2013 jurisprudence

COMMERCIAL LAW JURISPRUDENTIAL DOCTRINES

Recoletos Review Center

2013

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Table of Contents

Trust Receipts Law ............................................................................................................................................................... 4

Two obligations in a trust receipt transaction: entregarla and devolvera ............................................. 4

When intent to defraud is presumed in a trust receipts transaction ........................................................ 4

Alternative obligations of the trustee ..................................................................................................................... 4

Elements of estafa under Art. 315 of the RPC in relation to Sec. 13 of the Trust Receipts Law .... 4

Negotiable Instruments Law ............................................................................................................................................ 4

Issuance of check not an assignment of any part of funds in the bank to the drawer’s credit ....... 5

Manager’s or cashier’s checks .................................................................................................................................... 5

Accommodation party ................................................................................................................................................... 5

Relation between accommodation party and party accommodated, one of surety and principal .................................................................................................................................................................................................. 5

Liability of accommodation party ............................................................................................................................. 5

Insurance Law ........................................................................................................................................................................ 6

Insurance cases, when burden of evidence shifts to insurer ........................................................................ 6

Burden of an insurer who seeks to defeat a claim because of a policy exception or limitation .... 6

Fraud and misrepresentation established when false invoices are submitted to adjusters ........... 6

Construction of insurance contracts ........................................................................................................................ 6

Insured persons may accept policies without reading them, and that this is not negligence per se; exception. ...................................................................................................................................................................... 7

Incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation ...................................................................................... 7

Requisites for double insurance to arise ............................................................................................................... 7

Third Party Liability ........................................................................................................................................................ 8

Suretyship ........................................................................................................................................................................... 8

Extent of surety’s liability ............................................................................................................................................. 8

Surety agreement merely a collateral contract to be read and interpreted with the principal contract ................................................................................................................................................................................. 8

Suretyship contract imports entire good faith and confidence between the parties in regard to the whole transaction .................................................................................................................................................... 9

Transportation Laws ........................................................................................................................................................... 9

Common carrier distinguished from private carrier ........................................................................................ 9

Extent of private carrier’s obligation ...................................................................................................................... 9

Proof of actual shortage of shipment required before burden is shifted to the common carrier . 9

“Said to weigh” and analogous declarations in the bill of lading is only prima facie evidence of amount or quantity of goods in the container .................................................................................................. 10

Coverage of Carriage of Goods by Sea Act (COGSA) ....................................................................................... 10

Relevant terms in COGSA ........................................................................................................................................... 10

Period covered by the term “carriage of goods” .............................................................................................. 10

Prescriptive period for filing action for loss/damage of goods under COGSA ................................... 11

Extension of prescriptive period to file a claim under COGSA .................................................................. 11

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Corporation Code ............................................................................................................................................................... 11

Unlicensed foreign corporations do not have the capacity to sue before local courts ................... 11

Meaning of “doing business” .................................................................................................................................... 12

Appointment of local distributor insufficient to constitute doing business, except when it is under full control of the foreign corporation .................................................................................................... 12

When an unlicensed foreign corporation doing business in the Philippines may sue before the local courts ....................................................................................................................................................................... 12

Public policy denying foreign corporations access to courts must never be used to frustrate ends of justice ................................................................................................................................................................. 12

Corporate powers and business transactions exercised through board of directors and through officers and agents when authorized by a board resolution or bylaws ................................................ 13

Definition of intra-‐corporate disputes ................................................................................................................. 13

Intra-‐corporate controversy defined ................................................................................................................... 13

SEC jurisdiction over corporations with religious nature ........................................................................... 14

Separate juridical personality ................................................................................................................................. 14

In illegal dismissal cases, corporate officers may only be held solidarily liable with the corporation if the termination was done with malice or bad faith ......................................................... 14

What must be established to pierce the veil of corporate fiction ............................................................ 14

Condition sine qua non for derivative suit to prosper .................................................................................. 15

Requisites for filing a derivative suit .................................................................................................................... 15

Power of a corporation to sue and be sued in any court is lodged with the board of directors . 15

Only individuals authorized by a valid board resolution may sign the certificate of non-‐forum shopping on behalf of a corporation ..................................................................................................................... 15

Corporation that purchases assets of another not generally liable for the debts of the selling corporation; exceptions. ............................................................................................................................................ 15

Piercing the veil of corporate fiction .................................................................................................................... 16

Instances when the doctrine of piercing the corporate veil applies ....................................................... 16

“Rehabilitation,” Defined. .......................................................................................................................................... 16

Rehabilitation Plan, an indispensable requirement ...................................................................................... 17

When rehabilitation plan may be approved ...................................................................................................... 17

Approved rehabilitation plan is binding upon the debtor and all persons who may be affected by it ...................................................................................................................................................................................... 17

Essential function of corporate rehabilitation ................................................................................................. 17

The justification for the suspension of actions or claims ............................................................................ 18

Rationale of P.D. No. 902-‐A ....................................................................................................................................... 18

Rehabilitation is available to a corporation who, while illiquid, has assets that can generate more cash if used in its daily operations than sold ........................................................................................ 18

Factors for a successful corporate rehabilitation ........................................................................................... 19

Nature of rehabilitation proceedings ................................................................................................................... 19

Securities Regulation Code ............................................................................................................................................ 19

Investment contract, defined ................................................................................................................................... 19

Howey Test: conditions for investment contracts to arise ......................................................................... 19

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Banking Laws ....................................................................................................................................................................... 20

Extraordinary diligence required before approving loan application ................................................... 20

Nothing short of extraordinary diligence is required of banks whose business is impressed with public interest ...................................................................................................................................................... 20

Nature of bank’s liability as an obligor ................................................................................................................ 20

Banks under liquidation retain their legal personality ................................................................................ 21

Liability for a debt of a branch ultimately rests upon the parent bank ................................................. 21

Both Section 75 of R.A. No. 8791 and Section 5 of R.A. No. 7221 require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine branch .... 21

The head office of a bank and its branches are considered as one under the eyes of the law .... 22

Purpose of the Philippine Deposit Insurance Corporation (PDIC) .......................................................... 22

Intellectual Property Law ............................................................................................................................................... 22

Elements of trademark infringement ................................................................................................................... 22

Gravamen of trademark infringement ................................................................................................................. 22

Dominancy Test ............................................................................................................................................................. 23

Holistic Test ..................................................................................................................................................................... 23

Dominancy test and holistic or totality test, distinguished ........................................................................ 23

Ordinary purchaser, defined .................................................................................................................................... 23

Susceptibility to registration of a trademark device ..................................................................................... 23

When a mark cannot be registered ....................................................................................................................... 24

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Trust Receipts Law

Two obligations in a trust receipt transaction: entregarla and devolvera There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolvera) to the owner. [Land Bank of the Philippines vs. Perez, 672 SCRA 117(2012)]

When intent to defraud is presumed in a trust receipts transaction Thus, under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts. [Land Bank of the Philippines vs. Perez, 672 SCRA 117(2012)]

Alternative obligations of the trustee In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative—the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. [Land Bank of the Philippines vs. Perez, 672 SCRA 117(2012)]

Elements of estafa under Art. 315 of the RPC in relation to Sec. 13 of the Trust Receipts Law In order that the respondents “may be validly prosecuted for estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation with Section 13 of the Trust Receipts Law, the following elements must be established: (a) they received the subject goods in trust or under the obligation to sell the same and to remit the proceeds thereof to [the trustor], or to return the goods if not sold; (b) they misappropriated or converted the goods and/or the proceeds of the sale; (c) they performed such acts with abuse of confidence to the damage and prejudice of Metrobank; and (d) demand was made on them by [the trustor] for the remittance of the proceeds or the return of the unsold goods.” [Land Bank of the Philippines vs. Perez, 672 SCRA 117(2012)]

Negotiable Instruments Law

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Issuance of check not an assignment of any part of funds in the bank to the drawer’s credit An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank (drawee), requesting the latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money. The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer. Here, the bank becomes liable only after it accepts or certifies the check. After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-‐drawer. [Rizal Commercial Banking Corporation vs. Hi-‐Tri Development Corporation, 672 SCRA 514(2012)]

Manager’s or cashier’s checks There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand. [Rizal Commercial Banking Corporation vs. Hi-‐Tri Development Corporation, 672 SCRA 514(2012)]

Accommodation party As elaborated in The Phil. Bank of Commerce v. Aruego: An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he wants to accommodate another. [Aglibot vs. Santia, G.R. No. 185945(2012)]

Relation between accommodation party and party accommodated, one of surety and principal The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promisor and debtor from the beginning. The liability is immediate and direct. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument; nor is it correct to say that the holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation party. [Aglibot vs. Santia, G.R. No. 185945(2012)]

Liability of accommodation party Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also unconditional to a holder for value, such that even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such

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extension does not release him because as far as a holder for value is concerned, he is a solidary co-‐debtor. [Aglibot vs. Santia, G.R. No. 185945(2012)]

Insurance Law

Insurance cases, when burden of evidence shifts to insurer Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert the insured’s prima facie case. In the present case, UMC established a prima facie case against CBIC. CBIC does not dispute that UMC’s stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMC’s stocks in trade were stored, was gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence shifted to CBIC to prove such exception. [United Merchants Corporation vs. Country Bankers Insurance Corporation, 676 SCRA 382(2012)]

Burden of an insurer who seeks to defeat a claim because of a policy exception or limitation An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. In the present case, CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy. [United Merchants Corporation vs. Country Bankers Insurance Corporation, 676 SCRA 382(2012)]

Fraud and misrepresentation established when false invoices are submitted to adjusters In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc., 14 SCRA 491 (1965), the Court ruled that the submission of false invoices to the adjusters establishes a clear case of fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. Their falsity is the best evidence of the fraudulent character of plaintiff’s claim. In Verendia v. Court of Appeals, 217 SCRA 417 (1993), where the insured presented a fraudulent lease contract to support his claim for insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits under the policy provision similar to Condition No. 15 of the Insurance Policy in this case.

It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance policy. In Yu Cua v. South British Insurance Co., the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co., eight times; and in Tuason v. North China Insurance Co., six times. In the present case, the claim is twenty five times the actual claim proved. [United Merchants Corporation vs. Country Bankers Insurance Corporation, 676 SCRA 382(2012)]

Construction of insurance contracts While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts

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for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made. [United Merchants Corporation vs. Country Bankers Insurance Corporation, 676 SCRA 382(2012)]

Insured persons may accept policies without reading them, and that this is not negligence per se; exception. As the Court said in New Life Enterprises v. Court of Appeals, 207 SCRA 669 (1992): It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-‐making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same. The same may be said of Manuel, a civil engineer and manager of a construction company. He could be expected to know that one must read every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him and to his wife in his twilight years. [Florendo vs. Philam Plans, Inc., 666 SCRA 618(2012)]

Incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any defect or insufficiency in the information provided by his pension plan application should be deemed waived after the same has been approved, the policy has been issued, and the premiums have been collected. The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-‐year incontestability period. It states: VIII. INCONTESTABILITY After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of approval of your request for reinstatement. The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance. Since Manuel died on the eleventh month following the issuance of his plan, the one year incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s pension plan. [Florendo vs. Philam Plans, Inc., 666 SCRA 618(2012)]

Requisites for double insurance to arise By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest and risk. The requisites in order for double insurance to arise are as follows: 1. The person insured is the same; 2. Two or more insurers insuring separately; 3. There is identity of subject matter; 4. There is identity of interest insured; and 5. There is identity of the risk or peril insured against. [Malaya Insurance Co., Inc. vs. Philippines First Insurance Co., Inc., 676 SCRA 268(2012)]

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Third Party Liability There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. In Heirs of George Y. Poe v. Malayan Insurance Company, Inc., 584 SCRA 152 (2009), the Court ruled that: [Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy. [Malaya Insurance Co., Inc. vs. Philippines First Insurance Co., Inc., 676 SCRA 268(2012)]

Suretyship Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued under Act 536, as amended. Suretyship arises upon the solidary binding of a person—deemed the surety—with the principal debtor, for the purpose of fulfilling an obligation. Such undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. And notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking. [First Lepanto-‐Taisho Insurance Corporation vs. Chevron Philippines, Inc., 663 SCRA 309(2012)]

Extent of surety’s liability The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication, beyond the terms of the contract. Thus, to determine whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine the terms of the contract itself. [First Lepanto-‐Taisho Insurance Corporation vs. Chevron Philippines, Inc., 663 SCRA 309(2012)]

Surety agreement merely a collateral contract to be read and interpreted with the principal contract The law is clear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the principal. Section 176 of the Insurance Code states: Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures. [First Lepanto-‐Taisho Insurance Corporation vs. Chevron Philippines, Inc., 663 SCRA 309(2012)]

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Suretyship contract imports entire good faith and confidence between the parties in regard to the whole transaction It bears stressing that the contract of suretyship imports entire good faith and confidence between the parties in regard to the whole transaction, although it has been said that the creditor does not stand as a fiduciary in his relation to the surety. The creditor is generally held bound to a faithful observance of the rights of the surety and to the performance of every duty necessary for the protection of those rights. Moreover, in this jurisdiction, obligations arising from contracts have the force of law between the parties and should be complied with in good faith. [First Lepanto-‐Taisho Insurance Corporation vs. Chevron Philippines, Inc., 663 SCRA 309(2012)]

Transportation Laws

Common carrier distinguished from private carrier Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. On the other hand, a private carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public. A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only. [Malaya Insurance Co., Inc. vs. Philippines First Insurance Co., Inc., 676 SCRA 268(2012)]

Extent of private carrier’s obligation The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good customs, public order, or public policy. “The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no force where the public at large is not involved.” [Malaya Insurance Co., Inc. vs. Philippines First Insurance Co., Inc., 676 SCRA 268(2012)]

Proof of actual shortage of shipment required before burden is shifted to the common carrier Though it is true that common carriers are presumed to have been at fault or to have acted negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must still, before the burden is shifted to the defendant, prove that the subject shipment suffered actual shortage. This can only be done if the weight of the shipment at the port of origin and its subsequent weight at the port of arrival have been proven by a preponderance of evidence, and it can be seen that the former weight is considerably greater than the latter weight, taking into consideration the exceptions provided in Article 1734 of the Civil Code. [Asian Terminals, Inc. vs. Simon Enterprises, Inc., G.R. No. 177116(2013)]

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“Said to weigh” and analogous declarations in the bill of lading is only prima facie evidence of amount or quantity of goods in the container Also, Bankers & Manufacturers Assurance Corporation v. Court of Appeals elucidates thus: [T]he recital of the bill of lading for goods thus transported [i.e., transported in sealed containers or “containerized”] ordinarily would declare “Said to Contain”, “Shipper’s Load and Count”, “Full Container Load”, and the amount or quantity of goods in the container in a particular package is only prima facie evidence of the amount or quantity x x x. A shipment under this arrangement is not inspected or inventoried by the carrier whose duty is only to transport and deliver the containers in the same condition as when the carrier received and accepted the containers for transport x x x.

Hence, as can be culled from the above-‐mentioned cases, the weight of the shipment as indicated in the bill of lading is not conclusive as to the actual weight of the goods. Consequently, the respondent must still prove the actual weight of the subject shipment at the time it was loaded at the port of origin so that a conclusion may be made as to whether there was indeed a shortage for which petitioner must be liable. [Asian Terminals, Inc. vs. Simon Enterprises, Inc., G.R. No. 177116(2013)]

Coverage of Carriage of Goods by Sea Act (COGSA) The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the 74th 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 CA No. 65. Section 1 of CA No. 65 states: Section 1. That the provisions of Public Act Numbered Five hundred and twenty-‐one of the Seventy-‐fourth Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-‐six, be accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application. [Insurance Company of North America vs. Asian Terminals, Inc., 666 SCRA 226(2012)]

Relevant terms in COGSA Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by Sea, thus: Section 1. When used in this Act—(a) The term “carrier” includes the owner or the charterer who enters into a contract of carriage with a shipper. (b) The term “contract of carriage” applies only to contracts of carriage covered by a bill of lading or any similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title regulates the relations between a carrier and a holder of the same. (c) The term “goods” includes goods, wares, merchandise, and articles of every kind whatsoever, except live animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried. (d) The term “ship” means any vessel used for the carriage of goods by sea. (e) The term “carriage of goods” covers the period from the time when the goods are loaded to the time when they are discharged from the ship. [Insurance Company of North America vs. Asian Terminals, Inc., 666 SCRA 226(2012)]

Period covered by the term “carriage of goods” It is noted that the term “carriage of goods” covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship and given to the custody of the arrastre

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operator is not covered by the COGSA. [Insurance Company of North America vs. Asian Terminals, Inc., 666 SCRA 226(2012)]

Prescriptive period for filing action for loss/damage of goods under COGSA The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph (6), Section 3, thus: 6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery. Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof. The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or inspection. In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. From the provision above, the carrier and the ship may put up the defense of prescription if the action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered. It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the prescriptive period. However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator. [Insurance Company of North America vs. Asian Terminals, Inc., 666 SCRA 226(2012)]

Extension of prescriptive period to file a claim under COGSA Under Section 3(6) of the COGSA, the carrier is discharged from liability for loss or damage to the cargo “unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.” Jurisprudence, however, recognized the validity of an agreement between the carrier and the shipper/consignee extending the one-‐year period to file a claim.

Corporation Code

Unlicensed foreign corporations do not have the capacity to sue before local courts The rule that an unlicensed foreign corporations doing business in the Philippine do not have the capacity to sue before the local courts is well-‐established. Section 133 of the Corporation Code of the Philippines explicitly states: Sec. 133. Doing business without a license.—No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. [Steelcase, Inc. vs. International Selections, Inc., 670 SCRA 64(2012)]

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Meaning of “doing business” The phrase “doing business” is clearly defined in Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991), to wit: d) The phrase “doing business” shall include soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase “doing business” shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account. [Steelcase, Inc. vs. International Selections, Inc., 670 SCRA 64(2012)]

Appointment of local distributor insufficient to constitute doing business, except when it is under full control of the foreign corporation The appointment of a distributor in the Philippines is not sufficient to constitute “doing business” unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines. It should be kept in mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light of the attendant circumstances. [Steelcase, Inc. vs. International Selections, Inc., 670 SCRA 64(2012)]

When an unlicensed foreign corporation doing business in the Philippines may sue before the local courts This Court has time and again upheld the principle that a foreign corporation doing business in the Philippines without a license may still sue before the Philippine courts a Filipino or a Philippine entity that had derived some benefit from their contractual arrangement because the latter is considered to be estopped from challenging the personality of a corporation after it had acknowledged the said corporation by entering into a contract with it. In Antam Consolidated, Inc. v. Court of Appeals, 143 SCRA 288 (1986), this Court had the occasion to draw attention to the common ploy of invoking the incapacity to sue of an unlicensed foreign corporation utilized by defaulting domestic companies which seek to avoid the suit by the former. The Court cannot allow this to continue by always ruling in favor of local companies, despite the injustice to the overseas corporation which is left with no available remedy. [Steelcase, Inc. vs. International Selections, Inc., 670 SCRA 64(2012)]

Public policy denying foreign corporations access to courts must never be used to frustrate ends of justice During this period of financial difficulty, our nation greatly needs to attract more foreign investments and encourage trade between the Philippines and other countries in order to rebuild and strengthen our economy. While it is essential to uphold the sound public policy behind the rule

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that denies unlicensed foreign corporations doing business in the Philippines access to our courts, it must never be used to frustrate the ends of justice by becoming an all-‐encompassing shield to protect unscrupulous domestic enterprises from foreign entities seeking redress in our country. To do otherwise could seriously jeopardize the desirability of the Philippines as an investment site and would possibly have the deleterious effect of hindering trade between Philippine companies and international corporations. [Steelcase, Inc. vs. International Selections, Inc., 670 SCRA 64(2012)]

Corporate powers and business transactions exercised through board of directors and through officers and agents when authorized by a board resolution or bylaws It is clear from the NLRC Rules of Procedure that appeals must be verified and certified against forum-‐shopping by the parties-‐in-‐interest themselves. In the case at bar, the parties-‐in-‐interest are petitioner Salenga, as the employee, and respondent Clark Development Corporation as the employer. A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its bylaws. The power of a corporation to sue and be sued is exercised by the board of directors. The physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by a specific act of the board. The purpose of verification is to secure an assurance that the allegations in the pleading are true and correct and have been filed in good faith. Thus, we agree with petitioner that, absent the requisite board resolution, neither Timbol-‐Roman nor Atty. Mallari, who signed the Memorandum of Appeal and Joint Affidavit of Declaration allegedly on behalf of respondent corporation, may be considered as the “appellant” and “employer” referred to by Rule VI, Sections 4 to 6 of the NLRC Rules of Procedure. [Gulfo vs. Ancheta, 678 SCRA 459(2012)]

Definition of intra-‐corporate disputes Jurisprudence consistently states that an intra-‐corporate dispute is one that arises from intra-‐corporate relations; relationships between or among stockholders; or the relationships between the stockholders and the corporation. In order to limit the broad definition of intra-‐corporate dispute, this Court has applied the relationship test and the controversy test. These two tests, when applied, have been the guiding principle in determining whether the dispute is an intra-‐corporate controversy or a civil case. [Gulfo vs. Ancheta, 678 SCRA 459(2012)]

Intra-‐corporate controversy defined An intra-‐corporate controversy is one which “pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves.” Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-‐corporate in character, for being between a condominium corporation and its members-‐unit owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno, 644 SCRA 288 (2011), an action involving the legality of assessment dues against the condominium owner/developer, the Court held that, the matter being an intra-‐corporate dispute, the RTC had jurisdiction to hear the same pursuant to R.A. No. 8799. [Go vs. Distinction Properties Development and Construction, Inc., 671 SCRA 461(2012)]

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SEC jurisdiction over corporations with religious nature UCCP and BUCCI, being corporate entities and grantees of primary franchises, are subject to the jurisdiction of the SEC. Section 3 of Presidential Decree No. 902-‐A provides that SEC shall have absolute jurisdiction, supervision and control over all corporations. Even with their religious nature, SEC may exercise jurisdiction over them in matters that are legal and corporate. [United Church of Christ in the Philippines, Inc. vs. Bradford United Church of Christ, Inc., 674 SCRA 92(2012)]

As a general rule, corporate officers should not be held solidarily liable with the corporation for separation pay for it is settled that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. [Ever Electrical Manufacturing, Inc. (EEMI) vs. Samahang Manggagawa ng Ever Electrical/NAMAWU Local 224, 672 SCRA 562(2012)]

Separate juridical personality In Mandaue Dinghow Dimsum House, Co., Inc., 547 SCRA 402 (2008), the Court declined to apply the ruling in Restaurante Las Conchas because there was no evidence that the respondent therein, Henry Uytrengsu, acted in bad faith or in excess of his authority. It stressed that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. For said reason, the doctrine of piercing the veil of corporate fiction must be exercised with caution. Citing Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, 357 SCRA 77 (2001), the Court explained that corporate directors and officers are solidarily liable with the corporation for the termination of employees done with malice or bad faith. It stressed that bad faith does not connote bad judgment or negligence; it 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. [Ever Electrical Manufacturing, Inc. (EEMI) vs. Samahang Manggagawa ng Ever Electrical/NAMAWU Local 224, 672 SCRA 562(2012)]

In illegal dismissal cases, corporate officers may only be held solidarily liable with the corporation if the termination was done with malice or bad faith As a general rule, a corporate officer cannot be held liable for acts done in his official capacity because a corporation, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members. In illegal dismissal cases, corporate officers may only be held solidarily liable with the corporation if the termination was done with malice or bad faith. [Blue Sky Trading Company, Inc. vs. Blas, 667 SCRA 727(2012)]

What must be established to pierce the veil of corporate fiction Neither can the veil of corporate fiction between the two companies be pierced by the rest of petitioners’ submissions, namely, the alleged take-‐over by Miramar of Mar Fishing’s operations and the evident similarity of their businesses. At this point, it bears emphasizing that since piercing the veil of corporate fiction is frowned upon, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect a fraud, or perpetrate a deception. This, unfortunately, petitioners have failed to do. [Ramirez vs. Mar Fishing Co., Inc., 672 SCRA 136(2012)]

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Condition sine qua non for derivative suit to prosper In the cited case of Chua v. Court of Appeals, 443 SCRA 259 (2004), the Court ruled: For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. [Cosco Philippines Shipping, Inc. vs. Kemper Insurance Company, 670 SCRA 343(2012)]

Requisites for filing a derivative suit In Hi-‐Yield Realty, Incorporated v. Court of Appeals, 590 SCRA 548 (2009), the Court enumerated the requisites for filing a derivative suit, as follows: a) the party bringing the suit should be a shareholder as of the time of the act or transaction complained of, the number of his shares not being material; b) he has tried to exhaust intra-‐corporate remedies, i.e., has made a demand on the board of directors for the appropriate relief but the latter has failed or refused to heed his plea; and c) the cause of action actually devolves on the corporation, the wrongdoing or harm having been, or being caused to the corporation and not to the particular stockholder bringing the suit. A reading of the amended complaint will reveal that all the foregoing requisites had been alleged therein. Hence, the amended complaint remedied the defect in the original complaint and now sufficiently states a cause of action. [Lisam Enterprises, Inc. vs. Banco de Oro Unibank, Inc., 670 SCRA 310(2012)]

Power of a corporation to sue and be sued in any court is lodged with the board of directors A corporation has no power, except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-‐laws or by a specific act of the board of directors. [Cosco Philippines Shipping, Inc. vs. Kemper Insurance Company, 670 SCRA 343(2012)]

Only individuals authorized by a valid board resolution may sign the certificate of non-‐forum shopping on behalf of a corporation In Philippine Airlines, Inc. v. Flight Attendants and Stewards Association of the Philippines (FASAP), 479 SCRA 605 (2006), we ruled that only individuals vested with authority by a valid board resolution may sign the certificate of non-‐forum shopping on behalf of a corporation. We also required proof of such authority to be presented. The petition is subject to dismissal if a certification was submitted unaccompanied by proof of the signatory’s authority. [Cosco Philippines Shipping, Inc. vs. Kemper Insurance Company, 670 SCRA 343(2012)]

Corporation that purchases assets of another not generally liable for the debts of the selling corporation; exceptions.

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As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the selling corporation fraudulently enters into the transaction to escape liability for those debts. [Jiao vs. National Labor Relations Commission, 670 SCRA 184(2012)]

Piercing the veil of corporate fiction A corporation is an artificial being created by operation of law. It possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic. Equally well-‐settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons. [Sarona vs. National Labor Relations Commission, 663 SCRA 394(2012)]

Instances when the doctrine of piercing the corporate veil applies The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. [Sarona vs. National Labor Relations Commission, 663 SCRA 394(2012)]

As ruled in Prince Transport, Inc., et al. v. Garcia, et al., 639 SCRA 312 (2011), it is the act of hiding behind the separate and distinct personalities of juridical entities to perpetuate fraud, commit illegal acts, evade one’s obligations that the equitable piercing doctrine was formulated to address and prevent: A settled formulation of the doctrine of piercing the corporate veil is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that these two entities are distinct and treat them as identical or as one and the same. [Sarona vs. National Labor Relations Commission, 663 SCRA 394(2012)]

“Rehabilitation,” Defined. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public. Under the Rules of Procedure on Corporate Rehabilitation, “rehabilitation” is defined as the restoration of 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

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present value of payments projected in the plan, more if the corporation continues as a going concern than if it is immediately liquidated.

We take this opportunity to point out that rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. However, if the continued existence of the corporation is no longer viable, rehabilitation can no longer be an option. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life, and not to prolong its inevitable demise. [Situs Development Corporation vs. Asiatrust Bank, 677 SCRA 495(2012)]

Rehabilitation Plan, an indispensable requirement An indispensable requirement in the rehabilitation of a distressed corporation is the rehabilitation plan. Section 5 of the Interim Rules of Procedure on Corporate Rehabilitation provides the requisites thereof: SEC. 5. Rehabilitation Plan.—The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of secured creditors; (c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor’s properties were liquidated; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.

When rehabilitation plan may be approved Under Section 23, Rule 4 of the Interim Rules, a rehabilitation plan may be approved if there is a showing that rehabilitation is feasible and the opposition entered by the creditors holding a majority of the total liabilities is unreasonable. In determining whether the objections to the approval of a rehabilitation plan are reasonable or otherwise, the court has the following to consider: (a) that the opposing creditors would receive greater compensation under the plan than if the corporate assets would be sold; (b) that the shareholders would lose their controlling interest as a result of the plan; and (c) that the receiver has recommended approval.

Approved rehabilitation plan is binding upon the debtor and all persons who may be affected by it

To stress, the rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected by it, including the creditors, whether such persons have or have not participated in the proceedings or have opposed the plan or whether their claims have or have not been scheduled. With the approval by the Rehabilitation Court of the plan for the FDPHI Group of Companies, there is nothing left to be done but to enforce the terms and schedule of payment as provided in the said plan. [Veterans Philippine Scout Security Agency, Inc. vs. First Dominion Prime Holdings, Inc., 679 SCRA 168(2012)]

Essential function of corporate rehabilitation An essential function of corporate rehabilitation is the mechanism of suspension of all actions and claims against the distressed corporation upon the due appointment of a management committee or rehabilitation receiver. Section 6(c) of PD 902-‐A mandates that upon appointment of a

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management committee, rehabilitation receiver, board, or body, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board, or body shall be suspended. The actions to be suspended cover all claims against a distressed corporation whether for damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of pecuniary nature. Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies to “all actions for claims” filed against the corporation, partnership or association under management or receivership, without distinction, except only those expenses incurred in the ordinary course of business. The stay order is effective on all creditors of the corporation without distinction, whether secured or unsecured.

The justification for the suspension of actions or claims The justification for the suspension of actions or claims, without distinction, pending rehabilitation proceedings is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the “rescue” of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. It is worthy to note that the stay order remains effective during the duration of the rehabilitation proceedings. [Veterans Philippine Scout Security Agency, Inc. vs. First Dominion Prime Holdings, Inc., 679 SCRA 168(2012)]

We held that the appointment of a management committee, rehabilitation receiver, board or body pursuant to Presidential Decree No. 902-‐A is the operative act that suspends all actions or claims against a distressed corporation. [Situs Development Corporation vs. Asiatrust Bank, 677 SCRA 495(2012)]

Rationale of P.D. No. 902-‐A Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have equitable and rehabilitative purposes. On one hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor’s remaining assets to its creditors; and on the other, to provide debtors with a “fresh start” by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs. The rationale of Presidential Decree No. 902-‐A, as amended, is to “effect a feasible and viable rehabilitation,” by preserving a floundering business as going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated.

Rehabilitation is available to a corporation who, while illiquid, has assets that can generate more cash if used in its daily operations than sold Rehabilitation is therefore available to a corporation who, while illiquid, has assets that can generate more cash if used in its daily operations than sold. Its liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations, has a definite source of financing for its proper and full implementation, and anchored on realistic assumptions and goals. This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by the following: (a) the absence of a sound and workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative capital infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily

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operations; and (e) negative net worth and the assets are near full depreciation or fully depreciated. [Wonder Book Corporation vs. Philippine Bank of Communications, 676 SCRA 489(2012)]

Factors for a successful corporate rehabilitation “A successful rehabilitation usually depends on two factors: (1) a positive change in the business fortunes of the debtor, and (2) the willingness of the creditors and shareholders to arrive at a compromise agreement on repayment burdens, extent of dilution, etc. The debtor must demonstrate by convincing and compelling evidence that these circumstances exist or are likely to exist by the time the debtor submits his ‘revised or substitute rehabilitation plan for the final approval of the court.’ ” [San Jose Timber Corporation vs. Securities and Exchange Commission, 667 SCRA 13(2012)]

Nature of rehabilitation proceedings Rehabilitation proceedings are summary and non-‐adversarial in nature, and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the corporate debtor, its creditors and other interested parties. Thus, the Interim Rules “incorporate the concept of prohibited pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the traditional approach of receiving evidence, and the grant of authority to the court to decide the case, or any incident, on the basis of affidavits and documentary evidence.” [Advent Capital and Finance Corporation vs. Alcantara, 664 SCRA 224(2012)]

Securities Regulation Code

Investment contract, defined The Securities Regulation Code treats investment contracts as “securities” that have to be registered with the SEC before they can be distributed and sold. An investment contract is a contract, transaction, or scheme where a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. [Securities and Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA 28(2012)]

Howey Test: conditions for investment contracts to arise The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co., that, for an investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others. Thus, to sustain the SEC position in this case, PCI’s scheme or contract with its buyers must have all these elements. [Securities and Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA 28(2012)]

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Banking Laws

Extraordinary diligence required before approving loan application Primarily, it bears noting that the doctrine of “mortgagee in good faith” is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon. In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof. The apparent purpose of an ocular inspection is to protect the “true owner” of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto. [Philippine Banking Corporation vs. Dy, 685 SCRA 567(2012)]

Nothing short of extraordinary diligence is required of banks whose business is impressed with public interest A finding of negligence must always be contextualized in line with the attendant circumstances of a particular case. As aptly held in Philippine National Bank v. Heirs of Estanislao Militar, 494 SCRA 308 (2006), “the diligence with which the law requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance of the act which is to be performed.” Thus, without diminishing the time-‐honored principle that nothing short of extraordinary diligence is required of banks whose business is impressed with public interest, Philbank’s inconsequential oversight should not and cannot serve as a bastion for fraud and deceit. [Philippine Banking Corporation vs. Dy, 685 SCRA 567(2012)]

Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking; thus, the law requires banks to have high standards of integrity and performance. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. In the case at bar, petitioner itself was negligent in the conduct of its business when it extended unsecured loans to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not able to protect the interests of the parties and was even instrumental in violating the terms of the MTI, to the detriment of the parties thereto. [Metropolitan Bank and Trust Company vs. Centro Development Corporation, 672 SCRA 325(2012)]

Nature of bank’s liability as an obligor Considering that banks can only act through their officers and employees, the fiduciary obligation laid down for these institutions necessarily extends to their employees. Thus, banks must ensure that their employees observe the same high level of integrity and performance for it is only through this that banks may meet and comply with their own fiduciary duty. It has been repeatedly held that “a bank’s liability as an obligor is not merely vicarious, but primary” since they are expected to observe an equally high degree of diligence, not only in the selection, but also in the supervision of its employees. Thus, even if it is their employees who are negligent, the bank’s responsibility to its

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client remains paramount making its liability to the same to be a direct one. [Westmont Bank vs. Dela Rosa-‐Ramos, 684 SCRA 429(2012)]

Banks under liquidation retain their legal personality In Philippine Veterans Bank v. NLRC, 317 SCRA 510 (1999), this Court explained that banks under liquidation retain their legal personality. In fact, even if they are prohibited from conducting regular banking business, it is necessary that debts owed to them be collected. Lazaro performed the duty of foreclosing debts in favor of Banco Filipino. It cannot rightfully disclaim Lazaro’s work that benefitted it. Consequently, we find no grievous error committed by the CA in crediting the years covered by the liquidation period as part of Lazaro’s retirement pay. [Banco Filipino Savings and Mortgage Bank vs. Lazaro, 675 SCRA 307(2012)]

Liability for a debt of a branch ultimately rests upon the parent bank For lack of judicial precedents on this issue, the Court seeks guidance from American jurisprudence. In the leading case of Sokoloff v. The National City Bank of New York, 130 Misc. 66, 224 N.Y.S. 102, where the Supreme Court of New York held: Where a bank maintains branches, each branch becomes a separate business entity with separate books of account. A depositor in one branch cannot issue checks or drafts upon another branch or demand payment from such other branch, and in many other respects the branches are considered separate corporate entities and as distinct from one another as any other bank. Nevertheless, when considered with relation to the parent bank they are not independent agencies; they are, what their name imports, merely branches, and are subject to the supervision and control of the parent bank, and are instrumentalities whereby the parent bank carries on its business, and are established for its own particular purposes, and their business conduct and policies are controlled by the parent bank and their property and assets belong to the parent bank, although nominally held in the names of the particular branches. Ultimate liability for a debt of a branch would rest upon the parent bank. [Emphases supplied] This ruling was later reiterated in the more recent case of United States v. BCCI Holdings Luxembourg, 48 F.3d 551, 554 (D.C.Cir.1995), where the United States Court of Appeals, District of Columbia Circuit, emphasized that “while individual bank branches may be treated as independent of one another, each branch, unless separately incorporated, must be viewed as a part of the parent bank rather than as an independent entity.” [Philippine Deposit Insurance Corporation vs. Citibank, N.A., 669 SCRA 191(2012)]

Both Section 75 of R.A. No. 8791 and Section 5 of R.A. No. 7221 require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine branch

In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of all the liabilities of its Philippine branch, to wit: Republic Act No. 8791: Sec. 75. Head Office Guarantee.—In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. Residents and citizens of the Philippines who are creditors of a branch in the Philippines of foreign bank shall have preferential rights to the assets of such branch in accordance with the existing laws. Republic Act No. 7721: Sec. 5. Head Office Guarantee.—The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches. [Philippine Deposit Insurance Corporation vs. Citibank, N.A., 669 SCRA 191(2012)]

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The head office of a bank and its branches are considered as one under the eyes of the law It is clear that the head office of a bank and its branches are considered as one under the eyes of the law. While branches are treated as separate business units for commercial and financial reporting purposes, in the end, the head office remains responsible and answerable for the liabilities of its branches which are under its supervision and control. As such, it is unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money placements made by their home office and other branches. Deposit insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the funds and the one which made the placements are one and the same legal entity. [Philippine Deposit Insurance Corporation vs. Citibank, N.A., 669 SCRA 191(2012)]

Purpose of the Philippine Deposit Insurance Corporation (PDIC) The purpose of the PDIC is to protect the depositing public in the event of a bank closure. It has already been sufficiently established by US jurisprudence and Philippine statutes that the head office shall answer for the liabilities of its branch. Now, suppose the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required to answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the head office and the branch are two separate entities and that the funds placed by the head office and its foreign branches with the Philippine branch are considered deposits within the meaning of the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office, would be placed in the ridiculous position of having to reimburse itself, as depositor, for the losses it may incur occasioned by the closure of Citibank Philippines. Surely our law makers could not have envisioned such a preposterous circumstance when they created PDIC. [Philippine Deposit Insurance Corporation vs. Citibank, N.A., 669 SCRA 191(2012)]

Intellectual Property Law

Elements of trademark infringement The elements of the offense of trademark infringement under the Intellectual Property Code are, therefore, the following: 1. The trademark being infringed is registered in the Intellectual Property Office; 2. The trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer; 3. The infringing mark is used in connection with the sale, offering for sale, or advertising of any goods, business or services; or the infringing mark 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; 4. The use or application of the infringing mark 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 5. The use or application of the infringing mark is without the consent of the trademark owner or the assignee thereof. [Diaz vs. People, G.R. No. 180677(2013)]

Gravamen of trademark infringement As can be seen, the likelihood of confusion is the gravamen of the offense of trademark infringement. There are two tests to determine likelihood of confusion, namely: the dominancy test, and the holistic test. [Diaz vs. People, G.R. No. 180677(2013)]

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Dominancy Test The dominancy test focuses on the similarity of the main, prevalent or essential features of the competing trademarks that might cause confusion. Infringement takes place when the competing trademark contains the essential features of another. Imitation or an effort to imitate is unnecessary. The question is whether the use of the marks is likely to cause confusion or deceive purchasers. [Diaz vs. People, G.R. No. 180677(2013)]

Holistic Test The holistic test considers the entirety of the marks, including labels and packaging, in determining confusing similarity. The focus is not only on the predominant words but also on the other features appearing on the labels. As to what test should be applied in a trademark infringement case, we said in McDonald’s Corporation v. Macjoy Fastfood Corporation that: In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to another, no set rules can be deduced because each case must be decided on its merits. In such cases, even more than in any other litigation, precedent must be studied in the light of the facts of the particular case. That is the reason why in trademark cases, jurisprudential precedents should be applied only to a case if they are specifically in point. [Diaz vs. People, G.R. No. 180677(2013)]

Dominancy test and holistic or totality test, distinguished The Dominancy Test focuses on the similarity of the dominant features of the competing trademarks that might cause confusion, mistake, and deception in the mind of the ordinary purchaser, and gives more consideration to 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. In contrast, the Holistic or Totality Test considers the entirety of the marks as applied to the products, including the labels and packaging, and focuses not only on the predominant words but also on the other features appearing on both labels to determine whether one is confusingly similar to the other14 as to mislead the ordinary purchaser. The “ordinary purchaser” refers to one “accustomed to buy, and therefore to some extent familiar with, the goods in question.” [Great White Shark Enterprises vs. Caralde, Jr., G.R. No. 192294(2012)]

Ordinary purchaser, defined The definition laid down in Dy Buncio v. Tan Tiao Bok is better suited to the present case. There, the “ordinary purchaser” was defined as one “accustomed to buy, and therefore to some extent familiar with, the goods in question. The test of fraudulent simulation is to be found in the likelihood of the deception of some persons in some measure acquainted with an established design and desirous of purchasing the commodity with which that design has been associated. The test is not found in the deception, or the possibility of deception, of the person who knows nothing about the design which has been counterfeited, and who must be indifferent between that and the other. The simulation, in order to be objectionable, must be such as appears likely to mislead the ordinary intelligent buyer who has a need to supply and is familiar with the article that he seeks to purchase. [Diaz vs. People, G.R. No. 180677(2013)]

Susceptibility to registration of a trademark device A trademark device is susceptible to registration if it is crafted fancifully or arbitrarily and is capable of identifying and distinguishing the goods of one manufacturer or seller from those of another. Apart from its commercial utility, the benchmark of trademark registrability is distinctiveness. Thus, a generic figure, as that of a shark in this case, if employed and designed in a distinctive manner, can be a registrable trademark device, subject to the provisions of the IP Code. [Great White Shark Enterprises vs. Caralde, Jr., G.R. No. 192294(2012)]

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When a mark cannot be registered Corollarily, Section 123.1(d) of the IP Code provides that a mark cannot be registered if it is identical with a registered mark belonging to a different proprietor with an earlier filing or priority date, with respect to the same or closely related goods or services, or has a near resemblance to such mark as to likely deceive or cause confusion. [Great White Shark Enterprises vs. Caralde, Jr., G.R. No. 192294(2012)]

2013 jurisprudence

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