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MERCANTILE LAW
LETTERS OF CREDIT
A. PARTIES TO A LETTER OF CREDIT
EXPLAIN THE THREE (3) DISTINCT BUT
INTERTWINED CONTRACT RELATIONSHIPS
THAT ARE INDISPENSABLE IN A LETTER OF
CREDIT TRANSACTION. (BAR 2002)
i. Issuing Bank and the Applicant/Buyer/Importer –
The applicant has the obligation to pay what the
issuing bank has paid to the beneficiary with the cost
and interest on the letter of credit. Their relationship is
governed by the terms of the application and
agreement for the issuance of letter of credit by the
bank.
ii. Issuing Bank and the Beneficiary/Seller/Exporter –
The issuing bank is the one who undertakes to pay
the beneficiary upon strict compliance of the latter to
the requirements set forth in the letter of credit.
iii. Applicant and Beneficiary – The applicant is the
one who procures the letter of credit and obliges
himself to reimburse the issuing bank upon receipt of
the documents of title while the beneficiary is the one
who, in compliance with the contract of sale, ships the
goods to the buyer and delivers the documents of title
and draft to the issuing bank to recover payment for
the goods. The relationship between them is
governed by the law on sales if it is a commercial
letter of credit but if it is a stand-by letter of credit it is
governed by the law on obligations and contract.
DOCTRINE/PRINCIPLE OF INDEPENDENCE.
The so-called "independence principle"
assures the seller or the beneficiary of prompt
payment independent of any breach of the main
contract and precludes the issuing bank from
determining whether the main contract is actually
accomplished or not.
Under this principle, banks assume no liability
or responsibility for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any
documents, or for the general and/or particular
conditions stipulated in the documents or
superimposed thereon, nor do they assume any
liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or
existence of the goods represented by any
documents, or for the good faith or acts and/or
omissions, solvency, performance or standing of the
consignor, the carriers, or the insurers of the goods,
or any other person whomsoever. (PNB v. San
Miguel, January 15, 2014)
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What is the exception to the
DOCTRINE/PRINCIPLE OF INDEPENDENCE?
(FRAUD EXCEPTION PRINCIPLE) (BAR 2010)
The Fraud Exception Principle. Under this principle,
the untruthfulness of a certificate accompanying a
demand for payment under a standby credit may
qualify as fraud sufficient to support an injunction
against payment.
The remedy for fraudulent abuse is an injunction.
However, injunction should not be granted unless:
(a) there is clear proof of fraud;
(b) the fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and not
only fraud under the main agreement; and
(c) irreparable injury might follow if injunction is not
granted or the recovery of damages would be
seriously damaged. (Transfield v. Luzon Hydro Corp.,
November 22, 2004)
What is the DOCTRINE OF STRICT COMPLIANCE?
Under this rule, the documents tendered by
the seller must strictly conform to the terms of the
letter of credit. Otherwise, the issuing bank or the
concerned correspondent bank is not obliged to
perform its undertaking under the contract.
The tender of documents by the beneficiary
(seller) must include all documents required by the
letter. A correspondent bank which departs from what
has been stipulated under the letter of credit, as when
it accepts a faulty tender, acts on its own risks and it
may not thereafter be able to recover from the buyer
or the issuing bank, as the case may be, the money
thus paid to the beneficiary. (Feati v. Court of
Appeals, 1991)
II
TRUST RECEIPTS LAW
What is a TRUST RECEIPT TRANSACTION?
It is any transaction by and between an entruster
and entrustee:
a) Whereby, the entruster, who owns or holds
absolute title or security interests over certain
specified goods, documents or instruments,
releases the same to the possession of the
entrustee upon the latter's execution and
delivery to the entruster of a signed document
called a "trust receipt."
b) Wherein the entrustee binds himself to –
 to hold the designated goods,
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documents or instruments in trust for
the entruster, and
 to sell or otherwise dispose of the
goods, documents or instruments with
the obligation to turn over to the
entruster the proceeds thereof to the
extent of the amount owing to the
entruster or as appears in the trust
receipt or the goods, documents or
instruments themselves if they are
unsold or not otherwise disposed of, in
accordance with the terms and
conditions specified in the trust
receipt. (P.D. 115, Sec. 4)
In a trust receipt transaction, 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. (BSP v. Libo-on,
November 23, 2015)
Define and explain the 2 main features of a Trust
Receipt Transaction.
LOAN/SECURITY FEATURE - In a letter of credit-
trust receipt arrangement, a bank extends a loan
covered by the letter of credit, and the trust receipt
acts as the security for the loan. In other words, the
transaction involves a loan feature represented by the
letter of credit, and a security feature which is in the
covering trust receipt.(Sps. Vintola vs. Insular Bank of
Asia and America, May 29, 1987)
1. LOAN FEATURE – is brought about by the fact
that the entruster financed the importation or
purchase of the goods under a trust receipt. (Supra).
2. SECURITY FEATURE – property interest in the
good, documents or instruments to secure
performance of some obligation of the entrustee or of
some third persons to the entruster. (Rosario Textile
Mills Corp. v. Home Bankers Savings and Trust
Company, June 29, 2005).
Jojo deposited several cartons of goods with SN
warehouse corporation. The corresponding
warehouse receipt was issued to the order of
Jojo. He endorsed the warehouse receipt to EJ
who paid the value of goods deposited. Before EJ
could withdraw the goods, Melchor informed SN
warehouse corporation that the goods belonged
to him and were taken by Jojo without his
consent. Melchor wants to get the goods, but EJ
also wants to withdraw the same.
A. WHO HAS A BETTER RIGHT TO THE
GOODS? WHY?
EJ has better right to the goods. The goods are
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covered by a negotiable warehouse receipt which was
indorsed to EJ for value. The negotiation to EJ was
not impaired by the fact that Jojo took the goods
without the consent of Melchor, as EJ had no notice
of such fact. Moreover, EJ is in possession of the
warehouse receipt and only he can surrender it to the
warehouseman. (Sec. 8, Warehouse Receipts Law)
B. If Sn Warehouse Corporation is uncertain
as to who is entitled to the property, what is the
proper recourse of the corporation? Explain.
(2005 bar)
Under the Warehouse Receipt Law, SN Warehouse
Corporation may file an action for interpleader and
implead EJ and Melchor to determine who is entitled
to the said goods.(Sec. 17 of Act 2137, Warehouse
Receipt Law)
Obligations And Liabilities Of The Entrustee
Where shall the proceeds of the sale of goods,
documents or instruments be applied?
The proceeds of any such sale, whether public or
private, shall be applied:
(a) to the payment of the expenses thereof;
(b) to the payment of the expenses of re-taking,
keeping and storing the goods, documents or
instruments;
(c) to the satisfaction of the entrustee's indebtedness
to the entruster. (P.D. 115, Sec. 7)
Who shall be liable for the loss of goods,
documents or instruments?
The risk of loss shall be borne by the entrustee. Loss
of goods, documents or instruments which are the
subject of a trust receipt, pending their disposition,
irrespective of whether or not it was due to the fault or
negligence of the entrustee, shall not extinguish his
obligation to the entruster for the value thereof. (P.D.
115, Sec. 10)
What acts or omissions are penalized under the
Trust Receipts Law? (BAR 2006)
The failure of an entrustee to turn over the proceeds
of the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust
receipt or to return said goods, documents or
instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall
constitute the crime of estafa, punishable under the
provisions of Article 315, Par. 1(b) of the RPC. (P.D.
115, Sec. 13)
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What if the violation or offense is committed by a
corporation, partnership, association or other
juridical entities?
The penalty provided for in this Decree (P.D. 115)
shall be imposed upon the directors, officers,
employees or other officials or persons therein
responsible for the offense, without prejudice to the
civil liabilities arising from the criminal offense.
(Supra.);
III
INTELLECTUAL PROPERTY CODE
INTELLECTUAL PROPERTY RIGHTS
IN GENERAL
What are the subject matters covered by
intellectual property rights?
The following are the coverage of the intellectual
property rights:
a. Copyright and Related rights
b. Trademarks and Service Marks
c. Geographic Indications
d. Industrial Designs
e. Patents
f. Layout Designs (Topographies) of Integrated
Circuits
g. Protection of Undisclosed Information (TRIPS)
PATENTS
Enumerate and define the criteria for patentability.
a. Novelty – An invention shall not be considered new
if it forms part of a prior art. (Sec. 23, Intellectual
Property Code/R.A. 8293)
b. Inventive Step – An invention involves an inventive
step if, having regard to prior art, it is not obvious to a
person skilled in the art at the time of the filing date or
priority date of the application claiming the
invention.(Sec. 26, Intellectual Property Code/R.A.
8293)
c. Industrially Applicable - An invention that can be
produced and used in any industry shall be
industrially applicable. (Sec. 27, Intellectual Property
Code/R.A. 8293)
X invented a bogus coin detector which can be
used exclusively on self-operating gambling
devices otherwise known as one-armed bandits.
Can x apply or a patent? (1989 bar)
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X may not apply for the patent since the gambling
device mentioned in the problem itself is prohibited
and against public order. But if the machine is used in
legalized gambling such as in cases of exclusive use
of casinos established by the government, such
device can be patented.
Supposing Albert Einstein were alive today and
he filed with the Intellectual Property Office (IPO)
an application for patent for his theory of relativity
expressed in the formula e=mc2. The IPO
disapproved Einstein's application on the ground
that his theory of relativity is not patentable. Is the
IPO's action correct? (2006 bar)
Yes. According to the Intellectual Property Code,
discoveries, scientific theories and mathematical
methods, are classified to be as "non-patentable
inventions." Einstein's theory of relativity therefore
falls within the category of being a non-patentable
"scientific theory." (Intellectual Property Code, Sec. 22
as amended by R.A. 9502).
Explain The First To File Rule.
Under the First-to-File Rule –
a. If two or more persons have made the invention
separately and independently of each other, the right
to the patent shall belong to the person who filed an
application for such invention; or
b. Where two or more applications are filed for the
same invention, to the applicant who has the earliest
filing date or, the earliest priority date. (Sec. 29,
Intellectual Property Code/R.A. 8293)
What Are The TESTS IN PATENT
INFRINGEMENT?
a. Literal Infringement – Resort must be had, in the
first instance, to the words of the claim. If accused
matter clearly falls within the claim, infringement is
made out and that is the end of it. To determine
whether the particular item falls within the literal
meaning of the patent claims, the Court must
juxtapose the claims of the patent and the accused
product within the overall context of the claims and
specifications, to determine whether there is exactly
identity of all material elements (Godines v. The
Honorable Court of Appeals, September 13, 1993).
b. Doctrine of Equivalents –The doctrine of
equivalents provides that an infringement also takes
place when a device appropriates a prior invention by
incorporating its innovative concept and, although
with some modification and change, performs
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substantially the same function in substantially the
same way to achieve substantially the same result.
(2015 BAR) (Smith Kline Beckman Corporation v.
C.A., August 14, 2003)
TRADEMARKS
NESTLE v. PUREGOLD
G.R. No. 217194, September 06, 2017
The word "COFFEE" is the common dominant feature
between Nestle's mark "COFFEE-MATE" and
Puregold's mark "COFFEE MATCH." However,
following Section 123, paragraph (h) of RA 8293
which prohibits exclusive registration of generic
marks, the word "COFFEE" cannot be exclusively
appropriated by either Nestle or Puregold since it is
generic or descriptive of the goods they seek to
identify. In Asia Brewery, Inc. v. Court of Appeals,this
Court held that generic or descriptive words are not
subject to registration and belong to the public
domain. Consequently, we must look at the word or
words paired with the generic or descriptive word, in
this particular case "-MATE" for Nestle's mark and
"MATCH" for Puregold's mark, to determine the
distinctiveness and registrability of Puregold's mark
"COFFEE MATCH."
Chen, inc., a Taiwanese Company, is a
manufacturer of tires with the mark light year.
From 2009 to 2014, Clark Enterprises, a
Philippine-Registered Corporation, imported tires
from Chen, Inc. Under several sales contracts and
sold them herein the Philippines. In 2015, Chen,
Inc. Filed a trademark application with the
intellectual property office (IPO) for the mark light
year to be used for tires. The IPO issued Chen,
Inc. A Certificate Of Registration (COR) for said
mark. Clark enterprises sought the cancellation of
the COR and claimed it had a better right to
register the mark light year. Chen, Inc. asserted
that it was the owner of the Mark and Clark
Enterprises was a mere distributor. Clark
Enterprises argued that there was no evidence on
record that the tires it imported from Chen, inc.
bore the mark light year and Clark Enterprises
was able to prove that it was the first to use the
mark here in the Philippines. Decide the case.
(2015 bar)
While RA 8293 removed the previous
requirement of proof of actual use prior to the filing of
an application for registration of a mark, proof of prior
and continuous use is necessary to establish
ownership of trademark. Such ownership of the
trademark confers the right to register the trademark.
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Since Chen owns the trademark as evidenced by its
actual and continuous use prior to the Clark
Enterprises, then it is the one entitled to the
registration of the trademark. The fact that Clark was
the first one to use the mark here in the Philippines
will not matter. Chen’s prior actual use of the
trademark even in another country bars.
Enumerate the elements to be established in
trademark infringement.
a. The trademark or trade name is reproduced,
counterfeited, copied, or colorably imitated by the
infringer;
b. The infringing mark or trade name is used in
connection with the sale, offering for sale, or
advertising of any goods, business or services; or the
infringing mark or trade name is applied to labels,
signs, prints, packages, wrappers, receptacles or
advertisements intended to be used upon or in
connection with such goods, business or services;
c. The use or application of the infringing mark or
trade name is likely to cause confusion or mistake or
to deceive purchasers or others as to the goods or
services themselves or as to the source or origin of
such goods or services or the identity of such
business; and
d. It is without the consent of the trademark or trade
name owner or the assignee thereof (Diaz v. People of
the Philippines and Levi-Strauss (Phil.), G. R. No. 180677,
February 18, 2013).
The use of trademark in UNRELATED articles
of a different kind allowed:
• Registration of the trademark “SHELL” or “ESSO”
for cigarettes was allowed although there is a
prior registrant for gasoline and petroleum
products (Shell v. CA, GR No. L-49145, 21 May
1979; Esso Standard Eastern, Inc. v. CA, 116
SCRA 336 [19982]).
• “CANNON” for sandals was allowed despite prior
registration of the same for paints, chemical
products, toner and dyestuff (Canon Kabushki
Kaisha v. CA & NSR Rubber Corp., 336 SCRA
266 [2001]).
• “GALLO” can be used for cigarettes without
infringing the rights of the owner of another mark
which also contains the same word for wine
(Mighty Corporation v. E & J Gallo, 434 SCRA
473 [2004]).
• “BRUTE” for briefs was allowed although similar
to the symbol “BRUT” for after-shave lotion,
shaving cream, deodorant, talcum powder and
toilet soap (Faberge, Inc. v. IAC, 215 SCRA 316
[1992]).
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DY v. KOJINKLIIKE
G.R. No. 186088, March 22, 2017
PHILIPS opposed the trademark application of
PHILITES covering its fluorescent bulb, incandescent
light, starter and ballast on the main claiming that
PHILITES’ application is identical or confusingly
similar mark that clearly infringes upon the
established rights of the PHILIPS] over its registered
and internationally well-known mark. The IPP-BLA
concluded that the PHILIPS and PHILITES marks
were so unlike, both visually and aurally. This was
affirmed by the IPP-DG. The Court of appeals,
however, reversed the IPP ruling.
Whether or not the mark applied for by PHILITES
is identical or confusingly similar with that of
PHILIPS.
YES. PHILITES seeks to register a mark nearly
resembling that of PHILIPS, which may likely to
deceive or cause confusion among consumers.
Applying the dominancy test, mark "PHILITES" bears
an uncanny resemblance or confusing similarity with
the mark "PHILIPS.”
The dominant or prevalent feature is the five-letter
"PHILI" ("PHILIPS" and "PHILITES"). The marks are
confusingly similar with each other such that an
ordinary purchaser can conclude an association or
relation between the marks. The consuming public
does not have the luxury of time to ruminate the
phonetic sounds of the trademarks, to find out which
one has a short or long vowel sound. At bottom, the
letters "PHILI'' visually catch the attention of the
consuming public and the use of PHILITES’
trademark will likely deceive or cause confusion. Most
importantly, both trademarks are used in the sale of
the same goods, which are light bulbs.
In using the holistic test, it was found that there is a
confusing similarity between the registered marks
PHILIPS and PHILITES, and that the mark PHILITES
seeks to register is vastly different from that which it
actually uses in the packaging of its products.
A comparison between the registered trademark
"PHILIPS'' as used in the wrapper or packaging of its
light bulbs and the applied for trademark "PHILITES"
as depicted in the container or actual
wrapper/packaging of the latter's light bulbs, will
readily show that there is a strong similitude and
likeness between the two trademarks that will likely
cause deception or confusion to the purchasing
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public. The fact that the parties' wrapper or packaging
reflects negligible differences considering the use of a
slightly different font and hue of the yellow is of no
moment because taken in their entirety, the trademark
"PHILITES" will likely cause confusion or deception to
the ordinary purchaser with a modicum of intelligence.
What is LIKELIHOOD OF CONFUSION?
The likelihood of confusion is the gravamen of the
offense of trademark infringement (Philip Morris v.
Fortune, 493 SCRA 437)
Factors to be considered in determining the likelihood
of confusion:
[a] the resemblance between the trademarks;
[b] the similarity of the goods to which the
trademarks are attached;
[c] the likely effect on the purchaser and
[d] the registrant's express or implied consent
and other fair and equitable considerations.
(Seri Soomboonsakdikul, G.R. No. 188996. February
1, 2017, Jardeleza, J.)
2 minimum conditions for confusion to arise:
1) The prospective mark must nearly resemble
or be similar to an earlier mark; and
2.) The prospective mark must pertain to goods or
services that are either identical, similar or related to
the goods or services represented by the earlier mark.
(MangInasal v. IFP Mfg. Corp., GR No. 221717, 19
June 2017 (Velasco, Jr., J.)
UFC v. FIESTA BARRIO
GR No. 198889, January 20, 2016
Barrio Fiesta filed an application with the IPO for the
mark "PAPA BOY & DEVICE" for "lechon sauce."
UFC opposed the application. It contended that
"PAPA BOY & DEVICE" is confusingly similar with its
"PAPA" marks and its variations inasmuch as the
former incorporates the term "PAPA," which is the
dominant feature of petitioner's "PAPA" marks. UFC
averred that the use of "PAPA BOY & DEVICE" mark
for lechon sauce product, if allowed, would likely lead
the consuming public to believe that said lechon
sauce product originates from or is authorized by
UFC, and that the "PAPA BOY & DEVICE" mark is a
variation or derivative of UFC’s "PAPA" marks. UFC
argued that this was especially true considering that
UFC’s ketchup product and Barrio Fiesta’s lechon
sauce product are related articles.
The IPO denied the application as it is confusingly
similar to the mark of UFC. Is the IPO correct?
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Yes. Barrio Fiesta’s mark cannot be registered. The
mark is related to a product, lechon sauce, an
everyday all-purpose condiment and sauce, that is not
subjected to great scrutiny and care by the casual
purchaser, who knows from regular visits to the
grocery store under what aisle to find it, in which
bottle it is contained, and approximately how much it
costs. Since UFC’s product, catsup, is also a
household product found on the same grocery aisle,
in similar packaging, the public could think that UFC
had expanded its product mix to include lechon
sauce, and that the "PAPA BOY" lechon sauce is now
part of the "PAPA" family of sauces, which is not
unlikely considering the nature of business that UFC
is in. Thus, if allowed registration, confusion of
business may set in, and UFC’s hard-earned goodwill
may be associated to the newer product introduced
by Barrio Fiesta, all because of the use of the
dominant feature of UFC’s mark on Barrio Fiesta’s
mark, which is the word "PAPA." The words "Barrio
Fiesta" are not included in the mark, and although
printed on the label of Barrio Fiesta’s lechon sauce
packaging, still do not remove the impression that
"PAPA BOY" is a product owned by the manufacturer
of "PAPA" catsup, by virtue of the use of the dominant
feature. It is possible that UFC could expand its
business to include lechon sauce, and that would be
well within UFC’s rights, but the existence of a "PAPA
BOY" lechon sauce would already eliminate this
possibility and deprive UFC of its rights as an owner
of a valid mark included in the Intellectual Property
Code.
MangInasalPhils. v. IFP Mfg. Corp.
GR No. 221717, 19 June 2017 (Velasco, Jr., J.)
MangInasal, owner of the mark "MangInasal, Home of
Real Pinoy Style Barbeque and Device" (MangInasal
mark), opposed the application of IFP for the mark
"OK Hotdog Inasal Cheese Hotdog Flavor Mark" (OK
Hotdog Inasal mark) in connection with one of its curl
snack products. MangInasal averred that the OK
Hotdog Inasal mark and the MangInasal mark share
similarities-both as to their appearance and as to the
goods or services that they represent which tend to
suggest a false connection or association between
the said marks and, in that regard, would likely cause
confusion on the part of the public.
The IPO dismissed `the opposition and ruled that the
OK Hotdog Inasal mark is not confusingly similar to
the MangInasal mark because:
1. The OK Hotdog Inasal mark is not similar to the
MangInasal mark. In terms of appearance, the only
similarity between the two marks is the word
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"INASAL." However, there are other words like "OK,"
"HOTDOG," and "CHEESE' and images like that of
curls and cheese that are found in the OK Hotdog
Inasal mark but are not present in the MangInasal
mark.
In addition, MangInasal cannot prevent the application
of the word "INASAL" in the OK Hotdog Inasal mark.
No person or entity can claim exclusive right to use
the word "INASAL" because it is merely a generic or
descriptive word that means barbeque or barbeque
products.
2. Neither can the underlying goods and services of
the two marks be considered as closely related. The
products represented by the two marks are not
competitive and are sold in different channels of
trade. The curl snack products of the OK Hotdog
Inasal mark are sold in sari-sari stores, grocery stores
and other small distributor outlets, whereas the food
products associated with the MangInasal mark are
sold in its restaurants.
Whether or not the OK Hotdog Inasal mark is
likely to cause deception or confusion on the part
of the public.
Applying the dominancy test, the OK Hotdog Inasal
mark is a colorable imitation of the MangInasal mark.
The dominant element "INASAL" in the OK Hotdog
Inasal mark is exactly the same as the dominant
element "INASAL" in the MangInasal mark. Both
elements in both marks are printed using the exact
same red colored font, against the exact same black
outline and yellow background and is arranged in the
exact same staggered format.
The Goods for which the Registration of the OK
Hotdog Inasal Mark is sought are related to the
services being represented by the MangInasal mark.
The curl snack product for which the registration of
the OK Hotdog Inasal mark is sought is related to the
restaurant services represented by the MangInasal
mark, in such a way that may lead to a confusion of
business.
It is the fact that the underlying goods and services of
both marks deal with inasal and inasal-flavored
products which ultimately fixes the relations between
such goods and services.
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What is the “TEST OF DOMINANCY”? (2012 BAR)
The dominancy test focuses on "the similarity of the
prevalent or dominant features of the competing
trademarks that might cause confusion, mistake, and
deception in the mind of the purchasing public.
Duplication or imitation is not necessary; neither is it
required that the mark sought to be registered
suggests an effort to imitate. Given more
consideration are the aural and visual impressions
created by the marks on the buyers of goods, giving
little weight to factors like prices, quality, sales outlets,
and market segments." (Dy v. KojinkliikeG.R. No.
186088, March 22, 2017)
What is the “TOTALITY OR HOLISTIC TEST”?
the holistic or totality test necessitates a
"consideration of the entirety of the marks as applied
to the products, including the labels and packaging, in
determining confusing similarity. The discerning eye
of the observer must focus not only on the
predominant words, but also on the other features
appearing on both labels so that the observer may
draw conclusion on whether one is confusingly similar
to the other." (Dy v. KojinkliikeG.R. No. 186088,
March 22, 2017)
W. LAND HOLDINGS v. STARWOOD
G.R. No. 222366, December 04, 2017
In Berris Agricultural Co., Inc. v. Abyadang, this Court
explained that "[t]he ownership of a trademark is
acquired by its registration and its actual use by the
manufacturer or distributor of the goods made
available to the purchasing public. x xx. A certificate
of registration of a mark, once issued,
constitutes prima facie evidence of the validity of the
registration, of the registrant's ownership of the mark,
and of the registrant's exclusive right to use the same
in connection with the goods or services and those
that are related thereto specified in the
certificate." However, "the prima facie presumption
brought about by the registration of a mark may be
challenged and overcome, in an appropriate
action, by proof of[, among others,] non-use of the
mark, except when excused."
The actual use of the mark representing the goods or
services introduced and transacted in commerce over
a period of time creates that goodwill which the law
seeks to protect. For this reason, the IP Code, under
Section 124.2 requires the registrant or owner of a
registered mark to declare "actual use of the mark"
(DAU) and present evidence of such use within the
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prescribed period. Failing in which, the IPO DG may
cause the motupropio removal from the register of the
mark's registration. Also, any person, believing that
"he or she will be damaged by the registration of a
mark," which has not been used within the
Philippines, may file a petition for cancellation.
Following the basic rule that he who alleges must
prove his case, the burden lies on the petitioner to
show damage and non-use.
The IP Code and the Trademark Regulations have
not specifically defined "use." However, it is
understood that the "use" which the law requires to
maintain the registration of a mark must be genuine,
and not merely token. Based on foreign authorities,
genuine use may be characterized as a bona fide use
which results or tends to result, in one way or another,
into a commercial interaction or transaction "in the
ordinary course of trade."
S Development Corporation sued Shangrila
Corporation for using the “s” logo and the
tradename “shangrila.” The former claims that it
was the first to register the logo and the
tradename in the Philippines and that it had been
using the same in its restaurant business.
Shangrila Corporation counters that it is an
affiliate of an international organization which has
been using such logo and tradename “shangrila”
for over 20 years.
However, Shangrila Corporation registered the
tradename and logo in the Philippines Only after
the suit was filed.
A. Which of the two corporations has a better
right to use the logo and the tradename? Explain.
It is the S Corporation. Section 122 of the
Intellectual Property Code(R.A. 8293) provides that
the rights in a trademark are acquired through valid
registration. Actual prior use in commerce in the
Philippines has been abolished as a condition for the
registration of a trademark (Record of the Senate,
Vol. II, No. 29, 8 Oct.1996; Journal of the House of
Representatives, No. 35. 12 Nov. 1996, 34).
B. How does the international affiliation of
Shangrila Corporation affect the outcome of the
dispute? Explain. (2005 bar)
Shangrila’s international affiliation shall result
in a decision favorable to it. The Paris Convention
mandates that protection should be afforded to
internationally known marks as signatory to the Paris
 S C B A R S T A G N O T E S [ 2018 ]
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Convention, without regard as to whether the foreign
corporation is registered, licensed or doing business
in the Philippines. Shangrila’s separate personalities
from their mother corporation cannot be an obstacle
in the enforcement of their rights as part of the Kuok
Group of Companies and as official repository,
manager and operator of the subject mark and logo.
Besides, R.A. No. 166 did not require the party
seeking relief to be the owner of the mark but "any
person who believes that he is or will be damaged by
the registration of a mark or trade name." (Shangri-la
International Hotel Management v. Developers Group
of Companies, Inc. G.R. No. 159938).
Passing off (or palming off)/UNFAIR
COMPETITION
 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 are buying that of his
competitors (Properties Realty Corp. (formerly
The Shang Grand Tower Corp.) v. St. Francis
Development Corp., 730 SCRA 275, 21 July
2014).
• Unfair competition has been defined as the
passing (or palming off) or attempting to pass off
upon the public of the goods or business of one
person as the goods or business of another with
the end and probable effect of deceiving the
public (Republic Gas Corp. v. Petron Corp., 698
SCRA 666, 17 June 2013).
• This takes place where 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
* Co conspired with Laus in the sale/distribution of
counterfeit Greenstone products to the public, which
were even packaged in bottles identical to that of the
original, thereby giving rise to the presumption of
fraudulent intent. Co, together with Laus, committed
unfair competition. (ROBERTO CO vs. KENG HUAN
JERRY YEUNG and EMMA YEUNG, G.R. No.
212705, September 10, 2014, J. Perlas-Bernabe)
Unfair Competition : essential elements
1. Confusing similarity in the general appearance
of the goods; and
2. Intent to deceive the public and defraud the
creator.
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BRAVO BASTE!
** Actual fraudulent intent need not be
shown(Mcdonalds v. LC BigMak, 437 SCRA 10
[2004])
- The element of intent to deceive maybe inferred
from the similarity of the goods or their appearance
(NBI-Microsoft v. Huang, 460 SCRA 428)
- An act may still constitute UC even if the element of
selling has not been proved(Proline v. CA, 281 SCRA
162).
The test of UC is whether certain goods have been
intentionally clothed with an appearance which is
likely to deceive the ordinary purchasers exercising
ordinary care(Proline v. CA, 281 SCRA 162).
What is the distinction between trademark
infringement and unfair competition? (1996, 2015
bar)
1. Infringement of trademark is the unauthorized use
of a trademark, whereas unfair competition is the
passing off of one's goods as those of another.
2. In infringement of trademark fraudulent intent is
unnecessary whereas in unfair competition fraudulent
intent is essential.
3. In infringement of trademark the prior registration of
the trademark is a prerequisite to the action, whereas
in unfair competition registration is not necessary.
(Del Monte Corp. vs. CA, G.R. No. L-78325, January
25, 1990).
In what ways would acase for infringement of
trademark be different from a case for unfair
competition? (2015 bar)
1. In infringement of trademark, prior registration of
the trademark is a prerequisite to the action, whereas
in unfair competition, trademark registration is not
necessary.
2. Trademark infringement is the unauthorized use of
the registered trademark, while unfair competition is
the passing off of one’s goods as those of another.
3. In infringement of trademark, fraudulent intent is
unnecessary, whereas in unfair competition,
fraudulent intent is essential.
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In what way is an infringement of a trademark
similar to that which pertains to unfair
competition? (2003 bar)
The similarity lies in both their ability to disrupt fair
competition amongst business enterprises and other
businesses. They can also create confusion, mistake,
and deception as to the minds of the consumers with
regard to the source or identity of their products or
services due to its similarity in appearance or
packaging.
COPYRIGHTS
What is the PRINCIPLE OF AUTOMATIC
PROTECTION?
Under this principle, works are protected by
the sole fact of their creation irrespective of their
content, quality or purpose. Such rights are conferred
from the moment of creation.
Copyright, in the strict sense of the term, is
purely a statutory right. Being a mere statutory grant,
the rights are limited to what the statute confers. It
may be obtained and enjoyed only with respect to the
subjects and by the persons, and on terms and
conditions specified in the statute. Accordingly, it can
only cover the works falling within the statutory
enumeration or description. Only the expression of an
idea is protected by copyright, not the idea itself.
(Pearl & Dean (Phil.), Inc. vs. Shoemart,Incorporated,
G.R. No. 148222, August 15, 2003).
In a written legal opinion for a client on the
difference between apprenticeship and
learnership, Liza quoted without permission a
labor law expert's comment appearing in his book
entitled "annotations on the labor code." can the
labor law expert hold Liza liable for infringement
of copyright for quoting a portion of his book
without his permission? (2006 bar)
No. One of the limitations on copyright is the making
of quotations from a published work if they are
compatible with fair use, provided that the source and
the name of the author, if appearing on the work, are
mentioned. The legal opinion made by Liza is
consistent with fair use since the quoted part is
merely used to explain a concept of law for the benefit
of the client and not to defeat the rights of the author
over his copyright (Sec. 184.1(b), Intellectual Property
Code/R.A. 8293)
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BRAVO BASTE!
What is the fair use act?
A news report expressed in a video footage is
entitled to copyright protection.
News or the event itself is not copyrightable.
However, an event can be captured and presented in
a specific medium. News as expressed in a video
footage is entitled to copyright protection.
Broadcasting organizations have not only copyright
on but also neighboring rights over their broadcasts.
Copyrightability of a work is different from fair use of a
work for purposes of news reporting. (ABS-CBN Co.
v. Gozon, G.R. No. 195956, March 11, 2015).
Good faith or lack of knowledge is not a valid
defense in infringement of copyright.
A copyright is infringed by the mere fact of the
repetition of it or a substantial portion of it, without
authority from the author or writer of the copyrighted
work. Good faith or lack of knowledge is not a valid
defense.
Offenses involving infringement of copyright
protections should be considered malumprohibitum. It
is the act of infringement, not the intent, which causes
the damage. To require or assume the need to prove
intent defeats the purpose of intellectual property
protection.
What is Fair use?
Fair use is "a privilege to use the copyrighted material
in a reasonable manner without the consent of the
copyright owner or as copying the theme or ideas
rather than their expression." Fair use is an exception
to the copyright owner's monopoly of the use of the
work to avoid stifling "the very creativity which that law
is designed to foster.”
Four-factor test if there is fair use
1. The purpose and character of the use,
including whether such use is of a commercial
nature or is for non-profit educational purposes;
2. The nature of the copyrighted work;
3. The amount and substantiality of the portion
used in relation to the copyrighted work as a
whole; and
4. The effect of the use upon the potential
market for or value of the copyrighted work.
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What is the "GRAVAMEN OF COPYRIGHT
INFRINGEMENT"?
It is not merely the unauthorized manufacturing of
intellectual works but rather the unauthorized
performance of any of the acts covered by Section 5.
Hence, any person who performs any of the acts
under Section 5 without obtaining the copyright
owners prior consent renders himself civilly and
criminally liable for copyright infringement.
Kk is from Bangkok, Thailand. She studies
medicine in the Pontifical University Of Santo
Tomas (ust). She learned that the same foreign
books prescribed in ust are 40-50% cheaper in
Bangkok. So she ordered 50 copies of each book
for herself and her classmates and sold the books
at 20% less than the price in the Philippines. Xx,
the exclusive licensed publisher of the books in
the Philippines, sued kk for Copyright
Infringement. Decide. (2014 bar)
KK did not commit copyright infringement. Under the
“first sale” doctrine, the owner of a particular copy or
phonorecord lawfully made is entitled, without the
authority of the copyright owner, to sell or otherwise
dispose of the possession of that copy or
phonorecord. Hence, there is no infringement by KK
since the said doctrine permitted importation and
resale without the publisher’s further permission.
After a test-buy operation where an NBI
agent was able to purchase softwares of
Microsoft from the store of Manansala who is
doing business under the name and style
dataman trading, a search and seizure was
conducted on the store of Manansala where it
yielded several illegal copies of microsoft
programs. Microsoft then filed before the DOJ a
complaint-affidavit against Manansala for
copyright infringement, among others.
The charge for copyright infringement was
dismissed. The investigating prosecutor resolved
that although Manansala is selling Microsoft
computer software programs bearing the
copyrights and trademarks owned by Microsoft
corporation without authority from latter, there is
no proof that Manansala was the one who really
printed or copied the products of Microsoft for
sale in his store. The ca upheld the DOJ and ruled
that the legislative intent was to require that the
computer programs be first photographed, photo-
engraved, or pictorially illustrated as a condition
for the commission of copyright infringement.
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Is the printing or copying essential in the
Commission of the crime of copyright
infringement under section 29 of presidential
decree no. 49?
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 Microsoft to still
prove who copied, replicated, or reproduced the
software programs.(Microsoft Corporation vs.
Manansala, 773 SCRA 345, G.R. No. 166391
October 21, 2015)
IV
NEGOTIABLE INSTRUMENTS LAW
A. FORMS AND INTERPRETATION
What are the requisites of negotiability?
The elements under Sec. 1 of the Negotiable
Instrument law are as follows:
a. It must be in writing and signed by the maker
or drawer;
b. Must contain an unconditional promise or
order to pay a sum certain in money;
c. Must be payable to order or to bearer; and
d. Where the instrument is addressed to a
drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Are electronic messages negotiable instruments?
No. 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
exchange. As there was no bill of exchange or order
for the payment drawn abroad and made payable
here in the Philippines, there could have been no
acceptance or payment that will trigger the imposition
of the DST under Section 181 of the Tax Code.
(HSBC vs. CIR, G.R. Nos. 166018 & 167728 June 4,
2014; J. Leonardo-De Castro)
 S C B A R S T A G N O T E S [ 2018 ]
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Define the following: A.) Promissory Note, B.) A
Bill Of Exchange And 3.) A Check.
A.) A promissory note is an unconditional
promise in writing made by one person to
another signed by the maker, engaging to pay
on demand or at a fixed determinable future
time, a sum certain in money to order or
bearer. (NIL, Sec. 184)
B.) A bill of exchange is an unconditional order in
writing addressed by one person to another,
signed by the person giving it, requiting the
person to whom it is addressed to pay on
demand or at a fixed or determinable future
time a sum certain in money to order or to
bearer. (NIL, Sec. 126)
C.) A check is a bill of exchange drawn on a bank
payable on demand. (NIL, Sec 185)
B. COMPLETION AND DELIVERY
Discuss the effect upon negotiability if no date is
given.
Negotiability is not affected. The date is not one of the
requirements for negotiability. Omission of, or error in
date does not impair negotiability.
Can an actual, existing and living person be
considered as a fictitious payee?
Yes. An actual, existing, and living payee may also be
“fictitious” if the maker of the check did not intend for
the payee to in fact receive the proceeds of the check.
This usually occurs when the maker places the name
of an existing payee on the check for convenience or
to cover up an illegal activity.
In a fictitious-payee situation, the drawee bank is
absolved from the liability and the drawer bears the
loss. When faced with a check payable to a fictitious
payee, it is treated as a bearer instrument that can be
negotiated by delivery. One cannot expect a fictitious
payee to negotiate the check by placing his
indorsement thereon, since the maker knew this
limitation, he must have intended for the instrument to
be negotiated by mere delivery. (PNB v. Rodriguez,
G. R. No. 170325, September 26, 2008, J. Reyes)
What is the COMMERCIAL BAD FAITH RULE?
This is an exception to the fictitious-payee rule where
the drawee is absolved from liability and the drawer
bears the loss. A showing of commercial bad faith on
the part of the drawee bank or any transferee of the
check for that matter will work to strip it of this
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BRAVO BASTE!
defense. The exception will cause it to bear the loss.
Commercial bad faith is present if the transferee of
the check acts dishonestly, and is a part to the
fraudulent scheme. (PNB v. Rodriguez, supra)
What is the effect if the instrument is incomplete
and undelivered?
INCOMPLETE & UNDELIVERED (real defense)
(Sec. 15)
General Rule: Where an incomplete instrument has
not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the
hands of any holder against any person who signed
before delivery.
1. it is a real defense. It can be interposed
against a holder in due course.
2. delivery is not conclusively presumed where
the instrument is incomplete
3. defense of the maker is to prove non-delivery
of the incomplete instrument.
What is the effect if the instrument is complete
but undelivered?
COMPLETE BUT UNDELIVERED (personal
defense) (Sec. 16) or DELIVERED
CONDITIONALLY OR FOR A SPECIAL PURPOSE
General Rule: Every contract on a negotiable
instrument is incomplete and revocable until delivery
for the purpose of giving effect thereto.
a. If between immediate parties and remote
parties not holder in due course, to be
effectual there must be authorized delivery
by the party making, drawing, accepting or
indorsing. Delivery may be shown to be
conditional or for a special purpose only.
b. If the holder is a holder in due course, all
prior deliveries are conclusively presumed
valid,’
c. If the instrument is not in the hands of the
drawer/maker, valid and intentional
delivery is presumed until contrary is
proven.
 S C B A R S T A G N O T E S [ 2018 ]
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When date maybe inserted
a) An instrument expressed to be payable at a
fixed period after date is issued undated.
b) where acceptance of an instrument payable at
a fixed period after sight is undated
c) Effects:
i.) any holder may insert the true date of
issuance or acceptance
ii.) the insertion of a wrong date does not
avoid the instrument in the hands of a
subsequent holder in due course
iii.) as to the holder in due course, the
date inserted (even if it be the wrong
date) is regarded as the true date.
C. SIGNATURE
A person whose signature appears on the instrument
is liable thereon. So that a person whose signature
does not appear on the instrument is not liable
thereon.
Effect of instruments signed by two or more
persons
Where the instrument containing the words “I promise
to pay” is signed by two or more persons, they are
deemed to be jointly and severally liable (SOLIDARY)
thereon. (NIL, Sec 17[g])
An instrument which begins with “I”, “Either of us”
promise to pay, when signed by two or more persons,
make them solidarily liable. The fact that the singular
pronoun is used indicates that the promise is
individual as to each other; meaning that each of the
co-signers is deemed to have made an independent
singular promise to pay the notes in full. (Republic
Planters Bank v. CA, 216 SCRA 737[1992])
What are the instances where a person whose
signature does not appear on the instrument but
is still liable?
1) The principal is liable if an agent signs in
his behalf (NIL, Sec. 19).
2) In case of forgery, the forger is liable even if
his signature does not appear on the
instrument.
3) In case the person sought to be charged on
the instrument signs on an allonge(NIL, Secs.
134 & 135).
4) Where a person uses an assumed name or
trade name (NIL, Sec. 18).
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What are the instances where a person’s
signature appears on the instrument and yet is
not liable?
1) In case of an undelivered and incomplete
instrument (NIL, Sec. 16).
2) In case of indorsement or assignment by a
minor or incapacitated person, the latter shall
not incur any liability on the instrument
although such indorsement or assignment
passes title over the instrument (NIL, Sec. 22).
3) In case of a signature of an authorized
agent (NIL, Sec. 18).
4) When the signature is by “procuration” (NIL,
Sec. 21).
D. CONSIDERATION
What is a VALUABLE CONSIDERATION?
Valuable consideration may consist either in some
right, interest, profit or benefit accruing to the party
who makes the contract, or some forbearance,
detriment, loss or some responsibility, to act, or labor,
or service given, suffered or undertaken by the other
side. It is an obligation to do, or not to do in favor of
the party who makes the contract, such as the maker
or indorser.(Lee v. CA, G.R. No. 145498, January 17,
2005, J. Austria-Martinez)
E. ACCOMODATION PARTY
Who is an ACCOMODATION PARTY?
An accommodation part is one who has signed the
instrument as maker, drawer, acceptor, or indorser,
without receiving the value therefor, and for the
purpose of lending his name to some other person.
(NIL, Sec 28).
Effects:
a. An accommodation party is liable to the holder
for value notwithstanding that such holder
knew that of the accommodation.
b. The accommodated party cannot recover from
the accommodation party.
c. Want of consideration cannot be interposed
by the accommodation party.
d. The relation between an accommodation party
and the party accommodated is one of
principal and surety;
e. The liability of the accommodation party is
primary and unconditional; immediate and
direct.
 S C B A R S T A G N O T E S [ 2018 ]
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F. NEGOTIATION
DISTINGUISH NEGOTIATION FROM ASSIGNMENT
The negotiation of a negotiable instrument must be
distinguished from the assignment or transfer of an
instrument whether that be negotiable or non-
negotiable. Only an instrument qualifying as a
negotiable instrument under the relevant statute may
be negotiated either by indorsement thereof coupled
with delivery, or by delivery alone where the
negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being
negotiated, also be assigned or transferred. The legal
consequences of negotiation as distinguished from
assignment of a negotiable instrument are, of course,
different. A non-negotiable instrument may, obviously,
not be negotiated; but it may be assigned or
transferred, absent an express prohibition against
assignment or transfer written in the face of the
instrument:
The words "not negotiable," stamped on the face of
the bill of lading, did not destroy its assignability, but
the sole effect was to exempt the bill from the
statutory provisions relative thereto, and a bill, though
not negotiable, may be transferred by assignment; the
assignee taking subject to the equities between the
original parties.(Sembreño v. CA, G.R. No. 89252,
May 24, 1993, J. Feliciano)
Anna makes a promissory note payable to bearer
and delivers it to Bing. In turn, Bing negotiates it
by mere delivery to Carmen, who endorses it
especially to dong. Dong negotiates it by special
indorsement to Emma who negotiates it to Fe by
mere delivery. Anna did not pay. To whom are
Bing, Carmen, Dong and Emma liable?
Bing, not being an indorser, may only be held
liable for breach of warranty but the facts in the
problem do not disclose any such breach.
Carmen, under her special indorsement, may
be held secondarily liable by Dong and Emma since
they both derived their title under Carmen’s special
indorsement. Carmen is not secondarily liable to Fe
since the latter obtained it by mere delivery from
Emma and therefore did not obtain title through
Carmen’s special indorsement.
Dong holds himself secondarily liable to
Emma since the latter derived title under Dong’s
special indorsement but not to Fe who acquired the
instrument only by delivery.
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Emma, not being an indorser, is not
secondarily liable to Fe. Emma’s only possible
source of liability to Fe would be for a breach of
warranty by the facts in the problem do not disclose
any such breach.
Secondary liability requires due notice of
dishonor, unless excused, which we assume had
properly been observed.
G. RIGHTS OF THE HOLDER
Who is a HOLDER IN DUE COURSE?
Section 52 of the Negotiable Instruments Law defines
a holder in due course as one who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was
overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had
no notice of any infirmity in the instrument or defect in
the title of the person negotiating it.
DISTINGUISH CLEARLY CROSSED CHECKS
FROM CANCELLED CHECKS
A cross check is one with two parallel lines
drawn diagonally on the left portion of the check. On
the other hand, a cancelled check is one marked or
stamped “paid” and/or “cancelled” by or on behalf of
the drawer bank to indicate payment thereof.
EQUITABLE BANKING CORPORATION, vs.
SPECIAL STEEL PRODUCTS, INC. and AUGUSTO
L. PARDO G.R. NO. 175350, June 13, 2012 A
crossed check with the notation account payee can
only be deposited in the named payee’s account. It is
gross negligence for a bank to ignore this rule solely
on the basis of a third party’s oral representation of
having a good title thereto
What are THE EFFECTS OF CROSSING A
CHECK?
The effects of crossing a check are as follows:
1. The check may not be encashed but only
deposited in a bank;
2. The check may be negotiated only once to
one who has an account with a bank;
3. The act of crossing a check serves as a
warning to the holder thereof that the check
has been issued for a definite purpose so that
 S C B A R S T A G N O T E S [ 2018 ]
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the holder must inquire if he has received the
check pursuant to that purpose, otherwise is
not a holder in due course.
DISTINGUISH THE NATURE OF A REAL DEFENSE
FROM A PERSONAL DEFENSE.
A real defense is an absolute defense. Real defenses
are those that attach to the instrument itself and are
available against all holders, whether in due course or
not. A personal defense is an equitable defense.
Personal defenses are those which are available only
against a person not a holder in due course or a
subsequent holder who stands in privity with him.
H. LIABILITIES OF PARTIES
Distinguish an IRREGULAR INDORSER FROM
GENERAL INDORSER.
An irregular indorser, not otherwise a party to
the instrument, places his signature there on in black
before delivery to add credit thereto. (NIL, Sec 64) A
general indorser is a regular party to the instrument
like a maker, drawer or acceptor and he signs upon
delivery of the instrument. (NIL, Sec 63)
Who is a maker? What are his liabilities?
The maker of a negotiable instrument by
making it engages that he will pay it according to its
tenor, and admits the existence of the payee and his
then capacity to indorse. (NIL, Sec. 60)
Who is a drawer? What are his liabilites?
The drawer by drawing the instrument admits
the existence of the payee and his then capacity to
indorse; and engages that on due presentment the
instrument will be accepted or paid, or both, according
to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.
But the drawer may insert in the instrument an
express stipulation negativing or limiting his own
liability to the holder. (NIL, Sec 61)
Who is an acceptor? What are his liabilities?
The acceptor by accepting the instrument
engages that he will pay according to the tenor of his
acceptance; and admits –
(a) The existence of the drawer, the genuineness
of his signature and his capacity and authority
to draw the instrument; and
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(b) The existence of the payee and his then
capacity to indorse. (NIL, Sec 62)
What are the warranties when the instrument is
negotiated by delivery?
Under Sec. 65 of the NIL, the person negotiating
the instrument by delivery warrants the following:
(a) That the instrument is genuine and in all
respects what it purports to be;
(b) That he has good title to it;
(c) That all prior parties had capacity to contract;
(d) He has no knowledge of any fact which would
impair the validity of the instrument to render it
valueless.
The warranty extends in favor of no holder other
than the immediate transferee.
I. PRESENTMENT FOR PAYMENT
Gemma drew a check on Septermber 13, 1990.
The holder presented the check to the drawee
bank only on March 5, 1994. The bank dishonored
the check on the same date. After dishonor by the
drawee bank, the holder gave a Formal Notice to
Gemma through a letter dated April 27, 1994.
A. What is meant by “unreasonable time” as
applied to presentment?
As applied to presentment for
payment, “reasonable time” is meant not more
than 6 months from the date of issue. Beyond
said period, it is “unreasonable time” and the
check becomes stale.
B. Is Gemma liable to the holder?
No. Aside from the check being
already stale, Gemma is also discharged from
liability under the check being a drawer and a
person whose liability is secondary, this is due
to the giving of the notice of dishonor beyond
the period allowed by law. The giving of notice
of dishonor on April 27, 1994 is more than 1
month from March 5, 1994 when the check
was dishonored. Since it is not shown that
Gemma and the holder resides in the same
place, the period within which to give notice of
dishonor must be the same time that the
notice would reach Gemma by mail.
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
What is the liability of the persons secondarily
liable in case the instrument is dishonored by
non-payment?
Under Section 84 of the Negotiable
Instruments Law, when the instrument is dishonored
by non-payment, an immediate right or recourse to all
parties secondarily liable thereon accrues to the
holder.
J. NOTICE OF DISHONOR
TO WHOM IS THE NOTICE GIVEN?
Notice of dishonor may be given to the party himself
or to his agent in that behalf. (NIL, Sec. 97) In case
the party is dead, and his death is known to the party
giving notice, the notice must be given to a persona
representative, if there be one, and if with reasonable
diligence he cannot be found. If there be no personal
representative, notice may be sent to the last
residence or last place of business of the deceased.
(NIL, Sec 98)
When is notice of dishonor not required to be
given to the drawer?
Notice of dishonor not required to be given to the
drawer in any of the following cases:
1.) Where the drawer and the drawee are the
same person;
2.) When the drawee is a fictitious person or a
person not having capacity to contract;
3.) When the drawer is the person whom the
instrument is presented for payment;
4.) Where the drawer has no right to expect or
require that the drawee or acceptor will honor
the instrument;
5.) Where the drawer has countermanded
payment. (NIL, Sec 114)
In what form should the notice be?
The notice may be in writing or merely oral and may
be given in any terms which sufficiently identify the
instrument and indicate that it has been dishonored
by non-acceptance or non-payment. It may in all
cases be given by delivering it personally or through
the mails.
What is the effect if the notice is waived?
Where the waiver is embodied in the instrument itself,
it is binding upon all parties; but where it is written
above the signature of an indorser, it binds him only.
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(NIL, Sec. 110) A waiver of protest, whether in the
case of a foreign bill of exchange or other negotiable
instrument, is deemed to be a waiver not only of a
formal protest, but also of presentment and notice of
dishonor. (NIL, Sec. 111)
K. DISCHARGE OF NEGOTIABLE INSTRUMENT
How is an instrument discharged?
Under Section 119 of the Negotiable Instruments
Law, a negotiable instrument is discharged –
(a) By payment in due course by or on behalf
of the principal debtor;
(b) By payment in due course by the party
accommodated, where the instrument is
made or accepted for accommodation;
(c) By the intentional cancellation thereof by
the holder;
(d) By any other act which will discharge a
simple contract for the payment of money;
(e) When the principal debtor becomes the
holder of the instrument at or after
maturity in his own right.
When will a person, secondarily liable, be
discharged?
A person secondarily liable on the instrument is
discharged –
(a) By any act which discharges the
instrument;
(b) By the intentional cancellation of his
signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender of payment made by a
prior party;
(e) By a release of the principal debtor unless
the holder’s right od recourse against the
party secondarily liable is expressly
reserved;
(f) By any agreement binding upon the holder
to extend the time of payment, or to
postpone the holder’s right to enforce the
instrument, unless made with the assent
of the party secondarily liable, or unless
the right of recourse against such party is
expressly reserved.
How can a holder discharge the instrument by
renunciation?
Renunciation by holder must be absolute and
conditional, against the principal debtor and made at
or after maturity of the instrument. (NIL, Sec. 122)
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
MATERIAL ALTERATION
An alteration is material when it changes the
following:
(a) Date;
(b) Sum payable, either for principal or
interest;
(c) Time or place of payment;
(d) Number of relations of the parties;
(e) The medium or currency in which payment
is to be made; or
(f) Which adds a place of payment where no
place of payment is specified, or may
other changer or addition which alters the
effect of the instrument in any aspect, is a
material alteration. (NIL, Sec. 125)
What is the effect of material alteration?
Under Sec. 124 of the Negotiable Instruments
law, when a negotiable instrument is materially
altered, the prior parties and holder in due course,
who did not assent and is not a party to the alteration,
are liable according to the original tenor of the
instrument, while the party who made, authorized or
assented to the alteration and subsequent indorsers
shall be liable according to the altered instrument.
M. ACCEPTANCE
What is acceptance?
Acceptance of the bill is the signification by
the drawee of his assent to the order of the drawer.
(NIL, Sec 132)
How is acceptance made?
The acceptance must be in writing and signed
by the drawee. It must not express that the drawee
will not perform his promise by any other means than
the payment of money.
When should the acceptance be made?
The drawee is allowed twenty-four hours after
presentment in which to decide whether or not he will
accept the bill; but the acceptance, if given, dates as
of the day of presentation.
N. PRESENTMENT FOR ACCEPTANCE
How is presentment made?
Presentment must be made by or on behalf of
the holder to the drawee or some person authorized
to accept or refuse acceptance on his behalf at a
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reasonable hour, on a business day and before the
bill is overdue; and
When the bill is addressed to two or more
drawees who are not partners, presentment must be
made to all of them unless one has authority to accept
or refuse acceptance for all, in which case
presentment may be made to him only;
Where the drawee is dead, presentment may
be made to his personal representatives;
Where the drawee has been adjudged a
bankrupt or an insolvent, or has made an assignment
for the benefit of creditors, presentment may be made
to him or to his trustee or assignee.
When is a bill dishonored by non-acceptance?
A bill is dishonored by non-acceptance when:
(a) It is duly presented for acceptance an such
acceptance as is prescribed by this Act is
refused or cannot be obtained; or
(b) When presentment for acceptance is excused
and the bill is not accepted. (NIL, Sec 149)
O. PROMISSORY NOTES
What is a promissory note?
It is an unconditional promise in writing, made by one
person to another, signed by the maker, engaging to
pay, on demand, or at a fixed or determinable future
time, a sum certain in money, to order or to bearer.
(NIL, 184)
P. CHECKS
A check is a bill of exchange drawn on a bank
payable on demand. (NIL, Sec. 185)
WHAT IS THE “NO ERASURE RULE”?
Under CHOM No.15-460 effective January 4, 2016,
any check that shows or indicates on its face any
erasure, alteration of the: date; name of the payee;
amount in figures or in words; signature of the drawer;
account name or number; check number; or MICR
characters; or when it does not indicate the: date;
payee; amount payable in figures or in words, or
signature of the drawer shall no longer be accepted.
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What is the effect when there is delay in
presenting the check for payment?
While it is true that the delivery of a check
produces the effect ofpayment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is
otherwise if the debtor is prejudiced by the
creditor'sunreasonable delay in presentment. The
acceptance of a check impliesan undertaking of due
diligence in presenting it for payment, and if hefrom
whom it is received sustains loss by want of such
diligence, it will be held to operate as actual payment
of the debt or obligation forwhich it was given. It has,
likewise, been held that if no presentment ismade at
all, the drawer cannot be held liable irrespective of
loss or injury unless presentment is otherwise
excused. (Evangelista vs. Screenex, Inc., G.R. No.
211564, November 20, 2017, CJ. Sereno)
What is a CROSSED CHECK?
A crossed check is one where two parallel
lines are drawn across its face or across the corner
thereof. A check may be crossed generally or
specially. A check is crossed especially when the
name of a particular banker or company is written
between the parallel lines drawn. It is crossed
generally when only the words "and company" are
written between the parallel lines or none at all.
What are the effects of crossing a check?
Jurisprudence dictates that the effects of crossing a
check are: (1) that the check may not be encashed
but only deposited in the bank; (2) that the check may
be negotiated only once — to one who has an
account with a bank; and (3) that the act of crossing
the check serves as a warning to the holder that the
check has been issued for a definite purpose so that
he must inquire if he has received the check pursuant
to that purpose. The effects of crossing a check, thus,
relate to the mode of payment, meaning that the
drawer had intended the check for deposit only by the
rightful person, i.e., the payee named therein. (BDO
Unibank, Inc. vs. Lao, G.R. No. 227005, June 19,
2017, J. Mendoza
Alvin entrusted several pre-signed blank checks
to Nap Gutierrez to answer for the expenses of a
business venture (Slam Dunk) co-owned between
them. Further, that Gutierrez could only use the
checks upon prior approval of Alvin. Gutierrez,
without the knowledge and consent of Alvin,
however delivered one of the checks to Marasigan
as security for a loan in the amount of
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P200,000.00. Gutierrez misrepresented that the
loan is for the construction of Alvin’s house. The
blank portions of the check were filled out with
the words “cash” “Two Hundred Thousand Pesos
Only,” the amount of “P200,000.00” and the date
“May 23, 1994.” When Marasigan deposited the
check, it was dishonored or the reason “Account
Closed.”
A) IS ALVIN LIABLE?
Alvin is NOT liable and Marasigan is not a
HDC.
The check is incomplete but delivered. It was ot
completed strictly under the authority given by Alvin to
Gutierrez. Gutierrez was limited to the authority to fill
up the blank pre-signed checks to be used in the
operation of their business and on the condition that
Alvin’s prior approval be first secured. The authority
does not extend to its use (i.e., subsequent transfer or
negotiation) once the check is completed.
Gutierrez exceeded his authority. He used the check
to pay the loan he supposedly contracted for the
construction of Alvin’s house.
B) IS MARASIGAN A HOLDER IN DUE
COURSE?
Marasigan is NOT a HDC.
The rule that a possessor of the instrument is
prima facie a holder in due course is inapplicable.
Marasigan is aware that Alvin is not a party or privy to
the loan. The inaction and failure to verify, despite
knowledge that Alvin was not a party to the loan, may
be construed as gross negligence amounting to bad
faith. Alvin had no obligation or liability to him,
rendered him dishonest, hence, in bad faith.
(Patrimonio V. Gutierrez & Marasigan, Gr No.
187769, 14 June 2014)
V
INSURANCE CODE
Is a Contract Of Suretyship an insurance
contract?
A contract of suretyship shall be deemed to be
an insurance contract, within the meaning of this
Code, only if made by a surety who or which, as such,
is doing an insurance business as hereinafter
provided. (Section 2, Insurance Code)
The written instrument in which a contract of
insurance is set forth, is called a policy of insurance.
(Section 49, Insurance Code)
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MAY A MEMBER OF THE MILF OR THE ABU
SAYYAF BE INSURED? (2000 Bar)
Yes.
A member of the MILF or Abu Sayyaf is a
citizen/national of the Philippines. What is prohibited
to be insured is a public enemy.
GAISANO VS. DEVELOPMENT INSURANCE AND
SURETY CORPORATION
G.R. No. 190702, February 27, 2017
Is the payment of the premium required to make
an insurance policy effective?
Yes.Just like any other contract, it requires a cause or
consideration. The consideration is the premium,
which must be paid at the time and in the way and
manner specified in the policy. If not so paid, the
policy will lapse and be forfeited by its own terms.
THE INSULAR LIFE ASSURANCE COMPANY VS.
PAZ KHU, ET AL.
G.R. No. 195176, April 18, 2016
(Fraudulent concealment; obscurity of language)
After a policy of life insurance made payable
on the death of the insured shall have been in force
during the lifetime of the insured for a period of two
years from the date of its issue or of its last
reinstatement, the insurer cannot 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.
It must be remembered that an insurance
contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latter’s
interest.
Contract of Adhesion (2012 Bar)
An insurance contract is a contract of adhesion, which
means that in resolving ambiguities in the provision of
the contract are construed liberally in favor of the
insured and strictly against the insurer who drafted
the insurance policy.
“CASH TO CARRY” principle(Sec. 77)
 This principle requires payment of the
premium before the contract of insurance can
be valid and binding.
 The philosophy behind this principle is that the
insurer, upon issuance of the policy, is
immediately exposed to liability for the risks
insured against, hence, it is entitled to be paid
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the premium for extending protection to the
insured immediately upon such exposure.
The payment of premium is a condition precedent
to, and essential for, the efficacy of the contract of
insurance. Unless premium is paid, the policy shall
not be valid and binding notwithstanding any
agreement to the contrary (Sec. 77, Ins. Code;
Valenzuela v. CA, 191 SCRA 1 [1990]).
 There is no excuse for non-payment of
premium; even the failure of the insurer to
notify the insured of the change of address.
 Premium and risk are the very essence of a
contract of insurance and each is dependent
and inseparable from the other.
The premium is the elixir vitae or source of life
of the insurance business
This risk-distributing mechanism operates
under a system where, by prompt payment of the
premiums, the insurer is able to meet its legal
obligation to maintain a legal reserve fund needed to
meet its contingent obligations to the public. The
premium, therefore, is the elixir vitae or source of life
of the insurance business x xx. (Gaisano v. Dev’t.
Insurance, G.R. No. 190702, 27 February 2017)
PERFECTION OF CONTRACT OF INSURANCE
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. (Section 77, Insurance
Code)
DE LIM VS. SUN LIFE ASSURANCE COMPANY OF
CANADA G.R. No. L-15774, November 29, 1920
When is a contract of insurance perfected?
It is of course a primary rule that a contract of
insurance, like other contracts, must be assented to
by both parties either in person or by their agents. So
long as an application for insurance has not been
either accepted or rejected, it is merely an offer or
proposal to make a contract.
An acknowledgment in a policy or contract of
insurance or the receipt of premium is conclusive
evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it
shall not be binding until the premium is actually paid.
(Section 79, Insurance Code)
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RESCISSION OF INSURANCE CONTRACTS
Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of
this chapter, such right must be exercised previous to
the commencement of an action on the contract.
After a policy of life insurance made payable
on the death of the insured shall have been in force
during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last
reinstatement, the insurer cannot 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. (Section 48, Insurance Code)
MANILA BANKERS LIFE INS. CORP. vs. ABAN
GR No. 175666, 29 July 2013
The "incontestability clause" is a provision in law
that after a policy of life insurance made payable on
the death of the insured shall have been in force
during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindible by reason of
fraudulent concealment or misrepresentation of the
insured or his agent.
CONCEALMENT
NG GAN ZEE VS. ASIAN CRUSADER LIFE ASSN.
CORP.G.R. No. L-30685 May 30, 1983
Thus, "concealment exists where the assured
had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he
should communicate it to the assurer, but he
designedly and intentionally withholds the same."
 An insured, who gains knowledge of a
material fact already after the effectivity of the
insurance policy, is obliged to divulge it. The
reason for this is that the concealment of
material fact is determined at the time before
the policy becomes effective. (2011 bar)
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BRAVO BASTE!
MITSUBISHI MOTORS PHILS. SALARIED
EMPLOYEES UNION (MMPSEU) vs. MITSUBISHI
MOTORS PHILS. CORP., 698 SCRA 599, 17 JUNE
2013
What is the collateral source rule?
Under this rule, if an injured person receives
compensation for his injuries from a source wholly
independent of the tortfeasor, the payment should not
be deducted from the damages which he would
otherwise collect from the tortfeasor.
- In case of delay, the presentation to an insurer of
notice or proof of loss is waived if such delay is
caused by any act of him, or if he omits to take
objection promptly and specifically upon that ground.
(Section 93, Insurance Code)
BPI INSURANCE VS. LAINGO
G.R. No. 205206, March 16, 2016
Is a 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?
No. An insurance company has the duty to
communicate with the beneficiary upon receipt of
notice of the death of the insured.
Here, BPI had been informed of Rheozel's
death by the latter's family. Since BPI is the agent of
FGU Insurance, then such notice of death to BPI is
considered as notice to FGU Insurance as well. FGU
Insurance cannot now justify the denial of a
beneficiary's insurance claim for being filed out of time
when notice of death had been communicated to its
agent within a few days after the death of the
depositor-insured. In short, there was timely notice of
Rheozel's death given to FGU Insurance within three
months from Rheozel's death as required by the
insurance company.
ASIAN TERMINALS, INC. vs. MALAYAN INS. CO.,
INC. GR No. 171406, 04 April 2011
Whether the non-presentation of the insurance contract
or policy is fatal to Malayan’s cause of action.
Non-presentation of the insurance contract or policy is
not necessarily fatal. The presentation in evidence of
the marine insurance policy is not indispensable in
this case before the insurer may recover from the
common carrier the insured value of the lost cargo in
the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the
relationship of the insurer and the insured shipper of
the lost cargo, but also the amount paid to settle the
insurance claim. The right of subrogation accrues
simply upon payment by the insurance company of the
insurance claim.
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
VI
TRANSPORTATION LAW
A. COMMON CARRIERS
WHO ARE COMMON CARRIERS?
A common carrier is person, corporation or firm, or
association engaged in the business of carrying or
transporting passengers or goods or both, by land,
water or air, for compensation, offering their services
to the public. (Article 1732, New Civil Code)
SPS. CRUZ VS. SUN HOLIDAYS
G.R. No. 186312, June 29, 2010
-Indeed, respondent [Sun Holidays, A beach resort] is
a common carrier. Its ferry services are so intertwined
with its main business as to be properly considered
ancillary thereto. The constancy of respondent’s ferry
services in its resort operations is underscored by it
having its own Coco Beach boats. And the tour
packages it offers, which include the ferry services,
may be availed of by anyone who can afford to pay
the same. These services are thus available to the
public
FGU INSURANCE VS. G.P. SARMIENTO
TRUCKING
G.R. No. 141910. August 6, 2002
- An exclusive contractor, rendering or offering its
services to no other individual or entity cannot be
considered a common carrier
The true test of a common carrier is the carriage of
passengers or goods, providing space for those who
opt to avail themselves of its transportation service for
a fee. Given accepted standards, GPS scarcely falls
within the term common carrier.
FIRST PHILIPPINE INDUSTRIAL CORP. VS.
COURT OF APPEALS
G.R. No. 125948. December 29, 1998
- The test for determining whether a party is a
common carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and must
hold himself out as ready to engage in the
transportation of goods for person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by which
his business is conducted and over his established
roads; and
4. The transportation must be for hire.
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BRAVO BASTE!
[The Supreme Court also held in this case that a
petroleum concessioner is a common carrier upon the
application of the test above.]
WHAT IS THE DILIGENCE COMMON CARRIERS
ARE REQUIRED TO OBSERVE?
- Common carriers, from the nature of their
business and for reasons of public policy, are bound
to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers
transported by them, according to all the
circumstances of each case. (Article 1733, New Civil
Code)
ESTELA CRISOSTOMO VS. COURT OF APPEALS
G.R. No. 138334. August 25, 2003
A travel agency that is an agent of an airline
is not a common carrier.
By definition, a contract of carriage or transportation
is one whereby a certain person or association of
persons obligate themselves to transport persons,
things, or news from one place to another for a fixed
price. Such person or association of persons are
regarded as carriers and are classified as private or
special carriers and common or public carriers. A
common carrier is defined under Article 1732 of the
Civil Code as persons, corporations, firms or
associations engaged in the business of carrying or
transporting passengers or goods or both, by land,
water or air, for compensation, offering their services
to the public.
It is obvious from the above definition that
respondent is not an entity engaged in the business of
transporting either passengers or goods and is
therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner
from one place to another since its covenant with its
customers is simply to make travel arrangements in
their behalf. Respondents services as a travel agency
include procuring tickets and facilitating travel permits
or visas as well as booking customers for tours.
SPOUSES FERNANDO VS. NORTHWESTERN
AIRLINES
G.R. No. 212038, February 8, 2017
Breach of contract of carriage.
Undoubtedly, a contract of carriage existed
between Northwest and the Fernandos. They
voluntarily and freely gave their consent to an
agreement whose object was the transportation of the
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MERCANTILE LAW
Fernandos from LA to Manila, and whose cause or
consideration was the fare paid by the Fernandos to
Northwest.
As the aggrieved party, the Fernandos only
had to prove the existence of the contract and the fact
of its non-performance by Northwest, as carrier, in
order to be awarded compensatory and actual
damages.
Therefore, having proven the existence of a
contract of carriage between Northwest and the
Fernandos, and the fact of non-performance by
Northwest of its obligation as a common carrier, it is
clear that Northwest breached its contract of carriage
with the Fernandos.
MARIANO, JR. VS, CALLEJAS
G.R. No. 166640, July 31, 2009
A common carrier is not an insurer of
absolute safety of passengers.
Article 1756 creates a presumption in place
of evidence to hold a common carrier liable for injuries
sustained by its passengers. This presumption,
however, is rebuttable.
Neither the law nor the nature of the
business of a transportation company makes it an
insurer of the passenger's safety, but that its liability
for personal injuries sustained by its passenger rests
upon its negligence, its failure to exercise the degree
of diligence that the law requires.
In the case at bar, petitioner cannot succeed
in his contention that respondents failed to overcome
the presumption of negligence against them. The
totality of evidence shows that the death of
petitioner’s spouse was caused by the reckless
negligence of the driver of the Isuzu trailer truck which
lost its brakes and bumped the Celyrosa Express bus,
owned and operated by respondents.
LIABILITIES OF COMMON CARRIERS
OSCAR DELOS SANTOS VS. COURT OF
APPEALS
G.R. NO. 169498 : December 11, 2008
An Isuzu van driven by Antonio Sagosoy
Collided with a horse-drawn carriage steered by
Oscar Delos Santos. The collision left the horse dead
and Oscar’s son injured with a broken spinal cord. An
information was filed charging Sagosoy with the crime
of reckless imprudence resulting in serious physical
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injuries and damage to property. Sagosoy was
subsequently convicted. A writ of execution was
issued but was not satisfied, and the owner of the
Vehicle, Dy, was sought to answer for the liability
which it denied.
The Supreme Court held that Dy could be
held subsidiarily liable for the civil liability arising from
the criminal case under Article 102 of the Revised
Penal Code.
VIRATA VS. OCHOA
G.R. No. L-46179 January 31, 1978
It is settled that in negligence cases the
aggrieved parties may choose between an action
under the Revised Penal Code or of quasi-delict
under Article 2176 of the Civil Code of the Philippines.
What is prohibited by Article 2177 of the Civil Code of
the Philippines is to recover twice for the same
negligent act.
TIU VS. ARRIESGADO
G.R. No. 138060, September 1, 2004
The principle of last clear chance is
inapplicable in the instant case, as it only applies in a
suit between the owners and drivers of two colliding
vehicles. It does not arise where a passenger
demands responsibility from the carrier to enforce its
contractual obligations, for it would be inequitable to
exempt the negligent driver and its owner on the
ground that the other driver was likewise guilty of
negligence.
Accordingly, it is difficult to see what role, if
any, the common law of last clear chance doctrine
has to play in a jurisdiction where the common law
concept of contributory negligence as an absolute bar
to recovery by the plaintiff, has itself been rejected, as
it has been in Article 2179 of the Civil Code.
What is the effect of fortuitous event on the
liability of common carriers?
Article 1174 of the New Civil Code provides
that except in cases expressly specified by law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
which, could not be foreseen, or which, though
foreseen, were inevitable.
However, in the case of SPS. CRUZ VS. SUN
HOLIDAYS, the Supreme Court held that to fully free
a common carrier from any liability, the fortuitous
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event must have been the proximate and only
cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before,
during and after the occurrence of the fortuitous
event.
Article 1740 of the New Civil Code provides
further that If the common carrier negligently incurs in
delay in transporting the goods, a natural disaster
shall not free such carrier from responsibility.
UNDER WHAT CIRCUMSTANCES MAY A
CARRIER BE EXEMPTED FROM LIABILITY FOR
THE LOSS OF GOODS?
Article 1734 of the New Civil Code provides the
exclusive circumstances, which are:
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.
- Common carriers are presumed to be at fault if the
goods are lost, destroyed or deteriorated, unless they
prove that they observed extraordinary diligence in
the vigilance over the goods.
METRO MANILA TRANSIT CORP. VS. CUEVAS
G.R. No. 167797, June 15, 2015
The registered owner of a motor vehicle whose
operation causes injury to another is legally liable to
the latter. But it is error not to allow the registered
owner to recover reimbursement from the actual and
present owner by way of its cross-claim.
The main aim of motor vehicle registration is to
identify the owner so that if any accident happens, or
that any damage or injury is caused by the vehicle on
the public highways, responsibility therefor can be
fixed on a definite individual, the registered owner.
The Court, citing Filcar Transport Services vs.
Espinas, held that “the registered owner of the motor
vehicle is considered as the employer of the
tortfeasor-driver, and is made primarily liable for the
tort committed by the latter under Article 2176, in
relation with Article 2180, of the Civil Code.”
Page 22 of 43
BRAVO BASTE!
FEB LEASING LEASING AND FINANCE CORP. VS.
BAYLON
G.R. No. 181398, June 29, 2011
Is the registered owner of a financially leased vehicle
liable for loss, damage, or injury caused by the
vehicle, notwithstanding an exempting provision in the
financial lease contract?
Yes.
This Court has consistently ruled that, with
respect to the public and third persons, the registered
owner of a motor vehicle is directly and primarily
responsible for the consequences of its operation
regardless of who the actual vehicle owner might be.
Well-settled is the rule that the registered
owner of the vehicle is liable for quasi-delicts resulting
from its use. Thus, even if the vehicle has already
been sold, leased, or transferred to another person at
the time the vehicle figured in an accident, the
registered vehicle owner would still be liable for
damages caused by the accident. The sale, transfer
or lease of the vehicle, which is not registered with the
Land Transportation Office, will not bind third persons
aggrieved in an accident involving the vehicle.
LIM AND GUNNABAN VS. COURT OF APPEALS
G.R. No. 125817. January 16, 2002
What is a ‘kabit system arrangement’?
The kabit system is an arrangement whereby
a person who has been granted a certificate of public
convenience allows other persons who own motor
vehicles to operate them under his license,
sometimes for a fee or percentage of the earnings.
Although the parties to such an agreement are
not outrightly penalized by law, the kabit system is
invariably recognized as being contrary to public
policy and therefore void and inexistent under Art.
1409 of the Civil Code.
UNTIL WHEN DOES THE EXTRAORDINARY
RESPONSIBILITY OF THE COMMON CARRIER
LAST?
This responsibility lasts from the time the goods are
unconditionally placed in the possession of, and
received by the carrier for transportation until the
same are delivered, actually or constructively, by the
carrier to the consignee, or to the person who has a
right to receive them, without prejudice to the
provisions of article 1738. (Article 1736, New Civil
Code)
The common carrier's duty to observe extraordinary
diligence over the goods remains in full force and
effect even when they are temporarily unloaded or
stored in transit, unless the shipper or owner has
made use of the right of stoppage in transitu. (Article
1737, New Civil Code)
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STIPULATIONS LIMITING LIABILITY
- A stipulation between the common carrier and the
shipper or owner limiting the liability of the former for
the loss, destruction, or deterioration of the goods to a
degree less than extraordinary diligence shall be
valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than
the service rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
(Article 1744, New Civil Code)
WHAT LAW GOVERNS THE LIABILITY OF THE
COMMON CARRIER FOR THE LOSS,
DESTRUCTION OR DETERIORATION OF GOODS?
- The law of the country to which the goods are to be
transported shall govern the liability of the common
carrier for their loss, destruction or deterioration.
(Article 1753, New Civil Code)
SAFETY OF PASSENGERS
- A common carrier is bound to carry the passengers
safely as far as human care and foresight can
provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
(Article 1755, New Civil Code)
- In case of death of or injuries to passengers,
common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in
articles 1733 and 1755. Article 1756, New Civil Code)
LIGHT RAIL TRANSIT AUTHORITY VS. NAVIDAD
G.R. No. 145804. February 6, 2003
Such duty of a common carrier to provide
safety to its passengers so obligates it not only during
the course of the trip but for so long as the
passengers are within its premises and where they
ought to be in pursuance to the contract of carriage.
In case of such death or injury, a carrier is
presumed to have been at fault or been negligent,
and by simple proof of injury, the passenger is
relieved of the duty to still establish the fault or
negligence of the carrier or of its employees and the
burden shifts upon the carrier to prove that the injury
is due to an unforeseen event or to force majeure. In
the absence of satisfactory explanation by the carrier
on how the accident occurred, which petitioners,
according to the appellate court, have failed to show,
the presumption would be that it has been at fault, an
exception from the general rule that negligence must
be proved.
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BRAVO BASTE!
EASTERN SHIPPING LINES, INC. VS. BPI/MS
INSURANCE CORP.
G.R. No. 182864, January 12, 2015
What is a ‘clean bill of lading’?
- It is one which has no notation of any defect or
damage in the goods. A clean bill of lading constitutes
prima facie evidence of the receipt by the carrier of
the goods as therein described.
B. MARINE TRANSPORTATION
LEA MER INDUSTRIES VS. MALAYAN
INSURANCE
G.R. No. 161745, September 30, 2005
May a common carrier become a private carrier?
Yes.
A common carrier who is chartered, either
under a contract of demise (or bareboat) or
affreightment becomes a private carrier.
Under the demise or bareboat charter of the
vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to
liability to others for damages caused by negligence.
To create a demise, the owner of a vessel must
completely and exclusively relinquish possession,
command and navigation thereof to the charterer;
anything short of such a complete transfer is a
contract of affreightment (time or voyage charter
party) or not a charter party at all.
AFFREIGHTMENT, BAREBOAT CHARTER
DISTINGUISHED (LEA MER, SUPRA)
The distinction is significant, because a
demise or bareboat charter indicates a business
undertaking that is private in character. Consequently,
the rights and obligations of the parties to a contract
of private carriage are governed principally by their
stipulations, not by the law on common carriers.
LOADSTAR SHIPPING VS. PIONEER ASIAS
INSURANCE
G.R. No. 157481, January 24, 2006
Does a voyage-charter convert a common carrier
into a private carrier?
No.
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The voyage-charter agreement did not in any
way convert the common carrier into a private carrier.
It is only when the charter includes both the vessel
and its crew, as in a bareboat or demise that a
common carrier becomes private.
FEDERAL PHOENIX ASSURANCE CO. LTD VS.
FORTUNE SEA CARRIER, INC.
G.R. No. 188118, November 23, 2015
Can a common carrier which enters into a time
charter be converted into a private carrier?
Yes.
A time charter party agreement that shows the
intention of the parties to make the charterer the
owner pro hac vice of the boat during the whole
period of the voyage converts the common carrier into
a private carrier
CHUA YEK HONG VS. INTERMEDIATE
APPELLATE COURT
G.R. No. 74811 September 30, 1988
What is the doctrine of limited liability?
Art. 587. The ship agent shall also be civilly liable for
the indemnities in favor of third persons which may
arise from the conduct of the captain in the care of the
goods which he loaded on the vessel; but he may
exempt himself therefrom by abandoning the vessel
with all the equipments and the freight it may have
earned during the voyage.
As the Supreme Court held:
If the ship owner or agent may in any way be
held civilly liable at all for injury to or death of
passengers arising from the negligence of the captain
in cases of collisions or shipwrecks, his liability is
merely co-extensive with his interest in the vessel
such that a total loss thereof results in its extinction.
(Yangco vs. Laserna, et al., supra).
The limited liability rule, however, is not
without exceptions, namely: (1) where the injury or
death to a passenger is due either to the fault of the
ship owner, or to the concurring negligence of the
ship owner and the captain (Manila Steamship Co.,
Inc. vs. Abdulhaman supra); (2) where the vessel is
insured; and (3) in workmen's compensation claims.
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WARSAW CONVENTION
Article 1 of the Warsaw Convention provides:
1. This Convention applies to all international carriage
of persons, luggage or goods performed by aircraft for
reward. It applies equally to gratuitous carriage by
aircraft performed by an air transport undertaking.
2. For the purposes of this Convention the expression
"international carriage" means any carriage in which,
according to the contract made by the parties, the
place of departure and the place of destination,
whether or not there be a break in the carriage or a
transshipment, are situated either within the territories
of two High Contracting Parties, or within the territory
of a single High Contracting Party, if there is an
agreed stopping place within a territory subject to the
sovereignty, suzerainty, mandate or authority of
another Power, even though that Power is not a party
to this Convention. A carriage without such an agreed
stopping place between territories subject to the
sovereignty, suzerainty, mandate or authority of the
same High Contracting Party is not deemed to be
international for the purposes of this Convention.
Contracts covered by COGSA
The Carriage of Goods by Sea Act (COGSA)
th
or Public Act No. 521 of the 74 US Congress, was
accepted to be made applicable to all contracts for
the carriage of goods by sea to and from
Philippine Ports in foreign trade by virtue of
Commonwealth Act (C.A.) No. 65 (Asian Terminals,
Inc. v. Philam Insurance Co., Inc., 702 SCRA 88, 24
July 2013).
Prescriptive period to file a claim for loss
or damage
The suit must be brought within one year
after delivery of the goods or the date when the
goods should have been delivered. (Section 3(6);
Cua v. WallemPhils. Shipping, Inc., GR No. 171337,
11 July 2012; Phil-am Ins. Co., Inc. (now Chartis Phil.
Ins. Inc.) v. Heung-A Shipping Corp., 730 SCRA 512,
23 July 2014).
*The filing of a notice of claim/loss is NOT a
condition precedent
*It is NOT interrupted or tolled by an
extrajudicial demand (DOLE v. Maritime Co.,148
SCRA 118)
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 Prescriptive period may be extended by
agreement
Jurisprudence, however, recognized the validity
of an agreement between the carrier and
the shipper/consignee extending the one-year
period to file a claim (Cua v. WallemPhils.
Shipping, Inc., GR No. 171337, 11 July 2012).
 A stipulation reducing the one (1) year
prescriptive period is null and void.
“loss or damage” under the COGSA
 “Loss or Damage” as applied to the COGSA
contemplates a situation where no delivery at
all was made by the shipper of the goods
because the same had perished, gone out of
commerce, or disappeared in such a way
that their existence is unknown or they
cannot be recovered.
 Thus, it is inapplicable in case of
misdelivery or conversion. (Ang v.
American Steamship Agencies, Inc., 19 SCRA
122; Art. 1189, Civil Code; par. 4, Sec 3[6],
COGSA) and damage arising from delay or
late delivery (Mitsui O.S.K. Lines Ltd. vs.
CA). In such instance the, Civil Code rules on
prescription shall apply.
When the prescriptive is not applicable?
Does NOTAPPLY toconversions or
misdeliveries(CIA Maritima v. Insurance Co. of North
America, 19 SCRA 1223; Ang v. CIA Maritima, 133
SCRA 600).
***In such cases the Civil Code
provision on prescription will apply: ten (10) years
is there is a written contract or bill of lading; six (6)
years if contract is oral
 The one year prescriptive period for filing an
action for the loss or damage of goods may
not be invoked by an arrastre operator.
(Insurance Company of North America v.
Asian Terminals, Inc., GR No. 180784, 12
February 2012)
 (SHIPPER vs. INSURER) Where the shipper
or the consignee files the suit against the
insurer for payment under the insurance
policy, the one (1) year period does not apply
but the ten (10) year prescriptive period under
the Civil Code because the suit is not against
the carrier arising from the contract of carriage
Page 25 of 43
BRAVO BASTE!
(Mayer Steel Pipe Corp. v. CA, 274 SCRA
432).
(INSURER vs. CARRIER) If the suit is filed by an
insurer under its subrogatory rights, the one
(1) year prescriptive period applies (Fil-Merchants
v. Alejandro, 145 SCRA 42)
VII
THE CORPORATION CODE
ATTRIBUTES OF A CORPORATION
What are the attributes of a corporation?
(1) It enjoys the right of Succession; (2) It is
an Artificial being; (3) It is a creature of Law; and (4) It
is a creature of Enumerated powers, attributes, and
properties (Corporation Code, Sec.2).
In Liban, et al. v. Gordon (July 15, 2009) the court
held that Richard Gordon did not forfeit his seat in
the Senate when he accepted the chairmanship of
the Philippine National Red Cross board of
governors, as the office of the PNRC Chairman is
neither a government office nor an office in a
government-owned or controlled corporation for
purposes of the prohibition in Section 13, Article
VI of the 1987 Constitution. however, the decision
declared void the PNRC charter as it creates the
PNRC as a private corporation and ruled that the
PNRC should incorporate under the Corporation
Code and register with the SEC if it wants to be a
private corporation. is PNRC a private
corporation?
NO. Although the PNRC was created by a
special charter, it cannot be considered as a GOCC in
absence of the essential elements of ownership and
control by the government. It does not have
government assets and does not receive any
appropriation from the Philippine Congress. It is a
non-profit, donor-funded, voluntary organization,
whose mission is to bring timely, effective and
compassionate humanitarian assistance for the most
vulnerable without consideration of nationality, race,
religion, gender, social status or political affiliation.
This does not mean however that the charter of
PNRC is unconstitutional. PNRC is sui generis.
Although it is neither a subdivision, agency or
instrumentality of the government nor a GOCC or a
subsidiary thereof, so much so that Gordon was
correctly allowed to hold his position as Chairman
thereof concurrently while he served as a Senator,
such a conclusion does not ipso facto imply that the
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PNRC is a private corporation within the
contemplation of the provision of the Constitution that
must be organized under the Corporation Code. The
PNRC enjoys a special status as an important ally
and auxiliary of the government in the humanitarian
field in accordance with its commitments under
international law. (Dante V. Liban, et al., v. Richard J.
Gordon, G. R. No. 175352, January 18, 2011)
Manila Economic and Cultural Office (MECO) was
established to foster relations with Taiwan,
pursuant to a “One China Policy”. considering its
public functions, is it a GOCC whose accounts
aresubject to the audit jurisdiction of the COA?
GOCCs are stock or non-stock corporations
vested with functions relating to public needs that are
owned by the government directly or through its
instrumentalities." Three attributes thus make an
entity a GOCC: first, its organization as stock or
nonstock corporation; second, the public character of
its function; and third, government ownership over the
same. The last element was not met here.
MECO is actually a sui generis entity. Though
it has a special duty and authority to exercise certain
consular functions, it maintains its legal status as a
non-governmental entity. Thus, only
accountspertaining to the verification and consular
fees may be audited by the COA.(Funa vs. MECO,
February 4, 2014)
May a corporation enter into a joint venture?
YES. A corporation may enter into a joint
venture with another where the nature is in line with
the business authorized by its charter. (Tuason v.
Bolanos, G.R. L-4935, May 28, 1954) However, in as
much as the term “joint venture” has no precise legal
definition, it may take various forms. It could take the
form of a simple pooling of resources (not involving
incorporation) between two or more Corporations for
a specific project, purpose or undertaking, or for a
limited time. It may involve the creation of a more
formal structure, and, hence, the formation of a
corporation. What is prohibited by law is the creation
of partnership between corporations but not the
creation of joint venture.
SEPARATE JURIDICAL PERSONALITY AND
PIERCING THE VEIL OF CORPORATE FICTION
Can an officer and stockholder of the corporation
be held liable for its debts?
NO. A corporation is a juridical entity which is
vested with a legal personality separate and distinct
Page 26 of 43
BRAVO BASTE!
from those acting for and in its behalf and, in general,
from the people comprising it. Obligations incurred by
the corporation, acting through its directors, officers
and employees, are its sole liabilities. A director,
officer or employee of a corporation is generally not
held personally liable for obligations incurred by the
corporation. Nevertheless, this legal fiction may be
disregarded if it is used as a means to perpetrate
fraud or an illegal
act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse
legitimate issues. Heirs of Uy vs. International
Exchange Bank, February 13, 2013; J. Mendoza
Virata owned majority of the power merge shares;
he is not only the company president, he also
owns 374,996 out of 375,000 of its subscribed
capital stock. The remainder was left for the
nominal incorporators of the business. The
reported address of petitioner Virata and the
principal office of power merge are even one and
the same. Power merge never operated to perform
its business functions, but for the benefit of
Virata, specifically, to fulfill his obligations under
the waiver and quitclaim. Can Virata then be held
to answer for liabilities of power merge
corporation?
Yes. A corporation is an entity separate and
distinct from its stockholders and from other
corporations to which it may be connected. But, this
separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to
promote justice. When the notion of separate juridical
personality is used (1) to defeat public convenience,
justify wrong, protect fraud or defend crime; (2) as a
device to defeat the labor laws; or (3) when the
corporation is merely an adjunct, a business conduit
or an alter ego of another corporation, this separate
personality of the corporation may be disregarded or
the veil of corporate fiction pierced. Virata vs. Ng
Wee, G.R. Nos. 220926 et.al., July 5, 2017
When the court disregards the corporation's
distinct and separate personality from its
directors or officers, does it mean that the
corporation, in all instances and for all purposes,
is the same as its directors, stockholders,
officers, and agents?
No. It does not result in an absolute confusion
of personalities of the corporation and the persons
composing or representing it. Courts merely discount
the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the
contract and the liabilities for all damages to erring
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corporate officials who participated in the
corporation's illegal acts. This is done so that the legal
fiction cannot be used to perpetrate illegalities and
injustices. Lanuza, Jr. vs. BF Corporation, October 1,
2014
A corporation cannot invoke its separate
judicial entity to escape its liability for non-
payment of SSS contributions.
SSS filed a complaint before the RTC against
Ambassador Hotel, Inc. and its officers for failure to
remit SSS contributions of its employees. The RTC
acquitted the president of Ambassador but ruled that
Ambassador is civilly liable for the unpaid SSS
contributions.
Ambassador assailed the ruling. It argued that
it has a separate and distinct personality from its
officers; it was neither a party to the criminal case nor
was summons issued against it, hence, the RTC did
not acquire jurisdiction over it; that it was deprived
due process when the trial court declared that it was
civilly liable for the unpaid SSS contributions even
though the RTC had no jurisdiction over its person;
and that the RTC had no right to render an adverse
decision against it because it was not a party to the
criminal action.
Can the writ be enforced against the officers who
were not impleaded?
Yes. The veil of corporate fiction can be
pierced, and responsible corporate directors and
officers or even a separate but related corporation,
may be impleaded and held answerable solidarily 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.
When the shield of a separate corporate identity is
used to commit wrongdoing and opprobriously elude
responsibility, the courts and the 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.
Bad faith does not connote bad judgment or
negligence but imports a dishonest purpose or some
moral obliquity and conscious doing of wrong; it
means breach of a known duty through some motive
or interest or ill will; it partakes of the nature of fraud.
Guillermo vs. Uson, March 7, 2016
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BRAVO BASTE!
What are the two types of authorities conferred
upon a corporate officer or agent in dealing with
third persons?
These are actual authority and apparent
authority.
Actual authority can either be express or
implied. Express actual authority refers to the power
delegated to the agent by the corporation, while an
agent's implied authority can be measured by his or
her prior acts which have been ratified by the
corporation or whose benefits have been accepted by
the corporation.
On the other hand, apparent authority is
based on the principle of estoppel. It may also be
ascertained through: (1) the general manner by which
the corporation holds out an officer or agent as having
power to act or, in other words, the apparent authority
with which it clothes him to act in general, or (2) the
acquiescence in his acts of a particular nature, with
actual or constructive knowledge thereof, whether
within or without the scope of his ordinary powers.
Apparent authority is determined by the acts
of the principal and not by the acts of the agent.
Calubad vs. Ricarcen Development Corp., G.R. No.
202364, August 30, 2017
Ricarcen was a domestic corporation engaged in
renting out real estate. It was the registered owner
of a parcel of land. it’s president, Marilyn, acting
in behalf of the corporation, took out loans and
submitted the title to the land to Calubad as
collateral. The loans were not paid resulting to the
foreclosure of the mortgage. Ricarcen claimed it
was not aware of the transactions taken. Can the
corporation be held liable for the loans?
Yes. It was within Marilyn's scope of authority
to act for and enter into contracts in Ricarcen's behalf.
Her broad authority from Ricarcen can be seen with
how the corporate secretary entrusted her with blank
yet signed sheets of paper to be used at her
discretion. She also had possession of the owner's
duplicate copy of the land title covering the property
mortgaged to Calubad.
Calubad could not be faulted for continuing to
transact with Marilyn because Ricarcen clothed her
with apparent authority. It appeared that Ricarcen's
officers knew of the mortgage contracts entered into
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by Marilyn in Ricarcen's behalf as proven by the
issued BDO checks as payments for the monthly
interest and the principal loan. Calubad, as an
innocent third party dealing in good faith with Marilyn,
should not be made to suffer because of Ricarcen's
negligence in conducting its own business affairs. If a
private corporation intentionally or negligently clothes
its officers with apparent power to perform acts for it,
the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents.
Calubad vs. Ricarcen Development Corp., G.R. No.
202364, August 30, 2017
Lent and Schulze were tasked with the
establishment of a Philippine subsidiary of
Tradition Asia to be known as Tradition
Philippines. Tradition Philippines was registered
with the SEC with Ient and Schulze, among
others, named as incorporators and directors in
its articles of incorporation.
Villalon (formerly president and managing
director of Tullett) and Chuidian (formerly a
member of Tullett's board of directors) were
charged with using their former positions in
Tullett to sabotage said company by orchestrating
the mass resignation of its entire brokering staff
in order for them to join Tradition Philippines.
They violated Sections 31 and 34 of the
Corporation Code which made them criminally
liable under Section 144. Would violation of
Sections 31 and 34 carry criminal liability?
NO. The lack of specific language imposing
criminal liability in Sections 31 and 34 shows
legislative intent to limit the consequences of their
violation to the civil liabilities mentioned therein. Had it
been the intention of the drafters of the law to define
Sections 31 and 34 as NO. The lack of specific
language imposing criminal liability in Sections 31 and
34 shows legislative intent to limit the consequences
of their violation to the civil liabilities mentioned
therein. Had it been the intention of the drafters of the
law to define Sections 31 and 34 as offenses, they
could have easily included similar language as that
found in Section 74.
Under the rule of lenity, whenever the court is
faced with two possible interpretations of a penal
statute, one that is prejudicial to the accused and
another that is favorable to him, the rule calls for the
adoption of an interpretation which is more lenient to
the accused. Ient vs. TullettPrebon (Phils Inc., G.R.
Nos. 189158 and 189530, January 11, 2017
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Liability when corporate fiction is pierced
When a corporate veil is pierced, the
corporation’s liability becomes personal to the person
directly responsible for and who acted in bad faith in
committing the illegal dismissal or any act violative of
the Labor Code (Jose Emmanuel Guillermo v.
Crisanto Uson, GR No. 198967, 07 March 2016). The
responsible persons maybe impleaded and be held
solidarily liable (Dutch Movers, Movers, Inc. v. Lequin,
824 SCRA 310, 25 April 2017).
When the separate personality of the
corporation is disregarded, the corporation will be
treated merely as an association of persons and the
stockholders or members will be considered as the
corporation, i.e., liability will attach personally or
directly to the officers and stockholders (Yao, Sr. v.
People, GR No. 168306, 19 June 2007).
CORPORATE NAME
Royal Savings Bank was renamed as Comsavings
Bank, Inc. and later as GSIS Family Bank, A Thrift
Bank. BPI Family Bank, which had been in
existence 17 years ahead, opposed on the use of
―Family Bank. Is it warranted?
Yes, as the proposed name is similar or
deceptive or confusingly similar to that of any existing
corporation or to any other name already protected by
law.
If there be identical, misleading or confusingly similar
name to one already registered by another
corporation or partnership with the SEC, the proposed
name must contain at least one distinctive word
different from the name of the company already
registered.
The words "GSIS" and "thrift" are not sufficiently
distinct words that differentiate the corporate name
from BPI. While "GSIS" is merely an acronym of the
proper name by which petitioner is identified, the word
"thrift" is simply a classification of the type of bank that
petitioner is. Even if the classification of the bank as
"thrift" is appended to petitioner's proposed corporate
name, it will not make the said corporate name
distinct from BPI Family Bank because the latter is
likewise engaged in the banking business. The
overriding consideration in determining whether a
person, using ordinary care and discrimination, might
be misled is the circumstance that both petitioner and
respondent are engaged in the same business of
banking. The likelihood of confusion is accentuated in
cases where the goods or business of one
corporation are the same or substantially the same to
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that of another corporation. GSIS Family Bank vs. BPI
Family Bank, September 23, 2015
What is the restriction on the exclusive right to
use a corporate name?
A corporation has a right to the exclusive use
of a corporate name except if:
1. the complainant corporation acquired a prior
right over the use of such corporate name;
and
2. the proposed name is either
a. identical or
b. deceptive or confusingly similar to that of
any existing corporation or to any other
name already protected by law; or
c. patently deceptive, confusing or contrary to
existing law. GSIS Family Bank vs. BPI
Family Bank, September 23, 2015
Can an organization apply for registration of a
corporate name ―Samahan Ng Manggagawa Sa
Hanjin Shipyard when some of the members of
the Samahan are not employees of the shipyard?
No. 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.
The policy underlying the prohibition against
the registration of such a corporate name is the
avoidance of fraud upon the public which would have
occasion to deal with the entity concerned, the
evasion of legal obligations and duties, and the
reduction of difficulties of administration and
supervision over corporations.
It would be misleading for the members of
Samahan to use "Hanjin Shipyard" in its name as it
could give the wrong impression that all of its
members are employed by Hanjin. Samahan ng
ManggagawasaHanjin Shipyard vs. Bureau of Labor
Relations, October 14, 2015
Would change of corporate name result to
dissolution?
No. The Corporation Code defined and
delineated the different modes of dissolving a
corporation, and amendment of the articles of
incorporation was not one of such modes.Zuellig
Freight and Cargo Systems vs. NLRC, July 22, 2013
Page 29 of 43
BRAVO BASTE!
Can a corporation use as corporate name the
name of a defunct corporation?
Yes. A corporation is ipso facto dissolved as
soon as its term of existence expires. The name of a
dissolved firm shall not be allowed to be used by
other firms within three (3) years after the approval of
the dissolution of the corporation by the Commission,
unless allowed by the last stockholders representing
at least majority of the outstanding capital stock of the
dissolved firm. Indian Chamber of Commerce, Phils.
Inc. vs. Filipino Indian Chamber of Commerce in the
Phils., Inc., August 3, 2016
Refractories Corporation of the Philippines (RCP)
is a corporation for the purpose of engaging in
the business of manufacturing, producing,
selling, exporting and otherwise dealing in any
and all refractory bricks, its by-products and
derivatives. On June 22, 1977, it registered its
corporate and business name with the Bureau of
Domestic Trade. On the other hand, Synclaire
Manufacturing Corporation amended its AOI on
August 23, 1985 to change its corporate name to
Industrial Refractories Corp. of the Philippines
(IRCP). Both companies are the only local
suppliers of monolithic gunning mix. Discovering
that IRCP was using such corporate name, RCP
filed with SEC a petition to compel IRCP to
change its corporate name on the ground that its
corporate name is confusingly similar with that of
RCP’S such that the public may be confused or
deceived into believing that they are one and the
same corporation. Is industrial refractories
corporation of the Philippines confusingly similar
with refractories corporation of the Philippines?
YES. To fall within the prohibition of the law,
two requisites must be proven, to wit: (1) that the
complainant corporation acquired a prior right over
the use of such corporate name; and (2) the proposed
name is either: (a) identical, or (b) deceptively or
confusingly similar to that of any existing corporation
or to any other name already protected by law; or (c)
patently deceptive, confusing or contrary to existing
law. In this case, RCP was incorporated on October
13, 1976 and since then has been using the corporate
name “Refractories Corp. of the Philippines”.
Meanwhile, IRCP was incorporated on August 23,
1979 originally under the name “Synclaire
Manufacturing Corporation”. It only started using the
name “Industrial Refractories Corp. of the Philippines”
when it amended its Articles of Incorporation on
August 23, 1985, or nine (9) years after respondent
RCP started using its name. Thus, being the prior
registrant, respondent RCP has acquired the right to
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use the word “Refractories” as part of its corporate
name. (Industrial Refractories Corporation of the
Philippines v. CA, et al., G.R. No. 122174, October 3,
2002)
What is the doctrine of secondary meaning?
It is the doctrine which states that a word or
phrase originally incapable of exclusive appropriation
with reference to an article on the market, because
geographically or otherwise descriptive, might
nevertheless have been used so long and so
exclusively by one producer with reference to his
article that, in that trade and to that branch of the
purchasing public, the word or phrase has come to
mean that the article was his product. (Philippine Nut
Industry, Inc. vs. Standard Brands. Inc. G.R. No.L-
23035, July 31, 1975)
DISPOSITION AND TRANSFER OF SHARES
A stockholder sold his one common share in a
golf and country club to a buyer. No stock
certificate was issued in the buyer’s name,
prompting the buyer to sue for rescission, where
he won. Can the club appeal the ruling?
No. It was not a party to the sale even though
the subject of the sale was its share of stock. The
corporation whose shares of stock are the subject of a
transfer transaction (through sale, assignment,
donation, or any other mode of conveyance) need not
be a party to the transaction. However, to bind the
corporation as well as third parties, it is necessary
that the transfer is recorded in the books of the
corporation.
As party to the sale, the seller/stockholder is
the one who may appeal the ruling rescinding the
sale. The remedy of appeal is available to a party who
has a present interest in the subject matter of the
litigation and is aggrieved or prejudiced by the
judgment. A party, in turn, is deemed aggrieved or
prejudiced when his interest, recognized by law in the
subject matter of the lawsuit, is injuriously affected by
the judgment, order or decree." The rescission of the
sale does not in any way prejudice the club in such a
manner that its interest in the subject matter — the
share of stock — is injuriously affected. Thus, the club
is in no position to appeal the ruling rescinding the
sale of the share. Forest Hills Golf and Country Club
vs. Vertex Sales, March 6, 2013
Page 30 of 43
BRAVO BASTE!
Can illegal acts be ratified?
No. Subsequent ratification made by the
stockholders did not cure the substantive infirmity, the
defect having set in at the time the void act was done.
The defect goes into the very authority of the persons
who made the call for the meeting. Illegal acts of a
corporation which contemplate the doing of an act
which is contrary to law, morals or public order, or
contravenes some rules of public policy or public duty
are void. They cannot serve as basis for a court
action, nor acquire validity by performance, ratification
or estoppel.
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 are contrary to law, morals
or public policy or public duty and are void. They
cannot serve as basis of a court 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 become binding and enforceable
when ratified by the stockholders. Bernas vs. Cinco,
July 1, 2015
Would inheritance of the shares of stock
automatically afford an heir the rights of a
majority stockholder?
No. Under Sec. 63, all transfers of shares of
stock must be registered in the corporate books in
order to be binding on the corporation. An owner of
shares of stock cannot be accorded the rights
pertaining to a stockholder — such as the right to call
for a meeting and the right to vote, or be voted for —
if his ownership of such shares is not recorded in the
Stock and Transfer Book. F.S. Velasco Co., Inc. vs.
Madrid, November 10, 2015
It appears that the registration of BMTODA as a
corporation with the SEC was revoked. What is
the effect of the revocation on the suit?
None. The revocation of a corporation's
Certificate of Registration does not automatically
warrant the extinction of the corporation itself such
that its rights and liabilities are likewise altogether
extinguished. The termination of the life of a juridical
entity does not, by itself, cause the extinction or
diminution of the rights and liabilities of such entity nor
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those of its owners and creditors. Roque vs. People,
G.R. No. 211108, June 7, 2017
Is the presentation of a stock certificate a
condition sine qua non for proving one's
shareholding in a corporation?
No. A stock certificate is prima facie evidence
that the holder is a shareholder of the corporation, but
the possession of the certificate is not the sole
determining factor of one's stock ownership. A
certificate of stock is merely the paper representative
or tangible evidence of the stock itself and of the
various interests therein. The certificate is not stock in
the corporation but is merely evidence of the holder's
interest and status in the corporation, his ownership of
the share represented thereby, but is not in law the
equivalent of such ownership. It expresses the
contract between the corporation and the stockholder,
but it is not essential to the existence of a share in
stock or the creation of the relation of shareholder to
the corporation. Insigne vs. Abra Valley Colleges,
Inc., July 29, 2015
Effect of transfer of shares not recorded in the
STB
All transfers of share of stock must be registered
in the corporate books in order to be binding on
the corporation (F & S Velasco Company, Inc. v.
Madrid, 774 SCRA 388, 10 November 2015).
A transfer of a share of stock not recorded in the
stock and transfer book is non-existent as far as
the corporation is concerned. From the
corporation’s point of view, the transfer is not
effective until it is recorded (VC Ponce v. Cement,
GR No. 139802, 10 Dec. 2002, 393 SCRA 602).
Is a corporate secretary mandated to record
attachments in the stock and transfer book?
No. Only absolute transfers of shares of stock
are required to be recorded in the corporation's stock
and transfer book in order to have force and effect as
against third persons. Attachment of shares are not
considered "transfer" and need not be recorded in the
corporations' stock and transfer book. Chattel
mortgage over shares of stock need not be registered
in the corporation's stock and transfer book inasmuch
as chattel mortgage over shares of stock does not
involve a "transfer of shares," and that only absolute
transfers of shares of stock are required to be
recorded in the corporation's stock and transfer book
in order to have "force and effect as against third
persons."
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BRAVO BASTE!
A 'transfer' is the act by which the owner of a
thing delivers it to another with the intent of passing
the rights which he has in it to the latter, and a chattel
mortgage is not within the meaning of such term.
The requirement that the transfer shall be
recorded in the books of the corporation to be valid as
against third persons has reference only to absolute
transfers or absolute conveyance of the ownership or
title to a share." Ferro Chemicals vs. Garcia, October
5, 2016
Is surrender of the certificates of stock a requisite
before registration of the transfer may be made in
the corporate books and for the issuance of new
certificates in its stead?
No. Section 63 of the Corporation Code
prescribes the manner by which a share of stock may
be transferred. The provision on the transfer of shares
of stocks contemplates no restriction as to whom they
may be transferred or sold. As owner of personal
property, a shareholder is at liberty to dispose of them
in favor of whomsoever he pleases, without any other
limitation in this respect, than the general provisions
of law.
The right of a transferee/assignee to have
stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. A
corporation cannot create restrictions in stock
transfers. In transferring stock, the secretary of a
corporation acts in purely ministerial capacity, and
does not try to decide the question of ownership.
Nevertheless, to be valid against third parties
and the corporation, the transfer must be recorded or
registered in the books of corporation. (Teng vs. SEC,
February 17, 2016)
Does a stockholder still have the right to inspect
after the expiration of the corporation’s term?
Yes. The corporation continues to be a body
corporate for three (3) years after its dissolution for
purposes of prosecuting and defending suits by and
against it and for enabling it to settle and close its
affairs, culminating in the disposition and distribution
of its remaining assets. The termination of the life of a
juridical entity does not by itself cause the extinction
or diminution of the rights and liabilities of such entity
nor those of its owners and creditors.
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Further, Sections 122 and 145 of the
Corporation Code explicitly provide for the
continuation of the body corporate for three years
after dissolution. The rights and remedies against, or
liabilities of, the officers shall not be removed or
impaired by reason of the dissolution of the
corporation. Corollarily then, a stockholder's right to
inspect corporate records subsists during the period
of liquidation. Chua vs. People, August 24, 2016
What are the requirements for a stockholders'
special meeting to be valid?
Certain requirements must be met with
respect to notice, quorum and place. One of the
requirements is a previous written notice sent to all
stockholders at least one (1) week prior to the
scheduled meeting, unless otherwise provided in the
by-laws. Guy vs. Guy, April 19, 2016
Was there compliance with the notice requirement
when mail was sent in time but not received in
time by the stockholder?
Yes. No irregularity exists in the mailing of the
notice calling for the special stockholders' meeting
since it abides by what is stated in the by-laws. Date
of actual receipt by the addressee is immaterial. Guy
vs. Guy, April 19, 2016
Who is a "stockholder of record"?
A person who desires to be recognized as
stockholder for the purpose of exercising
stockholders' right must secure standing by having his
ownership of share recorded on the stock and transfer
book. Only those whose ownership of shares are duly
registered in the stock and transfer book are
considered stockholders of record and are entitled to
all rights of a stockholder. Guy vs. Guy, April 19, 2016
Is a transferee of shares whose shares are
unrecorded a stockholder of record? What is the
purpose of registration?
No. Until registration is accomplished, the
transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the
unrecorded transferee cannot vote nor be voted for.
The purpose of registration is two-fold: to enable the
transferee to exercise all the rights of a stockholder,
including the right to vote and to be voted for, and to
inform the corporation of any change in share
ownership so that it can ascertain the persons entitled
to the rights and subject to the liabilities of a
Page 32 of 43
BRAVO BASTE!
stockholder. Until challenged in a proper proceeding,
a stockholder of record has a right to participate in
any meeting; his vote can be properly counted to
determine whether a stockholders' resolution was
approved, despite the claim of the alleged transferee.
On the other hand, a person who has purchased
stock, and who desires to be recognized as a
stockholder for the purpose of voting, must secure
such a standing by having the transfer recorded on
the corporate books. Until the transfer is registered,
the transferee is not a stockholder but an outsider.
Guy vs. Guy, April 19, 2016
What is a meeting and what are its requirements?
“Meeting" applies to every duly convened
assembly either of stockholders, members, directors,
trustees, or managers for any legal purpose, or the
transaction of business of a common interest. It
meetings may either be regular or special. A
stockholders' or members' meeting must comply with
the following requisites to be valid:
a. The meeting must be held on the date fixed
in the By-Laws or in accordance with law;
b. Prior written notice of such meeting must be
sent to all stockholders/members of record;
c. It must be called by the proper party;
d. It must be held at the proper place; and
e. Quorum and voting requirements must be
met. Lim vs. Moldex Land, Inc., G.R. No. 206038,
January 25, 2017
What is quorum and how is it computed?
A quorum shall consist of the stockholders
representing a majority of the outstanding capital
stock or a majority of the members in the case of non-
stock corporations.
Thus, for stock corporations, the quorum is
based on the number of outstanding voting stocks
while for non-stock corporations, only those who are
actual, living members with voting rights shall be
counted in determining the existence of a quorum.
The basis in determining the presence of quorum in
non-stock corporations is the numerical equivalent of
all members who are entitled to vote, unless some
other basis is provided by the By-Laws of the
corporation. The qualification "with voting rights"
simply recognizes the power of a non-stock
corporation to limit or deny the right to vote of any of
its members.
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Applying the law and Condocor's By-Laws, if
there are 100 members in a non-stock corporation, 60
of which are members in good standing, then the
presence of 50% plus 1 of those members in good
standing will constitute a quorum. Thus, 31 members
in good standing will suffice in order to consider a
meeting valid as regards the presence of quorum.
The 31 members will naturally have to exercise their
voting rights.
Accordingly, there was no quorum during the
meeting considering that only 29 of the 108 unit
buyers were present. Lim vs. Moldex Land, Inc., G.R.
No. 206038, January 25, 2017
Can a proxy be elected as director or trustee?
No. While Moldex may rightfully designate
proxies or representatives, the latter, however, cannot
be elected as directors or trustees of Condocor. First,
the Corporation Code clearly provides that a director
or trustee must be a member of record of the
corporation. Further, the power of the proxy is merely
to vote. If said proxy is not a member in his own right,
he cannot be elected as a director or proxy. Lim vs.
Moldex Land, Inc., G.R. No. 206038, January 25,
2017
MERGER AND CONSOLIDATION
75. What is the effect of a merger on the
employees of the absorbed corporation?
None. The surviving corporation automatically
assumes the employment contracts of the absorbed
corporation, such that the absorbed corporation's
employees become part of the manpower
complement of the surviving corporation. This
acquisition of all assets, interests, and liabilities of the
absorbed corporation necessarily includes the rights
and obligations of the absorbed corporation under its
employment contracts. Consequently, the surviving
corporation becomes bound by the employment
contracts entered into by the absorbed corporation.
These employment contracts are not terminated.
They subsist unless their termination is allowed by
law. In short, they are not entitled to separation pay.
Philippine Geothermal, Inc. Employees Union vs.
Unocal Phils., Inc., September 28, 2016
Page 33 of 43
BRAVO BASTE!
Liquidation and Winding-Up
Does revocation of the certificate of incorporation
result in the termination of a corporation’s
liabilities?
No. Section 122 provides for a three-year
winding up period for a corporation whose charter is
annulled by forfeiture or otherwise to continue as a
body corporate for the purpose, among others, of
settling and closing its affairs. Vigilla vs. Philippine
College of Criminology, June 10, 2013
Can a dissolved corporation enter into
agreements such as releases, waivers and
quitclaims beyond the 3-year winding up period?
Yes.
Although the time during which the
corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a
corporation is limited to 3 years from the time the
period of dissolution commences, there is no time
limit within which the trustees must complete a
liquidation placed in their hands. What is provided in
Section 122 is that the conveyance to the trustees
must be made within the 3-year period. But it may be
found impossible to complete the work of liquidation
within the 3-year period or to reduce disputed claims
to judgment. The trustees to whom the corporate
assets have been conveyed pursuant to the authority
of Section 122 may sue and be sued as such in all
matters connected with the liquidation. Vigilla vs.
Philippine College of Criminology, June 10, 2013
POWER TO DECLARE DIVIDENDS
During the annual stockholders meeting, Riza, a
stockholder proposed to the body that a part of
the corporation’s unreserved earned surplus be
capitalized and stock dividends be distributed to
the stockholders, arguing that as owners of the
company, the stockholders, by a majority vote,
can do anything. As chairman of the meeting, how
would you rule on the motion to declare stock
dividends? (Bar 1991)
As the chairman of the meeting, I would rule
against the motion considering that a declaration of
stock dividends should initially be taken by the BOD
and thereafter to be concurred in by a 2/3 vote of the
stockholders (CC, Sec. 43). There is no prohibition,
however, against the stockholders’ resolving to
recommend to the BOD that it consider a declaration
of stock dividends for concurrence thereafter by the
stockholders. Sec 43 of the Corporation Code
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provides that the board of directors of a stock
corporation may declare dividends out of the
unrestricted retained earnings which shall be payable
in cash, property, or in stock to all stockholders.
What is beneficial ownership?
As defined in the Securities Regulation Code -
Implementing Rules and Regulations, "beneficial
owner or beneficial ownership means any person
who, directly or indirectly, through any contract,
arrangement, understanding, relationship or
otherwise, has or shares voting power (which includes
the power to vote or direct the voting of such security)
and/or investment returns or power (which includes
the power to dispose of, or direct the disposition of
such security)." Roy III vs. Herbosa, G.R. No. 207246,
November 22, 2016
Does the registration of stocks under a Filipino
citizen suffice to comply with the constitutional
requirement of Filipino equity in a public utility
corporation?
No. The term "full beneficial ownership" found
in the Foreign Investment Act - Implementing Rules
and Regulations is to be understood in the context of
the entire paragraph defining the term "Philippine
national." Mere legal title is not enough to meet the
required Filipino equity, which means that it is not
sufficient that a share is registered in the name of a
Filipino citizen or national, i.e., he should also have
full beneficial ownership of the share. If the voting
right of a share held in the name of a Filipino citizen
or national is assigned or transferred to an alien, that
share is not to be counted in the determination of the
required Filipino equity. In the same vein, if the
dividends and other fruits and accessions of the share
do not accrue to a Filipino citizen or national, then that
share is also to be excluded or counted. Roy III vs.
Herbosa, G.R. No. 207246, November 22, 2016
VIII
General Banking Law (RA 8791)
DEFINITION (2017, 1978)
Banks shall refer to entities engaged in the lending of
funds obtained in the form of deposits.
CLASSIFICATION OF BANKS (2010)
Banks shall be classified into
1. Universal Banks
2. Commercial Banks
3. Thrift banks, composed of
a. Saving and mortgage banks
b. stock savings and loan associations;
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BRAVO BASTE!
c. Private development banks, as defined in the Rep
Act 7906
4. Rural Banks, as defined in Rep. Act 733
5. Cooperative banks, as defined in Rep. Act 6938
6. Islamic Banks as defined in Rep. Act 6848, otherwise
known as the Charter of Al Amanah Islamic
Investment Bank of the Philippines
7. Other classifications of banks as determined by the
Monetary Board of the BangkoSental ng Pilipinas.
What is the nature of Banking Business (2012,
2010)
Debtor-creditor relationship
There is a debtor-creditor relationship between the
bank and its depositor, the bank is the debtor and the
depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the
bank and the depositor is the contract that determines
the rights and obligations of the parties. (Consolidated
Bank and Trust Corporations vs. CA)
The relation existing between a depositor and a bank
is that of creditor and debtor and not that of a
depositor and a depositary under the Civil Code.
Doctrine/s:
Nisce vs Equitable PCI Bank
G.R. No. 167434 February 19, 2007
Compensation, be it legal or conventional, requires
confluence in the parties of the characters of
mutualdebtors and creditors, although their rights as
such creditors or their obligations as such debtors
need not spring from one and the same contract or
transaction.
BPI Employees Union vs BPI
G.R. No. 174912, July 24, 2013
As an initiatory move, the functions of the Cashiering
Unit of the Processing Center of BPI, handled by its
regular rank and file employees who are members of
the Union, xxx [were] transferred to BOMC with the
Accounting Department as next in line. The
Distributing, Clearing and Bookkeeping functions of
the Processing Center of the former FEBTC were
likewise contracted out to BOMC.
Thus, the subject functions appear to be not in any
way directly related to the core activities of banks.
They are functions in a processing center of BPI
which does not handle or manage deposit
transactions. Clearly, the functions outsourced are not
inherent banking functions, and, thus, are well within
the permissible services under the circular.
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Acquisition of realty; rule and exception (2013)
Section 51.Ceiling on Investments in Certain Assets. -
Any bank may acquire real estate as shall be
necessary for its own use in the conduct of its
business: Provided, however, That the total
investment in such real estate and improvements
thereof including bank equipment, shall not exceed
fifty percent (50%) of combined capital accounts:
Provided, further, That the equity investment of a
bank in another corporation engaged primarily in real
estate shall be considered as part of the bank’s total
investment in real estate, unless otherwise provided
by the Monetary Board. (25a)
When may a bank may acquire, hold or convey real
property?
A.
 Such as shall be mortgaged to it in good faith
by way of security for debts;
 Such as shall be conveyed to it in satisfaction
of debts previously contracted in the course of
its dealings, or
 Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust
deeds held by it and such as it shall purchase
to secure debts due it.
Any real property acquired or held shall be disposed
of by the bank within a period of five (5) years or as
may be prescribed by the Monetary Board: Provided,
however, That the bank may, after said period,
continue to hold the property for its own use, subject
to the limitations.
Doctrine/s:
UNION BANK OF THE PHILIPPINES, Vs. SEC
G.R. No. 138949, June 6, 2001
Petitioner is a commercial banking corporation listed
in the stock exchange. Thus, it must adhere not only
to banking and other allied special laws, but also to
the rules promulgated by Respondent SEC, the
government entity tasked not only with the
enforcement of the Revised Securities Act, but also
with the supervision of all corporations, partnerships
or associations which are grantees of government-
issued primary franchises and/or licenses or permits
to operate in the Philippines.
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BRAVO BASTE!
PDIC vs. Citibank, N.A. and Bank of America, S.T.
& N.A,
G.R. No. 170290, April 11, 2012.
Inter-branch deposits refer to funds of one branch
deposited in another branch and both branches are
part of the same parent company and it is the practice
of the FDIC to exclude such inter-branch deposits
from a bank’s total deposit liabilities subject to
assessment.
Loan Limitations (2017, 2015, 2012, 2007,2002)
Single Borrower’s Limit
It is the limit of the amount of loan, credit
accommodation or guarantees that may be extended
by a bank to any person, partnership, association,
corporation or other entity, which shall at no time
exceed twenty percent (20%) [increased to 25% as
per BSP Circular No. 425] of the net worth of such
bank (sec. 35.1, GBL)
The SBL may be increased by an additional
ten percent (10%) of the net worth of such bank
provided the additional liabilities of any borrower are
adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar
documents transferring or securing title covering
readily marketable, non-perishable goods which must
be fully covered by insurance. (sec. 35.2, GBL)
Restriction on Bank Exposure to Directors,
Officers, Stockholders and Their Related
Interests.
No director or officer of any bank shall, directly
or indirectly, for himself or as the representative or
agent of others, borrow from such bank nor shall he
become a guarantor, endorser or surety for loans
from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank
except with the written approval of the majority of all
the directors of the bank, excluding the director
concerned: Provided, That such written approval shall
not be required for loans, other credit
accommodations and advances granted to officers
under a fringe benefit plan approved by the
BangkoSentral.
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
May a bank placed under receivership be
restrained through a petition for prohibition?
(2015, 2007, 2006, 2000)
Vivas vs Monetary Board of BSP
GR No 191424 07 August 2013
Vivas availed of the wrong remedy. The resolution
issued by MB placing the bank under receivership
may not be restrained or set aside except on a
petition for certiorari pursuant to RA 7653.
Granting that a petition for prohibition is allowed, it is
already an ineffective remedy. Prohibition is that
process by which a superior court prevents inferior
courts, tribunals, officers, or persons from usurping or
exercising a jurisdiction with which they have not
been vested by law, and confines them to the
exercise of those powers legally conferred.
The proper function of a writ of prohibition is to
prevent the doing of an act which is about to be done.
It is not intended to provide a remedy for acts already
accomplished. Settled is the rule that prohibition does
not lie to restrain an act that is already a fait accompli.
Close Now, Hear Later.
Central Bank of the Philippines v. CA,
G.R. No. 76118 Mar. 30, 1993
The law does not contemplate prior notice and
hearing before the bank may be directed to stop
operations and placed under receivership. The
purpose is to prevent unwarranted dissipation of the
bank’s assets and as a valid exercise of police power
to protect the depositors, creditors, stockholders and
the general public.
NEW CENTRAL BANK ACT (RA 7653)
What is Lender of Last resort? (2015,2012, 1998)
The BSP extends discounts, loans and
advances to banking institutions for liquidity purposes.
Financial Supervision. The BSP supervises banks
and exercises regulatory powers over non-bank
institutions performing quasi-banking functions.
Section 3. Responsibility and Primary
Objective. - The BangkoSentral shall
provide policy directions in the areas
of money, banking, and credit. It shall
have supervision over the operations
of banks and exercise such regulatory
powers as provided in this Act and
other pertinent laws over the
operations of finance companies and
non-bank financial institutions
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performing quasi-banking functions,
hereafter referred to as quasi-banks,
and institutions performing similar
functions.
The primary objective of the BangkoSentral is
to maintain price stability conducive to a balanced and
sustainable growth of the economy. It shall also
promote and maintain monetary stability and the
convertibility of the peso.
How the BSP handles Banks in Distress? (2015,
2007; 2006; 2000)
Section 29. Appointment of Conservator. -
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the
Monetary Board finds that a bank or a quasi-bank is in
a state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors, the
Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary
to take charge of the assets, liabilities, and the
management thereof, reorganize the management,
collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability.
The conservator shall report and be responsible to the
Monetary Board and shall have the power to overrule
or revoke the actions of the previous management
and board of directors of the bank or quasi-bank.
Three requisites in placing an institution under
conservatorship:
1. there must be a report submitted by the appropriate
supervising or examining department of the
BangkoSentral
2. there must be a finding by the Monetary Board
based on the report that a bank or quasi-bank is in a
state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors
3. the Board of Directors must be informed in writing
of the order of the Monetary Board directing
conservatorship.
The conservatorship shall not exceed one (1)
year.
 S C B A R S T A G N O T E S [ 2018 ]
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Distinguish between the role of a conservator and
that of a receiver of a bank
The conservator is appointed to take charge of the
assets, liabilities, and the management of a bank or a
quasi-bank in a state of continuing inability, or
unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors
and creditors. The duration of the appointment is for a
period not exceeding one (1) year.
The receiver is appointed to manage a bank or quasi-
bank that is unable to pay its liabilities in the ordinary
course of business, or has insufficient realizable
assets to meet its liabilities, or business, without
probable losses to its depositors or creditors; or has
willfully violated a final cease or desist order, involving
acts or transactions amounting to fraud or a
dissipation of the assets of the institution. The main
purpose of the Receiver is to recommend the
rehabilitation or liquidation of the bank.
True or False. A bank under receivership can still
grant new loans and accept new deposit?(2009)
False. When a bank is placed under receivership, it
would only not be able to do new business, that is to
grant new loans or to accept new deposits. However,
the receiver of the bank is in fact obliged to collect
debts owing to the bank, which debts form part of the
assets of the bank.
What is Legal Tender Power? (2000)
Section 52. Legal Tender Power. - All notes and
coins issued by the BangkoSentral shall be fully
guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines
for all debts, both public and private: Provided,
however, That, unless otherwise fixed by the
Monetary Board, coins shall be legal tender in
amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above,
and in amounts not exceeding Twenty pesos (P20.00)
for denominations of Ten centavos or less.
Bank Secrecy Law
BANK SECRECY LAWS
 For peso or local currency deposits,
Republic Act No. 1405 – Secrecy of Bank
Deposits (SBD) is the law governing
secrecy of bank deposits.
 Foreign currency deposits are governed by
RA No. 6426, the Foreign Currency
Deposits Act (FCDA).
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 Sec. 55 1(b), RA No. 8791 -- General
Banking Law of 2000 (GBL) deals with
funds or properties in the custody of
banks.
The exceptions to the RA 1405 (SBD)
1. Written permission of the depositor;
2. In cases of impeachment;
3. Upon order of a competent court in cases of
bribery or dereliction of duty of public officials;
4. In cases where the money deposited or
invested is the subject matter of litigation.
ADDITIONAL/RECOGNIZED EXCEPTIONS:
a) In case of inquiry of the BIR of banks
accounts of a decedent for estate tax
purposes or in case of a tax compromise.
b) Incidental disclosures of unclaimed
balances under the Unclaimed Balances
Law.
c) In cases falling under the Anti-Money
Laundering Act (AMLA).
d) The examination of a bank account based
on Sec. 10, Rule 57 of the Rules of Court.
e) In cases falling under the Human Security
Act.
f) The PDIC and/or the BSP may inquire into
or examine deposit accounts and all
information related thereto in case there is
a finding of unsafe or unsound banking
practice.
g) The AMLC (Anti-money Laundering
Council), in cases falling under the
Terrorism Financing Prevention and
Suppression Act of 2012 (RA 10168).
Foreign currency deposits are absolutely
confidential and shall in no instance be inquired
or examined.
Section 8, RA 6426:
“Section 8. Secrecy of foreign currency
deposits. – All foreign currency deposits authorized
under this Act, as amended by PD No. 1035, as well
as foreign currency deposits authorized under PD No.
1034, are hereby declared as and considered of an
absolutely confidential nature and, except upon the
written permission of the depositor, in no instance
shall foreign currency deposits be examined,
inquired or looked into by any person, government
official, bureau or office whether judicial or
administrative or legislative, or any other entity
whether public or private; Provided, however, That
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or
process of any court, legislative body, government
agency or any administrative body whatsoever. (As
amended by PD No. 1035, and further amended by
PD No. 1246, prom. Nov. 21, 1977.)”
The only instance when foreign currency
deposits maybe inquired or looked into:
The lone exception to the disclosure of foreign
currency deposits, under Republic Act No. 6426, is a
disclosure upon the written permission of the
depositor. (GSIS v. CA, 651 SCRA 661, 08 June
2011; Intengan v. CA, 15 February 2002, 377 SCRA
63)
FOUR (4) additional exceptions
However, with the enactment of subsequent laws,
there are now FOUR (4) additional exceptions
in RA 646:
1) Sec. 11 of the AMLA as amended by RA No.
10167;
2) the Human Security Act [RA 9372];
3) Sec. 5, RA No. 3591 [PDIC Law] as amended
by RA No. 9576; AND
4) RA No. 10168 [Terrorism Financing
Prevention & Suppression Act of 2012]).
BANK DEPOSITS ARE ABSOUTELY
CONFIDENTIAL IN NATURE
-The secrecy of bank deposits still lies as
the general rule. It falls within the zones of privacy
recognized by our laws.
-Bank accounts are not covered by either
the right to information under Section 7, Article III
or under the requirement of full public disclosure
under Section 28, Article II.
-Unless the Bank Secrecy Act is repealed
or amended, the legal order is obliged to conserve
the absolutely confidential nature of Philippine
bank deposits.
(SubidoPagenteCerteza Mendoza and Binay Law
Offices v. CA,G.R. No. 216914, 06 December 2016).
Anti Money Laundering Act
(RA No. 9160, as amended by RA No. 9194, RA
10167, RA 10365 & RA 10927, the Revised
Implementing Rules and Regulations [RIRR]), and the
Casino Implementing Rules and Regulations (CIRR)
of RA 10927
Page 38 of 43
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Who are the “covered persons” under the AMLA?
- ‘Covered persons’, natural or juridical, refer to:
1) Persons supervised or regulated by BSP
2) Persons supervised or regulated by IC
3) Persons supervised or regulated by SEC
4) Designated Non-Financial Businesses
and Professions (DNFBPs)
(Rule 3 E. 2016, RIRR; Sec. 3a, RA
10365)
5) Casinos, including internet and ship-
based casinos, with respect to theircasino cash
transactions related to the gaming operations (Sec. 1,
RA 10927). Included are other entities as may be
determined by the AGA (Appropriate Government
Agency) (Section 5, Rule II, CIRR).
Are lawyers and accountants included in the term
"covered persons?"
The term ‘covered persons’ shall exclude lawyers
and accountants acting as independent legal
professionals in relation to information concerning
their clients or where disclosure of information would
compromise client confidences or the attorney-client
relationship: Provided, That these lawyers and
accountants are authorized to practice in the
Philippines and shall continue to be subject to the
provisions of their respective codes of conduct and/or
professional responsibility or any of its amendments.
(Sec. 3a, RA 10365)
HOWEVER, persons, including lawyers and
accountants, who provide any of the following
services are covered:
i. Managing of client money, securities or other
assets;
ii. Management of bank, savings, securities or
other assets;
iii. Organization of contributions for the creation,
operation or management of companies;
and
iv. Creation, operation or management of juridical
persons or arrangements, and
buying and selling business entities.
(Rule III, 2016 RIRR)
What is a “covered transaction?” (2015 Bar)
• It is a transaction in cash or other equivalent
monetary instrument involving a total amount in
excess of Five Hundred Thousand Pesos
(P500,000.00) within one (1) banking day (Sec. 3b,
AMLA).
 S C B A R S T A G N O T E S [ 2018 ] Page 39 of 43

MERCANTILE LAW BRAVO BASTE!

• Covered transaction in casinos refers to a
single casino cash transaction involving an 2. Sections 4, 5, 6, 8, 9, 10,
amount in excess of Five Million Pesos 11, 12, 13, 14, 15 and 16 of Republic
(P5,000,000.00) or its equivalent in any other Act No. 9165, otherwise known
currency (Sec. 6M, Rule III, CIRR). as the Comprehensive Dangerous
Drugs Act of 2002;
• jewelry dealers in precious metals or precious
stones, who, as a business, trade in precious 3. Hijacking and other
metals/stones, for transactions in excess of One violations under Republic Act No.
million pesos (P1,000,000.00) 6235; destructive arson and
murder, as defined under the
Predicate Crimes (2007, 2013, 2017) Revised Penal Code, as
There are 14 unlawful activities or predicate crimes amended;
covered by the AMLA. These are,
in the order enumerated in the law: 4. Felonies or offenses of
• Kidnapping for ransom a nature similar to those mentioned
• Drug offenses in Section 3(i) (1), (2) and (12) of
• Graft and corrupt practices the AMLA which are punishable
• Plunder under the penal laws of other
• Robbery and extortion countries;
• Jueteng and masiao
• Piracy on the high seas (1) Kidnapping for
• Qualified theft ransom under Article 267 of Act No.
• Swindling 3815, otherwise
• Smuggling known as the Revised Penal Code,
• Electronic Commerce crimes as amended.
• Hijacking, destructive arson and murder, including (2) Sections 4, 5, 6, 8,
those perpetrated against noncombatant persons 9, 10, 11, 12, 13, 14, 15 and 16 of
(terrorist acts) Republic Act
• Securities fraud No. 9165, otherwise known as the
• Felonies or offenses of a similar nature punishable Comprehensive Dangerous
under penal laws of othercountries Drugs Act of 2002.
(12) Hijacking and
The AMLC may inquire, look into, & examine bank other violations under Republic Act
deposits No. 6235;
Notwithstanding the provisions of RA No. 1405 destructive arson and
(Secrecy of Bank Deposits), RA No. 6426 (Foreign murder, as defined under the RPC
Currency Deposits Acts), RA No. 8791 (General
Banking Law) and other laws, the AMLC may inquire 5. Terrorism and
or examine any particular deposit or investment, conspiracy to commit terrorism as
including related accounts, with any banking defined and penalized under
institution or non-bank financial institutions (Sec. 11, Republic Act No. 9372; and
AMLA, as amended by RA 10167).
6. Financing of terrorism
 Bank inquiry may be with or without a under Section 4 and offenses
court order. punishable under Sections 5, 6, 7
and 8 of Republic Act No. 10168,
AMLC bank inquiry WITHOUT a court order otherwise known as the
Terrorism Financing Prevention
 Inquiry of bank deposits WITHOUT a court- and Suppression Act of 2012.
order (Rule 11B, 2016,
RIRR).
1. Kidnapping for ransom
under Article 267 of Act No. 3815,
otherwise known as the
Revised Penal Code, as amended;
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
Bank inquiry order is EX-PARTE
Bank inquiry order maybe availed of ex parte
premised on the existence of probable cause for
violation of an unlawful activity under Sec. 3 (i) or
money laundering offense under Sec. 4 of the AMLA.
- inquiry includes related accounts which shall
refer to accounts, the funds and sources of which
originated from and/or are materially linked to the
monetary instruments(s) or property(ies) subject of
the freeze order(s).
- The Court of Appeals shall act on the
application to inquire into or examine any deposit or
investment with any banking institution or non-bank
financial institution within twenty-four (24) hours from
filing of the application. (RA 10167)
What is the basis of bank inquiry?
- When it has been established that there is probable
cause that the deposits or investments, including
related accounts involved, are related to an unlawful
activity as defined in Section 3(i) or a money
laundering offense under Section 4. (RA 10167)
- Bank inquiry maybe made in the event of violation of
the AMLA and does not presuppose the pre-existence
of a money laundering offense case already filed in
court. (Republic v. Eugenio, Jr. (545 SCRA 384
[2008])
What is the nature of a freeze order?
- A freeze order is an extraordinary and interim relief
issued by the CA to prevent dissipation, removal, or
disposal of properties that are suspected to be
proceeds of, or related to, unlawful activities as
defined in Section 3(i) of RA 9160, as amended. The
primary objective of a freeze order is to temporarily
preserve monetary instrument or property that are in
any way related to an unlawful activity or money
laundering, by preventing the owner from utilizing
them during the duration of the freeze order. The
relief is pre-emptive in character, meant to prevent the
owner from disposing his property and thwarting the
State’s effort in building its case and eventually filing
civil forfeiture proceedings and/or prosecuting the
owner (Ligot v. Republic, 692 SCRA 509, 06 March
2013).
Page 40 of 43
BRAVO BASTE!
What is the basis in obtaining a freeze order?
 - Upon a determination that probable cause
exist that any monetary instrument or
property is in any way related to an unlawful
activity (RA 10365; Sec. 4, RA 10967)
 Upon determination that probable cause
exists that any monetary instrument or
property is in any way related to an
unlawful activity or a money laundering
offense, the AMLC shall file with the
regional trial court, through the Office of the
Solicitor General, a verified petition for
civil forfeiture. (Rule 12A, 2016, RIRR)
 No prior criminal charge, pendency of or
conviction for an unlawful activity or money
laundering offense is necessary for the
commencement or the resolution of a petition
for freeze order (Rule 10A3, 2016, RIRR).
What is the effective period of the freeze
order?
The freeze order shall be effective
immediately, for a period of twenty (20)
days. Within the twenty (20)-day period, the
CA shall conduct a summary hearing, with
notice to the parties, to determine whether or
not to modify or lift the freeze order, or extend
its effectivity. The total period of the freeze
order issued by the CA under this provision
shall not exceed six (6) months.
If there is no case filed against a person
whose account has been frozen within
the period determined by the CA, not
exceeding six (6) months, the freeze order
shall be seemed ipso facto lifted (Section 4,
RA 10967).
On motion of the AMLC filed before the
expiration of the original period of the freeze
order, the court may, for good cause shown,
extend its effectivity. Upon the timely filing of
such motion and pending resolution by the
Court of Appeals, the freeze order shall
remain effective (Rule 10A3, 2016, RIRR).
 S C B A R S T A G N O T E S [ 2018 ]
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What is Safe Harbor Provision?
No administrative, criminal or civil proceedings
shall lie against any person for having made a
covered transaction or suspicious transaction report in
the regular performance of his duties and in good
faith, whether or not such reporting results in any
criminal prosecution under the AMLA or any other
Philippine law.
What is the rule on Prohibitions Against Political
Persecution?
The AMLA and this RIRR shall not be used for
political persecution or harassment, or as an
instrument to hamper competition in trade and
commerce.
No case for money laundering may be filed
against, and no assets shall be frozen, attached or
forfeited to the prejudice of a candidate for an
electoral office during an election period.
Financial Rehabilitation and Insolvency (Act RA
10142)
Types of rehabilitation proceedings (2014)
1. Court supervised
 Voluntary- Voluntary proceedings shall refer to
proceedings initiated by the debtor.
 Involuntary- Involuntary proceedings shall
refer to proceedings initiated by creditors.
2. Pre-negotiated
An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for
the approval of a pre-negotiated Rehabilitation Plan
which has been endorsed or approved by creditors
holding at least two-thirds (2/3) of the total liabilities of
the debtor, including secured creditors holding more
than fifty percent (50%) of the total secured claims of
the debtor and unsecured creditors holding more than
fifty percent (50%) of the total unsecured claims of the
debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and
liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan,
including the names of at least three (3)
qualified nominees for rehabilitation receiver;
and
(d) a summary of disputed claims against the
debtor and a report on the provisioning of
funds to account for appropriate payments
should any such claims be ruled valid or their
amounts adjusted
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3. Out-of-court
Out-of-Court or Informal Restructuring Agreements
and Rehabilitation Plans. - An out-of-court or informal
restructuring agreement or Rehabilitation Plan that
meets the minimum requirements prescribed in this
chapter is hereby recognized as consistent with the
objectives of this Act
Doctrine/s:
BPI FAMILY SAVINGS BANK, INC., v. ST.
MICHAEL MEDICAL CENTER, INC., G.R. No.
205469, March 25, 2015
Rehabilitation assumes that the corporation
has been operational but for some reasons like
economic crisis or mismanagement had become
distressed or insolvent, i.e., that it is generally unable
to pay its debts as they fall due in the ordinary course
of business or has liability that are greater than its
assets.45 Thus, the basic issues in rehabilitation
proceedings concern the viability and desirability of
continuing the business operations of the distressed
corporation, all with a view of effectively restoring it to
a state of solvency or to its former healthy financial
condition through the adoption of a rehabilitation plan.
GOLDEN CANE FURNITURE MANUFACTURING
CORPORATION, vs. STEELPRO PHILIPPINES, INC
G.R. No. 198222, April 04, 2016
A corporate rehabilitation case is a special
proceeding in rem wherein the petitioner seeks to
establish the status of a party or a particular fact, i.e.,
the inability of the corporate debtor to pay its debts
when they fall due.16 It is summary and non-
adversarial in nature.17 Its end goal is to secure the
approval of a rehabilitation plan to facilitate the
successful recovery of the corporate debtor. It does
not seek relief from an injury caused by another party.
Jurisdiction over corporate rehabilitation cases
originally fell within the jurisdiction of the Securities
and Exchange Commission (SEC) which had
absolute jurisdiction, control, and supervision over all
Philippine corporations.20 With the enactment of the
Securities Regulation Code in 2000, this jurisdiction
was transferred to the Regional Trial Courts.
Consequently, this Court enacted A.M. No.
00-8-10-SC or the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules) which took
effect on December 15, 2000. Under the Interim
Rules, a motion for reconsideration was a prohibited
pleading. Orders issued by the rehabilitation court
were also immediately executory unless restrained by
the appellate court.
 S C B A R S T A G N O T E S [ 2018 ]
MERCANTILE LAW
PHILIPPINE BANK OF COMMUNICATIONS vs
BASIC POLYPRINTERS AND PACKAGING
CORPORATION
G.R. No. 187581 October 20, 2014
Court held that liquidity is not an issue in a
petition for rehabilitation.
Under the Interim Rules, rehabilitation is the
process of restoring “the debtor to a position of
successful operation and solvency, if it is shown that
its continuance of operation is economically feasible
and its creditors can recover by way of the present
value of payments projected in the plan more if the
corporation continues as a going concern that if it is
immediately liquidated.” It contemplates a feasible and the opposition of the creditors is
continuance of corporate life and activities in an effort
to restore and reinstate the corporation to its former
position of successful operation and solvency.
What is the Two-pronged purpose of rehabilitation
proceedings?
1. Equitable purpose: To efficiently and equitably
distribute the assets of the insolvent debtor to its
creditors; and
2. Rehabilitative purpose: To provide the debtor
with a fresh start
Who May Serve as a Rehabilitation Receiver?
Any qualified natural or juridical person may
serve as a rehabilitation receiver: Provided, That if the
rehabilitation receiver is a juridical entity, it must
designate a natural person/s who possess/es all the
qualifications and none of the disqualification’s as its
representative, it being understood that the juridical
entity and the representative/s are solidarily liable for
all obligations and responsibilities of the rehabilitation
receiver.
What is Cram Down Effect?
A restructuring/workout agreement or
Rehabilitation Plan that is approved pursuant to an
informal workout framework referred to in this chapter
shall have the same legal effect as confirmation of a
Plan under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or Plan
shall be published once a week for at least three (3)
consecutive weeks in a newspaper of general
circulation in the Philippines. The Rehabilitation Plan
or restructuring agreement shall take effect upon the
lapse of fifteen (15) days from the date of the last
publication of the notice thereof.
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Doctrine/s:
MARILYN VICTORIO-AQUINO vs PACIFIC PLANS,
INC.G.R. No. 193108 December 10, 2014
Section 23. Approval of the Rehabilitation
Plan. – The court may approve a rehabilitation plan
over the opposition of creditors, holding a majority of
the total liabilities of the debtor if, in its judgment, the
rehabilitation of the debtor is feasible and the
opposition of the creditors is manifestly unreasonable.
Such prerogative was carried over inthe Rehabilitation
Rules, which maintains that the court may approve a
rehabilitation plan over the objection of the creditors if,
in its judgment, the rehabilitation of the debtors is
manifestly unreasonable. The required number of
creditors opposing such plan under the Interim Rules
(i.e.,those holding the majority of the total liabilities of
the debtor) was, in fact, removed. Moreover, the
criteria for manifest unreasonableness is spelled out,
to wit:
SEC. 11. Approval of Rehabilitation Plan. —
The court may approve a rehabilitation plan even
over the opposition of creditors of the debtor if, in
its judgment, the rehabilitation of the debtor is
feasible and the opposition of the creditors is
manifestly unreasonable. The opposition of the
creditors is manifestly unreasonable if the
following are present:
a) The rehabilitation plan complies with the
requirements specified in Section 18 of Rule
3;
b) The rehabilitation plan would provide the
objecting class of creditors with payments
whose present value projected in the plan
would be greater than that which they would
have received if the assets of the debtor were
sold by a liquidator within a six (6)month
period from the date of filing of the petition;
and
c) The rehabilitation receiver has recommended
approval of the plan.
In approving the rehabilitation plan, the court shall
ensure that the rights of the secured creditors are not
impaired. The court shall also issue the necessary
orders or processes for its immediate and successful
implementation. It may impose such terms,
conditions, or restrictions as the effective
implementation and monitoring thereof may
reasonably require, or for the protection and
preservation of the interests of the creditors should
the plan fail.