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August 2011 Philippine Supreme Court Decisions on Commercial Law

Posted on September 2, 2011 by Hector M. de Leon Jr Here are selected August 2011 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# Securities $egulation !ode% public company. & e P ilippine 'eterans (an) *t e +(an),- argued t at it is not a +public company, sub.ect to t e reportorial re/uirements under Section 10.1 of t e S$! because its s ares can be o"ned only by a specific group of people, namely, 1orld 1ar 22 3eterans and t eir "ido"s, orp ans and compulsory eirs, and is not open to t e in3esting public in general. & e (an) also re/uested t e !ourt to ta)e into consideration t e financial impact to t e cause of +3eteranism,% compliance "it t e reportorial re/uirements under t e S$!, if t e (an) "ould be considered a +public company,, "ould compel t e (an) to spend appro4imately P50 million .ust to reproduce and mail t e +2nformation Statement, to its 500,000 s are olders nation"ide. $ule 6*1-*m- of t e Amended 2mplementing $ules and $egulations of t e S$! defines a +public company, as +any corporation "it a class of e/uity securities listed on an 74c ange or "it assets in e4cess of 8ifty Million Pesos *P90,000,000.00- and a3ing t"o undred *200- or more olders, at least t"o undred *200- of " ic are olding at least one undred *100- s ares of a class of its e/uity securities., 8rom t ese pro3isions, it is clear t at a +public company,, as contemplated by t e S$!, is not limited to a company " ose s ares of stoc) are publicly listed% e3en companies li)e t e (an), " ose s ares are offered only to a specific group of people, are considered a public company, pro3ided t ey meet t e re/uirements enumerated abo3e. & e records establis , and t e (an) does not dispute, t at t e (an) as assets e4ceeding P90,000,000.00 and as 6:9,::; s are olders. 2t is t us considered a public company t at must comply "it t e reportorial re/uirements set fort in Section 10.1 of t e S$!. Philippine Veterans Bank vs. Justina Callangan, etc. and/or the Securities and Exchange Commission G. . !o. "#"##$, %ugust &, '("".

September 2011 Philippine Supreme Court Decisions on Commercial Law


Posted on <ctober 6, 2011 by Hector M. de Leon Jr Here are selected September 2011 rulings of t e Supreme !ourt of t e P ilippines on commercial la"#

(an)s% degree of diligence re/uired. & e =eneral (an)ing La" of 2000 re/uires of ban)s t e ig est standards of integrity and performance. & e ban)ing business is impressed "it public interest. <f paramount importance is t e trust and confidence of t e public in general in t e ban)ing industry. !onse/uently, t e diligence re/uired of ban)s is more t an t at of a $oman pater familias or a good fat er of a family. & e ig est degree of diligence is e4pected. Philippine Commercial Bank vs. %ntonio B. Balmaceda and olando !. amos, G. . !o. "$)"*&, Septem+er '", '("". (an)s% unilateral free>ing of ban) account. 1e also find t at P!2( acted illegally in free>ing and debiting $amos? ban) account. 2n (P2 8amily (an) 3. 8ranco, "e cautioned against t e unilateral free>ing of ban) accounts by ban)s, noting t at# More importantly, @(P2 8amily (an)A does not a3e a unilateral rig t to free>e t e accounts of 8ranco based on its mere suspicion t at t e funds t erein "ere proceeds of t e multiBmillion peso scam 8ranco "as allegedly in3ol3ed in. &o grant @(P2 8amily (an)A, or any ban) for t at matter, t e rig t to ta)e " ate3er action it pleases on deposits " ic it supposes are deri3ed from s ady transactions, "ould open t e floodgates of public distrust in t e ban)ing industry. 1e see no legal merit in P!2(?s claim t at legal compensation too) place bet"een it and $amos, t ereby "arranting t e automatic deduction from $amos? ban) account. 8or legal compensation to ta)e place, t"o persons, in t eir o"n rig t, must first be creditors and debtors of eac ot er. 1 ile P!2(, as t e depositary ban), is $amos? debtor in t e amount of is deposits, $amos is not P!2(?s debtor under t e e3idence t e P!2( adduced. P!2( t us ad no basis, in fact or in la", to automatically debit from $amos? ban) account. Philippine Commercial Bank vs. %ntonio B. Balmaceda and olando !. amos, G. . !o. "$)"*&, Septem+er '", '("". ! ec)s% crossed c ec)s. A crossed c ec) is one " ere t"o parallel lines are dra"n across its face or across its corner. (ased on .urisprudence, t e crossing of a c ec) as t e follo"ing effects# *a- t e c ec) may not be encas ed but only deposited in t e ban)% *b- t e c ec) may be negotiated only once C to t e one " o as an account "it t e ban)% and *c- t e act of crossing t e c ec) ser3es as a "arning to t e older t at t e c ec) as been issued for a definite purpose and e must in/uire if e recei3ed t e c ec) pursuant to t is purpose% ot er"ise, e is not a older in due course. 2n ot er "ords, t e crossing of a c ec) is a "arning t at t e c ec) s ould be deposited only in t e account of t e payee. 1 en a c ec) is crossed, it is t e duty of t e collecting ban) to ascertain t at t e c ec) is only deposited to t e payee?s account. 2n complete disregard of t is duty, P!2(?s systems allo"ed (almaceda to encas 2D Manager?s c ec)s " ic "ere all crossed c ec)s, or c ec)s payable to t e +payee?s account only., Philippine Commercial Bank vs. %ntonio B. Balmaceda and olando !. amos, G. . !o. "$)"*&, Septem+er '", '("". Payment% foreign currency. A stipulation of payment in dollars is not pro ibited by any pre3ailing la" or .urisprudence at t e time t e loans "ere ta)en. 2n t is regard, Article 125: of t e !i3il !ode pro3ides# Art. 125:. & e payment of debts in money s all be made in t e currency stipulated, and if it is not possible to deli3er suc currency, t en in t e currency " ic is legal tender in t e P ilippines. Alt oug t e !i3il !ode too) effect on August 60, 1:90, .urisprudence ad up eld t e continued effecti3ity of $epublic Act Eo. 92:, " ic too) effect earlier on June 1D, 1:90. Pursuant to

Section 1 of $epublic Act Eo. 92:, any agreement to pay an obligation in a currency ot er t an t e P ilippine currency is 3oid% t e most t at could be demanded is to pay said obligation in P ilippine currency to be measured in t e pre3ailing rate of e4c ange at t e time t e obligation "as incurred. <n June 1:, 1:D5, $epublic Act Eo. 5100 too) effect, modifying $epublic Act Eo. 92: by pro3iding for se3eral e4ceptions to t e nullity of agreements to pay in foreign currency. <n April 16, 1::6, !entral (an) !ircular Eo. 16;: "as issued, lifting foreign e4c ange restrictions and liberali>ing trade in foreign currency. 2n cases of foreign borro"ings and foreign currency loans, o"e3er, prior (ang)o Sentral appro3al "as re/uired. <n July 9, 1::D, $epublic Act Eo. ;1;6 too) effect, e4pressly repealing $epublic Act Eo. 92: in Section 2 t ereof. & e same statute also e4plicitly pro3ided t at parties may agree t at t e obligation or transaction s all be settled in a currency ot er t an P ilippine currency at t e time of payment. Alt oug t e !redit Line Agreement bet"een t e spouses &iu and Fnion (an) "as entered into on Eo3ember 21, 1::9, " en t e agreement to pay in foreign currency "as still considered 3oid under $epublic Act Eo. 92:, t e actual loans, as s o"n in t e promissory notes, "ere ta)en out from September 22, 1::0 to Marc 2D, 1::;, during " ic time $epublic Act Eo. ;1;6 "as already in effect. Fnion (an) of t e P ilippines 3s. Spouses $odolfo &. &iu and 'ictoria E. &iu, =.$. Eos. 1060:0B:1. September 0, 2011.

October 2011 Philippine Supreme Court Decisions on Commercial Law


Posted on Eo3ember 2, 2011 by Hector M. de Leon Jr Here are selected <ctober 2011 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# ! ec)% issuance for consideration. Fpon issuance of a c ec), in t e absence of e3idence to t e contrary, it is presumed t at t e same "as issued for 3aluable consideration " ic may consist eit er in some rig t, interest, profit or benefit accruing to t e party " o ma)es t e contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or ser3ice gi3en, suffered or underta)en by t e ot er side. Fnder t e Eegotiable 2nstruments La", it is presumed t at e3ery party to an instrument ac/uires t e same for a consideration or for 3alue. As petitioner alleged t at t ere "as no consideration for t e issuance of t e sub.ect c ec)s, it de3ol3ed upon im to present con3incing e3idence to o3ert ro" t e presumption and pro3e t at t e c ec)s "ere in fact issued "it out 3aluable consideration. Sadly, o"e3er, petitioner as not presented any credible e3idence to rebut t e presumption, as "ell as Eort Star?s assertion, t at t e c ec)s "ere issued as payment for t e FSG;9,000 petitioner o"ed. Engr. Jose E. Ca,anan vs. !orth Star -nternational .ravel, -nc. G. . !o. "/'#$*. 0cto+er $, '("" $e abilitation recei3er% role. As an officer of t e court and an e4pert, t e re abilitation recei3er plays an important role in corporate re abilitation proceedings. 2n Pryce !orporation 3. !ourt of Appeals, t e !ourt eld t at, +t e purpose of t e la" in directing t e appointment of recei3ers is to protect t e interests of t e corporate in3estors and creditors., Section 15 of t e 2nterim $ules

of Procedure on !orporate $e abilitation enumerates t e po"ers and functions of t e re abilitation recei3er# *1- 3erify t e accuracy of t e petition, including its anne4es suc as t e sc edule of debts and liabilities and t e in3entory of assets submitted in support of t e petition% *2- accept and incorporate, " en .ustified, amendments to t e sc edule of debts and liabilities% *6- recommend to t e court t e disallo"ance of claims and re.ection of amendments to t e sc edule of debts and liabilities t at lac) sufficient proof and .ustification% *5- submit to t e court and ma)e a3ailable for re3ie" by t e creditors a re3ised sc edule of debts and liabilities% *9in3estigate t e acts, conduct, properties, liabilities, and financial condition of t e debtor, t e operation of its business and t e desirability of t e continuance t ereof, and any ot er matter rele3ant to t e proceedings or to t e formulation of a re abilitation plan% *D- e4amine under oat t e directors and officers of t e debtor and any ot er "itnesses t at e may deem appropriate% *0ma)e a3ailable to t e creditors documents and notices necessary for t em to follo" and participate in t e proceedings% *;- report to t e court any fact ascertained by im pertaining to t e causes of t e debtor?s problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement, and irregularities committed by t e stoc) olders, directors, management, or any ot er person% *:- employ suc person or persons suc as la"yers, accountants, appraisers, and staff as are necessary in performing is functions and duties as re abilitation recei3er% *10monitor t e operations of t e debtor and to immediately report to t e court any material ad3erse c ange in t e debtor?s business% *11- e3aluate t e e4isting assets and liabilities, earnings and operations of t e debtor% *12- determine and recommend to t e court t e best "ay to sal3age and protect t e interests of t e creditors, stoc) olders, and t e general public% *16- study t e re abilitation plan proposed by t e debtor or any re abilitation plan submitted during t e proceedings, toget er "it any comments made t ereon% *15- pro ibit and report to t e court any encumbrance, transfer, or disposition of t e debtor?s property outside of t e ordinary course of business or " at is allo"ed by t e court% *19- pro ibit and report to t e court any payments outside of t e ordinary course of business% *1D- a3e unlimited access to t e debtor?s employees, premises, boo)s, records, and financial documents during business ours% *10- inspect, copy, p otocopy, or p otograp any document, paper, boo), account, or letter, " et er in t e possession of t e debtor or ot er persons% *1;- gain entry into any property for t e purpose of inspecting, measuring, sur3eying, or p otograp ing it or any designated rele3ant ob.ect or operation t ereon% *1:- ta)e possession, control, and custody of t e debtor?s assets% *20- notify t e parties and t e court as to contracts t at t e debtor as decided to continue to perform or breac % *21- be notified of, and to attend all meetings of t e board of directors and stoc) olders of t e debtor% *22- recommend any modification of an appro3ed re abilitation plan as e may deem appropriate% *26- bring to t e attention of t e court any material c ange affecting t e debtor?s ability to meet t e obligations under t e re abilitation plan% *25- recommend t e appointment of a management committee in t e cases pro3ided for under Presidential Hecree Eo. :02BA, as amended% *29- recommend t e termination of t e proceedings and t e dissolution of t e debtor if e determines t at t e continuance in business of suc entity is no longer feasible or profitable or no longer "or)s to t e best interest of t e stoc) olders, partiesBlitigants, creditors, or t e general public% and *2D- apply to t e court for any order or directi3e t at e may deem necessary or desirable to aid im in t e e4ercise of is po"ers. Siochi 1isher, Enterprises, -nc., et al. vs. Bank o2 the Philippine -slands, G. . !o. "#&)/'. 0cto+er "#, '("". $e abilitation% re abilitation plan. & e re abilitation plan is an indispensable re/uirement in corporate re abilitation proceedings. Section 9 of t e $ules enumerates t e essential re/uisites of a re abilitation plan# & e re abilitation plan s all include *a- t e desired business targets or goals and t e duration and co3erage of t e re abilitation% *b- t e terms and conditions of suc re abilitation " ic s all

include t e manner of its implementation, gi3ing due regard to t e interests of secured creditors% *c- t e material financial commitments to support t e re abilitation plan% *d- t e means for t e e4ecution of t e re abilitation plan, " ic may include con3ersion of t e debts or any portion t ereof to e/uity, restructuring of t e debts, dacion en pago, or sale of assets or of t e controlling interest% *e- a li/uidation analysis t at estimates t e proportion of t e claims t at t e creditors and s are olders "ould recei3e if t e debtor?s properties "ere li/uidated% and *f- suc ot er rele3ant information to enable a reasonable in3estor to ma)e an informed decision on t e feasibility of t e re abilitation plan. & e !ourt notes t at petitioners failed to include a li/uidation analysis in t eir re abilitation plan. Siochi 1isher, Enterprises, -nc., et al. vs. Bank o2 the Philippine -slands, G. . !o. "#&)/'. 0cto+er "#, '("".

November 2011 Philippine Supreme Court Decisions on Commercial Law


Posted on Hecember 12, 2011 by Hector M. de Leon Jr Here are selected Eo3ember 2011 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !orporations% piercing t e corporate 3eil. Piercing t e 3eil of corporate fiction is "arranted only in cases " en t e separate legal entity is used to defeat public con3enience, .ustify "rong, protect fraud, or defend crime, suc t at in t e case of t"o corporations, t e la" "ill regard t e corporations as merged into one. As succinctly discussed by t e !ourt in 'elarde 3. Lope>, 2nc.# Petitioner argues ne3ert eless t at .urisdiction o3er t e subsidiary is .ustified by piercing t e 3eil of corporate fiction. Piercing t e 3eil of corporate fiction is "arranted, o"e3er, only in cases " en t e separate legal entity is used to defeat public con3enience, .ustify "rong, protect fraud, or defend crime, suc t at in t e case of t"o corporations, t e la" "ill regard t e corporations as merged into one. & e rationale be ind piercing a corporation?s identity is to remo3e t e barrier bet"een t e corporation from t e persons comprising it to t "art t e fraudulent and illegal sc emes of t ose " o use t e corporate personality as a s ield for underta)ing certain proscribed acti3ities. 2n applying t e doctrine of piercing t e 3eil of corporate fiction, t e follo"ing re/uisites must be establis ed# *1- control, not merely ma.ority or complete stoc) control% *2- suc control must a3e been used by t e defendant to commit fraud or "rong, to perpetuate t e 3iolation of a statutory or ot er positi3e legal duty, or dis onest acts in contra3ention of plaintiff?s legal rig ts% and *6- t e aforesaid control and breac of duty must pro4imately cause t e in.ury or un.ust loss complained of. *!itations omitted.Eo" ere, respondent practice in transaction o"e3er, in t e pleadings and ot er records of t e case can it be gat ered t at as complete control o3er S)y 'ision, not only of finances but of policy and business respect to t e transaction attac)ed, so t at S)y 'ision ad at t e time of t e no separate mind, "ill or e4istence of its o"n. & e e4istence of interloc)ing

directors, corporate officers and s are olders is not enoug .ustification to pierce t e 3eil of corporate fiction in t e absence of fraud or ot er public policy considerations. 3acienda 4uisita -ncorporated vs. Presidential %grarian !ovem+er '', '("". e2orm Council, G. . !o. "/""(",

!orporations% piercing t e corporate 3eil. Absent any allegation or proof of fraud or ot er public policy considerations, t e e4istence of interloc)ing directors, officers and stoc) olders is not enoug .ustification to pierce t e 3eil of corporate fiction as in t e instant case. 3acienda 4uisita -ncorporated vs. Presidential %grarian e2orm Council, G. . !o. "/""(", !ovem+er '', '("". Mar)% infringement. A +mar), is any 3isible sign capable of distinguis ing t e goods *trademar)- or ser3ices *ser3ice mar)- of an enterprise and s all include a stamped or mar)ed container of goods. 2n McHonald?s !orporation and Mc=eorge 8ood 2ndustries, 2nc. 3. L.!. (ig Ma) (urger, 2nc., t is !ourt eld# &o establis trademar) infringement, t e follo"ing elements must be s o"n# *1- t e 3alidity of plaintiff?s mar)% *2- t e plaintiff?s o"ners ip of t e mar)% and *6- t e use of t e mar) or its colorable imitation by t e alleged infringer results in +li)eli ood of confusion., <f t ese, it is t e element of li)eli ood of confusion t at is t e gra3amen of trademar) infringement. A mar) is 3alid if it is distincti3e and not barred from registration. <nce registered, not only t e mar)?s 3alidity, but also t e registrant?s o"ners ip of t e mar) is prima facie presumed. Gemma 0ng a.k.a. 5a. .heresa Gemma Catacutan vs. People o2 the Philippines , G. . !o. "6#**(,. !ovem+er '&, '("".

December 2011 Philippine Supreme Court Decisions on Commercial Law


Posted on January D, 2012 by Hector M. de Leon Jr Here are selected Hecember 2011 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !orporation% contracts before incorporation. 1it respect to petitioners? contention t at t e Management !ontract e4ecuted bet"een respondent and petitioner Lucila as no binding effect on petitioner corporation for a3ing been e4ecuted "ay before its incorporation, t is !ourt finds t e same meritorious. Logically, t ere is no corporation to spea) of prior to an entity?s incorporation. And no contract entered into before incorporation can bind t e corporation. 5arch -- 5arketing, -nc. and 4ucila V. Joson vs. %l2redo 5. Joson, G. . !o. "/"##&, 7ecem+er "', '("".

!orporation% corporate officers. 2n t e conte4t of Presidential Hecree Eo. :02BA, corporate officers are t ose officers of a corporation " o are gi3en t at c aracter eit er by t e !orporation !ode or by t e corporation?s byBla"s. Section 29 of t e !orporation !ode specifically enumerated " o are t ese corporate officers, to "it# *1- president% *2- secretary% *6- treasurer% and *5- suc ot er officers as may be pro3ided for in t e byBla"s. 1it t e gi3en circumstances and in conformity "it 5atling -ndustrial and Commercial Corporation v. Coros, t is !ourt rules t at respondent "as not a corporate officer of petitioner corporation because is position as =eneral Manager "as not specifically mentioned in t e roster of corporate officers in its corporate byBla"s. & e enabling clause in petitioner corporation?s byB la"s empo"ering its (oard of Hirectors to create additional officers, i.e., =eneral Manager, and t e alleged subse/uent passage of a board resolution to t at effect cannot ma)e suc position a corporate office. Matling clearly enunciated t at t e board of directors as no po"er to create ot er corporate offices "it out first amending t e corporate byBla"s so as to include t erein t e ne"ly created corporate office. & oug t e board of directors may create appointi3e positions ot er t an t e positions of corporate officers, t e persons occupying suc positions cannot be 3ie"ed as corporate officers under Section 29 of t e !orporation !ode. 2n 3ie" t ereof, t is !ourt olds t at unless and until petitioner corporation?s byBla"s is amended for t e inclusion of =eneral Manager in t e list of its corporate officers, suc position cannot be considered as a corporate office "it in t e realm of Section 29 of t e !orporation !ode. 5arch -- 5arketing, -nc. and 4ucila V. Joson vs. %l2redo 5. Joson, G. . !o. "/"##&, 7ecem+er "', '("".

Januar 2012 Philippine Supreme Court Decisions on Commercial Law


Posted on 8ebruary D, 2012 by Hector M. de Leon Jr Here are selected January 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !ontract% insurance surety. Section 109 of t e 2nsurance !ode defines a suretys ip as a contract or agreement " ereby a party, called t e surety, guarantees t e performance by anot er party, called t e principal or obligor, of an obligation or underta)ing in fa3or of a t ird party, called t e obligee. 2t includes official recogni>ances, stipulations, bonds or underta)ings issued under Act 96D, as amended. Suretys ip arises upon t e solidary binding of a person I deemed t e surety I "it t e principal debtor, for t e purpose of fulfilling an obligation. Suc underta)ing ma)es a surety agreement an ancillary contract as it presupposes t e e4istence of a principal contract. Alt oug t e contract of a surety is in essence secondary only to a 3alid principal obligation, t e surety becomes liable for t e debt or duty of anot er alt oug it possesses no direct or personal interest o3er t e obligations nor does it recei3e any benefit t erefrom. And not"it standing t e fact t at t e surety contract is secondary to t e principal obligation, t e surety assumes liability as a regular party to t e underta)ing. 1irst 4epanto8.aisho -nsurance Corporation 9no: kno:n as 14. Prime -nsurance Corporation; vs. Chevron Philippines, inc. 92ormerl, kno:n as Caltex Philippines, -nc.;, G. . !o. "//)&#, Januar, "), '("'.

!orporation% piercing t e corporate 3eil. A corporation is an artificial being created by operation of la". 2t possesses t e rig t of succession and suc po"ers, attributes, and properties e4pressly aut ori>ed by la" or incident to its e4istence. 2t as a personality separate and distinct from t e persons composing it, as "ell as from any ot er legal entity to " ic it may be related. & is is basic. 7/ually "ellBsettled is t e principle t at t e corporate mas) may be remo3ed or t e corporate 3eil pierced " en t e corporation is .ust an alter ego of a person or of anot er corporation. 8or reasons of public policy and in t e interest of .ustice, t e corporate 3eil "ill .ustifiably be impaled only " en it becomes a s ield for fraud, illegality or ine/uity committed against t ird persons. Hence, any application of t e doctrine of piercing t e corporate 3eil s ould be done "it caution. A court s ould be mindful of t e milieu " ere it is to be applied. 2t must be certain t at t e corporate fiction "as misused to suc an e4tent t at in.ustice, fraud, or crime "as committed against anot er, in disregard of rig ts. & e "rongdoing must be clearly and con3incingly establis ed% it cannot be presumed. <t er"ise, an in.ustice t at "as ne3er unintended may result from an erroneous application. 1 et er t e separate personality of t e corporation s ould be pierced inges on obtaining facts appropriately pleaded or pro3ed. Ho"e3er, any piercing of t e corporate 3eil as to be done "it caution, albeit t e !ourt "ill not esitate to disregard t e corporate 3eil " en it is misused or " en necessary in t e interest of .ustice. After all, t e concept of corporate entity "as not meant to promote unfair ob.ecti3es. & e doctrine of piercing t e corporate 3eil applies only in t ree *6- basic areas, namely# 1- defeat of public con3enience as " en t e corporate fiction is used as a 3e icle for t e e3asion of an e4isting obligation% 2- fraud cases or " en t e corporate entity is used to .ustify a "rong, protect fraud, or defend a crime% or 6- alter ego cases, " ere a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or " ere t e corporation is so organi>ed and controlled and its affairs are so conducted as to ma)e it merely an instrumentality, agency, conduit or ad.unct of anot er corporation. .imoteo 3. Sarona vs. !ational 4a+or elations Commission, o,ale Securit, %genc,, et al., G. . !o. ")$')(, Januar, "), '("'. !orporation% circumstances .ustifying piercing. 73idence abound s o"ing t at $oyale is a mere continuation or successor of Sceptre and fraudulent ob.ecti3es are be ind $oyale?s incorporation and t e petitioner?s subse/uent employment t erein. & ese are plainly suggested by e3ents t at t e respondents do not dispute and " ic t e !A, t e EL$! and LA =utierre> accept as fully substantiated but misappreciated as insufficient to "arrant t e use of t e e/uitable "eapon of piercing. As correctly pointed out by t e petitioner, it "as Aida " o e4ercised control and super3ision o3er t e affairs of bot Sceptre and $oyale. !ontrary to t e submissions of t e respondents t at $oso ad been t e only one in sole control of Sceptre?s finances and business affairs, Aida too) o3er as early as 1::: " en $oso assigned is license to operate Sceptre on May 6, 1:::. As furt er proof of Aida?s ac/uisition of t e rig ts as Sceptre?s sole proprietor, s e caused t e registration of t e business name +Sceptre Security J Hetecti3e Agency, under er name "it t e H&2 a fe" mont s after $oso abdicated is rig ts to Sceptre in er fa3or. As far as $oyale is concerned, t e respondents do not deny t at s e as a and in its management and operation and possesses control and super3ision of its employees, including t e petitioner. As t e petitioner

correctly pointed out, t at Aida "as t e one " o decided to stop gi3ing any assignments to t e petitioner and summarily dismiss im is an elo/uent testament of t e po"er s e "ields insofar as $oyale?s affairs are concerned. & e presence of actual common control coupled "it t e misuse of t e corporate form to perpetrate oppressi3e or manipulati3e conduct or e3ade performance of legal obligations is patent% $oyale cannot ide be ind its corporate fiction. Aida?s control o3er Sceptre and $oyale does not, by itself, call for a disregard of t e corporate fiction. & ere must be a s o"ing t at a fraudulent intent or illegal purpose is be ind t e e4ercise of suc control to "arrant t e piercing of t e corporate 3eil. Ho"e3er, t e manner by " ic t e petitioner "as made to resign from Sceptre and o" e became an employee of $oyale suggest t e per3erted use of t e legal fiction of t e separate corporate personality. 2t is undisputed t at t e petitioner tendered is resignation and t at e applied at $oyale at t e instance of Karen and !esar and on t e impression t ey created t at t ese "ere necessary for is continued employment. & ey orc estrated t e petitioner?s resignation from Sceptre and subse/uent employment at $oyale, ta)ing ad3antage of t eir ascendancy o3er t e petitioner and t e latter?s lac) of )no"ledge of is rig ts and t e conse/uences of is actions. 8urt ermore, t at t e petitioner "as made to resign from Sceptre and apply "it $oyale only to be unceremoniously terminated s ortly t ereafter leads to t e ineluctable conclusion t at t ere "as intent to 3iolate t e petitioner?s rig ts as an employee, particularly is rig t to security of tenure. & e respondents? sc eme ree)s of bad fait and fraud and compassionate .ustice dictates t at $oyale and Sceptre be merged as a single entity, compelling $oyale to credit and recogni>e t e petitioner?s lengt of ser3ice "it Sceptre. & e respondents cannot use t e legal fiction of a separate corporate personality for ends sub3ersi3e of t e policy and purpose be ind its creation or " ic could not a3e been intended by la" to " ic it o"ed its being. .imoteo 3. Sarona vs. !ational 4a+or elations Commission, o,ale Securit, %genc,, et al., G. . !o. ")$')(, Januar, "), '("'. 2n3estment contract% definition. & e Securities $egulation !ode treats in3estment contracts as +securities, t at a3e to be registered "it t e S7! before t ey can be distributed and sold. An in3estment contract is a contract, transaction, or sc eme " ere a person in3ests is money in a common enterprise and is led to e4pect profits primarily from t e efforts of ot ers. Apart from t e definition, " ic t e 2mplementing $ules and $egulations pro3ide, P ilippine .urisprudence as so far not done more to add to t e same. <f course, t e Fnited States Supreme !ourt, grappling "it t e problem, as on se3eral occasions discussed t e nature of in3estment contracts. & at court?s rulings, " ile not binding in t e P ilippines, en.oy some degree of persuasi3eness insofar as t ey are logical and consistent "it t e country?s best interests. & e Fnited States Supreme !ourt eld in Securities and 74c ange !ommission 3. 1.J. Ho"ey !o. t at, for an in3estment contract to e4ist, t e follo"ing elements, referred to as t e Ho"ey test must concur# *1- a contract, transaction, or sc eme% *2- an in3estment of money% *6- in3estment is made in a common enterprise% *5- e4pectation of profits% and *9- profits arising primarily from t e efforts of ot ers. & us, to sustain t e S7! position in t is case, P!2?s sc eme or contract "it its buyers must a3e all t ese elements. An e4ample t at comes to mind "ould be t e longBterm commercial papers t at large companies, li)e San Miguel !orporation *SM!-, offer to t e public for raising funds t at it needs for e4pansion. 1 en an in3estor buys t ese papers or securities, e in3ests is money, toget er "it ot ers, in SM! "it an e4pectation of profits arising from t e efforts of t ose " o manage and

operate t at company. SM! as to register t ese commercial papers "it t e S7! before offering t em to in3estors. Here, P!2?s clients do not ma)e suc in3estments. & ey buy a product of some 3alue to t em# an 2nternet "ebsite of a 19BM( capacity. & e client can use t is "ebsite to enable people to a3e internet access to " at e as to offer to t em, say, some s)in cream. & e buyers of t e "ebsite do not in3est money in P!2 t at it could use for running some business t at "ould generate profits for t e in3estors. & e price of FSG265.00 is " at t e buyer pays for t e use of t e "ebsite, a tangible asset t at P!2 creates, using its computer facilities and tec nical s)ills. Securities and Exchange Commission vs. Prosperit,.Com, -nc., G. . !o. "6*"#/, Januar, '$, '("'. $e abilitation% property co3ered by re abilitation . !as di3idends eld by (elson and claimed by bot t e Alcantaras and Ad3ent !apital does not constitute corporate assets of t e latter t at t e re abilitation court may, upon motion, re/uire to be con3eyed to t e re abilitation recei3er for is disposition. Ad3ent !apital asserts t at t e cas di3idends in (elson?s possession formed part of its assets based on paragrap : of its &rust Agreement "it t e Alcantaras, According to Ad3ent !apital, it could automatically deduct its management fees from t e Alcantaras? portfolio t at t ey entrusted to it. Paragrap : of t e &rust Agreement pro3ides t at Ad3ent !apital could automatically deduct its trust fees from t e Alcantaras? portfolio, +at t e end of eac calendar /uarter,, "it t e corresponding duty to submit to t e Alcantaras a /uarterly accounting report "it in 20 days after. (ut t e problem is t at t e trust fees t at Ad3ent !apital?s recei3er "as claiming "ere for past /uarters. (ased on t e stipulation, t ese s ould a3e been deducted as t ey became due. As it appened, at t e time Ad3ent !apital made its mo3e to collect its supposed management fees, it neit er ad possession nor control of t e money it "anted to apply to its claim. (elson, a t ird party, eld t e money in t e Alcantaras? names. 1 et er it s ould deli3er t e same to Ad3ent !apital or to t e Alcantaras is not clear. 1 at is clear is t at t e issue as to " o s ould get t e same as been seriously contested. & e real o"ner of t e trust property is t e trustorBbeneficiary. 2n t is case, t e trustorsB beneficiaries are t e Alcantaras. & us, Ad3ent !apital could not dispose of t e Alcantaras? portfolio on its o"n. & e income and principal of t e portfolio could only be "it dra"n upon t e Alcantaras? "ritten instruction or order to Ad3ent !apital. & e latter could not also assign or encumber t e portfolio or its income "it out t e "ritten consent of t e Alcantara. All t ese are stipulated in t e &rust Agreement. %dvent Capital and 1inance Corporation vs. !icasio -. %lcantara and Editha -. %lcantara, G. . !o. ")&($(, Januar, '$, '("'. Single proprietors ip% applicability of piercing t e corporate 3eil. 8or t e piercing doctrine to apply, it is of no conse/uence if Sceptre is a sole proprietors ip. As ruled in Prince &ransport, 2nc., et al. 3. =arcia, et al., it is t e act of iding be ind t e separate and distinct personalities of .uridical entities to perpetuate fraud, commit illegal acts, e3ade one?s obligations t at t e e/uitable piercing doctrine "as formulated to address and pre3ent# A settled formulation of t e doctrine of piercing t e corporate 3eil is t at " en t"o business enterprises are o"ned, conducted and controlled by t e same parties, bot la" and e/uity "ill,

" en necessary to protect t e rig ts of t ird parties, disregard t e legal fiction t at t ese t"o entities are distinct and treat t em as identical or as one and t e same. 2n t e present case, it may be true t at Lubas is a single proprietors ip and not a corporation. Ho"e3er, petitioners? attempt to isolate t emsel3es from and ide be ind t e supposed separate and distinct personality of Lubas so as to e3ade t eir liabilities is precisely " at t e classical doctrine of piercing t e 3eil of corporate entity see)s to pre3ent and remedy. Also, Sceptre and $oyale a3e t e same principal place of business. As early as <ctober 15, 1::5, Aida and 1ilfredo became t e o"ners of t e property used by Sceptre as its principal place of business by 3irtue of a Heed of Absolute Sale t ey e4ecuted "it $oso. $oyale, s ortly after its incorporation, started to old office in t e same property. & ese, t e respondents failed to dispute. & e respondents do not li)e"ise deny t at $oyale and Sceptre s are t e same officers and employees. Karen assumed t e dual role of Sceptre?s <peration Manager and incorporator of $oyale. 1it respect to t e petitioner, e3en if e as already resigned from Sceptre and as been employed by $oyale, e "as still using t e patc es and agency clot s of Sceptre during is assignment at Hig lig t Metal. $oyale also claimed a rig t to t e cas bond " ic t e petitioner posted " en e "as still "it Sceptre. 2f Sceptre and $oyale are indeed separate entities, Sceptre s ould a3e released t e petitioner?s cas bond " en e resigned and $oyale "ould a3e re/uired t e petitioner to post a ne" cas bond in its fa3or. &a)ing t e foregoing in con.unction "it Aida?s control o3er Sceptre?s and $oyale?s business affairs, it is patent t at $oyale "as a mere subterfuge for Aida. Since a sole proprietors ip does not a3e a separate and distinct personality from t at of t e o"ner of t e enterprise, t e latter is personally liable. & is is " at s e soug t to a3oid but cannot prosper. .imoteo 3. Sarona vs. !ational 4a+or elations Commission, o,ale Securit, %genc,, et al., G. . !o. ")$')(, Januar, "), '("'. Surety% liability. & e e4tent of a surety?s liability is determined by t e language of t e suretys ip contract or bond itself. 2t cannot be e4tended by implication, beyond t e terms of t e contract. & us, to determine " et er petitioner is liable to respondent under t e surety bond, it becomes necessary to e4amine t e terms of t e contract itself. & e la" is clear t at a surety contract s ould be read and interpreted toget er "it t e contract entered into bet"een t e creditor and t e principal. Section 10D of t e 2nsurance !ode states# Sec. 10D. & e liability of t e surety or sureties s all be .oint and se3eral "it t e obligor and s all be limited to t e amount of t e bond. 2t is determined strictly by t e terms of t e contract of suretys ip in relation to t e principal contract bet"een t e obligor and t e obligee. A surety contract is merely a collateral one, its basis is t e principal contract or underta)ing " ic it secures. Eecessarily, t e stipulations in suc principal agreement must at least be communicated or made )no"n to t e surety particularly in t is case " ere t e bond e4pressly guarantees t e payment of respondent?s fuel products "it dra"n by 8umitec ni)s in accordance "it t e terms and conditions of t eir agreement. & e bond specifically ma)es reference to a "ritten agreement. 2t is basic t at if t e terms of a contract are clear and lea3e no doubt upon t e intention of t e contracting parties, t e literal meaning of its stipulations s all control. Moreo3er,

being an onerous underta)ing, a surety agreement is strictly construed against t e creditor, and e3ery doubt is resol3ed in fa3or of t e solidary debtor. Ha3ing accepted t e bond, respondent as creditor must be eld bound by t e recital in t e surety bond t at t e terms and conditions of its distributors ip contract be reduced in "riting or at t e 3ery least communicated in "riting to t e surety. Suc nonBcompliance by t e creditor *respondent- impacts not on t e 3alidity or legality of t e surety contract but on t e creditor?s rig t to demand performance. 1irst 4epanto8.aisho -nsurance Corporation 9no: kno:n as 14. Prime -nsurance Corporation; vs. Chevron Philippines, inc. 92ormerl, kno:n as Caltex Philippines, -nc.;, G. . !o. "//)&#, Januar, "), '("'.

!ebruar 2012 Philippine Supreme Court Decisions on Commercial Law


Posted on Marc 2, 2012 by Hector M. de Leon Jr Here are select 8ebruary 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !arriage of =oods by Sea Act *!<=SA-% applicability of prescription period to arrastre operator. Fnder t e !<=SA, t e carrier and t e s ip may put up t e defense of prescription if t e action for damages is not broug t "it in one year after t e deli3ery of t e goods or t e date " en t e goods s ould a3e been deli3ered. 2t as been eld t at not only t e s ipper, but also t e consignee or legal older of t e bill may in3o)e t e prescripti3e period. Ho"e3er, t e !<=SA does not mention t at an arrastre operator may in3o)e t e prescripti3e period of one year% ence, it does not co3er t e arrastre operator. -nsurance Compan, o2 !orth %merica vs. %sian .erminals, -nc., G. . !o. ")(/)*, 1e+ruar, "$, '("'. !<=SA% bad order sur3ey. As early as Eo3ember 2:, 2002, t e date of t e last "it dra"al of t e goods from t e arrastre operator, respondent A&2 "as able to 3erify t at fi3e *9- pac)ages of t e s ipment "ere in bad order " ile in its custody. & e certificate of nonBdeli3ery referred to in t e !ontract is similar to or identical "it t e e4amination report on t e re/uest for bad order sur3ey. Li)e in t e case of !e: <ealand -nsurance Compan, 4td. v. !avarro , t e 3erification and ascertainment of liability by respondent A&2 ad been accomplis ed "it in t irty *60- days from t e date of deli3ery of t e pac)age to t e consignee and "it in fifteen *19- days from t e date of issuance by t e !ontractor *respondent A&2- of t e e4amination report on t e re/uest for bad order sur3ey" Alt oug t e formal claim "as filed beyond t e 19Bday period from t e issuance of t e e4amination report on t e re/uest for bad order sur3ey, t e purpose of t e time limitations for t e filing of claims ad already been fully satisfied by t e re/uest of t e consignee?s bro)er for a bad order sur3ey and by t e e4amination report of t e arrastre operator on t e result t ereof, as t e arrastre operator ad become a"are of and ad 3erified t e facts gi3ing rise to its liability. Hence, t e arrastre operator suffered no pre.udice by t e lac) of strict compliance "it t e 19Bday limitation to file t e formal complaint. -nsurance Compan, o2 !orth %merica vs. %sian .erminals, -nc., G. . !o. ")(/)*, 1e+ruar, "$, '("'. 2nsurance policy% misrepresentation. Lourdes points out t at, seeing t e unfilled spaces in Manuel?s pension plan application relating to is medical istory, P ilam Plans s ould a3e

returned it to im for completion. Since P ilam Plans c ose to appro3e t e application .ust as it "as, it cannot cry concealment on Manuel?s part. 8urt er, Lourdes adds t at P ilam Plans ne3er /ueried Manuel directly regarding t e state of is ealt . !onse/uently, it could not blame im for not mentioning it. (ut Lourdes is s ifting to P ilam Plans t e burden of putting on t e pension plan application t e true state of Manuel?s ealt . S e forgets t at since P ilam Plans "ai3ed medical e4amination for Manuel, it ad to rely largely on is stating t e trut regarding is ealt in is application. 8or, after all, e )ne" more t an anyone t at e ad been under treatment for eart condition and diabetes for more t an fi3e years preceding is submission of t at application. (ut e )ept t ose crucial facts from P ilam Plans. (esides, " en Manuel signed t e pension plan application, e adopted as is o"n t e "ritten representations and declarations embodied in it. 2t is clear from t ese representations t at e concealed is c ronic eart ailment and diabetes from P ilam Plans. 5a. 4ourdes S. 1lorendo vs. Philam Plans, -nc., Perla %+cede, et al., G. . !o. ")6#)&, 1e+ruar, '', '("'. 2nsurance policy% misrepresentation. Lourdes insists t at Manuel ad concealed not ing since Perla, t e soliciting agent, )ne" t at Manuel ad a pacema)er implanted on is c est in t e 00s or about 20 years before e signed up for t e pension plan. (ut by its tenor, t e responsibility for preparing t e application belonged to Manuel. Eot ing in it implies t at someone else may pro3ide t e information t at P ilam Plans needed. Manuel cannot sign t e application and diso"n t e responsibility for a3ing it filled up. 2f e furnis ed Perla t e needed information and delegated to er t e filling up of t e application, t en s e acted on is instruction, not on P ilam Plans? instruction. 5a. 4ourdes S. 1lorendo vs. Philam Plans, -nc., Perla %+cede, et al., G. . !o. ")6#)&, 1e+ruar, '', '("'. 2nsurance policy% incontestability clause. 2n a final attempt to defend er claim for benefits under Manuel?s pension plan, Lourdes points out t at any defect or insufficiency in t e information pro3ided by is pension plan application s ould be deemed "ai3ed after t e same as been appro3ed, t e policy as been issued, and t e premiums a3e been collected. & e !ourt cannot agree. & e compre ensi3e pension plan t at P ilam Plans issued contains a oneByear incontestability period. 2t states# #$$$" $NCON%&S%A'$L$%( After t is Agreement as remained in force for one *1- year, "e can no longer contest for ealt reasons any claim for insurance under t is Agreement, e4cept for t e reason t at installment as not been paid *lapsed-, or t at you are not insurable at t e time you boug t t is pension program by reason of age. 2f t is Agreement lapses but is reinstated after"ards, t e one *1- year contestability period s all start again on t e date of appro3al of your re/uest for reinstatement. & e abo3e incontestability clause precludes t e insurer from diso"ning liability under t e policy it issued on t e ground of concealment or misrepresentation regarding t e ealt of t e insured after a year of its issuance. Since Manuel died on t e ele3ent mont follo"ing t e issuance of is plan, t e one year incontestability period as not yet set in. !onse/uently, P ilam Plans "as not barred from

/uestioning Lourdes? entitlement to t e benefits of er usband?s pension plan. 5a. 4ourdes S. 1lorendo vs. Philam Plans, -nc., Perla %+cede, et al., G. . !o. ")6#)&, 1e+ruar, '', '("'.

April 2012 Philippine Supreme Decisions on Commercial Law


Posted on May ;, 2012 by Hector M. de Leon Jr

Court

Here are select April 2012 rulings of t e P ilippine Supreme !ourt on commercial la"# !orporation% deri3ati3e suit. 2n HiBLield $ealty, 2ncorporated 3. !ourt of Appeals, t e !ourt enumerated t e re/uisites for filing a deri3ati3e suit, as follo"s# *a- t e party bringing t e suit s ould be a s are older as of t e time of t e act or transaction complained of, t e number of is s ares not being material% *b- e as tried to e4 aust intraBcorporate remedies, i.e., as made a demand on t e board of directors for t e appropriate relief but t e latter as failed or refused to eed is plea% and *c- t e cause of action actually de3ol3es on t e corporation, t e "rongdoing or arm a3ing been, or being caused to t e corporation and not to t e particular stoc) older bringing t e suit. 4isam Enterprises, -nc., represented +, 4olita %. Soriano and 4olita %. Soriano vs. Banco de 0ro =ni+ank, -nc., et al., G. . !o. "*&'6*, %pril '&, '("'. !orporation% doing business "it out a license. & e appointment of a distributor in t e P ilippines is not sufficient to constitute +doing business, unless it is under t e full control of t e foreign corporation. <n t e ot er and, if t e distributor is an independent entity " ic buys and distributes products, ot er t an t ose of t e foreign corporation, for its o"n name and its o"n account, t e latter cannot be considered to be doing business in t e P ilippines. 2t s ould be )ept in mind t at t e determination of " et er a foreign corporation is doing business in t e P ilippines must be .udged in lig t of t e attendant circumstances. 2n t e case at benc , it is undisputed t at H2S2 "as founded in 1:0: and is independently o"ned and managed by t e spouses Leandro and Josep ine (antug. 2n addition to Steelcase products, H2S2 also distributed products of ot er companies including carpet tiles, relocatable "alls and t eater settings. & e dealers ip agreement bet"een Steelcase and H2S2 ad been described by t e o"ner imself as# basically a buy and sell arrangement " ereby "e "ould inform Steelcase of t e 3olume of t e products needed for a particular pro.ect and Steelcase "ould, in turn, gi3e Mspecial /uotations? or discounts after considering t e 3alue of t e entire pac)age. 2n ma)ing t e bid of t e pro.ect, "e "ould t en add out profit margin o3er Steelcase?s prices. After t e appro3al of t e bid by t e client, "e "ould t ereafter place t e orders to Steelcase. & e latter, upon our payment, "ould t en s ip t e goods to t e P ilippines, "it us s ouldering t e freig t c arges and ta4es.

& is clearly belies H2S2?s assertion t at it "as a mere conduit t roug " ic Steelcase conducted its business in t e country. 8rom t e preceding facts, t e only reasonable conclusion t at can be reac ed is t at H2S2 "as an independent contractor, distributing 3arious products of Steelcase and of ot er companies, acting in its o"n name and for its o"n account. Steelcase, -nc. vs. 7esign -nternational Selections, -nc. G. . !o. "/"##$, %pril "), '("'. !orporation% doing business "it out a license% estoppel. As s o"n in t e pre3iously cited cases, t is !ourt as time and again up eld t e principle t at a foreign corporation doing business in t e P ilippines "it out a license may still sue before t e P ilippine courts a 8ilipino or a P ilippine entity t at ad deri3ed some benefit from t eir contractual arrangement because t e latter is considered to be estopped from c allenging t e personality of a corporation after it ad ac)no"ledged t e said corporation by entering into a contract "it it. 2n Antam !onsolidated, 2nc. 3. !ourt of Appeals, t is !ourt ad t e occasion to dra" attention to t e common ploy of in3o)ing t e incapacity to sue of an unlicensed foreign corporation utili>ed by defaulting domestic companies " ic see) to a3oid t e suit by t e former. & e !ourt cannot allo" t is to continue by al"ays ruling in fa3or of local companies, despite t e in.ustice to t e o3erseas corporation " ic is left "it no a3ailable remedy. Steelcase, -nc. vs. 7esign -nternational Selections, -nc., G. . !o. "/"##$, %pril "), '("'. !orporation% ead office and branc as one entity. & e !ourt begins by e4amining t e manner by " ic a foreign corporation can establis its presence in t e P ilippines. 2t may c oose to incorporate its o"n subsidiary as a domestic corporation, in " ic case suc subsidiary "ould a3e its o"n separate and independent legal personality to conduct business in t e country. 2n t e alternati3e, it may create a branc in t e P ilippines, " ic "ould not be a legally independent unit, and simply obtain a license to do business in t e P ilippines. 2n t e case of !itiban) and (A, it is apparent t at t ey bot did not incorporate a separate domestic corporation to represent its business interests in t e P ilippines. & eir P ilippine branc es are, as t e name implies, merely branc es, "it out a separate legal personality from t eir parent company, !itiban) and (A. & us, being one and t e same entity, t e funds placed by t e respondents in t eir respecti3e branc es in t e P ilippines s ould not be treated as deposits made by t ird parties sub.ect to deposit insurance under t e PH2! ! arter. 8or lac) of .udicial precedents on t is issue, t e !ourt see)s guidance from American .urisprudence. 2n t e leading case of So)oloff 3. & e Eational !ity (an) of Ee" Lor), " ere t e Supreme !ourt of Ee" Lor) eld# 1 ere a ban) maintains branc es, eac branc becomes a separate business entity "it separate boo)s of account. A depositor in one branc cannot issue c ec)s or drafts upon anot er branc or demand payment from suc ot er branc , and in many ot er respects t e branc es are considered separate corporate entities and as distinct from one anot er as any ot er ban). Ee3ert eless, " en considered "it relation to t e parent ban) t ey are not independent agencies% t ey are, " at t eir name imports, merely branc es, and are sub.ect to t e super3ision and control of t e parent ban), and are instrumentalities " ereby t e parent ban) carries on its business, and are establis ed for its o"n particular purposes, and t eir business conduct and policies are controlled by t e parent ban) and t eir property and assets belong to t e parent ban), alt oug nominally eld in t e names of t e particular branc es. Fltimate liability for a debt of a branc "ould rest upon t e parent ban).

& is ruling "as later reiterated in t e more recent case of Fnited States 3. (!!2 Holdings Lu4embourg " ere t e Fnited States !ourt of Appeals, Histrict of !olumbia !ircuit, emp asi>ed t at +" ile indi3idual ban) branc es may be treated as independent of one anot er, eac branc , unless separately incorporated, must be 3ie"ed as a part of t e parent ban) rat er t an as an independent entity., 2n addition, P ilippine ban)ing la"s also support t e conclusion t at t e ead office of a foreign ban) and its branc es are considered as one legal entity. P7-C vs. Citi+ank, !.%. and Bank o2 %merica, S... > !.%, G. . !o. "/('#(, %pril "", '("'. !orporation% intraBcorporate contro3ersy. An intraBcorporate contro3ersy is one " ic +pertains to any of t e follo"ing relations ips# *1- bet"een t e corporation, partners ip or association and t e public% *2- bet"een t e corporation, partners ip or association and t e State in so far as its franc ise, permit or license to operate is concerned% *6- bet"een t e corporation, partners ip or association and its stoc) olders, partners, members or officers% and *5- among t e stoc) olders, partners or associates t emsel3es., (ased on t e foregoing definition, t ere is no doubt t at t e contro3ersy in t is case is essentially intraBcorporate in c aracter, for being bet"een a condominium corporation and its membersBunit o"ners. 2n t e recent case of ! ateau He (aie !ondominium !orporation 3. Sps. Moreno, an action in3ol3ing t e legality of assessment dues against t e condominium o"nerNde3eloper, t e !ourt eld t at, t e matter being an intraBcorporate dispute, t e $&! ad .urisdiction to ear t e same pursuant to $.A. Eo. ;0::. Philip 4. Go, Paci2ico ?. 4im, et al. vs. 7istinction Properties 7evelopment and Construction, -nc., G. . !o. "#*('*, %pril '$, '("'. PH2! La"% 2nterBbranc deposits% not co3ered by PH2! La". As e4plained by t e respondents, t e transfer of funds, " ic resulted from t e interBbranc transactions, too) place in t e boo)s of account of t e respecti3e branc es in t eir ead office located in t eFnited States. Hence, because it is payable outside of t e P ilippines, it is not considered a deposit pursuant to Section 6*f- of t e PH2! ! arter# Sec. 6*f- & e term +deposit, means t e unpaid balance of money or its e/ui3alent recei3ed by a ban) in t e usual course of business and for " ic it as gi3en or is obliged to gi3e credit to a commercial, c ec)ing, sa3ings, time or t rift account or " ic is e3idenced by its certificate of deposit, and trust funds eld by suc ban) " et er retained or deposited in any department of said ban) or deposit in anot er ban), toget er "it suc ot er obligations of a ban) as t e (oard of Hirectors s all find and s all prescribe by regulations to be deposit liabilities of t e (an)% Pro3ided, t at any obligation of a ban) " ic is payable at t e office of t e ban) located outside of t e P ilippines s all not be a deposit for any of t e purposes of t is Act or included as part of t e total deposits or of t e insured deposits% Pro3ided furt er, t at any insured ban) " ic is incorporated under t e la"s of t e P ilippines may elect to include for insurance its deposit obligation payable only at suc branc . & e testimony of Mr. S affer as to t e treatment of suc interBbranc deposits by t e 8H2!, after " ic PH2! "as modelled, is also persuasi3e. 2nterBbranc deposits refer to funds of one branc deposited in anot er branc and bot branc es are part of t e same parent company and it is t e practice of t e 8H2! to e4clude suc interBbranc deposits from a ban)?s total deposit liabilities sub.ect to assessment. P7-C vs. Citi+ank, !.%. and Bank o2 %merica, S... > !.%, G. . !o. "/('#(, %pril "", '("'.

June 2012 Philippine Supreme Decisions on Commercial Law


Posted on July 11, 2012 by Hector M. de Leon Jr

Court

Here are select June 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# (an)s% diligence re/uired. $epublic Act Eo. ;:01, or t e =eneral (an)ing La" of 2000, recogni>es t e 3ital role of ban)s in pro3iding an en3ironment conduci3e to t e sustained de3elopment of t e national economy and t e fiduciary nature of ban)ing% t us, t e la" re/uires ban)s to a3e ig standards of integrity and performance. & e fiduciary nature of ban)ing re/uires ban)s to assume a degree of diligence ig er t an t at of a good fat er of a family. 2n t e case at bar, petitioner itself "as negligent in t e conduct of its business " en it e4tended unsecured loans to t e debtors. 1orse, it "as in serious breac of its duty as t e trustee of t e M&2. 2t "as not able to protect t e interests of t e parties and "as e3en instrumental in 3iolating t e terms of t e M&2, to t e detriment of t e parties t ereto. & us, petitioner as only itself to blame for being left "it insufficient recourse against petitioner under t e assailed M&2. 5etropolitan Bank and .rust Compan, vs. Centro 7evelopment Corp., et al., G. . !o. ")(#/*, June "&, '("'. !orporation% corporate appro3al for appointment of trustee. $eading carefully t e Secretary?s !ertificate, it is clear t at t e main purpose of t e directors? $esolution "as to appoint petitioner as t e ne" trustee of t e pre3iously e4ecuted and amended M&2. =oing t roug t e original and t e re3ised M&2, "e find no substantial amendments to t e pro3isions of t e contract. 1e agree "it petitioner t at t e act of appointing a ne" trustee of t e M&2 "as a regular business transaction. & e appointment necessitated only a decision of at least a ma.ority of t e directors present at t e meeting in " ic t ere "as a /uorum, pursuant to Section 29 of t e !orporation !ode. 5etropolitan Bank and .rust Compan, vs. Centro 7evelopment Corp., et al., G. . !o. ")(#/*, June "&, '("'. !orporation% deri3ati3e suits. & e re/uisites for a deri3ati3e suit are as follo"s# a- t e party bringing suit s ould be a s are older as of t e time of t e act or transaction complained of, t e number of is s ares not being material% b- e as tried to e4 aust intraBcorporate remedies, i.e., as made a demand on t e board of directors for t e appropriate relief but t e latter as failed or refused to eed is plea% and ct e cause of action actually de3ol3es on t e corporation, t e "rongdoing or arm a3ing been, or being caused to t e corporation and not to t e particular stoc) older bringing t e suit. 2n t is case, petitioners, as members of t e (oard of Hirectors of t e condominium corporation +e2ore t e election in /uestion, filed a complaint against t e ne"lyBelected members of t e (oard of Hirectors for t e years 2005B2009, /uestioning t e 3alidity of t e election eld on April 2, 2005, as it "as allegedly marred by lac) of /uorum, and praying for t e nullification of t e said election.

As stated by t e !ourt of Appeals, petitioners? complaint see) to nullify t e said election, and to protect and enforce t eir indi3idual rig t to 3ote. Petitioners see) t e nullification of t e election of t e (oard of Hirectors for t e years 2005B2009, composed of erein respondents, " o pus ed t roug "it t e election e3en if petitioners ad ad.ourned t e meeting allegedly due to lac) of /uorum. Petitioners are t e in.ured party, " ose rig ts to 3ote and to be 3oted upon "ere directly affected by t e election of t e ne" set of board of directors. & e partyBinBinterest are t e petitioners as stoc) olders, " o "ield suc rig t to 3ote. & e cause of action de3ol3es on petitioners, not t e condominium corporation, " ic did not a3e t e rig t to 3ote. Hence, t e complaint for nullification of t e election is a )irect action by petitioners, " o "ere t e members of t e (oard of Hirectors of t e corporation +e2ore t e election, against respondents, " o are t e ne"lyBelected (oard of Hirectors. Fnder t e circumstances, t e deri3ati3e suit filed by petitioners in be alf of t e condominium corporation in t e Second Amended !omplaint is improper. & e stoc) older?s rig t to file a deri3ati3e suit is not based on any e4press pro3ision of .he Corporation Code, but is impliedly recogni>ed " en t e la" ma)es corporate directors or officers liable for damages suffered by t e corporation and its stoc) olders for 3iolation of t eir fiduciary duties, " ic is not t e issue in t is case. 4egaspi .o:ers &((, -nc., 4ilia 5ar@uineA Palanca, et al. vs. %melia P. 5uer, Samuel 5. .anchoco, et al., G. . !o. "/(/)&. June "), '("'. !orporations% solidary liability of corporate officers. =o may a3e acted in be alf of 77M2 but t e company?s failure to operate cannot be e/uated to bad fait . !essation of business operation is broug t about by 3arious causes li)e mismanagement, lac) of demand, negligence, or lac) of business foresig t. Fnless it can be s o"n t at t e closure "as deliberate, malicious and in bad fait , t e !ourt must apply t e general rule t at a corporation as, by la", a personality separate and distinct from t at of its o"ners. As t ere is no e3idence t at =o, as 77M2?s President, acted maliciously or in bad fait in andling t eir business affairs and in e3entually implementing t e closure of its business, e cannot be eld .ointly and solidarily liable "it 77M2. Ever Electrical 5anu2acturing, -nc. 9EE5-; and Vicente Go vs. Samahang 5anggaga:a ng Ever Electrical/!%5%B= 4ocal ''* represented +, 1elimon Pangani+an, G. . !o. "#*/#$. June "&, '("'. !orporation% piercing t e corporate 3eil. & is !ourt sustains t e ruling of t e LA as affirmed by t e EL$! t at Miramar and Mar 8is ing are separate and distinct entities, based on t e mar)ed differences in t eir stoc) o"ners ip. Also, t e fact t at Mar 8is ing?s officers remained as suc in Miramar does not by itself "arrant a conclusion t at t e t"o companies are one and t e same. As t is !ourt eld in Ses+reCo v. Court o2 %ppeals, t e mere s o"ing t at t e corporations ad a common director sitting in all t e boards "it out more does not aut ori>e disregarding t eir separate .uridical personalities. Eeit er can t e 3eil of corporate fiction bet"een t e t"o companies be pierced by t e rest of petitioners? submissions, namely, t e alleged ta)eBo3er by Miramar of Mar 8is ing?s operations and t e e3ident similarity of t eir businesses. At t is point, it bears emp asi>ing t at since piercing t e 3eil of corporate fiction is fro"ned upon, t ose " o see) to pierce t e 3eil must clearly establis t at t e separate and distinct personalities of t e corporations are set up to .ustify a "rong, protect a fraud, or perpetrate a deception. & is, unfortunately, petitioners a3e failed to do. Vivian .. amireA, et al. vs. 5ar 1ishing Co., -nc,. et al., G. . !o. "6)'(), June "&, '("'.

!orporation% piercing t e corporate 3eil. t e $&! ad sufficient factual basis to find t at petitioner and &ra3el and &ours Ad3isers, 2nc. "ere one and t e same entity, specifically#I * adocuments submitted by petitioner in t e $&! s o"ing t at 1illiam ! eng, " o claimed to be t e operator of &ra3el and &ours Ad3isers, 2nc., "as also t e PresidentNManager and an incorporator of t e petitioner% and *+- &ra3el and &ours Ad3isers, 2nc. ad been )no"n in Sorsogon as Goldline. Gold 4ine .ours, -nc. vs. 3eirs o2 5aria Concepcion 4acsa, G. . !o. "$#"(), June "), '("'. !rossed c ec). & e c ec)s t at 2nterco issued in fa3or of SSP2 "ere all crossed, made payable to SSP2?s order, and contained t e notation +account payee only., & is creates a reasonable e4pectation t at t e payee alone "ould recei3e t e proceeds of t e c ec)s and t at di3ersion of t e c ec)s "ould be a3erted. & is e4pectation arises from t e accepted ban)ing practice t at crossed c ec)s are intended for deposit in t e named payee?s account only and no ot er. At t e 3ery least, t e nature of crossed c ec)s s ould place a ban) on notice t at it s ould e4ercise more caution or e4pend more t an a cursory in/uiry, to ascertain " et er t e payee on t e c ec) as aut ori>ed t e older to deposit t e same in a different account. 2t is "ell to remember t at +@tA e ban)ing system as become an indispensable institution in t e modern "orld and plays a 3ital role in t e economic life of e3ery ci3ili>ed society. 1 et er as mere passi3e entities for t e safeB)eeping and sa3ing of money or as acti3e instruments of business and commerce, ban)s a3e attained an @sicA ubi/uitous presence among t e people, " o a3e come to regard t em "it respect and e3en gratitude and, abo3e all, trust and confidence. 2n t is connection, it is important t at ban)s s ould guard against in.ury attributable to negligence or bad fait on its part. As repeatedly emp asi>ed, since t e ban)ing business is impressed "it public interest, t e trust and confidence of t e public in it is of paramount importance. !onse/uently, t e ig est degree of diligence is e4pected, and ig standards of integrity and performance are re/uired of it., 7/uitable did not obser3e t e re/uired degree of diligence e4pected of a ban)ing institution under t e e4isting factual circumstances. & e fact t at a person, ot er t an t e named payee of t e crossed c ec), "as presenting it for deposit s ould a3e put t e ban) on guard. 2t s ould a3e veri2ied if t e payee *SSP2- aut ori>ed t e older *Fy- to present t e same in its be alf, or indorsed it to im. !onsidering o"e3er, t at t e named payee does not a3e an account "it 7/uitable * ence, t e latter as no specimen signature of SSP2 by " ic to .udge t e genuineness of its indorsement to Fy-, t e ban) )no"ingly assumed t e ris) of relying solely on Fy?s "ord t at e ad a good title to t e t ree c ec)s. Suc misplaced reliance on empty "ords is tantamount to gross negligence, " ic is t e +absence of or failure to e4ercise e3en slig t care or diligence, or t e entire absence of care, e3incing a t oug tless disregard of conse/uences "it out e4erting any effort to a3oid t em. E@uita+le Banking Corporation vs. Special Steel Products, -nc. and %ugusto 4. Pardo, G. . !o. "/$&$(, June "&, '("'. Manager?s c ec)% deli3ery. An ordinar, check refers to a bill of e4c ange dra"n by a depositor *dra"er- on a ban) *dra"ee-, re/uesting t e latter to pay a person named t erein *payee- or to t e order of t e payee or to t e bearer, a named sum of money. & e issuance of t e c ec) does not of itself operate as an assignment of any part of t e funds in t e ban) to t e credit of t e dra"er. Here, t e ban) becomes liable only after it accepts or certifies t e c ec). After t e c ec) is accepted for payment, t e ban) "ould t en debit t e amount to be paid to t e older of t e c ec) from t e account of t e depositorBdra"er.

& ere are c ec)s of a special type called managerDs or cashierDs checks. & ese are bills of e4c ange dra"n by t e ban)?s manager or cas ier, in t e name of t e ban), against t e ban) itself. &ypically, a manager?s or a cas ier?s c ec) is procured from t e ban) by allocating a particular amount of funds to be debited from t e depositor?s account or by directly paying or depositing to t e ban) t e 3alue of t e c ec) to be dra"n. Since t e ban) issues t e c ec) in its name, "it itself as t e dra"ee, t e c ec) is deemed accepted in ad3ance. <rdinarily, t e c ec) becomes t e primary obligation of t e issuing ban) and constitutes its "ritten promise to pay upon demand. Ee3ert eless, t e mere issuance of a manager?s c ec) does not ipso 2acto "or) as an automatic transfer of funds to t e account of t e payee. 2n case t e procurer of t e manager?s or cas ier?s c ec) retains custody of t e instrument, does not tender it to t e intended payee, or fails to ma)e an effecti3e deli3ery, "e find t e follo"ing pro3ision on undeli3ered instruments under t e Eegotiable 2nstruments La" applicable# Sec. 1D. 7eliver,E :hen e22ectualE :hen presumed. I &ver contract on a negotiable instrument is incomplete an) revocable until )eliver o* the instrument *or the purpose o* giving e**ect thereto" As bet"een immediate parties and as regards a remote party ot er t an a older in due course, t e )eliver + in or)er to be e**ectual+ must be ma)e either b or un)er the authorit o* the part ma,ing+ )rawing+ accepting+ or in)orsing, as t e case may be% and, in suc case, t e deli3ery may be s o"n to a3e been conditional, or for a special purpose only, and not for t e purpose of transferring t e property in t e instrument. (ut " ere t e instrument is in t e ands of a older in due course, a 3alid deli3ery t ereof by all parties prior to im so as to ma)e t em liable to im is conclusi3ely presumed. And " ere t e instrument is no longer in t e possession of a party " ose signature appears t ereon, a 3alid and intentional deli3ery by im is presumed until t e contrary is pro3ed. *7mp asis supplied.Petitioner ac)no"ledges t at t e Manager?s ! ec) "as procured by respondents, and t at t e amount to be paid for t e c ec) "ould be sourced from t e deposit account of HiB&ri. 1 en $osmil did not accept t e Manager?s ! ec) offered by respondents, t e latter retained custody of t e instrument instead of cancelling it. As t e Manager?s ! ec) neit er "ent to t e ands of $osmil nor "as it furt er negotiated to ot er persons, t e instrument remained undeli3ered. Petitioner does not dispute t e fact t at respondents retained custody of t e instrument. Since t ere "as no deli3ery, presentment of t e c ec) to t e ban) for payment did not occur. An order to debit t e account of respondents "as ne3er made. 2n fact, petitioner confirms t at t e Manager?s ! ec) "as ne3er negotiated or presented for payment to its 7rmita (ranc , and t at t e allocated fund is still eld by t e ban). As a result, t e assigned fund is deemed to remain part of t e account of HiB&ri, " ic procured t e Manager?s ! ec). & e doctrine t at t e deposit represented by a manager?s c ec) automatically passes to t e payee is inapplicable, because t e instrument I alt oug accepted in ad3ance I remains undeli3ered. Hence, respondents s ould a3e been informed t at t e deposit ad been left inacti3e for more t an 10 years, and t at it may be sub.ected to esc eat proceedings if left unclaimed. iAal Commercial Banking Corporation vs. 3i8.ri 7evelopment Corporation and 4uA . Bakuna:a, G. . !o. "#'*"&, June "&, '("'. &rust receipts% definition. & ere are t"o obligations in a trust receipt transaction. & e first is co3ered by t e pro3ision t at refers to money under t e obligation to deli3er it *entregarla- to t e o"ner of t e merc andise sold. & e second is co3ered by t e pro3ision referring to merc andise recei3ed under t e obligation to return it *devolvera- to t e o"ner. & us, under t e &rust $eceipts La", intent to defraud is presumed " en *1- t e entrustee fails to turn o3er t e proceeds

of t e sale of goods co3ered by t e trust receipt to t e entruster% or *2- " en t e entrustee fails to return t e goods under trust, if t ey are not disposed of in accordance "it t e terms of t e trust receipts. 2n all trust receipt transactions, bot obligations on t e part of t e trustee e4ist in t e alternati3e I t e return of t e proceeds of t e sale or t e return or reco3ery of t e goods, " et er ra" or processed. 1 en bot parties enter into an agreement )no"ing t at t e return of t e goods sub.ect of t e trust receipt is not possible e3en "it out any fault on t e part of t e trustee, it is not a trust receipt transaction penali>ed under Section 16 of P.H. 119% t e only obligation actually agreed upon by t e parties "ould be t e return of t e proceeds of t e sale transaction. & is transaction becomes a mere loan, " ere t e borro"er is obligated to pay t e ban) t e amount spent for t e purc ase of t e goods. (ased on t ese premises, "e cannot consider t e agreements bet"een t e parties in t is case to be trust receipt transactions because *1- from t e start, t e parties "ere a"are t at A!H! could not possibly be obligated to recon3ey to L(P t e materials or t e end product for " ic t ey "ere used% and *2- from t e moment t e materials "ere used for t e go3ernment pro.ects, t ey became public, not L(P?s, property. 4and Bank o2 the Philippines vs. 4am+erto C. PereA, et al., G. . !o. "66))*. June "&, '("'.

Jul 2012 Philippine Supreme Decisions on Commercial Law


Posted on August 1, 2012 by Hector M. de Leon Jr

Court

Here are select July 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# (an)s% diligence re/uired. 87(&! s ould a3e been more circumspect in dealing "it its clients. 2t cannot be o3er emp asi>ed t at t e ban)ing business is impressed "it public interest. <f paramount importance is t e trust and confidence of t e public in general in t e ban)ing industry. !onse/uently, t e diligence re/uired of ban)s is more t an t at of a $oman pater familias or a good fat er of a family. & e ig est degree of diligence is e4pected. 2n andling loan transactions, ban)s are under obligation to ensure compliance by t e clients "it all t e documentary re/uirements pertaining to t e appro3al and release of t e loan applications. 8or failure of its branc manager to e4ercise t e re/uisite diligence in abiding by t e M<$( and t e ban)ing rules and practices, 87(&! "as negligent in t e selection and super3ision of its employees. 1ar East Bank and .rust Compan, 9no: Bank o2 the Philippine -slands; vs. .entmakers Group, -nc., Gregoria Pilares Santos and hoel P. Santos, G. . !o. "/"($(, Jul, *, '("'. !arriage of =oods by Sea Act% prescription. & e !<=SA is t e applicable la" for all contracts for carriage of goods by sea to and from P ilippine ports in foreign trade% it is t us t e la" t at t e !ourt s all consider in t e present case since t e cargo "as transported from (ra>il to t e P ilippines.

Fnder Section 6*D- of t e !<=SA, t e carrier is disc arged from liability for loss or damage to t e cargo +unless t e suit is broug t "it in one year after deli3ery of t e goods or t e date " en t e goods s ould a3e been deli3ered., Jurisprudence, o"e3er, recogni>ed t e 3alidity of an agreement bet"een t e carrier and t e s ipperNconsignee e4tending t e oneByear period to file a claim. BenFamin Cua 9Cua 3ian .ek; vs. Ballem Philippines Shipping, -nc. and %dvance Shipping Corporation, G. . !o. "/"&&/. Jul, "", '("'. 2nsurance% double insurance. (y t e e4press pro3ision of Section :6 of t e 2nsurance !ode, double insurance e4ists " ere t e same person is insured by se3eral insurers separately in respect to t e same sub.ect and interest. & e re/uisites in order for double insurance to arise are as follo"s# 1. & e person insured is t e same% 2. &"o or more insurers insuring separately% 6. & ere is identity of sub.ect matter% 5. & ere is identity of interest insured% and 9. & ere is identity of t e ris) or peril insured against. 5ala,an -nsurance Co., -nc. vs. Philippine 1irst -nsurance, Co., -nc., et al., G. . !o. ")*&((, Jul, "", '("'. 2nsurance% ot er insurance clause. Section 9 is actually t e ot er insurance clause *also called +additional insurance, and +double insurance,-, one a)in to !ondition Eo. 6 in issue in =eagonia 3. !A, " ic 3alidity "as up eld by t e !ourt as a "arranty t at no ot er insurance e4ists. & e !ourt ruled t at !ondition Eo. 6 is a condition " ic is not proscribed by la" as its incorporation in t e policy is allo"ed by Section 09 of t e 2nsurance !ode. 2t "as also t e !ourt?s finding t at unli)e t e ot er insurance clauses, !ondition Eo. 6 does not absolutely declare 3oid any 3iolation t ereof but e4pressly pro3ides t at t e condition +s all not apply " en t e total insurance or insurances in force at t e time of t e loss or damage is not more t an P200,000.00., 5ala,an -nsurance Co., -nc. vs. Philippine 1irst -nsurance, Co., -nc., et al., G. . !o. ")*&((, Jul, "", '("'. 2nsurance% o3erinsurance clause. Section 12 of t e S$ Policy, on t e ot er and, is t e o3er insurance clause. More particularly, it co3ers t e situation " ere t ere is o3er insurance due to double insurance. 2n suc case, Section 19 pro3ides t at Malayan s all +not be liable to pay or contribute more t an its ratable proportion of suc loss or damage., & is is in accord "it t e principle of contribution pro3ided under Section :5*e- of t e 2nsurance !ode, " ic states t at +" ere t e insured is o3er insured by double insurance, eac insurer is bound, as bet"een imself and t e ot er insurers, to contribute ratably to t e loss in proportion to t e amount for " ic e is liable under is contract., 5ala,an -nsurance Co., -nc. vs. Philippine 1irst -nsurance, Co., -nc., et al., G. . !o. ")*&((, Jul, "", '("'. 2nsurance% false claim. 2t as long been settled t at a false and material statement made "it an intent to decei3e or defraud 3oids an insurance policy. 2n Gu Cua v. South British -nsurance Co., t e claim "as fourteen times bigger t an t e real loss% in Go 4u v. Gorkshire -nsurance Co, eig t times% and in .uason v. !orth China -nsurance Co., si4 times. 2n t e present case, t e claim is t:ent, 2ive times t e actual claim pro3ed.

& e most liberal uman .udgment cannot attribute suc difference to mere innocent error in estimating or counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not e4isting at t e time of t e fire. & is constitutes t e soB called +fraudulent claim, " ic , by e4press agreement bet"een t e insurers and t e insured, is a ground for t e e4emption of insurers from ci3il liability. 2n its $eply, FM! admitted t e discrepancies " en it stated t at +discrepancies in its statements "ere not co3ered by t e "arranty suc t at any discrepancy in t e declaration in ot er instruments or documents as to matters t at may a3e some relation to t e insurance co3erage 3oids t e policy., <n FM!?s allegation t at it did not breac any "arranty, it may be argued t at t e discrepancies do not, by t emsel3es, amount to a breac of "arranty. Ho"e3er, t e 2nsurance !ode pro3ides t at +apolicy may declare t at a 3iolation of specified pro3isions t ereof s all a3oid it., & us, in fire insurance policies, " ic contain pro3isions suc as !ondition Eo. 19 of t e 2nsurance Policy, a fraudulent discrepancy bet"een t e actual loss and t at claimed in t e proof of loss 3oids t e insurance policy. Mere filing of suc a claim "ill e4onerate t e insurer. !onsidering t at all t e circumstances point to t e ine3itable conclusion t at FM! padded its claim and "as guilty of fraud, FM! 3iolated !ondition Eo. 19 of t e 2nsurance Policy. & us, FM! forfeited " ate3er benefits it may be entitled under t e 2nsurance Policy, including its insurance claim. 1 ile it is a cardinal principle of insurance la" t at a contract of insurance is to be construed liberally in fa3or of t e insured and strictly against t e insurer company, contracts of insurance, li)e ot er contracts, are to be construed according to t e sense and meaning of t e terms " ic t e parties t emsel3es a3e used. 2f suc terms are clear and unambiguous, t ey must be ta)en and understood in t eir plain, ordinary and popular sense. !ourts are not permitted to ma)e contracts for t e parties% t e function and duty of t e courts is simply to enforce and carry out t e contracts actually made. =nited 5erchants Corporation vs. Countr, Bankers -nsurance Corporation, G. . !o. "#)$)), Jul, "", '("'. 2nsurance% limitation in liability. An insurer " o see)s to defeat a claim because of an e4ception or limitation in t e policy as t e burden of establis ing t at t e loss comes "it in t e pur3ie" of t e e4ception or limitation. 2f loss is pro3ed apparently "it in a contract of insurance, t e burden is upon t e insurer to establis t at t e loss arose from a cause of loss " ic is e4cepted or for " ic it is not liable, or from a cause " ic limits its liability. 2n t e present case, !(2! failed to disc arge its primordial burden of establis ing t at t e damage or loss "as caused by arson, a limitation in t e policy. =nited 5erchants Corporation vs. Countr, Bankers -nsurance Corporation, G. . !o. "#)$)), Jul, "", '("'. $e abilitation% " en appropriate. $e abilitation contemplates a continuance of corporate life and acti3ities in an effort to restore and reinstate t e corporation to its former position of successful operation and sol3ency. & e purpose of re abilitation proceedings is to enable t e company to gain a ne" lease on life and t ereby allo" creditors to be paid t eir claims from its earnings. & e re abilitation of a financially distressed corporation benefits its employees, creditors, stoc) olders and, in a larger sense, t e general public. $e abilitation proceedings in our .urisdiction, muc li)e t e ban)ruptcy la"s of t e Fnited States, a3e e/uitable and re abilitati3e purposes. <n one and, t ey attempt to pro3ide for t e

efficient and e/uitable distribution of an insol3ent debtor?s remaining assets to its creditors% and on t e ot er, to pro3ide debtors "it a +fres start, by relie3ing t em of t e "eig t of t eir outstanding debts and permitting t em to reorgani>e t eir affairs. & e rationale of Presidential Hecree Eo. :02BA, as amended, is to +effect a feasible and 3iable re abilitation,, by preser3ing a floundering business as going concern, because t e assets of a business are often more 3aluable " en so maintained t an t ey "ould be " en li/uidated. Fnder Section 26, $ule 5 of t e 2nterim $ules, a re abilitation plan may be appro3ed if t ere is a s o"ing t at re abilitation is feasible and t e opposition entered by t e creditors olding a ma.ority of t e total liabilities is unreasonable. 2n determining " et er t e ob.ections to t e appro3al of a re abilitation plan are reasonable or ot er"ise, t e court as t e follo"ing to consider# *a- t at t e opposing creditors "ould recei3e greater compensation under t e plan t an if t e corporate assets "ould be sold% *b- t at t e s are olders "ould lose t eir controlling interest as a result of t e plan% and *c- t at t e recei3er as recommended appro3al. $e abilitation is t erefore a3ailable to a corporation " o, " ile illi/uid, as assets t at can generate more cas if used in its daily operations t an sold. 2ts li/uidity issues can be addressed by a practicable business plan t at "ill generate enoug cas to sustain daily operations, as a definite source of financing for its proper and full implementation, and anc ored on realistic assumptions and goals. & is remedy s ould be denied to corporations " ose insol3ency appears to be irre3ersible and " ose sole purpose is to delay t e enforcement of any of t e rig ts of t e creditors, " ic is rendered ob3ious by t e follo"ing# *a- t e absence of a sound and "or)able business plan% *b- baseless and une4plained assumptions, targets and goals% *cspeculati3e capital infusion or complete lac) t ereof for t e e4ecution of t e business plan% *dcas flo" cannot sustain daily operations% and *e- negati3e net "ort and t e assets are near full depreciation or fully depreciated. Bonder Book Corporation vs. Philippine Bank o2 Communications, G. . !o. ")/&"6, Jul, "6, '("'.

August 2012 Philippine Supreme Court Decisions on Commercial Law


Posted on September 6, 2012 by Hector M. de Leon Jr Here are select August 2012 ruling of t e Supreme !ourt of t e P ilippines on commercial la"# Li/uidation% rig t of secured creditor to foreclose mortgage. 2n t e case of !onsuelo Metal !orporation 3. Planters He3elopment (an), " ic in3ol3ed factual antecedents similar to t e present case, t e court as already settled t e abo3e /uestion and up eld t e rig t of t e secured creditor to foreclose t e mortgages in its fa3or during t e li/uidation of a debtor corporation. 5anuel 7. Gngson, Jr., 9in his capacit, as the 4i@uidator o2 % C%5 > Co., -nc.; vs. Philippine !ational Bank, G. . !o. "/""&', %ugust "$, '("'. Li/uidation% rig t of secured creditor to foreclose mortgage. Fnder $epublic Act Eo. 10152, ot er"ise )no"n as t e 8inancial $e abilitation and 2nsol3ency Act *8$2A- of 2010, t e rig t of a secured creditor to enforce is lien during li/uidation proceedings is retained. Section 115 of said la" t us pro3ides#

S7!. 115. $ig ts of Secured !reditors. I & e Li/uidation <rder s all not affect t e rig t of a secured creditor to enforce is lien in accordance "it t e applicable contract or la". A secured creditor may# *a- "ai3e is rig ts under t e security or lien, pro3e is claim in t e li/uidation proceedings and s are in t e distribution of t e assets of t e debtor% or *b- maintain is rig ts under is security or lien% 2f t e secured creditor maintains is rig ts under t e security or lien# *1- t e 3alue of t e property may be fi4ed in a manner agreed upon by t e creditor and t e li/uidator. 1 en t e 3alue of t e property is less t an t e claim it secures, t e li/uidator may con3ey t e property to t e secured creditor and t e latter "ill be admitted in t e li/uidation proceedings as a creditor for t e balance% if its 3alue e4ceeds t e claim secured, t e li/uidator may con3ey t e property to t e creditor and "ai3e t e debtor?s rig t of redemption upon recei3ing t e e4cess from t e creditor% *2- t e li/uidator may sell t e property and satisfy t e secured creditor?s entire claim from t e proceeds of t e sale% or *6- t e secured creditor may enforce t e lien or foreclose on t e property pursuant to applicable la"s. 2n t is case, PE( elected to maintain its rig ts under t e security or lien% ence, its rig t to foreclose t e mortgaged properties s ould be respected, in line "it our pronouncement in !onsuelo Metal !orporation. 5anuel 7. Gngson, Jr., 9in his capacit, as the 4i@uidator o2 % C%5 > Co., -nc.; vs. Philippine !ational Bank, G. . !o. "/""&', %ugust "$, '("'. Li/uidation% preference for unpaid "ages. As to petitioner?s argument on t e rig t of first preference as regards unpaid "ages, t e !ourt as elucidated in t e case of He3elopment (an) of t e P ilippines 3. EL$! t at a distinction s ould be made bet"een a preference of credit and a lien. A preference applies only to claims " ic do not attac to specific properties. A lien creates a c arge on a particular property. & e rig t of first preference as regards unpaid "ages recogni>ed by Article 110 of t e Labor !ode, does not constitute a lien on t e property of t e insol3ent debtor in fa3or of "or)ers. 2t is but a preference of credit in t eir fa3or, a preference in application. 2t is a met od adopted to determine and specify t e order in " ic credits s ould be paid in t e final distribution of t e proceeds of t e insol3ent?s assets. 2t is a rig t to a first preference in t e disc arge of t e funds of t e .udgment debtor. !onse/uently, t e rig t of first preference for unpaid "ages may not be in3o)ed in t is case to nullify t e foreclosure sales conducted pursuant to PE( Ms rig t as a secured creditor to enforce its lien on specific properties of its debtor, A$!AM. 5anuel 7. Gngson, Jr., 9in his capacit, as the 4i@uidator o2 % C%5 > Co., -nc.; vs. Philippine !ational Bank, G. . !o. "/""&', %ugust "$, '("'.

September 2012 Philippine Supreme Court Decisions on Commercial Law

Posted on <ctober 1, 2012 by Hector M. de Leon Jr Here are select September 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !orporate officers% liability for employee?s money claim. 2n t e absence of bad fait , a corporate officer cannot be eld liable for t e money claims of an employee. (ad fait must be establiscged clearly and con3incingly as t e same is ne3er presumed. 5isamis 0riental -Electric Service Cooperative 950 ESC0 --; vs. Virgilio 5. Cagala:an. G. . !o. "/$"/(. Septem+er $, '("'. 2ntraBcorporate contro3ersy% fraud. 2t is essential for t e complaint to s o" on its face " at are claimed to be t e fraudulent corporate acts if t e complainant "is es to in3o)e t e court?s special commercial .urisdiction. & is is because fraud in intraBcorporate contro3ersies must be based on +de3ises and sc emes employed by, or any act of, t e board of directors, business associates, officers or partners, amounting to fraud or misrepresentation " ic may be detrimental to t e interest of t e public andNor of t e stoc) olders, partners, or members of any corporation, partners ip, or association,, as stated under $ule 1, Section 1 *a-*1- of t e 2nterim $ules. & e act of fraud or misrepresentation complained of becomes a criterion in determining " et er t e complaint on its face as merits, or "it in t e .urisdiction of special commercial court, or merely a nuisance suit. Simn, G. Gu,, Geraldine G. Gu,, Glad,s G. Gao and the 3eirs o2 the late Grace G. Cheu vs. Gil+ert Gu,/Simn, G. Gu,, Geraldine G. Gu,, Glad,s G. Gao and the heirs o2 the late Grace G. Cheu vs. .he 3on. 02elia C. Calo, in her capacit, as Presiding Judge o2 the .C85andalu,ong Cit,8Branch '"" and Gil+ert Gu, G. . !o. ")#*)6/G. . !o. ")#6##. Septem+er $, '("' Stoc) certificate% endorsement. 2n Santamaria 3. Hong)ong and S ang ai (an)ing !orp., t is !ourt eld t at " en a stoc) certificate is endorsed in blan) by t e o"ner t ereof, it constitutes " at is termed as +street certificate,, so t at upon its face, t e older is entitled to demand its transfer into is name from t e issuing corporation. Suc certificate is deemed /uasiBnegotiable, and as suc t e transferee t ereof is .ustified in belie3ing t at it belongs to t e older and transferor. 1 ile t ere is a contrary ruling, as an e4ception to t e general rule enunciated abo3e, " at t e !ourt eld in Eeugene Mar)eting 2nc., et al., 3 !A, " ere stoc) certificates endorsed in blan) "ere stolen from t e possession of t e beneficial o"ners t ereof constraining t is !ourt to declare t e transfer 3oid for lac) of deli3ery and "ant of 3alue, t e same cannot apply to =ilbert because t e stoc) certificates " ic =ilbert endorsed in blan) "ere in t e undisturbed possession of is parents " o "ere t e beneficial o"ners t ereof and " o t emsel3es as suc o"ners caused t e transfer in t eir names. Simn, G. Gu,, Geraldine G. Gu,, Glad,s G. Gao and the 3eirs o2 the late Grace G. Cheu vs. Gil+ert Gu,/Simn, G. Gu,, Geraldine G. Gu,, Glad,s G. Gao and the heirs o2 the late Grace G. Cheu vs. .he 3on. 02elia C. Calo, in her capacit, as Presiding Judge o2 the .C85andalu,ong Cit,8Branch '"" and Gil+ert Gu, G. . !o. ")#*)6/G. . !o. ")#6##. Septem+er $, '("'

October 2012 Philippine Supreme Court Decisions on Commercial Law


Posted on Eo3ember 9, 2012 by Hector M. de Leon Jr Here are select <ctober 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# (an)s% degree of diligence re/uired. Public interest is intimately car3ed into t e ban)ing industry because t e primordial concern ere is t e trust and confidence of t e public. & is fiduciary nature of e3ery ban)?s relations ip "it its clientsNdepositors impels it to e4ercise t e ig est degree of care, definitely more t an t at of a reasonable man or a good fat er of a family. 2t is, t erefore, re/uired to treat t e accounts and deposits of t ese indi3iduals "it meticulous care. & e rationale be ind t is is "ell e4pressed in Sande.as 3. 2gnacio, & e ban)ing system as become an indispensable institution in t e modern "orld and plays a 3ital role in t e economic life of e3ery ci3ili>ed society I ban)s a3e attained a ubi/uitous presence among t e people, " o a3e come to regard t em "it respect and e3en gratitude and most of all, confidence, and it is for t is reason, ban)s s ould guard against in.ury attributable to negligence or bad fait on its part. !onsidering t at ban)s can only act t roug t eir officers and employees, t e fiduciary obligation laid do"n for t ese institutions necessarily e4tends to t eir employees. & us, ban)s must ensure t at t eir employees obser3e t e same ig le3el of integrity and performance for it is only t roug t is t at ban)s may meet and comply "it t eir o"n fiduciary duty. 2t as been repeatedly eld t at +a ban)?s liability as an obligor is not merely 3icarious, but primary, since t ey are e4pected to obser3e an e/ually ig degree of diligence, not only in t e selection, but also in t e super3ision of its employees. & us, e3en if it is t eir employees " o are negligent, t e ban)?s responsibility to its client remains paramount ma)ing its liability to t e same to be a direct one. Bestmont Bank, 2ormerl, %ssociates Bank no: =nited 0verseas Bank Philippines vs.. 5,rna 7ela osa8 amos, 7omingo .an and Billiam Co ., =.$. Eo. 1D02D0. <ctober 25, 2012. !orporate re abilitation% results. !orporate re abilitation contemplates a continuance of corporate life and acti3ities in an effort to restore and reinstate t e corporation to its former position of successful operation and sol3ency, t e purpose being to enable t e company to gain a ne" lease on life and allo" its creditors to be paid t eir claims out of its earnings. A principal feature of corporate re abilitation is t e Stay <rder " ic defers all actions or claims against t e corporation see)ing corporate re abilitation from t e date of its issuance until t e dismissal of t e petition or termination of t e re abilitation proceedings. Fnder Section 25, $ule 5 of t e 2nterim $ules of Procedure on !orporate $e abilitation " ic "as in force at t e time &!72 filed its petition for re abilitation a /uo, t e appro3al of t e re abilitation plan also produces t e follo"ing results# a. & e plan and its pro3isions s all be binding upon t e debtor and all persons " o may be affected by it, including t e creditors, " et er or not suc persons a3e participated in t e proceedings or opposed t e plan or " et er or not t eir claims a3e been sc eduled%

b. & e debtor s all comply "it t e pro3isions of t e plan and s all ta)e all actions necessary to carry out t e plan% c. Payments s all be made to t e creditors in accordance "it t e pro3isions of t e plan% d. !ontracts and ot er arrangements bet"een t e debtor and its creditors s all be interpreted as continuing to apply to t e e4tent t at t ey do not conflict "it t e pro3isions of t e plan% and e. Any compromises on amounts or resc eduling of timing of payments by t e debtor s all be binding on creditors regardless of " et er or not t e plan is successfully implemented. .o:n and Countr, Enterprises, -nc. vs. 3on. !or+erto J. ?uisum+ing, Jr., et al./.o:n and Countr, Enterprises, =.$. Eo. 106D10N=.$. Eo. 105162. <ctober 1, 2012 $e abilitation stay order% effect on properties already foreclosed. Ha3ing purc ased t e sub.ect realties at public auction on 0 Eo3ember 2001, Metroban) undoubtedly ac/uired o"ners ip o3er t e same " en &!72 failed to e4ercise its rig t of redemption "it in t e t reeBmont period prescribed under t e foregoing pro3ision. 1it o"ners ip already 3ested in its fa3or as of D 8ebruary 2002, it matters little t at Metroban) caused t e certificate of sale to be registered "it t e !a3ite Pro3incial $egistry only on 10 April 2002 andNor r4ecuted an affida3it consolidating its o"ners ip o3er t e same properties only on 29 April 2006. & e rule is settled t at t e mortgagor loses all interest o3er t e foreclosed property after t e e4piration of t e redemption period and t e purc aser becomes t e absolute o"ner t ereof " en no redemption is made.6D (y t e time t at t e $e abilitation !ourt issued t e ; <ctober 2002 Stay <rder in S7! !ase Eo. 026B02, it cannot, t erefore, be gainsaid t at Metroban) ad long ac/uired o"ners ip o3er t e sub.ect realties. 'ie"ed in t e foregoing lig t, t e !A cannot be faulted for up olding t e $&!?s grant of a "rit of possession in fa3or of Metroban) on 11 January 2009. 2f t e purc aser at t e foreclosure sale, upon posting of t e re/uisite bond, is entitled to a "rit of possession e3en during t e redemption period under Section 0 of Act 6169,60 as amended, it as been consistently ruled t at t ere is no reason to "it old said "rit after t e e4piration of t e redemption period " en no redemption is effected by t e mortgagor. 2ndeed, t e rule is settled t at t e rig t of t e purc aser to t e possession of t e foreclosed property becomes absolute after t e redemption period, "it out a redemption being effected by t e property o"ner. Since t e basis of t is rig t to possession is t e purc aser?s o"ners ip of t e property, t e mere filing of an e4 parte motion for t e issuance of t e "rit of possession "ould suffice, and no bond is re/uired. !onsidering t at Metroban) ac/uired o"ners ip o3er t e mortgaged properties upon t e e4piration of t e redemption period on D 8ebruary 2002, &!72 is also out on a limb in in3o)ing t e Stay <rder issued by t e $e abilitation !ourt on ; <ctober 2002 and t e appro3al of its re abilitation plan on 2: Marc 2005. An essential function of corporate re abilitation is, admittedly, t e Stay <rder " ic is a mec anism of suspension of all actions and claims against t e distressed corporation upon t e due appointment of a management committee or re abilitation recei3er. & e Stay <rder issued by t e $e abilitation !ourt in S7! !ase Eo. 026B 02 cannot, o"e3er, apply to t e mortgage obligations o"ing to Metroban) " ic ad already been enforced e3en before &!72?s filing of its petition for corporate re abilitation on 1 <ctober 2002. .o:n and Countr, Enterprises, -nc. vs. 3on. !or+erto J. ?uisum+ing, Jr., et al./.o:n and Countr, Enterprises, =.$. Eo. 106D10N=.$. Eo. 105162. <ctober 1, 2012

November 2012 Philippine Supreme Court Decisions on Commercial Law


Posted on Hecember 10, 2012 by Hector M. de Leon Jr O Posted in !ommercial La", P ilippines B !ases, P ilippines B La", P ilippines B $egulation O &agged ban)s, insurance, trademar) O Lea3e a comment Here are select Eo3ember 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# (an)s% le3el of diligence re/uired. Primarily, it bears noting t at t e doctrine of +mortgagee in good fait , is based on t e rule t at all persons dealing "it property co3ered by a &orrens !ertificate of &itle are not re/uired to go beyond " at appears on t e face of t e title. & is is in deference to t e public interest in up olding t e indefeasibility of a certificate of title as e3idence of la"ful o"ners ip of t e land or of any encumbrance t ereon. 2n t e case of ban)s and ot er financial institutions, o"e3er, greater care and due diligence are re/uired since t ey are imbued "it public interest, failing " ic renders t e mortgagees in bad fait . & us, before appro3ing a loan application, it is a standard operating practice for t ese institutions to conduct an ocular inspection of t e property offered for mortgage and to 3erify t e genuineness of t e title to determine t e real o"ner*s- t ereof. & e apparent purpose of an ocular inspection is to protect t e +true o"ner, of t e property as "ell as innocent t ird parties "it a rig t, interest or claim t ereon from a usurper " o may a3e ac/uired a fraudulent certificate of title t ereto. 2n t is case, " ile P ilban) failed to e4ercise greater care in conducting t e ocular inspection of t e properties offered for mortgage, its omission did not pre.udice any innocent t ird parties. 2n particular, t e buyer did not pursue er cause and abandoned er claim on t e property. <n t e ot er and, Sps. Helgado "ere parties to t e simulated sale in fa3or of t e Hys " ic "as intended to mislead P ilban) into granting t e loan application. & us, no amount of diligence in t e conduct of t e ocular inspection could a3e led to t e disco3ery of t e complicity bet"een t e ostensible mortgagors *t e Hys- and t e true o"ners *Sps. Helgado-. 2n fine, P ilban) can ardly be deemed negligent under t e premises since t e ultimate cause of t e mortgagors? *t e Hys?- defecti3e title "as t e simulated sale to " ic Sps. Helgado "ere pri3ies. Accordingly, in t e interest of public policy, fair dealing, good fait and .ustice, t e !ourt accords P ilban) t e rig ts of a mortgagee in good fait " ose lien to t e securities posted must be respected and protected. 2n t is regard, P ilban) is entitled to a3e its mortgage carried o3er or annotated on t e titles of !ipriana Helgado o3er t e said properties. Philippine Banking Corporation vs. %rturo 7,, et al., G. . !o. ")&//*. !ovem+er "*, '("'. 2nsurance% t eft clause. $ecords "ould s o" t at respondents entrusted possession of t eir 3e icle only to t e e4tent t at Sales "ill introduce repairs and not to permanently depri3e t em of possession t ereof. Since, & eft can also be committed t roug misappropriation, t e fact t at Sales failed to return t e sub.ect 3e icle to respondents constitutes Pualified & eft. Hence, since respondents? car is undeniably co3ered by a !ompre ensi3e Motor 'e icle 2nsurance Policy t at allo"s for reco3ery in cases of t eft, petitioner is liable under t e policy for t e loss of respondents? 3e icle under t e +t eft clause., Paramount -nsurance Corporation vs. Spouses Gves and 5aria .eresa emonduelaA, G. . !o. "/&//&, !ovem+er '), '("'

&rademar)% test for similarity. A trademar) de3ice is susceptible to registration if it is crafted fancifully or arbitrarily and is capable of identifying and distinguis ing t e goods of one manufacturer or seller from t ose of anot er. Apart from its commercial utility, t e benc mar) of trademar) registrability is distincti3eness. & us, a generic figure, as t at of a s ar) in t is case, if employed and designed in a distincti3e manner, can be a registrable trademar) de3ice, sub.ect to t e pro3isions of t e 2P !ode. !orollarily, Section 126.1*d- of t e 2P !ode pro3ides t at a mar) cannot be registered if it is identical "it a registered mar) belonging to a different proprietor "it an earlier filing or priority date, "it respect to t e same or closely related goods or ser3ices, or as a near resemblance to suc mar) as to li)ely decei3e or cause confusion. 2n determining similarity and li)eli ood of confusion, case la" as de3eloped t e Hominancy &est and t e Holistic or &otality &est. & e Hominancy &est focuses on t e similarity of t e dominant features of t e competing trademar)s t at mig t cause confusion, mista)e, and deception in t e mind of t e ordinary purc aser, and gi3es more consideration to t e aural and 3isual impressions created by t e mar)s on t e buyers of goods, gi3ing little "eig t to factors li)e prices, /uality, sales outlets, and mar)et segments. 2n contrast, t e Holistic or &otality &est considers t e entirety of t e mar)s as applied to t e products, including t e labels and pac)aging, and focuses not only on t e predominant "ords but also on t e ot er features appearing on bot labels to determine " et er one is confusingly similar to t e ot er as to mislead t e ordinary purc aser. & e +ordinary purc aser, refers to one +accustomed to buy, and t erefore to some e4tent familiar "it , t e goods in /uestion., Great Bhite Shark Enterprises, -nc. Vs. 7anilo 5. Caralde, Jr., G. . !o. "#''#*. !ovem+er '", '("'.

December 2012 Philippine Supreme Court Decisions on Commercial Law


Posted on January 0, 2016 by Hector M. de Leon Jr O Posted in !ommercial La", P ilippines B !ases, P ilippines B La" O &agged corporation, re abilitation O Lea3e a comment Here are select Hecember 2012 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !orporations% liability of corporate officers. Settled is t e rule t at debts incurred by directors, officers, and employees acting as corporate agents are not t eir direct liability but of t e corporation t ey represent, e4cept if t ey contractually agreeNstipulate or assume to be personally liable for t e corporation?s debts, as in t is case. 2ldefonso S. !risologo 3s. People of t e P ilippines and ! ina (an)ing !orporation, =.$. Eo. 1::5;1, Hecember 6, 2012. $e abilitation% purpose. $e abilitation is an attempt to conser3e and administer t e assets of an insol3ent corporation in t e ope of its e3entual return from financial stress to sol3ency. 2t contemplates t e continuance of corporate life and acti3ities in an effort to restore and reinstate t e corporation to its former position of successful operation and li/uidity. & e purpose of re abilitation proceedings is precisely to enable t e company to gain a ne" lease on life and t ereby allo" creditors to be paid t eir claims from its earnings.

$e abilitation s all be underta)en " en it is s o"n t at t e continued operation of t e corporation is economically feasible and its creditors can reco3er, by "ay of t e present 3alue of payments pro.ected in t e plan, more, if t e corporation continues as a going concern t an if it is immediately li/uidated. Express -nvestments --- Private 4td. and Export 7evelopment Canada Vs. Ba,an .elecommunications, -nc., .he Bank o2 !e: Gork 9as trustee 2or holders o2 the =SH'((,(((,((( "&.$I Seniour notes o2 Ba,an .elecommunications, -nc.; and %tt,. emigio %. !oval 9as the Court8appointed eha+ilitation eceiver o2 Ba,antel;. G. . !os. "/**$/8$#/G. . !os. "/$*")8'(/G. . !o. "//'/(. 7ecem+er $, '("' $e abilitation% priority of secured creditors. & e resolution of t e issue at and rests on a determination of " et er secured creditors may enforce preference in payment during re abilitation by 3irtue of a contractual agreement. & e principle of e/uality in e/uity as been cited as t e basis for placing secured and unsecured creditors in e/ual footing or in pari passu "it eac ot er during re abilitation. 2n legal parlance, pari passu is used especially of creditors " o, in mars aling assets, are entitled to recei3e out of t e same fund "it out any precedence o3er eac ot er. & e !ourt laid t e guidelines for t e treatment of claims undergoing re abilitation# against corporations

1. All claims against corporations, partners ips, or associations t at are pending before any court, tribunal, or board, "it out distinction as to " et er or not a creditor is secured or unsecured, s all be suspended effecti3e upon t e appointment of a management committee, re abilitation recei3er, board, or body in accordance "it t e pro3isions of Presidential Hecree Eo. :02BA. 2. Secure) cre)itors retain their pre*erence over unsecure) cre)itors+ but en*orcement o* such pre*erence is e-uall suspen)e) upon the appointment o* a management committee+ rehabilitation receiver+ boar)+ or bo) . 2n t e e3ent t at t e assets of t e corporation, partners ip, or association are finally li/uidated, o"e3er, secured and preferred credits under t e applicable pro3isions of t e !i3il !ode "ill definitely a3e preference o3er unsecured ones.09 *7mp asis suppliedExpress -nvestments --- Private 4td. and Export 7evelopment Canada Vs. Ba,an .elecommunications, -nc., .he Bank o2 !e: Gork 9as trustee 2or holders o2 the =SH'((,(((,((( "&.$I Seniour notes o2 Ba,an .elecommunications, -nc.; and %tt,. emigio %. !oval 9as the Court8appointed eha+ilitation eceiver o2 Ba,antel;. G. . !os. "/**$/8$#/G. . !os. "/$*")8 '(/G. . !o. "//'/(. 7ecem+er $, '("' $e abilitation% constitutionality of pari passu treatment. Petitioners submit t at t e pari passu treatment of claims offends t e !ontract !lause under t e 1:;0 !onstitution. Article 222, Section 10 of t e !onstitution mandates t at no la" impairing t e obligation of contracts s all be passed. Any la" " ic enlarges, abridges, or in any manner c anges t e intention of t e parties, necessarily impairs t e contract itself. And e3en " en t e c ange in t e contract is done by indirection, t ere is impairment nonet eless.

& e pro ibition embraces enactments of a go3ernmental la"Bma)ing body pertaining to its legislati3e functions. Strictly spea)ing, it does not co3er t e e4ercise by suc la"Bma)ing body of /uasiB.udicial po"er. 'erily, t e Hecision dated June 2;, 2005 of t e $e abilitation !ourt is not a proper sub.ect of t e EonBimpairment !lause. Express -nvestments --- Private 4td. and Export 7evelopment Canada Vs. Ba,an .elecommunications, -nc., .he Bank o2 !e: Gork 9as trustee 2or holders o2 the =SH'((,(((,((( "&.$I Seniour notes o2 Ba,an .elecommunications, -nc.; and %tt,. emigio %. !oval 9as the Court8appointed eha+ilitation eceiver o2 Ba,antel;. G. . !os. "/**$/8$#/G. . !os. "/$*")8'(/G. . !o. "//'/(. 7ecem+er $, '("' $e abilitation% po"er of Monitoring !ommittee to manage operations. & e management committee or re abilitation recei3er, board or body s all a3e t e follo"ing po"ers# *1- to ta)e custody of, and control o3er, all t e e4isting assets and property of t e distressed corporation% *2to e3aluate t e e4isting assets and liabilities, earnings and operations of t e corporation% *6- to determine t e best "ay to sal3age and protect t e interest of t e in3estors and creditors% *5- to study, re3ie" and e3aluate t e feasibility of continuing operations and restructure and re abilitate suc entities if determined to be feasible by t e $e abilitation !ourt% and *9- it may o3errule or re3o)e t e actions of t e pre3ious management and board of directors of t e entity or entities under management not"it standing any pro3ision of la", articles of incorporation or byB la"s to t e contrary. 2n t is case, petitioner neit er filed a petition for t e appointment of a management committee nor presented e3idence to s o" t at t ere is imminent danger of dissipation, loss, "astage or destruction of assets or ot er properties or paraly>ation of business operations of respondent corporation " ic may be pre.udicial to t e interest of t e minority stoc) olders, t e creditors or t e public. Fnless petitioner satisfies t ese re/uisites, "e cannot sanction t e e4ercise by t e Monitoring !ommittee of po"ers t at "ill amount to management of respondent?s operations. Express -nvestments --- Private 4td. and Export 7evelopment Canada Vs. Ba,an .elecommunications, -nc., .he Bank o2 !e: Gork 9as trustee 2or holders o2 the =SH'((,(((,((( "&.$I Seniour notes o2 Ba,an .elecommunications, -nc.; and %tt,. emigio %. !oval 9as the Court8appointed eha+ilitation eceiver o2 Ba,antel;. G. . !os. "/**$/8$#/G. . !os. "/$*")8 '(/G. . !o. "//'/(. 7ecem+er $, '("'

Januar 201. Philippine Supreme Court Decisions on Commercial Law


Posted on 8ebruary 1, 2016 by Hector M. de Leon Jr O Posted in !ommercial La", P ilippines B !ases, P ilippines B La" O &agged corporation O Lea3e a comment Here are select January 2016 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# Hissolution% continuation of business. Section 122 of t e !orporation !ode pro ibits a dissol3ed corporation from continuing its business, but allo"s it to continue "it a limited personality in order to settle and close its affairs, including its complete li/uidation. & us#

Sec. 122. !orporate li/uidation. I 73ery corporation " ose c arter e4pires by its o"n limitation or is annulled by forfeiture or ot er"ise, or " ose corporate e4istence for ot er purposes is terminated in any ot er manner, s all ne3ert eless be continued as a body corporate for t ree *6years after t e time " en it "ould a3e been so dissol3ed, for t e purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and con3ey its property and to distribute its assets, but not *or the purpose o* continuing the business *or which it was establishe)" *emp asis supplied& e !ourt fails to find in t e prayers any intention to continue t e corporate business of 8P(Q0. & e !omplaint does not see) to enter into contracts, issue ne" stoc)s, ac/uire properties, e4ecute business transactions, etc. 2ts aim is not to continue t e corporate business, but to determine and 3indicate an alleged stoc) older?s rig t to t e return of is stoc) oldings and to participate in t e election of directors, and a corporation?s rig t to remo3e usurpers and strangers from its affairs. & e !ourt fails to see o" t e resolution of t ese issues can be said to continue t e business of 8P(Q0. Vitaliano !. %guirre -- and 1idel !. %guirre -- and 1idel !. %guirre vs. 1?BJ, -nc., !athaniel 7. Boco+o, Priscila Boco+o and %ntonio 7e Villa, =.$. Eo. 100000. January :, 2016. Hissolution% board of directors. A corporation?s board of directors is not rendered 2unctus o22icio by its dissolution. Since Section 122 allo"s a corporation to continue its e4istence for a limited purpose, necessarily t ere must be a board t at "ill continue acting for and on be alf of t e dissol3ed corporation for t at purpose. 2n fact, Section 122 aut ori>es t e dissol3ed corporation?s board of directors to conduct its li/uidation "it in t ree years from its dissolution. Jurisprudence as e3en recogni>ed t e board?s aut ority to act as trustee for persons in interest beyond t e said t reeByear period. & us, t e determination of " ic group is t e +ona 2ide or rig tful board of t e dissol3ed corporation "ill still pro3ide practical relief to t e parties in3ol3ed. Vitaliano !. %guirre -- and 1idel !. %guirre -- and 1idel !. %guirre vs. 1?BJ, -nc., !athaniel 7. Boco+o, Priscila Boco+o and %ntonio 7e Villa, =.$. Eo. 100000. January :, 2016. Hissolution% effect on property rig ts. A party?s stoc) oldings in a corporation, " et er e4isting or dissol3ed, is a property rig t " ic e may 3indicate against anot er party " o as depri3ed im t ereof. & e corporation?s dissolution does not e4tinguis suc property rig t. Section 159 of t e !orporation !ode ensures t e protection of t is rig t, t us# Sec. 159. %mendment or repeal. K Eo rig t or remedy in favor of or against any corporation, its stoc) olders, members, directors, trustees, or officers, nor any liability incurred by any suc corporation, stoc) olders, members, directors, trustees, or officers, s all be remo3ed or impaired eit er by t e subse/uent dissolution of said corporation or by any subse/uent amendment or repeal of t is !ode or of any part t ereof. *7mp asis supplied.Vitaliano !. %guirre -- and 1idel !. %guirre -- and 1idel !. %guirre vs. 1?BJ, -nc., !athaniel 7. Boco+o, Priscila Boco+o and %ntonio 7e Villa, =.$. Eo. 100000. January :, 2016.

!ebruar 201. Philippine Supreme Court Decisions on Commercial Law

Posted on Marc 1, 2016 by Hector M. de Leon Jr O Posted in !ommercial La" O &agged ban)s, loan, trust O Lea3e a comment Eature of ban) relations ip "it depositors% fiduciary nature does not con3ert t e contract from a simple loan to a trust agreement% ban) must obser3e ig standards of integrity and performance. !ontrary to t e petitioner?s position, F!P( did not become a trustee by t e mere opening of t e A!!<FE&. 1 ile t is may seem to be t e case, by reason of t e fiduciary nature of t e ban)?s relations ip "it its depositors, t is fiduciary relations ip does not +con3ert t e contract bet"een t e ban) and its depositors from a simple loan to a trust agreement, " et er e4press or implied., 2t simply means t at t e ban) is obliged to obser3e + ig standards of integrity and performance, in complying "it its obligations under t e contract of simple loan. Per Article 1:;0 of t e !i3il !ode, a creditorBdebtor relations ip e4ists bet"een t e ban) and its depositor. & e sa3ings deposit agreement is bet"een t e ban) and t e depositor% by recei3ing t e deposit, t e ban) impliedly agrees to pay upon demand and only upon t e depositor?s order. Joseph Go,anko, Jr., as administrator o2 the Estate o2 Joseph Go,anko, Sr. vs. =nited Coconut Planters Bank, 5ango %venue Branch, G. . !o. "/#(#6. 1e+ruar, 6, '("&

/arch 201. Philippine Supreme Court Decisions on Commercial Law


Posted on April 9, 2016 by Hector M. de Leon Jr O Posted in !ommercial La" O &agged corporation, piercing corporate 3eil O Here are select Marc 2016 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !orporation% separate personality. A corporation is an artificial entity created by operation of la". 2t possesses t e rig t of succession and suc po"ers, attributes, and properties e4pressly aut ori>ed by la" or incident to its e4istence. 2t as a personality separate and distinct from t at of its stoc) olders and from t at of ot er corporations to " ic it may be connected. As a conse/uence of its status as a distinct legal entity and as a result of a conscious policy decision to promote capital formation, a corporation incurs its o"n liabilities and is legally responsible for payment of its obligations. 2n ot er "ords, by 3irtue of t e separate .uridical personality of a corporation, t e corporate debt or credit is not t e debt or credit of t e stoc) older. & is protection from liability for s are olders is t e principle of limited liability. P il. Eational (an) 3s. Hydro $esources !ontractors !orp., .=.$. Eos. 1D0960, 1D09D1, 1D0D0611. Marc 16, 2016 !orporation% piercing t e corporate 3eil. 7/ually "ellBsettled is t e principle t at t e corporate mas) may be remo3ed or t e corporate 3eil pierced " en t e corporation is .ust an alter ego of a person or of anot er corporation. 8or reasons of public policy and in t e interest of .ustice, t e corporate 3eil "ill .ustifiably be impaled only " en it becomes a s ield for fraud, illegality or ine/uity committed against t ird persons. Ho"e3er, t e rule is t at a court s ould be careful in assessing t e milieu " ere t e doctrine of t e corporate 3eil may be applied. <t er"ise an in.ustice, alt oug unintended, may result from its erroneous application. & us, cutting t roug t e corporate co3er re/uires an approac c aracteri>ed by due care and caution#

Hence, any application of t e doctrine of piercing t e corporate 3eil s ould be done "it caution. A court s ould be mindful of t e milieu " ere it is to be applied. 2t must be certain t at t e corporate fiction "as misused to suc an e4tent t at in.ustice, fraud, or crime "as committed against anot er, in disregard of its rig ts. & e "rongdoing must be clearly and con3incingly establis ed% it cannot be presumed. 4 4 4. Sarona 3. Eational Labor $elations !ommission as defined t e scope of application of t e doctrine of piercing t e corporate 3eil# & e doctrine of piercing t e corporate 3eil applies only in t ree *6- basic areas, namely# 1- defeat of public con3enience as " en t e corporate fiction is used as a 3e icle for t e e3asion of an e4isting obligation% 2- fraud cases or " en t e corporate entity is used to .ustify a "rong, protect fraud, or defend a crime% or 6- alter ego cases, " ere a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or " ere t e corporation is so organi>ed and controlled and its affairs are so conducted as to ma)e it merely an instrumentality, agency, conduit or ad.unct of anot er corporation. *!itation omitted.Phil. !ational Bank vs. 3,dro "6/6(&"". 5arch "&, '("& esources Contractors Corp., .G. . !os. "6/$&(, "6/$6",

!orporation% piercing t e corporate 3eil% alter ego t eory. 2n t is connection, case la" lays do"n a t reeBpronged test to determine t e application of t e alter ego t eory, " ic is also )no"n as t e instrumentality t eory, namely# *1- !ontrol, not mere ma.ority or complete stoc) control, but complete domination, not only of finances but of policy and business practice in respect to t e transaction attac)ed so t at t e corporate entity as to t is transaction ad at t e time no separate mind, "ill or e4istence of its o"n% *2- Suc control must a3e been used by t e defendant to commit fraud or "rong, to perpetuate t e 3iolation of a statutory or ot er positi3e legal duty, or dis onest and un.ust act in contra3ention of plaintiff?s legal rig t% and *6- & e aforesaid control and breac of duty must a3e pro4imately caused t e in.ury or un.ust loss complained of. & e first prong is t e +instrumentality, or +control, test. & is test re/uires t at t e subsidiary be completely under t e control and domination of t e parent. 2t e4amines t e parent corporation?s relations ip "it t e subsidiary. 2t in/uires " et er a subsidiary corporation is so organi>ed and controlled and its affairs are so conducted as to ma)e it a mere instrumentality or agent of t e parent corporation suc t at its separate e4istence as a distinct corporate entity "ill be ignored. 2t see)s to establis " et er t e subsidiary corporation as no autonomy and t e parent corporation, t oug acting t roug t e subsidiary in form and appearance, +is operating t e business directly for itself., & e second prong is t e +fraud, test. & is test re/uires t at t e parent corporation?s conduct in using t e subsidiary corporation be un.ust, fraudulent or "rongful. 2t e4amines t e relations ip of t e plaintiff to t e corporation. 2t recogni>es t at piercing is appropriate only if t e parent corporation uses t e subsidiary in a "ay t at arms t e plaintiff creditor. As suc , it re/uires a s o"ing of +an element of in.ustice or fundamental unfairness.,

& e t ird prong is t e + arm, test. & is test re/uires t e plaintiff to s o" t at t e defendant?s control, e4erted in a fraudulent, illegal or ot er"ise unfair manner to"ard it, caused t e arm suffered. A causal connection bet"een t e fraudulent conduct committed t roug t e instrumentality of t e subsidiary and t e in.ury suffered or t e damage incurred by t e plaintiff s ould be establis ed. & e plaintiff must pro3e t at, unless t e corporate 3eil is pierced, it "ill a3e been treated un.ustly by t e defendant?s e4ercise of control and improper use of t e corporate form and, t ereby, suffer damages. &o summari>e, piercing t e corporate 3eil based on t e alter ego t eory re/uires t e concurrence of t ree elements# control of t e corporation by t e stoc) older or parent corporation, fraud or fundamental unfairness imposed on t e plaintiff, and arm or damage caused to t e plaintiff by t e fraudulent or unfair act of t e corporation. & e absence of any of t ese elements pre3ents piercing t e corporate 3eil. & is !ourt finds t at none of t e tests as been satisfactorily met in t is case. 2n applying t e alter ego doctrine, t e courts are concerned "it reality and not form, "it o" t e corporation operated and t e indi3idual defendant?s relations ip to t at operation. 1it respect to t e control element, it refers not to paper or formal control by ma.ority or e3en complete stoc) control but actual control " ic amounts to +suc domination of finances, policies and practices t at t e controlled corporation as, so to spea), no separate mind, "ill or e4istence of its o"n, and is but a conduit for its principal., 2n addition, t e control must be s o"n to a3e been e4ercised at t e time t e acts complained of too) place. Phil. !ational Bank vs. 3,dro esources Contractors Corp., .G. . !os. "6/$&(, "6/$6", "6/6(&"". 5arch "&, '("& !orporation% piercing t e corporate 3eil% o"ners ip of s ares. 1 ile o"ners ip by one corporation of all or a great ma.ority of stoc)s of anot er corporation and t eir interloc)ing directorates may ser3e as indicia of control, by t emsel3es and "it out more, o"e3er, t ese circumstances are insufficient to establis an alter ego relations ip or connection bet"een H(P and PE( on t e one and and EM2! on t e ot er and, t at "ill .ustify t e puncturing of t e latter?s corporate co3er. & is !ourt as declared t at +mere o"ners ip by a single stoc) older or by anot er corporation of all or nearly all of t e capital stoc) of a corporation is not of itself sufficient ground for disregarding t e separate corporate personality., & is !ourt as li)e"ise ruled t at t e +e4istence of interloc)ing directors, corporate officers and s are olders is not enoug .ustification to pierce t e 3eil of corporate fiction in t e absence of fraud or ot er public policy considerations., Phil. !ational Bank vs. 3,dro esources Contractors Corp., .G. . !os. "6/$&(, "6/$6", "6/6(&"". 5arch "&, '("&

S&C 0ui)elines on Compliance with !ilipino1 !oreign Ownership 2e-uirements


Posted on June 6, 2016 by 2melda A. Manguiat O Posted in !onstitutional La" O & e Securities and 74c ange !ommission *+S&C,- issued Memorandum !ircular Eo. ;B2016 on May 20, 2016. & e !ircular sets out t e guidelines to determine compliance "it t e re/uired percentage of 8ilipinoBforeign o"ners ip in corporations engaged in nationali>ed and partlyB nationali>ed acti3ities.

Eationali>ed acti3ities refer to t ose areas of in3estments " ic are completely or partly reser3ed to P ilippine nationals pursuant to t e 1:;0 !onstitution, t e 8oreign 2n3estments Act, as amended *+!$A,-, and ot er e4isting la"s suc as t e $etail &rade Liberali>ation Act. & e !ircular "as issued pursuant to t e Supreme !ourt?s directi3e in t e case of Gam+oa v. .eves, " ere t e !ourt interpreted t e term +capital, in Article R22, Section 11 of t e 1:;0 !onstitution to refer +only to s ares of stoc) entitled to 3ote in t e election of directors., Fnder t e !ircular, for purposes of determining compliance "it t e nationality restrictions, t e re/uired percentage of 8ilipino o"ners ip s all be applied to bot *a- t e total number of outstanding s ares of stoc) entitled to 3ote in t e election of directors, and *b- t e total number of outstanding s ares of stoc), " et er or not entitled to 3ote in t e election of directors. <n t e ot er and, corporations co3ered by special la"s pro3iding for specific citi>ens ip re/uirements s all continue to be guided by t e pro3isions of t ose special la"s. & e corporate secretaries of co3ered corporations are directed to monitor compliance "it t e pro3isions of t e !ircular. & e S7! pro3ided for a oneByear grace period to enable all corporations to comply "it its ne" !ircular, failing " ic , t e corporation s all be sub.ected to administrati3e sanctions under t e 82A, as amended. S7! Memorandum !ircular Eo. ;B2016 too) effect immediately after its publication last May 22.

June 201. Philippine Supreme Court Decisions on Commercial Law


Posted on July ;, 2016 by Hector M. de Leon Jr O Posted in !ommercial La" O &agged corporation, deri3ati3e suit, insurance, trademar) O Here are select June 2016 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# !orporation% deri3ati3e suit. A deri3ati3e suit is an action broug t by a stoc) older on be alf of t e corporation to enforce corporate rig ts against t e corporation?s directors, officers or ot er insiders. Fnder Sections 26 and 6D of t e !orporation !ode, t e directors or officers, as pro3ided under t e byBla"s, a3e t e rig t to decide " et er or not a corporation s ould sue. Since t ese directors or officers "ill ne3er be "illing to sue t emsel3es, or impugn t eir "rongful or fraudulent decisions, stoc) olders are permitted by la" to bring an action in t e name of t e corporation to old t ese directors and officers accountable. 2n deri3ati3e suits, t e real party in interest is t e corporation, " ile t e stoc) older is a mere nominal party. Juanito %ng, 2or and in +ehal2 o2 Sunrise 5arketing 9Bacolod;, -nc. v. Sps. o+erto and achel %ng , =.$. Eo. 201D09, June 1:, 2016. !orporation% s ares of stoc). 2n a sale of s ares of stoc), p ysical deli3ery of a stoc) certificate is one of t e essential re/uisites for t e transfer of o"ners ip of t e stoc)s purc ased. Here, 87=H2 clearly failed to deli3er t e stoc) certificates, representing t e s ares of stoc) purc ased by 'erte4, "it in a reasonable time from t e point t e s ares s ould a3e been deli3ered. & is "as a substantial breac of t eir contract t at entitles 'erte4 t e rig t to rescind t e sale under Article 11:1 of t e !i3il !ode. 2t is not entirely correct to say t at a sale ad

already been consummated as 'erte4 already en.oyed t e rig ts a s are older can e4ercise. & e en.oyment of t ese rig ts cannot suffice " ere t e la", by its e4press terms, re/uires a specific form to transfer o"ners ip. 1il8Estate Gold and 7evelopment, -nc., et al. v. Vertex Sales and .rading, -nc., =.$. Eo. 20200:, June 10, 2016. 2nsurance% collateral source rule. As part of American personal in.ury la", t e collateral source rule "as originally applied to tort cases " erein t e defendant is pre3ented from benefiting from t e plaintiff?s receipt of money from ot er sources. Fnder t is rule, if an in.ured person recei3es compensation for is in.uries from a source " olly independent of t e tortfeasor, t e payment s ould not be deducted from t e damages " ic e "ould ot er"ise collect from t e tortfeasor. 2n a recent Hecision by t e 2llinois Supreme !ourt, t e rule as been described as +an establis ed e4ception to t e general rule t at damages in negligence actions must be compensatory., & e !ourt "ent on to e4plain t at alt oug t e rule appears to allo" a double reco3ery, t e collateral source "ill a3e a lien or subrogation rig t to pre3ent suc a double reco3ery. & e collateral source rule applies in order to place t e responsibility for losses on t e party causing t em. 2ts application is .ustified so t at +t e "rongdoer s ould not benefit from t e e4penditures made by t e in.ured party or ta)e ad3antage of contracts or ot er relations t at may e4ist bet"een t e in.ured party and t ird persons., & us, it finds no application to cases in3ol3ing noBfault insurances under " ic t e insured is indemnified for losses by insurance companies, regardless of " o "as at fault in t e incident generating t e losses. Here, it is clear t at MMP! is a noBfault insurer. Hence, it cannot be obliged to pay t e ospitali>ation e4penses of t e dependents of its employees " ic ad already been paid by separate ealt insurance pro3iders of said dependents. 5itsu+ishi 5otors Philippines Salaried Emplo,ees =nion v. 5itsu+ishi 5otors Philippines Corporation, =.$. Eo. 109006, June 10, 2016. &rademar)s. Fnder t e Paris !on3ention, t e P ilippines is obligated to assure nationals of t e signatoryBcountries t at t ey are afforded an effecti3e protection against 3iolation of t eir intellectual property rig ts in t e P ilippines in t e same "ay t at t eir o"n countries are obligated to accord similar protection to P ilippine nationals. +& us, under P ilippine la", a trade name of a national of a State t at is a party to t e Paris !on3ention, " et er or not t e trade name forms part of a trademar), is protected +"it out t e obligation of filing or registration.?, & e present la" on trademar)s, $epublic Act Eo. ;2:6, ot er"ise )no"n as t e 2ntellectual Property !ode of t e P ilippines, as amended, as already dispensed "it t e re/uirement of prior actual use at t e time of registration. & us, t ere is more reason to allo" t e registration of t e sub.ect mar) under t e name of !ointreau as its true and la"ful o"ner. Ecole 7e Cuisine 5anille 9Cordon Bleu o2 the Philippines;, -nc. v. enaud Cointreau > C-E and 4e Condron Bleu -ntDl., B.V., =.$. Eo. 1;9;60, June 9, 2016.

Jul 201. Philippine Supreme Court Decisions on Commercial Law


Posted on August :, 2016 by Hector M. de Leon Jr O Posted in !ommercial La", P ilippines B !ases, P ilippines B La" O &agged ban)s, common carrier O Here are select July 2016 rulings of t e Supreme !ourt of t e P ilippines on commercial la"#

(an)s% outsourcing of functions. H.<. Eo. 10 is but a guide to determine " at functions may be contracted out, sub.ect to t e rules and establis ed .urisprudence on legitimate .ob contracting and pro ibited labor only contracting.51 73en if t e !ourt considers H.<. Eo. 10 only, (P2 "ould still be "it in t e bounds of H.<. Eo. 10 " en it contracted out t e sub.ect functions. & is is because t e sub.ect functions "ere not related or not integral to t e main business or operation of t e principal " ic is t e lending of funds obtained in t e form of deposits.52 8rom t e 3ery definition of +ban)s, as pro3ided under t e =eneral (an)ing La", it can easily be discerned t at ban)s perform only t"o *2- main or basic functions I deposit and loan functions. & us, cas iering, distribution and boo))eeping are but ancillary functions " ose outsourcing is sanctioned under !(P !ircular Eo. 16;; as "ell as H.<. Eo. 10. 73en (P2 itself recogni>es t at deposit and loan functions cannot be legally contracted out as t ey are directly related or integral to t e main business or operation of ban)s. & e !(P?s Manual of $egulations as e3en categorically stated and emp asi>ed on t e pro ibition against outsourcing in erent ban)ing functions, " ic refer to any contract bet"een t e ban) and a ser3ice pro3ider for t e latter to supply, or any act " ereby t e latter supplies, t e manpo"er to ser3ice t e deposit transactions of t e former. (P2 7mployees FnionBHa3ao !ityB8ubu *(P27FBHa3ao !ityB8ubu- 3. (an) of t e P ilippine 2slands *(P2-, et al., =.$. Eo. 105:12, July 25, 2016. !arriage of =oods (y t e Sea% notice re/uirement. A letter of credit is a financial de3ice de3eloped by merc ants as a con3enient and relati3ely safe mode of dealing "it sales of goods to satisfy t e seemingly irreconcilable interests of a seller, " o refuses to part "it is goods before e is paid, and a buyer, " o "ants to a3e control of is goods before paying. Ho"e3er, letters of credit are employed by t e parties desiring to enter into commercial transactions, not for t e benefit of t e issuing ban) but mainly for t e benefit of t e parties to t e original transaction,59 in t ese cases, Eic imen !orporation as t e seller and Fni3ersal Motors as t e buyer. Hence, t e latter, as t e buyer of t e Eissan !KH parts, s ould be regarded as t e person entitled to deli3ery of t e goods. Accordingly, for purposes of rec)oning " en notice of loss or damage s ould be gi3en to t e carrier or its agent, t e date of deli3ery to Fni3ersal Motors is controlling. %sian .erminals, -nc. v. Philam -nsurance Co., -nc. 9no: Chartis Philippines -nsurance -nc.;/ Philam -nsurance Co., -nc. 9no: Chartis Philippines -nsurance -nc.; v. Best:ind Shipping Corporation and %sian .erminals, -nc./ Best:ind Shipping Corporation v. Philam -nsurance Co., -nc. and %sian .erminals, -nc., =.$. Eos. 1;11D6N1;12D2N1;161:, July 25, 2016.

%he Philippine Design Competitiveness Act3 Pushing !ilipino Creativit an) $nnovation to 0reater 4eights
Posted on September 2, 2016 by $icardo Ma. P.=. <ng)i)o O Posted in P ilippines B La" O & ere?s a muc brig ter future in store for our 8ilipino designers. $epublic Act Eo. 10990, or t e +P ilippine Hesign !ompetiti3eness Act,, as been enacted and signed into la" by President (enigno A/uino 222 last May 19, 2016.

& e Act aims to boost competiti3eness of t e 8ilipino design industry "it t e follo"ing ob.ecti3es# *1- creating for"ardBt in)ing and longBrange direction and strategy for t e design industry% *2- promoting national a"areness on t e use of design as a tool for economic competiti3eness and social inno3ation% *6- integrating design into ot er industries and aspects of society% *5- incorporating design as a priority component in national planning and de3elopment% and *9- encouraging inno3ation and creati3ity in t e use of ra" materials and natural resources *see Section 6-. Design Center o* the Philippines & e la" renamed t e Product He3elopment and Hesign !enter of t e P ilippines *PHH!P- into t e Hesign !enter of t e P ilippines *+Hesign !enter,-, " ic is no" attac ed to t e Hepartment of &rade and 2ndustry *H&2-. Fnder Section 5 of t e Act, t ere are specific underta)ings of t e Hesign !enter in attaining its goal of promoting design as a creati3e tool for impro3ing t e /uality and competiti3eness and branding of 8ilipino products in t e global mar)et, to "it# 1. He3elop and maintain a creati3e researc and de3elopment program on product design, de3elopment and impro3ement of P ilippine products and ser3ices, including t ose created by small and medium enterprises *SM7s-% 2. !onduct continuing researc on product and product pac)aging design trends, materials and processing tec nologies% 6. !reate, de3elop, promote and upgrade t e design of all P ilippine products and ser3ices, including t ose created by SM7?s% 5. !onduct seminars and "or)s ops on product design and de3elopment% 9. Set up design e4 ibitions% D. Publis designBrelated materials% 0. 7nsure protection of 8ilipino design ideas, products and ot er outputs of creati3e talents% ;. Promote design education t roug out t e country to meet t e needs of P ilippine industries% and :. Promote design ere and all o3er t e "orld. 2n order to carry out t e abo3ementioned underta)ings, t e Hesign !enter "as also gi3en specific po"ers and functions "it regard to t e follo"ing areas# national design policy, design a"areness, design integration, design for de3elopment, and design and inno3ation *see Section 5-. Design A)visor Council & e la" also created a Hesign Ad3isory !ouncil *+HA!,- " ic "ill ser3e as an ad3isory board to t e Hesign !enter. & e specific duty of t e HA! is to ad3ise t e Hesign !enter and gi3e insig ts on t e formulation and implementation of its policies. 2n pro3iding ad3ice and insig ts, it s all represent t e collecti3e 3ie"s of bot t e public and t e pri3ate sectors. 2t may also act as liaison among t e professional design, design education and go3ernment design sta)e olders.

1it regard to design education, it may pro3ide ad3ice and guidance on t e de3elopment and standardi>ation of course syllabus, ensuring t e propagation of ig /uality education in design t roug out t e country. National Design Polic Section : of t e Act gi3es an o3er3ie" of t e Eational Hesign Policy, " ic s all be formulated by t e Hesign !enter, aligned "it t e go3ernment?s economic agenda. 2t pro3ides# +& e EHP s all ser3e as t e State?s strategy in promoting design as a dri3ing force to"ards a sustainable economic gro"t and de3elopment and a catalyst for increasing t e competiti3eness of t e country in t e global mar)et., & e formulation of t e EHP is aimed at ac ie3ing t e follo"ing goals# 1" 0lobal Competitiveness3 &o en ance competiti3eness and inno3ation of P ilippine products and ser3ices ma)ing it more responsi3e to social needs% to create a distincti3e and recogni>able identity for P ilippine products t roug global positioning and branding of P ilippine designs% and to build t e competiti3eness and capabilities of 8ilipino designers t roug continuous trainings, seminars and "or)s ops and collaborations "it P ilippine manufacturers. 2" $nstitutionali5ation an) Promotion o* Design Culture Nationwi)e3 &o encourage t e creation of original designs in P ilippineBmade products and ser3ices% to conduct programs t at "ill c allenge designers, design students, and ordinary citi>ens to acti3ely engage in sol3ing and mitigating socioeconomic and en3ironmental problems t roug designBled approac es% and to en ance t e /uality of t e P ilippine products and ser3ices and producti3ity of t e P ilippine manufacturers t roug design. ." Creation o* an &nvironment to Cultivate a Constant Deman) *or 0oo) Design3 &o create a balance of supply *designers- and demand *pri3ate and public organi>ations, " et er local or international- of t e design industry% and to create lin)ages "it t e business sector, t e educational sector, go3ernment institutions and t e public in general to encourage t em to employ and in3est in good design. 6" Design Protection3 &o promote P ilippine designs t roug registration of 2ntellectual Property $ig ts and t roug &ec nology Licensing <fficers% and to encourage and facilitate a culture of creating and protecting intellectual property in t e area of design. 7" Design &)ucation an) Pro*essional Development3 &o ele3ate design education and design researc in t e P ilippines to global standards of e4cellence% and to in3est on appropriate infrastructure and tec nology to support design. 8" $nstitutionali5ation o* Design as an &**ective Problem1Solving %ool3 &o conceptuali>e affecti3e and sustainable designBrelated approac es to dri3e economic gro"t and de3elopment% and to see) design solutions for issues related to social inno3ation and en3ironmental sustainability and protection. 1it t e enactment of t is la", it is oped t at 8ilipino designers "ould be able to )eep up "it t e cutt roat competition in t e design industry. 2t?s about time our go3ernment underta)e steps to pus 8ilipino creati3ity and inno3ation to greater eig ts.

& e Act too) effect on June 11, 2016, 19 days after its publication in t"o national ne"spapers.

August 201. Philippine Supreme Court Decisions on Commercial Law


Posted on September 5, 2016 by Hector M. de Leon Jr O Posted in !ommercial La", P ilippines B !ases, P ilippines B La" O &agged ban)s, insurance, interest, recei3ers ip, trust receipts O Here are select August 2106 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# 2nsurance% pro ibition against remo3al of property. Here, by t e clear and e4press condition in t e rene"al policy, t e remo3al of t e insured property to any building or place re/uired t e consent of Malayan. Any transfer effected by t e insured, "it out t e insurer?s consent, "ould free t e latter from any liability. 2nsurance% rescission. !onsidering t at t e original policy "as rene"ed on an +as is basis,, it follo"s t at t e rene"al policy carried "it it t e same stipulations and limitations. & e terms and conditions in t e rene"al policy pro3ided, among ot ers, t at t e location of t e ris) insured against is at t e Sanyo factory in P7SA. & e sub.ect insured properties, o"e3er, "ere totally burned at t e Pace 8actory. Alt oug it "as also located in P7SA, Pace 8actory "as not t e location stipulated in t e rene"al policy. & ere being an unconsented remo3al, t e transfer "as at PAP?s o"n ris). !onse/uently, it must suffer t e conse/uences of t e fire. & us, t e !ourt agrees "it t e report of !unning am &oplis P ilippines, 2nc., an international loss ad.uster " ic in3estigated t e fire incident at t e Pace 8actory, " ic opined t at +@gAi3en t at t e location of ris) co3ered under t e policy is not t e location affected, t e policy "ill, t erefore, not respond to t is lossNclaim., 2t can also be said t at "it t e transfer of t e location of t e sub.ect properties, "it out notice and "it out Malayan?s consent, after t e rene"al of t e policy, PAP clearly committed concealment, misrepresentation and a breac of a material "arranty. Accordingly, an insurer can e4ercise its rig t to rescind an insurance contract " en t e follo"ing conditions are present, to "it# 1- t e policy limits t e use or condition of t e t ing insured% 2- t ere is an alteration in said use or condition% 6- t e alteration is "it out t e consent of t e insurer% 5- t e alteration is made by means "it in t e insured?s control% and 9- t e alteration increases t e ris) of loss. 2n t e case at benc , all t ese circumstances are present. 2t "as clearly establis ed t at t e rene"al policy stipulated t at t e insured properties "ere located at t e Sanyo factory% t at PAP remo3ed t e properties "it out t e consent of Malayan% and t at t e alteration of t e location increased t e ris) of loss. 5ala,an -nsurance Compan,, -nc. v. P%P co., 4td. 9Philippine Branch;, =.$. Eo. 2000;5, August 0, 2016.

2nterest% legal rate beginning July 1, 2016. & e guidelines laid do"n in t e case of 7astern S ipping Lines are accordingly modified to embody (SPBM( !ircular Eo. 0::, as follo"s# 2. 1 en an obligation, regardless of its source, i.e., la", contracts, /uasicontracts, delicts or /uasiBdelicts is breac ed, t e contra3enor can be eld liable for damages. & e pro3isions under &itle R'222 on +Hamages, of t e !i3il !ode go3ern in determining t e measure of reco3erable damages. 22. 1it regard particularly to an a"ard of interest in t e concept of actual and compensatory damages, t e rate of interest, as "ell as t e accrual t ereof, is imposed, as follo"s# 1. 1 en t e obligation is breac ed, and it consists in t e payment of a sum of money, i.e., a loan or forbearance of money, t e interest due s ould be t at " ic may a3e been stipulated in "riting. 8urt ermore, t e interest due s all itself earn legal interest from t e time it is .udicially demanded. 2n t e absence of stipulation, t e rate of interest s all be DT per annum to be computed from default, i.e., from .udicial or e4tra.udicial demand under and sub.ect to t e pro3isions of Article 11D: of t e !i3il !ode. 2. 1 en an obligation, not constituting a loan or forbearance of money, is breac ed, an interest on t e amount of damages a"arded may be imposed at t e discretion of t e court at t e rate of DT per annum. Eo interest, o"e3er, s all be ad.udged on unli/uidated claims or damages, e4cept " en or until t e demand can be establis ed "it reasonable certainty. Accordingly, " ere t e demand is establis ed "it reasonable certainty, t e interest s all begin to run from t e time t e claim is made .udicially or e4tra.udicially *Art. 11D:, !i3il !ode-, but " en suc certainty cannot be so reasonably establis ed at t e time t e demand is made, t e interest s all begin to run only from t e date t e .udgment of t e court is made *at " ic time t e /uantification of damages may be deemed to a3e been reasonably ascertained-. & e actual base for t e computation of legal interest s all, in any case, be on t e amount finally ad.udged. 6. 1 en t e .udgment of t e court a"arding a sum of money becomes final and e4ecutory, t e rate of legal interest, " et er t e case falls under paragrap 1 or paragrap 2, abo3e, s all be DT per annum from suc finality until its satisfaction, t is interim period being deemed to be by t en an e/ui3alent to a forbearance of credit. And, in addition to t e abo3e, .udgments t at a3e become final and e4ecutory prior to July 1, 2016, s all not be disturbed and s all continue to be implemented applying t e rate of interest fi4ed t erein. 7ario !acar v. Galler, 1rames and/or 1elipe Borde,, Jr., =.$. Eo. 1;:;01, August 16, 2016. $ecei3ers ip% po"er of Monetary (oard. & e Monetary (oard *M(- may forbid a ban) from doing business and place it under recei3ers ip "it out prior notice and earing. 2t must be emp asi>ed t at $.A .Eo. 0D96 is a later la" and under said act, t e po"er of t e M( o3er ban)s, including rural ban)s, "as increased and e4panded. & e !ourt, in se3eral cases, up eld t e po"er of t e M( to ta)e o3er ban)s "it out need for prior earing. 2t is not necessary inasmuc as t e la" entrusts to t e M( t e appreciation and determination of " et er any or all of t e statutory grounds for t e closure and recei3ers ip of t e erring ban) are present. & e M(, under $.A. Eo. 0D96, as been in3ested "it more po"er of closure and placement of a ban) under recei3ers ip for insol3ency or illi/uidity, or because t e ban)?s continuance in business "ould probably result in t e loss to depositors or creditors.

Accordingly, t e M( can immediately implement its resolution pro ibiting a ban)ing institution to do business in t e P ilippines and, t ereafter, appoint t e PH2! as recei3er. & e procedure for t e in3oluntary closure of a ban) is summary and e4peditious in nature. Suc action of t e M( s all be final and e4ecutory, but may be later sub.ected to a .udicial scrutiny 3ia a petition for certiorari to be filed by t e stoc) olders of record of t e ban) representing a ma.ority of t e capital stoc). <b3iously, t is procedure is designed to protect t e interest of all concerned, t at is, t e depositors, creditors and stoc) olders, t e ban) itself and t e general public. & e protection afforded public interest "arrants t e e4ercise of a summary closure. %l2eo 7. Vivas, on his +ehal2 and on +ehal2 o2 the Shareholders or Eurocredit Communit, Bank v. .he 5onetar, Board o2 the Bangko Sentral ng Pilipinas and the Philippine 7eposit -nsurance Corporation, =.$. Eo. 1:1525, August 0, 2016. &rust receipt transaction% definition. A trust receipt transaction is one " ere t e entrustee as t e obligation to deli3er to t e entruster t e price of t e sale, or if t e merc andise is not sold, to return t e merc andise to t e entruster. & ere are, t erefore, t"o obligations in a trust receipt transaction# t e first refers to money recei3ed under t e obligation in3ol3ing t e duty to turn it o3er *entregarla- to t e o"ner of t e merc andise sold, " ile t e second refers to t e merc andise recei3ed under t e obligation to +return, it *de3ol3era- to t e o"ner. 3ur .in Gang v. People o2 the Philippines, =.$. Eo. 1:9110, August 15, 2016. &rust receipts. distinguis ed from loan. 1 en bot parties enter into an agreement )no"ing fully "ell t at t e return of t e goods sub.ect of t e trust receipt is not possible e3en "it out any fault on t e part of t e trustee, it is not a trust receipt transaction penali>ed under Sec. 16 of PH 119 in relation to Art. 619, par. 1*b- of t e $P!, as t e only obligation actually agreed upon by t e parties "ould be t e return of t e proceeds of t e sale transaction. & is transaction becomes a mere loan, " ere t e borro"er is obligated to pay t e ban) t e amount spent for t e purc ase of t e goods. 3ur .in Gang v. People o2 the Philippines, =.$. Eo. 1:9110, August 15, 2016.

September 201. Philippine Supreme Court Decisions on Commercial Law


Posted on <ctober 5, 2016 by Hector M. de Leon Jr O Posted in !ommercial La", P ilippines B !ases, P ilippines B La" O &agged c ec), insurance, sale O Lea3e a comment Here are select September 2016 rulings of t e Supreme !ourt of t e P ilippines on commercial la"# ! ec)s% negotiable instruments. & e c ec) deli3ered to "as made payable to cas . Fnder t e Eegotiable 2nstruments La", t is type of c ec) "as payable to t e bearer and could be negotiated by mere deli3ery "it out t e need of an indorsement. People o2 the Philippines v. Gil+ert e,es Bagas, =.$. Eo. 190:56, September 5, 2016" 2nsurance contracts% contract of ad esion. A contract of insurance is a contract of ad esion. 1 en t e terms of t e insurance contract contain limitations on liability, courts s ould construe t em in suc a "ay as to preclude t e insurer from nonBcompliance "it is obligation. %lpha -nsurance and Suret, Co. v. %rsenia Sonia Castor, =.$. Eo. 1:;105, September 2, 2016.

Sale% subdi3ision lots. Presidential Hecree Eo. :90 is a la" t at regulates t e sale of subdi3ision lots and condominiums in 3ie" of t e increasing number of incidents " erein +real estate subdi3ision o"ners, de3elopers, operators, andNor sellers a3e reneged on t eir representations and obligations to pro3ide and maintain properly, t e basic re/uirements and amenities, as "ell as of reports of alarming magnitude of s"indling and fraudulent manipulations perpetrated by unscrupulous subdi3ision and condominium sellers and operators, suc as failure to deli3er titles to t e buyers or titles free from liens and encumbrances. Presidential Hecree Eo. :90 aut ori>es t e suspension and re3ocation of t e registration and license of t e real estate subdi3ision o"ners, de3elopers, operators, andNor sellers in certain instances, as "ell as pro3ides t e procedure to be obser3ed in suc instances% it prescribes administrati3e fines and ot er penalties in case of 3iolation of, or nonBcompliance "it its pro3isions. San 5iguel Properties, -nc. v. Secretar, o2 Justice, et al., =.$. Eo. 1DD;6D, September 5, 2016.

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