The Justice Marvic M.V.F. Leonen Case Doctrines IN Mercantile Law

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THE JUSTICE LEONEN CASE DOCTRINES IN MERCANTILE LAW

PROF. E.H. BALMES
THE JUSTICE MARVIC M.V.F. LEONEN

CASE DOCTRINES
IN
MERCANTILE LAW
PREPARED BY:
PROF. ERICKSON H. BALMES
NATIONAL FEDERATION OF HOG FARMERS, INC., REPRESENTED

BY MR. DANIEL P. JAVELLANA, et., al.
vs
VS. BOARD OF INVESTMENTS et., al.
G.R. No. 205835, June 23, 2020
 Chairperson, 2021 Bar Examinations

 Deputy Commissioner, Insurance Commission.
 MCLE Lecturer, Integrated Bar of the Philippines (IBP) MCLE Lectures.
 Bar Reviewer in Legal Ethics and Commercial Law - Jurists Bar Review Center, Villasis Bar Review, Chan
Robles Internet Review, PCU Bar Review, the Magnificus Review Center, Legal Edge Review Center , the
University of Cebu Bar Review, the University of San Jose Recoletos Bar Review, the University of Santo
Tomas Bar Review, the PUP Bar Review, the UP LAW Center Bar Review Institute and the Arellano
University Bar Review.
 Member, COMMITTEE ON SUGGESTED ANSWERS in LEGAL AND JUDICIAL ETHICS , UP Law
Center.
 Author, 300 QUESTIONS AND ANSWERS IN LEGAL AND JUDICIAL ETHICS, A Pre Week
Companion. (2021). www.central.com.ph
The compiler wishes to thank ATTY. CHESCA CABRAL, PATRICIA ARBOLADO, EENAH JOELLE
PADILLA, CRICHELLE SY, ROMEO LANZARROTE, and ANDREI “TONY” ELINZANO for their valued
contribution in researching the cases used in this compilation.
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PROF. E.H. BALMES
Nationalism is not a mindless ideal. It should not unreasonably exclude

people of a different citizenship from participating in our economy. If it were
so, nationalism will not foster social justice; rather, it will sponsor a kind of
racism quite like what our ancestors had suffered from in our colonial past.
While the Constitution does not bar foreign investors from setting up shop
in the Philippines, neither does it encourage their unbridled entry. Thus, it
has empowered Congress to determine which areas of investment to reserve
to Filipinos and which areas may be opened to foreign investors.
The constitutional line demarcating privileges for our citizens over foreigners
is a delicate one. We must adjudicate where such line is drawn only with a
grounded consciousness of the facts of an actual case rather than through
fiery passions of general advocacy. We will not evade the responsibility to
adjudicate when that case comes. Sadly, this is not the case.
This Petition should be dismissed. Not only is it not justiciable, but this Court
also does not have original jurisdiction over it. The grounds raised reveal
that the invocation of grave abuse of discretion is mere subterfuge to a
claimed "irregular or illegal" grant of an application for registration under
Book I, Chapter III of Executive Order No. 226, or the Omnibus Investments
Code of 1987.
E.O. No. 226 apparently allows two avenues of appeal from an action or
decision of the BOI, depending on the nature of the controversy. One mode
is to elevate an appeal to the Office of the President when the action or
decision pertains to either of these two instances: first, in the decisions of
the BOI over controversies concerning the implementation of the relevant
provisions of E.O No. 226 that may arise between registered enterprises or
investors and government agencies under Article 7; and second, in an action
of the BOI over applications for registration under the investment priorities
plan under Article 36.
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PROF. E.H. BALMES
Another mode of review is to elevate the matter directly to judicial tribunals.

For instance, under Article 50, E.O. No. 226, a party adversely affected by
the issuance of a license to do business in favor of an alien or a foreign firm
may file with the proper Regional Trial Court an action to cancel said license.
Then, there is Article 82, E.O. No. 226, which, in its broad phraseology,
authorizes the direct appeal to the Supreme Court from any order or decision
of respondent BOI "involving the provisions of E.O. No. 226.
Thus, under Article 36 of Executive Order No. 226, actions made by the
Board of Investments over applications for registration under the Investment
Priorities Plan are appealable to the Office of the President.
The quasi-judicial power to assess and approve applications for registration

was bestowed exclusively on the Board of Governors, owing to its expertise
over which industries need the added boost of investments and its in-depth
knowledge on the requirements for registration. After all, it drafted the rules
and regulations implementing Executive Order No. 226.
Thus, under the doctrine of primary administrative jurisdiction, jurisdiction

over the approval of applications for registration lies exclusively with the
Board of Investments, subject to appeal to the Office of the President.
Hence, this Court is precluded from taking cognizance of the present Petition.
Goods or services are said to be in the same relevant market if both factors
are present: (1) a reasonable interchangeability of the offerings to
consumers; and (2) a significant cross-elasticity of demand, such that a price
change in one party's goods or services will lead to a price change in the
other party's goods or services. Thus, petitioners' alleged injury, purportedly
caused by the entry of new players in the relevant market, still requires a
factual finding. The Petition, therefore, is ultimately premature.
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PROF. E.H. BALMES
The claim of unfair competition is primarily factual in nature.
There should be objective, scientific, and economic standards to determine

whether goods or services offered by two parties are so related that there is
a likelihood of confusion. In a market, the relatedness of goods or services
may be determined by consumer preferences. When two goods are proved
to be perfect substitutes, where the marginal rate of substitution, or the
"consumer's willingness to substitute one good for another while maintaining
the same level of satisfaction" is constant, then it may be concluded that the
goods are related for the purposes of determining likelihood of confusion.
Even goods or services, which superficially appear unrelated, may be proved
related if evidence is presented showing that these have significant cross-
elasticity of demand, such that changes of price in one party's goods or
services change the price of the other party's goods and services. Should it
be proved that goods or services belong to the same relevant market, they
may be found related even if their classes, physical attributes, or purposes
are different
Even if products are found to be in the same market, in all cases of unfair
competition, competition should be presumed. Courts should take care not
to interfere in a free and fair market, or to foster monopolistic practices.
Instead, they should confine themselves to prevent fraud and
misrepresentation on the public.
Protection against unfair competition is not intended to create or foster a

monopoly and the court should always be careful not to interfere with free
and fair competition, but should confine itself, rather, to preventing fraud
and imposition resulting from some real resemblance in name or dress of
goods. Nothing less than conduct tending to pass off one man's goods or
business as that of another will constitute unfair competition. Actual or
probable deception and confusion on the part of customers by reason of
defendant's practices must always appear.
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PROF. E.H. BALMES
Monopolization should not be lightly inferred especially since efficient

business organizations are rewarded by the market with growth. Due to the
high barriers to economic entry and long gestation periods, it is reasonable
for the government to bundle infrastructure projects. There is, indeed, a
difference between abuse of dominant position in a relevant market and
combinations in restraint of trade.
While the Constitution mandates that the State should develop a self reliant
economy, it does not proscribe the entry of foreign investments in the local
market. In fact, it recognizes the need to develop Filipino labor, domestic
materials, and locally produced goods to become competitive.
As such, the State imposes certain conditions and restrictions on foreign

investments operating within the Philippine jurisdiction. For instance, no
foreign enterprise is allowed to venture into the mass media industry. This
absolute restriction also extends to the use of natural resources found in the
archipelagic waters, territorial sea, and exclusive economic zone of the
Philippines. Further, the practice of all professions in the Philippines is
reserved for Filipino citizens, save for statutory exceptions.
While foreign participation IS absolutely prohibited m some industries, the

Constitution allows foreign participation in certain industries, such as
advertising, public utilities, educational institutions, ownership of private
lands, and the exploration, development, and utilization of natural resources.
Despite these constitutional restrictions, it is not far-fetched to consider that

the Philippines adopts a liberal approach in allowing foreign investments to
enter the country. What the Constitution only restricted from foreign
investors were enterprises imbued with public interest, such as public
utilities, mass media, and use of natural resources. These restrictions are
necessary to protect the welfare of Filipino citizens by removing the
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PROF. E.H. BALMES
possibility of exploitation by foreign investors, who are not fully within the
jurisdiction of Philippine laws.
All told, while the Constitution indeed mandates a bias in favor of Filipino
goods, services, labor and enterprises, at the same time, it recognizes the
need for business exchange with the rest of the world on the bases of
equality and reciprocity and limits protection of Filipino enterprises only
against foreign competition and trade practices that are unfair. In other
words, the Constitution did not intend to pursue an isolationist policy. It did
not shut out foreign investments, goods and services in the development of
the Philippine economy. While the Constitution does not encourage the
unlimited entry of foreign goods, services and investments into the country,
it does not prohibit them either. In fact, it allows an exchange on the basis
of equality and reciprocity, frowning only on foreign competition that is
unfair.
The constitutional policy of a "self-reliant and independent national

economy" does not necessarily rule out the entry of foreign investments,
goods and services. It contemplates neither "economic seclusion" nor
"mendicancy in the international community”.
Created by Republic Act No. 5186, or the Investment Incentives Act, the
Board of Investments is the administrative agency tasked to carry out the
State's policy of encouraging both local and foreign investments in the
agriculture, mining, and manufacturing industries and promote greater
economic stability by increasing national income and exports. It is also
mandated with implementing the provisions of Executive Order No. 226.
The Board of Investments exercises both quasi-legislative (or rule making)

powers and quasi-judicial (or administrative adjudicatory) functions. Its
quasi-legislative functions include, among others, preparing an annual
investment priorities plan that lists the activities that can qualify for
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incentives, and promulgating rules and regulations to give life to the

provisions of Executive Order No. 226.
On the other hand, its quasi-judicial functions include, among others,

processing and approving applications for registration, deciding
controversies arising from the implementation of Executive Order No.
226, and canceling registrations or suspending entitlement to incentives of
registered enterprises.
Republic Act No. 7042, or the Foreign Investments Act of 1991, declares that
as much as 100% foreign ownership in domestic enterprises may be allowed,
except for areas or industries included in the negative list.
The 1987 Constitution does not rule out the entry of foreign investments,
goods, and services. While it does not encourage their unlimited entry into
the country, it does not prohibit them either. In fact, it allows an exchange
on the basis of equality and reciprocity, frowning only on foreign competition
that is unfair. The key, as in all economies in the world, is to strike a balance
between protecting local businesses and allowing the entry of foreign
investments and services.
More importantly, Section 10, Article XII of the 1987 Constitution gives
Congress the discretion to reserve to Filipinos certain areas of investments
upon the recommendation of the NEDA and when the national interest
requires. Thus, Congress can determine what policy to pass and when to
pass it depending on the economic exigencies. It can enact laws allowing
the entry of foreigners into certain industries not reserved by the Constitution
to Filipino citizens.
ANNIE TAN v. GREAT HARVEST ENTERPRISES, INC.,

G.R. No. 220400 March 20, 2019
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Common carriers are obligated to exercise extraordinary diligence over the

goods entrusted to their care. This is due to the nature of their business,
with the public policy behind it geared toward achieving allocative efficiency
and minimizing the inherently inequitable dynamics between the parties to
the transaction.
Article 1732 of the Civil Code defines common carriers 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." The Civil Code outlines
the degree of diligence required of common carriers in Articles 1733, 1755,
and 1756:
ARTICLE 1733. 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 1755. 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 1756. 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.
Law and economics provide the policy justification of our existing

jurisprudence. The extraordinary diligence required by the law of common
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PROF. E.H. BALMES
carriers is primarily due to the nature of their business, with the public policy
behind it geared toward achieving allocative efficiency between the parties
to the transaction.
Allocative efficiency is an economic term that describes an optimal market

where customers are willing to pay for the goods produced. Thus, both
consumers and producers benefit and stability is achieved.
The notion of common carriers is synonymous with public service under

Commonwealth Act No. 146 or the Public Service Act. Due to the public
nature of their business, common carriers are compelled to exercise
extraordinary diligence since they will be burdened with the externalities or
the cost of the consequences of their contract of carriage if they fail to take
the precautions expected of them.
Common carriers are mandated to internalize or shoulder the costs under

the contracts of carriage. This is so because a contract of carriage is
structured in such a way that passengers or shippers surrender total control
over their persons or goods to common carriers, fully trusting that the latter
will safely and timely deliver them to their destination. In light of this
inherently inequitable dynamics— and the potential harm that might befall
passengers or shippers if common carriers exercise less than extraordinary
diligence— the law is constrained to intervene and impose sanctions on
common carriers for the parties to achieve allocative efficiency.
CEZAR YATCO REAL ESTATE SERVICES, INC., et., al. vs. BEL-AIR
VILLAGE ASSOCIATION, INC., et., al.
G.R. 211780 November 21, 2018
In contract interpretation, courts must first determine whether a stipulation

is ambiguous or susceptible of multiple interpretations. If no ambiguity is
found and the terms of the contract clearly reflect the intentions of the
contracting parties, the stipulation will be interpreted as it is written.
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PROF. E.H. BALMES
The process of interpreting a contract requires the court to make a

preliminary inquiry as to whether the contract before it is ambiguous. A
contract provision is ambiguous if it is susceptible of two reasonable
alternative interpretations. Where the written terms of the contract are not
ambiguous and can only be read one way, the court will interpret the
contract as a matter of law. If the contract is determined to be ambiguous,
then the interpretation of the contract is left to the court, to resolve the
ambiguity in the light of the intrinsic evidence.
A proxy is a form of agency created in instances when a person is unable to

personally cast his or her vote; hence, the act of voting is delegated to
another person.
Section 89 of Batas Pambansa Blg. 68, or the Corporation Code of the

Philippines, recognizes a member's right to vote by proxy. Section 58 then
provides that a proxy shall be in writing, signed by the member, and filed
with the corporate secretary before the scheduled meeting:
However, the Corporation Code also empowers the members to provide for
their own proxy requirements in their by-laws, as seen in Section 47(4),
which provides:
Section 47. Contents of by-laws. - Subject to the provisions

of the Constitution, this Code, other special laws, and the
articles of incorporation, a private corporation may provide
in its by-laws for:
....
4. The form for proxies of stockholders and members and

the manner of voting them[.]
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Nonetheless, in the absence of additional formal requirements for proxies in

the by-laws, the basic requirements for a written proxy submitted prior to
the scheduled meeting under Section 58 govern.
The Court therefore finds it whimsical for petitioners to insist that the special
BAVA membership meeting did not constitute a quorum solely based on its
lame excuse that the proxy letters during said meeting were not notarized
and lacking in authority or specific grant of power to approve the extension
of the effectivity of the term of restrictions.
There is no requirement that the proxy form be notarized. Thus, the

recognized rule and practice on proxy form is summarized as
follows . . . the formalities of a proxy may be provided for in the by-
laws. In the absence of any provision in the by-laws, the proxy need
not comply with the minimum requirements provided for in Section
58 .
THE INSULAR ASSURANCE CO., LTD., VS. THE HEIRS OF JOSE H.

ALVAREZ.
G.R. No. 207526 October 3, 2018
The Insurance Code dispenses with proof of fraudulent intent in cases of

rescission due to concealment, but not so in cases of rescission due to false
representations. When an abundance of available documentary evidence can
be referenced to demonstrate a design to defraud, presenting a singular
document with an erroneous entry does not qualify as clear and convincing
proof of fraudulent intent. Neither does belatedly invoking just one other
document, which was not even authored by the alleged miscreant.
Fraud is not to be presumed, for "otherwise, courts would be indulging in

speculations and surmises." Moreover, it is not to be established lightly.
Rather, "it must be established by clear and convincing evidence. Mere
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preponderance of evidence is not even adequate to prove fraud." These

precepts hold true when allegations of fraud are raised as grounds justifying
the invalidation of contracts, as the fraud committed by a party tends to
vitiate the other party's consent.
When one knows a material fact and conceals it, "it is difficult to see how
the inference of a fraudulent intent or intentional concealment can be
avoided." Thus, a concealment, regardless of actual intent to defraud, "is
equivalent to a false representation."
Concealment exists where the assured has knowledge of a fact material to

the risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally withholds
the same.
Another rule is that if the assured undertakes to state all the circumstances
affecting the risk, a full and fair statement of all is required.
It is also held that the concealment must, in the absence of inquiries, be not
only material, but fraudulent, or the fact must have been intentionally
withheld; so it is held under English law that if no inquiries are made and no
fraud or design to conceal enters into the concealment the contract is not
avoided. And it is determined that even though silence may constitute
misrepresentation or concealment it is not of itself necessarily so as it is a
question of fact. Nor is there a concealment justifying a forfeiture where the
fact of insanity is not disclosed no questions being asked concerning the
same.
The basis of the rule vitiating the contract in cases of concealment is that it
misleads or deceives the insurer into accepting the risk, or accepting it at
the rate of premium agreed upon; The insurer, relying upon the belief that
the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
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exist, and he is thereby induced to estimate the risk upon a false basis that
it does not exist.
The principal question, therefore, must be, Was the assurer misled or
deceived into entering a contract obligation or in fixing the premium of
insurance by a withholding of material information or facts within the
assured's knowledge or presumed knowledge?
It therefore follows that the assurer in assuming a risk is entitled to know

every material fact of which the assured has exclusive or peculiar knowledge,
as well as all material facts which directly tend to increase the hazard or risk
which are known by the assured, or which ought to be or are presumed to
be known by him. And a concealment of such facts vitiates the policy.
The fraudulent intent on the part of the insured must be established to entitle
the insurer to rescind the contract. Misrepresentation as a defense of the
insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the insurer.
In the case at bar, the petitioner failed to clearly and satisfactorily establish
its defense, and is therefore liable to pay the proceeds of the insurance.
Concealment applies only with respect to material facts. That is, those facts
which by their nature would clearly, unequivocally, and logically be known
by the insured as necessary for the insurer to calculate the proper risks.
The absence of the requirement of intention definitely increases the onus on

the insured. Between the insured and the insurer, it is true that the latter
may have more resources to evaluate risks. Insurance companies are imbued
with public trust in the sense that they have the obligation to ensure that
they will be able to provide succor to those that enter into contracts with
them by being both frugal and, at the same time, diligent in their assessment
of the risk which they take with every insurance contract. However, even
with their tremendous resources, a material fact concealed by the insured
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cannot simply be considered by the insurance company. The insurance

company may have huge resources, but the law does not require it to be
omniscient.
On the other hand, when the insured makes a representation, it is incumbent

on them to assure themselves that a representation on a material fact is not
false; and if it is false, that it is not a fraudulent misrepresentation of a
material fact. This returns the burden to insurance companies, which, in
general, have more resources than the insured to check the veracity of the
insured's beliefs as to a statement of fact. Consciousness in defraudation is
imperative and it is for the insurer to show this.
Deliberation attendant to an apparently inaccurate declaration is vital to

ascertaining fraud.
A single piece of evidence hardly qualifies as clear and convincing. Its

contents could just as easily have been an isolated mistake.
MILAGROS P. ENRIQUEZ VS. THE MERCANTILE INSURANCE CO.,

INC.,
G.R. 210950 August 15, 2018
A surety bond remains effective until the action or proceeding is finally

decided, resolved, or terminated, regardless of whether the applicant fails to
renew the bond. The applicant will be liable to the surety for any payment
the surety makes on the bond, but only up to the amount of this bond.
This condition is deemed incorporated in the contract between the applicant
and the surety, regardless of whether they failed to expressly state it.
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Under the Guidelines on Corporate Surety Bonds:
VII. LIFETIME OF BONDS IN CRIMINAL AND CIVIL

ACTIONS/SPECIAL PROCEEDINGS
Unless and until the Supreme Court directs otherwise, the

lifetime or duration of the effectivity of any bond issued in
criminal and civil actions/special proceedings, or in any
proceeding or incident therein shall be from its approval by
the court, until the action or proceeding is finally decided,
resolved or terminated. This condition must be incorporated
in the terms and condition of the bonding contract and shall
bind the parties notwithstanding their failure to expressly
state the same in the said contract or agreement.
It should be noted that a replevin bond is intended to indemnify the

defendant against any loss that he may suffer by reason of its being
compelled to surrender the possession of the disputed property pending trial
of the action. The same may also be answerable for damages if any when
judgment is rendered in favor of the defendant or the party against whom a
writ of replevin was issued and such judgment includes the return of the
property to him. Thus, the requirement that the bond be double the actual
value of the properties litigated upon.
A contract of insurance is, by default, a contract of adhesion. It is prepared

by the insurance company and might contain terms and conditions too vague
for a layperson to understand; hence, they are construed liberally in favor of
the insured.
Basically a contract of indemnity, an insurance contract is the law between

the parties. Its terms and conditions constitute the measure of the insurer's
liability and compliance therewith is a condition precedent to the insured's
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right to recovery from the insurer. As it is also a contract of adhesion, an

insurance contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it.
BELINA CANCIO AND JEREMY PAMPOLINA VS. PERFORMANCE

FOREIGN EXCHANGE CORPORATION
G.R. No. 182307 June 6, 2018
Foreign currency exchange trading or forex trading is the speculative trade

of foreign currency for the sole purpose of gaining profit from the change in
prices. The forex market is a "global, decentralized," and essentially "an over-
the-counter (OTC) market where the different currency trading locations
around the globe electronically form a unified, interconnected market entity."
Unlike a stock exchange market where the opening and closing of trades rely
on only one (1) or two (2) time zones, a forex market may have overlapping
time zones. Foreign currency, due to its decentralized nature, may be traded
in different financial markets. For instance, trading currency using US dollars
would not depend on the business or banking hours only of financial
institutions in the United States.
The participants in a forex market are banks, hedge funds, investment firms,
and individual retail traders. Unlike banks, hedge funds, and investment
firms that have significant amounts of capital to engage in trade, individual
retail traders often make use of brokers, who "serve as an agent of the
customer in the broader [foreign currency exchange] market, by seeking the
best price in the market for a retail order and dealing on behalf of the retail
customer."
Individual retail traders also rely on "leverage trading," where traders can
open margin accounts with a financial broker or agent to make use of that
broker or agent's credit line to engage in trade.
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A margin account is an account where the broker-dealer lends money to the

trader to purchase currency, using the same purchased currency as
collateral. Returns will be proportional to the amount deposited. Leverage is
determined by the amount that the trader is required to deposit. If a trader
has to deposit US$1,000.00 into a margin account to trade US$100,000.00
in currency, the margin account has a leverage of 100 to 1.This system
allows the trader to control more money in the market than what was
originally deposited.
Individual retail traders make use of leverage trading and margin accounts
since price movements are usually miniscule. A "pip" is "the smallest unit of
price movement in the exchange rate of a currency pair." The goal of every
trader in foreign currency exchange is to earn pips.
Forex trade is, thus, considered a lucrative but risky endeavor since every
trade multiplies profit and loss by a much higher rate than what was
originally invested.
A broker is generally defined as one who is engaged, for others, on a

commission, negotiating contracts relative to property with the custody of
which he has no concern; the negotiator between other parties. never acting
in his own name, but in the name of those who employed him; he is strictly
a middleman and for some purposes the agent of both parties.
Currency trading adds no new good or service into the market that would be
of use to real persons. Instead, it has the tendency to alter the price of real
goods and services to the detriment of those who manufacture, labor, and
consume products. It may alter the real value of goods and services on the
basis of a rumor or anything else that will cause a herd of speculative traders
to move one way or the other. Put in another way, those who participate in
it must be charged with knowledge that getting rich in this way is
accompanied with great risk. Given its real effects on the real economy and
on real people, it will be unfair for this Court to provide greater warranties
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to the parties in currency trading. They should bear their own risks perhaps
to learn that their capital is better invested more responsibly and for the
greater good of society.
CITIGROUP, INC VS. CITYSTATE SAVINGS BANK, INC.

G.R. No. 205409 June 13, 2018
The purpose of the law protecting a trademark cannot be overemphasized.

They are to point out distinctly the origin or ownership of the article to which
it is affixed, to secure to him, who has been instrumental in bringing into
market a superior article of merchandise, the fruit of his industry and skill,
and to prevent fraud and imposition.
The legislature has enacted laws to regulate the use of trademarks and
provide for the protection thereof. Modem trade and commerce demands
that depredations on legitimate trade marks of non-nationals including those
who have not shown prior registration thereof should not be countenanced.
The law against such depredations is not only for the protection of the owner
of the trademark but also, and more importantly, for the protection of
purchasers from confusion, mistake, or deception as to the goods they are
buying.
The law on trademarks and tradenames is based on the principle of business

integrity and common justice. This law, both in letter and spirit, is laid upon
the premise that, while it encourages fair trade in every way and aims to
foster, and not to hamper, competition, no one, especially a trader, is
justified in damaging or jeopardizing another's business by fraud, deceit,
trickery or unfair methods of any sort. This necessarily precludes the trading
by one dealer upon the good name and reputation built up by another.
A "trademark" is defined under R.A. 166, the Trademark Law, as including

"any word, name, symbol, emblem, sign or device or any combination
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thereof adopted and used by a manufacturer or merchant to identify his

goods and distinguish them from those manufactured, sold or dealt in by
others." This definition has been simplified in R.A. No. 8293, the Intellectual
Property Code of the Philippines, which defines a "trademark" as "any visible
sign capable of distinguishing goods." In Philippine jurisprudence, the
function of a trademark is to point out distinctly the origin or ownership of
the goods to which it is affixed; to secure to him, who has been instrumental
in bringing into the market a superior article of merchandise, the fruit of his
industry and skill; to assure the public that they are procuring the genuine
article; to prevent fraud and imposition; and to protect the manufacturer
against substitution and sale of an inferior and different article as his product.
Modern authorities on trademark law view trademarks as performing three

distinct functions:
( 1) they indicate origin or ownership of the articles to which they are
attached;
(2) they guarantee that those articles come up to a certain standard
of quality; and
(3) they advertise the articles they symbolize.
Today, the trademark is not merely a symbol of origin and goodwill; it is

often the most effective agent for the actual creation and protection of
goodwill. It imprints upon the public mind an anonymous and impersonal
guaranty of satisfaction, creating a desire for further satisfaction.
In other words, the mark actually sells the goods. The mark has become the
"silent salesman," the conduit through which direct contact between the
trademark owner and the consumer is assured. It has invaded popular
culture in ways never anticipated that it has become a more convincing
selling point than even the quality of the article to which it refers.
There is also an underlying economic justification for the protection of

trademarks: an effective trademark system helps bridge the information gap
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PROF. E.H. BALMES
between producers and consumers, and thus, lowers the costs incurred by
consumers in searching for and deciding what products to purchase.
Brand reputation helps consumers to reduce these search costs. It enables

them to draw on their past experience and other information about products
- such as advertisements and third party consumer reviews. However, the
reputation mechanism only works if consumers are confident that they will
purchase what they intend to purchase. The trademark system provides the
legal framework underpinning this confidence. It does so by granting
exclusive rights to names, signs and other identifiers in commerce.
Recognizing the significance, and to further the effectivity of our trademark

system, our legislators proscribed the registration of marks under certain
circumstances:
Section 123. Registrability. - 123.1. A mark cannot be

registered if it:
(a) Consists of immoral, deceptive or scandalous matter, or

matter which may disparage or falsely suggest a connection
with persons, living or dead, institutions, beliefs, or national
symbols, or bring them into contempt or disrepute;
(b) Consists of the flag or coat of arms or other insignia of

the Philippines or any of its political subdivisions, or of any
foreign nation, or any simulation thereof;
(c) Consists of a name, portrait or signature identifying a

particular living individual except by his written consent, or
the name, signature, or portrait of a deceased President of
the Philippines, during the life of his widow, if any, except
by written consent of the widow;
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PROF. E.H. BALMES
(d) Is identical with a registered mark belonging to a

different proprietor or a mark with an earlier filing or priority
date, in respect of:
(i) The same goods or services, or
(ii) Closely related goods or services, or
(iii) If it nearly resembles such a mark as to be likely to

deceive or cause confusion;
(e) Is identical with, or confusingly similar to, or constitutes
a translation of a mark which is considered by the competent
authority of the Philippines to be well-known internationally
and in the Philippines, whether or not it is registered here,
as being already the mark of a person other than the
applicant for registration, and used for identical or similar
goods or services: Provided, That in determining whether a
mark is well known, account shall be taken of the knowledge
of the relevant sector of the public, rather than of the public
at large, including knowledge in the Philippines which has
been obtained as a result of the promotion of the mark;
(f) Is identical with, or confusingly similar to, or constitutes

a translation of a mark considered well-known in accordance
with the preceding paragraph, which is registered in the
Philippines with respect to goods or services which are not
similar to those with respect to which registration is applied
for: Provided, That use of the mark in relation to those
goods or services would indicate a connection between
those goods or services, and the owner of the registered
mark: Provided, further, That the interests of the owner of
the registered mark are likely to be damaged by such use;
(g) Is likely to mislead the public, particularly as to the

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PROF. E.H. BALMES
nature, quality, characteristics or geographical origin of the

goods or services;
(h) Consists exclusively of signs that are generic for the

goods or services that they seek to identify;
(i) Consists exclusively of signs or of indications that have

become customary or usual to designate the goods or
services in everyday language or in bona fide and
established trade practice;
(j) Consists exclusively of signs or of indications that may

serve in trade to designate the kind, quality, quantity,
intended purpose, value, geographical origin, time or
production of the goods or rendering of the services, or
other characteristics of the goods or services;
(k) Consists of shapes that may be necessitated by technical

factors or by the nature of the goods themselves or factors
that affect their intrinsic value;
(l) Consists of color alone, unless defined by a given form;

or
(m) Is contrary to public order or morality.
There is no objective test for determining whether the confusion is likely.

Likelihood of confusion must be determined according to the particular
circumstances of each case.
To aid in determining the similarity and likelihood of confusion between

marks, our jurisprudence has developed two (2) tests: the dominancy test
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PROF. E.H. BALMES
and the holistic test. This Court explained these tests in Coffee Partners, Inc.
v. San Francisco Coffee & Roastery, Inc.:
The dominancy test focuses on the similarity of the prevalent

features of the competing trademarks that might cause
confusion and deception, thus constituting infringement. If
the competing trademark contains the main, essential, and
dominant features of another, and confusion or deception is
likely to result, infringement occurs. Exact duplication or
imitation is not required. The question is whether the use of
the marks involved is likely to cause confusion or mistake in
the mind of the public or to deceive consumers.
In contrast, the holistic test entails 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 marks in order that the observer
may draw his conclusion whether one is confusingly similar
to the other.
A visual comparison of the marks reveals no likelihood of confusion.

Examining these marks, this Court finds that petitioner's marks can best be
described as consisting of the prefix "CITI" added to other words.
Applying the dominancy test, this Court sees that the prevalent feature of
respondent's mark, the golden lion's head device, is not present at all in any
of petitioner's marks. The only similar feature between respondent's mark
and petitioner's collection of marks is the word "CITY" in the former, and the
"CITI" prefix found in the latter. This Court agrees with the findings of the
Court of Appeals that this similarity alone is not enough to create a likelihood
of confusion.
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PROF. E.H. BALMES
The dissimilarities between the two marks are noticeable and substantial.
Respondent's mark, "CITY CASH WITH GOLDEN LION'S HEAD", has an
insignia of a golden lion's head at the left side of the words "CITY CASH",
while petitioner's "CITI" mark usually has an arc between the two I's. A
further scrutiny of the other "CITI" marks of petitioner would show that their
font type, font size, and color schemes of the said "CITI" marks vary for each
product or service. Most of the time, petitioner's "CITI" mark is joined with
another term to form a single word, with each product or service having
different font types and color schemes. On the contrary, the trademark of
respondent consists of the words "CITY CASH", with a golden lion's head
emblem on the left side. It is, therefore, improbable that the public would
immediately and naturally conclude that respondent's "CITY CASH WITH
GOLDEN LION'S HEAD" is but another variation under petitioner's "CITI"
marks.
Verily, the variations in the appearance of the "CITI" marks by petitioner,

when conjoined with other words, would dissolve the alleged similarity
between them and the trademark of respondent. These dissimilarities, and
the insignia of a golden lion's head before the words "CITY CASH" in the
mark of the respondent would sufficiently acquaint and apprise the public
that respondent's trademark "CITY CASH WITH GOLDEN LION'S HEAD" is
not connected with the "CITI" marks of petitioner.
This Court also agrees with the Court of Appeals that the context where
respondent's mark is to be used, namely, for its ATM services, which could
only be secured at respondent's premises and not in an open market of ATM
services, further diminishes the possibility of confusion on the part of
prospective customers.
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PROF. E.H. BALMES
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, vs. BANGKO

SENTRAL NG PILIPINAS AND THE MONETARY BOARD,
G.R. 200678 June 4, 2018
A bank which has been ordered closed by the Bangko Sentral ng Pilipinas
(Bangko Sentral) is placed under the receivership of the Philippine Deposit
Insurance Corporation. As a consequence of the receivership, the closed
bank may sue and be sued only through its receiver, the Philippine Deposit
Insurance Corporation. Any action filed by the closed bank without its
receiver may be dismissed.
Under Republic Act No. 7653, when the Monetary Board finds a bank
insolvent, it may "summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the Philippine
Deposit Insurance Corporation as receiver of the banking institution."
Before the enactment of Republic Act No. 7653, an insolvent bank under
liquidation could not sue or be sued except through its liquidator.
The relationship between the Philippine Deposit Insurance Corporation and

a closed bank is fiduciary in nature. Section 30 of Republic Act No. 7653
directs the receiver of a closed bank to "immediately gather and take
charge of all the assets and liabilities of the institution" and "administer the
same for the benefit of its creditors."
As fiduciary of the insolvent bank, Philippine Deposit Insurance Corporation

conserves and manages the assets of the bank to prevent the assets'
dissipation. This includes the power to bring and defend any action that
threatens to dissipate the closed bank's assets.
The inclusion of the PDIC as a representative party in the case is therefore

grounded on its statutory role as the fiduciary of the closed bank which,
under Section 30 of R.A. 7653 (New Central Bank Act), is authorized to
conserve the latter's property for the benefit of its creditors.
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PROF. E.H. BALMES
Philippine Deposit Insurance Corporation also safeguards the interests of the

depositors in all legal proceedings. Most bank depositors are ordinary people
who have entrusted their money to banks in the hopes of growing their
savings. When banks become insolvent, depositors are secure in the
knowledge that they can still recoup some part of their savings through
Philippine Deposit Insurance Corporation.Thus, Philippine Deposit Insurance
Corporation's participation in all suits involving the insolvent bank is
necessary and imbued with the public interest.
A quasi-judicial agency or body is an organ of government other than a court

and other than a legislature, which affects the rights of private parties
through either adjudication or rule-making. The very definition of an
administrative agency includes its being vested with quasi-judicial powers.
The ever increasing variety of powers and functions given to administrative
agencies recognizes the need for the active intervention of administrative
agencies in matters calling for technical knowledge and speed in countless
controversies which cannot possibly be handled by regular courts. A "quasi-
judicial function" is a term which applies to the action, discretion, etc., of
public administrative officers or bodies, who are required to investigate facts,
or ascertain the existence of facts, hold hearings, and draw conclusions from
them, as a basis for their official action and to exercise discretion of a judicial
nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising

quasi-judicial powers or functions. As aptly observed by the Court of Appeals,
the BSP Monetary Board is an independent central monetary authority and
a body corporate with fiscal and administrative autonomy, mandated to
provide policy directions in the areas of money, banking and credit. It has
power to issue subpoena, to sue for contempt those refusing to obey the
subpoena without justifiable reason, to administer oaths and compel
presentation of books, records and others, needed in its examination, to
impose fines and other sanctions and to issue cease and desist order. Section
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37 of Republic Act No. 7653, in particular, explicitly provides that the BSP
Monetary Board shall exercise its discretion in determining whether
administrative sanctions should be imposed on banks and quasi-banks,
which necessarily implies that the BSP Monetary Board must conduct some
form of investigation or hearing regarding the same.
Bangko Sentral's Monetary Board is a quasi-judicial agency. Its decisions,

resolutions, and orders are the decisions, resolutions, and orders of a quasi-
judicial agency. Any action filed against the Monetary Board is an action
against a quasi-judicial agency.
This does not mean, however, that Bangko Sentral only exercises quasi-
judicial functions. As an administrative agency, it likewise exercises "powers
and/or functions which may be characterized as administrative,
investigatory, regulatory, quasi-legislative, or quasi-judicial, or a mix of these
five, as may be conferred by the Constitution or by statute."
FEDERAL EXPRESS CORPORATION V. LUWALHATI R. ANTONINO

AND ELIZA BETTINA RICASA ANTONINO.
G.R. No. 199455 June 27, 2018
The duty of common carriers to observe extraordinary diligence in shipping

goods does not terminate until delivery to the consignee or to the specific
person authorized to receive the shipped goods. Failure to deliver to the
person authorized to receive the goods is tantamount to loss of the goods,
thereby engendering the common carrier's liability for loss. Ambiguities in
contracts of carriage, which are contracts of adhesion, must be interpreted
against the common carrier that prepared these contracts.
The Civil Code mandates common carriers to observe extraordinary diligence

in caring for the goods they are transporting:
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PROF. E.H. BALMES
Article 1733. 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.
"Extraordinary diligence is that extreme measure of care and caution which

persons of unusual prudence and circumspection use for securing and
preserving their own property or rights." Consistent with the mandate of
extraordinary diligence, the Civil Code stipulates that in case of loss or
damage to goods, common carriers are presumed to be negligent or at
fault, except in the following instances:
(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 or competent public authority.
In all other cases, common carriers must prove that they exercised
extraordinary diligence in the performance of their duties, if they are to be
absolved of liability.
The responsibility of common carriers to exercise extraordinary diligence

lasts from the time the goods are unconditionally placed in their possession
until they are delivered "to the consignee, or to the person who has a right
to receive them." Thus, part of the extraordinary responsibility of common
carriers is the duty to ensure that shipments are received by none but "the
person who has a right to receive them." Common carriers must ascertain
the identity of the recipient. Failing to deliver shipment to the designated
recipient amounts to a failure to deliver. The shipment shall then be
considered lost, and liability for this loss ensues.
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Money is "what is generally acceptable in exchange for goods." It can take

many forms, most commonly as coins and banknotes. Despite its myriad
forms, its key element is its general acceptability. Laws usually define what
can be considered as a generally acceptable medium of exchange. In the
Philippines, Republic Act No. 7653, otherwise known as The New Central
Bank Act, defines "legal tender" as follows:
All notes and coins issued by the Bangko Sentral 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 denomination of Twenty-five centavos and above, and in
amounts not exceeding Twenty pesos (P20.00) for
denominations of Ten centavos or less.
It is settled in jurisprudence that checks, being only negotiable instruments,

are only substitutes for money and are not legal tender; more so when the
check has a named payee and is not payable to bearer.
The prohibition against transporting money must be restrictively construed

against petitioner and liberally for respondents. Viewed through this lens,
with greater reason should respondents be exculpated from liability for
shipping documents or instruments, which are reasonably understood as
not being money, and for being unable to declare them as such.
Ultimately, in shipping checks, respondents were not violating petitioner's Air
Waybill. From this, it follows that they committed no breach of warranty that
would absolve petitioner of liability.
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ORIENTAL ASSURANCE CORPORATION, V. MANUEL ONG, DOING

BUSINESS UNDER THE BUSINESS NAME OF WESTERN PACIFIC
TRANSPORT SERVICES AND/OR ASIAN TERMINALS, INC.,
G.R. No. 189524 October 11, 2017
In Government Service Insurance System v. Manila Railroad Company, this

Court held that the provisions of a gate pass or of an arrastre management
contract are binding on an insurer-subrogee even if the latter is not a party
to it.
This doctrine was reiterated in the later case of Summa Insurance

Corporation v. Court of Appeals:
In the performance of its job, an arrastre operator is bound

by the management contract it had executed with the
Bureau of Customs. However, a management contract,
which is a sort of a stipulation pour autrui within the
meaning of Article 1311 of the Civil Code, is also binding on
a consignee because it is incorporated in the gate pass and
delivery receipt which must be presented by the consignee
before delivery can be effected to it. The insurer, as
successor-in-interest of the consignee, is likewise bound by
the management contract. Indeed, upon taking delivery of
the cargo, a consignee (and necessarily its successor-in
interest) tacitly accepts the provisions of the management
contract, including those which are intended to limit the
liability of one of the contracting parties, the arrastre
operator.
The fact that Oriental is not a party to the Gate Pass and the Management
Contract does not mean that it cannot be bound by their provisions. Oriental
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PROF. E.H. BALMES
is subrogated to the rights of the consignee simply upon its payment of the
insurance claim. Article 2207 of the Civil Code provides:
Article 2207. If the plaintiff's property has been insured,

and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss
or injury.
Article 2207 of the Civil Code is founded on the well-settled principle of

subrogation. If the insured property is destroyed or damaged through the
fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated
to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against
the third party whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
As subrogee, petitioner merely stepped into the shoes of the consignee and
may only exercise those rights that the consignee may have against the
wrongdoer who caused the damage. "It can recover only the amount that is
recoverable by the assured." And since the right of action of the consignee
is subject to a precedent condition stipulated in the Gate Pass, which includes
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PROF. E.H. BALMES
by reference the terms of the Management Contract, necessarily a suit by

the insurer is subject to the same precedent condition.
This Court has ruled that the purpose of the time limitation for filing claims
is "to apprise the arrastre operator of the existence of a claim and enable it
to check on the validity of the claimant's demand while the facts are still
fresh for recollection of the persons who took part in the undertaking and
the pertinent papers are still available."
This Court, in a number of cases, has liberally construed the requirement for
filing a formal claim and allowed claims filed even beyond the 15-day
prescriptive period after finding that the request for bad order survey or the
provisional claim filed by the consignee had sufficiently served the purpose
of a formal claim.
Thus, "substantial compliance with the 15-day time limitation is allowed
provided that the consignee has made a provisional claim thru a request for
bad order survey or examination report."
BELO MEDICAL GROUP, INC., VS.

JOSE L. SANTOS AND VICTORIA G. BELO.
G.R. No. 185894 August 30, 2017
A conflict between two (2) stockholders of a corporation does not

automatically render their dispute as intra-corporate. The nature of the
controversy must also be examined.
A.M. No. 01-2-04-SC, or the Interim Rules of Procedure Governing Intra-

Corporate Controversies, enumerates the cases where the rules will apply:
Section 1. (a) Cases Covered - These Rules shall govern
the procedure to be observed in civil cases involving the
following:
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PROF. E.H. BALMES
1. Devices or schemes employed by, or any act of, the

board of directors, business associates, officers or partners,
amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, or members of any corporation,
partnership, or association;
2. Controversies arising out of intra-corporate, partnership,

or association relations, between and among stockholders,
members, or associates; and between, any or all of them
and the corporation, partnership, or association of which
they are stockholders, members, or associates,
respectively;
3. Controversies in the election or appointment of directors,

trustees, officers, or managers of corporations,
partnerships, or associations;
4. Derivative suits; and
5. Inspection of corporate books.
To determine whether an intra-corporate dispute exists and whether this

case requires the application of these rules of procedure, this Court
evaluated the relationship of the parties. The types of intra-corporate
relationships were reviewed in Union Glass & Container Corporation v.
Securities and Exchange Commission:
[a] between the corporation, partnership or association and the public;

[b] between the corporation, partnership or association and its stockholders,
partners, members, or officers;
[c] between the corporation, partnership or association and the state in so
far as its franchise, permit or license to operate is concerned; and
[d] among the stockholders, partners or associates themselves.
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PROF. E.H. BALMES
For as long as any of these intra-corporate relationships exist between the

parties, the controversy would be characterized as intra-corporate. This is
known as the "relationship test."
DMRC Enterprises v. Este del Sol Mountain Reserve, Inc. employed what
would later be called as the "nature of controversy test." It became another
means to determine if the dispute should be considered as intra-corporate.
This Court now uses both the relationship test and the nature of the
controversy test to determine if an intra-corporate controversy is present.
ARTURO C. CALUBAD, VS. RICARCEN DEVELOPMENT

CORPORATION.
G.R. No. 202364 August 30, 2017
When a corporation intentionally or negligently clothes its agent with

apparent authority to act in its behalf, it is estopped from denying its agent's
apparent authority as to innocent third parties who dealt with this agent in
good faith.
As a corporation, Ricarcen exercises its powers and conducts its business

through its board of directors, as provided for by Section 23 of the
Corporation Code:
Section 23. The board of directors or trustees. - Unless

otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be exercised,
all business conducted and all property of such
corporations controlled and held by the board of directors
or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one
(1) year until their successors are elected and qualified.
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However, the board of directors may validly delegate its

functions and powers to its officers or agents. The authority
to bind the corporation is derived from law, its corporate by-
laws, or directly from the board of directors, "either
expressly or impliedly by habit, custom or acquiescence in
the general course of business."
The general principles of agency govern the relationship between a

corporation and its representatives. Article 1317 of the Civil Code similarly
provides that the principal must delegate the necessary authority before
anyone can act on his or her behalf.
Nonetheless, law and jurisprudence recognize actual authority and apparent

authority as the two (2) types of authorities conferred upon a corporate
officer or agent in dealing with third persons.
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.
The doctrine of apparent authority provides that even if no actual authority

has been conferred on an agent, his or her acts, as long as they are within
his or her apparent scope of authority, bind the principal. However, the
principal's liability is limited to third persons who are reasonably led to
believe that the agent was authorized to act for the principal due to the
principal's conduct. Apparent authority is determined by the acts of the
principal and not by the acts of the agent.
LYDIA LAO et., al, V. YAO BIO LIM AND PHILIP KING.
G.R. No. 201306 August 9, 2017
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Petitioners cannot unilaterally disobey or disregard the Orders of the

Securities and Exchange Commission and of the Regional Trial Court despite
their own views of the correctness or propriety thereof.
The theory espoused by appellants that a party may, at his own choice,
directly disobey a court order which said party believes to be erroneous or
beyond the court's authority is fraught with serious consequences.
This Court, speaking through Mr. Justice Enrique Fernando, has had occasion
to condemn a similar attitude in another case:
. . . The failure to abide by the orders and processes of

judicial . . . agencies . . . gives, rise to a serious concern. It
engenders at the very least the well-founded suspicion that
such an attitude betrays an absence of good faith. It is
indicative of a belief at war with all that adjudication stands
for.
No one may be permitted to take the law into his own hands.
No one, much less the party immediately concerned, should
have the final say on the validity or lack of it of one's course
of conduct. Centuries of reliance on the judicial process repel
such a notion ...
. . . Such refusal to accord due respect and yield obedience

to what a court or administrative tribunal ordains is fraught
with much gravel [sic] consequences ... If such a conduct
were not condemned, some other group or groups
emboldened by the absence of any reproof or disapproval
may conduct themselves similarly. The injury to the rule of
law may well-nigh be irreparable.
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PROF. E.H. BALMES
Law stands for order, for the peaceful and systematic adjustment of frictions
and conflicts unavoidable in a modern society with his complexities and
clashing interests.
The instrumentality for such balancing or harmonization is the judiciary and

other agencies exercising quasi-judicial powers. When judicial or quasi-
judicial tribunals speak, what they decree must be obeyed; what they ordain
must be followed. A party dissatisfied may ask for reconsideration and, if
denied, may go on to higher tribunal. As long as the orders stand unmodified,
however, they must, even if susceptible to well-founded doubts on
jurisdictional grounds, be faithfully complied with.
LAND BANK OF THE PHILIPPINES VS. FASTECH SYNERGY

PHILIPPINES, INC. (FORMERLY FIRST ASIA SYSTEM
TECHNOLOGY, INC.) et., al.
G.R. No. 206150 August 9, 2017
Rehabilitation is statutorily defined under Republic Act No. 10142, otherwise

known as the "Financial Rehabilitation and Insolvency Act of 2010" (FRIA),
as follows:
Section 4. Definition of Terms. — As used in this Act, the

term:
....
(gg) Rehabilitation shall refer to

the restoration of the debtor to a
condition of successful operation
and solvency, if it is shown that its
continuance of operation is
economically feasible and its creditors
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PROF. E.H. BALMES
can recover by way of the present value

of payments projected in the plan, more
if the debtor continues as a going
concern than if it is immediately
liquidated. (Emphasis supplied)
Case law explains that corporate 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 being to enable the company to gain a new
lease on life and allow its creditors to be paid their claims out of
its earnings. 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. (highlighting supplied)
A material financial commitment becomes significant in gauging the resolve,

determination, earnestness, and good faith of the distressed corporation in
financing the proposed rehabilitation plan. This commitment may include
the voluntary undertakings of the stockholders or the would-be investors
of the debtor-corporation indicating their readiness, willingness, and ability
to contribute funds or property to guarantee the continued successful
operation of the debtor-corporation during the period of
rehabilitation.
It is well to emphasize that the remedy of rehabilitation should be

denied to corporations that do not qualify under the Rules. Neither should it
be allowed to corporations whose sole purpose is to delay the enforcement
of any of the rights of the creditors.
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PROF. E.H. BALMES
The test in evaluating the economic feasibility of the plan was laid down
in Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation (Bank
of the Philippine Islands), to wit;
In order to determine the feasibility of a proposed
rehabilitation plan, it is imperative that a thorough
examination and analysis of the distressed corporation's
financial data must be conducted. If the results of such
examination and analysis show that there is a real
opportunity to rehabilitate the corporation in view of the
assumptions made and financial goals stated in the
proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation
court should not hesitate to allow the corporation to operate
as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the
other hand, if the results of the financial examination and
analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived
and that liquidation would, in fact, better subserve the
interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the
rehabilitation court may convert the proceedings into one for
liquidation.
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining,
Inc., the Court took note of the characteristics of an economically feasible
rehabilitation plan as opposed to an infeasible rehabilitation plan:
Professor Stephanie V. Gomez of the University of the Philippines College of

Law suggests specific characteristics of an economically feasible
rehabilitation plan:
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PROF. E.H. BALMES
a. The debtor has assets that can generate more cash if used
in its daily operations than if sold.
b. Liquidity issues can be addressed by a practicable

business plan that will generate enough cash to sustain daily
operations.
c. The debtor has a definite source of financing for the

proper and full implementation of a Rehabilitation Plan that
is anchored on realistic assumptions and goals.
These requirements put emphasis on liquidity: the cash flow that the
distressed corporation will obtain from rehabilitating its assets and
operations. A corporation's assets may be more than its current liabilities,
but some assets may be in the form of land or capital equipment, such as
machinery or vessels. Rehabilitation sees to it that these assets generate
more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the characteristics of a

rehabilitation plan that is infeasible:
(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
operations; and
(e) negative net worth and the assets are
near full depreciation or fully depreciated.
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PROF. E.H. BALMES
The Financial and Rehabilitation and Insolvency Act of 2010 emphasizes on

rehabilitation that provides for better present value recovery for its creditors.
Present value recovery acknowledges that, in order to pave way for

rehabilitation, the creditor will not be paid by the debtor when the credit falls
due. The court may order a suspension of payments to set a rehabilitation
plan in motion; in the meantime, the creditor remains unpaid. By the time
the creditor is paid, the financial and economic conditions will have been
changed. Money paid in the past has a different value in the future. It is
unfair if the creditor merely receives the face value of the debt. Present value
of the credit takes into account the interest that the amount of money would
have earned if the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business'
rehabilitation plan allows for the closest present value recovery for its
creditors. If the projected cash flow is realistic and allows the corporation to
meet all its obligations, then courts should favor rehabilitation over
liquidation. However, if the projected cash flow is unrealistic, then courts
should consider converting the proceedings into that for liquidation to
protect the creditors.
The purpose of rehabilitation proceedings is not only to enable the company

to gain a new lease on life, but also to allow creditors to be paid their claims
from its earnings when so rehabilitated. Hence, the remedy must be
accorded only after a judicious regard of all stakeholders' interests; it is not
a one-sided tool that may be graciously invoked to escape every position of
distress. Thus, the remedy of rehabilitation 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: (a) the absence of a sound and workable business
plan; (b) baseless and unexplained assumptions, targets, and goals;
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PROF. E.H. BALMES
and (c) speculative capital infusion or complete lack thereof for the
execution of the business plan, as in this case.
A distressed corporation should not be rehabilitated when the results of the

financial examination and analysis clearly indicate that there lies no
reasonable probability that it may be revived, to the detriment of its
numerous stakeholders which include not only the corporation's creditors but
also the public at large.
Recognizing the volatile nature of every business, the rules on corporate

rehabilitation have been crafted in order to give companies sufficient leeway
to deal with debilitating financial predicaments in the hope of restoring or
reaching a sustainable operating form if only to best accommodate the
various interests of all its stakeholders, may it be the corporation's
stockholders, its creditors, and even the general public.
SECURITIES AND EXCHANGE COMMISSION, VS. PRICE

RICHARDSON CORPORATION, CONSUELO VELARDE-ALBERT, AND
GORDON RESNICK
G.R. No. 197032 July 26, 2017
A corporation's personality is separate and distinct from its officers, directors,

and shareholders. To be held criminally liable for the acts of a corporation,
there must be a showing that its officers, directors, and shareholders actively
participated in or had the power to prevent the wrongful act.
ANTHONY DE SILVA CRUZ VS. PEOPLE OF THE PHILIPPINES

G.R. No. 210266 June 7, 2017
The possession and use of a counterfeit credit card is considered access

device fraud and is punishable by law. To successfully sustain a conviction
for possession and use of a counterfeit access device, the prosecution must
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PROF. E.H. BALMES
present not only the access device but also any evidence that proves that
the access device is counterfeit.
Republic Act No. 8484, otherwise known as the Access Devices Regulation
Act of 1998, defines an access device as:
any card, plate, code, account number, electronic serial

number, personal identification number, or other
telecommunications service, equipment, or instrumental
identifier, or other means of account access that can be used
to obtain money, good, services, or any other thing of value
or to initiate a transfer of funds (other than a transfer
originated solely by paper instrument).
Since a credit card is "any card, plate, coupon book, or other

credit device existing for the purpose of obtaining money,
goods, property, labor or services or anything of value on
credit," it is considered an access device.
A counterfeit access device is "any access device that is counterfeit, fictitious,

altered, or forged, or an identifiable component of an access device or
counterfeit access device."Under Section 9(a) and (e) of Republic Act No.
8484, the possession and use of an access device is not illegal. Rather, what
is prohibited is the possession and use of a counterfeit access device.
Therefore, the corpus delicti of the crime is not merely the access device,
but also any evidence that proves that it is counterfeit.
JOSE M. ROY III VS. CHAIRPERSON TERESITA HERBOSA,THE

SECURITIES AND EXCHANGE COMMISSION, AND PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY.
G.R. No. 207246 April 18, 2017
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The heart of the controversy is the interpretation of Section 11, Article XII
of the Constitution, which provides: "No franchise, certificate, or any other
form of authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens xxx."
In construing "full beneficial ownership," the Implementing Rules and

Regulations of the Foreign Investments Act of 1991 (FIA-IRR) provides:
For stocks to be deemed owned and held by Philippine

citizens or Philippine nationals, mere legal title is not enough
to meet the required Filipino equity. Full beneficial
ownership of the stocks, coupled with appropriate voting
rights is essential. Thus, stocks, the voting rights of which
have been assigned or transferred to aliens cannot be
considered held by Philippine citizens or Philippine nationals.
In turmn, "beneficial owner" or "beneficial ownership" is defined in the

Implementing Rules and Regulations of the Securities Regulation Code
(SRC-IRR) as:
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) xxx.
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PROF. E.H. BALMES
Thus, the definition of "beneficial owner or beneficial ownership" in the SRC-

IRR, which is in consonance with the concept of "full beneficial ownership"
in the FIA-IRR, is, as stressed in the Decision, relevant in resolving only the
question of who is the beneficial owner or has beneficial ownership of each
"specific stock" of the public utility company whose stocks are under
review. If the Filipino has the voting power of the "specific stock", i.e., he
can vote the stock or direct another to vote for him, or the Filipino has
the investment power over the "specific stock", i.e., he can dispose of
the stock or direct another to dispose of it for him, or both, i.e., he can vote
and dispose of that "specific stock" or direct another to vote or dispose it
for him, then such Filipino is the "beneficial owner" of that "specific stock."
Being considered Filipino, that "specific stock" is then to be counted as part
of the 60% Filipino ownership requirement under the Constitution. The right
to the dividends, jus fruendi - a right emanating from ownership of that
"specific stock" necessarily accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the
dividends accruing to any particular stock are determinative of that stock's
"beneficial ownership." Dividend declaration is dictated by the corporation's
unrestricted retained earnings. On the other hand, the corporation's need of
capital for expansion programs and special reserve for probable
contingencies may limit retained earnings available for dividend declaration.
PILIPINAS SHELL PETROLEUM CORPORATION, VS. ROYAL FERRY

SERVICES, INC.,
G.R. No. 188146 February 1, 2017
The venue for a petition for voluntary insolvency proceeding under the
Insolvency Law is the Court of First Instance of the province or city where
the insolvent debtor resides. A corporation is considered a resident of the
place where its principal office is located as stated in its Articles of
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PROF. E.H. BALMES
Incorporation. However, when it is uncontroverted that the insolvent

corporation abandoned the old principal office, the corporation is considered
a resident of the city where its actual principal office is currently found.
A corporation has no residence in the same sense in which this term is

applied to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is located
as stated in the articles of incorporation... The Corporation Code precisely
requires each corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which must be
within the Philippines"... The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of allowing it to be
ambulatory.
Requiring a corporation to go back to a place it has abandoned just to file a

case is the very definition of inconvenience. There is no reason why an
insolvent corporation should be forced to exert whatever meager resources
it has to litigate in a city it has already left.
In any case, the creditors deal with the corporation's agents, officers, and
employees in the actual place of business. To compel a corporation to litigate
in a city it has already abandoned would create more confusion.
DIVINA PALAO V. FLORENTINO III INTERNATIONAL, INC.,

G.R. No. 186967 January 18, 2017
Administrative bodies are not bound by the technical niceties of law and
procedure and the rules obtaining in courts of law. Administrative tribunals
exercising quasi-judicial powers are unfettered by the rigidity of certain
procedural requirements, subject to the observance of fundamental and
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PROF. E.H. BALMES
essential requirements of due process in justiciable cases presented before

them. In administrative proceedings, technical rules of procedure and
evidence are not strictly applied and administrative due process cannot be
fully equated with due process in its strict judicial sense.
Given these premises, it was an error for the Director General of the
Intellectual Property Office to have been so rigid in applying a procedural
rule and dismissing respondent's appeal.
Technical rules of procedure should be rules enjoined to facilitate the orderly

administration of justice. The liberality in the application of rules of
procedure may not be invoked if it will result in the wanton disregard of the
rules or cause needless delay in the administration of justice. Indeed, it
cannot be gainsaid that obedience to the requirements of procedural rule is
needed if we are to expect fair results therefrom.
METROPOLITAN BANK AND TRUST COMPANY, V. LIBERTY

CORRUGATED BOXES MANUFACTURING CORPORATION,
G.R. No. 184317 January 25, 2017
A corporation with debts that have already matured may still file a petition
for rehabilitation under the Interim Rules of Procedure on Corporation
Rehabilitation. A corporation that may seek corporate rehabilitation is
characterized not by its debt but by its capacity to pay this debt.
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 continuance of corporate life and activities in
an effort to restore and reinstate the corporation to its former position of
successful operation and solvency.
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PROF. E.H. BALMES
The purpose for the suspension of the proceedings is to prevent a creditor

from obtaining an advantage or preference over another and to protect and
preserve the rights of party litigants as well as the interest of the investing
public or creditors. Such suspension is intended to give enough breathing
space for the management committee or rehabilitation receiver to make the
business viable again, without having to divert attention and resources to
litigations in various fora.The stay order prevents preference or advantage
of creditors over others, including the advantage that a creditor with matured
money claims may have over one whose claims are not in yet in default.
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 extra-judicial interference that might unduly hinder or prevent the
"rescue" of the debtor company.
PHILIPPINE ASSOCIATED SMELTING AND REFINING

CORPORATION, VS. PABLITO O. LIM
G.R. No. 172948 October 5, 2016
The Corporation Code provides that a stockholder has the right to inspect
the records of all business transactions of the corporation and the minutes
of any meeting at reasonable hours on business days. The stockholder may
demand in writing for a copy of excerpts from these records or minutes, at
his or her expense.
The records of all business transactions of the corporation and the minutes
of any meetings shall be open to the inspection of any director, trustee,
stockholder or member of the corporation at reasonable hours on business
days and he may demand, in writing, for a copy of excerpts from said records
or minutes, at his expense.
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Any officer or agent of the corporation who shall refuse to allow any director,
trustee, stockholder or member of the corporation to examine and copy
excerpts from its records or minutes, in accordance with the provisions of
this Code, shall be liable to such director, trustee, stockholder or member
for damages, and in addition, shall be guilty of an offense which shall be
punishable under Section 144 of this Code: Provided, That if such refusal is
pursuant to a resolution or order of the Board of Directors or Trustees, the
liability under this section for such action shall be imposed upon the directors
or trustees who voted for such refusal: and Provided, further, That it shall
be a defense to any action under this section that the person
demanding to examine and copy excerpts from the corporation's records and
minutes has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in
making his demand. (Emphasis supplied)
The right to inspect under Section 74 of the Corporation Code is subject to

certain limitations. However, these limitations are expressly provided
as defenses in actions filed under Section 74. Thus, this Court has held that
a corporation's objections to the right to inspect must be raised as a defense:
The stockholder's right of inspection of the corporation's books and records

is based upon their ownership of the assets and property of the corporation.
It is, therefore, an incident of ownership of the corporate property, whether
this ownership or interest be termed an equitable ownership, a beneficial
ownership, or a quasi-ownership. This right is predicated upon the necessity
of self-protection. It is generally held by majority of the courts that where
the right is granted by statute to the stockholder, it is given to him as such
and must be exercised by him with respect to his interest as a stockholder
and for some purpose germane thereto or in the interest of the corporation.
In other words, the inspection has to be germane to the petitioner's interest
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PROF. E.H. BALMES
as a stockholder, and has to be proper and lawful in character and not

inimical to the interest of the corporation.
In Grey v. Insular Lumber, this Court held that "the right to examine the
books of the corporation must be exercised in good faith, for specific and
honest purpose, and not to gratify curiosity, or for speculative or vexatious
purposes." The weight of judicial opinion appears to be, that on application
for mandamus to enforce the right, it is proper for the court to inquire into
and consider the stockholder's good faith and his purpose and motives hi
seeking inspection. Thus, it was held that "the right given by statute is not
absolute and may be refused when the information is not sought in good
faith or is used to the detriment of the corporation." But the "impropriety of
purpose such as will defeat enforcement must be set up the corporation
defensively if the Court is to take cognizance of it as a qualification.
In other words, the specific provisions take from the stockholder the burden
of showing propriety of purpose and place upon the corporation the burden
of showing impropriety of purpose or motive." It appears to be the "general
rule that stockholders are entitled to full information as to the management
of the corporation and the manner of expenditure of its funds, and to
inspection to obtain such information, especially where it appears that the
company is being mismanaged or that it is being managed for the personal
benefit of officers or directors or certain of the stockholders to the exclusion
of others." (Emphasis supplied).
The right of the shareholder to inspect the books and records of the
petitioner should not be made subject to the condition of a showing of any
particular dispute or of proving any mismanagement or other occasion
rendering an examination proper, but if the right is to be denied, the burden
of proof is upon the corporation to show that the purpose of the shareholder
is improper, by way of defense.
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Among the purposes held to justify a demand for inspection are the
following:
(1) To ascertain the financial condition of the company or the propriety of

dividends;
(2) the value of the shares of stock for sale or investment;
(3) whether there has been mismanagement;
(4) in anticipation of shareholders' meetings to obtain a mailing list of

shareholders to solicit proxies or influence voting;
(5) to obtain information in aid of litigation with the corporation or its officers
as to corporate transactions.
Among the improper purposes which may justify denial of the right of
inspection are:
(1) Obtaining of information as to business secrets or to aid a competitor;

(2) to secure business "prospects" or investment or advertising lists;
(3) to find technical defects in corporate transactions in order to bring "strike

suits" for purposes of blackmail or extortion.
In general, however, officers and directors have no legal authority to close

the office doors against shareholders for whom they are only agents, and
withhold from them the right to inspect the books which furnishes the most
effective method of gaining information which the law has provided, on mere
doubt or suspicion as to the motives of the shareholder. While there is some
conflict of authority, when an inspection by a shareholder is contested, the
burden is usually held to be upon the corporation to establish a probability
that the applicant is attempting to gain inspection for a purpose not
connected with his interests as a shareholder, or that his purpose is
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PROF. E.H. BALMES
otherwise improper. The burden is not upon the petitioner to show the
propriety of his examination or that the refusal by the officers or directors
was wrongful, except under statutory provisions.
The grant of legal personality to a corporation is conditioned on its

compliance with certain obligations. Among these are its fiduciary
responsibilities to its stockholders. Providing stockholders with access to
information is a fundamental basis for their intelligent participation in the
governance of the corporation as a business organization that they partially
own.
The law is agnostic with respect to the amount of shares required. Generally,
each individual stockholder should be given reasonable access so that he or
she can assess or share his or her assessment of the management of the
corporation with other stockholders. The separate legal personality of a
corporation is not so absolutely separate that it divorces itself from its
responsibility to its constituent owners.
The confidentiality of business transactions is not a magical incantation that

will defeat the request of a stockholder to inspect the records. Although it is
true that the business is entitled to the protection of its trade secrets and
other intellectual property rights, facts must be pleaded to convince the court
that a specific stockholder's request for inspection, under certain conditions,
would violate the corporation's own legal right.
Furthermore, the discomfort caused to the management of a corporation

when a request for inspection is claimed is part of the regular matters that
a business wanting to ensure good governance must endure. The range
between discomfort and vexation is a broad one, which may tend to be
located in the personalities of those involved.
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THE PHILIPPINE GEOTHERMAL, INC. EMPLOYEES UNION,

PETITIONER, VS. UNOCAL PHILIPPINES, INC. (NOW KNOWN AS
CHEVRON GEOTHERMAL PHILIPPINES HOLDINGS, INC.),
G.R. No. 190187 September 28, 2016
The merger of a corporation with another does not operate to dismiss the
employees of the corporation absorbed by the surviving corporation. This is
in keeping with the nature and effects of a merger as provided under law
and the constitutional policy protecting the rights of labor. The employment
of the absorbed employees subsists. Necessarily, these absorbed employees
are not entitled to separation pay on account of such merger in the absence
of any other ground for its award.
A merger is a consolidation of two or more corporations, which results in one

or more corporations being absorbed into one surviving corporation. The
separate existence of the absorbed corporation ceases, and the surviving
corporation "retains its identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and obligations of the absorbed
corporations."
The effects of a merger are provided under Section 80 of the Corporation

Code:
SEC. 80. Effects of merger or consolidation. — The merger
or consolidation, as provided in the preceding sections shall
have the following effects:
1. The constituent corporations shall become a single

corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and, in case
of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
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PROF. E.H. BALMES
2. The separate existence of the constituent corporations

shall cease, except that of the surviving or the consolidated
corporation;
3. The surviving or the consolidated corporation shall

possess all the rights, privileges, immunities and powers and
shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall

thereupon and thereafter possess all the rights, privileges,
immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all
receivables due on whatever account, including
subscriptions to shares and other choses in action, and all
and every other interest of, or belonging to, or due to each
constituent corporation, shall be taken and deemed to be
transferred to and vested in such surviving or consolidated
corporation without further act or deed; and
5. The surviving or the consolidated corporation shall be

responsible and liable for all the liabilities and obligations of
each of the constituent corporations in the same manner as
if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any claim, action
or proceeding pending by or against any of such constituent
corporations may be prosecuted by or against the surviving
or consolidated corporation, as the case may be. Neither the
rights of creditors nor any lien upon the property of any of
such constituent corporations shall be impaired by such
merger or consolidation. (Emphasis supplied)
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Although this provision does not explicitly state the merger's effect on the
employees of the absorbed corporation, Bank of the Philippine Islands v. BPI
Employees Union-Davao Chapter-Federation of Unions in BPI Unibank has
ruled that 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.
To reiterate, Section 80 of the Corporation Code provides that the surviving

corporation shall possess all the rights, privileges, properties, and receivables
due of the absorbed corporation. Moreover, all interests of, belonging to, or
due to the absorbed corporation "shall be taken and deemed to be
transferred to and vested in such surviving or consolidated corporation
without further act or deed." The surviving corporation likewise acquires all
the liabilities and obligations of the absorbed corporation as if it had itself
incurred these liabilities or obligations.
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.
E.I. DUPONT DE NEMOURS AND CO. (ASSIGNEE OF INVENTORS

CARINI, DUNCIA AND WONG), VS. DIRECTOR EMMA C.
FRANCISCO (IN HER CAPACITY AS DIRECTOR GENERAL OF THE
INTELLECTUAL PROPERTY OFFICE) et., al
G.R. No. 174379 August 31, 2016
A patent is granted to provide rights and protection to the inventor after an

invention is disclosed to the public. It also seeks to restrain and prevent
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PROF. E.H. BALMES
unauthorized persons from unjustly profiting from a protected invention.

However, ideas not covered by a patent are free for the public to use and
exploit. Thus, there are procedural rules on the application and grant of
patents established to protect against any infringement. To balance the
public interests involved, failure to comply with strict procedural rules will
result in the failure to obtain a patent.
The right of priority given to a patent applicant is only relevant when there
are two or more conflicting patent applications on the same invention.
Because a right of priority does not automatically grant letters patent to an
applicant, possession of a right of priority does not confer any property rights
on the applicant in the absence of an actual patent.
A patent applicant with the right of priority is given preference in the grant
of a patent when there are two or more applicants for the same invention.
Section 29 of the Intellectual Property Code provides:

SECTION 29. First to File Rule. — If two (2) 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
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.
Since both the United States and the Philippines are signatories to the Paris
Convention for the Protection of Industrial Property, an applicant who has
filed a patent application in the United States may have a right of priority
over the same invention in a patent application in the Philippines. However,
this right of priority does not immediately entitle a patent applicant the grant
of a patent. A right of priority is not equivalent to a patent. Otherwise, a
patent holder of any member-state of the Paris Convention need not apply
for patents in other countries where it wishes to exercise its patent.
The grant of a patent is to provide protection to any inventor from any patent
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PROF. E.H. BALMES
infringement. Once an invention is disclosed to the public, only the patent

holder has the exclusive right to manufacture, utilize, and market the
invention.
Under the Intellectual Property Code, a patent holder has the right to "to
restrain, prohibit and prevent" any unauthorized person or entity from
manufacturing, selling, or importing any product derived from the patent.
However, after a patent is granted and published in the Intellectual Property
Office Gazette, any interested third party "may inspect the complete
description, claims, and drawings of the patent."
The grant of a patent provides protection to the patent holder from the
indiscriminate use of the invention. However, its mandatory publication also
has the correlative effect of bringing new ideas into the public consciousness.
After the publication of the patent, any person may examine the invention
and develop it into something further than what the original patent holder
may have envisioned. After the lapse of 20 years, the invention becomes
part of the public domain and is free for the public to use.
To be able to effectively and legally preclude others from copying and

profiting from the invention, a patent is a primordial requirement. No patent,
no protection. The ultimate goal of a patent system is to bring new designs
and technologies into the public domain through disclosure. Ideas, once
disclosed to the public without the protection of a valid patent, are subject
to appropriation without significant restraint.
On one side of the coin is the public which will benefit from new ideas; on
the other are the inventors who must be protected.
The patent law has a three-fold purpose: "first, patent law seeks to foster
and reward invention; second, it promotes disclosures of inventions to
stimulate further innovation and to permit the public to practice the invention
once the patent expires; third, the stringent requirements for patent
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PROF. E.H. BALMES
protection, seek to ensure that ideas in the public domain remain therefor
the free use of the public."
A patent is a monopoly granted only for specific purposes and objectives.

Thus, its procedures must be complied with to attain its social objective. Any
request for leniency in its procedures should be taken in this context.
CARAVAN TRAVEL AND TOURS INTERNATIONAL, INC.,

VS. ERMILINDA R. ABEJAR
G.R. No. 170631 February 10, 2016
Inasmuch as persons exercising substitute parental authority have the full

range of competencies of a child's actual parents, nothing prevents persons
exercising substitute parental authority from similarly possessing the right to
be indemnified for their ward's death.
The registered-owner rule was articulated as early as 1957 in Erezo, et al. v.

Jepte, where this court explained that the registration of motor vehicles, as
required by Section 5(a) of Republic Act No. 4136, the Land Transportation
and Traffic Code, was necessary "not to make said registration the operative
act by which ownership in vehicles is transferred, . . . but to permit the use
and operation of the vehicle upon any public highway[.]" Its "main aim . . .
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."
A victim of recklessness on the public highways is usually without means to

discover or identify the person actually causing the injury or damage. He has
no means other than by a recourse to the registration in the Motor Vehicles
Office to determine who is the owner. The protection that the law aims to
extend to him would become illusory were the registered owner given the
opportunity to escape liability by disproving his ownership.
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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. Instances are numerous where vehicles
running on public highways caused accidents or injuries to pedestrians or
other vehicles without positive identification of the owner or drivers, or with
very scant means of identification. It is to forestall these circumstances, so
inconvenient or prejudicial to the public, that the motor vehicle registration
is primarily ordained, in the interest of the determination of persons
responsible for damages or injuries caused on public highways.
This disputable presumption, insofar as the registered owner of the vehicle

in relation to the actual driver is concerned, recognizes that between the
owner and the victim, it is the former that should carry the costs of moving
forward with the evidence. The victim is, in many cases, a hapless pedestrian
or motorist with hardly any means to uncover the employment relationship
of the owner and the driver, or any act that the owner may have done in
relation to that employment.
The registration of the vehicle, on the other hand, is accessible to the public.
No owner of a motor vehicle shall engage, employ, or hire any person to

operate such motor vehicle, unless the person sought to be employed is a
duly licensed professional driver.
Due diligence in the supervision of employees, on the other hand, includes

the formulation of suitable rules and regulations for the guidance of
employees and the issuance of proper instructions intended for the
protection of the public and persons with whom the employer has relations
through his or its employees and the imposition of necessary disciplinary
measures upon employees in case of breach or as may be warranted to
ensure the performance of acts indispensable to the business of and
beneficial to their employer. To this, we add that actual implementation and
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PROF. E.H. BALMES
monitoring of consistent compliance with said rules should be the constant

concern of the employer, acting through dependable supervisors who should
regularly report on their supervisory functions.
In order that the defense of due diligence in the selection and supervision of
employees may be deemed sufficient and plausible, it is not enough to
emptily invoke the existence of said company guidelines and
policies on hiring and supervision. As the negligence of the employee
gives rise to the presumption of negligence on the part of the employer, the
latter has the burden of proving that it has been diligent not only in the
selection of employees but also in the actual supervision of their work. The
mere allegation of the existence of hiring procedures and supervisory
policies, without anything more, is decidedly not sufficient to overcome
presumption.
We emphatically reiterate our holding, as a warning to all employers, that

"the mere formulation of various company policies on safety without
showing that they were being complied with is not sufficient to
exempt petitioner from liability arising from negligence of its employees. It
is incumbent upon petitioner to show that in recruiting and employing the
erring driver the recruitment procedures and company policies on efficiency
and safety were followed."
Petitioner's interest and liability is distinct from that of its driver. Regardless
of petitioner's employer-employee relationship with Bautista, liability
attaches to petitioner on account of its being the registered owner of a
vehicle that figures in a mishap. This alone suffices. A determination of its
liability as owner can proceed independently of a consideration of how
Bautista conducted himself as a driver. While certainly it is desirable that a
determination of Bautista's liability be made alongside that of the owner of
the van he was driving, his non-inclusion in these proceedings does not
absolutely hamper a judicious resolution of respondent's plea for relief.
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PROF. E.H. BALMES
For deaths caused by quasi-delict, the recovery of moral damages is limited

to the spouse, legitimate and illegitimate descendants, and ascendants of
the deceased.
Persons exercising substitute parental authority are to be considered

ascendants for the purpose of awarding moral damages. Persons exercising
substitute parental authority are intended to stand in place of a child's
parents in order to ensure the well-being and welfare of a child.
Like natural parents, persons exercising substitute parental authority are

required to, among others, keep their wards in their company, provide for
their upbringing, show them love and affection, give them advice and
counsel, and provide them with companionship and understanding.
For their part, wards shall always observe respect and obedience towards
the person exercising parental authority. The law forges a relationship
between the ward and the person exercising substitute parental authority
such that the death or injury of one results in the damage or prejudice of
the other.
Moral damages are awarded to compensate the claimant for his or her actual
injury, and not to penalize the wrongdoer. Moral damages enable the injured
party to alleviate the moral suffering resulting from the defendant's
actions. It aims to restore—to the extent possible—"the spiritual status quo
ante."
As exemplary damages have been awarded and as respondent was

compelled to litigate in order to protect her interests, she is rightly entitled
to attorney's fees.
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PROF. E.H. BALMES
VIVA SHIPPING LINES, INC., VS. KEPPEL PHILIPPINES MINING,

INC., METROPOLITAN BANK & TRUST COMPANY, PILIPINAS
SHELL PETROLEUM CORPORATION, CITY OF BATANGAS, CITY OF
LUCENA, PROVINCE OF QUEZON et., al.
G.R. No. 177382 February 17,2016
Liberality in the application of the rules is not an end in itself. It must be

pleaded with factual basis and must be allowed for equitable ends. There
must be no indication that the violation of the rule is due to negligence or
design. Liberality is an extreme exception, justifiable only when equity exists.
Corporate rehabilitation is a remedy for corporations, partnerships, and

associations "who [foresee] the impossibility of meeting [their] debts when
they respectively fall due." A corporation under rehabilitation continues with
its corporate life and activities to achieve solvency, or a position where the
corporation is able to pay its obligations as they fall due in the ordinary
course of business. Solvency is a state where the businesses' liabilities are
less than its assets.
Corporate rehabilitation is a type of proceeding available to a business that

is insolvent. In general, insolvency proceedings provide for predictability that
commercial obligations will be met despite business downturns. Stability in
the economy results when there is assurance to the investing public that
obligations will be reasonably paid. It is considered state polic to encourage
debtors, both juridical and natural persons, and their creditors to collectively
and realistically resolve and adjust competing claims and property rights[.] .
. . [Rehabilitation or liquidation shall be made with a view to ensure or
maintain certainty and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors, recognize creditor rights
and respect priority of claims, and ensure equitable treatment of creditors
who are similarly situated.
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PROF. E.H. BALMES
When rehabilitation is not feasible, it is in the interest of the State to facilitate

a speedy and orderly liquidation of these debtors' assets and the settlement
of their obligations.
Rehabilitation assumes that assets are still serviceable to meet the purposes
of the business. The corporation receives assistance from the court and a
disinterested rehabilitation receiver to balance the interest to recover and
continue ordinary business, all the while attending to the interest of its
creditors to be paid equitably. These interests are also referred to as
the rehabilitative and the equitable purposes of corporate rehabilitation.
Corporate rehabilitation is one of many statutorily provided remedies for

businesses that experience a downturn. Rather than leave the various
creditors unprotected, legislation now provides for an orderly procedure of
equitably and fairly addressing their concerns. Corporate rehabilitation
allows a court-supervised process to rejuvenate a corporation.... It provides
a corporation's owners a sound chance to reengage the market, hopefully
with more vigor and enlightened services, having learned from a painful
experience.
Courts "must endeavor to balance the interests of all the parties that had a
stake in the success of rehabilitating the debtors." These parties include the
corporation seeking rehabilitation, its creditors, and the public in general.
The public's interest lies in the court's ability to effectively ensure that the
obligations of the debtor, who has experienced severe economic difficulties,
are fairly and equitably served. The alternative might be a chaotic rush by
all creditors to file separate cases with the possibility of different; trial courts
issuing various writs competing for the same assets. Rehabilitation is a
means to temper the effect of a business downturn experienced for whatever
reason. In the process, it gives entrepreneurs a second chance. Not only is
it a humane and equitable relief, it encourages efficiency and maximizes
welfare in the economy.
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PROF. E.H. BALMES
It does not make sense to hold, suspend, or continue to devalue outstanding

credits of a business that has no chance of recovery. In such cases, the
optimum economic welfare will be achieved if the corporation is allowed to
wind up its affairs in an orderly manner. Liquidation allows the corporation
to wind up its affairs and equitably distribute its assets among its creditors.
Liquidation is diametrically opposed to rehabilitation. Both cannot be

undertaken at the same time.
In rehabilitation, corporations have to maintain their assets to continue

business operations. In liquidation, on the other hand, corporations preserve
their assets in order to sell them. Without these assets, business operations
are effectively discontinued. The proceeds of the sale are distributed
equitably among creditors, and surplus is divided or losses are re-allocated.
Proceedings in case of insolvency are not limited to rehabilitation. Our laws

have evolved to provide for different procedures where a debtor can undergo
judicially supervised reorganization or liquidation of its assets.
Currently, the prevailing law and procedure for corporate rehabilitation is the
Financial Rehabilitation and Insolvency Act of 2010 (FRIA). FRIA provides
procedures for the different types of rehabilitation and liquidation
proceedings. The Financial Rehabilitation Rules of Procedure was issued by
this court on August 27, 2013.
However, since the Regional Trial Court acted on petitioner's Amended
Petition before FRIA was enacted, Presidential Decree No. 902-A and the
Interim Rules of Procedure on Corporate Rehabilitation were applied to this
case.
There are two kinds of "liberality" with respect to the construction of
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PROF. E.H. BALMES
provisions of law. The first requires ambiguity in the text of the provision
and usually pertains to a situation where there can be two or more viable
meanings given the factual context presented by a case. Liberality here
means a presumption or predilection to interpret the text in favor of the
cause of the party requesting for "liberality."
Then there is the "liberality" that actually means a request for the suspension
of the operation of a provision of law, whether substantive or procedural.
This liberality requires equity. There may be some rights that are not
recognized in law, and if courts refuse to recognize these rights, an unfair
situation may arise. Specifically, the case may be a situation that was not
contemplated on or was not possible at the time the legal norm was drafted
or promulgated.
Liberality lies within the bounded discretion of a court to allow an equitable

result when the proven circumstances require it. Liberality acknowledges a
lacuna in the text of a provision of law. This may be because those who
promulgated the rule may not have foreseen the unique circumstances of a
case at bar. Human foresight as laws and rules are prepared is powerful, but
not perfect.
Liberality is not an end in itself. Otherwise, it becomes a backdoor disguising
the arbitrariness or despotism of judges and justices.
The factual antecedents of a plea for the exercise of liberality must be clear.
There must also be a showing that the factual basis for a plea for liberality
is not one that is due to the negligence or design of the party requesting the
suspension of the rules. Likewise, the basis for claiming an equitable result—
for all the parties—must be clearly and sufficiently pleaded and argued.
Courts exercise liberality in line with their equity jurisdiction; hence, it may
only be exercised if it will result in fairness and justice
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Bank of the Philippine Islands v. Sarabia Manor Hotel Corp. provides the
test to help trial courts evaluate the economic feasibility of a rehabilitation
plan:
In order to determine the feasibility of a proposed

rehabilitation plan, it is imperative that a thorough
examination and analysis of the distressed corporation's
financial data must be conducted. If the results of such
examination and analysis show that there is a real
opportunity to rehabilitate the corporation in view of the
assumptions made and financial goals stated in the
proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation
court should not hesitate to allow the corporation to operate
as an on-going concern, albeit under the terms and
conditions stated in the approved rehabilitation plan. On the
other hand, if the results of the financial examination and
analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived
and that liquidation would, in fact, better subserve the
interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the
rehabilitation court may convert the proceedings into one for
liquidation.
A rehabilitation plan is infeasible if the assets are nearly fully or fully

depreciated. This reduces the probability that rehabilitation may restore and
reinstate petitioner to its former position of successful operation and
solvency.
Disposing of the assets constituting petitioner's main business cannot result

in rehabilitation. A business primarily engaged as a shipping line cannot
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PROF. E.H. BALMES
operate without its ships. On the other hand, the plan to purchase new
vessels sacrifices the corporation's cash flow. This is contrary to the goal of
corporate rehabilitation, which is to allow present value recovery for
creditors. The plan to buy new vessels after selling the two vessels it
currently owns is neither sound nor workable as a business plan.
MARCELINO M. FLORETE, JR., MARIA ELENA F. MUYCO AND RAUL

A. MUYCO VS. ROGELIO M. FLORETE et., al.
G.R. No. 174909 January 20, 2016
A stockholder may suffer from a wrong done to or involving a corporation,

but this does not vest in the aggrieved stockholder a sweeping license to sue
in his or her own capacity. The determination of the stockholder's
appropriate remedy—whether it is an individual suit, a class suit, or a
derivative suit—hinges on the object of the wrong done. When the object of
the wrong done is the corporation itself or "the whole body of its stock and
property without any severance or distribution among individual holders,” it
is a derivative suit, not an individual suit or class/representative suit, that a
stockholder must resort to.
A stockholder suing on account of wrongful or fraudulent corporate actions

(undertaken through directors, associates, officers, or other persons) may
sue in any of three (3) capacities: as an individual; as part of a group or
specific class of stockholders; or as a representative of the corporation.
Individual suits are filed when the cause of action belongs to the individual
stockholder personally, and not to the stockholders as a group or to the
corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of stockholders, such
as when the rights violated belong to preferred stockholders, a class or
representative suit may be filed to protect the stockholders in the group.
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PROF. E.H. BALMES
A derivative suit "is an action filed by stockholders to enforce a corporate

action." A derivative suit, therefore, concerns "a wrong to the corporation
itself." The real party in interest is the corporation, not the stockholders filing
the suit. The stockholders are technically nominal parties but are nonetheless
the active persons who pursue the action for and on behalf of the
corporation.
Remedies through derivative suits are not expressly provided for in our
statutes—more specifically, in the Corporation Code and the Securities
Regulation Code—but they are "impliedly recognized when the said laws
make corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties." They
are intended to afford reliefs to stockholders in instances where those
responsible for running the affairs of a corporation would not otherwise act:
However, in cases of mismanagement where the wrongful acts are

committed by the directors or trustees themselves, a stockholder or member
may find that he has no redress because the former are vested by law with
the right to decide whether or not the corporation should sue, and they will
never be willing to sue themselves. The corporation would thus be helpless
to seek remedy. Because of the frequent occurrence of such a situation, the
common law gradually recognized the right of a stockholder to sue on behalf
of a corporation in what eventually became known as a "derivative suit." It
has been proven to be an effective remedy of the minority against the abuses
of management. Thus, an individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stock in order
to protect or vindicate corporate rights, whenever officials of the corporation
refuse to sue or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as the
nominal party, with the corporation as the party in interest.
The distinction between individual and class/representative suits on one

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PROF. E.H. BALMES
hand and derivative suits on the other is crucial. These are not discretionary
alternatives. The fact that stockholders suffer from a wrong done to or
involving a corporation does not vest in them a sweeping license to sue in
their own capacity. The recognition of derivative suits as a vehicle for redress
distinct from individual and representative suits is an acknowledgment that
certain wrongs may be addressed only through acts brought for the
corporation.
The avenues for relief are, thus, mutually exclusive. The determination of
the appropriate remedy hinges on the object of the wrong done. When the
object is a specific stockholder or a definite class of stockholders, an
individual suit or class/representative suit must be resorted to. When the
object of the wrong done is the corporation itself or "the whole body of its
stock and property without any severance or distribution among individual
holders," it is a derivative suit that a stockholder must resort to.
A derivative suit, on one hand, and individual and class suits, on the other,
are mutually exclusive.
A stockholder or member may bring an action in the name of a corporation

or association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions

subject of the action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under
the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of;
and
(4) The suit is not a nuisance or harassment suit.
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PROF. E.H. BALMES
In derivative suits, the corporation concerned must be impleaded as a party.
Not only is the corporation an indispensible party, but it is also the present
rule that it must be served with process. The reason given is that 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 a 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 judicata
against it.
UNIVERSITY OF MINDANAO, INC., VS. BANGKO SENTRAL

PILIPINAS, ET AL.,
G.R. No. 194964-65 January 11, 2016
Acts of an officer that arc not authorized by the board of directors/trustees

do not bind the corporation unless the corporation ratifies the acts or holds
the officer out as a person with authority to transact on its behalf.
Petitioner does not have the power to mortgage its properties in order to
secure loans of other persons. As an educational institution, it is limited to
developing human capital through formal instruction. It is not a corporation
engaged in the business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring equipment and real

estate; establishing housing facilities for personnel and students; hiring a
concessionaire; and other activities that can be directly connected to the
operations and conduct of the education business may constitute the
necessary and incidental acts of an educational institution.
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PROF. E.H. BALMES
Securing FISLAI's loans by mortgaging petitioner's properties does not

appear to have even the remotest connection to the operations of petitioner
as an educational institution. Securing loans is not an adjunct of the
educational institution's conduct of business. It does not appear that
securing third-party loans was necessary to maintain petitioner's business of
providing instruction to individuals.
This court upheld the validity of corporate acts when those acts were shown
to be clearly within the corporation's powers or were connected to the
corporation's purposes.
The separate personality of corporations means that they are "vested with
rights, powers, and attributes [of their own] as if they were natural persons.
Their assets and liabilities are their own and not their officers', shareholders',
or another corporation's. In the same vein, the assets and liabilities of their
officers and shareholders are not the corporations'. Obligations incurred by
corporations are not obligations of their officers and shareholders.
Obligations of officers and shareholders are not obligations of
corporations. In other words, corporate interests are separate from the
personal interests of the natural persons that comprise corporations.
Corporations are given separate personalities to allow natural persons to

balance the risks of business as they accumulate capital. They are, however,
given limited competence as a means to protect the public from fraudulent
acts that may be committed using the separate juridical personality given to
corporations.
Ratification must be knowingly and voluntarily done. Petitioner's lack of

knowledge about the mortgage executed in its name precludes an
interpretation that there was any ratification on its part.
Indeed, a corporation, being a person created by mere fiction of law, can
act only through natural persons such as its directors, officers, agents, and
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PROF. E.H. BALMES
representatives. Hence, the general rule is that knowledge of an officer is

considered knowledge of the corporation.
The rule that knowledge of an officer is considered knowledge of the
corporation applies only when the officer is acting within the authority given
to him or her by the corporation.
Knowledge of facts acquired or possessed by an officer or agent of a

corporation in the course of his employment, and in relation to matters within
the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not.
The public should be able to rely on and be protected from the

representations of a corporate representative acting within the scope of his
or her authority. This is why an authorized officer's knowledge is considered
knowledge of corporation. However, just as the public should be able to rely
on and be protected from corporate representations, corporations should
also be able to expect that they will not be bound by unauthorized actions
made on their account.
Thus, knowledge should be actually communicated to the corporation

through its authorized representatives. A corporation cannot be expected to
act or not act on a knowledge that had not been communicated to it through
an authorized representative. There can be no implied ratification without
actual communication. Knowledge of the existence of contract must be
brought to the corporation's representative who has authority to ratify it.
Further, "the circumstances must be shown from which such knowledge may
be presumed."
This court has recognized presumed or apparent authority or capacity to bind

corporate representatives in instances when the corporation, through its
silence or other acts of recognition, allowed others to believe that persons,
through their usual exercise of corporate powers, were conferred with
authority to deal on the corporation's behalf.
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PROF. E.H. BALMES
The doctrine of apparent authority does not go into the question of the
corporation's competence or power to do a particular act. It involves the
question of whether the officer has the power or is clothed with the
appearance of having the power to act for the corporation. A finding that
there is apparent authority is not the same as a finding that the corporate
act in question is within the corporation's limited powers.
The rule on apparent authority is based on the principle of estoppel.
A corporation is estopped by its silence and acts of recognition because we

recognize that there is information asymmetry between third persons who
have little to no information as to what happens during corporate meetings,
and the corporate officers, directors, and representatives who are insiders
to corporate affairs.
There can be no apparent authority and the corporation cannot be estopped

from denying the binding affect of an act when there is no evidence pointing
to similar acts and other circumstances that can be interpreted as the
corporation holding out a representative as having authority to contract on
its behalf.
MANUEL LUIS C. GONZALES AND FRANCIS MARTIN D. GONZALES,

VS. GJH LAND, INC. (FORMERLY KNOWN AS S.J. LAND, INC). et.,
al.
G.R. No. 202664 November 20, 2015
The present controversy lies, however, in the procedure to be

followed when a commercial case - such as the instant intra-
corporate dispute -has been properly filed in the official station of
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PROF. E.H. BALMES
the designated Special Commercial Court but is, however, later

wrongly assigned by raffle to a regular branch of that station.
As a basic premise, let it be emphasized that a court's acquisition of

jurisdiction over a particular case's subject matter is different from incidents
pertaining to the exercise of its jurisdiction. Jurisdiction over the subject
matter of a case is conferred by law, whereas a court's exercise of
jurisdiction, unless provided by the law itself, is governed by the Rules of
Court or by the orders issued from time to time by the Court.
In Lozada v. Bracewell, it was recently held that the matter of whether

the RTC resolves an issue in the exercise of its general jurisdiction
or of its limited jurisdiction as a special court is only a matter of
procedure and has nothing to do with the question of jurisdiction.
The regional trial court, formerly the court of first instance, is a court of
general jurisdiction. All cases, the jurisdiction over which is not specifically
provided for by law to be within the jurisdiction of any other court, fall under
the jurisdiction of the regional trial court.
History depicts that when the transfer of SEC cases to the RTCs was first
implemented, they were transmitted to the Executive Judges of the RTCs for
raffle between or among its different branches, unless a specific branch
has been designated as a Special Commercial Court, in which
instance, the cases were transmitted to said branch.
It was only on November 21, 2000 that the Court designated certain RTC
branches to try and decide said SEC cases without, however, providing for
the transfer of the cases already distributed to or filed with the regular
branches thereof.
Thus, on January 23, 2001, the Court issued SC Administrative Circular No.
08-2001 directing the transfer of said cases to the designated courts
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PROF. E.H. BALMES
(commercial SEC courts). Later, or on June 17, 2003, the Court issued A.M.
No. 03-03-03-SC consolidating the commercial SEC courts and the
intellectual property courts in one RTC branch in a particular locality,
i.e., the Special Commercial Court, to streamline the court structure
and to promote expediency. Accordingly, the RTC branch so designated
was mandated to try and decide SEC cases, as well as those involving
violations of intellectual property rights, which were, thereupon, required to
be filed in the Office of the Clerk of Court in the official station of the
designated Special Commercial Courts, to wit:
1. The Regional Courts previously designated as SEC Courts through the:

(a) Resolutions of this Court dated 21 November 2000, 4 July 2001, 12
November 2002, and 9 July 2002 all issued in A.M. No. 00-11-03-SC; (b)
Resolution dated 27 August 2001 in A.M. No. 01-5-298-RTC; and (c)
Resolution dated 8 July 2002 in A.M. No. 01-12-656-RTC are hereby
DESIGNATED and shall be CALLED as Special Commercial Courts to try and
decide cases involving violations of Intellectual Property Rights which fall
within their jurisdiction and those cases formerly cognizable by the
Securities and Exchange Commission:
x x x x
4. The Special Commercial Courts shall have jurisdiction over cases arising
within their respective territorial jurisdiction with respect to the National
Capital Judicial Region and within the respective provinces with respect to
the First to Twelfth Judicial Regions. Thus, cases shall be filed in the Office
of the Clerk of Court in the official station of the designated Special
Commercial Court;
xxxx
The objective behind the designation of such specialized courts is to

promote expediency and efficiency in the exercise of the RTCs'
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PROF. E.H. BALMES
jurisdiction over the cases enumerated under Section 5 of PD 902-A. Such

designation has nothing to do with the statutory conferment of jurisdiction
to all RTCs under RA 8799 since in the first place, the Court cannot enlarge,
diminish, or dictate when jurisdiction shall be removed, given that the
power to define, prescribe, and apportion jurisdiction is, as a
general rule, a matter of legislative prerogative.
Here, petitioners filed a commercial case, i.e., an intra-corporate dispute,

with the Office of the Clerk of Court in the RTC of Muntinlupa City, which is
the official station of the designated Special Commercial Court, in
accordance with A.M. No. 03-03-03-SC. It is, therefore, from the time of
such filing that the RTC of Muntinlupa City acquired jurisdiction
over the subject matter or the nature of the
action. Unfortunately, the commercial case was wrongly raffled to a
regular branch, e.g., Branch 276, instead of being assigned to the
sole Special Commercial Court in the RTC of Muntinlupa City, which
is Branch 256.
This error may have been caused by a reliance on the complaint's

caption, i.e., "Civil Case for Injunction with prayer for Status Quo Order, TRO
and Damages," which, however, contradicts and more importantly, cannot
prevail over its actual allegations that clearly make out an intra-corporate
dispute.
Going back to the case at bar, the Court nonetheless deems that the
erroneous raffling to a regular branch instead of to a Special Commercial
Court is only a matter of procedure - that is, an incident related to the
exercise of jurisdiction - and, thus, should not negate the jurisdiction which
the RTC of Muntinlupa City had already acquired. In such a scenario, the
proper course of action was not for the commercial case to be dismissed;
instead, Branch 276 should have first referred the case to the Executive
Judge for re-docketing as a commercial case; thereafter, the
Executive Judge should then assign said case to the only
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PROF. E.H. BALMES
designated Special Commercial Court in the station, i.e., Branch

256.
Note that the procedure would be different where the RTC acquiring
jurisdiction over the case has multiple special commercial court
branches; in such a scenario, the Executive Judge, after re-docketing the
same as a commercial case, should proceed to order its re-raffling among
the said special branches.
Meanwhile, if the RTC acquiring jurisdiction has no branch designated as

a Special Commercial Court, then it should refer the case to the nearest
RTC with a designated Special Commercial Court branch within the judicial
region. Upon referral, the RTC to which the case was referred to should re-
docket the case as a commercial case, and then: (a) if the said RTC has only
one branch designated as a Special Commercial Court, assign the case to
the sole special branch; or (b) if the said RTC has multiple branches
designated as Special Commercial Courts, raffle off the case among those
special branches.
In all the above-mentioned scenarios, any difference regarding the

applicable docket fees should be duly accounted for. On the other hand, all
docket fees already paid shall be duly credited, and any excess, refunded.
For further guidance, the Court finds it apt to point out that the same
principles apply to the inverse situation of ordinary civil cases filed
before the proper RTCs but wrongly raffled to its branches
designated as Special Commercial Courts. In such a scenario,
the ordinary civil case should then be referred to the Executive
Judge for re-docketing as an ordinary civil case; thereafter, the
Executive Judge should then order the raffling of the case to all
branches of the same RTC, subject to limitations under existing
internal rules, and the payment of the correct docket fees in case
of any difference. Unlike the limited assignment/raffling of a commercial
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case only to branches designated as Special Commercial Courts in the

scenarios stated above, the re-raffling of an ordinary civil case in this
instance to all courts is permissible due to the fact that a particular branch
which has been designated as a Special Commercial Court does not shed the
RTC's general jurisdiction over ordinary civil cases under the imprimatur of
statutory law, i.e., Batas Pambansa Bilang (BP) 129.
To restate, the designation of Special Commercial Courts was merely

intended as a procedural tool to expedite the resolution of commercial cases
in line with the court's exercise of jurisdiction. This designation was not
made by statute but only by an internal Supreme Court rule under its
authority to promulgate rules governing matters of procedure and its
constitutional mandate to supervise the administration of all courts and the
personnel thereof. Certainly, an internal rule promulgated by the Court
cannot go beyond the commanding statute. But as a more fundamental
reason, the designation of Special Commercial Courts is, to stress, merely an
incident related to the court's exercise of jurisdiction, which, as first
discussed, is distinct from the concept of jurisdiction over the subject matter.
The RTC's general jurisdiction over ordinary civil cases is therefore not
abdicated by an internal rule streamlining court procedure.
Furthermore, the Court hereby RESOLVES that henceforth, the following

guidelines shall be observed:
1. If a commercial case filed before the proper RTC is wrongly raffled to its
regular branch, the proper courses of action are as follows:
1.1 If the RTC has only one branch designated as a Special Commercial
Court, then the case shall be referred to the Executive Judge for re-docketing
as a commercial case, and thereafter, assigned to the sole special branch;
1.2 If the RTC has multiple branches designated as Special Commercial

Courts, then the case shall be referred to the Executive Judge for re-
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PROF. E.H. BALMES
docketing as a commercial case, and thereafter, raffled off among those

special branches; and
1.3 If the RTC has no internal branch designated as a Special Commercial

Court, then the case shall be referred to the nearest RTC with a designated
Special Commercial Court branch within the judicial region. Upon referral,
the RTC to which the case was referred to should re- docket the case as a
commercial case, and then: (a) if the said RTC has only one branch
designated as a Special Commercial Court, assign the case to the sole special
branch; or (b) if the said RTC has multiple branches designated as Special
Commercial Courts, raffle off the case among those special branches.
2. If an ordinary civil case filed before the proper RTC is wrongly raffled to
its branch designated as a Special Commercial Court, then the case shall be
referred to the Executive Judge for re-docketing as an ordinary civil case.
Thereafter, it shall be raffled off to all courts of the same RTC (including its
designated special branches which, by statute, are equally capable of
exercising general jurisdiction same as regular branches), as provided for
under existing rules.
3. All transfer/raffle of cases is subject to the payment of the appropriate

docket fees in case of any difference. On the other hand, all docket fees
already paid shall be duly credited, and any excess, refunded.
4. Finally, to avert any future confusion, the Court requires that all initiatory
pleadings state the action's nature both in its caption and body. Otherwise,
the initiatory pleading may, upon motion or by order of the court motu
proprio, be dismissed without prejudice to its re-filing after due rectification.
This last procedural rule is prospective in application.
5. All existing rules inconsistent with the foregoing are deemed superseded.
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METROPOLITAN BANK & TRUST COMPANY, VS. G & P BUILDERS,

INCORPORATED et., al.
G.R. No. 189509 November 23, 2015
Corporate rehabilitation is a special proceeding. The proceeding seeks to

establish the "inability of the corporate debtor to pay its debts when they fall
due so that a rehabilitation plan, containing the formula for the successful
recovery of the corporation, may be approved in the end." There is no relief
sought for "an injury caused by another party."
Corporate rehabilitation is one of the remedies that a financially stressed

company can opt for to raise itself from insolvency. It is one of many
statutorily provided remedies for businesses that experience a downturn.
Rather than leave the various creditors unprotected, legislation now provides
for an orderly procedure of equitably and fairly addressing their concerns.
Corporate rehabilitation allows a court-supervised process to rejuvenate a
corporation.
A compromise agreement is a contract whereby the parties make reciprocal

concessions in order to resolve their differences and thus avoid litigation or
to put an end to one already commenced. Once stamped with
judicial imprimatur, it becomes more than a mere contract binding upon the
parties; having the sanction of the court and entered as its determination of
the controversy, it has the force and effect of any other judgment. It has the
effect and authority of res judicata, although no execution may issue until it
would have received the corresponding approval of the court where the
litigation pends and its compliance with the terms of the agreement is
thereupon decreed.
A compromise agreement once approved by final order of the court has the
force of res judicata between the parties and should not be disturbed except
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PROF. E.H. BALMES
for vices of consent or forgery. Hence, a decision on a compromise

agreement is final and executory; it has the force of law and is conclusive
between the parties. It transcends its identity as a mere contract binding
only upon the parties thereto, as it becomes a judgment that is subject to
execution in accordance with the Rules.
LORENZO SHIPPING CORPORATION, VS. NATIONAL POWER

CORPORATION
G.R. No. 181683 October 7, 2015
A Master's designation as the commander of a vessel is long-settled.

Jurisprudence explains that "Master" and "Captain" are synonymous terms:
"The name of captain or master is given, according to the kind of vessel, to
the person in charge of it.
"The first denomination is applied to those who govern vessels that navigate
the high seas or ships of large dimensions and importance, although they be
engaged in the coastwise trade.
"Masters are those who command smaller ships engaged exclusively in the
coastwise trade.
"For the purposes of maritime commerce, the words 'captain' and Q 'master'
have the same meaning; both being the chiefs or commanders of ships.
A master or captain, for purposes of maritime commerce, is one who has

command of a vessel. A captain commonly performs three (3) distinct roles:
(1) he is a general agent of the shipowner; (2) he is also commander and
technical director of the vessel; and (3) he is a representative of the country
under whose flag he navigates. Of these roles, by far the most important is
the role performed by the captain as commander of the vessel; for such role
(which, to our mind, is analogous to that of "Chief Executive Officer" [CEO]
of a present-day corporate enterprise) has to do with the operation and
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PROF. E.H. BALMES
preservation of the vessel during its voyage and the protection of the
passengers (if any) and crew and cargo. In his role as general agent of the
shipowner, the captain has authority to sign bills of lading, carry goods
aboard and deal with the freight earned, agree upon rates and decide
whether to take cargo. The ship captain, as agent of the shipowner, has
legal authority to enter into contracts with respect to the vessel and the
trading of the vessel, subject to applicable limitations established by statute,
contract or instructions and regulations of the shipowner. To the captain is
committed the governance, care and management of the vessel. Clearly, the
captain is vested with both management and fiduciary functions.
This notwithstanding, there are recognized instances when control of a

vessel is yielded to a pilot.
Section 8 of Philippine Ports Authority (PPA) Administrative Order No. 03-85,

otherwise known as the Rules and Regulations Governing Pilotage Services,
the Conduct of Pilots and Pilotage Fees in Philippine Ports, enumerates
instances when vessels are subjected to compulsory pilotage:
Sec. 8. Compulsory Pilotage Service — For entering a harbor

and anchoring thereat, or passing through rivers or straits
within a pilotage district, as well as docking and undocking
at any pier/wharf, or shifting from one berth or another,
every vessel engaged in coastwise and foreign trade shall be
under compulsory pilotage.
However, in the Ports of Manila and Cebu, and in such other

ports as may be allowed by this Authority, Ship Captains may
pilot their vessels engaged in coastwise trade provided they
meet / comply with the following minimum qualifications /
requirements:
a) Must be properly licensed as a Harbor Pilot by the
Philippine Coast Guard for Manila, Cebu and other
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PROF. E.H. BALMES
authorized ports;
b) Must have been a Master of an interisland vessel for at

least three (3) years prior to his application with the PPA;
c) Must be certified by a government physician as physically

and mentally fit.
Vessels maneuvered by a Special Harbor Pilot shall be

exempt from the payment of all pilotage fees.
Section 9 further enumerates exceptions to compulsory pilotage:
Sec. 9. Exemptions - In the following cases, pilotage service

is not compulsory:
a) Vessels engaged in coastwise trade

undocking at all ports, except at the ports
of Manila, Cebu, Iloilo, Tacloban, Davao,
Zamboanga, Pulupandan, Masinloc, and
San Fernando,
b) Government vessels,
c) Vessels of foreign governments entitled to

courtesy,
d) Vessels that are authorized by BOT to

engage in daily ferry service plying
between two places within a port or
between two ports,
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e) Phil. Flag vessels engaged in coastwise

trade that depart from an anchorage,
f) Vessels calling at private ports whose

owners have formally waived the
requirements of compulsory pilotage.
Section 32(f) of PPA Administrative Order No. 03-85 specifies the foremost
responsibility of a Harbor Pilot, that is, the direction of the vessel being
piloted. In addition, Section 32 (f) spells out the duration within which the
Harbor Pilot is to fulfill this responsibility. It likewise provides that the
Master's failure to carry out the Harbor Pilot's orders is a ground for absolving
the Harbor Pilot of liability:
Sec. 32. Duties and Responsibilities of the Pilots or Pilots'

Association. — The duties and responsibilities of the Harbor
Pilot shall be as follows:
....
f) A pilot shall be held responsible for the

direction of a vessel from the time he
assumes his work as a pilot thereof until he
leaves it anchored or berthed safely;
Provided, however, that his responsibility
shall cease at the moment the Master
neglects or refuses to carry out his order.
Consistent with the yielding of control to a pilot, Section 11 of PPA

Administrative Order No. 03-85 makes the Harbor Pilot liable for damage
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PROF. E.H. BALMES
caused by his or her negligence or fault. The same provision, however,

emphasizes that "overall command" of the vessel remains in the Master of
the vessel:
Sec. 11. Control of Vessels and Liability for Damage. — On

compulsory pilotage grounds, the Harbor Pilot providing the
service to a vessel shall be responsible for the damage
caused to a vessel or to life and property at ports due to his
negligence or fault. He can be absolved from liability if the
accident is caused by force majeure or natural calamities
provided he has exercised prudence and extra diligence to
prevent or minimize the damage.
The Master shall retain overall command of the vessel even

on pilotage grounds whereby he can countermand or
overrule the order or command of the Harbor Pilot on board.
In such event, any damage caused to a vessel or to life and
property at ports by reason of the fault or negligence of the
Master shall be the responsibility and liability of the
registered owner of the vessel concerned without prejudice
to recourse against said Master.
Such liability of the owner or Master of the vessel or its pilots

shall be determined by competent authority in appropriate
proceedings in the light of the facts and circumstances of
each particular case.
Accordingly, it is settled that Harbor Pilots are liable only to the extent that
they can perform their function through the officers and crew of the piloted
vessel. Where there is failure by the officers and crew to adhere to their
orders, Harbor Pilots cannot be held liable. In Far Eastern Shipping Co. V.
Court of Appeals, this court explained the intertwined responsibilities of pilots
and masters:
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PROF. E.H. BALMES
Where a compulsory pilot is in charge of a ship, the master

being required to permit him to navigate it, if the master
observes that the pilot is incompetent or physically
incapable, then it is the duty of the master to refuse to
permit the pilot to act. But if no such reasons are present,
then the master is justified in relying upon the pilot, but not
blindly. Under the circumstances of this case, if a situation
arose where the master, exercising that reasonable vigilance
which the master of a ship should exercise, observed, or
should have observed, that the pilot was so navigating the
vessel that she was going, or was likely to go, into danger,
and there was in the exercise of reasonable care and
vigilance an opportunity for the master to intervene so as to
save the ship from danger, the master should have acted
accordingly. The master of a vessel must exercise a degree
of vigilance commensurate with the circumstances.
We start our discussion of the successive issues bearing in mind the

evidentiary rule in American jurisprudence that there is a presumption of
fault against a moving vessel that strikes a stationary object such as a dock
or navigational aid. In admiralty, this presumption does more than merely
require the ship to go forward and produce some evidence on the
presumptive matter. The moving vessel must show that it was without fault
or that the collision was occasioned by the fault of the stationary object or
was the result of inevitable accident. It has been held that such vessel must
exhaust every reasonable possibility which the circumstances admit and
show that in each, they did all that reasonable care required. In the absence
of sufficient proof in rebuttal, the presumption of fault attaches to a moving
vessel which collides with a fixed object and makes a prima facie case of
fault against the vessel. Logic and experience support this presumption:
The common sense behind the rule makes the burden a heavy one. Such
accidents simply do not occur in the ordinary course of things unless the
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PROF. E.H. BALMES
vessel has been mismanaged in some way. It is not sufficient for the
respondent to produce witnesses who testify that as soon as the danger
became apparent everything possible was done to avoid an accident. The
question remains, How then did the collision occur? The answer must be
either that, in spite of the testimony of the witnesses, what was done was
too little or too late or, if not, then the vessel was at fault for being in a
position in which an unavoidable collision would occur.
A party is entitled to adequate compensation only for such pecuniary loss

actually suffered and duly proved. Indeed, basic is the rule that to recover
actual damages, the amount of loss must not only be capable of proof but
must actually be proven with a reasonable degree of certainty, premised
upon competent proof or best evidence obtainable of the actual amount
thereof. The claimant is duty-bound to point out specific facts that afford a
basis for measuring whatever compensatory damages are borne. A court
cannot merely rely on speculations, conjectures, or guesswork as to the fact
and amount of damages as well as hearsay or uncorroborated testimony
whose truth is suspect.
In Republic of the Philippines v. Tuvera, this court already debunked the

notion that temperate damages are appropriate only in those cases in which
pecuniary loss cannot, "by its nature," be ascertained: Temperate or
moderate damages avail when "the court finds that some pecuniary loss has
been suffered but its amount can not from the nature of the case, be proved
with certainty." The textual language might betray an intent that temperate
damages do not avail when the case, by its nature, is susceptible to proof of
pecuniary loss; and certainly the Republic could have proved pecuniary loss
herein. Still, jurisprudence applying Article 2224 is clear that temperate
damages may be awarded even in instances where pecuniary loss could
theoretically have been proved with certainty.
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PIONEER INSURANCE SURETY CORPORATION, VS. MORNING

STAR TRAVEL & TOURS, INC., ET. AL.
G.R. No. 198436 July 8, 2015
As a general rule, a corporation has a separate and distinct personality from

those who represent it. Its officers are solidarily liable only when exceptional
circumstances exist, such as cases enumerated in Section 31 of the
Corporation Code. The liability of the officers must be proven by evidence
sufficient to overcome the burden of proof borne by the plaintiff.
The law vests corporations with a separate and distinct personality from
those that represent these corporations. The corporate legal structure draws
its "economic superiority from key features such as a separate corporate
personality. Unlike other business associations such as partnerships, the
corporate framework encourages investment by allowing even small capital
contributors to be part of a big business endeavor made possible by the
aggregation of their capital funds. The consequent limited liability feature,
since corporate assets will answer for corporate debts, also proves attractive
for investors. However, this legal structure should not be abused.
Bad faith "imports a dishonest purpose or some moral obliquity and

conscious doing of a wrong, not simply bad judgment or negligence." "It
means breach of a known duty through some motive or interest or ill will; it
partakes of the nature of fraud."
This court has held that the "existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy
considerations."
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SECURITIES AND EXCHANGE COMMISSION, VS. SUBIC BAY GOLF

AND COUNTRY CLUB, INC.
G.R. No. 179047 March 11, 2015
Intra-corporate controversies, previously under the Securities and Exchange

Commission's jurisdiction, are now under the jurisdiction of Regional Trial
Courts designated as commercial courts. However, the transfer of jurisdiction
to the trial courts does not oust the Securities and Exchange Commission of
its jurisdiction to determine if administrative rules and regulations were
violated.
For a dispute to be "intra-corporate," it must satisfy the relationship and

nature of controversy tests.
The relationship test requires that the dispute be between a

corporation/partnership/association and the public; a
corporation/partnership/association and the state regarding the entity's
franchise, permit, or license to operate; a
corporation/partnership/association and its stockholders, partners,
members, or officers; and among stockholders, partners, or associates of
the entity. The nature of the controversy test requires that the action involves
the enforcement of corporate rights and obligations.
The controversy must not only be rooted in the existence of an intra-

corporate relationship, but must as well pertain to the enforcement of the
parties' correlative rights and obligations under the Corporation Code and
the internal and intra-corporate regulatory rules of the corporation. In other
words, jurisdiction should be determined by considering both the relationship
of the parties as well as the nature of the question involved.
The Securities and Exchange Commission is organized in line with the policy
of encouraging and protecting investments. It also administers the Securities
Regulation Code, which was enacted to "promote the development of the
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PROF. E.H. BALMES
capital market, protect investors, ensure full and fair disclosure about
securities, and minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create distortions in
the free market." Pursuant to these policies, the Securities and Exchange
Commission is given regulatory powers and "absolute jurisdiction,
supervision and control over all corporations, partnerships' or associations.
In relation to securities, the Securities and Exchange Commission's

regulatory power pertains to the approval and rejection, and suspension or
revocation, of applications for registration of securities.
To ensure compliance with the law and the rules, the Securities and
Exchange Commission is also given the power to impose fines and penalties.
It may also investigate motu proprio whether corporations comply with the
Corporation Code, Securities Regulation Code, and rules implemented by the
Securities and Exchange Commission.
The Securities and Exchange Commission's approval of securities

registrations signals to the public that the securities are valid. It provides the
public with basis for relying on the representations of corporations that issue
securities or financial instruments.
Any fraud or misrepresentation in the issuance of securities injures the

public. The Securities and Exchange Commission's power to suspend or
revoke registrations and to impose fines and other penalties provides the
public with a certain level of assurance that the securities contain
representations that are true, and that misrepresentations if later found,
would be detrimental to the erring corporation. It creates risks to
corporations that issue securities and adds cost to errors,
misrepresentations, and violations related to the issuance of those securities.
This protects the public who will rely on representations of corporations and
partnerships regarding financial instruments that they issue. The Securities
and Exchange Commission's regulatory power over securities-related
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activities is tied to the government's duty to protect the investing public from
illegal and fraudulent instruments.
However, the Securities and Exchange Commission's regulatory power does

not include the authority to order the refund of the purchase price of
Villareal's and Filart's shares in the golf club. The issue of refund is intra-
corporate or civil in nature. Similar to issues such as the existence or
inexistence of appraisal rights, pre-emptive rights, and the right to inspect
books and corporate records, the issue of refund is an intra-corporate
dispute that requires the court to determine and adjudicate the parties' rights
based on law or contract. Injuries, rights, and obligations involved in intra-
corporate disputes are specific to the parties involved. They do not affect
the Securities and Exchange Commission or the public directly.
The implementing rules cannot be interpreted to give the Securities and

Exchange Commission the power that is more than what is provided under
the Securities Regulation Code. Implementing rules are limited by the laws
they implement. The rules cannot be used to amend, expand, or modify the
law being implemented. The law shall prevail in case of inconsistency
between the law and the rules.
The power to promulgate rules in the implementation of a statute is

necessarily limited to what is provided for in the legislative enactment. Its
terms must be followed for an administrative agency cannot amend an Act
of Congress. "The rule-making power must be confined to details for
regulating the mode or proceedings to carry into effect the law as it has been
enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute." If a
discrepancy occurs between the basic law and an implementing rule or
regulation, it is the former that prevails.
The rule-making power of a public administrative body is a delegated

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PROF. E.H. BALMES
legislative power, which it may not use either to abridge the authority given
it by Congress or the Constitution or to enlarge its power beyond the scope
intended. Constitutional and statutory provisions control what rules and
regulations may be promulgated by such a body, as well as with respect to
what fields are subject to regulation by it. It may not make rules and
regulations which are inconsistent with the provisions of the Constitution or
a statute, particularly the statute it is administering or which created it, or
which are in derogation of, or defeat, the purpose of a statute.
Moreover, where the legislature has delegated to an executive or

administrative officers and boards authority to promulgate rules to carry out
an express legislative purpose, the rules of administrative officers and
boards, which have the effect of extending, or which conflict with the
authority-granting statute, do not represent a valid exercise of the rule-
nrnking power but constitute an attempt by an administrative body to
legislate. "A statutory grant of powers should not be extended by implication
beyond what may be necessary for their just and reasonable execution." It
is axiomatic that a rule or regulation must bear upon, and be consistent with,
the provisions of the enabling statute if such rule or regulation is to be valid.
METROPOLITAN BANK AND TRUST COMPANY, VS. S.F. NAGUIAT

ENTERPRISES, INC.
G.R. No. 178407 March 18, 2015
This case calls for the determination of whether the approval and consent of
the insolvency court is required under Act No. 1956, otherwise known as the
Insolvency Law, before a secured creditor like petitioner Metropolitan Bank
and Trust Company can proceed with the extrajudicial foreclosure of the
mortgaged property.
A look at the historical background of the laws governing insolvency in this

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country will be helpful in resolving the questions presented before us.
The first insolvency law, Act No. 1956, was enacted on May 20, 1909. It was
derived from the Insolvency Act of California (1895), with a few provisions
taken from the United States Bankruptcy Act of 1898. Act No. 1956 was
entitled "An Act Providing for the Suspension of Payments, the Relief of
Insolvent Debtors, the Protection of Creditors, and the Punishment of
Fraudulent Debtors."
The remedies under the law were through a suspension of payment (for a
debtor who was solvent but illiquid) or a discharge from debts and liabilities
through the voluntary or involuntary insolvency proceedings (for a debtor
who was insolvent).
The objective of suspension of payments is the deferment of the payment

of debts until such time as the debtor, which possesses sufficient property
to cover all its debts, is able to convert such assets into cash or otherwise
acquires the cash necessary to pay its debts. On the other hand, the
objective in insolvency proceedings is "to effect an equitable distribution of
the bankrupt's properties among his creditors and to benefit the debtor by
discharging him from his liabilities and enabling him to start afresh with the
property set apart for him as exempt."
It is the policy of Act No. 1956 to place all the assets and liabilities of the
insolvent debtor completely within the jurisdiction and control of the
insolvency court without the intervention of any other court in the insolvent
debtor's concerns or in the administration of the estate. It was considered
to be of prime importance that the insolvency proceedings follow their course
as speedily as possible in order that a discharge, if the insolvent debtor is
entitled to it, should be decreed without unreasonable delay. "Proceedings
of [this] nature cannot proceed properly or with due dispatch unless they
are controlled absolutely by the court having charge thereof."
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In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902-
A, the Securities and Exchange Commission charter. Under its terms,
jurisdiction regarding corporations that sought suspension of payments
process was taken away from the regular courts and given to the Securities
and Exchange Commission. In addition, an alternative to suspension of
payments — rehabilitation — was introduced. It enables a corporation whose
assets are not sufficient to cover its liabilities to apply to the Securities and
Exchange Commission for the appointment of a rehabilitation receiver and/or
management committee[ and then to develop a rehabilitation plan with a
view to rejuvenating a financially distressed corporation. However, the
procedure to avail of the remedy was not spelled out until 20 years later
when the Securities and Exchange Commission finally adopted the Rules of
Procedure on Corporate Recovery on January 4, 2000.
Shortly thereafter, with the passage of Republic Act No. 8799 or The
Securities Regulation Code on July 19, 2000, jurisdiction over corporation
rehabilitation cases was reverted to the Regional Trial Courts designated as
commercial courts or rehabilitation courts. This legal development was
implemented by the Interim Rules of Procedure on Corporate Rehabilitation
(made effective in December 2000), which was later replaced by A.M. 00-8-
10-SC or the Rules of Procedure on Corporate Rehabilitation of 2008.
Act No. 1956 continued to remain in force and effect until its express repeal
on July 18, 2010 when Republic Act No. 10142, otherwise known as the
Financial Rehabilitation and Insolvency Act of 2010, took effect. Republic Act
No. 10142 now provides for court proceedings in the rehabilitation or
liquidation of debtors, both juridical and natural persons, in a "timely, fair,
transparent, effective and efficient" manner.
The purpose of insolvency proceedings is "to encourage debtors . . . and

their creditors to collectively and realistically resolve and adjust competing
claims and property rights" while "maintaining] certainty and predictability
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in commercial affairs, preserving] and maximizing] the value of the assets of

these debtors, recognizing] creditor rights and respecting] priority of claims,
and ensuring] equitable treatment of creditors who are similarly situated." It
has also been provided that whenever rehabilitation is no longer feasible, "it
is in the interest of the State to facilitate a speedy and orderly liquidation of
[the] debtors' assets and the settlement of their obligations."
Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of
the term, "insolvent":
SEC. 4. Definition of Terms. - As used in this Act, the term:
(p) Insolvent shall refer to the financial condition of a debtor

that is generally unable to pay its or his liabilities as they fall
due in the ordinary course of business or has liabilities that
are greater than its or his assets.
Republic Act No. 10142 also expressly categorizes different forms of debt
relief available to a corporate debtor in financial distress. These are out-of-
court restructuring agreements; pre-negotiated rehabilitation; court-
supervised rehabilitation; and liquidation (voluntary and involuntary).[ An
insolvent individual debtor can avail of suspension of payments, or
liquidation.
During liquidation proceedings, a secured creditor may waive its security or

lien, prove its claim, and share in the distribution of the assets of the debtor,
in which case it will be admitted as an unsecured creditor; or maintain its
rights under the security or lien.
Republic Act No. 10142 was to govern all petitions filed after it had taken
effect, and all further proceedings in pending insolvency, suspension of
payments, and rehabilitation cases, except when its application "would not
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PROF. E.H. BALMES
be feasible or would work injustice, in which event the procedures set forth
in prior laws and regulations shall apply."
The relevant proceedings in this case took place prior to Republic Act No.
10142; hence, the issue will be resolved according to the provisions of Act
No. 1956.
Act No. 1956 impliedly requires a secured creditor to ask the

permission of the insolvent court before said creditor can foreclose
the mortgaged property.
With the declaration of insolvency of the debtor, insolvency courts "obtain

full and complete jurisdiction over all property of the insolvent and of all
claims by and against [it.]" It follows that the insolvency court has exclusive
jurisdiction to deal with the property of the insolvent.
Consequently, after the mortgagor-debtor has been declared insolvent and

the insolvency court has acquired control of his estate, a mortgagee may
not, without the permission of the insolvency court, institute proceedings to
enforce its lien. In so doing, it would interfere with the insolvency court's
possession and orderly administration of the insolvent's properties.
Act No. 3135 is silent with respect to mortgaged properties that are
in custodia legis, such as the property in this case, which was placed under
the control and supervision of the insolvency court. This court has declared
that "[a] court which has control of such property, exercises exclusive
jurisdiction over the same, retains all incidents relative to the conduct of such
property. No court, except one having supervisory control or superior
jurisdiction in the premises, has a right to interfere with and change that
possession." The extrajudicial foreclosure and sale of the mortgaged
property of the debtor would clearly constitute an interference with the
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insolvency court's possession of the property.
ABS-CBN CORPORATION, PETITIONER, VS. FELIPE GOZON, et., al.

G.R. No. 195956 March 11, 2015
The main issue in this case is whether there is probable cause to charge
respondents with infringement under Republic Act No. 8293, otherwise
known as the Intellectual Property Code. The resolution of this issue requires
clarification of the concept of "copyrightable material" in relation to material
that is rebroadcast live as a news story. We are also asked to rule on whether
criminal prosecution for infringement of copyrightable material, such as live
rebroadcast, can be negated by good faith.
The news footage is copyrightable.
The Intellectual Property Code is clear about the rights afforded to authors
of various kinds of work. Under the Code, "works are protected by the sole
fact of their creation, irrespective of their mode or form of expression, as
well as of their content, quality and purpose." These include "[audio-visual
works and cinematographic works and works produced by a process
analogous to cinematography or any process for making audiovisual
recordings.”
Contrary to the old copyright law, the Intellectual Property Code does not
require registration of the work to fully recover in an infringement suit.
Nevertheless, both copyright laws provide that copyright for a work is
acquired by an intellectual creator from the moment of creation.
It is true that under Section 175 of the Intellectual Property Code, "news of
the day and other miscellaneous facts having the character of mere items of
press information" are considered unprotected subject matter. However, the
Code does not state that expression of the news of the day, particularly
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when it underwent a creative process, is not entitled to protection.
An idea or event must be distinguished from the expression of that idea or

event. An idea has been likened to a ghost in that it "must be spoken to a
little before it will explain itself." It is a concept that has eluded exact legal
definition. To get a better grasp of the idea/expression dichotomy, the
etymology of the term "idea" is traced:
There is no one legal definition of "idea" in this jurisdiction. The term "idea"
is mentioned only once in the Intellectual Property Code.
In Joaquin, Jr. v. Drilon, a television format (i.e., a dating show format) is

not copyrightable under Section 2 of Presidential Decree No. 49; it is a mere
concept:
Ideas can be either abstract or concrete. It is the concrete ideas that are
generally referred to as expression.
The copyright of a book on perspective, no matter how many drawings and

illustrations it may contain, gives no exclusive right to the modes of drawing
described, though they may never have been known or used before. By
publishing the book without getting a patent for the art, the latter is given
to the public.
As recognized by this court in Joaquin, television "involves a whole spectrum

of visuals and effects, video and audio." News coverage in television involves
framing shots, using images, graphics, and sound effects. It involves creative
process and originality. Television news footage is an expression of the news.
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.
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This court defined fair use as "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."
Determining fair use requires application of the four-factor test. Section 185
of the Intellectual Property Code lists four (4) factors to determine if there
was fair use of a copyrighted work:
a. The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit educational purposes;
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in relation to the

copyrighted work as a whole; and
d. The effect of the use upon the potential market for or value of the
copyrighted work.
The "transformative test" is generally used in reviewing the purpose and

character of the usage of the copyrighted work. This court must look into
whether the copy of the work adds "new expression, meaning or message"
to transform it into something else. "Meta-use" can also occur without
necessarily transforming the copyrighted work used.
Second, the nature of the copyrighted work is significant in deciding whether

its use was fair. If the nature of the work is more factual than creative, then
fair use will be weighed in favor of the user.
Third, the amount and substantiality of the portion used is important to

determine whether usage falls under fair use. An exact reproduction of a
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copyrighted work, compared to a small portion of it, can result in the

conclusion that its use is not fair.
Lastly, the effect of the use on the copyrighted work's market is also weighed
for or against the user. If this court finds that the use had or will have a
negative impact on the copyrighted work's market, then the use is deemed
unfair.
Infringement under the Intellectual Property Code is malum prohibitum. The

Intellectual Property Code is a special law. Copyright is a statutory creation.
Copyright, in the strict sense of the term, is purely a statutory right. It is a
new or independent right granted by the statute, and not simply a pre-
existing right regulated by the statute. Being a statutory grant, the rights are
only such as the statute confers, and may be obtained and enjoyed only with
respect to the subjects and by the persons, and on terms and conditions
specified in the statute. "An act which is declared malum prohibitum, malice
or criminal intent is completely immaterial."
The essence of intellectual piracy should be essayed in conceptual terms in

order to underscore its gravity by an appropriate understanding thereof.
Infringement of a copyright is a trespass on a private domain owned and
occupied by the owner of the copyright, and, therefore, protected by law,
and infringement of copyright, or piracy, which is a synonymous term in this
connection, consists in the doing by any person, without the consent of the
owner of the copyright, of anything the sole right to do which is conferred
by statute on the owner of the copyright.
In cases of infringement, copying alone is not what is prohibited. The copying

must produce an "injurious effect".
Copyright is not primarily about providing the strongest possible protection

for copyright owners so that they have the highest possible incentive to
create more works. The control given to copyright owners is only a means
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to an end: the promotion of knowledge and learning. Achieving that

underlying goal of copyright law also requires access to copyrighted works
and it requires permitting certain kinds of uses of copyrighted works without
the permission of the copyright owner. While a particular defendant may
appear to be deserving of criminal sanctions, the standard for determining
willfulness should be set with reference to the larger goals of copyright
embodied in the Constitution and the history of copyright in this country.
Intellectual property rights, such as copyright and the neighboring right

against rebroadcasting, establish an artificial and limited monopoly to reward
creativity. Without these legally enforceable rights, creators will have
extreme difficulty recovering their costs and capturing the surplus or profit
of their works as reflected in their markets. This, in turn, is based on the
theory that the possibility of gain due to creative work creates an incentive
which may improve efficiency or simply enhance consumer welfare or utility.
More creativity redounds to the public good.
An accused's participation in criminal acts involving violations of intellectual

property rights is the subject of allegation and proof. The showing that the
accused did the acts or contributed in a meaningful way in the commission
of the infringements is certainly different from the argument of lck of intent
or good faith. Active participation requires a showing of overt physical acts
or intention to commit such acts. Intent or good faith, on the other hand,
are inferences from acts proven to have been or not been committed.
Mere membership in the Board or being President per se does not mean
knowledge, approval, and participation in the act alleged as criminal. There
must be a showing of active participation, not simply a constructive one.
PHILIPPINE NATIONAL BANK, VS. CARMELITA S. SANTOS et., al.

G.R. No. 208293 December 10, 2014
The contractual relationship between banks and their depositors is governed

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by the Civil Code provisions on simple loan. Once a person makes a deposit
of his or her money to the bank, he or she is considered to have lent the
bank that money. The bank becomes his or her debtor, and he or she
becomes the creditor of the bank, which is obligated to pay him or her on
demand.
The default standard of diligence in the performance of obligations is

"diligence of a good father of a family."
"Diligence of a good father of a family" is the standard of diligence expected

of, among others, usufructuaries, passengers of common carriers, agents,
depositaries, pledgees, officious managers, and persons deemed by law as
responsible for the acts of others. "The diligence of a good father of a family
requires only that diligence which an ordinary prudent man would exercise
with regard to his own property."
Other industries, because of their nature, are bound by law to observe higher
standards of diligence. Common carriers, for example, must observe
"extraordinary diligence in the vigilance over the goods and for the safety of
[their] passengers" because it is considered a business affected with public
interest.
"Extraordinary diligence" with respect to passenger safety is further qualified

as "carrying 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."
Similar to common carriers, banking is a business that is impressed with

public interest. It affects economies and plays a significant role in businesses
and commerce The public reposes its faith and confidence upon banks, such
that "even the humble wage-earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him." This is why we have recognized
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the fiduciary nature of the banks' functions, and attached a special standard
of diligence for the exercise of their functions.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions.
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The
General Banking Law, thus:
SEC. 2. Declaration of Policy. — The State 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 that requires high standards of
integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking
and financial system that is globally competitive, dynamic
and responsive to the demands of a developing economy.
This fiduciary relationship means that the bank's obligation to observe "high
standards of integrity and performance" is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family.
Petitioners PNB and Aguilar disregarded their own requirements for the
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release of the deposit to persons claiming to be heirs of a deceased

depositor. When respondents asked for the release of Angel C. Santos'
deposit, they were required to present the following: "(1) original or certified
true copy of the Death Certificate of Angel C. Santos; (2) certificate of
payment of, or exemption from, estate tax issued by the Bureau of Internal
Revenue (BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher's Affidavit
of publication of the Deed of Extrajudicial Settlement; and (5) Surety bond
effective for two (2) years and in an amount equal to the balance of the
deposit to be withdrawn."
Petitioners PNB and Aguilar, however, accepted Manimbo's representations,

and they released Angel C. Santos' deposit based on only the following
documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos executed in favor of

Bernardito Manimbo and Angel P. Santos;
6. Personal items of Angel C. Santos, such as photocopies or originals of

passport, residence certificate for year 1990, SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306.
Based on these enumerations, petitioners PNB and Aguilar either have no

fixed standards for the release of their deceased clients' deposits or they
have standards that they disregard for convenience, favor, or upon exercise
of discretion. Both are inconsistent with the required diligence of banks.
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These threaten the safety of the depositors' accounts as they provide

avenues for fraudulent practices by third persons or by bank officers
themselves.
In this case, petitioners PNB and Aguilar released Angel C. Santos' deposit
to Manimbo without having been presented the BIR-issued certificate of
payment of, or exception from, estate tax. This is a legal requirement before
the deposit of a decedent is released.
Presidential Decree No. 1158, the tax code applicable when Angel C. Santos
died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of

shares, bonds, or rights. — There shall not be transferred to
any new owner in the books of any corporation, sociedad
anonima, partnership, business, or industry organized or
established in the Philippines, any shares, obligations, bonds
or rights by way of gift inter vivos or mortis causa, legacy,
or inheritance unless a certification from the Commissioner
that the taxes fixed in this Title and due thereon have been
paid is shown.
If a bank has knowledge of the death of a person who

maintained a hank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that
the taxes imposed thereon by this Title have been paid;
Provided, however, That the administrator of the estate or
any one of the heirs of the decedent may upon authorization
by the Commissioner of Internal Revenue, withdraw an
amount not exceeding P10,000 without the said certification.
For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are
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still living at the time of withdrawal by any one of the joint

depositors and such statement shall be under oath by the
said depositors.
Taxes are created primarily to generate revenues for the maintenance of the
government. However, this particular tax may also serve as guard against
the release of deposits to persons who have no sufficient and valid claim
over the deposits. Based on the assumption that only those with sufficient
and valid claim to the deposit will pay the taxes for it, requiring the certificate
from the BIR increases the chance that the deposit will be released only to
them.
Given the circumstances, "diligence of a good father of a family" would have

required petitioners PNB and Aguilar to verify. A prudent man would have
inquired why Reyme L. Santos would issue an affidavit of self-adjudication
when others had also claimed to be heirs of Angel C. Santos.
Petitioner PNB is a bank from which a degree of diligence higher than that
of a good father of a family is expected. Petitioner PNB and its manager,
petitioner Aguilar, failed to meet even the standard of diligence of a good
father of a family. Their actions and inactions constitute gross negligence. It
is for this reason that we sustain the trial court's and the Court of Appeals'
rulings that petitioners PNB and Aguilar are solidarity liable with each other.
"The bank's negligence was the result of lack of due care and caution
required of managers and employees of a firm engaged in so sensitive and
demanding business as banking."
Exemplary damages should also be awarded. "The law allows the grant of
exemplary damages by way of example for the public good. The public relies
on the banks' sworn profession of diligence and meticulousness in giving
irreproachable service. The level of meticulousness must be maintained at
all times by the banking sector."
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Since exemplary damages are awarded and since respondents were

compelled to litigate to protect their interests, the award of attorney's fees
is also proper.
GERARDO LANUZA, JR. AND ANTONIO O. OLBES, VS. BF

CORPORATION, et., al
G.R. No. 174938 October 1, 2014
Corporate representatives may be compelled to submit to arbitration

proceedings pursuant to a contract entered into by the corporation they
represent if there are allegations of bad faith or malice in their acts
representing the corporation.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the

parties to avoid litigation and settle disputes amicably and more
expeditiously by themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code, which
was approved as early as 1949. It was later institutionalized by the approval
of Republic Act No. 876 which expressly authorized, made valid, enforceable,
and irrevocable parties' decision to submit their controversies, including
incidental issues, to arbitration.
In view of our policy to adopt arbitration as a manner of settling disputes,

arbitration clauses are liberally construed to favor arbitration. Being an
inexpensive, speedy and amicable method of settling disputes, arbitration —
along with mediation, conciliation and negotiation — is encouraged by the
Supreme Court. Aside from unclogging judicial dockets, arbitration also
hastens the resolution of disputes, especially of the commercial kind. It is
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thus regarded as the "wave of the future" in international civil and

commercial disputes. Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging

alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible of
an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in favor
of arbitration.[(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and

to favor interpretations that would render effective an arbitration clause was
later expressed in Republic Act No. 9285:
SEC. 2. Declaration of Policy. - It is hereby declared the

policy of the State to actively promote party autonomy in
the resolution of disputes, or the freedom of the party to
make their own arrangements to resolve their
disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve
speedy and impartial justice and declog court
dockets. As such, the State shall provide means for the use
of ADR as an efficient tool and an alternative procedure for
the resolution of appropriate cases. Likewise, the State shall
enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice to
the adoption by the Supreme Court of any ADR system, such
as mediation, conciliation, arbitration, or any combination
thereof as a means of achieving speedy and efficient means
of resolving cases pending before all courts in the Philippines
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which shall be governed by such rules as the Supreme Court

may approve from time to time.
. . . .
SEC. 25. Interpretation of the Act. - In interpreting the
Act, the court shall have due regard to the policy of
the law in favor of arbitration. Where action is
commenced by or against multiple parties, one or more of
whom are parties who are bound by the arbitration
agreement although the civil action may continue as to those
who are not bound by such arbitration agreement.
(Emphasis supplied)
Thus, if there is an interpretation that would render effective an arbitration

clause for purposes of avoiding litigation and expediting resolution of the
dispute, that interpretation shall be adopted.
Petitioners' main argument arises from the separate personality given to

juridical persons vis-a-vis their directors, officers, stockholders, and agents.
Since they did not sign the arbitration agreement in any capacity, they
cannot be forced to submit to the jurisdiction of the Arbitration Tribunal in
accordance with the arbitration agreement. Moreover, they had already
resigned as directors of Shangri-La at the time of the alleged default.
A corporation is an artificial entity created by fiction of law. This means that

while it is not a person, naturally, the law gives it a distinct personality and
treats it as such. A corporation, in the legal sense, is an individual with a
personality that is distinct and separate from other persons including its
stockholders, officers, directors, representatives, and other juridical entities.
The law vests in corporations rights, powers, and attributes as if they were
natural persons with physical existence and capabilities to act on their own.
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Because a corporation's existence is only by fiction of law, it can only exercise

its rights and powers through its directors, officers, or agents, who are all
natural persons. A corporation cannot sue or enter into contracts without
them.
A consequence of a corporation's separate personality is that consent by a

corporation through its representatives is not consent of the representative,
personally. Its obligations, incurred through official acts of its
representatives, are its own.
A submission to arbitration is a contract. As such, the Agreement, containing

the stipulation on arbitration, binds the parties thereto, as well as their
assigns and heirs. But only they.
Hence, when the directors, as in this case, are impleaded in a case against
a corporation, alleging malice or bad faith on their part in directing the affairs
of the corporation, complainants are effectively alleging that the directors
and the corporation are not acting as separate entities. They are alleging
that the acts or omissions by the corporation that violated their rights are
also the directors' acts or omissions. They are alleging that contracts
executed by the corporation are contracts executed by the directors.
Complainants effectively pray that the corporate veil be pierced because the
cause of action between the corporation and the directors is the same.
ALFREDO L. VILLAMOR, JR. VS. JOHN S. UMALE, IN

SUBSTITUTION OF HERNANDO F. BALMORES
G.R. No. 172843 September 24, 2014
A derivative suit is an action filed by stockholders to enforce a corporate

action. It is an exception to the general rule that the corporation's power to
sue is exercised only by the board of directors or trustees.
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Individual stockholders may be allowed to sue on behalf of the corporation

whenever the directors or officers of the corporation refuse to sue to
vindicate the rights of the corporation or are the ones to be sued and are in
control of the corporation. In derivative suits, the real party in interest is the
corporation, and the suing stockholder is a mere nominal party.
The Court has recognized that a stockholder's right to institute a derivative

suit is not based on any express provision of the Corporation Code, or even
the Securities Regulation Code, but is impliedly recognized when the said
laws make corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties. In
effect, the suit is an action for specific performance of an obligation, owed
by the corporation to the stockholders, to assist its rights of action when the
corporation has been put in default by the wrongful refusal of the directors
or management to adopt suitable measures for its protection.
Not only is the corporation an indispensible party, but it is also the present
rule that it must be served with process. The reason given is that 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 a 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
judicata against it.
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a

corporation has no title legal or equitable to the corporate property; that
both of. these are in the corporation itself for the benefit of the
stockholders." In other words, to allow shareholders to sue separately
would conflict with the separate corporate entity principle;
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(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that 'the
stockholders may not directly claim those damages for themselves for
that would result in the appropriation by, and the distribution among
them of part of the corporate assets before the dissolution of the
corporation and the liquidation of its debts and liabilities, something
which cannot be legally done in view of Section 16 of the Corporation
Law. . .";
(3) the filing of such suits would conflict with the duty of the management
to sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in ascertaining the effect of partial recovery
by an individual on the damages recoverable by the corporation for the
same act.
While it is true that the basis for allowing stockholders to file derivative suits
on behalf of corporations is based on equity, the above legal requisites for
its filing must necessarily be complied with for its institution.
.A wrong to the corporation does not necessarily create an individual cause

of action. "A cause of action is the act or omission by which a party violates
the right of another." A cause of action must pertain to complainant if he or
she is to be entitled to the reliefs sought.
A corporation may be placed under receivership, or management committees

may be created to preserve properties involved in a suit and to protect the
rights of the parties under the control and supervision of the
court. Management committees and receivers are appointed when the
corporation is in imminent danger of "(1) [dissipation, loss, wastage or
destruction of assets or other properties; and (2) [p]aralysation of its
business operations that may be prejudicial to' the interest of the minority
stockholders, parties-litigants, or the general public."
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Applicants for the appointment of a receiver or management committee need

to establish the confluence of these two requisites. This is because appointed
receivers and management committees will immediately take over the
management of the corporation and will have the management powers
specified in law.
The Court of Appeals has no power to appoint a receiver or management

committee. The Regional Trial Court has original and exclusive jurisdiction to
hear and decide intra-corporate controversies, including incidents of such
controversies. These incidents include applications for the appointment of
receivers or management committees.
PEOPLE’S TRANS-EAST ASIA INSURANCE CORPORATION, A.K.A.

PEOPLE'S GENERAL INSURANCE CORPORATION, VS. DOCTORS OF
NEW MILLENNIUM HOLDINGS, INC.,
G.R. No. 172404 August 13, 2014
The liabilities of an insurer under the surety bond are not extinguished when
the modifications in the principal contract do not substantially or materially
alter the principal’s obligations. The surety is jointly and severally liable with
its principal when the latter defaults from its obligations under the principal
contract.
The principal contract of the suretyship is the signed agreement

The obligations of the surety to the principal under the surety bond are
different from the obligations of the contractor to the client under the
principal contract. The surety guarantees the performance of the
contractor’s obligations. Upon the contractor’s default, its client may
demand against the surety bond even if there was no privity of contract
between them. This is the essence of a surety agreement.
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A contract of suretyship is an 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 another party, called the obligee.
By its very nature, under the laws regulating suretyship, the liability of the
surety is joint and several but is limited to the amount of the bond, and its
terms are determined strictly by the terms of the contract of suretyship in
relation to the principal contract between the obligor and the obligee.
The surety is considered in law as possessed of the identity of the debtor in

relation to whatever is adjudged touching upon the obligation of the latter.
Their liabilities are so interwoven as to be inseparable. Although the contract
of suretyship is, in essence, secondary only to a valid principal obligation,
the surety’s liability to the creditor is direct, primary, and absolute; he
becomes liable for the debt and duty of another although he possesses no
direct or personal interest over the obligations nor does he receive any
benefit therefrom.
A suretyship consists of two different contracts: (1) the surety contract and
(2) the principal contract which it guarantees. Since the insurer’s liability is
strictly based only on the terms stated in the surety contract in relation to
the principal contract, any change in the principal contract, which materially
alters the principal’s obligations would, in effect, constitute an implied
novation of the surety contract:
A surety is released from its obligation when there is a material alteration of

the contract in connection with which the bond is given, such as a change
which imposes a new obligation on the promising party, or which takes away
some obligation already imposed, or one which changes the legal effect of
the original contract and not merely its form. A surety, however, is not
released by a change in the contract which does not have the effect of
making its obligation more onerous.
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ABOITIZ EQUITY VENTURES, INC., VS. VICTOR S. CHIONGBIAN,

BENJAMIN D. GOTHONG, AND CARLOS A. GOTHONG LINES, INC.
(CAGLI)
G.R. No. 197530 July 9, 2014
A corporation is an artificial entity 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 that of its stockholders and from that of other corporations
to which it may be connected. As a consequence of its status as a distinct
legal entity and as a result of a conscious policy decision to promote capital
formation, a corporation incurs its own liabilities and is legally responsible
for payment of its obligations. In other words, by virtue of the separate
juridical personality of a corporation, the corporate debt or credit is not the
debt or credit of the stockholder. This protection from liability for
shareholders is the principle of limited liability.
In fact, even the ownership by a single stockholder of all or nearly all the
capital stock of a corporation is not, in and of itself, a ground for disregarding
a corporation’s separate personality.
It is a settled precept in this jurisdiction that a corporation is invested by law

with a personality separate from that of its stockholders or members. It has
a personality separate and distinct from those of the persons composing it
as well as from that of any other 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 in itself sufficient ground for
disregarding the separate corporate personality. A corporation’s authority to
act and its liability for its actions are separate and apart from the individuals
who own it.
The so-called veil of corporation fiction treats as separate and distinct the
affairs of a corporation and its officers and stockholders. As a general rule,
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a corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. When the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the
law will regard the corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest of justice in such cases
as fraud that may work inequities among members of the corporation
internally, involving no rights of the public or third persons. In both
instances, there must have been fraud and proof of it. For the separate
juridical personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established. It cannot be presumed.
PRYCE CORPORATION, VS. CHINA BANKING CORPORATION

G.R. No. 172302 February 18, 2014
A petition for rehabilitation does not always result in the appointment of a

receiver or the creation of a management committee. The SEC has to initially
determine whether such appointment is appropriate and necessary under
the circumstances. Under Paragraph (d), Section 6 of Presidential Decree
No. 902-A, certain situations must be shown to exist before a management
committee may be created or appointed, such as:
1. when there is imminent danger of dissipation, loss, wastage or

destruction of assets or other properties; or
2. when there is paralization of business operations of such corporations or

entities which may be prejudicial to the interest of minority stockholders,
parties-litigants or to the general public.
On the other hand, receivers may be appointed whenever:
1. necessary in order to preserve the rights of the parties-litigants; and/or
2. protect the interest of the investing public and creditors. (Section 6 [c],
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PROF. E.H. BALMES
P.D. 902-A.)
These situations are rather serious in nature, requiring the appointment of a

management committee or a receiver to preserve the existing assets and
property of the corporation in order to protect the interests of its investors
and creditors. Thus, in such situations, suspension of actions for claims
against a corporation as provided in Paragraph (c) of Section 6, of
Presidential Decree No. 902-A is necessary, and here we borrow the words
of the late Justice Medialdea, “so as not to render the SEC management
Committee irrelevant and inutile and to give it unhampered ‘rescue efforts’
over the distressed firm”
Otherwise, when such circumstances are not obtaining or when the SEC finds
no such imminent danger of losing the corporate assets, a management
committee or rehabilitation receiver need not be appointed and suspension
of actions for claims may not be ordered by the SEC. When the SEC does
not deem it necessary to appoint a receiver or to create a management
committee, it may be assumed, that there are sufficient assets to sustain the
rehabilitation plan, and that the creditors and investors are amply protected.
However, this case had been promulgated prior to the effectivity of the
Interim Rules that took effect on December 15, 2000.
Section 6 of the Interim Rules states explicitly that “[i]f the court finds the
petition to be sufficient in form and substance, it shall, not later than five (5)
days from the filing of the petition, issue an Order (a) appointing a
Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all
claims x x x.”
Nowhere in the Interim Rules does it require a comprehensive discussion in

the stay order on the court’s findings of sufficiency in form and substance.
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PROF. E.H. BALMES
The stay order and appointment of a rehabilitation receiver dated July 13,
2004 is an “extraordinary, preliminary, ex parte remedy.”
The effectivity period of a stay order is only “from the date of its issuance
until dismissal of the petition or termination of the rehabilitation
proceedings.” It is not a final disposition of the case. It is an interlocutory
order defined as one that “does not finally dispose of the case, and does not
end the Court’s task of adjudicating the parties’ contentions and determining
their rights and liabilities as regards each other, but obviously indicates that
other things remain to be done by the Court.”
Thus, it is not covered by the requirement under the Constitution that a
decision must include a discussion of the facts and laws on which it is based.
Neither does the Interim Rules require a hearing before the issuance of a
stay order. What it requires is an initial hearing before it can give due course
to or dismiss a petition.
Nevertheless, while the Interim Rules does not require the holding of a
hearing before the issuance of a stay order, neither does it prohibit the
holding of one. Thus, the trial court has ample discretion to call a hearing
when it is not confident that the allegations in the petition are sufficient in
form and substance, for so long as this hearing is held within the five (5)-
day period from the filing of the petition — the period within which a stay
order may issue as provided in the Interim Rules.
One of the important objectives of the Interim Rules is “to promote a speedy
disposition of corporate rehabilitation cases.
The Proposed Rules remove the concept of the Interim Receiver and replace
it with a rehabilitation receiver. This is to justify the immediate issuance of
the stay order because under Presidential Decree No. 902-A, as amended,
the suspension of actions takes effect only upon appointment of the
rehabilitation receiver.
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PROF. E.H. BALMES
Successful rehabilitation of a distressed corporation will benefit its debtors,

creditors, employees, and the economy in general. The court may approve
a rehabilitation plan even 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. The rehabilitation plan, once approved, is binding upon the
debtor and all persons who may be affected by it, including the creditors,
whether or not such persons have participated in the proceedings or have
opposed the plan or whether or not their claims have been scheduled.
Corporate rehabilitation is one of many statutorily provided remedies for

businesses that experience a downturn. Rather than leave the various
creditors unprotected, legislation now provides for an orderly procedure of
equitably and fairly addressing their concerns. Corporate rehabilitation
allows a court-supervised process to rejuvenate a corporation. Its twin,
insolvency, provides for a system of liquidation and a procedure of equitably
settling various debts owed by an individual or a business. It provides a
corporation’s owners a sound chance to re-engage the market, hopefully
with more vigor and enlightened services, having learned from a painful
experience.
Necessarily, a business in the red and about to incur tremendous losses may
not be able to pay all its creditors. Rather than leave it to the strongest or
most resourceful amongst all of them, the state steps in to equitably
distribute the corporation’s limited resources.
The cram-down principle adopted by the Interim Rules does, in effect, dilute
contracts. When it permits the approval of a rehabilitation plan even over
the opposition of creditors, or when it imposes a binding effect of the
approved plan on all parties including those who did not participate in the
proceedings, the burden of loss is shifted to the creditors to allow the
corporation to rehabilitate itself from insolvency.
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PROF. E.H. BALMES
Rather than let struggling corporations slip and vanish, the better option is
to allow commercial courts to come in and apply the process for corporate
rehabilitation.
This option is preferred so as to avoid what Garrett Hardin called the Tragedy
of Commons. Here, Hardin submits that “coercive government regulation is
necessary to prevent the degradation of common-pool resources since
individual resource appropriators receive the full benefit of their use and bear
only a share of their cost.”
By analogy to the game theory, this is the prisoner’s dilemma: “Since no

individual has the right to control or exclude others, each appropriator has a
very high discount rate [with] little incentive to efficiently manage the
resource in order to guarantee future use.”
Thus, the cure is an exogenous policy to equitably distribute scarce

resources. This will incentivize future creditors to continue lending, resulting
in something productive rather than resulting in nothing.
In fact, these corporations exist within a market. The General Theory of

Second Best holds that “correction for one market imperfection will not
necessarily be efficiency-enhancing unless there is also simultaneous
correction for all other market imperfections.” The correction of one market
imperfection may adversely affect market efficiency elsewhere, for instance,
“a contract rule that corrects for an imperfection in the market for consensual
agreements may at the same time induce welfare losses elsewhere.”
This theory is one justification for the passing of corporate rehabilitation laws
allowing the suspension of payments so that corporations can get back on
their feet.
As in all markets, the environment is never guaranteed. There are always

120

PROF. E.H. BALMES
risks. Contracts are indeed sacred as the law between the parties. However,
these contracts exist within a society where nothing is risk-free, and the
government is constantly being called to attend to the realities of the times.
Corporate rehabilitation is preferred for addressing social costs. Allowing the

corporation room to get back on its feet will retain if not increase
employment opportunities for the market as a whole. Indirectly, the services
offered by the corporation will also benefit the market as “the fundamental
impulse that sets and keeps the capitalist engine in motion comes from [the
constant entry of new consumers’ goods, the new methods of production or
transportation, the new markets, and the new forms of industrial
organization that capitalist enterprise creates.”
*****
I was with Moses, so I will be with you.

I will not leave you nor forsake you.
JOSHUA 1:5
NO HONEST EFFORTS ARE EVER WASTED IF DONE AND OFFERED

FOR THE GREATER GLORY OF GOD!
TO EULO whose kakulitan made doing this handout more

enjoyable! Here’s to more collab in the future Anak! 

ALL RIGHTS RESERVED
JULY 26, 2021, BATANGAS CITY
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IS NOW OUT VIA CENTRAL BOOKSTORE
www.central.com.ph
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ETHICS 300!
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Ad Majorem DEI Gloriam
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