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BAR REVIEW POINTERS FOR 2016

By:
HERNANDO B. PEREZ

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

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

2.

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

3.

The stockholders cannot sell or maintain actions in their own name in

connection with corporation affairs, business or property. Neither do
stockholders have the right to recover possession of corporation
property or to recover damages for injury to properties belonging to the
corporation, and vice-versa.

4.

The property belonging to the corporation cannot be attached to satisfy

the debt of a stockholder and vice versa, the latter having only an
indirect interest in the assets and business of the former.

IV.

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

Separate personality: A stockholder, director, or representative does not became a party

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

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

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

Commissioner of Customs vs. Oilink International Corporation, 728 SCRA

471, July 2, 2014. (PP)

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

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

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

Doctrine of Separate Juridical Personality: The general rule is that a corporation is

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

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

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

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VI.

How may a corporation be established as a mere alter ego of another corporation or

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

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

VII.

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

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

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

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

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

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

University of Mindanao, Inc. vs. Bangko Sentral Pilipinas, G. R. No.

194964-65, January 11, 2016, J. Leonen, ponente.

May an educational institution secure the loans of third persons? As a rule an

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

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

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

Nationality of a corporation is determined either by:

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

What is the grandfather rule in determining the nationality of a

corporation?

The grandfather rule of determining the nationality of a corporation traces the

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

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

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

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

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

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

IX.

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

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

12

X.

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

Nature of membership in non-stock corporation. Membership in a non-stock

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

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

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

13

XII.

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

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

14

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

15

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

16

XV.

Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum

Corporation, 726 SCRA 623 (PP)

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

17

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

18

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

19

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

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

August 5, 2015

May a stockholder with insignificant shareholding examine the books of the

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

XXI.

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

20

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

SECURITIES REGULATIONS CODE

I.

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

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

21

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

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

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

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

22

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

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

IV.

Intra-corporate controversy:

Q. What is the relationship test to determine whether the conflict is intra-corporate? A.

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

23

V.

Is an action filed by a condominium unit owner against the condominium corporation

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

24

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

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

25

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

26

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

INSURANCE
I.

What is microinsurance?

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

27

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

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

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

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

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

28

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

IV.

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

29

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

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

30

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

31

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

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

32

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

33

Illustration: Loadstar Shipping (Loadstar) and Philippine Associated Smelting and

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

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

34

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

Asian Terminals, Inc. vs. First Lepantro-Taisho Insurance Corporation, 726

SCRA 415, June 16, 2014 (DONE)

Subrogation. Question: 3,000 bags of sodium tripolyphosphate contained in 100 jumbo

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

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

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

35

NEGOTIABLE INSTRUMENTS
I.

What is a trust receipt transaction?

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

36

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

37

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

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

38

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

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

Wesleyan University Philippines vs. Reyes, 731

SCRA 516 (DONE)

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

39

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

Question: Are Cashiers or Managers checks subject to clearing? May payment

of a Cashiers or Managers check be countermanded?

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

TRANSPORTATION
I.

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

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

40

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

Will charter party of a vessel belonging to a common carrier necessarily convert

the carrier into a private carrier?

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

Will a common carriers liability be extinguished by reason of fire?

Answer: The common carriers liability will not be extinguished by reason of fire.
Article 1734 of the Civil Code provides, common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the same is due to any of the following causes
only:
1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
2) Act of the public enemy in war, whether international or civil;
3) Act or omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the containers;
5) Order or act of competent public authority.
Fire is not one of those enumerated under the above provision which exempts a carrier
from liability for loss or destruction of the cargo. Even if fire were to be considered a natural
disaster within the purview of Article 1734, it is required under Article 1739 of the same Code
that the natural disaster must have been the proximate and only cause of the loss, and that the
carrier has exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster. (DSR-Senator Lines vs. Federal Phoenix Assurance Co., Inc., 413
SCRA 14. October 7, 2003.)
IV.

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

41

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

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

42

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

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

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

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

Bill of lading defined. A bill of lading is defined as a written acknowledgement of the

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

43

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

INTELLECTUAL PROPERTY

I.

Shang Properties Realty Corporation vs. St. Francis Development Corporation,

730 SCRA 275, July 21, 2014(DONE)

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

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

Effect of registration of a mark. The certificate of registration, of a mark shall be prima

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

Where should an action involving trademarks, including charges of unfair competition,

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

IV.

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

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

TRUST RECEIPT LAW

I.

Are letters of credit and trust receipts negotiable instruments?

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

BANKING
I.

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

45

Answer: When the purchaser or the mortgagee is a bank, the rule on innocent purchasers
or mortgagees for value is applied more strictly. Being in the business of extending loans secured
by real estate mortgage, banks are presumed to be familiar with the rules on land registration.
Since the banking business is impressed with public interest, they are expected to be more
cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in
their dealings, even those involving registered lands. Banks may not simply rely on the face of
the certificate of title. (Land Bank of the Philippines, Belle Corporation, G. R. No. 205271,
September 2, 2015).
Facts: Belle was involved in the development and creation of leisure and recreational
areas in Tagaytay area known as Tagaytay Highlands. Bautista claimed to be the owner of part of
the land in possession of Belle. Bautista wrote a letter to Belle asking the latter to vacate the
subject area and stop its operation therein. Belle filed a suit for quieting of title. During the
pendency of the case, Belle was informed that Bautista is no longer the registered owner of the
disputed area as it was foreclosed by petitioner bank. Apparently, Bautista mortgaged the
property to petitioner bank without informing Belle. Petitioner bank claimed to be a mortgagee
in good faith having observed due diligence and prudence. Petitioner verified the status of the
collateral and found that the land was registered in the name of Bautista. It turned out that the
property in question was part of the ingress and egress of Tagaytay Highlands several years
before it was accepted as collateral from Bautista, and the latters title was questionable. Issue:
Was the bank a mortgagee in good faith?
Ruling: Petitioner bank was not a mortgagee in good faith as it failed to inquire further
on the identity of possible adverse claimants and status of their occupancy. Had there been an
inquiry with Bautista or any of the occupants of the nearby area of the existence of the traversing
access road, it could easily show that there is indeed defect in the title of Bautista. There should
have been an exhaustive investigation but none was made. The acceptance of the collateral
despite the existing facts constitutes gross negligence on the part of the bank. Since the banking
business is impressed with public interest, they are expected to be more cautious, to exercise a
higher degree of diligence, care and prudence, than private individuals in their dealings, even
those involving registered lands. Banks may not simply rely on the face of the certificate of title.
Hence, the bank could not be considered a mortgagee in good faith. (Land Bank of the
Philippines, Belle Corporation, G. R. No. 205271, September 2, 2015).

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Thank you and good

luck !!!