MERCANTILE-LAW-2016.docx

Green Notes 2016

Mercantile Law Prepared by: Atty. Renato S. Rondez

Jurisprudence (January 2015 –June 2016)

Jose A. Bernas, et.al. v. Jovencio F. Cinco, et al. G.R. No. 163356-57 (July 1, 2015) Perez, J.:

Taiwan Kolin Corporation Ltd. v. Kolin Electronics Co. Inc. G.R. No. 209843 (March 25, 2015) J. Velasco, Jr. Facts: Taiwan Kolin Corporation Ltd. applied for the registration of “KOLIN” as the trademark for its products. The application was opposed by Kolin Electronics Co. Inc., a manufacturer of automatic voltage regulator, converter, recharger, stereo booster, AC-DC regulated power supply, step-down transformer, and PA amplified AC-DC. Allegedly, both entities are selling goods which fall under the class 9 of Nice Classification (NCL) and the use of same trademark may lead to confusion for consumers. Issue: Whether or not Taiwan Kolin is entitled to its trademark registration of “KOLIN” over its specific goods Held: Yes. Product classification alone cannot serve as the decisive factor in the resolution of whether or not the goods are related and that emphasis should be on the similarity of the products involved and not on the arbitrary classification or general description of their properties or characteristics. As held, the mere fact that one person has adopted and used a particular trademark for his goods does not prevent the adoption and use of the same trademark by others on articles of a different description. Emphasis should be on the similarity of the products involved and not on the arbitrary classification or general description of their properties or characteristics. The mere fact that one person has adopted and used a trademark on his goods would not, without more, prevent the adoption and use of the same trademark by others on unrelated articles of a different kind. It is also worth noting that there is no confusing similarity between the marks, given that the products covered by the trademarks, were, considered pricey, typically purchased by intelligent buyers familiar with the products and are more circumspect, and, therefore, would not easily be deceived. The ordinary purchaser must be thought of as having, and credited with, at least a modicum of intelligence to be able to see the differences between the two trademarks in question.

Facts: Makati Sports Club (MSC) is a domestic corporation duly organized and existing under Philippine laws. Jose A. Bernas (Bernas Group) were among the Members of the Board of Directors and Officers of the corporation whose terms were to expire either in 1998 or 1999. While Jovencio Cinco (Cinco Group) are the members and stockholders of the corporation who were elected Members of the Board of Directors and Officers of the club during the 17 December 1997 Special Stockholders Meeting. With the rumoured anomalies in handling the corporate funds, the MSC Oversight Committee (MSCOC), composed of the past presidents of the club, demanded from the Bernas Group who were then incumbent officers of the corporation to resign from their respective positions to pave way for the election of new set of officers. Resonating this clamor were the stockholders of the corporation representing at least 100 shares who sought the assistance of the MSCOC to call for a special stockholders meeting for the purpose of removing the sitting officers and electing new ones. Pursuant to such request, the MSCOC called a Special Stockholders' Meeting. Aggrieved by the turn of events, the Bernas Group initiated an action before the Securities Investigation and Clearing Department seeking for the nullification of the 17 December 1997 Special Stockholders Meeting on the ground that it was improperly called. Issue: Whether or not the 17 December 1997 special stockholders' meeting is invalid. Held: There is no dispute that the 17 December 1997 Special Stockholders' Meeting was called neither by the President nor by the Board of Directors but by the MSCOC. While the MSCOC, as its name suggests, is created for the purpose of overseeing the affairs of the corporation, nowhere in the by-laws does it state that it is authorized to exercise corporate powers, such as the power to call a special meeting. The board of directors is the directing and controlling body of the corporation. It is a creation of the stockholders and derives its power to control and direct the affairs of the corporation from them. The underlying policy

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Green Notes 2016

Mercantile Law Prepared by: Atty. Renato S. Rondez

of the Corporation Code is that the business and affairs of a corporation must be governed by a board of directors whose members have stood for election, and who have actually been elected by the stockholders, on an annual basis. Only in that way can the continued accountability to shareholders, and the legitimacy of their decisions that bind the corporation's stockholders. The shareholder vote is critical to the theory that legitimizes the exercise of power by the directors or officers over the properties that they do not own.

Indeed, MMTC could not evade liability by passing the buck to Mina's Transit. The stipulation in the agreement to sell did not bind third parties like the Cuevases, who were expected to simply rely on the data contained in the registration certificate of the erring bus. 4. Philippine Communications Satellite Corporation and Philcomsat Holdings Corporation vs .Sandiganbayan G.R. No. 203023 (June 17, 2015)

Even the Corporation Code is categorical in stating that a corporation exercises its powers through its board of directors and/or its duly authorized officers and agents, except in instances where the Corporation Code requires stockholders' approval for certain specific acts.

Facts: PHC is a domestic corporation listed in the Philippine Stock Exchange (PSE). It was previously known as Liberty Mines, Inc. (LMI) and had been previously engaged in the discovery, exploitation, development and exploration of oils.

3. MMTC v. Cuevas G.R. No. 167797 (June 15, 2015)

On 13 September 1995, Oliverio G. Laperal, then Chairman of the Board and President of LMI, and Honorio Poblador III, then President of PHILCOMSAT, signed a Memorandum of Agreement for the latter to gain controlling interest in LMI through an increase in its authorized capital stock.

Facts: Metro Manila Transit Corporation (MMTC) and Mina's Transit Corporation entered into an agreement to sell whereby the latter bought several bus units from the former at a stipulated price. They agreed that MMTC would retain the ownership of the buses until certain conditions were met, but in the meantime Mina's Transit could operate the buses within Metro Manila. A provision in the agreement to sell mandated Mina's Transport to hold MMTC free from liability arising from the use and operation of the bus units. On October 14, 1994, one of the buses subject of the agreement hit and damaged a Honda Motorcycle owned by Reynaldo and driven by Junnel. Reynaldo and Junnel sued MMTC and Mina's Transit for damages. Issue: whether MMTC is not liable for the injuries sustained by the respondents despite the provision in the agreement to sell that shielded it from liability. Held: Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties. The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner.

On 24 June 1996, Laperal and PHILCOMSAT executed a Supplemental Memorandum of Agreement6 reiterating the increase in capital stock of LMI from six billion shares to100 billion shares. On 7 June 2005, the PCGG sent another letter to the PSE reiterating its request to defer the listing of PHC shares. In a letter dated 25 July 2011, Katrina C. Ponce-Enrile, then President of POTC, wrote to then PCGG Chairman Andres D. Bautista demanding that the PCGG rescind its objection to the listing of the increase in PHC’s capital stock. When PCGG failed to reply, PHILCOMSAT sent a final demand Letter reiterating its demand for PCGG to withdraw its objection to the listing of the increase in PHC’s capital stock. On 11 January 2012, Ponce-Enrile received a letter from Chairman Bautista, informing her that, among others, the agency was discussing the matter with the Department of Finance and that the two would give a joint recommendation thereafter. However, the PCGG never communicated said recommendation to PHILCOMSAT. PHILCOMSAT filed a complaint before the Sandiganbayan against PCGG to compel the

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latter to withdraw its opposition to the listing of the increase in PHC’s capital stock. PHILCOMSAT argued that PCGG had already recognized the validity of the stockholders’ meetings in the two corporations, which "practically erased" the alleged conflict between the two sets of directors. The PCGG filed a motion to dismiss the complaint, which PHILCOMSAT subsequently opposed. Issue: whether or not the complaint involves an Intra-corporate controversy Held: The Complaint involves an Intracorporate Controversy. To determine if a case involves an intra-corporate controversy, the courts have applied two tests: the relationship test and the nature of the controversy test. 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. On the other hand, 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. The PCGG, acting as representative of the Republic, was exercising a duty of a stockholder to ensure the proper and lawful exercise of corporate acts. Based on the foregoing, the Sandiganbayan correctly dismissed the complaint for lack of jurisdiction. Grace Borgoña Insigne V. Abra Valley Colleges, Inc. G.R. No. 204089(July 29, 2015)

president and majority stockholder of respondent Abra Valley Colleges, Inc.a Stock Corporation. After Pedro’s death, Francis succeeded him as the president of Abra Valley. On March 26, 2002, the petitioners, along with their brother Romulo Borgoña and Elmer Reyes, filed a complaint (with application for preliminary injunction) and damages in the RTC against Abra Valley praying, among others, that the RTC direct Abra Valley to allow them to inspect its corporate books and records, and the minutes of meetings, and to provide them with its financial statement. Issue: resolve the issue concerning the status or relation of the petitioners with Abra Valley if they can exercise their right to inspect Abra Valley’s corporate books, records and minutes of meetings, and be furnished with financial statements Held: In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence, or evidence that is more convincing to the court as worthy of belief than that which is offered in opposition thereto. The petitioners had to establish that they were stockholders of Abra Valley. 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. Considering that Section 23 of the Corporation Code requires every director to be the holder of at least one share of capital stock of the corporation of which he is a director, the respondents would not have then allowed any of the petitioners to be elected to sit in the Board of Directors as members unless they believed that the petitioners so elected were not disqualified for lack of stock ownership. Neither did the respondents thereafter assail their acts as Board Directors. Conformably with the doctrine of estoppel, the respondents could no longer deny the petitioners’ status as stockholders of Abra Valley.

Facts: Petitioners Grace Borgoña Insigne, Diosdado Borgoña, Osbourne Borgoña, Imelda Borgoña Rivera, Aristotle Borgoña are siblings of the full blood. Respondent Francis Borgoña is their older half-blood brother. The petitioners are the children of the late Pedro Borgoñ. In his lifetime, Pedro was the founder,

Bank of Commerce v. Marilyn P. Nite, G.R. No. 211535 (July 22, 2015) Facts: The RTC acquitted the accused Marilyn Nite – President of Bancapital Development Corporation - of the charge of feloniously engaging in the business of

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Mercantile Law Prepared by: Atty. Renato S. Rondez

selling securities without having been registered as a broker. The prosecution alleged that Nite had defrauded Bancom by falsely pretending to own Php250 Million worth of treasury bills, as described in the Confirmation of Sale; however, Bancap only delivered substitute bills worth P88 million. Moreover, Nite was adjudged civilly liable to Bancom for P162 million which represented the undelivered treasury bills. Upon motion for reconsideration, the court added that even if the selling of securities was outside Bancop’s primary purpose, it should only be considered ultra vires and not illegal. The Court of Appeals ruled that the doctrine of piercing the veil of corporate fiction imposed the burden of the corporation’s obligations on its erring officers and shareholders: In this case, none of Bancap’s other officers were impleaded, which makes it impossible to completely determine the corporation’s liabilities. Issue: Whether the appellate court erred in not piercing the corporate veil of Bancap. Held: To hold a director or officer personally liable for corporate obligations, two requisites must concur: (1) complaint must allege 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 convincingly prove such unlawful acts, negligence and bad faith. To hold a director personally liable for debts of the corporation, and thus pierce the veil of corporate fiction, his bad faith must be established clearly. The issue of fraud had already been resolved by the finality of Nite’s acquittal. The prosecution failed to show that Nite acted in bad faith. Her act of signing the Confirmation of Sale, by itself, does not make the corporate liability her own. Games and Garments Developers, Inc. v. Allied Banking Corporation G.R. No.181426 (July 13, 2015) Facts: The petitioner GGDI appealed the CA decision absolving Allied Bank from liability under the Deed of Sale between the corporation and the Spouses Pantaleon, for

the bank was not a party to the documents. Moreover, it ruled that Allied Bank is not liable under the letters of guaranty that Mercado (manager) had executed because it never ratified such letters. In addition, they also posit that the appellate court erred in merely relying upon the respondent’s assertion that Section 74 of the Generral Banking Act prohibits banks from entering into a contract of guaranty or surety. Issue: Whether the CA erred in absolving Allied Bank of any liability to GGDI. Held: There was no express undertaking in Mercado’s letters to pay Bienvenida’s debt to GGDI in case the latter failed to do so. In said letters, Mercado merely acknowledged that Bienvenida and /or her company had an approved real estate loan with Allied Bank and guaranteed that subsequent releases from the loan would be made directly to GGDI, provided that the certificate of title over the subject property would be transferred to Bienvenida’s name. Mercado did not obligate Allied Bank to be answerable with its own money to GGDI should Bienvenida default on the payment of the property’s purchase price. However, based on the doctrine of apparent authority, Allied Bank is bound by the undertaking in the letters. GGDI relied in good faith on the assurance stated in the letters that the proceeds of the approved loan would be released directly to it. Allied Bank cannot now disclaim the liability under the letters. The application of this doctrine is necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in the prejudice of their depositors. Pioneer Insurance Surety Corporation v. Morning Star Travel and Tours, Inc., Estella Co Wong, Benny Wong, et.al., G.R. No. 198436 (July 8, 2015) Facts: International Air Transport Association obtained a Credit Insurance Policy from Pioneer to assure itself of payments by accredited travel agents for ticket sales due to the airline companies.

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Morning Star was declared in default for its failure to settle its accrued billings. Pioneer was able to obtain favorable judgment against the officers (individual respondents) of Morning Star, but the Court of Appeals modified the trial court ruling, now holding only Morning Star as personally liable for the payment of the amounts awarded. Issue: Whether the individual respondents were grossly negligent in running Morning Star’s affairs, thus, giving sufficient ground for the court to pierce the corporate veil and hold each of them personally liable. Held: The corporate legal structure draws its “economic superiority” from key features such as separate corporate personality. The consequent limited liability feature, since corporate assets will answer for corporate debts, also proves attractive for investors. A separate corporate personality shields officers acting in good faith and within their scope of authority from personal liability except for situations provide by law. The Court of Appeals ruled that the general rule on separate corporate personality applies since the petitioner failed to prove bad faith amounting to fraud. Piercing the corporate veil in order to hold corporate officers personally liable for the corporation’s debts requires that bad faith must be established clearly and convincingly. Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, not simply bad judgment or negligence. The mere fact that Morning Star has been incurring huge losses and that it has no assets at the time it contracted large financial obligations does not amount to fraud.

by the fact that they bought the entire assets of MADCI and its creditors might not have other means of collecting the amounts due them, except by going after the assets sold. The petitioner, however, reiterated that the element of fraud was required in order for a third buyer to be liable to the seller’s creditor. Issue: Whether fraud must exist in the transfer of all the corporate assets in order for the transferee to assume the liabilities of the transferor. Held: No. The Nell Doctrine states the general rule that the transfer of all the corporate assets to another corporation shall not render the latter liable to the liabilities of the transferor, except: 1. Where the purchaser expressly or impliedly agrees to assumer 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. Fraud is not an essential element for the application of the business enterprise transfer. The exception of the Nell Doctrine provides that the transferee corporation assumes debts and liabilities of the transferor because it is merely a continuation of the latter’s business. As the exception relates to the protection of the creditors of the transferor corporation, and does not depend on any deceit committed by the transferee corporation, then fraud is certainly not an element of the business enterprise doctrine. Securities and Exchange Commission v. Hon. Reynaldo M. Laigo G.R. No. 188639 (September 02, 2015)

Y-I Leisure Philippines, Inc. v. Yu G.R. No. 207161 (September 8, 2015) Facts: The Court of Appeals held that the transfer of the entire assets of MADCI to YICRI should not prejudice the transferor’s creditors. In this case, MADCI‘s sale of all its corporate assets to the petitioner Y-I Leisure Phil. Inc. (YIL) and its companies necessarily included the assumption of its liabilities. Thus, the liability of YIL was determined not by their participation in the sale of the golf and country club shares, but

Facts: Securities and Exchange Commission (SEC) assails the order issued by Judge Reynaldo M. Laigo, a petition for involuntary insolvency of Legacy Consolidated Plans, Incorporated ordering the inclusion of the trust fund in its corporate assets. Issue: Whether the Trust Funds of Legacy form part of its Corporate Assets.

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Held: No. The Trust Fund is for the sole benefit of the planholders and cannot be used to satisfy the claims of other creditors of Legacy. Section 30 of the Pre-Need Code provides that the proceeds of the trust funds shall redound solely to the planholders. The argument that Legacy has retained a beneficial interest in the trust fund despite the execution of the trust agreement is untenable. Legacy is not the beneficiary of the trust fund. It must be stressed that a person is considered as a beneficiary of a trust if there is a manifest intention to give such a person the beneficial interest over the trust properties.

remaining stockholders for the purpose of electing a new president and vice-president, as well as the opening of a bank account. Saturnino was recognized as a member of the FSVCI Board of Directors and thereafter, as FSVCI President, while Scribner was elected FSVCI Vice-President. Despite the election conducted by the Saturnino Group, the Madrid Group proceeded with the Special Stockholders' and Re-Organizational Meeting on November 18, 2009. Issue: Whether the November 18, 2009 Meeting organized by Madrid is legal and valid; and (b) a Management Committee should be appointed or constituted to take over the corporate and business affairs of FSVCI.

Legacy, as trustor, is left without any iota of interest in the trust fund. This is consistent with the nature of a trust arrangement, whereby there is a separation of interests in the subject matter of the trust, the beneficiary having an equitable interest, and the trustee having an interest which is normally legal interest.

Held: The Supreme Court held that, it must be clarified that Madrid's inheritance of Angela's shares of stock does not ipso facto afford him the rights accorded to such majority ownership of FSVCI's shares of stock. Section 63 of the Corporation Code governs the rule on transfers of shares of stock.

F & S VELASCO COMPANY, INC. vs. DR. ROMMEL L. MADRID G.R. No. 208844, (November 10, 2015) Perlas-Bernabe, J.:

Verily, all transfers of shares of stock must be registered in the corporate books in order to be binding on the corporation. In this regard, the case of Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga38 instructs that an owner of shares of stock cannot be accorded the rights pertaining to a stockholder - such as the right to call for a meeting and the right to vote, or be voted for - if his ownership of such shares is not recorded in the Stock and Transfer Book.

Facts: On June 8, 1987, FSVCI was duly organized and registered as a corporation with Francisco, Simona, Angela, herein respondent Madrid, and petitioner Saturnino as its incorporators. When Simona and Francisco died on June 12, 1998 and June 22, 1999, respectively, their daughter, Angela, inherited their shares. Angela died intestate and without issue. As of May 11, 2009, the distribution of FSVCI's 24,000 total shares of stock is as follows: (a) Angela with 16,998 shares; (b) Madrid with 1,000 shares; (c) petitioner Scribner with 6,000 shares; and (d) petitioners Seva and Sunico with one (1) share each. On October 8, 2009, Madrid, as Angela's spouse, executed an Affidavit of SelfAdjudication covering the latter's estate which includes her 70.82% ownership of FSVCI's shares of stock. Madrid called for a Special Stockholders' and Re-Organizational Meeting to be held on November 18, 2009. Seva, in his then-capacity as FSVCI corporate secretary, sent a Notice of an Emergency Meeting to FSVCI's

In the case at bar, records reveal that at the time Madrid called for the November 18, 2009 Meeting, as well as the actual conduct thereof, he was already the owner of 74.98% shares of stock of FSVCI as a result of his inheritance of Angela's 70.82% ownership thereof. However, records are bereft of any showing that the transfer of Angela's shares of stock to Madrid had been registered in FSVCFs Stock and Transfer Book when he made such call and when the November 18, 2009 Meeting was held. Thus, the CA erred in holding that Madrid complied with the required registration of transfers of shares of stock through mere reliance on FSVCI's GIS dated November 18, 2009. On the issue of the propriety of appointing/constituting a Management Committee to manage FSVCI's affairs, the Court

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recognizes that a corporation may be placed under the care of a Management Committee specifically created by a court and, thus, under the latter's control and supervision, for the purpose of preserving properties involved in a suit and protecting the rights of the parties. However, case law is quick to point out that "the creation and appointment of a management committee is an extraordinary and drastic remedy to be exercised with care and caution; and only when the requirements under the Interim Rules are shown. In view of the extraordinary nature of such a remedy, Section 1, Rule 9 of the Interim Rules of Procedure Governing Intra-Corporate Controversies provides the elements needed for the creation of a Management Committee: (1) Dissipation, loss, wastage or destruction of assets or other properties; and (2) Paralyzation of its business operations which may be prejudicial to the interest of the minority stockholders, parties-litigants or the general public. In the case at bar, the CA merely based its directive of creating a Management Committee for FSVCI on its finding of "the persisting conflict between [the Saturnino and Madrid Groups], the allegations of embezzlement of corporate funds among the parties, and the uncertainty in the leadership and direction of the corporation had created an imminent danger of dissipation, loss, and wastage of FSVCI's assets and the paralyzation of its business operations which may be prejudicial to the minority stockholders, parties-litigants or the general public. Accordingly, the CA erred in ordering the creation of a Management Committee in this case. Microsoft Corporation vs. Rolando D. Manansala G.R. No 166391 (October 21, 2015) Bersamin, J.: Facts: Petitioner is the copyright and trademark owner of all rights relating to all versions and editions of Microsoft software such as, but not limited to, MS-DOS. Private Respondent is doing business under the name of DATAMAN TRADING COMPANY and/or COMIC ALLEY. Private Respondent, without authority from petitioner, was engaged in distributing and selling Microsoft computer software programs. On November 19, 1997, the search warrant was served on the private respondent's premises and

yielded several illegal copies of Microsoft programs. Petitioner filed an AffidavitComplaint in the DOJ. Public respondent State Prosecutor dismissed the charge. Petitioner filed a Motion for Partial Reconsideration arguing that printing or copying is not essential in the crime of copyright infringement under Section 29 of PD No. 49. Issue: Whether that printing or copying was not essential in the commission of the crime of copyright infringement under Section 29 of Presidential Decree No. 49. Held: The Supreme Court held that, 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. Indeed, the public prosecutor and the DOJ gravely abused their discretion in dismissing the petitioner's charge for copyright infringement against the respondents for lack of evidence. There was grave abuse of discretion because the public prosecutor and the DOJ acted whimsically or arbitrarily in disregarding the settled jurisprudential rules on finding the existence of probable cause to charge the offender in court. Valley Golf and Country Club, Inc. vs. Dr. Victor Reyes G.R. No. 190641 (November 10, 2015) Perez, J.: Facts: Petitioner is a duly constituted non-stock, non-profit corporation which operates a golf course. 1960, the late Victor Reyes (Reyes) subscribed and purchased one share in the capital stock of Valley Golf. Reyes’ playing privileges to the club was successively assigned to Jose Y. Bondoc, James B. Wheelan and Roberto Povidoin accordance with the terms and conditions of the country club’s by-laws. When the latest assignment of playing rights ended in 1986, however, the payment of membership dues was likewise discontinued and the account of Reyes became delinquent. Desirous to transfer the ownership of his share in the golf club to his son, Reyes, in 1994, inquired with the club on the status of his membership. To his surprise, however, he learned that his share was already sold by Valley Golf at the

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public auction due to delinquency in the payment of monthly membership fees.

process of law, and, must be therefore invalidated.

Claiming that he was not notified of the delinquency of his account nor the subsequent public sale of his share, Reyes prayed in his Complaint for the reinstatement of his playing rights, if possible, or the issuance of a new certificate of shares, in the event that his previous share was already sold to third person. Refuting the allegations of the complainant, Valley Golf insisted that a Notice of Due Account was sent to Reyes on 11 June 1986 which was received by the latter on 18 June 1986 as shown in Registry Receipt No. 3384.

The Orchard Golf & Country Club, Inc. vs. Ernesto V. Yu and Manuel C. Yuhico G.R. No. 191033 (January 11, 2016) Peralta, J.:

Issue: Whether or not the letter of demand dated 11 June 1986 was duly served to Reyes Held: The Supreme Court held that, 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. Proceeding from applicable precedent that 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, there is a clear reason to agree with the findings that notice of delinquency in question was not duly delivered to Reyes. First, it is beyond question that the registry return card presented by Valley Golf was unauthenticated and does not bear the name of the person who received it. There is no dispute that Valley Golf, in its reliance on registered service of the demand letter dated 11 June 1986, failed to authenticate the registry return receipt. Neither the affidavit of the person mailing nor a certified sworn copy of the notice given by the postmaster to the addressee was submitted to the court as proof of receipt. Second, it is erroneous for Valley Golf to postulate that the requirement that registry return card must be authenticated is solely confined in criminal cases where the required quantum of evidence to satisfy conviction is proof beyond reasonable doubt. Third, Valley Golf, as the party asserting receipt of notice bears the burden of proof to prove notice. When the service of notice is an issue, the rule is that the person alleging that the notice was served must prove the fact of service. Unmistakeably, the termination of Reyes' membership effected by Valley Golf without sufficient proof of notice clearly spoke of a violation of his property rights without due

Facts: On May 28, 2000, respondents went to the Orchard Golf & Country Club to play a round of golf with another member of the club. At the last minute, however, that other member informed them that he could not play with them due to the "no twosome." Respondents tried to convince Francis Montallana, Orchard’s assistant golf director, to allow them to play twosome. Montallana refused, stating that the flights which started from the first nine holes might be disrupted. Respondents then teed off without securing a tee time control slip and without permission from Montallana, the latter filed a report with the board of directors. The board resolved to suspend respondents. Issue: Whether respondents were suspended in accordance of the Club’s by-laws Held: The Supreme Court held that, Respondents were suspended in accordance with the procedure set forth in the Club’s Bylaws. There is no merit on their insistence that their suspension is invalid on the ground that the affirmative vote of eight (8) members is required to support a decision suspending or expelling a Club member. Both the provisions of Articles of Incorporation and By-Laws of the Club expressly limit the number of directors to seven (7); hence, the provision on suspension and expulsion of a member which requires the affirmative vote of eight (8) members is obviously a result of an oversight. Former Senator Helena Z. Benitez, the Honorary Chairperson named in the Membership Handbook, could not be included as a regular Board member since there was no evidence adduced by respondents that she was elected as such pursuant to the Corporation Code and the By-laws of the Club or that she had the right and authority to attend and vote in Board meetings. In addition, at the time the Board resolved to suspend respondents, the affirmative votes of only six (6) Board members already sufficed. The testimony of Jesus A. Liganor, who

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served as Assistant Corporate Secretary, that Rodrigo Francisco had not attended a single Board meeting since 1997 remains uncontroverted. The Court agrees with petitioners that the Club should not be powerless to discipline its members and be helpless against acts inimical to its interest just because one director had been suspended and refused to take part in the management affairs. University of Mindanao, Inc. v. Bangko Sentral Ng Pilipinas, et al. G.R. No. 194964-65 (Jan. 11, 2016) Leonen, J.: Facts: University of Mindanao’s (UM) Vice President for Finance, Saturnino Petalcorin, executed a deed of real estate mortgage over University of Mindanao’s property in favor of Bangko Sentral ng Pilipinas. The mortgage served as security for P1.9 Million loan and allegedly executed on University of Mindanao’s behalf. \As proof of his authority to execute a real estate mortgage for UM, Petalcorin showed a Secretary’s Certificate signed by UM’s Corporate Secretary, Aurora de Leon. The CA ruled that although BSP failed to prove that the UM Board of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the subject real properties, but the Secretary's Certificate was notarized and enjoyed the presumption of regularity as to the truth of its statements and authenticity of the signatures. The CA also ruled that since UM’s officers signed the promissory notes, UM was presumed to have knowledge of the transaction. Knowledge of an officer in relation to matters within the scope of his or her authority is notice to the corporation. The annotations on UM’s certificates of title also operate as constructive notice to it that its properties were mortgaged. Its failure to disown the mortgages for more than a decade was implied ratification. Issue: Whether the UM is bound by the real estate mortgage contracts executed by Saturnino Petalcorin. Held: No.

Acts of an officer that are not authorized by the board of directors/trustees do not bind the corporation unless the corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf. The court ruled that petitioner is correct when it argues that the execution of the mortgage contract was ultra vires. As an educational institution, it may not secure the loans of third persons and it is limited to developing human capital through formal instruction. The only exception to the general rule is when acts are necessary and incidental to carry out a corporation’s purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation’s articles of incorporation. Notarization creates a presumption of regularity and authenticity on the document and may be rebutted by "strong, complete and conclusive proof" to the contrary. While notarial acknowledgment "attaches full faith and credit to the document concerned," it does not give the document its validity or binding effect. When there is evidence showing that the document is invalid, the presumption of regularity or authenticity is not applicable. Since the notarized Secretary's Certificate was found to have been issued without a supporting board resolution, it produced no effect. Hence, it should not have been relied on by respondent especially given its status as a bank. Ratification must be knowingly and voluntarily done. It even appears that petitioner was unaware of the mortgage contracts until respondent notified it of its desire to foreclose the mortgaged properties. Petitioner’s lack of knowledge about the mortgage executed in its name precludes an interpretation that there was any ratification on its part. The general rule is knowledge of an officer is considered knowledge of the corporation applies only when the officer is acting within the authority given to him or her by the corporation. However, even though the Spouses Guillermo and Dolores Torres were officers

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of both the thrift banks and petitioner, their knowledge of the mortgage contracts cannot be considered as knowledge of the corporation. The Spouses Guillermo and Dolores Torres’ knowledge cannot be interpreted as knowledge of UM. Their knowledge was not obtained as petitioner’s representatives. It was not shown that they were acting for and within the authority given by petitioner when they acquired knowledge of the loan transactions and the mortgages. The knowledge was obtained in the interest of and as representatives of the thrift banks. Narra Nickel Mining and Dev’t Corp., Tesoro Mining And Dev’t Inc. and McArthur Mining Inc. v. Redmont Consolidated Mines Corp., G.R. No. 195580 (March 11, 2015) J. Velasco, Jr. Facts: Petitioner filed a motion before the SC to reconsider its April 21, 2014 Decision which upheld the denial of their applications. They argued that the application of the Grandfather Rule to determine their nationality is erroneous and allegedly without basis in the Constitution, the FIA, the Philippine Mining Act, and the Rules issued by the SEC which promote the application of the Control Test in verifying the Philippine nationality of corporate. Issue: Whether the application by the SC of the grandfather resulted to the abandonment of the ‘control test’ Held: No. The Court ruled that ‘Grandfather Rule’ may be applied jointly with control test to determine the observance of foreign ownership restriction in nationalized economic activities. It is only when the Control Test is first complied with that the Grandfather Rule may be applied. In case, the subject corporation’s Filipino equity falls below the threshold 60%, the corporation is immediately considered foreign-owned, in which case, the need to resort to the Grandfather Rule disappears. In this case, using the ‘control test’, Narra et al., appear to have satisfied the 60-40 equity requirement. But the nationality of these corporations and the foreign-owned

common investor that funds them was in doubt, hence, the need to apply the Grandfather Rule. ABS-CBN Corporation V. Felipe Gozon et al., G.R. No. 195956 (March 11, 2015) J. Leonen

Copyright protection does extend to the reports themselves, as distinguished from the substance of the information contained in the reports. Copyright protects the manner of expression of news reports, “the particular form or collocation of words in which the writer has communicated it. Facts: ABS-CBN conducted live audio-video coverage of and broadcasted the arrival of Angelo Dela Cruz at the NAIA. Under a special embargo agreement, ABS-CBN allowed Reuters to air the footages it had taken. It was alleged by ABS-CBN that under the agreement the footage will be for the exclusive use of Reuter’s international subscribers only and no other local subscriber would be allowed to use the footage without ABS-CBN’s consent. GMA-7 subscribes to both Reuters and Cable News Network (CNN). It received a live video feed of the coverage of Angelo dela Cruz’s arrival from Reuters. GMA-7 immediately carried the live newsfeed in one of its programs together with its live broadcast. Apparently GMA-7 did not receive any notice or was not aware that Reuters was airing footages of ABSCBN. Issue: Whether news footage is copyrightable under the law. Held: The news footage is copyrightable. Under IPC, “works are protected by the sole fact of their creation, irrespective of their mode or form of expression, as well as of their content, quality and purpose.” It is true that under Section 175 of the Intellectual Property Code, “news of the day and other miscellaneous facts having the character of mere items of press information” are considered unprotected subject matter. However, the Code does not state that expression of the news of the day, particularly when it underwent a creative process, is not entitled to protection.

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News or the event itself is not copyrightable. However, an event can be captured and presented in a specific medium. Television involves a whole spectrum of visuals and effects, video and audio. News coverage in television involves framing shots, using images, graphics, and sound effects. It involves creative process and originality. Television news footage is an expression of the news.

Third, the amount and substantiality of the portion used is important to determine whether usage falls under fair use. An exact reproduction of a copyrighted work, compared to a small portion of it, can result in the conclusion that its use is not fair. There may also be cases where, though the entirety of the copyrighted work is used without consent, its purpose determines that the usage is still fair.

Issue: Whether there was fair use of the broadcast material Held: Supreme Court defined fair use as “a privilege to use the copyrighted material in a reasonable manner without the consent of the copyright owner or as copying the theme or ideas rather than their expression.” To determine if there has been fair use must apply the four-factor test. First, the purpose and character of the use of the copyrighted material must fall under those listed in Section 185, thus: “criticism, comment, news reporting, teaching including multiple copies for classroom use, scholarship, research, and similar purposes.” The purpose and character requirement is important in view of copyright’s goal to promote creativity and encourage creation of works. Hence, commercial use of the copyrighted work can be weighed against fair use. The “transformative test” is generally used in reviewing the purpose and character of the usage of the copyrighted work. The court must look into whether the copy of the work adds “new expression, meaning or message” to transform it into something else. “Meta-use” can also occur without necessarily transforming the copyrighted work used. Second, the nature of the copyrighted work is significant in deciding whether its use was fair. If the nature of the work is more factual than creative, then fair use will be weighed in favor of the user.

Lastly, the effect of the use on the copyrighted work’s market is also weighed for or against the user. If the court finds that the use had or will have a negative impact on the copyrighted work’s market, then the use is deemed unfair. Whether the alleged five-second footage may be considered fair use is a matter of defense. Supreme Court emphasize that the case involves determination of probable cause at the preliminary investigation stage. Raising the defense of fair use does not automatically mean that no infringement was committed. Given the insufficiency of available evidence, determination of whether the Angelo dela Cruz footage is subject to fair use is better left to the trial court where the proceedings are currently pending. Issue: Whether good faith is a defense in a criminal prosecution for violation of the Intellectual Property Code Held: GMA-7 cannot invoke the defense of good faith to argue that no probable cause exists. Infringement under the Intellectual Property Code is malum prohibitum; it does not require mens rea or culpa. Copyright, in the strict sense of the term, is purely a statutory right. It is a new or independent right granted by the statute, and not simply a pre-existing right regulated by the statute. Being a statutory grant, the rights are only such as the statute confers, and may be obtained and enjoyed only with respect to the subjects and by the persons, and on terms and conditions specified in the statute. The Philippines does not statutorily support good faith as a defense.

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Robert L. Abad, et al. v. Philippine Communications Satellite Corporation, represented by Victor Africa, G.R. No. 200620 (March 18, 2015) J. Villarama, Jr.

J. Perlas-Bernabe

Facts: In 2006, PHILCOMSAT filed in the RTC a Complaint for Inspection of Books against the incumbent PHC directors and/or officers, to enforce its right under Sections 74 and 75 of the Corporation Code and was dismissed for lack of jurisdiction citing Del Moral v. Republic and Olaguer v. RTC (496 Phil. 657), which provides that it is the Sandiganbayan which has jurisdiction considering that plaintiff is a sequestered corporation of the Republic through the Philippine Commission on Good Government (PCGG) alleging a right of inspection. PHILCOMSAT appealed to the CA thru a petition for review under Rule 43 arguing that it is the RTC and not Sandiganbayan which has jurisdiction over the case involving a stockholder’s right to inspect corporate books and records because the main controversy is rooted upon the issue of who are the rightful representative and board of directors of PHILCOMSAT. The CA granted the petition and the remanded to the RTC for further proceedings. Issue: Whether it is the Sandiganbayan or RTC which has jurisdiction over a stockholders’ suit to enforce its right of inspection under Section 74 of the Corporation Code. Held: The Court ruled that it is the RTC and not the Sandiganbayan which has jurisdiction over cases which do not involve a sequestration-related incident but an intracorporate controversy. Upon the enactment of Republic Act No. 8799, the jurisdiction of the SEC over intracorporate controversies and the other cases enumerated in Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court. The jurisdiction of the Sandiganbayan has been held not to extend even to a case involving a sequestered company notwithstanding that the majority of the members of the board of directors were PCGG nominees. BPI Family Savings Bank v. St. Michael Medical Center, G.R. No. 205469, (March 25, 2015)

Facts: Spouses Rodil planned on upgrading their hospital by using their personal funds and a mortgage loan from the BPI Family Savings Bank. However, only several floors were constructed and SMMCI was neither operational nor earning revenues because of the problems it had with its first contractor as well as the rise of the cost of construction materials. SMMCI filed a petition for corporate rehabilitation and claimed that the hospital although operating profitably was weighed down by its loan obligations and several persons had signified interest in investing. Issue: Whether the CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC. Held: No. The court ruled that CA erred in disregarding the fact that SMMCI’s Rehabilitation Plan, key requisite in corporate rehabilitation proceedings, particularly, the material financial commitment to support the rehabilitation and an accompanying liquidation analysis. Rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis or mismanagement had become distressed or insolvent. Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the distressed corporation, all with a view of effectively restoring it to a state of solvency or to its former healthy financial condition through the adoption of a rehabilitation plan. It is settled that the remedy of rehabilitation should be denied to corporations that do not qualify under the Rules. Neither should it be allowed to corporations whose sole purpose is to delay the enforcement of any rights of the creditors, which is rendered obvious by: a) the absence of a sound and workable business plan; b) baseless and unexplained assumptions, targets and goals; and c) Speculative capital infusion or complete lack thereof for the execution of the business plan. In this case, not only has the petitioning debtor failed to show that it has formally began its operations which would warrant restoration, but also it has failed to show compliance with

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the requirements under the Rules, the purpose of which are vital in determining the propriety of rehabilitation. Thus, for all the reasons herein above explained, the Court is constrained to rule in favor of BPI Family and hereby dismiss St. Michael Medical Center Inc.'s Rehabilitation Petition. 100 SELECTED CONCEPTS THAT MAY BE HELPFUL LETTERS OF CREDIT: 1. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller who refuses to part with his goods before he is paid, and a buyer, who wants to have control of his goods before paying. 2. The three contracts involved in a letter of credit transaction are to be maintained in a state of perpetual separation. 3. The Independence Doctrine maintains that a bank, in determining compliance with the terms of a letter of credit is required to examine only the shipping documents presented by the seller and is precluded from determining whether the main contract is actually accomplished or not. 4. The Strict Compliance Doctrine maintains that the documents tendered by the seller or beneficiary must strictly conform to the terms of the letter of credit. 5. The Fraud Exception maintains that despite the bank’s unconditional obligation to pay the seller upon presentation of the required documents, the issuing bank is not bound to pay when there has been fraud by the seller. The test is whether, standing in the shoes of the paying bank at the time of payment, the fraud was clear and obvious. If [the] fraud was clear and obvious, the bank pays the beneficiary at its own peril and it is not entitled to reimbursement. But if [the] fraud is not clear and obvious, then it is not for a bank to question why the parties involved had chosen to conduct their business in any particular way. TRUST RECEIPTS:

in the alternative- the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. (Land Bank of the Philippines v. Lamberto C. Perez, et.al., G.R. No. 166884, 672 SCRA 117, June 13, 2012) 7. The loan feature of a trust receipt transaction lies in the manner it facilitates the importation or purchase of merchandise by the extension of credit. The security feature of a trust receipt lies in the fact that the imported or purchased merchandise will serve as collateral for the credit extended and that the obligation of the entrustee is to deliver the proceeds of their sale or return them if not sold. NEGOTIABLE INSTRUMENTS LAW: 8. The requisites of a negotiable instrument are: (a) It must be in writing, (b) It must be signed by maker or drawer, (c) It must contain an unconditional promise or order to pay a sum certain in money, (d) It must be payable on demand, or at a fixed or determinable future time, (e) It must be payable to order or to bearer, and (f) Where it is a bill of exchange, drawee must be named or otherwise indicated therein with reasonable certainty. 9. The Fictitious Payee Rule applies when the instrument is payable to the order of a fictitious or non-existing person, the instrument’s being payable to bearer depends on the intention of the person making it so payable. An actual, existing, and living payee may also be “fictitious” if the drawer did not intend for the payee in fact to receive the proceeds of the check. If this is absent, the effect is that the instrument cannot be considered as payable to bearer. 10. Delivery means that the party delivering did so for the purpose of giving effect thereto. (San Miguel Corporation vs. Puzon, Jr., 631 SCRA 48)

6. In all trust receipt transactions, both obligations on the part of the (en) trustee exist

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11. An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. 12. The effects of a forgery are: (a) The instrument is not declared totally void nor are the genuine signatures thereon rendered inoperative. It is only the forged signature that is declared inoperative. Hence: rights still exist and may be enforced by virtue of the instrument as between parties whose signatures were not forged, and (b) A forged instrument just prevents any subsequent party from acquiring any rights as against any party whose name appears prior to the forgery. There is no right to retain the instrument, or to give discharge or to enforce payment. However, rights will exist and may be enforced as between subsequent parties but no one can acquire a right as against parties prior to the forgery, who also have rights and may enforce them as against each other. 13. A material alteration is any alteration which changes: (a) The date (b) The sum payable, either for principal or interest (c) The time or place of payment (d) The number of the relations of the parties (e) The medium or currency in which payment is to be made (f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. 14. A holder in due course is a holder who has taken the instrument under the following conditions:(a)That it is complete and regular upon its face;(b)That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (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.

15. The Shelter Rule maintains that a holder who is not a holder in due course, and who himself is not a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. 16. Clearing should not be confused with acceptance. Manager’s and Cashier’s checks are still the subject of clearing to ensure that the same have not been materially altered or otherwise completely counterfeited. (Metropolitan Bank and Trust Company v. Chiok, G.R. No. 175394, November 26, 2014) 17. The act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. (Dino vs. Judal-Loot, 618 SCRA 393) 18. An instrument is discharged by: (a) payment in due course by or behalf of the principal debtor, (b) payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation, (c) by intentional cancellation by the holder, (d) any other act that will discharge a simple contract for the payment of money, and (e) when the principal debtor becomes the holder of the instrument at or after maturity in his own right. INSURANCE: 19. The concept of insurance is that the premiums that are paid are accumulated in a pool from which payment of claims are to be obtained. As a basis, it is assumed that the people contributing premiums are in excess of those making claims resulting in a larger pool of money than the amounts being claimed. 20. Insurable interest will exist when the insured has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. 21. Any unknown or contingent event, whether past or future, which may damnify a person having insurable interest or create a liability against him may be insured against. On the other hand, insurance for or against the

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drawing of any lottery or for or against any chance or ticket in a lottery drawing a prize cannot be acquired. 22. The Incontestability Clause is a clause in a life insurance policy that is (a) payable on the death of the insured, and (b) which has been in force during the lifetime of the insured for a period of 2 years from the date of issue or its last reinstatement that would prevent the insurer from proving that the policy is void ab initio or is subject to rescission by reason of a fraudulent concealment or misrepresentation of the insured or his agent. 23. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract-it accrues simply upon payment by the insurance company of the insurance claim. (Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corporation, 601 SCRA 96) 24. There is no subrogation when: (a) the insured by his own act releases the party at fault from liability, (b) when the insurer pays the insured without notifying the carrier who has in good faith settled the insured’s claim for loss, (c) when the insurer pays for a loss excepted from the policy, and (d) in life insurance. 25. A CBA provision providing for an MMPC obligation to pay for the medical expenses of MMPSEU dependents was considered as a non- life insurance contract and interpreted as a contract of indemnity. This interpretation barred the application of the “collateral source rule,” which disallows a wrongdoer from claiming a benefit arising from a contract which the injured party may have with third persons to lessen his liability. In this case, MMPC is not the wrongdoer, rather, it is a no-fault insurer. (Mitsubishi Motors Philippines Salaried Employees Union v. Mitsubishi Motors Philippines Corporation, G.R. No. 175773, June 17, 2013) 26. Suicide is generally not compensable unless committed after the policy has been in force for a period of two years from date of issue or last reinstatement or a shorter period if provided, or if committed in a state of insanity. 27. To prevent a life insurance policy from lapsing, the following devices are used: (a) grace period, (b) automatic policy loan, (c) paid-up insurance, (d) reinstatement.

28. Double insurance exists where the same person is insured by several insurers separately in respect to same subject and interest. Over insurance occurs when property is insured for an amount in excess of its value. 29. A health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. (Fortune Medicare, Inc. v. David Robert U. Amorin, G.R. No. 195872, March 12, 2014) TRANSPORTATION: 30. Since the business and operation of a public utility is imbued with public interest, it must submit to government regulation and surrender certain business prerogatives, including determining the amount of rates that they can charge as the State must protect the public whenever too much profits become the priority of public utilities. 31. Certificate of Public Convenience (CPC) and Certificate of Public Convenience and Necessity (CPCN) are distinguished as follows: A certificate of public convenience is any authorization to operate public service issued by the Public Service Commission for which no franchise, either municipal or legislative, is required by law. The certificate of public convenience and necessity requires a franchise issued by the legislative department. 32. The Prior Operator Rule contemplates that the first licensee will be protected in his investment and will not be subjected to ruinous competition. It is not therefore, the policy of the law for the Public Service Commission to issue a certificate of public convenience to a second operator when a prior operator is rendering sufficient, adequate and satisfactory service, and who in all things and respects is complying with the rules and regulations of the Commission. 33. The Prior Applicant Rule contemplates a situation where two interested persons apply for a Certificate of Public Convenience in the same locality over which no person has of yet been granted a Certificate of Public Convenience, if both applications being equal, the one who first applied will be preferred

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34. A contract of carriage of goods commences from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same shall have been delivered actually or constructively by the carrier to the consignee who has the right to receive them. 35. A contract of carriage of passengers commences from the time the person who purchases the ticket from the carrier presents himself at the proper place and in a proper manner to be transported. This is when the contract of carriage is perfected. The relationship will not terminate until the passenger has, after reaching his destination, safely alighted from the carrier’s conveyance or has had a reasonable opportunity to leave the carrier’s premises. 36. Loss of earning capacity may be granted even if the deceased passenger may only be an unemployed high school student at the time of the accident. The basis of the computation of the earning capacity of the deceased was the minimum wage in effect at the time of his death, not reckoned from his age of 15 years at the time of death, but on 21 years, his age when he would have graduated from college. (Spouses Teodoro and Nannette Perena v. Spouses Nicolas and Teresita L. Zarate, Philippine National Railways, and the Court of Appeals, G.R. No. 157917, August 29, 2012) 37. Passenger’s Baggage is deemed to include whatever articles a passenger usually takes with him for his own personal use, comfort and convenience according to the habits or wants of the particular class to which he belongs, either with reference to his immediate necessities or the ultimate purpose of his journey. Baggage may be hand-carried or checked-in or is delivered to the carrier. Checkin baggage is treated as cargo, while handcarried baggage is treated as necessary deposit. 38. A bill of lading may be defined as a written acknowledgment of the receipt of goods and an agreement to transport and to deliver them at a specified place to a person named or on his order. It comprehends all methods of transportation. The nature of a Bill of Lading is that it: (a) is a contract in itself and the parties are bound by its terms (b) is a receipt (c) is a symbol of the goods covered by it.

39. A claim for damage for goods covered by a bill of lading should be brought within 24 hours following the receipt of the merchandise on account of damage or average found therein on opening the packages, provided that the signs of the damage or average giving rise to the claim may not be known from the exterior part of the packages, and in case that they may be so ascertained, said claim shall only be admitted at the time of the receipt of the packages. 40. The Limited Liability Rule is based on the real and hypothecary nature of maritime law and its effect is that the vessel serves as the guarantee for the settlement for obligations under maritime contracts. Subject to certain exceptions, if the vessel is lost or is abandoned in favor of creditors, the obligations of the ship captain and the ship agent will be extinguished, as their liability is limited to the res or the vessel. 41. The exceptions to the doctrine of limited liability: (a) where the ship owner is at fault or is due to the concurring negligence of the ship owner and captain as the doctrine is premised on the condition that the death or injury to the passenger occurred by reason of the fault or negligence of the captain only (b) in cases of Workmen’s Compensation as such compensation has nothing to do with maritime commerce, it is an item in the cost of production which must be included in the budget of nay well-managed industry (c) when the vessel is insured (d) Total destruction of the vessel does not affect the liability of the owner for repairs on the vessel completed before its loss as owners of a vessel are liable for necessary repairs and it shall remain unaffected by the loss of the thing.

42. COGSA applies to all contracts for the carriage of goods by sea to and from Philippine in foreign trade. Note that the transhipment of the cargo in the Philippines via a domestic inter-island vessel will not remove it from the application of COGSA. A paramount clause will allow the application of COGSA even if the transportation is domestic. PRIVATE CORPORATIONS: 43. A corporation commences to have existence from the issuance by the SEC of a certificate of incorporation under its official seal. The effect of which is to constitute its stockholders or members and their successors as

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a Body Politic and Corporate under the name and for the term stated in the Articles. It is said to have been given de jure existence or can be said to be incorporated. The exception is a Corporation Sole, which is deemed incorporated upon filing of its Articles. 44. The general capacity theory maintains that a corporation is said to hold such powers as are not prohibited or withheld from it by general law. The specific capacity theory maintains that the corporation cannot exercise powers except those expressly/impliedly given. 45. The Doctrine of Separate Legal Entity holds that a corporation has a personality separate and distinct from its individual stockholders or members. This affects liability for acts or contracts, right to bring actions, acquisition of property, and changes in the identity of stockholders or members. 46. Tort liability can be imposed on a corporation because generally speaking, the rules governing liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural person or a corporation. Hence, when a tortuous act is committed by an officer or agent of a corporation under express direction or authority of the corporation, it would be liable. 47. As a general rule, nationality is determined by place of incorporation. The “control test” as a means of determining nationality looks at the nationality of the stockholders or members of the corporation. The “grandfather test” as a means of determining nationality looks at the percentage of foreign holdings in a corporation which is a stockholder in a Filipino corporation to determine whether or not the percentage requirement of Filipino ownership has been met. Where the 60-40 Filipino-foreign equity ownership is not in doubt, the Grandfather Rule will not apply. (Narra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc., and McArthur Mining, Inc. vs. Redmont Consolidated Mines Corp., G.R. No. 195580, April 21, 2014) 48. The “Business Judgment Rule” maintains that questions of policy or of management are left solely to the honest decisions of officers and directors of a corporation, and so long as they are in good faith, their orders are not reviewable by courts.

49. Dividend declaration is generally discretionary but becomes mandatory when its surplus profits are in excess of 100% of paid in capital stock. However, the mandatory character shall not obtain: (a) when justified by definite corporate expansion projects or programs approved by the Board (b) when it is prohibited by a loan agreement with any financial institution or creditor from declaring dividends without its consent and the consent is not yet obtained (c) when it can be shown that such retention is necessary under special circumstances obtaining in the corporation, as there is a need for a special reserve for probable contingencies. 50. Ultra Vires acts are acts that are in violation of the Code as it provides that: no corporation shall possess or exercise corporate powers except those conferred by the code, its Articles and except as such are necessary or incidental to the exercise of the powers so conferred. 51. The “Trust Fund Doctrine” maintains that the subscribed capital stock of the corporation is a trust fund for the payment of the debts of the corporation which the creditors have the right to look up to satisfy their credits, and which the corporation may not dissipate. 52. A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce corporate rights against the corporation’s directors, officers or other insiders. The directors or officers, as provided under the bylaws, have the right to decide whether or not a corporation should sue. Stockholders are permitted by law to bring an action in the name of the corporation to hold these directors and officers accountable. In derivative suits, the real party in interest is the corporation, while the stockholder is a mere nominal party. (Juanito Ang, for and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang, G.R. No. 201675, June 19, 2013) 53. The requisites of a derivative suit are: (a) the party bringing the suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material, (b) he has tried to exhaust intra-corporate remedies, and (c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been caused the corporation, and not the

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particular stockholder bringing the suit. 54. Solidary liability is imposed on a director, trustee or officer when: (a) He willfully and knowingly votes for and assents to a patently unlawful act of the corporation; (b) There is gross negligence or bad faith in directing the affairs of the corporation; (c) He acquires any personal or pecuniary interest in conflict of duty; (d) He agrees or stipulates in a contract to hold himself liable with the corporation; or (e) A specific provision of law requires it. 55. The “Special Fact Doctrine” maintains that a corporate officer with superior knowledge gained by virtue of being an insider owes a limited fiduciary duty to a shareholder in transactions involving transfer of stock. 56. The “Doctrine of Apparent Authority” maintains that a corporation will be estopped from denying the agent’s authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him out to the public as possessing the power to do those acts. The doctrine of apparent authority does not apply if the principal did not commit any acts or conduct which a third party knew and relied upon in good faith as a result of the exercise of reasonable prudence. Moreover, the agent’s acts or conduct must have produced a change of position to the third party’s detriment. (Advance Paper Corporation v. Arma Traders Corporation, Manuel Ting, et. al., G.R. No. 176897, December 11, 2013) 57. In a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased. (Fil-Estate Gold and Development, Inc., et. al. v. Vertex Sales and Trading, Inc., G.R. No. 202079, June 10, 2013) 58. The purpose of the law in requiring that a foreign corporation doing business in the Philippines to be licensed is to subject it to the jurisdiction of the courts. The object is not to prevent foreign corporation from performing single acts but to prevent it from acquiring a domicile for the purpose of business without taking steps necessary to render it amenable to suits in local courts. 59. An unlicensed foreign corporation that is not transacting or doing business in the Philippines, can sue under: (a) The isolated

business transaction rule, (b) A cause of action that is independent of any business transaction, (c) A cause of action that arises out of a business transaction that is not entered into in the Philippines, and (d) A cause of action to protect its name, reputation or goodwill subject to the rule on reciprocity under the IPR. 60. The NLRC was held to have jurisdiction over the dismissal of an AVP for Sales, who was also a stockholder, as he is not a corporate officer whose dismissal is cognizable by the RTC. A corporate officer was defined as one who meets the following: (a) the creation of the position is under the corporation’s charter or by-laws; and (b) the election of the officer is by the directors or the stockholders. (Cosare v. Broadcom Asia, Inc, G.R. No. 201298, February 5, 2014) 61. Rehabilitation was defined as “restoration of the debtor to a position of successful operation and solvency.” A successful rehabilitation depends on 2 factors: (a) positive change in the business fortunes of the debtor, and (b) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment and the extent of dilution. (San Jose Timber Corporation v. SEC, 667 SCRA 13) SECURITIES REGULATION CODE: 62. In general, securities are evidences of investment in a common enterprise made with the expectation of deriving a profit solely from the efforts of others who acquire control over the fund invested. As defined by law, they are Shares, Participation or Interest (SPI) in a Corporation or in a Commercial enterprise or Profit-making venture (CCP) and evidenced by a Certificate, Contract; Instrument, whether written or electronic in character (CCI). 63. A Tender Offer is a public offer to purchase a specified number of shares from shareholders usually at a premium in an attempt to gain control of the issuing company. Note that in some instances, the premium is payable only if the offeror is able to obtain the required number of shares. 64. A Proxy Solicitation is an action to secure the right to vote of so much a number of shares to ensure the approval of a proposed corporate action.

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65. Security price manipulation is an artificial control of security prices. It is an attempt to force securities to sell at prices either above or below those which would exist as a result of the normal operations of supply and demand. The manipulator hopes to profit by creating fictitious prices at the expense of the general trading public. 66. A “Wash Sale” is a fictitious kind of sale, disallowed on stock and other exchanges, in which a broker who has received orders from one person to buy and from another person to sell a particular amount of quantity of some particular stock or commodity simply transfers the stock or commodity from one principal to the other and pockets the difference, instead of executing both orders separately to the best advantage in each case, as is required by the rules of the different exchanges. It may also be defined as “purchase or sale of securities which would involve no change of ownership.” 67. Insider Trading occurs when an insider sells or buys a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public. CENTRAL BANK ACT: 68. “Open Market Operations” has been defined as the act of the Bangko Sentral ng Pilipinas in publicly buying or selling government securities from (or to) banks and financial institutions. The purpose is to regulate the supply of money in the economy to influence the timing, cost and availability of money and credit. (Bank of Commerce v. Planters Development Bank, 681 SCRA 521) 69. A bank in distress shall be placed in conservatorship for a period not exceeding one year when it is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. 70. Receivership is defined as the summary closure of a bank without prior notice and hearing after a finding that the continuance in business will involve probable loss to its depositors and creditors. 71. The “Close Now, Hear Later” policy maintains that prior notice and hearing is not required before placement of a bank under receivership.

GENERAL BANKING ACT: 72. As to nature, all kinds of deposits whether fixed or current are to be treated as loans and are to be covered by the law on loan. 73. A bank should exercise its functions and treat the accounts of their clients not only with the diligence of a good father of a family but it should do so with the highest degree of care considering the fiduciary nature of their relationships with their depositors. 74. Where the bank’s negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence, damages are allocated between the bank and depositor on a 60-40 ratio. (PNB v. FF Cruz & Co., 654 SCRA 333) 75. Single Borrower Limit Rules regulate the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity. The rules seek to protect a bank from making excessive loans to a single borrower by prohibiting it from lending beyond a specified ceiling. The current limit is 25% of the net worth of the bank concerned. The ceiling is subject to possible increase by an additional 10% provided the additional liabilities of any borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, non-perishable goods which must be fully covered by insurance. 76. DOSRI Rules are rules promulgated by the BSP, upon the authority of Section 36 of the GBL, which regulate the amount of credit accommodations that a bank may extend to its directors, officers, stockholders and their related interests, thus the term, DOSRI. Generally, a bank’s credit accommodations to its DOSRI must be in the regular course of business and on terms not less favorable to the bank than those offered to non-DOSRI borrowers. LAW ON BANK SECRECY: 77. The prohibited acts are: (a) The examination or inquiry or looking into all deposits of whatever nature with banks or banking institutions in the Philippines, including investment in bonds issued by the government or its political subdivisions and instrumentalities by any person, government official, bureau or

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office, and (b) The disclosure by any official or employee of any banking institution to any unauthorized person of any information concerning said deposit.

83. Copyright is the protection afforded literary and artistic works which are original intellectual creations in the literary and artistic domain from the moment of their creation.

78. If the money deposited under an account may be used by the bank for authorized loans to third persons, then such account, regardless of whether it creates a creditordebtor relationship between the depositor and the bank, the account would be covered the law on bank secrecy.

84. Ideas are not entitled to copyright protection, what is entitled to protection is the expression of the idea. This means that the copyright does not preclude others: (a) from using information revealed in the author’s work, or (b) creating works based on the same underlying idea.

79. The Supreme Court recognized that the demands of justice correct a wrong committed to a girl of tender years were above the need for the foreign offender's dollars, allowing the looking into, and in fact garnishing the foreign currency deposit of the transient foreigner, to enforce payment of the indemnity due. (Salvacion v. Central Bank, GR No. 94723, August 18, 1997)

85. “Fair Use” is a privilege granted enjoyed by one other than the owner of the copyright to use the copyrighted material in a reasonable manner without his consent, notwithstanding the monopoly of the owner of the copyright.

80. The Supreme Court also allowed an inquiry into a foreign currency deposit to settle the real ownership of the funds. Though pro hac vice or this one particular reason, the ruling was clear that the "allowance of the inquiry would be in accord with the rudiments of fair play and the upholding of fairness in our judicial system." (China Banking Corp. v. Court of Appeals, GR No. 140487, December 18, 2006) INTELLECTUAL PROPERTY: 81. Copyrights, trademarks and patents are completely distinct and separate from one another and the protection afforded by one cannot be used interchangeably to cover items or works that exclusively pertain to the others. (Pearl & Dean Phils. Inc. v. Shoemart, Inc., 409 SCRA 231) 82. While the Intellectual Property Code does not explicitly provide for the “No Formality Rule”, we follow the mandate of Article 5 (2) of the Berne Convention which provides that: “The enjoyment and the exercise of these rights shall not be subject to any formality.” A formality is any condition on which the existence or exercise of the right depends. While registration, fees and deposit of copies are formalities, they will be considered as such only when the existence of the copyright or exercise of attendant rights depends on compliance.

86. A patent is the protection afforded to an invention. For the invention to be patentable, it must refer to a technical solution of a problem in any field of human activity, which is new, involves an inventive step and is industrially applicable. 87. An industrial design is any composition of lines or colors or any three-dimensional form, whether or not associated with lines or colors provided that such composition or forms gives a special appearance to and can serve as pattern for an industrial product or handicraft. This is purely ornamental or aesthetic in nature as opposed to useful or functional. If it is an industrial design, the patent duration is 5 years from the filing date of the application, renewable for not more than 2 consecutive periods of 5 years each. 88. A utility model is a technical solution to a problem in any field of human activity which is new and industrially applicable. It may be or may relate to, a product, of process, or an improvement. Essentially, a utility model refers to an invention in the mechanical field that has some type of usefulness. If it is utility model, the patent duration is 7 years from date of the filing of the application without renewal. 89. The “Doctrine of Equivalents” maintains that an infringement also takes place when a device appropriates a prior invention by incorporating its innovative concept and, although with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result. In other words,

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the principle or mode of operation must be the same or substantially the same. 90. A trademark is any visible sign capable of distinguishing the goods or services of an enterprise and shall include a stamped or marked container of goods. 91. A tradename refers to the name or designation identifying an enterprise. 92. The “Doctrine of Secondary Meaning” maintains that a word or phrase incapable of exclusive appropriation with reference to an article in the market because it is merely geographical or descriptive, might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of the purchasing public, the word or the phrase has come to mean his product. 93. Infringement and Unfair competition is distinguished as follows: (a) infringement is the unauthorized use of a trademark, whereas unfair competition is the passing off of one’s goods as those of another, (b) In infringement, fraudulent intent is unnecessary, whereas in unfair competition, fraudulent intent is essential, and (c) In infringement, prior registration is a prerequisite to an action, whereas in unfair competition, registration is not necessary. ANTI-MONEY LAUNDERING LAW: 94. Money Laundering is the process by which a person conceals the existence of unlawfully obtained money and makes it appear to have originated from lawful sources. 95. A Covered Institution refers to (a) Banks, Non-Banks, Quasi-Banks, Trust Entities, and all other institutions and their subsidiaries and affiliates supervised by the BSP (b) Insurance Companies and all other institutions supervised by the Insurance Commission (c) Security Dealers, brokers, salesmen, investment houses and other similar entities managing securities or rendering services as an investment agent, advisor, or consultant supervised or regulated by the SEC (d) mutual funds, closed end investment companies, common trust funds, pre-need companies, and other similar entities (e) foreign exchange corporations, money changers, money payment, remittance and transfer companies and other similar entities, and (f) other entities administering or

otherwise dealing in currency, commodities, or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or properties supervised or regulated by the SEC. 96. A covered transaction is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five Hundred Thousand Pesos (PHP500, 000.00) within one banking day. 97. A Suspicious transaction is a transaction with a covered institution, regardless of the amounts involved, where any of the following circumstances exist: (a)There is no underlying legal or trade obligation, purpose or economic justification, (b)The client is not properly identified, (c) The amount involved is not commensurate with the business or financial capacity of the client, (d) Taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the Act, (e) Any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution, (f) The transaction is in any way related to an unlawful activity or offense under this Act that is about to be, is being or has been committed, or (g) Any transaction that is similar or analogous to any of the foregoing. FOREIGN INVESTMENTS ACT: 98. A foreign investment is an equity investment made by non-Philippine national in the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange. 99.

A foreign investment can be put in: (a) An export enterprise which is an enterprise wherein a manufacturer, processor or service (including tourism) enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchase products domestically and exports sixty percent (60%) or more of such purchases, or (b) A domestic market enterprise which is an enterprise which produces goods for sale, or renders services to the domestic market entirely or if exporting a portion of its output fails to consistency export at least 60% thereof.

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100. Any non-Philippine national or entity may do business in the Philippines up to 100% of its capital provided: (a) It is doing business as a domestic market enterprise outside the Negative List (b) It is doing business as an export enterprise whose products or services do not fall within Negative Lists A and B, except for defense-related activities, which may be approved or authorized, and (c) Provided further that, as required by existing laws, the country or state of the applicant must allow Filipino citizens and corporations to do business therein.

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