Digested Cases Mercantile Law

RECENT JURISPRUDENCE IN COMMERCIAL LAW
July 2009- March 31, 2013

Dean Nilo T. Divina
CORPORATION LAW
Doctrine of Piercing the veil of corporate fiction
When the corporation ( BR Sportswear, Inc. ) which the plaintiff erroneously

impleaded in a collection case was not the party to the actionable agreement and
turned out to be not registered with the Securities and Exchange Commission, the
judgment may still be enforced against the corporation ( BR Footwear, Inc. ) which
filed the answer and participated in the proceedings, as well as its controlling
shareholder who signed the actionable agreement in his personal capacity and as
a single proprietorship doing business under the trade name and style of BR
Sportswear Enterprises. Benny Hung vs BPI Finance Corporation . G.R. No.
182398, 20 July 2010
The court must first acquire jurisdiction over the corporation or corporations
involved before its or their separate personalities are disregarded; and the
doctrine of piercing the veil of corporate entity can only be raised during a full-
blown trial over a cause of action duly commenced involving parties duly brought
under the authority of the court by way of service of summons or what passes as
such service. Kukan International Corporation vs. Hon. Judge Amor
Reyes, G.R. No. 182729, 29 September 2010
However, in one case , Supreme Court ruled that if the RTC had sufficient factual
basis to conclude that two corporations are one and the same entity as when they
have the same President and controlling shareholder and it is generally known in
the place where they do business that they are one, the third party claim filed by
the corporation, other than the defendant corporation, was set aside and the levy
on the formers property held valid even though the latter was not made a party
to the case . The judgment may be enforced against the latter to prevent
multiplicity of suits and save the parties unnecessary expenses and delay. Gold
Line Tours vs. Heirs of Maria Concepcion Lacsa, GR No. 159108, 18 June
2012
Solidary liability will attach to the directors, officers or employees of the
corporation in certain circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of a

corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b)
act in bad faith or with gross negligence in directing the corporate affairs; and (c)
are guilty of conflict of interest to the prejudice of the corporation, its stockholders
or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or

who, having knowledge thereof, did not forthwith file with the corporate secretary
his written objection
3. When a director, trustee or officer has contractually agreed or stipulated to

hold himself personally and solidarily liable with the corporation; or
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2013 Dean Nilo T. Divina, All Rights Reserved
4. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
Before a director or officer of a corporation can be held personally liable for

corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith.
Thus, the President of the corporation can not be held personally liable if the
complaint merely averred that he signed as a surety to secure the obligation of
the corporation but which surety agreement turned out to be spurious. Heirs of
Fe Tan Uy vs. International Exchange Bank Feb 13, 2013
While a third party mortgagor is liable only up to the extent of the value of the
mortgaged property, such third party mortgagor may be required to pay the
deficiency between the loan obligation and the proceeds of the sale if it is only an
instrumentality or alter ego of the borrower corporation. The two corporations
were treated as one entity because of the following factors : a ) both corporations
are family corporations of the same controlling shareholder; b) the two
corporation share the same office and practically transact their business from the
same place; c ) they had a common President; d ) the promissory notes were
signed by the same person as President of the borrower corporation and President
of the mortgagor corporation; and, e ) the assets of the two corporations are co-
mingled. Heirs of Fe Tan Uy vs. International Exchange Bank, ibid.
3. In the absence of malice, bad faith, or a specific provision of law making a

corporate officer liable, such corporate officer cannot be made personally liable
for corporate liabilities.
Furthermore, Article 212(e) of the Labor Code, by itself, does not make a
corporate officer personally liable for the debts of the corporation. The governing
law on personal liability of directors for debts of the corporation is still Section 31
of the Corporation Code. - Alert Security and Investigation Agency, Inc. vs.
Balmaceda , G .R. No. 182397 September 14, 2011
Government Corporation
Although the Philippine National Red Cross was created by a special charter, it can
not be considered a government-owned and controlled corporation in the absence
of the essential elements of ownership and control by the government. It does not
have government assets and does not receive any appropriation from the
Philippine Congress. It is a non-profit, donor-funded, voluntary organization, whose
mission is to bring timely, effective and compassionate humanitarian assistance
for the most vulnerable without consideration of nationality, race, religion,
gender, social status or political affiliation. This does not mean however that the
charter of PNRC is unconstitutional. PNRC has a sui generis status. Although it is
neither a subdivision, agency, or instrumentality of the government, nor a
government-owned or -controlled corporation or a subsidiary thereof, so much so
that Gordon was correctly allowed to hold his position as Chairman thereof
concurrently while he served as a Senator, such a conclusion does not ipso
facto imply that the PNRC is a private corporation within the contemplation of
the provision of the Constitution, that must be organized under the Corporation
Code. The PNRC enjoys a special status as an important ally and auxiliary of the
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government in the humanitarian field in accordance with its commitments under
international law. This Court cannot all of a sudden refuse to recognize its
existence, especially since the issue of the constitutionality of the PNRC Charter
was never raised by the parties. Liban vs. Gordon, GR No. 175352, January
10, 2011
A governmentowned or controlled corporation refers to any agency organized as

a stock or non-stock corporation vested with functions relating to public needs
whether governmental or proprietary in nature and owned by the government
through its instrumentalities either wholly or where applicable as in the case of
stock corporation to the extent of at least 51% of its capital stock. When a
stockholder ceded to the government shares representing 72.4 % of the voting
stock of the corporation but subsequently clarified that it should be reduced to
32.4%, the corporation shall not be considered government owned and controlled
until the quantification of shares is resolved with finality. Carandang vs.
Desierto, GR No. 148076, January 12, 2011
Capital
Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term
"capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election
of directors, then the term "capital" shall include such preferred shares because
the right to participate in the control or management of the corporation is
exercised through the right to vote in the election of directors. In short, the term
"capital" in Section 11, Article XII of the Constitution refers only to shares of stock
that can vote in the election of directors. To construe broadly the term capital as
the total outstanding capital stock, including both common and non-
voting preferred shares, grossly contravenes the intent and letter of the
Constitution that the State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility. Gamboa v. Teves, et al.,G.R. No. 176579, June
28, 2011
Since a specific class of shares may have rights and privileges or restrictions
different from the rest of the shares in a corporation, the 60-40 ownership
requirement in favor of Filipino citizens in Section 11, Article XII of the Constitution
must apply not only to shares with voting rights but also to shares without voting
rights. Preferred shares, denied the right to vote in the election of directors, are
anyway still entitled to vote on eight specific corporate matters enumerated in
Section 6 of the Corporation Code. Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common and preferred non-voting
shares, at least 60 percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60 percent of such shares
must necessarily be owned by Filipinos. In short, the 60-40 ownership requirement
in favor of Filipino citizens must apply separately to each class of shares, whether
common, preferred non-voting, preferred voting or any other class of shares. This
uniform application of the 60-40 ownership requirement in favor of Filipino citizens
clearly breathes life to the constitutional command that the ownership and
operation of public utility must be effectively controlled by Filipinos. Heirs of
Wilson P. Gamboa vs. Teves, 682 SCRA 397(2012)
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Board of Directors/Corporate Officers
The lawyer who signed the pleading, verification and certification against non-
forum shopping must be specifically authorized by the Board of Directors of the
Corporation to make his actions binding on his principal.. Maranaw Hotels and
Resort Corporation v. Court of Appeals, 576 SCRA 463 (2009)
The following officers may sign the verification and certification against non-forum
shopping on behalf of the corporation even in the absence of board resolution, a )
Chairperson of the Board of Directors; b ) President, c ) General Manager, d )
Personnel Officer, e ) Employment Specialist in labor case. These officers are in
the position to verify the truthfulness and correctness of the allegations in the
petition. Mid Pasig Land and Development Corporation v. Tablante, G.R.
No. 162924, February 4, 2010
The Board of Directors of a corporation can not validly delegate the power to
create a corporate office to the President, in the light of Section 25 of the
Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers is a discretionary power
that the law exclusively vested in the Board of Directors, and can not be
delegated to subordinate officers or agents. The Office of Vice President for
Finance and Administration created by the President of the Corporation pursuant
to the pertinent provision in the by-laws of the corporation was an ordinary, not a
corporate, office. Matling Industrial and Commercial Corporation vs.
Coros , G.R. No. 157802, 13 October 2010
The execution of a document by a bank manager called pagares which

guaranteed purchases on credit by a client is contrary to the General Banking law
which prohibits bank officers from guaranteeing loans of bank clients. United
Coconut Planters Bank vs. Planters Products Inc. GR No. 179015, 13 June
2012
Doctrine of Apparent Authority
There would be an undue stretching of the doctrine of apparent authority were we

to consider the power to undo or nullify solemn agreements validly entered into
as within the doctrines ambit. Although a branch manager, within his field and as
to third persons, is the general agent and is in general charge of the corporation,
with apparent authority commensurate with the ordinary business entrusted him
and the usual course and conduct thereof, yet the power to modify or nullify
corporate contracts remains generally in the board of directors. Being a mere
branch manager alone is insufficient to support the conclusion that he has been
clothed with apparent authority to verbally alter terms of written contracts,
especially when viewed against the telling circumstances of this case: the
unequivocal provision in the mortgage contract; the corporations vigorous denial
that any agreement to release the mortgage was ever entered into by it; and, the
fact that the purported agreement was not even reduced into writing considering
its legal effects on the parties interests. Banate vs. Philippine Countryside
Rural Bank (Liloan, Cebu), Inc., G.R. No. 163825, July 13, 2010
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Shareholders
Upon the death of the stockholder, his heirs do not automatically become the
stockholders of the corporation. The heirs acquire standing in the corporation only
upon registration of the transfer of the ownership of the shares in the books of
the corporation. Puno v. Puno Enterprises, September 11, 2009
The stockholders, and not the directors, shall elect those who will fill in the
vacancy created by the resignation of the hold-over board members. This is
because in this case the ground for the vacancy is expiration of term of the hold-
over directors and not resignation. Valle Verde Country Club v. Africa,
September 4, 2009
Derivative suit
The stockholder filing a derivative suit should have exerted all reasonable efforts
to exhaust all remedies available under the articles of incorporation, by-laws, laws
or rules governing the corporation to obtain the relief he desires and to allege
such fact with particularity in the complaint. The allegation that the suing
stockholder talked to the other stockholder regarding the dispute hardly
constitutes all reasonable efforts to exhaust all remedies available. The complaint
should also allege the fact that there was no appraisal right available under for
the acts complained of and that the suit was not a nuisance or harassment suit.
The fact that the corporation involved is a family corporation should not in any
way exempt the suing stockholder from the requirements and formalities for filing
a derivative suit. Yu vs. Yukayguan, 588 SCRA 589 ( 2009 )
A complaint for nullification of the election filed by the members of the Board of
Directors of the corporation before the election against the newly-elected Board of
Directors on the ground of lack of quorum is a direct action by the petitioners.
Petitioners are the injured party whose rights to vote and to be voted upon were
directly affected by the election of the new set of board of directors. The parties-
in-interest are the petitioners as stockholders who wield such right to vote.
The cause of action devolves on petitioners, not the condominium corporation,
which did not have the right to vote. Thus, the derivative suit filed by petitioners
in behalf of the condominium corporation is improper. Legaspi Towers 300, Inc
vs. Amelia P. Muer, et. al., G.R. No. 170783, June 18, 2012.
Shares
The arrangement provided for in the by-laws of the Corporation whereby a lien is
constituted on the membership share to answer for dues, assessments and
subsequent obligations to the corporation cannot be upheld unless coupled by a
corresponding pledge or chattel mortgage agreement . Valley Golf and Country
Club, Inc. v. Vda. De Caram, 585 SCRA 218 (2009)
Appraisal Right
In order to give rise to any obligation to pay on the part of the corporation, the
dissenting stockholder should first make a valid demand that the corporation
refused to pay despite having unrestricted retained earnings. Otherwise, the
corporation could not be said to be guilty of any actionable omission that could
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sustain the action to collect. The collection suit filed by the dissenting stockholder
to enforce payment of the fair value of his shares is premature if at the time of
demand for payment, the corporation had no surplus profit. The fact that the
Corporation subsequent to the demand for payment and during the pendency of
the collection case posted surplus profit did not cure the prematurity of the cause
of action. Turner vs. Lorenzo Shipping Corporation, G.R. No. 157479,
November 24, 2010
Corporate Rehabilitation
Since the foreclosure of the mortgage and the issuance of the certificate of sale in
favor of the mortgagee were done prior to the appointment of a Rehabilitation
Receiver and the Stay Order, all the actions taken with respect to the foreclosed
mortgage property which were subsequent to the issuance of the Stay Order were
not affected by the Stay Order. Thus, after the redemption period expired without
the mortgagor redeeming the foreclosed property, the mortgagee becomes the
absolute owner of the property and it was within its right to ask for the
consolidation of title and the issuance of new title in its favor. The writ of
possession procured by the mortgagee despite the subsequent issuance of a stay
order in the rehabilitation proceedings instituted is also valid.
Equitable PCI Bank, Inc. vs. DNG Realty and Development Corporation,
627 SCRA 125(2010)] reiterated in Town and Country Enterprises Inc v.
Honorable Quisumbing, G.R. No. 173610, 01 October 2012
The prevailing rule now categorically provides that awards for moral damages,
exemplary damages, and attorneys fees in intra-corporate controversies are not
immediately executory. Heirs of Santiago Divinagracia vs. Ruiz, G.R. No.
172023, 7 July 2010
Under the Rehabilitation Rules, if upon the lapse of 180 days from the date of the
initial hearing there is still no approved rehabilitation plan, the RTC must dismiss
the petition. North Bulacan Corporation vs. Philippine Bank of
Communications, G.R. No. 183140 August 2, 2010
The suspension of all actions and/or claims against a corporation under

rehabilitation does not only cover cases which are pending in court. The
automatic suspension of an action for claims embraces all phases of the suit, that
is, the entire proceedings of an action or suit and not just the payment of the
claims.
The actions that were suspended cover all claims against a distressed corporation
whether for damages founded on a breach of contract of carriage, labor cases,
collection suits or any other claims of a pecuniary nature. More importantly, the
new rules on corporate rehabilitation, as well as the interim rules, provide an all-
encompassing definition of the term and, thus, include all claims or demands of
whatever nature or character against a debtor or its property, whether for money
or otherwise. A claim arising from illegal dismissal is a claim covered by the
suspension order issued by the SEC, as it is one for pecuniary consideration.
Furthermore, jurisprudence is settled that the suspension of proceedings referred to in

the law uniformly applies to all actions for claims filed against a corporation xxx under
management or receivership, without distinction, except only those expenses incurred in
the ordinary course of business. Molina v. Pacific Plans, Inc.,G.R. No. 165476,
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August 15, 2011; . Veterans Philippine Scout Security Agency, Inc. v. First
Dominion Prime Holdings, Inc., G.R. No. 190907, August 23, 2012.
The return of the car subject of the writ of replevin is correct notwithstanding the
pendency of the rehabilitation proceedings. This is the necessary consequence of
the dismissal of the replevin case for failure to prosecute without prejudice. Upon
the dismissal of the replevin case, the writ of seizure, which is merely ancillary in
nature, became functus officio and should have been lifted. There was no
adjudication on the merits, which means that there was no determination of the
issue who has the better right to possess the subject car. Returning the seized
vehicle is not an enforcement of a claim against the distressed corporation which
must be suspended by virtue of the stay order issued by the rehabilitation court.
The issue in a replevin case is who has a better right of possession. So long as
the respondent is not interposing a monetary claim, respondents prayer for the
return of the car subject of the replevin suit is not in anyway violative of the Rules
on Corporate Rehabilitation. Advent Capital and Medical Corporation v.
Young, G.R. No. 183018, August 3, 2011
The suspension of claims in corporate rehabilitation does not extend to criminal

actions against the distressed corporations or its directors and officers. It would
be absurd for one who has engaged in criminal conduct to escape punishment
simply because the corporation of which he is director or officer filed a petition for
rehabilitation. The prosecution of the officers of the corporation has no bearing on
the pending rehabilitation of the corporation. Panlilio vs. Regional Trial
Court , Branch 51, City of Manila, GR No. 173846, February 2, 2011
A corporate officer duly authorized by the board of directors can file a suit to
recover an unlawfully detained corporate property despite the fact that the
corporation has already been placed under corporate rehabilitation since there is
no allegation that the SEC gave the rehabilitation receiver the exclusive right to
sue. Umale vs. ASB Realty Corporation GR no. 181126, June 15, 2011
In insolvency or liquidation proceedings, the right to foreclose real estate

mortgage is merely suspended upon the appointment of a management
committee or rehabilitation receiver or upon the issuance of a stay order by the
trial court. However, the creditor-mortgagee may exercise his right to foreclose
the mortgage upon the termination of the rehabilitation proceedings or upon the
lifting of the stay order. Yngson, Jr. (in his capacity as Liquidator of Arcam
& Company, Inc.) v. Philippine National Bank, G.R. No. 171132, August
15, 2012.
The Stay Order cannot suspend foreclosure proceedings already commenced over
properties belonging to third party mortgagors. The Stay Order can only cover
those claims directed against petitioner corporations or their properties, against
petitioners guarantors, or against petitioners sureties who are not solidarily
liable with them.
Likewise, the enforcement of the mortgage lien cannot be considered as a claim

against a guarantor or a surety not solidarily liable with the debtor corporations.
While the third party mortgagors also executed Continuing Guaranty and
Comprehensive Surety undertakings in favor of the bank, the latter did not
proceed against them as individual guarantors or sureties. Rather, by initiating
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extrajudicial foreclosure proceedings, the bank was directly proceeding against
the property mortgaged to them by the spouses as security. Situs Development
Corporation et al v. Asia Trust Bank et al., G.R. No. 180036, July 25,
2012.
Sec. 146 of the FRIA, which makes it applicable to all further proceedings in
insolvency, suspension of payments and rehabilitation cases x x x except to the
extent that in the opinion of the court their application would not be feasible or
would work injustice, still presupposes a prospective application. The wording of
the law clearly shows that it is applicable to all further proceedings. In no way
could it be made retrospectively applicable to the Stay Order issued by the
rehabilitation court in 2002. At the time of the issuance of the Stay Order, the
rules in force were the 2000 Interim Rules of Procedure on Corporate
Rehabilitation. Under those rules, one of the effects of a Stay Order is the stay of
the "enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors
and sureties not solidarily liable with the debtor. Nowhere in the Interim Rules is
the rehabilitation court authorized to suspend foreclosure proceedings against
properties of third-party mortgagors." Situs Development vs. Asia Trust Bank
January 16, 2013
Liquidation
To allow a creditors case to proceed independently of the liquidation case, a

possibility of favorable judgment and execution thereof against the assets of the
distressed corporation would not only prejudice the other creditors and depositors
but would defeat the very purpose for which a liquidation court was constituted as
well. Barrameda v. Rural Bank of Canaman , Inc., G.R. No. 176260, 24
November 2010
Merger
Even if it is true that the Monetary Board of the Central Bank of the Philippines
recognized the merger of two banks, the merger is still incomplete without the
certificate of merger duly issued by the SEC. The issuance of the certificate of
merger is crucial because not only does it bear out SECs approval but it also
marks the moment when the consequences of a merger take place. By operation
of law, upon the effectivity of the merger, the absorbed corporation ceases to
exist but its rights and properties, as well as liabilities, shall be taken and deemed
transferred to and vested in the surviving corporation. Mindanao Savings and
Loan Association vs. Willkom, G.R. No. 178618, 11 October 2010
It is contrary to public policy to declare the former employees of the absorbed

corporation as forming part of its assets or liabilities that were transferred to and
absorbed by the surviving corporation in the Articles of Merger. Assets and
liabilities, in this instance, should be deemed to refer only to property rights and
obligations and do not include the employment contracts of its personnel. A
corporation cannot unilaterally transfer its employees to another employer like
chattel. Certainly, if the surviving corporation as an employer had the right to
choose who to retain among the employees of the absorbed corporation, the
latter employees had the concomitant right to choose not to be absorbed by the
corporation. Even though the employees of the absorbed corporation had no
choice or control over the merger of their employer, they had a choice whether or
not they would allow themselves to be absorbed by the surviving corporation.
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Certainly nothing prevented the employees of the absorbed corporation from
resigning or retiring and seeking employment elsewhere instead of going along
with the proposed absorption. Bank of the Philippine Islands v. BPI
Employees Union Davao Chapter, G.R. No. 164301, October 19, 2011
In sum, although Citytrust was dissolved, no winding up of its affairs or liquidation

of its assets, privileges, powers and liabilities took place. As the surviving
corporation, BPI simply continued the combined businesses of the two banks and
absorbed all the rights, privileges, assets, liabilities and obligations of Citytrust,
including the latters obligation over the garnished deposits of the defendants
Through the service of the writ of garnishment, the garnishee becomes a "virtual
party" to, or a "forced intervenor" in, the case and the trial court thereby acquires
jurisdiction to bind him to compliance with all orders and processes of the trial
court with a view to the complete satisfaction of the judgment of the court.
Citytrust, therefore, upon service of the notice of garnishment and its

acknowledgment that it was in possession of defendants' deposit accounts
became a "virtual party" to or a "forced intervenor" in the civil case. As such, it
became bound by the orders and processes issued by the trial court despite not
having been properly impleaded therein. Consequently, by virtue of its merger
with BPI , the latter, as the surviving corporation, effectively became the
garnishee, thus the "virtual party" to the civil case. Bank of Philippine Islands
v. Lee, G.R. No. 190144, August 1, 2012
Foreign Corporation
A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business
in the Philippines. Cargill, Inc. vs. Intra Strata Assurance Corporation, G.R.
No. 168266, March 15, 2010
A foreign corporation doing business in the Philippines without license may sue in
Philippine courts a Filipino citizen or a Philippine entity that had contracted with
and benefited from it. A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into a contract with
it. The principle is applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes,
chiefly in cases where such person has received the benefits of the contract.
Global Business Holdings, Inc. Vs. Surecomp Software B.V., G.R. No.
173463, October 13, 2010
The appointment of a distributor in the Philippine is not sufficient to constitute

doing business unless it is under the full control of the foreign corporation. If the
distributor is an independent entity which buys and distributes products, other
than those of the foreign corporation, for its own name and its own account, the
latter can not be considered doing business. SteelCase vs. Design
International Selections, GR no. 171995, April 18, 2012
Non-stock Corporation
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Although Sec. 108 of the Corporation Code, second paragraph thereof sets the
term of the members of the Board of Trustees of non-stock educational
corporation at five years, it likewise contains a proviso expressly subjecting the
duration to what is otherwise provided in the articles of incorporation or by-laws
of the corporation. That contrary provision controls on the term of office. Thus, at
the time of petitioners removal, he was already occupying the office in a hold-
over capacity, and could be removed at any time, without cause, upon the
election or appointment of his successor.Barayuga v. Adventist University of
the Philippines,G.R. No. 168008, August 17, 2011
Dissolution
Pursuant to Section 145 of the Corporation Code, an existing intra-corporate

dispute, which does not constitute a continuation of corporate business, is not
affected by the subsequent dissolution of the corporation. The dissolution of the
corporation simply prohibits it from continuing its business. However, despite such
dissolution, the parties involved in the litigation are still corporate actors. The
dissolution does not automatically convert the parties into total strangers or
change their intra-corporate relationships. Neither does it change or terminate
existing causes of action, which arose because of the corporate ties between the
parties. Thus, a cause of action involving an intracorporate controversy remains
and must be filed as an intra-corporate dispute despite the subsequent dissolution
of the corporation." Aguirre vs. FQB January 9 2013.
Securities and Regulation Code
A public company, as contemplated by the SRC is not limited to a company

whose shares of stock are publicly listed; even companies whose shares are
offered only to a specific group of people, are considered a public company,
provided they meet the requirements provided for under Subsec. 17.2 of the SRC,
that is: any corporation with a class of equity securities listed on an Exchange or
with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two
hundred (200) or more holders, at least two hundred (200) of which are holding at
least one hundred (100) shares of a class of its equity securities. Philippine
Veterans Bank v. Callangan, in her capacity Director of the Corporation
Finance Department of the Securities and Exchange Commission and/or
the Securities and Exchange Commission, G.R. No. 191995, August 3,
2011
SECs jurisdiction does not extend to the liquidation of a corporation. While the
SEC has jurisdiction to order the dissolution of a corporation, jurisdiction over the
liquidation of the corporation now pertains to the appropriate regional trial courts.
This is the correct procedure because the liquidation of a corporation requires the
settlement of claims for and against the corporation, which clearly falls under the
jurisdiction of the regular courts. The trial court is in the best position to convene
all the creditors of the corporation, ascertain their claims, and determine their
preferences. Bank of the Philippine Islands, as successor-in-interest of Far
East Bank and Trust Company, v. Eduardo Hong, doing business under
the name and style "Super Line Printing Press," G.R. No. 161771,
February 15, 2012
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For an investment contract to exist, the following elements, referred to as the
Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment
of money; (3) investment is made in a common enterprise; (4) expectation of
profits; and (5) profits arising primarily from the efforts of others. Thus, to sustain
the SEC position in this case, PCIs scheme or contract with its buyers must have
all these elements.
An example that comes to mind would be the long-term commercial papers that
large companies, like San Miguel Corporation (SMC), offer to the public for raising
funds that it needs for expansion. When an investor buys these papers or
securities, he invests his money, together with others, in SMC with an expectation
of profits arising from the efforts of those who manage and operate that company.
SMC has to register these commercial papers with the SEC before offering them to
investors.
Network marketing, a scheme adopted by companies for getting people to buy

their products outside the usual retail system where products are bought from the
stores shelf and where the buyer can become a down-line seller, earning
commissions from purchases made by new buyers whom he refers to the person
who sold the product to him, is not an investment contract. The commissions,
interest in real estate, and insurance coverage worth P50,000.00 are incentives to
down-line sellers to bring in other customers. These can hardly be regarded as
profits from investment of money under the Howey test. Securities and
Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA 28(2012)]
Intra-corporate controversy
Although the extrajudicial sale of the condominium unit ( for non-payment of

condominium dues and assessment ) has been fully effected and that the petition
of the owner questioning the sale has been dismissed with finality, the completion
of the sale does not bar the condominium unit owner from questioning the
amount of the unpaid dues that gave rise to the foreclosure and to the
subsequent sale of the property. The propriety and legality of the sale of the
condominium unit is different from the propriety and legality of the unpaid
assessment dues. The latter partakes of the nature of an intra-corporate dispute.
Chateau De Baie Condominium Corporation vs. Spouses Moreno, GR No.
186271, February 23, 2011
Respondent was not a corporate officer of the corporation because his position as
General Manager was not specifically mentioned in the roster of corporate officers
in its corporate by-laws. The enabling clause in the corporations by-laws
empowering its Board of Directors to create additional officers, i.e., General
Manager and the alleged subsequent passage of a board resolution to that effect
can not make such position a corporate office. The Board of Directors has no
power to create other corporate offices without first amending the corporate by-
laws so as to include therein the newly created corporate office. Though the Board
may create appointive positions other than the positions of corporate officers, the
persons occupying such positions can not be viewed as corporate officers under
Section 25 of the Corporation Code. March II Marketing vs Joson, GR No.
171993, December 12, 2011
The complaint for annulment of sale was properly filed with the regular court,
because the buyer of the property had no intra-corporate relationship with the
stockholders, hence, the buyer could not be joined as party-defendant in the SEC (
11
now RTC special commercial court ) case. To include said buyer as a party-
defendant in the case pending with the SEC would violate the then existing rule
on jurisdiction over intra-corporate disputes. Lisam Enterprises Inc. vs. Banco
de Oro Union Bank (formerly Philippine Commercial International Bank),
G.R. No. 143264, APRIL 23, 2012.
A complaint filed by condominium unit owners against the developer of the

condominium for unsound business practice and violation of the Master Deed and
Declaration of Restrictions in that the developer committed misrepresentation in
its circulated flyers and brochures as to the facilities and amenities that would be
available in the corporation is an intra-corporate controversy. Go vs. Distinction
Properties Development and Construction, GR No. 194024, April 25, 2012
In ordinary cases, the failure to specifically allege the fraudulent acts does not
constitute a ground for dismissal since such a defect can be cured by a bill of
particulars. The above-stated rule, however, does not apply to intra-corporate
controversies. In cases governed by the Interim Rules of Procedure on Intra-
Corporate Controversies a bill of particulars is a prohibited pleading. It is essential,
therefore, for the complaint to show on its face what are claimed to be the
fraudulent corporate acts if the complainant wishes to invoke the courts special
commercial jurisdiction. This is because fraud in intra-corporate controversies
must be based on devises and schemes employed by, or any act of, the board of
directors, business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the public and/or of
the stockholders, partners, or members of any corporation, partnership, or
association. The act of fraud or misrepresentation complained of becomes a
criterion in determining whether the complaint on its face has merits, or within
the jurisdiction of special commercial court, or merely a nuisance suit. Thus, the
mere averment of fraud in the transfer of shares of stock but without indicating in
the complaint the specific acts constituting of fraud is not sufficient to make the
complaint within the ambit of intra-corporate controversy. Guy vs. Guy, G.R.
No. 189486.September 5, 2012
A complaint for damages filed by a member of the subdivision homeowners
association against another member for malicious acts in cutting-off or closing a
portion of the drainage pipe connecting the septic tank of the plaintiff to the
village drainage system resulting in the overflow of plaintiffs septic tank and leading to
the spread of human wastes and other offensive materials throughout his entire
property can not be considered an intra-corporate controversy. Under the
Relationship Test, no doubt exists that the parties were members of the same
association, but relationship alone does not ipso facto make the dispute intra-
corporate; the mere existence of an intra-corporate relationship does not always
give rise to an intra-corporate controversy. The incidents of that relationship must
be considered to ascertain whether the controversy itself is intra-corporate. This is
where the Controversy Test becomes material.
Under the controversy test, the dispute must be rooted in the existence of an
intra-corporate relationship, and must refer to the enforcement of the parties'
correlative rights and obligations under the Corporation Code, as well as the
internal and intra-corporate regulatory rules of the corporation, in order to be an
intra-corporate dispute. These are essentially determined through the allegations
in the complaint which determine the nature of the action. Gulfo v. Ancheta,
G.R. No. 175301, August 15, 2012
SPECIAL COMMERCIAL LAWS

12
Chattel Mortgage
An unnotarized and unregistered chattel mortgage indeed will not bind third
persons. However, if the mortgagees cause of action is for a sum of money with
prayer for the issuance of ex-parte writs of attachment and replevin, the fact that
the Chattel Mortgage was not notarized does not affect his cause of action. The
mortgagee only needed to show that the loan of the mortgagor remains unpaid
and that it is entitled to the issuance of the writs prayed for. The writ may be
enforced against the person in possession of the mortgaged property who has no
cause to complain that the unregistered mortgage does not bind him unless he is
able to prove he has a better right of possession or ownership over the seized or
attached properties. Union Bank of the Philippines v. Sps. Tiu, G.R. Nos.
173090-91, September 7, 2011
Banking Laws
a. Authority of BSP to close a bank
The close now, hear later doctrine justifies BSP in ordering bank closures even
without prior hearing. Thus, injunction does not lie against BSP in the exercise of
this power and function. A contrary rule may lead to dissipation of corporate
assets and trigger bank run. Judicial review comes in only after action of the
Monetary Board if the same was attended by bad faith and grave abuse of
discretion amounting to lack or excess of jurisdiction . Bangko Sentral ng
Pilipinas vs. Valenzuela, G.R. No. 184778,October 2, 2009
b. DOSRI transaction
The rule on DOSRI transaction covers loan obtained or guaranteed by the director,
officer, stockholder or their related interest and not to loans both obtained and
guaranteed by them. The rule in fact covers any transaction where the DOSRI
may incur contractual obligation with their bank. DOSRI transactions are subject
to approval, reportorial and ceiling requirements. Approval requirement means
that the DOSRI transaction must be approved by at least majority of the directors
excluding the director concerned. Reportorial requirement means that the
transaction must be recorded in the books of the bank and reported to BSP.
Ceiling requirement means that the amount of the loan shall not exceed the book
value of the paid-in contribution and the amount of unencumbered deposits.
Three different offenses are committed by those who fail to observe the board
approval, reporting and ceiling requirements. Go v. BSP, October 23, 2009
A bank officer violates the DOSRI law when he acquires bank funds for his
personal benefit, even if such acquisition was facilitated by a fraudulent loan
application. Directors, officers, stockholders, and their related interests cannot be
allowed to interpose the fraudulent nature of the loan as a defense to escape
culpability for their circumvention of the law. The prohibition under the law covers
loans by a bank director or officer which are made either directly, indirectly, for
himself or as the representative or agent of others. At the same time, he is liable
for estafa through falsification of commercial documents. The bank money which
came to his possession as a result of the fraudulent loan application was not his.
He remained the banks fiduciary with respect to that money, which makes it
capable of misappropriation or conversion in his hands. Soriano vs. People of
the Philippines, et al., G.R. No. 162336, February 1, 2010
13
Non-compliance with the rules on DOSRI and Single Borrowers Limit does not
make the transaction void but only renders the responsible directors and officers
criminally liable. Republic vs. Sandiganbayan 648 SCRA 58
c. Interest rate
The three percent (3%) per month [and higher] interest rate and penalty charge
for credit card charges is excessive, inequitable and exorbitant Macalinao v.
Bank of the Philippine Islands, GR No. 175490, September 17, 2009
Section 78 of the ( old ) General Banking Act requires payment of the amount
fixed by the court in the order of execution, with interest thereon at the rate
specified in the mortgage contract, and all the costs and other judicial expenses
incurred by the bank or institution concerned by reason of the execution and sale
and as a result of the custody of said property less the income received from the
property. The rate of interest specified in the mortgage contract shall be applied
for the one-year period reckoned from the date of registration of the certificate of
sale in accordance with the General Banking Act. However, since petitioners
effectively had more than one year to exercise the right of redemption, justice,
fairness and equity require that they pay 12% p.a. interest beyond the one-year
period. Heirs of Estelita Burgos-Lipat namely: Alan B. Lipat and Alfredo B.
Lipat, Jr. vs. Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et
al., G.R. No. 185644, March 2, 2010
The General Banking Law, a special and subsequent legislation shall apply in case
of foreclosure proceedings involving banks. It is the law that provides the terms
of the right; the mortgagee cannot dictate them. Consequently, the bank cannot
alter that right by imposing additional charges and including other loans. Asia
Trust Development Bank v. Carmelo H. Tuble, G.R. No. 183987, July 25,
2012.
The power of the Central Bank to effectively suspend the Usury Law pursuant to
P.D. No. 1684 has long been recognized and upheld in many cases. As the Court
explained in the landmark case of Medel v. CA, CB Circular No. 905 did not repeal
nor in anyway amend the Usury Law but simply suspended the latters
effectivity; that a [CB] Circular cannot repeal a law, [for] only a law can repeal
another law; that by virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective; and Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as amended, the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for different
types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries. Nevertheless, while at present, there is no usurious rate
of interest, the stipulated interest rate may still be set aside if it is
unconscionable. "Advocates for Truth in Lending vs BSP January 15, 2013
d. Redemption
14
Section 47 ( RA 8791, otherwise known as the General Banking Law ) did not
divest juridical persons of the right to redeem their foreclosed properties but only
modified the time for the exercise of such right by reducing the one-year period
originally provided in Act No. 3135. The new redemption period commences from
the date of foreclosure sale, and expires upon registration of the certificate of sale
or three months after foreclosure, whichever is earlier. There is likewise no
retroactive application of the new redemption period because Section 47 exempts
from its operation those properties foreclosed prior to its effectivity and whose
owners shall retain their redemption rights under Act No. 3135. The modification
on the period of redemption under the General Banking Law is a valid exercise of
police power. Goldenway Merchandising Corporation vs. Equitable PCI
Bank March 13, 2013
e. Secrecy of foreign currency deposits
Republic Act 6426 is a special law designed especially for foreign currency
deposits in the Philippines. RA 1405 which covers all bank deposits in the
Philippines is the general law which does not nullify the special law on foreign
currency deposits. The surety which issued a bond to secure the obligation of the
principal debtor can not inquire into the foreign currency deposits of the debtor
even if its purpose is to determine whether or not the loan proceeds were used for
the purpose specified in the surety agreement. The foreign currency deposits can
not be examined without the consent of the depositor. The subpoena issued by
the bank should be quashed because foreign currency deposits are not subject to
court order except for violation of the anti-money laundering law. GSIS vs. Court
of Appeals GR 189206, June 8, 2011
f. Escheat
In case the bank complies with the provisions of the law and the unclaimed
balances are eventually escheated to the Republic, the bank shall not thereafter
be liable to any person for the same and any action which may be brought by any
person against any bank for unclaimed balances so deposited shall be defended
by the Solicitor General without cost to such bank. [Rizal Commercial Banking
Corporation vs. Hi-Tri Development Corporation, 672 SCRA 514(2012)]
Trust receipt
A trust receipt transaction is one where the entrustee has the obligation to deliver
to the entruster the price of the sale, or if the merchandise is not sold, to return
the merchandise to the entruster. Considering that the goods in this case
( chemicals and metal plates ) were never intended for sale but for use in the
fabrication of steel communication towers, the agreement is not a trust receipt
transaction but a simple loan. Anthony L. Ng v People of the Philippines,
G.R. No. 173905, April 23, 2010
There are two obligations in a trust receipt transaction. The first is covered by the
provision that refers to money under the obligation to deliver it (entregarla) to the
owner of the merchandise sold. The second is covered by the provision referring
to merchandise received under the obligation to return it (devolvera) to the
owner. Thus, under the Trust Receipts Law, intent to defraud is presumed when (1)
the entrustee fails to turn over the proceeds of the sale of goods covered by the
trust receipt to the entruster; or (2) when the entrustee fails to return the goods
15
under trust, if they are not disposed of in accordance with the terms of the trust
receipts.
In all trust receipt transactions, both obligations on the part of the trustee exist in
the alternative the return of the proceeds of the sale or the return or recovery of
the goods, whether raw or processed.When both parties enter into an agreement
knowing that the return of the goods subject of the trust receipt is not possible
even without any fault on the part of the entrustee, it is not a trust receipt
transaction penalized under Section 13 of P.D. 115; the only obligation actually
agreed upon by the parties would be the return of the proceeds of the sale
transaction. This transaction becomes a mere loan, where the borrower is
obligated to pay the bank the amount spent for the purchase of the goods. Land
Bank of the Philippines vs. Perez, GR no. 166884, 13 June 2102 p. 22
PDIC Law
The head office of a bank and its branches are considered as one under the eyes
of the law. While branches are treated as separate business units for commercial
and financial reporting purposes, in the end, the head office remains responsible
and answerable for the liabilities of its branches which are under its supervision
and control. As such, it is unreasonable for PDIC to require Citibank and BA, to
insure the money placements made by their home office and other branches.
Deposit insurance is superfluous and entirely unnecessary when, as in this case,
the institution holding the funds and the one which made the placements are one
and the same legal entity. [Philippine Deposit Insurance Corporation vs.
Citibank, N.A., 669 SCRA 191(2012)]
Truth in lending
Financial charges need not be disclosed in a separate instrument. They are amply
disclosed if stated in the promissory note BPI v. Yu, January 20, 2010
Act 3135, as amended
In case of failure to include the second loan in its application for extrajudicial
foreclosure as well as in its bid at the public auction sale, the remedy is to file an
ordinary collection suit to collect the unpaid second loan and interest. However,
even though the mortgage agreement contains a dragnet clause, the successor
in-interest of the mortgagor is only bound to pay the first loan specified in the
petition for extra-judicial foreclosure plus the interest stipulated in the mortgage
agreement in order to redeem the property- Spouses Tecklo v. Rural Bank of
Pamplona, G.R. No. 171201, June 18, 2010
The Two-bidder rule in Real Estate Mortgage is no longer applicable. PD No. 1594
and its implementing rules involve contracts for government infrastructure
project. These involve public interest. In stark contrast, in extrajudicial foreclosure
of mortgages, private interest is predominant. Under SC Circular No. 7-2002,
January 22, 2002, there is not even a requirement that there must at least be 2
bidders for a valid auction sale. - Certeza v. Philippine Savings Bank, March
5, 2010
The spouse of a party plaintiff in an action to annul the mortgage on conjugal

property must likewise be impleaded. Otherwise, the complaint filed by the
children of the deceased mortgagor, without, however, impleading the latters
16
spouse is dismissible for lack of cause of action. Equitable PCI Bank v. Heirs of
Antonio Tiu, September 4, 2009.
A mortgage given to secure advancements is a continuing security and is not

discharged by repayment of the amount named in the mortgage until the full
amounts of the advancements are paid. The mortgagors full payment of the
loans annotated on the title of the property shall not effect the release of the
mortgage if by the express terms of the mortgage it was meant to secure all
future debts of the spouses and such debts had been obtained and remain
unpaid. Unless full payment is made by the mortgagor of all the amounts incurred
from the mortgagee, the property continues to be burdened by the mortgage.
Bank of Commerce vs. Spouses Flores, G.R. No. 174006, 8 December
2010
Since there is a valid cause to foreclose on the mortgages, the mortgagors cannot
claim that the irreparable damage they wanted to prevent by their application for
preliminary injunction is the loss of their properties to auction sale. Their real
injury, if it turns out that the right to foreclose belongs to one person rather than
to its mortgagee-creditor, is payment of the proceeds of the auction sale to the
wrong party rather than to their creditor. But this kind of injury is purely
monetary and is compensable by an appropriate judgment against the
mortgagee. It is not in any sense an irreparable injury. - G.G. Sportswear
Manufacturing Corp., et al. v Banco De Oro Unibank, Inc., et al., G.R.
No. 184434, February 8, 2010
Once the mortgage is extinguished by a complete foreclosure thereof, the

doctrine of indivisibility of mortgage ceases to apply since, with the full payment
of the debt, there is nothing more to secure. Nothing in the law prohibits the
piecemeal redemption of properties sold at one foreclosure proceeding. The right
of the mortgagor or redemptioner to redeem one or some of the foreclosed
properties has long been recognized.-Spouses Yap v. Spouses Dy, Sr. et al.
G.R. No. 171868, July 27, 2011
Although indeed, the debtors received peso equivalents of the borrowed amounts,
the loan documents presented as evidence, i.e., the promissory notes, expressed
the amount of the loans in US dollars and not in any other currency. No law or
jurisprudence prohibits this kind of contract. Although the Credit Line Agreement
between the debtors and the Bank was entered into on November 21, 1995, when
the agreement to pay in foreign currency was still considered void under Republic
Act No. 529, the actual loans, as shown in the promissory notes, were taken out
from September 22, 1997 to March 26, 1998, during which time Republic Act No.
8183 was already in effect. A credit line agreement does not ipso facto result in a
contract of loan. It merely is a preparatory act to the contract of loan or mutuum.
The credit transaction thus occurred not when the credit line was opened, but
rather when the credit line was availed of. This clearly indicates that the debtors
were bound to pay the Bank in dollars, the amount stipulated in said loan
documents, without converting the same into Philippine currency. Union Bank of
the Philippines v. Juniat, et al., G.R. No. 171569, August 1, 2011
The enforcement of a loan agreement involves debtor-creditor relations founded

on contracts and does not in any way concern employee relations. In real estate
mortgage, when the principal obligation is not paid when due, the creditor-
mortgagee has the right to foreclose the mortgage, sell the property, and apply
17
the proceeds of the sale to the satisfaction of the unpaid loan. Clearly,
foreclosure is but a necessary consequence of non-payment of mortgage
indebtedness and can not be affected by any ongoing labor dispute between the
mortgagor-employee and the mortgagee-employer. The legality of the dismissal of
the employee is not a prejudicial question to the resolution of the validity of the
foreclosure proceedings - Tamote v. Hongkong and Shanghai Bank, G.R. No.
166970, August 17, 2011
After expiration the right of redemption, it is the ministerial duty of the trial court
to issue the writ of possession in favor of the purchaser. The possession of the
property shall be given to the purchaser or last redemptioner unless a third party
is actually holding the property adversely to the mortgagor. The buyer of the
property from the mortgagor is considered mere successor-in-interest of the
mortgagor. As such, the writ of possession may be enforced against it. BPI
Family Savings Bank vs. Golden Power Diesel Sales Center, GR No.
176019, January 12, 2011
There is no legal basis for requiring that the bid should at least equal to the
market value of the foreclosed property or outstanding obligation of the mortgage
debtor. Unlike in an ordinary sale, inadequacy of the price at a forced sale is
immaterial and does not nullify the sale. The mortgagee may still sue for
deficiency without violating the principle of unjust enrichment. BPI Family
Savings Bank vs. Spouses Avenido, GR No. 175816, December 7, 2011;
Spouses Francisco and Merced Rabat vs Philippine National Bank G.R.
No. 158755, June 18, 2012.
A mortgagee can not just rely on the presumption of regularity in the performance
of duties in support of its argument that the notice of sale was duly published. It
must instead present proof of publication of the notice of sale. Metrobank vs.
Miranda GR no. 187917, January 19, 2011
The grounds for the proper annulment of the foreclosure sale are: (1) that there
was fraud, collusion, accident, mutual mistake, breach of trust or misconduct by
the purchaser; (2) that the sale had not been fairly and regularly conducted; or (3)
that the price was inadequate and the inadequacy was so great as to shock the
conscience of the court. Philippine National Bank v. Spouses Rogelio and
Evelyn Roque, G.R. No. 193346, February 6, 2012
When a writ of possession had already been issued as in this case, the proper
remedy is an appeal and not a petition for certiorari. To be sure, the trial courts
order granting the writ of possession is final. The soundness of the order granting
the writ of possession is a matter of judgment, with respect to which the remedy
of the party aggrieved is ordinary appeal. Producers Bank of the
Philippines vs. Excelsa Industries, Inc., Respondent. G.R. No. 173820,
April 16, 2012.
Section 7 of Act 3135 expressly allows the buyer at the auction to file a verified
petition in the form of an ex parte motion for issuance of a writ of possession. This
connotes that it is for the benefit of one party, without notice to or challenge by
18
an adverse party. Being summary in nature, it cannot be said to be a judgment on
the merits, but is simply an incident in the transfer of title. An ex parte petition for
writ of possession under Act 3135 is, strictly speaking, not a judicial, or litigious,
proceeding, for the reason that an extrajudicial foreclosure of mortgage is
accomplished by filing a petition, not with any court of justice, but with the office
of the sheriff of the place where the sale is to be made. Cesar V. Madriaga Jr. vs
China Banking Corporation G.R. No. 192377. July 25, 2012.
Any question regarding the regularity and validity of the mortgage or its
foreclosure cannot be raised as a justification for opposing the petition for the
issuance of the writ of possession. The said issues may be raised and determined
only after the issuance of the writ of possession. Indeed, "[t]he judge with whom
an application for writ of possession is filed need not look into the validity of the
mortgage or the manner of its foreclosure." The writ issues as a matter of course.
"The rationale for the rule is to allow the purchaser to have possession of the
foreclosed property without delay, such possession being founded on the right of
ownership." To underscore this mandate, Section 8 of Act No. 3135 gives the
debtor-mortgagor the right to file a petition for the setting aside of the foreclosure
sale and for the cancellation of a writ of possession in the same proceedings
where the writ was issued within 30 days after the purchaser-mortgagee was
given possession. The courts decision thereon may be appealed by either party,
but the order of possession shall continue in effect during the pendency of the
appeal. Spouses Aleza v. Spouses Lapitan, G.R. No. 178288, August 15,
2012.
The prior execution of the mortgage before the conversion of a land to subdivision
development project is not a valid justification for the nullification of the mortgage
if it was entered into without the approval of the HLRUB and the mortgagee had
actual or constructive knowledge of the development plans prior to the mortgage.
In this event, the rights and interest of the buyers over the condominium units
prevails over the mortgagee. Philippine Bank of Communications vs.
Pridisons Realty Jan 9, 2013.
INTELLECTUAL PROPERTY
Trademark
Comparing Berris mark D-10 80 WP with Abyadangs mark NS D-10 PLUS, as

appearing on their respective packages, one cannot but notice that both have a
common component which is D-10. On Berris package, the D-10 is written
with a bigger font than the 80 WP. Admittedly, the D-10 is the dominant
feature of the mark. The D-10, being at the beginning of the mark, is what is
most remembered of it. Although, it appears in Berris certificate of registration in
the same font size as the 80 WP, its dominancy in the D-10 80 WP mark
stands since the difference in the form does not alter its distinctive character.
Berris Agricultural Co., Inc. Vs. Norvy Abyadang,G.R. No. 183404,
October 13, 2010
Applying the dominancy test, the trademark Dermaline Dermaline, Inc. is

confusingly similar with the registered trademark Dermalin . Dermalines
stance that its product belongs to a separate and different classification from
Myras products with the registered trademark does not eradicate the possibility
of mistake on the part of the purchasing public to associate the former with the
latter, especially considering that both classifications pertain to treatments for the
19
skin. Dermaline, Inc. Vs. Myra Phamaceuticals, Inc., G.R. No. 190065,
August 1, 2010
Under Sec 123.1(d) of RA 8293], the registration of a mark is prevented with the
filing of an earlier application for registration. This must not, however, be
interpreted to mean that ownership should be based upon an earlier filing date.
While RA 8293 removed the previous requirement of proof of actual use prior to
the filing of an application for registration of a mark, proof of prior and continuous
use is necessary to establish ownership of a mark. Such ownership constitutes
sufficient evidence to oppose the registration of a mark. - E.Y. Industrial Sales
vs. Shien Dar Electricity and Machinery Co. , G.R. No. 184850, 20
October 2010
Applying the dominancy test in the present case, the Court finds that NANNY is
confusingly similar to NAN. NAN is the prevalent feature of Nestles line of
infant powdered milk products. The line consists of PRE-NAN, NAN-H.A., NAN-1,
and NAN-2. Clearly, NANNY contains the prevalent feature NAN. The first
three letters of NANNY are exactly the same as the letters of NAN. When
NAN and NANNY are pronounced, the aural effect is confusingly similar. -
Soceite Des Produits Nestle, S.A. vs. Dy, Jr., G.R. No. 172276, August 8,
2010
Harvard is the trade name of the world famous Harvard University and it is also
a trademark of Harvard University. Under Article 8 of the Paris Convention, as well
as the trademark law of the Philippines, Harvard University is entitled to
protection in the Philippines of its trade name Harvard even without
registration of such trade name in the Philippines. Fredco Manufacturing
Corporation vs. President and Fellows of Harvard College, GR No.
185917, June 1, 2011
The trademark Marlboro is not only valid for being neither generic nor
descriptive, it was also exclusively owned by PMPI, as evidenced by the certificate
of registration issued by the Intellectual Property Office. Infringement of
trademark clearly lies since the counterfeit cigarettes were intended to confuse
and deceive the public as to the origin of the cigarettes intended to be sold, as
they not only bore PMPIs trademark but they were packaged almost exactly as
PMPIs products. Ong vs. People of the Philippines, GR No. 169440,
November 23, 2011.
The likelihood of confusion is the gravamen of the offense of trademark
infringement. There are two tests to determine likelihood of confusion, namely:
the dominancy test, and the holistic test. The holistic test is applicable here
considering that the herein criminal cases also involved trademark infringement
in relation to jeans products. Accordingly, the jeans trademarks of Levi Strauss
Philippines and Diaz ( LS ) must be considered as a whole in determining the
likelihood of confusion between them. Diaz vs People of the Philippines and
Levi Strauss Feb 18, 2013
Tradename
Petitioners argument that San Francisco is just a proper name referring to the
famous city in California and that coffee is simply a generic term, is untenable.
Respondent has acquired an exclusive right to the use of the trade name SAN
FRANCISCO COFFEE & ROASTERY, INC. since the registration of the business
20
name with the DTI. Thus, respondents use of its trade name from then on must
be free from any infringement by similarity. Of course, this does not mean that
respondent has exclusive use of the geographic word San Francisco or the
generic word coffee. Geographic or generic words are not, per se, subject to
exclusive appropriation. It is only the combination of the words SAN FRANCISCO
COFFEE, which is respondents trade name in its coffee business, that is
protected against infringement on matters related to the coffee business to avoid
confusing or deceiving the public. Coffee Partners vs. San Francisco Coffee
and Roastery, Inc., G.R. No. 169504, 3 March 2010
Further, RA 8293 has dispensed with the registration requirement of trade

names. Trade names shall be protected, even prior to or without registration with
the IPO against any unlawful act including any subsequent use of the trade name
by a third party, whether as a trade name or a trademark likely to mislead the
public. Coffee Partners vs. San Francisco Coffee and Roastery, Inc., ibid.
Patent
RA 8293 is silent with respect to any remedy available to litigants who intend to
question an interlocutory order issued by the BLA-IPO. Moreover, Section 1(c),
Rule 14 of the Rules and Regulations on Administrative Complaints for Violation of
Laws Involving Intellectual Property Rights simply provides that interlocutory
orders shall not be appealable. The said Rules and Regulations do not prescribe a
procedure within the administrative machinery to be followed in assailing orders
issued by the BLA-IPO pending final resolution of a case filed with them. Hence, in
the absence of such a remedy, the provisions of the Rules of Court shall apply in a
suppletory manner, as provided under Section 3, Rule 1 of the same Rules and
Regulations. Hence, in the present case, respondents correctly resorted to the
filing of a special civil action for certiorari with the CA to question the assailed
Orders of the BLA-IPO, as they cannot appeal therefrom and they have no other
plain, speedy and adequate remedy in the ordinary course of law. This is
consistent with Sections 1 and 4, Rule 65 of the Rules of Court, as amended.
Philippine Pharmawealth vs. Pfizer Inc., G.R. No. 167715, 17 November
2010
TRANSPORTATION
A freight forwarders liability is limited to damages arising from its own

negligence, including negligence in choosing the carrier; however, where the
forwarder contracts to deliver goods to their destination instead of merely
arranging for their transportation, it becomes liable as a common carrier for loss
or damage to goods. A freight forwarder assumes the responsibility of a carrier,
which actually executes the transport, even though the forwarder does not carry
the merchandise itself.Unsworth Transport International ( Phils. ) vs. Court
of Appeals ,G.R. No. 166250, 26 July 2010
In this case, it is not disputed that respondent is a British corporation domiciled in

London, United Kingdom with London as its principal place of business. Hence,
under the first and second jurisdictional rules, the petitioner may bring her case
before the courts of London in the United Kingdom. In the passenger ticket and
baggage check presented by both the petitioner and respondent, it appears that
the ticket was issued in Rome, Italy. Consequently, under the third jurisdictional
rule, the petitioner has the option to bring her case before the courts of Rome in
Italy. Finally, both the petitioner and respondent aver that the place of destination
21
is Rome, Italy, which is properly designated given the routing presented in the
said passenger ticket and baggage check. Accordingly, petitioner may bring her
action before the courts of Rome, Italy. The RTC of Makati clearly has no
jurisdiction over the case filed by the petitioner. Edna Diago Lhuillier v British
Airways, G.R. No. 171092, March 15, 2010
The truck driver was clearly negligent in this case for he was driving at a very fast
pace. Whenever an employees negligence causes damage or injury to another,
there instantly arises a presumption juris tantum that the employer failed to
exercise diligentissimi patris families in the selection or supervision of his
employee. - Heirs of the late Ruben Reinoso, Sr., represented by Ruben
Reinoso, Jr. v. CA, et al, G.R. No. 116121, July 18, 2011
The LIMITED LIABILITY RULE under the Code of Commerce cannot be availed of by
the CHARTERERS/SUB-CHARTERERS in order to escape from their liability. The
Code of Commerce is quite clear on which indemnities may be confined or
restricted to the value of the vessel and these are the indemnities in favor of
third persons which may arise from the conduct of the captain in the care of the
goods which he loaded on the vessel. Thus, what is contemplated is the liability
to third persons who may have dealt with the SHIPOWNER, the AGENT or even the
CHARTERER in case of demise or bareboat charter. The only person who could
avail of this is the SHIPOWNER, Concepcion. He is the very person whom the
Limited Liability Rule has been conceived to protect.
The Charterer cannot use the said Rule because the it does not completely and
absolutely step into the shoes of the shipowner or even the ship agent because
there remains conflicting rights between the former and the real shipowner as
derived from their charter agreement. Therefore, even if the contract is for a
bareboat or demise charter where possession, free administration and even
navigation are temporarily surrendered to the charterer, dominion over the vessel
remains with the shipowner. Ergo, the charterer or the sub-charterer, whose rights
cannot rise above that of the former, can never set up the Limited Liability Rule
against the very owner of the vessel.
Under Article 2185 of the Civil Code, the legal presumption of negligence arises if
at the time of the mishap, a person was violating any traffic regulation. However,
in Sanitary Steam Laundry, Inc. v. Court of Appeals, the Court held that a causal
connection must exist between the injury received and the violation of the traffic
regulation. It must be proven that the violation of the traffic regulation was the
proximate or legal cause of the injury or that it substantially contributed thereto.
Negligence, consisting in whole or in part, of violation of law, like any other
negligence, is without legal consequence unless it is a contributing cause of the
injury. - Dela Torre v. The Hon. Court of Appeals, et al.,
Notwithstanding the fact that the case was filed beyond the one-year prescriptive
period provided for under COGSA, the suit will not be dismissed if the delay was
not due to the claimants fault. Had the insurer processed and examined
(petitioners) claim promptly either rejecting or paying it, the petitioner [or it, as
insurer-subrogee] could have taken judicial action on time. But as in this case, the
insurer made an unreasonable demand for an itemized list of damages which
22
caused the delay. The insurer therefore should bear the loss with interest on
account of such delay. New World International Development Phils. Inc. v.
NYK-FILJAPAN Shipping Corp., G.R. No. 171468, August 24, 2011
NEGOTIABLE INSTRUMENTS LAW
If the post-dated check was given to the payee in payment of an obligation, the
purpose of giving effect to the instrument is evident, thus title or ownership the
check was transferred to the payee. However, if the PDC was not given as
payment, then there was no intent to give effect to the instrument and ownership
was not transferred. The evidence proves that the check was accepted, not as
payment, but in accordance with the policy of the payee to cover the transaction (
purchase of beer products ) and in the meantime the drawer was to pay for the
transaction by some other means other than the check. This being so, title to the
check did not transfer to the payee; it remained with the drawer. The second
element of the felony of theft was therefore not present. San Miguel
Corporation vs. Puzon, Jr. G.R. No. 167567, 22 September 2010
A certificate of deposit is defined as a written acknowledgement by a bank of the

receipt of a sum of money on deposit which the bank promise to pay to the
depositor or the order of the depositor or to some other person or his order
whereby the relation of debtor and creditor between the bank and the depositor is
created. A document to be considered a certificate of deposit need not be in a
specific form. Thus, a passbook of an interest-earning deposit account issued by a
bank is a certificate of deposit drawing interest because it is considered a written
acknowledgment by a bank that it has accepted a deposit of a sum of money from
a depositor. Thus, it is subject to DST. Prudential Bank v. Commissioner of
Internal Revenue (CIR) G.R. No. 180390, July 27, 2011
As between a bank and its depositor, where the banks negligence is the
proximate cause of the loss and the depositor is guilty of contributory negligence,
the greater proportion of the loss shall be borne by the bank. The bank was
negligent because it did not properly verify the genuineness of the signatures in
the applications for managers checks while the depositor was negligent because
it clothed its accountant/bookkeeper with apparent authority to transact business
with the Bank and it did not examine its monthly statement of account and report
the discrepancy to the Bank. the court allocated the damages between the bank
and the depositor on a 60-40 ratio.Philippine National Bank vs. FF Cruz and
Company, G.R. No. 173259, July 25, 2011
While its manager forged the signature of the authorized signatories of clients in
the application for managers checks and forged the signatures of the payees
thereof, the drawee bank also failed to exercise the highest degree of diligence
required of banks in the case at bar. It allowed its manager to encash the
Managers checks that were plainly crossed checks. A crossed check is one where
two parallel lines are drawn across its face or across its corner. Based on
jurisprudence, the crossing of a check has the following effects: (a) the check may
not be encashed but only deposited in the bank; (b) the check may be negotiated
only once to the one who has an account with the bank; and (c) the act of
crossing the check serves as a warning to the holder that the check has been
issued for a definite purpose and he must inquire if he received the check
pursuant to this purpose; otherwise, he is not a holder in due course. In other
words, the crossing of a check is a warning that the check should be deposited
23
only in the account of the payee. When a check is crossed,it is the duty of the
collecting bank to ascertain that the check is only deposited to the payees
account. In complete disregard of this duty, PCIBs systems allowed Balmaceda to
encash 26 Managers checks which were all crossed checks, or checks payable to
the payees account only. - Philippine Commercial International Bank vs.
Balmaceda,G.R. No. 158143, September 21, 2011
Upon issuance of a negotiable check, in the absence of evidence to the contrary,

it is presumed that the same was issued for valuable consideration which may
consist either in some right, interest, profit or benefit accruing to the party who
makes the contract, or some forbearance, detriment, loss or some responsibility,
to act, or labor, or service given, suffered or undertaken by the other side. Under
the Negotiable Instruments Law, it is presumed that every party to an instrument
acquires the same for a consideration or for value. As petitioner alleged that
there was no consideration for the issuance of the subject checks, it devolved
upon him to present convincing evidence to overthrow the presumption and prove
that the checks were in fact issued without valuable consideration. Cayanan v.
North Star International Travel Inc.,G.R. No. 172954, October 5, 2011
The fact that a person, other than the named payee of the crossed check, was
presenting it for deposit should have put the drawee bank on guard. It should
have verified if the payee authorized the holder to present the same in its behalf,
or indorsed it to him. Considering, however, that the named payee does not have
an account with the drawee bank ( hence, the latter has no specimen signature of
the payee by which to judge the genuineness of its indorsement ), the bank
knowingly assumed the risk of relying solely on the holders word that he had
good title to the three checks. Such misplaced reliance on empty words is
tantamount to gross negligence. Equitable Banking Corporation vs. Special
Steel Products, GR No. 175350 13 June 2012
Managers or cashiers checks are bills of exchange drawn by the banks manager
or cashier, in the name of the bank, against the bank itself. Typically, a managers
or a cashiers check is procured from the bank by allocating a particular amount
of funds to be debited from the depositors account or by directly paying or
depositing to the bank the value of the check to be drawn. Since the bank issues
the check in its name, with itself as the drawee, the check is deemed accepted in
advance. Nevertheless, the mere issuance of a managers check does not ipso
facto work as an automatic transfer of funds to the account of the payee. If there
was no delivery, presentment of the managers check to the bank did not occur.
As a result, the assigned fund is deemed part of the account of the purchaser of
the check. The doctrine that the deposit represented by the managers check
automatically passes to the payee is inapplicable because the instrument-
although accepted in advance remains undelivered. The purchaser should be
informed if the deposit had been left inactive for more than 10 years and that it
may be subjected to escheat proceedings if left unclaimed. Rizal Commercial
Banking Corporation vs. Hi-Tri Development Corporation, 672 SCRA
514(2012)
A collecting bank is guilty of contributory negligence when it accepted for deposit

a post-dated check notwithstanding that said check had been cleared by the
drawee bank which failed to return the check within the 24-hour reglementary
period..
24
The doctrine of last clear chance, stated broadly, is that the negligence of the
plaintiff does not preclude a recovery for the negligence of the defendant where it
appears that the defendant, by exercising reasonable care and prudence, might
have avoided injurious consequences to the plaintiff notwithstanding the
plaintiffs negligence. The doctrine necessarily assumes negligence on the part of
the defendant and contributory negligence on the part of the plaintiff, and does
not apply except upon that assumption. While it is true that the drawee banks
liability for its negligent clearing of the check is greater, the collecting bank
cannot take lightly its own violation of the long-standing rule against encashment
of post-dated checks and the injurious consequences of allowing such checks into
the clearing system.
Petitioner repeatedly harps on respondent's transgression of clearing house rules
when the latter resorted to direct presentment way beyond the reglementary
period but glosses over its own negligent act that clearly fell short of the conduct
expected of it as a collecting bank. Petitioner must bear the consequences of its
omission to exercise extraordinary diligence in scrutinizing checks presented by
its depositors. Allied Bank vs Bank of the Philippine Islands PI February 27,
2013
INSURANCE
HMOs are not in the insurance business. One test that they have applied is
whether the assumption of risk and indemnification of loss (which are elements of
an insurance business) are the principal object and purpose of the organization or
whether they are merely incidental to its business. If these are the principal
objectives, the business is that of insurance. But if they are merely incidental and
service is the principal purpose, then the business is not insurance. Applying the
principal object and purpose test, there is significant American case law
supporting the argument that a corporation (such as an HMO, whether or not
organized for profit), whose main object is to provide the members of a group with
health services, is not engaged in the insurance business. The main difference
between an HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating physicians
while insurance companies simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit. [Philippine Health Care Providers
Inc. vs. Commission on Internal Revenue, 600 SCRA 413(2009)]
By law and by the specific contract involved in this case, the effectivity of the
bond required for the obtention of a license to engage in the business of receiving
rice for storage is determined not alone by the payment of premiums but
principally by the Administrator of the NFA. From beginning to end, the
Administrators brief is the enabling or disabling document. This provision in the
bonds is but in compliance with the second paragraph of Section 177 of the
Insurance Code, which specifies that a continuing bond, as in this case where
there is no fixed expiration date, may be cancelled only by the obligee, which is
the NFA, by the Insurance Commissioner, and by the court. The clear import of
these provisions is that the surety bonds in question cannot be unilaterally
cancelled by Lagman. - Country Bankers Insurance Corporation v Lagman,
G.R. No. 165487, July 13, 2011
25

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RECENT JURISPRUDENCE IN COMMERCIAL LAW

July 2009- March 31, 2013

Doctrine of Piercing the veil of corporate fiction

When the corporation ( BR Sportswear, Inc. ) which the plaintiff erroneously

1. When directors and trustees or, in appropriate cases, the officers of a

2. When a director or officer has consented to the issuance of watered stocks or

3. When a director, trustee or officer has contractually agreed or stipulated to

Before a director or officer of a corporation can be held personally liable for

3. In the absence of malice, bad faith, or a specific provision of law making a

A governmentowned or controlled corporation refers to any agency organized as

The execution of a document by a bank manager called pagares which

Doctrine of Apparent Authority

There would be an undue stretching of the doctrine of apparent authority were we

The suspension of all actions and/or claims against a corporation under

Furthermore, jurisprudence is settled that the suspension of proceedings referred to in

The suspension of claims in corporate rehabilitation does not extend to criminal

In insolvency or liquidation proceedings, the right to foreclose real estate

Likewise, the enforcement of the mortgage lien cannot be considered as a claim

To allow a creditors case to proceed independently of the liquidation case, a

It is contrary to public policy to declare the former employees of the absorbed

In sum, although Citytrust was dissolved, no winding up of its affairs or liquidation

Citytrust, therefore, upon service of the notice of garnishment and its

The appointment of a distributor in the Philippine is not sufficient to constitute

Pursuant to Section 145 of the Corporation Code, an existing intra-corporate

Securities and Regulation Code

A public company, as contemplated by the SRC is not limited to a company

Network marketing, a scheme adopted by companies for getting people to buy

Although the extrajudicial sale of the condominium unit ( for non-payment of

A complaint filed by condominium unit owners against the developer of the

SPECIAL COMMERCIAL LAWS

a. Authority of BSP to close a bank

e. Secrecy of foreign currency deposits

Act 3135, as amended

The spouse of a party plaintiff in an action to annul the mortgage on conjugal

A mortgage given to secure advancements is a continuing security and is not

Once the mortgage is extinguished by a complete foreclosure thereof, the

The enforcement of a loan agreement involves debtor-creditor relations founded

Comparing Berris mark D-10 80 WP with Abyadangs mark NS D-10 PLUS, as

Applying the dominancy test, the trademark Dermaline Dermaline, Inc. is

Further, RA 8293 has dispensed with the registration requirement of trade

A freight forwarders liability is limited to damages arising from its own

In this case, it is not disputed that respondent is a British corporation domiciled in

NEGOTIABLE INSTRUMENTS LAW

A certificate of deposit is defined as a written acknowledgement by a bank of the

Upon issuance of a negotiable check, in the absence of evidence to the contrary,

A collecting bank is guilty of contributory negligence when it accepted for deposit

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