent’s store. Petitioner claimed that printing or copying is not essential in the crime of copyright infringement and mere selling of pirated computer software constituted copyright infringement. Decide with reasons. RULING: The mere sale of the illicit copies of the software programs was enough by itself to show the existence of probable cause for copyright infringement. There was no need for the petitioner to still prove who copied, replicated or reproduced the software programs. . (Microsoft Corporation vs. Manansala, 773 SCRA 345, October 21, 2015). (PP)

TRUST RECEIPT LAW I.

Are letters of credit and trust receipts negotiable instruments?

Answer: Letters of credit and trust receipts are not negotiable instruments because they do not conform to the requirements of a negotiable instrument stated in Section 1 of the Negotiable Instruments Law. However, drafts issued in connection with letters of credit are negotiable instruments if they comply with the requirements of Section 1 of the Negotiable Instruments Law. A trust receipt is a security transaction intended to aid in financing the importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through the utilization, as collateral of the merchandise imported or purchased.[281] A trust receipt therefore, is a document of security pursuant to which a bank acquires a “security interest” in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, a security feature which is in the covering trust receipt which secures indebtedness. ( Vintola vs. Insular Bank of Asia and America, 150 SCRA 578, 583-584 citing Samo vs. People, 5 SCRA 354, 356-357; Lee vs. Court of Appeals, 375 SCRA 579, 598)

BANKING I.

Land Bank of the Philippines, Belle Corporation, G. R. No. 205271, September 2, 2015). Question: When the purchaser or the mortgagee is a bank, what is the rule on innocent purchasers or mortgagees for value to be applied?

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Answer: 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. (Land Bank of the Philippines, Belle Corporation, G. R. No. 205271, September 2, 2015). Facts: Belle was involved in the development and creation of leisure and recreational areas in Tagaytay area known as Tagaytay Highlands. Bautista claimed to be the owner of part of the land in possession of Belle. Bautista wrote a letter to Belle asking the latter to vacate the subject area and stop its operation therein. Belle filed a suit for quieting of title. During the pendency of the case, Belle was informed that Bautista is no longer the registered owner of the disputed area as it was foreclosed by petitioner bank. Apparently, Bautista mortgaged the property to petitioner bank without informing Belle. Petitioner bank claimed to be a mortgagee in good faith having observed due diligence and prudence. Petitioner verified the status of the collateral and found that the land was registered in the name of Bautista. It turned out that the property in question was part of the ingress and egress of Tagaytay Highlands several years before it was accepted as collateral from Bautista, and the latter’s title was questionable. Issue: Was the bank a mortgagee in good faith? Ruling: Petitioner bank was not a mortgagee in good faith as it failed to inquire further on the identity of possible adverse claimants and status of their occupancy. Had there been an inquiry with Bautista or any of the occupants of the nearby area of the existence of the traversing access road, it could easily show that there is indeed defect in the title of Bautista. There should have been an exhaustive investigation but none was made. The acceptance of the collateral despite the existing facts constitutes gross negligence on the part of the bank. 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, the bank could not be considered a mortgagee in good faith. (Land Bank of the Philippines, Belle Corporation, G. R. No. 205271, September 2, 2015).

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Thank you and good luck !!!