Trust Receipts Law: People of The Philippines, G.R. No. 195117, August

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conclusively prove that the transaction was, indeed,

Trust Receipts Law a trust receipts transaction. In contrast to the
nomenclature of the transaction, the parties really
1. S Corp. obtained letters of credit from M intended a contract of loan. It has been ruled that
Bank to cover its purchase of construction the fact that the entruster bank knew even before
materials. M Bank required HTY, the execution of the trust receipt agreements that
representative of S Corp. to sign 24 trust the construction materials covered were never
receipts as security for the construction intended by the entrustee for resale or for the
materials and to hold those materials or manufacture of items to be sold is sufficient to
the proceeds of the sales in trust for M prove that the transaction was a simple loan and
Bank to the extent of the amount stated in not a trust receipts transaction. [Hur Tin Yang v.
the trust receipts. S Corp. defaulted thus M People of the Philippines,G.R. No. 195117, August
Bank filed a criminal action against HTY for 14, 2013]
estafa. Can HTY be held liable for estafa
under the trust receipts law? 2. Spouses dela Cruz was in the business of
selling fertilizers and agricultural products,
No. A trust receipt transaction is one where the for which they were granted a credit line by
entrustee has the obligation to deliver to the PPI, and to secure it, trust receipts were
entruster the price of the sale, or if the issued covering the goods to be paid for by
merchandise is not sold, to return the merchandise using the credit line. The trust receipts
to the entruster. There are, therefore, two contained the following: “In the event,
obligations in a trust receipt transaction: the first I/We cannot deliver/serve to the farmer-
refers to money received under the obligation participants all the inputs as enumerated
involving the duty to turn it over (entregarla) to the above within 60 days, then I/We agree that
owner of the merchandise sold, while the second the undelivered inputs will be charged to
refers to the merchandise received under the my/our credit line, in which case, the
obligation to “return” it (devolvera) to the owner. corresponding adjustment of price and
When both parties enter into an agreement interests shall be made by PPI.” Is there a
knowing fully well that the return of the goods trust receipt transaction?
subject of the trust receipt is not possible even
without any fault on the part of the trustee, it is not No. The contract, its label notwithstanding, was not
a trust receipt transaction penalized under Sec. 13 a trust receipt transaction in legal contemplation or
of PD 115 in relation to Art. 315, par. 1(b) of the within the purview of the Trust Receipts Law such
RPC, as the only obligation actually agreed upon by that its breach would render the Spouses criminally
the parties would be the return of the proceeds of liable for estafa. Under Section 4 of the Trust
the sale transaction. This transaction becomes a Receipts Law, the sale of goods by a person in the
mere loan, where the borrower is obligated to pay business of selling goods for profit who, at the
the bank the amount spent for the purchase of the outset of the transaction, has, as against the buyer,
goods. In this case, the dealing between HTY and M general property rights in such goods, or who sells
Bank was not a trust receipt transaction but one of the goods to the buyer on credit, retaining title or
simple loan. HTY’s admission––that he signed the other interest as security for the payment of the
trust receipts on behalf of S Corp., which failed to purchase price, does not constitute a trust receipt
pay the loan or turn over the proceeds of the sale transaction and is outside the purview and
or the goods to M Bank upon demand––does not coverage of the law. The sale of goods, documents
Starr Weigand 2014 2013 & 2014 Q and A|Commercial Law

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or instruments by a person in the business of selling Negotiable Instruments Law
goods, documents or instruments for profit who, at
the outset of the transaction, has, as against the 1. W was accused of estafa for using a bum
buyer, general property rights in such goods, check to defraud another person. The
documents or instruments, or who sells the same to check he issued was payable to cash. Can
the buyer on credit, retaining title or other interest he be held liable for estafa?
as security for the payment of the purchase price,
does not constitute a trust receipt transaction and No. The check delivered was made payable to cash.
is outside the purview and coverage of this Decree. Under the Negotiable Instruments Law, this type of
When both parties enter into an agreement check was payable to the bearer and could be
knowing that the return of the goods subject of the negotiated by mere delivery without the need of an
trust receipt is not possible even without any fault indorsement. This rendered it highly probable that
on the part of the trustee, it is not a trust receipt W had issued the check not to the person allegedly
transaction penalized under Section 13 of P.D. 115; defrauded, but to somebody else, who then
the only obligation actually agreed upon by the negotiated it to another. Relevantly, the person
parties would be the return of the proceeds of the allegedly defrauded confirmed that he did not
sale transaction. This transaction becomes a mere himself see or meet W at the time of the
loan, where the borrower is obligated to pay the transaction and thereafter, and expressly stated
bank the amount spent for the purchase of the that the person who signed for and received the
goods. [Spouses Dela Cruz v. Planters Products, Inc., goods in exchange for the check was someone else.
GR No. 158649, February 18, 2013]
It bears stressing that the accused, to be guilty of
estafa as charged, must have used the check in
order to defraud the complainant. What the law
punishes is the fraud or deceit, not the mere
issuance of the worthless check. W could not be
held guilty of estafa simply because he had issued
the check used to defraud a person. The proof of
guilt must still clearly show that it had been W as
the drawer who had defrauded a person by means
of the check. [People of the Philippines v. Gilbert
Reyes Wagas, G.R. No. 157943, September 4, 2013]
2. A postdated check with the date October 9,

2003 was issued, drawn against an account
of S with BPI, presented for deposit with
ABank, on October 10, 2002. Upon
presentment, the check was sent to the
PCHC. It was cleared by BPI and its amount
was debited from the account of S, and
credited to the account of the payee. The
account of S was closed, but he asked for
the return of the amount of the check,
which BPI agreed to. When BPI sent a

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photocopy of the check to ABank saying it was defendant’s failure to exercise such ordinary
was postdated, ABank refused to accept it. care, having the last clear chance to avoid loss or
After the check was sent back and forth injury, which was the proximate cause of the
between the two banks, ABank filed a occurrence of such loss or injury. If only BPI
complaint saying BPI should solely bear the exercised ordinary care in the clearing process, it
loss. Is ABank correct? could have easily noticed the glaring defect upon
seeing the date written on the face of the check
No. ABank and BPI should both bear the loss by "Oct. 9, 2003". BPI could have then promptly
allocating the damage on a 60-40 ratio. In light of returned the check and with the check thus
the contributory negligence of BPI, it should bear dishonored, ABank would have not credited the
40% of the loss, but ABank should bear 60%. amount thereof to the payee’s account. Thus,
"Contributory negligence is conduct on the part of notwithstanding the antecedent negligence of the
the injured party, contributing as a legal cause to ABank in accepting the post-dated check for
the harm he has suffered, which falls below the deposit, it can seek reimbursement from BPI in the
standard to which he is required to conform for his amount credited to the payee’s account covering
own protection." Admittedly, ABank’s acceptance the check. [Allied Banking Corporation v. Bank of
of the subject check for deposit despite the one the Philippine Islands, GR No. 188363, 27 February
year postdate written on its face was a clear 2013]
violation of established banking regulations and
practices. In such instances, payment should be
refused by the drawee bank and returned through
the PCHC within the 24-hour reglementary period.
Abank’s failure to comply with this basic policy
regarding post-dated checks was "a telling sign of
its lack of due diligence in handling checks coursed
through it." It bears stressing that "the diligence
required of banks is more than that of a Roman
paterfamilias or a good father of a family. The
highest degree of diligence is expected,"
considering the nature of the banking business that
is imbued with public interest. While it is true that
respondent's liability for its negligent clearing of the
check is greater, petitioner cannot take lightly its
own violation of the long-standing rule against
encashment of post-dated checks and the injurious
consequences of allowing such checks into the
clearing system.
The antecedent negligence of the plaintiff does not

preclude him from recovering damages caused by
the supervening negligence of the defendant, who
had the last fair chance to prevent the impending
harm by the exercise of due diligence. Moreover, in
situations where the doctrine has been applied, it

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Corporation Law “Metro Manila” is no longer considered a

city or municipality.
1. What are the current rules on principal 2. A corporation, however, is not precluded
office address of corporations and from filing an amended articles to indicate
partnerships? its new location within the same city or
municipality of its former address.
Previously, the SEC had allowed corporations and 3. In other cases, the corporation must file an
partnerships to indicate in their principal office amended articles of incorporation to
address only the name of the city, town, or indicate its new location in another city or
municipality where they conduct business, and municipality.
considered “Metro Manila” as a principal office 4. In the case of a partnership, considering
address. Thereafter, on 16 February 2006, the SEC that it has no obligation to file a GIS, it is
issued Memorandum Circular No. 3, series of 2006, required to file an amended articles of
directing corporations and partnerships whose partnership every time it transfers to a new
articles of incorporation or partnership still indicate location within the same or another city or
a general address as their principal office address, municipality.
such as a city, town or municipality, or “Metro 5. Failure of a corporation to do the above will
Manila”, to file, on or before 31 December 2014, make it liable for violation of Section 16 of
and amended articles of incorporation or the Corporation Code and to the payment of
partnership, in order to specify their complete fines imposed by the SEC.
addresses, such that it has a street number, street
name, barangay, city or municipality, and if [SEC Memorandum Circular No. 16, series of
applicable, the name of the building, the number of 2013]
the building, and the name or number of the room
or unit. 2. Can stockholders of a previously dissolved
corporation, whose shares are held in trust
To ease the burden imposed on corporations and by another new corporation, be considered
partnership by SEC Memorandum Circular No. 3, s. as individual subscribers of the latter
2006, the following guidelines should be observed corporation?
in the amendment of their articles in case they
transfer or move to another location: Yes. A holder or stockholder includes a person
holding stocks in trust, and trustees holding
1. In the event that a corporation whose corporate stock are regarded for all legal purposes
principal office address as indicated in its as stockholders. However, the rights of a beneficial
articles is already specific and complete, or owner will, of course, be recognized and protected
fully compliant with the Circulars, has in equity in proper cases. In other words, even
moved or moves to another location within where legal title to stock is vested in a certain
the same city or municipality, the person, equity will treat him as a trustee holding it
corporation is not required to amend its for the real and beneficial owners, in proper cases.
articles. It must, however, declare its new or Article 1455 of the Civil Code provides that when
current specific address in its General any trustee uses trust funds for the purchase of
Information Sheet (GIS) within 15 days from property and causes the conveyance to be made to
transfer of its transfer. For this purpose, him or a third person, a trust is established by
operation of law in favor of the person to whom

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the funds belong. Moreover, a trustee must not to issue. However, there must first be an
make investments of funds in their own names but indebtedness incurred in order that a liability may
always indicate that they are made in trust be converted into subscription payment.
capacities. Thus, the trustee merely acts for the
stockholders whose stocks are held in trust, with In this connection, the following requirements are
the latter being the owners thereof. thus, they are to be submitted to the SEC:
individual subscribers of shares of stock. [SEC OGC 1. Detailed schedule of liabilities being offset,
Opinion No. 13-09, 2 September 2013] showing all debts and credit to such liability
account, date, nature of account and
amount.
3. F jr. filed an action against AT, a tabloid, for 2. Deed of assignment executed by the
publishing an article which was alleged to creditor(s] assigning the amount due to him
be libelous. AT, not being incorporated, in payment for the unpaid subscription(s].
argued that it cannot be sued since it is not 3. Company's book of accounts must be kept
a juridical person. Can AT be sued? up to date and be made available for
examination by the Commission to
AT can be sued for being a corporation by estoppel. determine that the liabilities represent valid
AT was a corporation by estoppel as the result of its and legitimate claims against the company.
having represented itself to the reading public as a 4. If the principal office of the corporation is
corporation despite its not being incorporated. The located in the province, a report by an
non-incorporation of AT with the Securities and independent certified public accountant
Exchange Commission was of no consequence, for, must be submitted.
otherwise, whoever of the public who would suffer [SEC OGC Opinion No. 13-03, 17 April 2013; SEC
any damage from the publication of articles in the Opinion, 2 October 1992; SEC Opinion, 24 February
pages of its tabloids would be left without recourse. 1988]
[Macasaet v. Francisco Co, Jr., G.R. No. 156759,
June 5, 2013] Such payment through previously incurred
indebtedness does not violate the stockholders’
4. Can previously incurred indebtedness be preemptive rights, so long the terms are on equal
used as payment for subscription of terms as with the owners of the original stocks. A
shares? pre-emptive right under Section 39 of the
Corporation Code refers to the right of a
Yes. Section 62 of the Corporation Code expressly stockholder of a stock corporation to subscribe to
allows a previously incurred indebtedness to be all issues or disposition of shares of any class, in
used as consideration for the issuance of stocks, proportion to their respective shareholdings, and
provided that the valuation of the indebtedness be on equal terms with other holders of the original
determined by the board of directors, subject to stocks, before subscriptions are received from the
approval of the SEC, in order to prevent watering of general public. Thus, if the payments by other
stocks. Watering of stocks is a situation wherein the persons or entities are in the form of conversion of
consideration for subscription is not a fair valuation the previously incurred indebtedness, while the
equal to the par or issue value of the stock. The payments of the other stockholders for their
amount of the indebtedness or liabilities to be subscriptions shall be in cash, it is still considered to
settled should be at least equal to the par value of be “on equal terms”. However, even when payment
the shares of stock which the corporation intends of the debt is in terms required to be made by the

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corporation in money or cash, a set-off of the debt in order to settle and close its affairs, including its
without going through this unnecessary formality is complete liquidation. Thus:
equivalent to a payment for the stock in cash. [SEC
OGC Opinion No. 13-03, 17 April 2013] Sec. 122. Corporate liquidation. –
Every corporation whose charter
5. What shall be done when properties expires by its own limitation or is
requiring ownership registration, such as annulled by forfeiture or otherwise,
land, are used as paid-up capital of a or whose corporate existence for
corporation? other purposes is terminated in any
other manner, shall nevertheless be
Where payment is made in the form of land, the continued as a body corporate for
corporation involved shall submit to the SEC proof three (3) years after the time when
of the transfer of the certificate of ownership it would have been so dissolved, for
thereon, in the name of the transferee corporation, the purpose of prosecuting and
within 120 days from the date of approval of the defending suits by or against it and
application filed therefor with the SEC. Such period enabling it to settle and close its
may be extended for justifiable reasons. For affairs, to dispose of and convey its
properties other than land, the proof of transfer of property and to distribute its assets,
registration shall be submitted to the SEC within 90 but not for the purpose of
days from approval of the application by the SEC, continuing the business for which it
which period may also be extended for justifiable was established.
reasons. [SEC Memorandum Circular No. 14, series
of 2013] There is nothing in the prayers in the complaint
which shows any intention to continue the
6. A, director and stockholder of Corporation corporate business of Corporation X. The Complaint
X, filed a complaint for intra-corporate does not seek to enter into contracts, issue new
dispute against the other directors and stocks, acquire properties, execute business
stockholders of the corporation. The transactions, etc. Its aim is not to continue the
complaint arose when A sought to have the corporate business, but to determine and vindicate
real board of directors rectify entries in the an alleged stockholder’s right to the return of his
Corporation’s General Information Sheet stockholdings and to participate in the election of
(GIS) and questioned the stockholder’s directors, and a corporation’s right to remove
meeting, and to allow him to inspect the usurpers and strangers from its affairs. There is
books of the corporation, all of which were nothing to show that the resolution of these issues
not acted upon. Subsequently, the can be said to continue the business of Corporation
corporation was dissolved by revocation of X. [Vitaliano N. Aguirre II and Fidel N. Aguirre II and
its franchise. Does the Complaint seek a Fidel N. Aguirre vs. FQB+, Inc., Nathaniel D. Bocobo,
continuation of business or is it a Priscila Bocobo and Antonio De Villa, G.R. No.
settlement of corporate affairs? 170770. January 9, 2013]
No. Section 122 of the Corporation Code prohibits a In relation to Question Number 2, will the
dissolved corporation from continuing its business, dissolution render the complaint moot and
but allows it to continue with a limited personality academic?

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No. A corporation’s board of directors is not shortening and terminating its corporate
rendered functus officio by its dissolution. Since life. It was issued a SEC certificate of
Section 122 allows a corporation to continue its dissolution, and during such time, it had
existence for a limited purpose, necessarily there deposit accounts with BPI which were
must be a board that will continue acting for and on assigned to E Insurance to serve as security
behalf of the dissolved corporation for that for surety bonds issued by the latter to
purpose. In fact, Section 122 authorizes the guaranty monetary claims of a complainant
dissolved corporation’s board of directors to in the labor case filed against B Corp. with
conduct its liquidation within three years from its the NLRC. NLRC ordered the release and
dissolution. Jurisprudence has even recognized the cancellation of the bonds because the case
board’s authority to act as trustee for persons in was terminated. The certificates of deposit
interest beyond the said three-year period. Thus, covering the deposits with BPI were
the determination of which group is the bona fide surrendered by E Insurance to the former
or rightful board of the dissolved corporation will director and corporate secretary of B Corp.
still provide practical relief to the parties involved. Who can act as trustees of the corporation
[Ibid.] even after the expiration of the 3 year
winding-up period for its final liquidation?
7. Can a corporation’s dissolution also bar a The counsel of B Corp. during the labor case before
stockholder from enforcing or vindicating the NLRC can be considered as a trustee of the
his property right to his shareholdings? corporation as to matters related to the labor case.
Likewise, the former director and corporate
No. A party’s stockholdings in a corporation, secretary can also act as trustee-in-liquidation of B
whether existing or dissolved, is a property right Corp.
which he may vindicate against another party who
has deprived him thereof. The corporation’s A corporation can go beyond the three-year period
dissolution does not extinguish such property right. in Section 122 of the Corporation Code to complete
Section 145 of the Corporation Code ensures the its liquidation and to fully dispose of the remaining
protection of this right, thus: corporate assets. If the three-year period expires
Sec. 145. Amendment or repeal. – without a trustee being appointed, the board of
No right or remedy in favor of or directors or trustees itself, may be permitted to
against any corporation, its continue as trustees by legal implication to
stockholders, members, directors, complete corporate liquidation. Likewise, counsel
trustees, or officers, nor any liability who prosecuted and defended the corporation in a
incurred by any such corporation, labor case, when there was no trustee appointed,
stockholders, members, directors, and who in fact in behalf of the corporation may be
trustees, or officers, shall be considered as a trustee of the corporation at least
removed or impaired either by the with respect to the matter in litigation only. As to
subsequent dissolution of said which of them is the proper trustee, the SEC cannot
corporation or by any subsequent determine that. Section 122 of the Corporation
amendment or repeal of this Code Code governing corporate liquidation does not
or of any part thereof. [Ibid.] require SEC approval for the distribution of the
corporate assets of a dissolved corporation. The
8. B Corp. was dissolved through an liquidation process is an internal concern of the
amendment of its articles of incorporation corporation and falls within the power of the

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directors and stockholders to determine. [SEC OGC the corporation or acquire any
Opinion No. 14-02, 21 February 2014] personal or pecuniary interest in
conflict with their duty as such
9. Bank A granted loans to Corporation X, directors or trustees shall be liable
which were secured by promissory notes jointly and severally for all damages
and mortgages over properties owned by resulting therefrom suffered by the
another corporation. The transactions were corporation, its stockholders or
entered into by Corporation X’s president members and other persons.
and General Manager. Since Corporation X
defaulted in paying its loans, then the Solidary liability will then attach to the directors,
mortgage was foreclosed and eventually officers or employees of the corporation in certain
sold. Because there was still remaining circumstances, such as:
amount to be paid, an action was filed
against Corporation X, its President, and a. When directors and trustees or, in
the latter’s wife, who signed a surety appropriate cases, the officers of a
agreement in favor of the bank, which the corporation: (1) vote for or assent to
lower court had declared as falsified. Can patently unlawful acts of the corporation;
the wife of the President be held liable? (2) act in bad faith or with gross negligence
in directing the corporate affairs; and (3) are
No. Basic is the rule in corporation law that a guilty of conflict of interest to the prejudice
corporation is a juridical entity which is vested with of the corporation, its stockholders or
a legal personality separate and distinct from those members, and other persons;
acting for and in its behalf and, in general, from the b. When a director or officer has consented to
people comprising it. Following this principle, the issuance of watered stocks or who,
obligations incurred by the corporation, acting having knowledge thereof, did not forthwith
through its directors, officers and employees, are file with the corporate secretary his written
its sole liabilities. A director, officer or employee of objection thereto;
a corporation is generally not held personally liable c. When a director, trustee or officer has
for obligations incurred by the corporation.24 contractually agreed or stipulated to hold
Nevertheless, this legal fiction may be disregarded himself personally and solidarily liable with
if it is used as a means to perpetrate fraud or an the corporation; or
illegal act, or as a vehicle for the evasion of an d. When a director, trustee or officer is made,
existing obligation, the circumvention of statutes, by specific provision of law, personally liable
or to confuse legitimate issues.25 This is consistent for his corporate action.
with the provisions of the Corporation Code of the
Philippines, which states: Before a director or officer of a corporation can be
held personally liable for corporate obligations,
Sec. 31. Liability of directors, however, the following requisites must concur: (1)
trustees or officers. – Directors or the complainant must allege in the complaint that
trustees who willfully and knowingly the director or officer assented to patently unlawful
vote for or assent to patently acts of the corporation, or that the officer was
unlawful acts of the corporation or guilty of gross negligence or bad faith; and (2) the
who are guilty of gross negligence or complainant must clearly and convincingly prove
bad faith in directing the affairs of such unlawful acts, negligence or bad faith.

-9-
office space, with their assets being co-mingled.
In this case, it was not proven that the wife of the The President of Corporation X is also the Chief
president of Corporation X committed an act of an Operating Officer of the other corporation
officer of the said corporation that would permit involved.
the piercing of the corporate veil. A reading of the
complaint reveals that the Bank did not demand Yes. Under a variation of the doctrine of piercing
that she be held liable for the obligations of the veil of corporate fiction, when two business
Hammer because she was a corporate officer who enterprises are owned, conducted and controlled
committed bad faith or gross negligence in the by the same parties, both law and equity will, when
performance of her duties such that the lifting of necessary to protect the rights of third parties,
the corporate mask would be merited. What the disregard the legal fiction that two corporations are
complaint simply stated is that she, together with distinct entities and treat them as identical or one
her errant husband acted as surety, as evidenced by and the same.
her signature on the Surety Agreement which was
later found by the RTC to have been forged. While the conditions for the disregard of the
juridical entity may vary, the following are some
The piercing of the veil of corporate fiction is probative factors of identity that will justify the
frowned upon and can only be done if it has been application of the doctrine of piercing the corporate
clearly established that the separate and distinct veil, as laid down in Concept Builders, Inc. v NLRC:
personality of the corporation is used to justify a (1) Stock ownership by one or common
wrong, protect fraud, or perpetrate a deception. ownership of both corporations;
Hence, any application of the doctrine of piercing (2) Identity of directors and officers;
the corporate veil should be done with caution. A (3) The manner of keeping corporate books and
court should be mindful of the milieu where it is to records, and
be applied. It must be certain that the corporate (4) Methods of conducting the business.
fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in In this case, both corporations are family
disregard of its rights. The wrongdoing must be corporations, who share the same office, with the
clearly and convincingly established; it cannot be same set of officers, and their assets are co-
presumed. Otherwise, an injustice that was never mingled. Likewise, when the President of
unintended may result from an erroneous Corporation X went missing, the other corporation
application. ceased its operations. Based on these, it is apparent
that the said corporation was merely an adjunct of
[Heirs of Fe Tan Uy (Represented by her heir, Corporation X and, as such, the legal fiction that it
Manling Uy Lim) vs. International Exchange has a separate personality from that of Hammer
Bank/Goldkey Development Corporation vs. should be brushed aside as they are, undeniably,
International Exchange Bank, G.R. No. 166282/G.R. one and the same. [Ibid.]
No. 166283, February 13, 2013.]
10. Spouses F entered into a contract to sell
In relation to Question Number 5, can the with G Corp, covering a parcel of land, in G
corporation, whose property was mortgaged to Corp’s subdivision. Spouses F full paid the
secure the loans of Corporation X, be held liable purchase price, but G Corp. failed to
for the said loans? Note that the two corporations execute the deed of sale and deliver the
are owned by the same family, sharing the same title to the spouses. Thus, the spouses filed

- 10 -
an action for specific performance or stockholder. This protection from liability for
rescission against G Corp and its Board of shareholders is the principle of limited liability.
Directors. Can the Board of Directors be
held liable? Equally well-settled is the principle that the
corporate mask may be removed or the corporate
No. There is no basis to hold the members of the veil pierced when the corporation is just an alter
board solidarily liable with G Corp for the payment ego of a person or of another corporation. For
of damages in favor of Sps. F since it was not shown reasons of public policy and in the interest of
that they acted maliciously or dealt with the latter justice, the corporate veil will justifiably be impaled
in bad faith. Settled 1s the rule that in the absence only when it becomes a shield for fraud, illegality or
of malice and bad faith, as in this case, officers of inequity committed against third persons.
the corporation cannot be made personally liable
for liabilities of the corporation which, by legal However, the rule is that a court should be careful
fiction, has a personality separate and distinct from in assessing the milieu where the doctrine of the
its officers, stockholders, and members. [Gotesco corporate veil may be applied. Otherwise an
Properties, Inc. v. SpousesFajardo, G.R. No. 201167, injustice, although unintended, may result from its
27 February 2013] erroneous application. Thus, cutting through the
corporate cover requires an approach characterized
11. DBP and PNB foreclosed mortgages on the by due care and caution:
properties of MMIC, a corporation. As a
result, they acquired substantially all the Hence, any application of the doctrine of piercing
assets of NMIC and resumed its business the corporate veil should be done with caution. A
operations. NMIC engaged the services of H court should be mindful of the milieu where it is to
Corporation for which it paid the latter. be applied. It must be certain that the corporate
But, NMIC still had an unpaid balance of fiction was misused to such an extent that injustice,
around 8 million pesos. Can DBP and PNB fraud, or crime was committed against another, in
be held liable for such amount? disregard of its rights. The wrongdoing must be
clearly and convincingly established; it cannot be
No. A corporation is an artificial entity created by presumed.
operation of law. It possesses the right of
succession and such powers, attributes, and Sarona v. National Labor Relations Commission has
properties expressly authorized by law or incident defined the scope of application of the doctrine of
to its existence. It has a personality separate and piercing the corporate veil:
distinct from that of its stockholders and from that
of other corporations to which it may be The doctrine of piercing the corporate veil applies
connected. As a consequence of its status as a only in three (3) basic areas, namely: 1) defeat of
distinct legal entity and as a result of a conscious public convenience as when the corporate fiction is
policy decision to promote capital formation, a used as a vehicle for the evasion of an existing
corporation incurs its own liabilities and is legally obligation; 2) fraud cases or when the corporate
responsible for payment of its obligations. In other entity is used to justify a wrong, protect fraud, or
words, by virtue of the separate juridical defend a crime; or 3) alter ego cases, where a
personality of a corporation, the corporate debt or corporation is merely a farce since it is a mere alter
credit is not the debt or credit of the ego or business conduit of a person, or where the
corporation is so organized and controlled and its
affairs are so conducted as to make it merely an

- 11 -
instrumentality, agency, conduit or adjunct of using the subsidiary corporation be unjust,
another corporation. fraudulent or wrongful. It examines the relationship
of the plaintiff to the corporation. It recognizes that
In this connection, case law lays down a three- piercing is appropriate only if the parent
pronged test to determine the application of the corporation uses the subsidiary in a way that harms
alter ego theory, which is also known as the the plaintiff creditor. As such, it requires a showing
instrumentality theory, namely: of "an element of injustice or fundamental
unfairness."
(1) Control, not mere majority or complete
stock control, but complete domination, not The third prong is the "harm" test. This test
only of finances but of policy and business requires the plaintiff to show that the defendant’s
practice in respect to the transaction control, exerted in a fraudulent, illegal or otherwise
attacked so that the corporate entity as to unfair manner toward it, caused the harm
this transaction had at the time no separate suffered. A causal connection between the
mind, will or existence of its own; fraudulent conduct committed through the
instrumentality of the subsidiary and the injury
(2) Such control must have been used by the suffered or the damage incurred by the plaintiff
defendant to commit fraud or wrong, to should be established. The plaintiff must prove
perpetuate the violation of a statutory or that, unless the corporate veil is pierced, it will have
other positive legal duty, or dishonest and been treated unjustly by the defendant’s exercise
unjust act in contravention of plaintiff’s legal of control and improper use of the corporate form
right; and and, thereby, suffer damages.
(3) The aforesaid control and breach of duty To summarize, piercing the corporate veil based on
must have proximately caused the injury or the alter ego theory requires the concurrence of
unjust loss complained of. three elements: control of the corporation by the
stockholder or parent corporation, fraud or
The first prong is the "instrumentality" or "control" fundamental unfairness imposed on the plaintiff,
test. This test requires that the subsidiary be and harm or damage caused to the plaintiff by the
completely under the control and domination of fraudulent or unfair act of the corporation. The
the parent. It examines the parent corporation’s absence of any of these elements prevents piercing
relationship with the subsidiary. It inquires whether the corporate veil.
a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to In applying the alter ego doctrine, the courts are
make it a mere instrumentality or agent of the concerned with reality and not form, with how the
parent corporation such that its separate existence corporation operated and the individual
as a distinct corporate entity will be ignored. It defendant’s relationship to that operation. With
seeks to establish whether the subsidiary respect to the control element, it refers not to
corporation has no autonomy and the parent paper or formal control by majority or even
corporation, though acting through the subsidiary complete stock control but actual control which
in form and appearance, "is operating the business amounts to "such domination of finances, policies
directly for itself." and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of
The second prong is the "fraud" test. This test its own, and is but a conduit for its principal." In
requires that the parent corporation’s conduct in

- 12 -
addition, the control must be shown to have been
exercised at the time the acts complained of took No. The complaint of the Cuencas lacks a cause of
place. action. It is true that the Cuencas could bring in
behalf of AC Inc. a proper action to recover
While ownership by one corporation of all or a damages resulting from the attachment, however,
great majority of stocks of another corporation and such action would be one directly brought in the
their interlocking directorates may serve as indicia name of the corporation. In the instant case, the
of control, by themselves and without more, Cuencas presented the claim in their own names.
however, these circumstances are insufficient to The Cuencas were only stockholders of AC Inc.,
establish an alter ego relationship or connection which had a personality distinct and separate from
between DBP and PNB on the one hand and NMIC that of any or all of them. The damages occasioned
on the other hand, that will justify the puncturing of to the properties by the levy on attachment,
the latter’s corporate cover. "Mere ownership by a wrongful or not, prejudiced AC Inc., not them. As
single stockholder or by another corporation of all such, only AC Inc. had the right under the
or nearly all of the capital stock of a corporation is substantive law to claim and recover such damages.
not of itself sufficient ground for disregarding the This right could not also be asserted by the Cuencas
separate corporate personality." Likewise, the unless they did so in the name of the corporation
"existence of interlocking directors, corporate itself. But that did not happen herein, because AC
officers and shareholders is not enough justification Inc. was not even joined in the action either as an
to pierce the veil of corporate fiction in the absence original party or as an intervenor. The Cuencas
of fraud or other public policy considerations." were clearly not vested with any direct interest in
[Phil. National Bank vs. Hydro Resources the personal properties coming under the levy on
Contractors Corp., .G.R. Nos. 167530, 167561, attachment by virtue alone of their being
16760311. March 13, 2013] stockholders in AC Inc. Their stockholdings
represented only their proportionate or aliquot
12. M filed a complaint against the Cuencas for interest in the properties of the corporation, but
collection of sum of money, for which the did not vest in them any legal right or title to any
court issued a writ of preliminary specific properties of the corporation. Without
attachment, with M posting a bond issued doubt, AC Inc. remained the owner as a distinct
by S Insurance. The properties of A C Inc. legal person. [Stronghold Insurance v. Cuenca, G.R.
were levied upon in the execution of the No. 173297, March 6, 2013]
writ. The Cuencas sought to quash the writ
alleging that (1) the action involved intra- 13. SMP Corp paid local business taxes to the
corporate matters that were within the city of Manila, but they wrote a letter to
original and exclusive jurisdiction of the the latter claiming a refund of the amount
Securities and Exchange Commission (SEC); paid on the ground of double taxation. The
and (2) there was another action pending letter was not acted upon, thus SMP filed
in the SEC as well as a criminal complaint in and action in the RTC for refund of taxes.
the Office of the City Prosecutor of The verification and certification of forum
Parañaque City. This was denied by the CA. shopping attached to the petition filed by
Thus, the Cuencas filed an action for SMP was signed by B, but there was no
damages against the S Insurance as a result secretary’s certificate to show her
of the wrongful attachment. Can the action authority to file the action on behalf of
prosper? SMP. Can B file the case on behalf of SMP?

- 13 -
representative had the authority from the board of
No. The power of a corporation to sue and be sued directors to appoint the counsel to represent them
is lodged in the board of directors, which exercises in the case. [Esguerra v. Holcim Philippines, Inc.,
its corporate powers. It necessarily follows that “an G.R. No. 182571, 2 September 2013
individual corporate officer cannot solely exercise
any corporate power pertaining to the corporation 15. SMBI is a family owned and run
without authority from the board of directors.” corporation. One of the family members
Thus, physical acts of the corporation, like the agreed to loan money to SMBI and other
signing of documents, can be performed only by corporations owned by the same family to
natural persons duly authorized for the purpose by settle the corporate obligations. A check
corporate by-laws or by a specific act of the board was thus issued in the name of the family
of directors. Consequently, a verification signed members. SMBI thereafter increased its
without an authority from the board of directors is capital stock. Thereafter, a series of events
defective. However, the act of B in filing the action transpired, which lead one of the
may be ratified by a subsequent board resolution stockholders to file a derivative suit,
passed by the corporation. [Swedish Match claiming he has been illegally excluded
Philippines v. Treasurer of the City of Manila, G.R. from management and participation in the
No. 181277, 3 July 2013] business of SMBI and that some of the
family members refuse to settle their
14. H Corp. filed a petition for certiorari against obligations with the corporation. Is the
the Esguerras, but they did not secure complaint a derivative suit?
and/or attach a certified true copy of a
board resolution authorizing any of its No. A derivative suit is an action brought by a
officers to file said petition, but it attached stockholder on behalf of the corporation to enforce
a secretary’s certificate. Should the case be corporate rights against the corporation’s directors,
dismissed? officers or other insiders. Under Sections 23 and 36
of the Corporation Code, the directors or officers,
No. The general rule is that a corporation can only as provided under the by-laws, have the right to
exercise its powers and transact its business decide whether or not a corporation should sue.
through its board of directors and through its Since these directors or officers will never be willing
officers and agents when authorized by a board to sue themselves, or impugn their wrongful or
resolution or its bylaws. The power of a corporation fraudulent decisions, stockholders are permitted by
to sue and be sued is exercised by the board of law to bring an action in the name of the
directors. The physical acts of the corporation, like corporation to hold these directors and officers
the signing of documents, can be performed only accountable. In derivative suits, the real party in
by natural persons duly authorized for the purpose interest is the corporation, while the stockholder is
by corporate bylaws or by a specific act of the a mere nominal party.
board. Absent the said board resolution, a petition
may not be given due course. H Corp attached all The Court, in Yu v. Yukayguan, explained:
the necessary documents for the filing of a petition
for certiorari before the court. While the board The Court has recognized that a stockholder’s right
resolution may not have been attached, H Corp to institute a derivative suit is not based on any
complied just the same when it attached the express provision of the Corporation Code, or even
Secretary’s Certificate, thus proving that its the Securities Regulation Code, but is impliedly

- 14 -
recognized when the said laws make corporate the family as well as the purchase of real properties
directors or officers liable for damages suffered by for the brothers. SMBI was never named as a co-
the corporation and its stockholders for violation of debtor or guarantor of the loan. Both loan
their fiduciary duties. Hence, a stockholder may sue instruments were executed by two of the family
for mismanagement, waste or dissipation of members in their personal capacity, and not in their
corporate assets because of a special injury to him capacity as directors or officers of SMBI. Thus, SMBI
for which he is otherwise without redress. In effect, is under no legal obligation to satisfy the obligation.
the suit is an action for specific performance of an
obligation owed by the corporation to the The fact that the family members attempted to
stockholders to assist its rights of action when the constitute a mortgage over "their" share in a
corporation has been put in default by the wrongful corporate asset cannot affect SMBI. The Civil Code
refusal of the directors or management to make provides that in order for a mortgage to be valid,
suitable measures for its protection. The basis of a the mortgagor must be the "absolute owner of the
stockholder’s suit is always one in equity. However, thing x x x mortgaged." Corporate assets may be
it cannot prosper without first complying with the mortgaged by authorized directors or officers on
legal requisites for its institution. behalf of the corporation as owner, "as the
transaction of the lawful business of the
Section 1, Rule 8 of the Interim Rules imposes the corporation may reasonably and necessarily
following requirements for derivative suits: require." However, the wording of the Mortgage
reveals that it was signed by two of the family
(1) The person filing the suit must be a members in their personal capacity as the "owners"
stockholder or member at the time the acts of a pro-indiviso share in SMBI’s land and not on
or transactions subject of the action behalf of SMBI. [Juanito Ang, for and in behalf of
occurred and the time the action was filed; Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto
(2) He must have exerted all reasonable efforts, and Rachel Ang, G.R. No. 201675, June 19, 2013]
and alleges the same with particularity in
the complaint, to exhaust all remedies 16. FEGDI is a stock corporation involved in
available under the articles of incorporation, developing golf courses, while FELI is
by-laws, laws or rules governing the engaged in real estate development. FEGDI
corporation or partnership to obtain the obtained shares of stock in one of FELI’s
relief he desires; projects as a result of its financing support
(3) No appraisal rights are available for the act and construction efforts. It sold some of its
or acts complained of; and shares to RSACC, which the latter later sold
(4) The suit is not a nuisance or harassment to VST. However, the shares remained
suit. under the name of FEGDI. Can VST be
considered as owner of the shares of stock?
Applying the foregoing, the Complaint is not a
derivative suit. The Complaint failed to show how No. In a sale of shares of stock, physical delivery of
the acts of some of the family members resulted in a stock certificate is one of the essential requisites
any detriment to SMBI. The loan was not a for the transfer of ownership of the stocks
corporate obligation, but a personal debt. The purchased. Here, FEGDI clearly failed to deliver the
check was issued to specific persons and not SMBI. stock certificates, representing the shares of stock
The proceeds of the loan were used for payment of purchased by Vertex, within a reasonable time
the obligations of the other corporations owned by from the point the shares should have been

- 15 -
delivered. This was a substantial breach of their Under Section 23 of the Corporation Code, the
contract that entitles VST the right to rescind the power and responsibility to decide whether the
sale under Article 1191 of the Civil Code. It is not corporation should enter into a contract that will
entirely correct to say that a sale had already been bind the corporation is lodged in the board, subject
consummated as VST already enjoyed the rights a to the articles of incorporation, bylaws, or relevant
shareholder can exercise. The enjoyment of these provisions of law. However, just as a natural person
rights cannot suffice where the law, by its express who may authorize another to do certain acts for
terms, requires a specific form to transfer and on his behalf, the board of directors may validly
ownership. [Fil-Estate Gold and Development, Inc., delegate some of its functions and powers to
et al. v. Vertex Sales and Trading, Inc., G.R. No. officers, committees or agents. The authority of
202079, June 10, 2013] such individuals to bind the corporation is generally
derived from law, corporate bylaws or
17. AP is a domestic corporation with G as its authorization from the board, either expressly or
President, and C, the latter’s wife, as its impliedly by habit, custom or acquiescence in the
General Manager. AT is also a Domestic general course of business, viz.:
corporation, with T as its President and U
as its treasurer. AT purchased notebooks A corporate officer or agent may represent and
from AP on credit. Loans were also bind the corporation in transactions with third
obtained by AT from AP upon the persons to the extent that [the] authority to do so
representation of T and U. To pay for its has been conferred upon him, and this includes
purchases, AT gave AP 82 postdated checks powers as, in the usual course of the particular
signed T and U. the check were dishonored business, are incidental to, or may be implied from,
for having been drawn against insufficient the powers intentionally conferred, powers added
funds. A complaint for collection of sum of by custom and usage, as usually pertaining to the
money was filed AT, U, T, and its other particular officer or agent, and such apparent
officers. Can AT be held liable? powers as the corporation has caused person
dealing with the officer or agent to believe that it
Yes. The acts of T and U clearly bound the has conferred.
corporation, and thus, it could be made liable
therefor under the doctrine of apparent authority. [A]pparent authority is derived not merely from
The doctrine of apparent authority provides that a practice. Its existence may be ascertained through
corporation will be estopped from denying the (1) the general manner in which the corporation
agent’s authority if it knowingly permits one of its holds out an officer or agent as having the power to
officers or any other agent to act within the scope act or, in other words the apparent authority to act
of an apparent authority, and it holds him out to in general, with which it clothes him; or (2) the
the public as possessing the power to do those acts. acquiescence in his acts of a particular nature, with
The doctrine of apparent authority does not apply if actual or constructive knowledge thereof, within or
the principal did not commit any acts or conduct beyond the scope of his ordinary powers. It
which a third party knew and relied upon in good requires presentation of evidence of similar act(s)
faith as a result of the exercise of reasonable executed either in its favor or in favor of other
prudence. Moreover, the agent’s acts or conduct parties. It is not the quantity of similar acts which
must have produced a change of position to the establishes apparent authority, but the vesting of a
third party’s detriment. corporate officer with the power to bind the
corporation.

- 16 -
the general manager be garnished to
In People’s Aircargo and Warehousing Co., Inc. v. satisfy the judgment against OLFI?
Court of Appeals, the Court ruled that the doctrine
of apparent authority is applied when the No. In order to hold the general manager personally
petitioner, through its president Antonio Punsalan liable alone for the debts of the corporation and
Jr., entered into the First Contract without first thus pierce the veil of corporate fiction, it is
securing board approval. Despite such lack of required that the bad faith of the officer must first
board approval, petitioner did not object to or be established clearly and convincingly. However,
repudiate said contract, thus “clothing” its there is nothing to indicate any wrongdoing of the
president with the power to bind the corporation. general manager. Necessarily, it would be unjust to
“Inasmuch as a corporate president is often given hold the latter personally liable. Any piercing of the
general supervision and control over corporate corporate veil has to be done with caution. There is
operations, the strict rule that said officer has no no evidence that would prove OLFI's status as a
inherent power to act for the corporation is slowly dummy corporation. A court should be mindful of
giving way to the realization that such officer has the milieu where it is to be applied. It must be
certain limited powers in the transaction of the certain that the corporate fiction was misused to
usual and ordinary business of the corporation.” such an extent that injustice, fraud, or crime was
committed against another, in disregard of rights.
In the absence of a charter or bylaw provision to The wrongdoing must be clearly and convincingly
the contrary, the president is presumed to have the established; it cannot be presumed. Otherwise, an
authority to act within the domain of the general injustice that was never unintended may result
objectives of its business and within the scope of from an erroneous application. [Roxas v. Our Lady’s
his or her usual duties. [Advance Paper Corporation Foundation, Inc., G.R. No. 182378, 6 March 2013]
and George Haw, in his capacity as President of
Advance Paper Corporation v. Arma Traders 19. P granted loans to NSI. On the part of NSI,
Corporation, Manuel Ting, et al., G.R. No. 176897, the loan agreement between the two
December 11, 2013] parties was signed by its president, N.
Payments were made by N, however, NSI
18. L filed a complaint for recovery of still defaulted on its loan obligation to P,
ownership of land against R, alleging that for which the latter filed a collection suit
the latter encroached on a quarter of her against N and NSI. Can N be held jointly
property by arbitrarily extending his and severally liable for the loan obligation
concrete fence beyond the correct limits. R of NSI?
alleged that this was the fault of OLFI, a
corporation, after the latter trimmed his No. The rule is settled that a corporation is vested
property for the construction of the by law with a personality separate and distinct from
subdivision road. He thus filed a third party the persons composing it. Following this principle, a
complaint against OLFI. Acting on the third stockholder, generally, is not answerable for the
party complaint, the court ordered OLFI to acts or liabilities of the corporation, and vice versa.
reimburse R, and issued a writ of The obligations incurred by the corporate officers,
execution. The sheriff then proceeded to or other persons acting as corporate agents, are the
garnish the accounts of the general direct accountabilities of the corporation they
manager of OLFI in UCPB. Can the funds of represent, and not theirs. A director, officer or
employee of a corporation is generally not held

- 17 -
personally liable for obligations incurred by the latter to cease its operations as a result of
corporation9 and while there may be instances the rehabilitation of its tourism complex.
where solidary liabilities may arise, these Thus, PTC Cooperative filed an action in
circumstances are exceptional. court to stop PTA from evicting and
preventing it from carrying out the
Mere ownership by a single stockholder or by restaurant business in the main building of
another corporation of all or nearly all of the capital PTA. Can the area manager be held liable?
stocks of the corporation is not, by itself, a
sufficient ground for disregarding the separate No. As a general rule the officer cannot be held
corporate personality. Other than mere ownership personally liable with the corporation, whether
of capital stocks, circumstances showing that the civilly or otherwise, for the consequences of his
corporation is being used to commit fraud or proof acts, if acted for and in behalf of the corporation,
of existence of absolute control over the within the scope of his authority and in good faith.
corporation have to be proven. In short, before the [Rodolfo Laborte, et al. v. Pagsanjan Tourism
corporate fiction can be disregarded, alter-ego Consumers’ Cooperative, et al., G.R. No. 183860,
elements must first be sufficiently established. The January 15, 2014]
mere fact that it was N who, in behalf of the
corporation, signed the loan agreement is not 21. C was a salesman of A, engaged in the
sufficient to prove that he exercised control over selling of broadcasting equipment. When A
the corporation’s finances. Neither the absence of a created B Corp. C was made an Assistant
board resolution authorizing him to contract the Vice President (AVP) for sales, while AA
loan nor NSI’s failure to object thereto supports this was then appointed as VP for sales. C
conclusion. These may be indicators that, among accused AA of several irregularities which
others, may point the proof required to justify the were made the subject of a memo sent to
piercing the veil of corporate fiction, but by A. Allegedly, C was asked by A to tender his
themselves, they do not rise to the level of proof resignation, to which he refused. He
required to support the desired conclusion. It received a memo, signed by A, charging
should be noted in this regard that while N was the him with serious misconduct and willful
signatory of the loan and the money was delivered breach of trust. He was later on barred
to him, the proceeds of the loan were from entering company premises, and
unquestionably intended for NSI’s proposed allegedly suspended. Thus, he filed a
business plan. There is no sufficient evidence in the complaint for illegal dismissal before the
instant case to justify a piercing, in the absence of NLRC against B Corp. and A. Does the labor
proof that the business plan was a fraudulent arbiter of the NLRC have jurisdiction?
scheme geared to secure funds from the
respondent for the petitioners’ undisclosed goals. Yes. C, although an officer of B Corp. for being its
[Saverio v. Puyat, G.R. No. 186433, November 27, AVP for Sales, was not a "corporate officer" as the
2013] term is defined by law. ‘Corporate officers’ in the
context of Presidential Decree No. 902-A are those
20. PTA is a GOCC which administers tourism officers of the corporation who are given that
zones. It allowed PTC Cooperative to character by the Corporation Code or by the
operate a restaurant business in one of its corporation’s by-laws. There are three specific
main buildings, but in 1993, its officers whom a corporation must have under
CALABARZON area manager notified the Section 25 of the Corporation Code. These are the

- 18 -
president, secretary and the treasurer. The number passage of a board resolution to that effect, cannot
of officers is not limited to these three. A make such position a corporate office. The board of
corporation may have such other officers as may be directors has no power to create other corporate
provided for by its by-laws like, but not limited to, offices without first amending the corporate by-
the vice-president, cashier, auditor or general laws so as to include therein the newly created
manager. The number of corporate officers is thus corporate office. "To allow the creation of a
limited by law and by the corporation’s by-laws." It corporate officer position by a simple inclusion in
has been held that an "office" is created by the the corporate by-laws of an enabling clause
charter of the corporation and the officer is elected empowering the board of directors to do so can
by the directors and stockholders. On the other result in the circumvention of that constitutionally
hand, an "employee" usually occupies no office and well-protected right [of every employee to security
generally is employed not by action of the directors of tenure]."
or stockholders but by the managing officer of the
corporation who also determines the compensation Likewise, the mere fact that C was a stockholder of
to be paid to such employee. B Corp. at the time of the case’s filing did not
necessarily make the action an intra- corporate
As may be deduced from the foregoing, there are controversy. "Not all conflicts between the
two circumstances which must concur in order for stockholders and the corporation are classified as
an individual to be considered a corporate officer, intra-corporate. There are other facts to consider in
as against an ordinary employee or officer, namely: determining whether the dispute involves
(1) the creation of the position is under the corporate matters as to consider them as intra-
corporation’s charter or by-laws; and (2) the corporate controversies." In determining the
election of the officer is by the directors or existence of an intra-corporate dispute, the status
stockholders. It is only when the officer claiming to or relationship of the parties and the nature of the
have been illegally dismissed is classified as such question that is the subject of the controversy must
corporate officer that the issue is deemed an intra- be taken into account.
corporate dispute which falls within the jurisdiction
of the trial courts. An intra-corporate controversy, which falls within
the jurisdiction of regular courts, has been regarded
Under B Corp.’s By-laws only provide the following in its broad sense to pertain to disputes that involve
as corporate officers: the President, Vice-President, any of the following relationships: (1) between the
Treasurer and Secretary. Although a blanket corporation, partnership or association and the
authority provides for the Board’s appointment of public; (2) between the corporation, partnership or
such other officers as it may deem necessary and association and the state in so far as its franchise,
proper, the respondents failed to sufficiently permit or license to operate is concerned; (3)
establish that the position of AVP for Sales was between the corporation, partnership or
created by virtue of an act of B Corp’s board, and association and its stockholders, partners, members
that C was specifically elected or appointed to such or officers; and (4) among the stockholders,
position by the directors. No board resolutions to partners or associates, themselves.
establish such facts form part of the case records.
Settled jurisprudence, however, qualifies that when
Also, an enabling clause in a corporation’s by-laws the dispute involves a charge of illegal dismissal,
empowering its board of directors to create the action may fall under the jurisdiction of the LAs
additional officers, even with the subsequent upon whose jurisdiction, as a rule, falls termination

- 19 -
disputes and claims for damages arising from Yes. The revocation does not result in the
employer-employee relations as provided in Article termination of its liabilities. Section 122 of the
217 of the Labor Code. Corporation Code provides for a three-year winding
up period for a corporation whose charter is
Considering that the pending dispute particularly annulled by forfeiture or otherwise to continue as a
relates to C’s rights and obligations as a regular body corporate for the purpose, among others, of
officer of B Corp., instead of as a stockholder of the settling and closing its affairs.
corporation, the controversy cannot be deemed
intra-corporate. This is consistent with the Even if said documents six (6) years after the
"controversy test", which provides that the dissolution, the same are still valid and binding
incidents of that relationship must also be upon the parties and the dissolution will not
considered for the purpose of ascertaining whether terminate the liabilities incurred by the dissolved
the controversy itself is intra-corporate. The corporation pursuant to Sections 122 and 145 of
controversy must not only be rooted in the the Corporation Code. A corporation is allowed to
existence of an intra-corporate relationship, but settle and close its affairs even after the winding up
must as well pertain to the enforcement of the period of three (3) years.
parties’ correlative rights and obligations under the
Corporation Code and the internal and intra- Section 145 of the Corporation Code clearly
corporate regulatory rules of the corporation. If the provides that "no right or remedy in favor of or
relationship and its incidents are merely incidental against any corporation, its stockholders, members,
to the controversy or if there will still be conflict directors, trustees, or officers, nor any liability
even if the relationship does not exist, then no incurred by any such corporation, stockholders,
intra-corporate controversy exists. [Raul C. Cosare members, directors, trustees, or officers, shall be
v. Broadcom Asia, Inc., et al., G.R. No. 201298, removed or impaired either by the subsequent
February 5, 2014] dissolution of said corporation." Even if no trustee
is appointed or designated during the three-year
22. The janitors and their supervisors of the period of the liquidation of the corporation, it has
maintenance department of PCCr, a non- been held that the board of directors may be
stock educational institution, were permitted to complete the corporate liquidation by
dismissed from employment as a result of continuing as "trustees" by legal implication. [Vigilla
the termination of the contract PCCr had v. College of Criminology, G.R. No. 200094, June 10,
with their agency. The contract was 2013]
terminated as a result of the discovery of
the revocation of the certificate of 23. What can be done in case the board refuses
incorporation of the agency. The said to recognize the legitimacy of newly
dismissed employees executed quitclaims elected board members?
and waivers in favor of the agency, which
was already dissolved. Can the janitors and An outgoing President or the Board which refuses
supervisors hold its agency liable even if it to recognize the legitimacy of those newly-elected
had already been dissolved? Are the and who continue to exercise their functions may
quitclaims and waivers valid even if be the subjects of an intra-corporate case filed with
executed 6 years after dissolution? the regular courts. [SEC OGC Opinion No. 14-09, 2
June 2014]

- 20 -
24. What constitutes a quorum for purposes of 26. What is cumulative voting?
election of directors or trustees of a
corporation? Cumulative voting is a mode of casting votes during
the elections of directors in a stock corporation.
Section 24 of the Corporation requires the presence this is in line with Section 24 of the Corporation
in person or by proxy of “the owners of a majority Code, which provides that every stockholder
of the outstanding capital stock, or if there be no entitled to vote shall have the right to vote in
capital stock, a majority of the members entitled to person or by proxy the number of shares of stock
vote.” This section governs since it is the provision standing, at the time fixed in the by-laws, in his own
which is specifically applicable to quorum of name on the stock books of the corporation, or
election of directors or trustees. The phrase where the by-laws are silent, at the time of the
“entitled to vote” should be interpreted to apply to election; and said stockholder may vote such
both stock and non-stock corporations. This does number of shares for as many persons as there are
not include shares under litigation. However, not all directors to be elected or he may cumulate said
shares under litigation cannot vote. For example, shares and give one candidate as many votes as the
stock owned by the estate of a decedent may be number of directors to be elected multiplied by the
voted by the estate’s executor or administrator. If number of his shares shall equal, or he may
there is no executor or administrator, then the distribute them on the same principle among as
shares of a decedent cannot be voted. Also, if there many candidates as he shall see fit: Provided, That
is a dispute as to who owns the shares, and thus, the total number of votes cast by him shall not
who has the right to vote such shares, then the exceed the number of shares owned by him as
general rule is that “the registered owner of the shown in the books of the corporation multiplied by
shares of the corporation exercises the right and the whole number of directors to be elected.
the privilege of voting.” [SEC-OGC Opinion No. 13-
11, 20 November 2013] Under this provision, there are two methods of
cumulative voting: Cumulative voting for one
25. Does cumulative voting apply to election of candidate, and cumulative voting by distribution.
trustees of a non-stock condominium
corporation? Under the first method, a stockholder is allowed to
concentrate his votes and give one candidate as
The general rule for the election of trustees of a many votes as the number of directors to be
non-stock corporation is that members may cast as elected, multiplied by the number of his shares
many votes as there are trustees to be elected but shall equal. For example, supposing a stockholder
may cast only one vote per candidate. By way of owns 200 shares and there are five directors to be
exception, a non-stock corporation may adopt elected, he is entitled to 1,000 votes, all of which he
other modes of casting votes, including, but not may cast in favor of one candidate.
limited to, cumulative voting, if the same is
authorized in its articles or by-laws, or the master Under the second method, a stockholder may
deed or the declaration of restrictions (in case of a cumulate his shares by multiplying also the number
non-stock condominium corporation). otherwise, of his shares by the number of directors to be
the general rule that members may not cast more elected, and distribute the same among as many
than one vote for any candidate will apply. [SEC candidates as he shall see fit. For example, a
OGC Opinion No. 14-10, 2 June 2014] stockholder with 100 shares is entitled to 500 votes
if there are five directors to be elected. He may cast

- 21 -
his votes in any combination desired by him, be declared elected. under the Code, the
provided that the total number of votes cast by him candidates receiving the highest number of votes
does not exceed 500, which is the number of shares shall be declared elected. Thus, for a candidate to
owned by him multiplied by the total number of be elected as trustee, such candidate must be
directors to be elected. [SEC OGC Opinion No. 14- among the group of candidates who received the
10, 2 June 2014] highest number of votes. In case the number of
candidates does not exceed the number of seats in
27. Can a hold-over director appoint another the board, said candidates, provided they received
director to fill a vacancy caused by the votes, can be said to have received the highest
resignation of another hold-over director? number of votes, as the law requires only plurality
of the votes to cast at the election. [SEC OGC
No. a vacancy caused by resignation of a hold-over Opinion No. 14-09, 2 June 2014]
director or a trustee cannot be filled by the vote of
the directors or trustees, but rather, by the vote of 29. Can there be an election of members of the
the stockholders or members in a regular or special board which is less than the number of
meeting called for the purpose, as provided by director/trustees as fixed in the articles of
Section 29 of the Corporation Code. Any vacancy incorporation?
occurring in the board of directors or trustees other
than by removal by the stockholders or members or Yes. An election of less number of directors than
by expiration of term, may be filled by majority of the number which the meeting was called to elect
the remaining directors or trustees, if still is valid as to those elected. Thus, the stockholders
constituting a quorum, otherwise, said vacancies or members may opt to elect a number of
must be filled by the stockholders in a regular or directors/trustees less than the number of
special meeting called for that purpose. A director directors/trustees as fixed in the articles of
or trustee so elected to fill a vacancy shall be incorporation. Such a situation would merely give
elected only for the unexpired term of his rise to vacancy in the board, which may be later
predecessor in officer. Thus, in a situation where filled up. The power of the board is not suspended
directors or trustees are acting in a hold-over by vacancies in the board unless the number is
capacity, there are actually vacancies caused by reduced below a quorum. This is so since the board
expiration of terms, and the resignation of a hold- can only transact business if it reaches a quorum,
over director or trustee cannot change the nature which is at least a majority of the number of
of the vacancy. [Valle Verde Country Club v. Africa, trustees as fixed in the articles of incorporation or
GR No. 151696, September 4, 2009; SEC-OGC by-laws, unless the Articles, by-laws, or Master
Opinion No. 13-11, 20 November 2013] Deed, in the case of a condominium corporation
provide for a greater number. For decisions of the
28. Is it required that, in order to be elected as board to be valid as a corporate act, at least a
a member of the board of trustees of a majority of such majority or quorum has to concur.
non-stock corporation, majority of the However, for the election of officers, the vote of
votes of the members be obtained? the majority of all the members of the board as
fixed in the articles of incorporation, rather than
No. While the Corporation Code requires the majority of the quorum, shall be required. [SEC OGC
presence of at least majority of the members of the Opinion No. 14-09, 2 June 2014]
non-stock corporation for the election of its Board,
it does not require such number of votes for one to

- 22 -
30. Can notices of stockholders’ or directors’ certificate being issued per member. What
meetings be sent through electronic mail is the authorized membership of APO, 500
(e-mail)? Are the resolutions passed during or 250?
such meetings valid?
The maximum number of members allowed for
Yes. Generally and as a default rule, written notice APO is 250. The question arose from what appears
of the meeting, sent through regular post mail, to be a conflict between the articles and the by-
must be given to stockholders/directors/ trustees in laws. When the by-laws of a corporation are
relation to the holding of meetings within the inconsistent with the articles of incorporation, the
periods provided in the Corporation Code. latter shall be controlling, as the by-laws are
However, Section 47(1), (2), and (6) allows the subordinate to, and cannot contravene, the
corporation to provide a different mode of notice in corporate charter. As provided for in the articles of
the by-laws. Thus, since the Corporation Code APO, the maximum permitted number of
requires notice to be sent “in writing”, an e-mail Certificates of Membership issued by it is limited to
notice may be included as a mode of notice in the 250, and no member shall be issued more than one
by-laws of a corporation, since an e-mail is certificate. Hence, the maximum number of
considered “in writing”. In such a case, the by-laws members is the maximum number of certificates
must, likewise, provide for mechanics of such that may be issued, that is 250, by virtue of the
sending of notices through e-mail, including articles of incorporation, and not 500 as provided
indication, recording, changing, and recognition of by the by-laws. [SEC OGC Opinion No. 14-25, 4
e-mail addresses of each stockholder/director. September 2014]
However, it must be stressed that absent such
specific provisions on notice requirements in a 32. L was hired as a Director of CBB, who was
corporation’s current and standing by-laws, the later on appointed as managing director.
general or default rule – written notice sent Alleging failure to pay a significant portion
through regular postal mail – applies. Since such of his salary, after closure of CBB and the
notice is allowed, provided it is in accordance with a incorporation of a new corporation, he
corporation’s by-laws, then resolutions passed filed a complaint for illegal dismissal
during such meetings are also valid. [SEC OGC against CBB and its president. Can CBB’s
Opinion No. 13-10, 25 October 2013] president be held liable?
31. APO’s by-laws, a non-stock non-profit Yes. There is indubitable link between closure of
corporation, provide that its members are CBB and the incorporation of the new corporation,
those that are issued certificates of which was done to avoid payment of the
ownership, with only one certificate being obligations to L. CBB ceased to exist only in name; it
issued for one member. The same by-laws re-emerged in the person of the new corporation
provide that not more than 500 certificates for an urgent purpose — to avoid payment by CBB
of ownership will be issued. However, its of the last two installments of its monetary
articles of incorporation provide that obligation to L, as well as its other financial
members enjoy membership rights, upon liabilities. Freed of CBB’s liabilities, especially that
payment of a membership fee, upon owing to L, the new corporation can continue, as
payment of which, they will be issued a it did continue, CBB’s business. It has long been
membership fee certificate, which shall not settled that the law vests a corporation with a
be issued in excess of 250, with only one personality distinct and separate from its

- 23 -
stockholders or members. In the same vein, a affairs, or when there is a conflict of interest
corporation, by legal fiction and convenience, is an resulting in damages to the corporation, its
entity shielded by a protective mantle and imbued stockholders or other persons; (b) they consent
by law with a character alien to the persons to the issuance of watered down stocks or when,
comprising it. Nonetheless, the shield is not at all having knowledge of such issuance, do not
times impenetrable and cannot be extended to a forthwith file with the corporate secretary their
point beyond its reason and policy. Circumstances written objection; (c) they agree to hold themselves
might deny a claim for corporate personality, under personally and solidarily liable with the corporation;
the “doctrine of piercing the veil of corporate or (d) they are made by specific provision of law
fiction.” personally answerable for their corporate action. In
the case of M, there is no evidence to show that
Piercing the veil of corporate fiction is an equitable the above-enumerated exceptions when a
doctrine developed to address situations where the corporate officer becomes personally liable for the
separate corporate personality of a corporation is obligation of a corporation to this case. [SPI
abused or used for wrongful purposes. Under the Technologies, Inc., et al. v. Victoria K. Mapua, G.R.
doctrine, the corporate existence may be No. 191154, April 7, 2014]
disregarded where the entity is formed or used for
non–legitimate purposes, such as to evade a just 34. M Corp employed B, who was later on
and due obligation, or to justify a wrong, to shield dismissed from employment after having
or perpetrate fraud or to carry out similar or tested positive during a random drug test
inequitable considerations, other unjustifiable aims conducted in the office. B thus filed an
or intentions, in which case, the fiction will be action for illegal dismissal against M Corp
disregarded and the individuals composing it and and E, its president. Should the case
the two corporations will be treated as identical. prosper against E?
[Eric Godfrey Stanley Livesey v. Binswanger
Philippines, Inc. and Keith Elliot, G.R. No. 177493, No. A corporation has a personality separate and
March 19, 2014] distinct from its officers and board of directors who
may only be held personally liable for damages if it
33. M was hired by S Tech as the head and is proven that they acted with malice or bad faith in
manager of one of its units. Subsequently, the dismissal of an employee. Absent any evidence
N was employed as her manager. M's hard on record that petitioner E acted maliciously or in
disk crashed causing her to lose files, and bad faith in effecting the termination of
she informed N. M’s position was respondent, plus the apparent lack of allegation in
downgraded twice and later on, she was the pleadings E acted in such manner, the doctrine
informed that her position was redundant. of corporate fiction dictates that only petitioner
An action for illegal dismissal was filed by corporation should be held liable for the illegal
M against S Tech and its HR Director. Can dismissal of respondent. [Mirant (Philippines)
the case prosper against the HR Director? Corporation, et al. v. Joselito A. Caro, G.R. No.
181490, April 23, 2014]
No. It is hornbook principle that personal liability of
corporate directors, trustees or officers attaches 35. A mortgage his property to Bank A,
only when: (a) they assent to a patently unlawful predecessor of Bank B. However, A
act of the corporation, or when they are guilty defaulted in his payments, so the mortgage
of bad faith or gross negligence in directing its was foreclosed and Bank B bought the

- 24 -
property. A offered to repurchase the petitioner and Bank B’s representatives. Petitioner
property, but no agreement was reached. therefore had no legal right to compel respondent
With A insisting that a purchase agreement bank to accept the P600,000 being tendered by him
was reached, he sold portions of the as payment for the supposed balance of repurchase
property after being subdivided, and price. [Heirs of Fausto C. Ignacio vs. Home Bankers
offered to pay for the entire property. Bank Savings and Trust Co., et al., G.R. No. 177783.
B however sold the remaining portions of January 23, 2013]
the property to another person, which
prompted A to cause an annotation of his 36. TRB sold to BOC its banking business which
adverse claim on the title thereof. was later on approved by the BSP
Thereafter, the property was sold by Bank monetary board. Later, as a result of
B to other persons, without A’s knowledge. previous court litigation, TRB was order to
Thus, A filed an action for specific pay RPN, IBB and BBC damages, for which a
performance against the bank. Was there a writ of execution was issued, which
perfected repurchase agreement between included properties covered by the covered
A and Bank B, even if no acceptance was by the sale to BOC. Can BOC be held liable
made by Bank B’s representatives? for the damages to be paid to RPN, IBB and
BBC?
No. No such agreement was reached. Section 23 of
the Corporation Code expressly provides that the No. Merger is a re-organization of two or more
corporate powers of all corporations shall be corporations that results in their consolidating into
exercised by the board of directors. Just as a a single corporation, which is one of the constituent
natural person may authorize another to do certain corporations, one disappearing or dissolving and
acts in his behalf, so may the board of directors of a the other surviving. To put it another way, merger
corporation validly delegate some of its functions to is the absorption of one or more corporations by
individual officers or agents appointed by it. Thus, another existing corporation, which retains its
contracts or acts of a corporation must be made identity and takes over the rights, privileges,
either by the board of directors or by a corporate franchises, properties, claims, liabilities and
agent duly authorized by the board. Absent such obligations of the absorbed corporation(s). The
valid delegation/authorization, the rule is that the absorbing corporation continues its existence while
declarations of an individual director relating to the the life or lives of the other corporation(s) is or are
affairs of the corporation, but not in the course of, terminated.
or connected with, the performance of authorized
duties of such director, are held not binding on the The Corporation Code requires the following steps
corporation. for merger or consolidation:
Thus, a corporation can only execute its powers and (1) The board of each corporation draws up
transact its business through its Board of Directors a plan of merger or consolidation. Such plan
and through its officers and agents when must include any amendment, if necessary,
authorized by a board resolution or its by-laws. to the articles of incorporation of the
In the absence of conformity or acceptance by surviving corporation, or in case of
properly authorized bank officers of petitioner’s consolidation, all the statements required in
counter-proposal, no perfected repurchase contract the articles of incorporation of a
was born out of the talks or negotiations between corporation.

- 25 -
(2) Submission of plan to stockholders or happened is that TRB sold and BOC purchased
members of each corporation for approval. identified recorded assets of TRB in consideration
A meeting must be called and at least two of BOC’s assumption of identified recorded
(2) weeks’ notice must be sent to all liabilities of TRB including booked contingent
stockholders or members, personally or by accounts. In strict sense, no merger or
registered mail. A summary of the plan must consolidation took place as the records do not
be attached to the notice. Vote of two- show any plan or articles of merger or
thirds of the members or of stockholders consolidation. More importantly, the SEC did not
representing two thirds of the outstanding issue any certificate of merger or consolidation.
capital stock will be needed. Appraisal [Bank of Commerce v. Radio Philippines Network,
rights, when proper, must be respected. Inc., et al., G.R. No. 195615, April 21, 2014]
(3) Execution of the formal agreement, 37. KMBI’s by-laws and articles of
referred to as the articles of merger o[r] incorporation provide that its board of
consolidation, by the corporate officers of trustees shall consist of 9 members to
each constituent corporation. These take serve for one year. But, due to resignation
the place of the articles of incorporation of of five of them, and the death of another,
the consolidated corporation, or amend the only 3 members of the board remain. Can
articles of incorporation of the surviving the remaining 3 members continue the
corporation. regular business of the corporation and fill
up the vacancies in the board?
(4) Submission of said articles of merger or
consolidation to the SEC for approval. The general rule is well-settled that the power of
the board is not suspended by vacancies in the
(5) If necessary, the SEC shall set a hearing, board unless the number is reduced to below a
notifying all corporations concerned at least quorum, the rule being that the number necessary
two weeks before. to constitute a quorum under a by-law which
provides that a majority of the directors shall be
(6) Issuance of certificate of merger or necessary and sufficient to constitute a quorum, is
consolidation. a majority of the entire board, notwithstanding that
there may be vacancies in the board at a time. In
Indubitably, it is clear that no merger took place the case of KMBI, the presence of 9 members
between BOC and TRB as the requirements and would be required to constitute a quorum. There
procedures for a merger were absent. A merger being no quorum with only 3 remaining members
does not become effective upon the mere of the board, then the board has no authority to
agreement of the constituent corporations. All the transact business. Also, they do not have authority
requirements specified in the law must be complied to fill-up vacancies in the board. Not only is there
with in order for merger to take effect. Section 79 no quorum, but the circumstances are not one of
of the Corporation Code further provides that the those which would allow the remaining directors to
merger shall be effective only upon the issuance by fill in a vacancy. Based on 29 of the Corporation
the Securities and Exchange Commission (SEC) of a Code, the remaining directors/trustees can fill-up
certificate of merger. the vacancies in the board when: (1) such vacancies
were occasioned by reasons other than removal by
Here, BOC and TRB remained separate corporations the stockholders/members or expiration of term;
with distinct corporate personalities. What

- 26 -
and (2) such remaining director/trustees still the Articles of Incorporation or the By-laws. The
constitute a quorum of the Board. These conditions acts, even if priorly unauthorized, may be later
must concur; otherwise, the filling-up of vacancies ratified by the Board of Directors or Trustees, which
must be done by the stockholders or members in a ratification cleanses the transaction of defects. In
regular or special meeting called for the purpose. the case of close corporations, the act of the
[SEC OGC Opinion No. 13-06, 6 May 2013] President, who is also a Director, may not need
later ratification of the Board, provided that any of
38. Does the President of a close corporation the following conditions are present:
have the authority to decide on matters
concerning the corporation even without 1. Before the action is taken, written consent
the approval of the Board? thereto is signed by all the directors;
2. All the stockholders have actual or implied
Yes. A close corporation is one where the articles of knowledge of the action and make no
incorporation provide that: (1) all the corporation’s prompt objection thereto in writing;
issued stocks of all classes, exclusive of treasury 3. The directors are accustomed to take
shares, shall be held of records by not more than a informal action with the express or implied
specified number of persons, not exceeding 20; (2) acquiescence of all the stockholders; or
all of the issued stocks of all classes shall be subject 4. All the directors have express or implied
to restrictions on transfer permitted by the knowledge of the action in question and
Corporation Code; and (3) the corporation shall not none of them makes prompt objection
list in any stock exchange or make any public thereto in writing.
offering of any of its stock of any class. The main
difference between a close corporation and other [SEC OGC Opinion No. 14-23, 26 August
corporations is the identity of stock ownership and 2014]
active management, that is, all or most of the
stockholders of a close corporation are active in the 39. What is the current limit on the
corporate business either as directors, officers or shareholdings of an Independent Director?
other key men in management. Where business
associates belong to a small, closely-knit group, Paragraphs 2 and 6, Rule 38 of the Amended IRR of
they usually prefer to keep the organization the Securities Regulation Code are the controlling
exclusive and would not welcome strangers. Since it provisions on the definition, qualification and
is through their efforts and managerial skills that disqualification of an independent director. In other
they expect the business to grow and prosper, it is words, a person is qualified to be elected as an
quite understandable why they would not trust independent director provided he is independent of
outsiders to come in and interfere with their management and free from any business or other
management of business, and much less share relationship which could, or could reasonably be
whatever fortune, big or small, that the business perceived to, materially interfere with his exercise
may bring. of independent judgment in carrying out his
responsibilities as a director in any covered
In an ordinary corporation, the President’s power of company, and includes, among others, any person
general control and supervision over the corporate who does not own more than 2% of the shares of
business grants him an apparent authority to enter the covered company and/or its related
into transactions on behalf o the corporation in the companies or any of its substantial shareholders.
ordinary course of business, unless prohibited by The 10% limit on beneficial ownership in the

- 27 -
covered company's equity security in which an which renders ineligible, or if elected, subjects to
independent director is to be elected no longer removal, a directors if he be also a director in a
holds true. [SEC OGC Opinion No. 13-04, 18 April corporation whose business is in competition with
2013; Emphasis supplied] or is antagonistic to the other corporation is valid.
However, these qualifications become effective
40. M Corp. was engaged in the business of only when the by-laws expressly provide for the
selling medical equipment, and has A as same.
one of its directors. A had a daughter, B,
who owns 80% of E Corp., also engaged in However, A may be held liable for damages for bad
the selling of medical equipment. Some of faith in directing the affairs of the corporation,
the clients of M Corp. stopped doing under Section 31 of the Corporation Code, or to
business with it, allegedly due to the account for any profit obtained to the prejudice of
intervention of A, in favor of his daughter’s the corporation by acquiring business opportunity
interest in E Corp. Is there a conflict of which should have belonged to the corporation,
interest on the part of A, which would pursuant to Section 34 of the Corporation Code.
disqualify him from continuing to be a [SEC OGC Opinion No. 14-04, 21 April 2014]
director in M Corp?
41. M Corp, T Corp and N Corp applied for
If the by-laws of M Corp. provides as a qualification Mineral Production Sharing Agreements
for directors that “a director shall not be the (MPSA) with the DENR. This was opposed
immediate member of the family of any by R Corp because it alleged that at least
stockholder in any other firm, company, or 60% of the capital stock of the corporations
association which competes with the subject are owned and controlled by MBMI, a
corporation”, then A can be disqualified. Every 100% Canadian corporation. R Corp
corporation has the inherent power to adopt by- reasoned that since MBMI is a considerable
laws for its internal government, and to regulate stockholder of petitioners, it was the
the conduct and prescribe the rights of its members driving force behind petitioners’ filing of
towards itself and among themselves in reference the MPSAs over the areas covered by
to the management of its affairs. Thus, under applications since it knows that it can only
Section 47(5) of the Corporation Code, a participate in mining activities through
corporation may prescribe in its by-laws the corporations which are deemed Filipino
qualifications of its directors, officers, and citizens. R Corp argued that given that
employees. The qualification that “a director shall petitioners’ capital stocks were mostly
not be the immediate member of the family of any owned by MBMI, they were likewise
stockholder in any other firm, company, or disqualified from engaging in mining
association which competes with the subject activities through MPSAs, which are
corporation” is a qualificational by-law provision reserved only for Filipino citizens. Decide.
which may be added to those specified in the
Corporation Code (Sections 23 and 27), pursuant to It is quite safe to say that petitioners M Corp, T
the case of Gokongwei v. SEC, GR No. L-45911, 11 Corp and N Corp are not Filipino since MBMI, a
April 1979). Thus, corporations have the power to 100% Canadian corporation, owns 60% or more of
make by-laws declaring a person employed in the their equity interests.
service of a rival company to be ineligible for the
Corporation’s Board of Directors and a provision

- 28 -
Basically, there are two acknowledged tests in Prior to this recent change of events, petitioners
determining the nationality of a corporation: the were constant in advocating the application of the
control test and the grandfather rule. "control test" under RA 7042, as amended by RA
8179, otherwise known as the Foreign Investments
Paragraph 7 of DOJ Opinion No. 020, Series of 2005, Act (FIA), rather than using the stricter grandfather
adopting the 1967 SEC Rules which implemented rule.
the requirement of the Constitution and other laws
pertaining to the controlling interests in enterprises "Corporate layering" is admittedly allowed by the
engaged in the exploitation of natural resources FIA; but if it is used to circumvent the Constitution
owned by Filipino citizens, provides: and pertinent laws, then it becomes illegal.
Shares belonging to corporations or partnerships at Sec. 2, Article XII of the Constitution focuses on the
least 60% of the capital of which is owned by State entering into different types of agreements
Filipino citizens shall be considered as of Philippine for the exploration, development, and utilization of
nationality, but if the percentage of Filipino natural resources with entities who are deemed
ownership in the corporation or partnership is less Filipino due to 60 percent ownership of capital is
than 60%, only the number of shares corresponding pertinent to this case, since the issues are centered
to such percentage shall be counted as of Philippine on the utilization of our country’s natural resources
nationality. Thus, if 100,000 shares are registered in or specifically, mining. Thus, there is a need to
the name of a corporation or partnership at least ascertain the nationality of petitioners since, as the
60% of the capital stock or capital, respectively, of Constitution so provides, such agreements are only
which belong to Filipino citizens, all of the shares allowed corporations or associations "at least 60
shall be recorded as owned by Filipinos. But if less percent of such capital is owned by such citizens."
than 60%, or say, 50% of the capital stock or capital
of the corporation or partnership, respectively, Elementary in statutory construction is when there
belongs to Filipino citizens, only 50,000 shares shall is conflict between the Constitution and a statute,
be counted as owned by Filipinos and the other the Constitution will prevail. In this instance,
50,000 shall be recorded as belonging to aliens. specifically pertaining to the provisions under Art.
XII of the Constitution on National Economy and
The first part of paragraph 7, DOJ Opinion No. 020, Patrimony, Sec. 3 of the FIA will have no place of
stating "shares belonging to corporations or application. As decreed by the honorable framers of
partnerships at least 60% of the capital of which is our Constitution, the grandfather rule prevails and
owned by Filipino citizens shall be considered as of must be applied.
Philippine nationality," pertains to the control test
or the liberal rule. On the other hand, the second Paragraph 7, DOJ Opinion No. 020, Series of 2005
part of the DOJ Opinion which provides, "if the provides:
percentage of the Filipino ownership in the
corporation or partnership is less than 60%, only The above-quoted SEC Rules provide for the
the number of shares corresponding to such manner of calculating the Filipino interest in a
percentage shall be counted as Philippine corporation for purposes, among others, of
nationality," pertains to the stricter, more stringent determining compliance with nationality
grandfather rule. requirements (the ‘Investee Corporation’). Such
manner of computation is necessary since the
shares in the Investee Corporation may be owned
both by individual stockholders (‘Investing

- 29 -
Individuals’) and by corporations and partnerships where the joint venture corporation with Filipino
(‘Investing Corporation’). The said rules thus and foreign stockholders with less than 60% Filipino
provide for the determination of nationality stockholdings [or 59%] invests in other joint
depending on the ownership of the Investee venture corporation which is either 60-40% Filipino-
Corporation and, in certain instances, the Investing alien or the 59% less Filipino). Stated differently,
Corporation. where the 60-40 Filipino- foreign equity ownership
is not in doubt, the Grandfather Rule will not apply.
Under the above-quoted SEC Rules, there are two
cases in determining the nationality of the Investee The “control test” is still the prevailing mode of
Corporation. The first case is the ‘liberal rule’, later determining whether or not a corporation is a
coined by the SEC as the Control Test in its 30 May Filipino corporation, within the ambit of Sec. 2, Art.
1990 Opinion, and pertains to the portion in said II of the 1987 Constitution, entitled to undertake
Paragraph 7 of the 1967 SEC Rules which states, the exploration, development and utilization of the
‘(s)hares belonging to corporations or partnerships natural resources of the Philippines. When in the
at least 60% of the capital of which is owned by mind of the Court there is doubt, based on the
Filipino citizens shall be considered as of Philippine attendant facts and circumstances of the case, in
nationality.’ Under the liberal Control Test, there is the 60-40 Filipino-equity ownership in the
no need to further trace the ownership of the 60% corporation, then it may apply the “grandfather
(or more) Filipino stockholdings of the Investing rule.”
Corporation since a corporation which is at least
60% Filipino-owned is considered as Filipino. After a scrutiny of the evidence extant on record,
the Court finds that this case calls for the
The second case is the Strict Rule or the application of the grandfather rule since, as ruled
Grandfather Rule Proper and pertains to the by the POA and affirmed by the OP, doubt prevails
portion in said Paragraph 7 of the 1967 SEC Rules and persists in the corporate ownership of
which states, "but if the percentage of Filipino petitioners. Here, doubt is present in the 60-40
ownership in the corporation or partnership is less Filipino equity ownership the corporations, since
than 60%, only the number of shares corresponding their common investor, the 100% Canadian
to such percentage shall be counted as of Philippine corporation––MBMI, funded them. [Narra Nickel
nationality." Under the Strict Rule or Grandfather Mining and Development Corp., et al. v. Redmont
Rule Proper, the combined totals in the Investing Consolidated Mines, G.R. No. 195580, April 21,
Corporation and the Investee Corporation must be 2014]
traced (i.e., "grandfathered") to determine the total
percentage of Filipino ownership. N.B. Primarily, it is the incorporation test which
should be applied in determining the nationality of
Moreover, the ultimate Filipino ownership of the a corporation. "Under Philippine jurisdiction, the
shares must first be traced to the level of the primary test is always the Place of Incorporation
Investing Corporation and added to the shares Test since we adhere to the doctrine that a
directly owned in the Investee Corporation. corporation is a creature of the State whose laws it
has been created. A corporation organized under
In other words, based on the said SEC Rule and DOJ the laws of a foreign country, irrespective of the
Opinion, the Grandfather Rule or the second part of nationality of the persons who control it is
the SEC Rule applies only when the 60-40 Filipino- necessarily a foreign corporation. The control test
foreign equity ownership is in doubt (i.e., in cases and the principal place of business test (siege

- 30 -
social), are merely adjunct tests, when the place of [Heirs of Gamboa v. Teves, G.R.No.176579, October
incorporation test indicates that the subject 9, 2012]
corporation is organized under Philippine laws.”
However, based upon the foregoing, while the 43. Y was the newly elected president of S
incorporation test serves as the primary test under Corp. who, during a meeting, demanded
Philippine jurisdiction, other tests such as the the turnover of the corporate records from
control test must be used for purposes of Q. The said records, however, were with C,
compliance with the provisions of the Constitution the corporate accountant, who kept them
and of other laws on nationality requirements. Even for Q. Later on, C and Q caused the removal
if the corporation is a creature of the State, there is of the corporate records from the company
a need to further safeguard/regulate certain areas premises. B, the corporate secretary, also
of investment and activities for the protection of demanded for the turnover of the stock
the interests of Filipinos. For instance, the control and transfer book from P. P however said it
test is used to determine the eligibility of a will be deposited in a safety deposit but
corporation, which has foreign equity participation with E Bank. But, this was also taken by Q.
in its ownership structure, to engage in nationalized Q brought the book to the company office
or partly nationalized activities. [SEC-OGC Opinion and demanded that entries be made
No. 11-42, 12 October 2011; Underscoring supplied] therein. A court had already ordered that
the said entries be deleted, but Q refused
42. For purposes of determining compliance to do so, and he still kept custody of the
with ownership requirements under the corporate records. Thus, a criminal
Constitution and existing laws, for complaint was filed against C, Q, and P.
corporations engaged in areas of activities Should the case be dismissed?
or enterprises specifically reserved, wholly
or partly, to Philippine Nationals, what Yes. A criminal action based on the violation of a
should be considered? stockholder's right to examine or inspect the
corporate records and the stock and transfer book
For this purpose, ‘capital’ under Section 11, Article of a corporation under the second and fourth
XII of the 1987 Constitution refers to shares of stock paragraphs of Section 74 of the Corporation Code-
entitled to vote in the election of directors. [Heirs of such as this criminal case--can only be maintained
Gamboa v. Teves, G.R.No.176579, October 9, 2012] against corporate officers or any other persons
Thus, for purposes of determining compliance acting on behalf of such corporation. However, the
therewith, the required percentage of Filipino instant case clearly suggest that respondents are
ownership shall be applied to BOTH (a) the total neither in relation to S Corp. While Section 74 of
number of outstanding shares of stock entitled to the Corporation Code expressly mentions the
vote in the election of directors; AND (b) the total application of Section 144 only in relation to the act
number of outstanding shares of stock, whether or of "refus[ing] to allow any director, trustees,
not entitled to vote in the election of directors. [SEC stockholder or member of the corporation to
Memorandum Circular no. 8, series of 2013] examine and copy excerpts from [the corporation's]
records or minutes," the same does not mean that
Both the Voting Control Test and the Beneficial the latter section no longer applies to any other
Ownership Test must be applied to determine possible violations of the former section.
whether a corporation is a “Philippine national.”
It must be emphasized that Section 144 already

- 31 -
purports to penalize "[v]iolations" of "any or records a corporation is required to keep; where
provision" of the Corporation Code "not otherwise the corporation shall keep them; and what are the
specifically penalized therein." It is inconsequential other obligations of the corporation to its
the fact that that Section 74 expressly mentions the stockholders or members in relation to such books
application of Section 144 only to a specific act, but and records. Hence, by parity of reasoning, the
not with respect to the other possible violations of second and fourth paragraphs of Section 74,
the former section. including the first paragraph of the same section,
can only be violated by a corporation. It is clear
There is no cogent reason why Section 144 of the then that a criminal action based on the violation of
Corporation Code cannot be made to apply to the second or fourth paragraphs of Section 74 can
violations of the right of a stockholder to inspect only be maintained against corporate officers or
the stock and transfer book of a corporation under such other persons that are acting on behalf of the
Section 74(4) given the already unequivocal intent corporation. Violations of the second and fourth
of the legislature to penalize violations of a parallel paragraphs of Section 74 contemplates a situation
right, i.e., the right of a stockholder or member to wherein a corporation, acting thru one of its
examine the other records and minutes of a officers or agents, denies the right of any of its
corporation under Section 74(2). Certainly, all the stockholders to inspect the records, minutes and
rights guaranteed to corporators under Section 74 the stock and transfer book of such corporation.
of the Corporation Code are mandatory for the
corporation to respect. All such rights are just the The problem the instant case and the evidence
same underpinned by the same policy submitted during preliminary investigation is that
consideration of keeping public confidence in the they do not establish that respondents were acting
corporate vehicle thru an assurance of on behalf of S Corp. Quite the contrary, the
transparency in the corporation's operations. scenario painted by the complaint is that the
respondents are merely outgoing officers of S Corp
Refusing to allow inspection of the stock and who, for some reason, withheld and refused to
transfer book when done in violation of Section tum-over the company records of S Corp; that it is
74(4) of the Corporation Code, properly falls within the petitioners who are actually acting on behalf of
the purview of Section 144 of the same code and S Corp; and that S Corp is actually merely trying to
thus may be penalized as an offense. recover custody of the withheld records. In other
words, petitioners are not actually invoking their
A criminal action based on the violation of a right to inspect the records and the stock and
stockholder's right to examine or inspect the transfer book of S Corp under the second and
corporate records and the stock and transfer hook fourth paragraphs of Section 74. What they seek to
of a corporation under the second and fourth enforce is the proprietary right of S Corp to be in
paragraphs of Section 74 of the Corporation Code possession of such records and book. Such right,
can only he maintained against corporate officers though certainly legally enforceable by other
or any other persons acting on behalf of such means, cannot be enforced by a criminal
corporation. prosecution based on a violation of the second and
fourth paragraphs of Section 74. That is simply not
A perusal of the second and fourth paragraphs of the situation contemplated by the second and
Section 74, as well as the first paragraph of the fourth paragraphs of Section 74 of the Corporation
same section, reveal that they are provisions that Code. [Aderito Z. Yujuico and Bonifacio C. Sumbilla
obligates a corporation: they prescribe what books

- 32 -
v. Cezar T. Quiambao and Eric C. Pilapil, G.R. No. corporate concerns. The trustee of a corporation
180416, June 2, 2014] may continue to prosecute a case commenced by
the corporation within three years from its
44. A complaint for injunction and damages dissolution until rendition of the final judgment,
was filed by ADC Corp against AHV even if such judgment is rendered beyond the
Association and its president. This arose as three-year period allowed by Section 122 of the
ADC alleged that AHV Association Corporation Code. However, there is nothing in the
constructed a multi-purpose hall and said cases which allows an already defunct
swimming pool on one of the parcels of corporation to initiate a suit after the lapse of the
land owned by ADC which were to be sold said three-year period. [Alabang Development
without its consent and approval. Corporation v. Alabang Hills Village Association and
However, its SEC registration had been Rafael Tinio, G.R. No. 187456, June 2, 2014]
revoked more than three years prior to the
institution of the action. Can it still file the 45. INC, a religious corporation, had been in
instant case? existence since 1914. Has its corporate
term expired in line with the provisions of
No. It is to be noted that the time during which the the Corporation Code?
corporation, through its own officers, may conduct
the liquidation of its assets and sue and be sued as No. Religious corporations may be allowed to exist
a corporation is limited to three years from the perpetually. While the Corporation Code has
time the period of dissolution commences; but specific provisions for religious corporations, set
there is no time limit within which the trustees out in Title XIII on Special Corporations, particularly
must complete a liquidation placed in their hands. Sections 110 and 116, both of which do not provide
It is provided only (Corp. Law, Sec. 78 [now Sec. for a term of existence for religious corporations,
122]) that the conveyance to the trustees must be whether classified as a corporation sole or religious
made within the three-year period. It may be found society. The law never intended to limit the
impossible to complete the work of liquidation corporate life of religious corporations, hence, they
within the three-year period or to reduce disputed may be allowed to exist perpetually. Religious
claims to judgment. The authorities are to the corporations may limit their corporate term by
effect that suits by or against a corporation abate providing a specific term in their articles of
when it ceased to be an entity capable of suing or incorporation. However, absent such specification,
being sued (7 R.C.L., Corps., par. 750); but trustees it shall be understood that the corporation
to whom the corporate assets have been conveyed intended to exist for an indefinite period. [SEC OGC
pursuant to the authority of Sec. 78 [now Sec. 122] Opinion No. 14-18, 10 July 2014]
may sue and be sued as such in all matters
connected with the liquidation. Still in the absence 46. What is the corporate term of an
of a board of directors or trustees, those having any educational institution incorporated under
pecuniary interest in the assets, including not only the Corporation Code?
the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make The corporate terms of such should also be 50
proper representations with the Securities and years in accordance with the provisions of the
Exchange Commission, which has primary and Corporation Code. However, if the corporation was
sufficiently broad jurisdiction in matters of this incorporated under the older Corporation Law,
nature, for working out a final settlement of the which did not require a maximum corporate term

- 33 -
for corporations, then they should amend their not necessarily include ‘investment in a
articles of incorporation to comply with the partnership’. There being differences between the
applicable provisions of the Corporation Code on or two, the effects of such investments should be
before May 1, 1982, the expiry date of the two (2) differentiated. Investment in a partnership will only
year period, the SEC will consider the provisions of be akin to an investment in a corporation that is
the latter law as written into the articles of exempt from the doing of business rule only when
incorporation as of May 1, 1980, the date of the foreign corporation is exclusively a limited
effectivity of the Corporation Code." Hence, based partner and takes no part in the management and
on the said pronouncement, the 50-year period control of the business operation of the limited
should be counted from 01 May 1980, in partnership. If the corporation is not a limited
accordance with the Corporation Code. The 50-year partner and actively takes part in the control of the
period should not be counted from the date of business, then the corporation is doing business in
registration as this would adversely affect the the Philippines as provided in Section 3(d) of the
operations of pre-war schools which were FIA, thus, must secure a license to do business in
established more than fifty (50) years from the date the Philippines. [SEC Opinion No. 14-01, 21
of effectivity of the Corporation Code since it would February 2014]
result in the dissolution of said corporations as the
50-year period had already lapsed. [SEC-OGC
Opinion No. 13-05, 24 April 2013]
47. Is a foreign corporation required to obtain

a license to transact business in the
Philippines if such becomes a member of a
petroleum consortium, but is not the
operator thereof, and will hold only a
minority and non-controlling interest
therein?
Yes, if the corporation is not a mere limited partner,

then the subject foreign corporation still needs to
obtain a license to do business in the Philippines
under the Foreign Investments Act (FIA) of 1991,
notwithstanding the fact that it holds a minority
and non-controlling interest in the consortium. A
consortium or joint venture is a form of
partnership, governed by the laws of partnership.
Doing business is, among others, the participation
in the management, supervision, or control of any
domestic business, firm, entity, or corporation. in
order to be exempted from obtaining a license to
do business in the Philippines, the foreign
corporation must prove that it merely invested as a
shareholder in a domestic corporation. This is
limited to ‘investment in a corporation’, which does

- 34 -
Securities Regulation Code Transportation Laws
1. A complaint was filed by joint account 1. N Corp. shipped goods to UMC from Japan
holders, G, T, and L, against Citibank NA to Manila. The goods were insured by P
and its officials for violation of the Revised Insurance against all risks. When they
Securities Act (RSA) and the Securities arrived in Manila, it was found that one
Regulation Code. It was alleged that G, T, package was in bad order. UMC declared
and L were induced by the bank’s VP and the damaged goods as a total loss. P
Director to sign a subscription agreement insurance paid UMC for the loss, and filed a
to purchase income notes. Later on, they complaint against N Corp. and the brokers.
were again made to purchase other income The goods were delivered to UMC on May
notes. They found out that the investments 12, 1995, and it filed a bad order survey on
declined and that the notes were not that same day. The action was filed by the
registered with the SEC in accordance with insurer on January 18, 1996. Has the action
the law. Citibank and its officials alleged prescribed?
that the action had already prescribed.
What is the prescriptive period applicable No. The prescriptive period for filing an action for
in the instant case? the loss or damage of the goods under the COGSA
is found in paragraph (6), Section 3, thus:
The SRC does not provide for a prescriptive period
for the enforcement of criminal liability, thus, RA (6) Unless notice of loss or damage and the
3362 would come into play. Under Section 73 of the general nature of such loss or damage be given
SRC, violation of its provisions or the rules and in writing to the carrier or his agent at the port
regulations is punishable with imprisonment of not of discharge before or at the time of the
less than seven (7)years nor more than twenty-one removal of the goods into the custody of the
(21) years. Applying Section 1 of Act No.3326, a person entitled to delivery thereof under the
criminal prosecution for violations of the SRC shall, contract of carriage, such removal shall be
therefore, prescribe in twelve (12) years. prima facie evidence of the delivery by the
carrier of the goods as described in the bill of
Hand in hand with Section 1, Section 2 of Act No. lading. If the loss or damage is not apparent, the
3326 states that "prescription shall begin to run notice must be given within three days of the
from the day of the commission of the violation of delivery.
the law, and if the same be not known at the time,
from the discovery thereof and the institution of Said notice of loss or damage maybe endorsed
judicial proceedings for its investigation and upon the receipt for the goods given by the person
punishment." [Citibank N.A. v. Tanco-Gabaldon, taking delivery thereof.
G.R. No. 198444, September 4, 2013]
The notice in writing need not be given if the state
of the goods has at the time of their receipt been
the subject of joint survey or inspection.
In any event the carrier and the ship shall be

discharged from all liability in respect of loss or
damage unless suit is brought within one year after

- 35 -
delivery of the goods or the date when the goods requirement shall not affect or prejudice the right
should have been delivered: Provided, That if a of the shipper to bring suit within one year after
notice of loss or damage, either apparent or delivery of the goods. The insurer, as subrogee of
concealed, is not given as provided for in this UMC, filed the Complaint for damages on January
section, that fact shall not affect or prejudice the 18, 1996, just eight months after all the packages
right of the shipper to bring suit within one year were delivered to its possession on May 17, 1995.
after the delivery of the goods or the date when the Evidently, the action was seasonably filed. [Asian
goods should have been delivered. Terminals, Inc. v. Philam Insurance Co., Inc. (now
Chartis Philippines Insurance Inc.)/ Philam Insurance
A letter of credit is a financial device developed by Co., Inc. (now Chartis Philippines Insurance Inc.) v.
merchants as a convenient and relatively safe mode Westwind Shipping Corporation and Asian
of dealing with sales of goods to satisfy the Terminals, Inc./ Westwind Shipping Corporation v.
seemingly irreconcilable interests of a seller, who Philam Insurance Co., Inc. and Asian Terminals, Inc.,
refuses to part with his goods before he is paid, and G.R. Nos. 181163/181262/181319, July 24, 2013]
a buyer, who wants to have control of his goods
before paying. However, letters of credit are 2. S Corp. shipped goods on board a vessel
employed by the parties desiring to enter into owned by E Shipping, to be delivered to the
commercial transactions, not for the benefit of the consignee, C Steel. The goods were insured
issuing bank but mainly for the benefit of the by MS Insurance. The shipment arrived in
parties to the original transaction, in these cases, N Manila, but it was found that some of the
Corp. as the seller and UMC as the buyer. Hence, goods were in bad condition. When
the latter, as the buyer of the goods, should be delivered to C Steel, the latter rejected the
regarded as the person entitled to delivery of the goods being unfit for their intended
goods. Accordingly, for purposes of reckoning when purpose. S Corp thereafter shipped another
notice of loss or damage should be given to the batch of goods under similar
carrier or its agent, the date of delivery to UMC is circumstances, which when they arrived in
controlling. Manila, were also found to be in bad order.
Again, C Steel rejected the goods. C Steel
A request for, and the result of a bad order was paid by MS Insurance for the damage
examination, done within the reglementary period to the goods, and thus, MS Insurance filed
for furnishing notice of loss or damage to the an action for damages against E Shipping
carrier or its agent, serves the purpose of a claim. A and the stevedore. Can E Shipping be held
claim is required to be filed within the reglementary liable?
period to afford the carrier or depositary
reasonable opportunity and facilities to check the Yes. It is settled in maritime law jurisprudence that
validity of the claims while facts are still fresh in the cargoes while being unloaded generally remain
minds of the persons who took part in the under the custody of the carrier. Based evidence
transaction and documents are still available. Here, presented, the goods were damaged even before
UMC filed a request for bad order survey on May they were turned over to the stevedore. Such
12, 1995, even before all the packages could be damage was even compounded by the negligent
unloaded to its warehouse. acts of E Shipping and the Stevedore which both
mishandled the goods during the discharging
Moreover, paragraph (6), Section 3 of the COGSA operations. Thus, it bears stressing unto E Shipping
clearly states that failure to comply with the notice that common carriers, from the nature of their

- 36 -
business and for reasons of public policy, are bound fictitious bookings for the other members
to observe extraordinary diligence in the vigilance of R’s family. In Manila, R was informed
over the goods transported by them. Subject to that it was Cathay that cancelled the
certain exceptions enumerated under Article 1734 bookings. A complaint for damages was
of the Civil Code, common carriers are responsible filed against Cathay and S Travel. Can
for the loss, destruction, or deterioration of the Cathay and S Travel be held liable?
goods. The extraordinary responsibility of the
common carrier lasts from the time the goods are The determination of whether or not the award of
unconditionally placed in the possession of, and damages is correct depends on the nature of R’s
received by the carrier for transportation until the contractual relations with Cathay Pacific and S
same are delivered, actually or constructively, by Travel. The cause of action against Cathay Pacific
the carrier to the consignee, or to the person who stemmed from a breach of contract of carriage. A
has a right to receive them. Owing to this high contract of carriage is defined as one whereby a
degree of diligence required of them, common certain person or association of persons obligate
carriers, as a general rule, are presumed to have themselves to transport persons, things, or news
been at fault or negligent if the goods they from one place to another for a fixed price. Under
transported deteriorated or got lost or destroyed. Article 1732 of the Civil Code, this "persons,
That is, unless they prove that they exercised corporations, firms, or associations engaged in the
extraordinary diligence in transporting the goods. In business of carrying or transporting passengers or
order to avoid responsibility for any loss or damage, goods or both, by land, water, or air, for
therefore, they have the burden of proving that compensation, offering their services to the public"
they observed such high level of diligence. In this is called a common carrier.
case, E Shipping failed to hurdle such burden.
[Eastern Shipping Lines v. BPI/MS Insurance R and his family entered into a contract of carriage
Corporation, G.R. No. 193986, 15 January 2014] with Cathay Pacific. As far as R and his family are
concerned, they were holding valid and confirmed
3. R made travel reservations with S Travel airplane tickets. The ticket in itself is a valid written
for his family’s trip to Australia. Upon contract of carriage whereby for a consideration,
booking and confirmation of his flight Cathay Pacific undertook to carry respondents in its
schedule, R paid the airfare and was issued airplane for a round-trip flight from Manila to
Cathay Pacific round-trip plane tickets for Adelaide, Australia and then back to Manila. In fact,
Manila-HongKong-Adelaide-HongKong- R called the Cathay Pacific office before his return
Manila. Their flight to Australia went flight to re-confirm his booking. He was even
smoothly. Before the flight back to Manila, assured by a staff of Cathay Pacific that he does not
the booking was reconfirmed and it was need to reconfirm his booking. Cathay Pacific
said that the reservation was still Ok as breached its contract of carriage with respondents
scheduled. They were only able to take a when it disallowed them to board the plane to go
flight out back to Manila on the next day. back to Manila on the date reflected on their
When R and his family were at the airport tickets. Thus, Cathay Pacific opened itself to claims
to catch the flight back to Manila, they for compensatory, actual, moral and exemplary
were informed by S Travel that they did not damages, attorney’s fees and costs of suit.
have confirmed reservations. Cathay,
however, said that S Travel failed to input In contrast, the contractual relation between S
the ticket numbers of R, and made Travel and R is a contract for services. The object of

- 37 -
the contract is arranging and facilitating the latter’s Insurance Law
booking and ticketing. It was even S Travel which
issued the tickets. Since the contract between the 1. In a CBA, it was provided that the employer
parties is an ordinary one for services, the standard will shoulder hospitalization expenses of
of care required of respondent is that of a good the dependents of covered employees
father of a family under Article 1173 of the Civil subject to certain limitations and
Code. This connotes reasonable care consistent restrictions. Accordingly, covered
with that which an ordinarily prudent person would employees pay part of the hospitalization
have observed when confronted with a similar insurance premium through monthly salary
situation. The test to determine whether deductions while the company, upon
negligence attended the performance of an hospitalization of the covered employees'
obligation is: did the defendant in doing the alleged dependents, shall pay the hospitalization
negligent act use that reasonable care and caution expenses incurred for the same. The
which an ordinarily prudent person would have conflict arose when a portion of the
used in the same situation? If not, then he is guilty hospitalization expenses of the covered
of negligence. There was indeed failure on the part employees' dependents were
of S Travel to exercise due diligence in performing paid/shouldered by the dependent's own
its obligations under the contract of services. It was health insurance. While the company
established by Cathay Pacific, that S Travel failed to refused to pay the portion of the hospital
input the correct ticket number for R’s ticket. expenses already shouldered by the
Cathay Pacific even asserted that S Travel made two dependents' own health insurance, the
fictitious bookings for the members of R’s family. union insists that the covered employees
The negligence of S Travel renders it also liable for are entitled to the whole and undiminished
damages. [Cathay Pacific Airways v. Juanita Reyes, amount of said hospital expenses. Decide.
et al., G.R. No. 185891, June 26, 2013]
The covered employees are not entitled to full
payment of the hospital expenses incurred by their
dependents, including the amounts already paid by
other health insurance companies based on the
theory of collateral source rule.
As part of American personal injury law, the

collateral source rule was originally applied to tort
cases wherein the defendant is prevented from
benefiting from the plaintiff’s receipt of money
from other sources. Under this rule, if an injured
person receives compensation for his injuries from
a source wholly independent of the tortfeasor, the
payment should not be deducted from the damages
which he would otherwise collect from the
tortfeasor. In a recent Decision by the Illinois
Supreme Court, the rule has been described as “an
established exception to the general rule that
damages in negligence actions must be

- 38 -
compensatory.” The Court went on to explain that
although the rule appears to allow a double No. Here, by the clear and express condition in the
recovery, the collateral source will have a lien or renewal policy, the removal of the insured property
subrogation right to prevent such a double to any building or place required the consent of the
recovery. insurer. Any transfer effected by the insured,
without the insurer’s consent, would free the latter
The collateral source rule applies in order to place from any liability. Considering that the original
the responsibility for losses on the party causing policy was renewed on an “as is basis,” it follows
them. Its application is justified so that “the that the renewal policy carried with it the same
wrongdoer should not benefit from the stipulations and limitations. The terms and
expenditures made by the injured party or take conditions in the renewal policy provided, among
advantage of contracts or other relations that may others, that the location of the risk insured against
exist between the injured party and third persons.” is at PAP’s factory. The subject insured properties,
Thus, it finds no application to cases involving no- however, were totally burned at another factory.
fault insurances under which the insured is Although it was also located in the same area, the
indemnified for losses by insurance companies, other factory was not the location stipulated in the
regardless of who was at fault in the incident renewal policy. There being an unconsented
generating the losses. Here, it is clear that the removal, the transfer was at PAP’s own risk.
employer is a no-fault insurer. Hence, it cannot be Consequently, it must suffer the consequences of
obliged to pay the hospitalization expenses of the the fire. Thus, the Court agrees with the report of
dependents of its employees which had already an international loss adjuster which investigated
been paid by separate health insurance providers of the fire incident at the other factory, which opined
said dependents. [Mitsubishi Motors Philippines that “[g]iven that the location of risk covered under
Salaried Employees Union v. Mitsubishi Motors the policy is not the location affected, the policy
Philippines Corporation, G.R. No. 175773, June 17, will, therefore, not respond to this loss/claim.” It
2013] can also be said that with the transfer of the
location of the subject properties, without notice
2. M Insurer insured PAP’s machineries and and without M insurer’s consent, after the renewal
equipment against fire, for a period of one of the policy, PAP clearly committed concealment,
year, for the amount of 15 million pesos. misrepresentation and a breach of a material
This was procured by PAP for its warranty.
mortgagee, RCBC. The insurance policy was
renewed before the lapse of one year, on Accordingly, an insurer can exercise its right to
an ‘as is’ basis, and it was agreed that the rescind an insurance contract when the following
things insured will not be moved to conditions are present, to wit:
another location, without the consent of M 1) the policy limits the use or condition of the
insurer. The machineries and equipment thing insured;
were thereafter lost in a fire, which 2) there is an alteration in said use or condition;
prompted PAP to claim from M insurer. The 3) the alteration is without the consent of the
claim was denied on the ground that the insurer;
things insured were transferred to a 4) the alteration is made by means within the
different location from that indicated in the insured’s control; and
policy. Can M insurer be held liable for the 5) the alteration increases the risk of loss.
loss?

- 39 -
In the case at bench, all these circumstances are ground of concealment or misrepresentation by the
present. It was clearly established that the renewal insured.
policy stipulated that the insured properties were
located at PAP’s factory; that PAP removed the Section 48 serves a noble purpose, as it regulates
properties without the consent of M insurer; and the actions of both the insurer and the insured.
that the alteration of the location increased the risk Under the provision, an insurer is given two years –
of loss. [Malayan Insurance Company, Inc. v. PAP from the effectivity of a life insurance contract and
co., Ltd. (Philippine Branch), G.R. No. 200784, while the insured is alive – to discover or prove that
August 7, 2013] the policy is void ab initio or is rescindible by reason
of the fraudulent concealment or
3. M Insurance issued a life insurance policy misrepresentation of the insured or his agent. After
covering the life of S, with A as beneficiary. the two-year period lapses, or when the insured
More than two years after the insurance dies within the period, the insurer must make good
was issued, S died, thus, A filed a claim for on the policy, even though the policy was obtained
the proceeds. The claim was denied by fraud, concealment, or misrepresentation. This is
because the claim was spurious, as it not to say that insurance fraud must be rewarded,
appeared after its investigation that S did but that insurers who recklessly and
not actually apply for insurance coverage, indiscriminately solicit and obtain business must be
was unlettered, sickly, and had no visible penalized, for such recklessness and lack of
source of income to pay for the insurance discrimination ultimately work to the detriment of
premiums; and that A was an impostor, bona fide takers of insurance and the public in
posing as S and fraudulently obtaining general.
insurance in the latter’s name without her
knowledge and consent. Can M Insurance Section 48 prevents a situation where the insurer
deny the claim? knowingly continues to accept annual premium
payments on life insurance, only to later on deny a
No. "Fraudulent intent on the part of the insured claim on the policy on specious claims of fraudulent
must be established to entitle the insurer to rescind concealment and misrepresentation, such as what
the contract." In the absence of proof of such obtains in the instant case. Thus, instead of
fraudulent intent, no right to rescind arises. There conducting at the first instance an investigation into
being no evidence that there was indeed fraud, the circumstances surrounding the issuance of the
except for the self-serving result of M Insurance’s subject insurance policy which would have timely
investigation, then the claim cannot be denied. exposed the supposed flaws and irregularities
attending it as it now professes, M Insurance
Also, Section 48 of the Insurance Code will prevent appears to have turned a blind eye and opted
the insurer from barring the claim. The results and instead to continue collecting the premiums on the
conclusions arrived at during the investigation policy. For nearly three years, the insurer collected
conducted unilaterally by petitioner after the claim the premiums and devoted the same to its own
was filed may simply be dismissed as self-serving profit. It cannot now deny the claim when it is
and may not form the basis of a cause of action called to account. Section 48 must be applied to it
given the existence and application of Section 48, with full force and effect. [Manila Bankers v.
which provides that if the life insurance policy has Crisencia Aban, GR No. 175666, July 29, 2013]
been in force for at least two years from its date of
issuance, the insurer cannot deny the claim on the

- 40 -
4. V Corp operated a tanker which was the insurer from non-compliance with his
chartered by C Inc. to transport petroleum. obligation.
The petroleum was insured by AHA Co.
however, during the course of the voyage, The words "loss" and "damage" mean different
the tanker collided with another vessel and things in common ordinary usage. The word "loss"
sank along with the petroleum. AHA Co. refers to the act or fact of losing, or failure to keep
indemnified C Inc. for the loss, and later possession, while the word "damage" means
sued V Corp for reimbursement. What is deterioration or injury to property.
the prescriptive period for filing an action
for reimbursement by the insurer as a Therefore, the insurer cannot exclude the loss of
result of subrogation? vehicle under the exceptions in the insurance policy
since the same refers only to "malicious damage,"
The cause of action of the insurer is one which or more specifically, "injury" to the motor vehicle
arose out of subrogation by virtue of Article 2207 of caused by a person under the insured’s service. It
the Civil Code, which is based upon an obligation clearly does not contemplate "loss of property," as
created by law. It comes under Article 1194(2) of what happened in the instant case.
the Civil Code and prescribes in ten years. [Vector
Shipping v. American Home Insurance, GR No. "Malicious damage," as provided for in the subject
159213, 3 July 2013] policy as one of the exceptions from coverage, is
the damage that is the direct result from the
N.B. If there is a period within which the insured deliberate or willful act of the insured, members of
can file a claim with the wrongdoer, the subrogated his family, and any person in the insured’s service,
insurance company is also bound by such period. whose clear plan or purpose was to cause damage
The subrogated insurance company stands in the to the insured vehicle for purposes of defrauding
place and in substitution of the consignee. [Federal the insurer
Express v. American Home Assurance, G.R. No.
150094, August 18, 2004] Theft perpetrated by a driver of the insured is not
an exception to the coverage from the insurance
5. R insured her car with P Insurer in case of policy subject of this case. This is evident from the
loss or damage thereto. The car was to be very provision of the insurance policy. The
taken to an auto shop by R’s driver, but the insurance company, subject to the limits of liability,
driver no longer return. After efforts to find is obligated to indemnify the insured against theft.
it failed, R notified the insurer of the loss. Said provision does not qualify as to who would
The claim of R against the insurer was commit the theft. Thus, even if the same is
denied because of a provision in the policy committed by the driver of the insured, there being
which exempts the insurer from liability in no categorical declaration of exception, the same
case malicious damage to the car was must be covered. "(A)n insurance contract should
caused by the employee of the insured. Can be interpreted as to carry out the purpose for
the insurer deny R’s claim on such ground? which the parties entered into the contract which is
to insure against risks of loss or damage to the
No. A contract of insurance is a contract of goods. Such interpretation should result from the
adhesion. When the terms of the insurance natural and reasonable meaning of language in the
contract contain limitations on liability, courts policy. Where restrictive provisions are open to two
should construe them in such a way as to preclude interpretations, that which is most favorable to the

- 41 -
insured is adopted." The defendant would argue hospital and professional fees which he actually
that if the person employed by the insured would incurred, and should not be limited by the amount
commit the theft and the insurer would be held that he would have incurred had his emergency
liable, then this would result to an absurd situation treatment been performed in an accredited
where the insurer would also be held liable if the hospital in the Philippines. . For purposes of
insured would commit the theft. This argument is determining the liability of a health care provider
certainly flawed. Of course, if the theft would be to its members, jurisprudence holds that a health
committed by the insured himself, the same would care agreement is in the nature of non-life
be an exception to the coverage since in that case insurance, which is primarily a contract of
there would be fraud on the part of the insured or indemnity. Once the member incurs hospital,
breach of material warranty under Section 69 of the medical or any other expense arising from sickness,
Insurance Code. injury or other stipulated contingent, the health
care provider must pay for the same to the extent
Indemnity and liability insurance policies are agreed upon under the contract. that a health care
construed in accordance with the general rule of agreement is in the nature of a non-life insurance.
resolving any ambiguity therein in favor of the It is an established rule in insurance contracts that
insured, where the contract or policy is prepared by when their terms contain limitations on liability,
the insurer. A contract of insurance, being a they should be construed strictly against the
contract of adhesion, par excellence, any ambiguity insurer. These are contracts of adhesion the terms
therein should be resolved against the insurer; in of which must be interpreted and enforced
other words, it should be construed liberally in stringently against the insurer which prepared the
favor of the insured and strictly against the insurer. contract. This doctrine is equally applicable to
Limitations of liability should be regarded with health care agreements. L]imitations of liability on
extreme jealousy and must be construed in such a the part of the insurer or health care provider must
way as to preclude the insurer from non- be construed in such a way as to preclude it from
compliance with its obligations. [Alpha Insurance evading its obligations. Accordingly, they should be
and Surety Co. v. Arsenia Sonia Castor, G.R. No. scrutinized by the courts with "extreme jealousy"
198174, September 2, 2013] and "care" and with a "jaundiced eye. [Fortune
Medicare, Inc. v. David Robert U. Amorin, G.R. No.
6. A was a health insurance policy holder of M 195872, March 12, 2014]
Inc. He underwent emergency medical
appendectomy causing him to incur 7. What is Microinsurance?
medical expenses while in the US.
However, M In. only approved Microinsurance is an activity providing specific
reimbursement of a portion of the insurance, insurance-like and other similar products
expenses, which was based on the average and services that meet the needs of the low-income
cost of the procedure if done in Manila. sector for risk protection and relief against distress,
With the denial of his claim for misfortune and other contingent events. This shall
reimbursement, A filed a complaint for include all forms of insurance, insurance-like and
breach of contract against M Inc. Should other similar activities with the following features:
the action prosper?
a. Premiums, contributions, fees or charges
Yes. M Inc.’s liability to A under the subject Health are collected or deducted prior to the
Care Contract should be based on the expenses for occurrence of a contingent event; and

- 42 -
b. Guaranteed benefits are provided upon Intellectual Property Laws
occurrence of a contingent event.
1. “HIPOLITO & SEA HORSE & TRIANGULAR
Insurance companies offering microinsurance will DEVICE," "FAMA," and other related marks
have a something called a “microinsurance were owned by CH S.A. of Portugal to
product” which is a financial product or service that designate kerosene burners. L claimed that
meets the risk protection needs of the poor where: the true owner of the marks G corp.
assigned them to him. However, he
a. The amount of premiums, contributions, claimed that he bought kerosene burners
fees or charges, computed on a daily basis, from W Corp. with the subject marks and
does not exceed 5% of the current daily indicated thereon that they were made in
minimum wage rate for non-agricultural Portugal. He thus filed a complaint against
workers in Metro Manila; and W Corp. and its officers for false
b. The maximum sum of guaranteed benefits is designation of origin. Can W Corp. be held
not more than 500 times the daily minimum liable?
wage rate for non-agricultural workers in
Metro Manila. Yes. W Corp. did not have authority from CH S.A. to
place the words “Made in Portugal” and “Original
All insurance companies, cooperative insurance Portugal” with the trademarks on the burners
societies and mutual benefit associations licensed produced in the Philippines. W Corp. placed the
by the Insurance Commissioner may provide words "Made in Portugal" and "Original Portugal"
microinsurrance products and services following with the disputed marks knowing fully well —
prescribed regulatory and prudential requirements. because of their previous dealings with the
[Insurance Memorandum Circular No. 1-2010, 29 Portuguese company — that these were the marks
January 2010] used in the products of CH S.A. Portugal. More
importantly, the products that W Corp. sold were
admittedly produced in the Philippines, with no
authority CH S.A. Portugal. The law on trademarks
and trade names precisely precludes a person from
profiting from the business reputation built by
another and from deceiving the public as to the
origins of products. [Uyco v. Lo, G.R. No. 202423,
January 28, 2013]
2. Levi’s Inc. was a licensee of Levi’s, a US

Corporation owner of trademarks and
designs of Levi’s Jeans. It received
information that D was selling counterfeit
Levi’s jeans, and with the help of the NBI,
had seized from D’s shop several fake Levi’s
jeans, with the trademark “LS JEANS
TAILORING”. It charged D with the crime of
trademark infringement. Is D guilty of
infringement?

- 43 -
as not acquired on a “made-to-order” basis. Under
No. The elements of the offense of trademark the circumstances, the consuming public could
infringement under the easily discern if the jeans were original or fake
Intellectual Property Code are, therefore, the Levi’s jeans, or were manufactured by other brands
following: of jeans. D used the trademark “LS JEANS
1. The trademark being infringed is registered TAILORING” for the jeans he produced and sold in
in the Intellectual Property Office; his tailoring shops. His trademark was visually and
2. The trademark is reproduced, counterfeited, aurally different from the trademark “LEVI STRAUSS
copied, or colorably imitated by the & CO” appearing on the patch of original jeans
infringer; under the trademark LEVI’S. The word “LS” could
3. The infringing mark is used in connection not be confused as a derivative from “LEVI
with the sale, offering for sale, or STRAUSS” by virtue of the “LS” being connected to
advertising of any goods, business or the word “TAILORING”, thereby openly suggesting
services; or the infringing mark is applied to that the jeans bearing the trademark “LS JEANS
labels, signs, prints, packages, wrappers, TAILORING” came or were bought from the
receptacles or advertisements intended to tailoring shops of D, not from the malls or
be used upon or in connection with such boutiques selling original Levi’s jeans to the
goods, business or services; consuming public. [Diaz v. People, G.R. No. 180677,
4. The use or application of the infringing mark 18 February 2013]
is likely to cause confusion or mistake or to
deceive purchasers or others as to the 3. A French partnership filed with the IPO a
goods or services themselves or as to the trademark application for the mark "LE
source or origin of such goods or services or CORDON BLEU & DEVICE". This was
the identity of such business; and opposed by Ecole alleging that it was the
5. The use or application of the infringing mark owner of the mark "LE CORDON BLEU,
is without the consent of the trademark ECOLE DE CUISINE MANILLE," which it has
owner or the assignee thereof. been using since 1948 in cooking and other
culinary activities, including in its
The gravamen of the offense is he likelihood of restaurant business, it has earned immense
confusion. There are two tests to determine and invaluable goodwill such that
likelihood of confusion, namely: the dominancy Cointreau’s use of the subject mark will
test, and the holistic test. The holistic test is actually create confusion, mistake, and
applicable here considering that the herein criminal deception to the buying public as to the
cases also involved trademark infringement in origin and sponsorship of the goods, and
relation to jeans products. Accordingly, the jeans cause great and irreparable injury and
trademarks of Levi’s and D must be considered as a damage to Ecole’s business reputation and
whole in determining the likelihood of confusion goodwill as a senior user of the same. Can
between them. The jeans made and sold by Levi’s, the said mark of the French partnership be
were very popular in the Philippines. The registered?
consuming public knew that the original Levi’s jeans
were under a foreign brand and quite expensive. Yes. Foreign marks which are not registered are still
Such jeans could be purchased only in malls or accorded protection against infringement and/or
boutiques as ready-to-wear items, and were not unfair competition. Under the Paris Convention, the
available in tailoring shops like those of D’s as well Philippines is obligated to assure nationals of the

- 44 -
signatory-countries that they are afforded an predecessor had secured a certificate of
effective protection against violation of their registration with the IPO. Can the action
intellectual property rights in the Philippines in the prosper?
same way that their own countries are obligated to
accord similar protection to Philippine nationals. No. F Manufacturing’s registration of the mark
“Thus, under Philippine law, a trade name of a "Harvard" should not have been allowed because
national of a State that is a party to the Paris Section 4(a) of R.A. No. 166 prohibits the
Convention, whether or not the trade name forms registration of a mark "which may disparage or
part of a trademark, is protected “without the falsely suggest a connection with persons, living or
obligation of filing or registration.’” dead, institutions, beliefs x x x." its use of the mark
"Harvard," coupled with its claimed origin in the US,
The present law on trademarks, Republic Act No. obviously suggests a false connection with Harvard
8293, otherwise known as the Intellectual Property University. On this ground alone, F Manufacturing’s
Code of the Philippines, as amended, has already registration of the mark "Harvard" should have
dispensed with the requirement of prior actual use been disallowed.
at the time of registration. Thus, there is more
reason to allow the registration of the subject mark Also, the Philippines and the United States of
under the name of the French partnership as its America are both signatories to the Paris
true and lawful owner. Convention for the Protection of Industrial Property
(Paris Convention). The Philippines became a
The function of a trademark is to point out signatory to the
distinctly the origin or ownership of the goods (or Paris Convention on 27 September 1965. The
services) to which it is affixed; to secure to him, Philippines is obligated to assure nationals of
who has been instrumental in bringing into the countries of the Paris Convention that they are
market a superior article of merchandise, the fruit afforded an effective protection against violation of
of his industry and skill; to assure the public that their intellectual property rights in the Philippines
they are procuring the genuine article; to prevent in the same way that their own countries are
fraud and imposition; and to protect the obligated to accord similar protection to Philippine
manufacturer against substitution and sale of an nationals. Thus, under Philippine law, a trade name
inferior and different article as his product. As such, of a national of a State that is a party to the Paris
courts will protect trade names or marks, although Convention, whether or not the trade name forms
not registered or properly selected as trademarks, part of a trademark, is protected "without the
on the broad ground of enforcing justice and obligation of filing or registration."
protecting one in the fruits of his toil. [Ecole De
Cuisine Manille (Cordon Bleu of the Philippines), Inc. Indeed, Section 123.1(e) of R.A. No. 8293 now
v. Renaud Cointreau & CIE and Le Condron Bleu categorically states that "a mark which is
Int’l., B.V., G.R. No. 185830, June 5, 2013] considered by the competent authority of the
Philippines to be well-known internationally and in
4. F Manufacturing filed a case against the Philippines, whether or not it is registered
Harvard U, an educational corporation in here," cannot be registered by another in the
the US, for the cancellation of its Philippines. Section 123.1(e) does not require that
registration of trademark. It alleged that the well-known mark be used in commerce in the
since 1995, it had used the trademark Philippines but only that it be well-known in the
“Harvard” for its goods, for which its Philippines.

- 45 -
territoriality principle a mark must be used in
In determining whether a mark is well-known, the commerce in the Philippines to be entitled to
following criteria or any combination thereof may protection, internationally well-known marks are
be taken into account: the exceptions to this rule.
(a) the duration, extent and geographical area
of any use of the mark, in particular, the Thus, the trademark of Harvard U, even if not
duration, extent and geographical area of registered here, is still entitled to protection.
any promotion of the mark, including "Harvard" is the trade name of the world famous
advertising or publicity and the Harvard University, and it is also a trademark of
presentation, at fairs or exhibitions, of the Harvard University. Under Article 8 of the Paris
goods and/or services to which the mark Convention, as well as Section 37 of R.A. No. 166,
applies; Harvard University is entitled to protection in the
(b) the market share, in the Philippines and in Philippines of its trade name "Harvard" even
other countries, of the goods and/or without registration of such trade name in the
services to which the mark applies; Philippines. This means that no educational entity
(c) the degree of the inherent or acquired in the Philippines can use the trade name "Harvard"
distinction of the mark; without the consent of Harvard University.
(d) the quality-image or reputation acquired by Likewise, no entity in the Philippines can claim,
the mark; expressly or impliedly through the use of the name
(e) the extent to which the mark has been and mark "Harvard," that its products or services
registered in the world; are authorized, approved, or licensed by, or
(f) the exclusivity of registration attained by sourced from, Harvard University without the
the mark in the world; latter's consent. [Fredco Manufacturing v. President
(g) the extent to which the mark has been used and Fellows of Harvard College, GR No. 185917, 1
in the world; June, 2011]
(h) the exclusivity of use attained by the mark
in the world; 5. B Corp. was a German company who
(i) the commercial value attributed to the mark applied for various trademark registrations
in the world; with the IPO, which included the mark
(j) the record of successful protection of the “Birkenstock”. However, registration
rights in the mark; proceedings were halted because the IPO
(k) the outcome of litigations dealing with the found an existing registration for the mark
issue of whether the mark is a well-known “Birkenstock and Device,” in the name of S
mark; and Corp. predecessor of PS Marketing. But, PS
(l) the presence or absence of identical or Marketing did not file a declaration of
similar marks validly registered for or used actual use (DAU) of the said marks. Should
on identical or similar goods or services and the registration of B corp. be allowed?
owned by persons other than the person
claiming that his mark is a well-known mark. Yes. The law requires the filing of a DAU on
specified periods, and failure to file the DAU within
Since "any combination" of the foregoing criteria is the requisite period results in the automatic
sufficient to determine that a mark is well-known, it cancellation of registration of a trademark. In turn,
is clearly not necessary that the mark be used in such failure is tantamount to the abandonment or
commerce in the Philippines. Thus, while under the withdrawal of any right or interest the registrant

- 46 -
has over his trademark. Also, it must be mark "BIRKENSTOCK" and entitled to its
emphasized that registration of a trademark, by registration, and that PS Marketing was in bad faith
itself, is not a mode of acquiring ownership. If the in having it registered in its name. [Birkenstock
applicant is not the owner of the trademark, he has Orthopaedie GMBH and Co. KG v. Philippine Shoe
no right to apply for its registration. Registration Expo Maarketing, G.R. No. 194307, November 20,
merely creates a prima facie presumption of the 2013]
validity of the registration, of the registrant’s
ownership of the trademark, and of the exclusive 6. P Corp and S Corp supply and produce LPG
right to the use thereof. Such presumption, just like in the Philippines. P Corp is the registered
the presumptive regularity in the performance of owner of the trademarks “Gasul” and Gasul
official functions, is rebuttable and must give way cylinders, while S Corp was the authorized
to evidence to the contrary. user of “Shellane” and Shellane cylinders in
the Philippines. With the help of the NBI, it
Clearly, it is not the application or registration of a was found that R Corp was engaged in the
trademark that vests ownership thereof, but it is refilling and sale of LPG cylinders bearing
the ownership of a trademark that confers the right the registered marks of the P Corp and S
to register the same. A trademark is an industrial Corp without authority from the latter. Can
property over which its owner is entitled to R Corp be held liable for infringement of
property rights which cannot be appropriated by trademark and unfair competition?
unscrupulous entities that, in one way or another,
happen to register such trademark ahead of its true Yes. The mere unauthorized use of a container
and lawful owner. The presumption of ownership bearing a registered trademark in connection with
accorded to a registrant must then necessarily yield the sale, distribution or advertising of goods or
to superior evidence of actual and real ownership services which is likely to cause confusion, mistake
of a trademark. or deception among the buyers or consumers can
be considered as trademark infringement. In the
In the instant case, B Corp. is the owner of the mark instant case, R Corp committed trademark
"BIRKENSTOCK." There is evidence relating to the infringement when they refilled, without the
origin and history of "BIRKENSTOCK" and its use in consent of P Corp and S Corp, the LPG containers
commerce long before respondent was able to bearing the latter’s registered marks. R Corp’s acts
register the same here in the Philippines. It has will inevitably confuse the consuming public, since
been sufficiently proven that "BIRKENSTOCK" was they have no way of knowing that the gas
first adopted in Europe in 1774 by its inventor, contained in the LPG tanks bearing the marks of P
Johann Birkenstock, a shoemaker, on his line of Corp and S Corp is in reality not the latter’s LPG
quality footwear and thereafter, numerous product after the same had been illegally refilled.
generations of his kin continuously engaged in the The public will then be led to believe that R Corp
manufacture and sale of shoes and sandals bearing are authorized refillers and distributors of the LPG
the mark "BIRKENSTOCK" until it became the entity products, considering that they are accepting
now known as the petitioner. Petitioner also empty containers P Corp and S Corp, and refilling
submitted various certificates of registration of the them for resale.
mark "BIRKENSTOCK" in various countries and that
it has used such mark in different countries Unfair competition has been defined as the passing
worldwide, including the Philippines. This being the off (or palming off) or attempting to pass off upon
case, B Corp. is the true and lawful owner of the the public of the goods or business of one person as

- 47 -
the goods or business of another with the end and jurisprudence has developed tests: the Dominancy
probable effect of deceiving the public. Passing off Test and the Holistic or Totality Test.
(or palming off) takes place where the defendant,
by imitative devices on the general appearance of The Dominancy Test focuses on the similarity of the
the goods, misleads prospective purchasers into prevalent or dominant features of the competing
buying his merchandise under the impression that trademarks that might cause confusion, mistake,
they are buying that of his competitors. Thus, the and deception in the mind of the purchasing public.
defendant gives his goods the general appearance Duplication or imitation is not necessary; neither is
of the goods of his competitor with the intention of it required that the mark sought to be registered
deceiving the public that the goods are those of his suggests an effort to imitate. Given more
competitor. In the present case, P Corp and S Corp consideration are the aural and visual impressions
pertinently observed that by refilling and selling created by the marks on the buyers of goods, giving
LPG cylinders bearing their registered marks, R Corp little weight to factors like prices, quality, sales
was selling goods by giving them the general outlets, and market segments.
appearance of goods of another manufacturer.
There is a showing that the consumers may be In contrast, the Holistic or Totality Test necessitates
misled into believing that the LPGs contained in the a consideration of the entirety of the marks as
cylinders bearing the marks "GASUL" and applied to the products, including the labels and
"SHELLANE" are those goods or products of the P packaging, in determining confusing similarity. The
Corp and S Corps when, in fact, they are not. discerning eye of the observer must focus not only
Obviously, the mere use of those LPG cylinders on the predominant words, but also on the other
bearing the trademarks "GASUL" and "SHELLANE" features appearing on both labels so that the
will give the LPGs sold by R Corp the general observer may draw conclusion on whether one is
appearance of the products of the P Corp and S confusingly similar to the other.
Corp. [Republic Gas Corporation v. Petron
Corporation and Plipinas Shell, G.R. No. 194062, Relative to the question on confusion of marks and
June 17, 2013] trade names, jurisprudence has noted two (2) types
of confusion, viz.: (1) confusion of goods (product
7. S Corp. filed an application for the issuance confusion), where the ordinarily prudent purchaser
of search warrant to search a warehouse of would be induced to purchase one product in the
IPI, alleging that the latter engaged in belief that he was purchasing the other; and (2)
infringement of trademark. Upon confusion of business (source or origin confusion),
implementation of the warrant, it was where, although the goods of the parties are
found that there were more than 6,000 different, the product, the mark of which
pairs of shoes bearing S Corp’s registered registration is applied for by one party, is such as
trademark (stylized S with an oval design). might reasonably be assumed to originate with the
Was there infringement? registrant of an earlier product, and the public
would then be deceived either into that belief or
Yes. There is colorable imitation between the shoes into the belief that there is some connection
of IPI and S Corp. The essential element of between the two parties, though inexistent.
infringement under R.A. No. 8293 is that the
infringing mark is likely to cause confusion. In Applying the Dominancy Test to the case at bar, this
determining similarity and likelihood of confusion, Court finds that the use of the stylized "S" by IPI in
its shoes infringes on the mark already registered

- 48 -
by S Corp. with the IPO. While it is undisputed that registration of a mark x x x" may file an opposition
S Corp.’s stylized "S" is within an oval design, to this to the application. The term "any person"
Court's mind, the dominant feature of the encompasses the true owner of the mark the prior
trademark is the stylized "S," as it is precisely the and continuous user. Notably, the Court has ruled
stylized "S" which catches the eye of the purchaser. that the prior and continuous use of a mark may
Thus, even if IPI did not use an oval design, the even overcome the presumptive ownership of the
mere fact that it used the same stylized "S", the registrant and be held as the owner of the mark. By
same being the dominant feature of S Copr.'s itself, registration is not a mode of acquiring
trademark, already constitutes infringement under ownership. When the applicant is not the owner of
the Dominancy Test. [Sketchers USA v. Inter Pacific the trademark being applied for, he has no right to
Industrial, GR No. 164321, Marche 23, 2011] apply for registration of the same. Registration
merely creates a prima facie presumption of the
8. EYIS corp., a Philippine company, validity of the registration, of the registrants
distributes air conditioners and other ownership of the trademark and of the exclusive
industrial tools and equipment. SD corp., right to the use thereof. Such presumption, just like
on the other hand, is a Taiwanese company the presumptive regularity in the performance of
engaged in the manufacture of air official functions, is rebuttable and must give way
compressors. Both claimed to have the to evidence to the contrary. In the instant case, EYIS
right to register the trademark "VESPA" for is the prior user of the mark, and is thus the true
air compressors. EYIS buys air compressors owner thereof. [E.Y. Industrial Sales v. Shen Dar
from SD, but the documents do not show Electricity and Machinery Co. Ltd., GR No. 184850,
that the said goods were marked as 20 October 2010]
“VESPA”. EYIS was able to register the
mark “VESPA” with the IPO. A month later, 9. M Pharmaceuticals registered “Dermalin”
SD was also granted registration. SD filed a as its trademark. Thereafter, D Inc. sought
petition to cancel EYIS’ registration. Who is to have “Dermaline” registered as a
the true owner of the mark? trademark under its name. this was
opposed to be M Pharmaceuticals allegeing
EYIS must be considered as the prior and that registration by D Inc. will likely cause
continuous user of the mark "VESPA" and its true confusion, mistake and deception to the
owner. Hence, EYIS is entitled to the registration of purchasing public, as the trademark sought
the mark in its name. the registration of a mark is to be registered by D Inc. so resembles its
prevented with the filing of an earlier application trademark, “Dermalin”. Can the trademark
for registration. This must not, however, be “Dermaline” be registered?
interpreted to mean that ownership should be
based upon an earlier filing date. While RA 8293 No. While there are no set rules that can be
removed the previous requirement of proof of deduced as what constitutes a dominant feature
actual use prior to the filing of an application for with respect to trademarks applied for registration;
registration of a mark, proof of prior and usually, what are taken into account are signs,
continuous use is necessary to establish ownership color, design, peculiar shape or name, or some
of a mark. Such ownership constitutes sufficient special, easily remembered earmarks of the brand
evidence to oppose the registration of a mark. Sec. that readily attracts and catches the attention of
134 of the IP Code provides that "any person who the ordinary consumer. Verily, when one applies for
believes that he would be damaged by the the registration of a trademark or label which is

- 49 -
almost the same or that very closely resembles one 10. K Inc. had the trademarks, trading styles,
already used and registered by another, the company names and business names
application should be rejected and dismissed "KENNEX", "KENNEX & DEVICE", "PRO
outright, even without any opposition on the part KENNEX" and "PRO-KENNEX", in its name.
of the owner and user of a previously registered S Corp. filed an action against K Inc.
label or trademark. This is intended not only to alleging trademark infringement, saying
avoid confusion on the part of the public, but also that K Inc. is a mere distributor of the
to protect an already used and registered goods covered by the marks and it is the
trademark and an established goodwill. In the actual owner of the marks. However, S
instant case, the likelihood of confusion is Corp.’s registration of the marks was
apparent. The two marks are almost spelled the cancelled by in a registration cancellation
same way and are even pronounced in practically case. Can the action prosper? Was there
the same manner in three (3) syllables. Thus, when unfair competition?
an ordinary purchaser, for example, hears an
advertisement of D Inc.'s applied trademark over No. By operation of law, specifically Section 19 of
the radio, chances are he will associate it with M RA 166, the trademark infringement aspect of S
Pharmaceutical's registered mark. Corp.'s case has been rendered moot and academic
in view of the finality of the decision in the
Even if the marks do not refer to the same Registration Cancellation Case. In short, S Corp. is
classification of goods, does not eradicate the left without any cause of action for trademark
possibility of mistake on the part of the purchasing infringement since the cancellation of registration
public to associate the former with the latter. of a trademark deprived it of protection from
Indeed, the registered trademark owner may use its infringement from the moment judgment or order
mark on the same or similar products, in different of cancellation became final. To be sure, in a
segments of the market, and at different price trademark infringement, title to the trademark is
levels depending on variations of the products for indispensable to a valid cause of action and such
specific segments of the market. The Court is title is shown by its certificate of registration. With
cognizant that the registered trademark owner its certificates of registration over the disputed
enjoys protection in product and market areas that trademarks effectively cancelled with finality, S
are the normal potential expansion of his business. Corp.'s case for trademark infringement lost its
Verily, when one applies for the registration of a legal basis and no longer presented a valid cause of
trademark or label which is almost the same or that action.
very closely resembles one already used and
registered by another, the application should be Likewise, there can be no infringement committed
rejected and dismissed outright, even without any by K Inc. who was adjudged with finality to be the
opposition on the part of the owner and user of a rightful owner of the disputed trademarks in the
previously registered label or trademark. This is Registration Cancellation Case. Even prior to the
intended not only to avoid confusion on the part of cancellation of the registration of the disputed
the public, but also to protect an already used and trademarks, S Corp. - as a mere distributor and not
registered trademark and an established goodwill. the owner – cannot assert any protection from
[Dermaline, Inc. v. Myra Pharmaceuticals, GR No. trademark infringement as it had no right in the
190065, 16 August 2010] first place to the registration of the disputed
trademarks. In fact, jurisprudence holds that in the
absence of any inequitable conduct on the part of

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the manufacturer, an exclusive distributor who
employs the trademark of the manufacturer does
not acquire proprietary rights of the manufacturer,
and a registration of the trademark by the
distributor as such belongs to the manufacturer,
provided the fiduciary relationship does not
terminate before application for registration is
filed.
To establish trademark infringement, the following

elements must be proven: (1) the validity of
plaintiff's mark; (2) the plaintiff's ownership of the
mark; and (3) the use of the mark or its colorable
imitation by the alleged infringer results in
"likelihood of confusion." Based on these elements,
it is immediately obvious that the second element –
the plaintiff's ownership of the mark - was what the
Registration Cancellation Case decided with finality.
On this element depended the validity of the
registrations that, on their own, only gave rise to
the presumption of, but was not conclusive on, the
issue of ownership.
.
Likewise, there is also no unfair competition in the
instant case. From jurisprudence, unfair
competition has been defined as the passing off (or
palming off) or attempting to pass off upon the
public of the goods or business of one person as the
goods or business of another with the end and
probable effect of deceiving the public. The
essential elements of unfair competition are (1)
confusing similarity in the general appearance of
the goods; and (2) intent to deceive the public and
defraud a competitor. In the instant case, there is
no evidence exists showing that K Inc. ever
attempted to pass off the goods it sold (i.e.
sportswear, sporting goods and equipment) as
those of S Corp. In addition, there is no evidence of
bad faith or fraud imputable to K Inc. in using the
disputed trademarks. [Superior Commercial
Enterprises v. Kunnan Enterprises., GR No. 169974,
April 20, 2010]

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Banking Laws convenient, provided they are not contrary to law,

morals, good customs, public order, or public
1. The BSP, through the Monetary Board is policy.
granted the power and authority to
prescribe different maximum rates of Nothing in CB Circular No. 905 grants lenders a
interest which may be imposed for a loan carte blanche authority to raise interest rates to
or renewal thereof or the forbearance of levels which will either enslave their borrowers or
any money, goods or credits, provided that lead to a hemorrhaging of their assets. Stipulations
the changes are effected gradually and authorizing iniquitous or unconscionable interests
announced in advance. Thus, it issued CB have been invariably struck down for being
Circular No. 905, removing all interest contrary to morals, if not against the law. Indeed,
ceilings and suspended the usury law. Did under Article 1409 of the Civil Code, these contracts
the BSP commit grave abuse of discretion are deemed inexistent and void ab initio, and
in issuing CB Circular No. 905? therefore cannot be ratified, nor may the right to
set up their illegality as a defense be waived.
No. The BSP has the power to do so. It has been Nonetheless, the nullity of the stipulation of
held that CB Circular No. 905 “did not repeal nor in usurious interest does not affect the lender’s right
anyway amend the Usury Law but simply to recover the principal of a loan, nor affect the
suspended the latter’s effectivity;” that “a [CB] other terms thereof. [Advocates for Truth in
Circular cannot repeal a law, [for] only a law can Lending v. Bangko Sentral Monetary Board, G.R. No.
repeal another law;” that “by virtue of CB Circular 192986, 15 January 2013]
No. 905, the Usury Law has been rendered
ineffective;” and “Usury has been legally non- 2. The late Mr. G deposited 2 million pesos
existent in our jurisdiction. Interest can now be with PALI. Conflicting claims of his relatives
charged as lender and borrower may agree upon.” were presented to PALI seeking the release
The law creating the BSP covered only loans of the money deposited. Pending
extended by banks, whereas under Section 1-a of investigation of the claims, PALI deposited
the Usury Law, as amended, the BSP-MB may the money with UCPB, in account which
prescribe the maximum rate or rates of interest for was in trust for the heirs of Mr. G. UCPB
all loans or renewals thereof or the forbearance of however allowed PALI to withdraw the
any money, goods or credits, including those for money leaving a balance of around 9
loans of low priority such as consumer loans, as thousand pesos. Can UCPB be held liable
well as such loans made by pawnshops, finance for the allowing the withdrawal?
companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different No. UCPB did not become a trustee by the mere
maximum rate or rates for different types of opening of the ACCOUNT. While this may seem to
borrowings, including deposits and deposit be the case, by reason of the fiduciary nature of the
substitutes, or loans of financial intermediaries. By bank’s relationship with its depositors, this fiduciary
lifting the interest ceiling, CB Circular No. 905 relationship does not “convert the contract
merely upheld the parties’ freedom of contract to between the bank and its depositors from a simple
agree freely on the rate of interest. Article 1306 of loan to a trust agreement, whether express or
the New Civil Code provides that the contracting implied.” It simply means that the bank is obliged to
parties may establish such stipulations, clauses, observe “high standards of integrity and
terms and conditions as they may deem performance” in complying with its obligations

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under the contract of simple loan. Per Article 1980
of the Civil Code, a creditor-debtor relationship In the case at bench, the Union submits that while
exists between the bank and its depositor. The the Central Bank regulates banking, the Labor Code
savings deposit agreement is between the bank and and its implementing rules regulate the
the depositor; by receiving the deposit, the bank employment relationship. To this, the Court agrees.
impliedly agrees to pay upon demand and only The fact that banks are of a specialized industry
upon the depositor’s order. [Joseph Goyanko, Jr., as must, however, be taken into account. The
administrator of the Estate of Joseph Goyanko, Sr. competence in determining which banking
vs. United Coconut Planters Bank, Mango Avenue functions may or may not be outsourced lies with
Branch, G.R. No. 179096. February 6, 2013] the BSP. This does not mean that banks can simply
outsource banking functions allowed by the BSP
3. BOMC was created by a BSP circular to through its circulars, without giving regard to the
provide support service for banks, and is a guidelines set forth under D.O. No. 10 issued by the
subsidiary of BPI. A service agreement was DOLE.
entered into by BPI and BOMC where the
latter provides services to a branch of the While D.O. No. 10, Series of 1997, enumerates the
former. Later on, the services included permissible contracting or subcontracting activities,
those for another branch. As a result, some it is to be observed that, particularly in Sec. 6(d)
services of the employees of BPI were invoked by the Union, the provision is general in
transferred to BOMC. This was contested character – "x x x Works or services not directly
by the Union of BPI, mainly invoking DOLE related or not integral to the main business or
department order No. 10 which provides operation of the principal… x x x." This does not
what jobs may be contracted out. BSP has a limit or prohibit the appropriate government
circular on bank service contracts, while agency, such as the BSP, to issue rules, regulations
the DOLE has a department order or circulars to further and specifically determine the
governing what jobs may be contracted permissible services to be contracted out. CBP
out. Which administrative issuance should Circular No. 138838 enumerated functions which
prevail? are ancillary to the business of banks, hence,
allowed to be outsourced. Thus, sanctioned by said
Both actually apply. There is no conflict between circular, BPI outsourced the cashiering (i.e., cash-
D.O. No. 10 and CBP Circular No. 1388. In fact, they delivery and deposit pick-up) and accounting
complement each other. requirements of its Davao City branches D.O. No. 10
is but a guide to determine what functions may be
Consistent with the maxim, interpretare et contracted out, subject to the rules and established
concordare leges legibus est optimus interpretandi jurisprudence on legitimate job contracting and
modus, a statute should be construed not only to prohibited labor only contracting. Even if the Court
be consistent with itself but also to harmonize with considers D.O. No. 10 only, BPI would still be within
other laws on the same subject matter, as to form a the bounds of D.O. No. 10 when it contracted out
complete, coherent and intelligible system of the subject functions. This is because the subject
jurisprudence.35 The seemingly conflicting functions were not related or not integral to the
provisions of a law or of two laws must be main business or operation of the principal which is
harmonized to render each effective.36 It is only the lending of funds obtained in the form of
when harmonization is impossible that resort must deposits. From the very definition of “banks” as
be made to choosing which law to apply. provided under the General Banking Law, it can

- 53 -
easily be discerned that banks perform only two (2) more of its subsidiary quasi-banks or non-bank
main or basic functions – deposit and loan financial institutions, or between a quasi-bank
functions. Thus, cashiering, distribution and and/or a non-bank financial institution, or between
bookkeeping are but ancillary functions whose bank/s, quasi-bank/s and non-bank financial
outsourcing is sanctioned under CBP Circular No. institution/s, other than investment houses, may
1388 as well as D.O. No. 10. Even BPI itself also be allowed. Provides than in the last two
recognizes that deposit and loan functions cannot instances, at least 20% of the equity of each bank,
be legally contracted out as they are directly quasi-bank and non-bank financial institution is
related or integral to the main business or owned by a holding company or by any banks or
operation of banks. The CBP’s Manual of quasi-banks within the group. [BSP Circular No. 851,
Regulations has even categorically stated and series of 2014, amending Section X145 of the
emphasized on the prohibition against outsourcing Manual of Regulations for Banks (MORB) and
inherent banking functions, which refer to any Section 4145Q of the Manual for Regulations for
contract between the bank and a service provider Non-Bank Financial Institutions (MORNBFI)]
for the latter to supply, or any act whereby the
latter supplies, the manpower to service the 5. BSP Circular No. 799 was issued in 2013,
deposit transactions of the former. [BPI Employees which changed the legal rate of interest for
Union-Davao City-Fubu (BPIEU-Davao City-Fubu) v. loans and forebearances of money from
Bank of the Philippine Islands (BPI), et al., G.R. No. 12% to 6% per annum. How will this affect
174912, July 24, 2013] the rules governing interest rates laid down
by the Court in the case of Eastern Shipping
4. A was the corporate secretary of BPI, a Lines?
bank. He was also the corporate secretary
of IPB, a quasi-bank. Does this violate the The guidelines laid down in the case of Eastern
rule on interlocking directors? Shipping Lines are accordingly modified to embody
BSP-MB Circular No. 799, as follows:
No, not exactly. As a general rule, there shall be no
concurrent officerships, including secondments, I. When an obligation, regardless of its source,
between banks, or between an bank and a quasi- i.e., law, contracts, quasicontracts,
bank or a non-bank financial institution. However, delicts or quasi-delicts is breached, the
subject to approval of the Monetary Board, contravenor can be held liable for
concurrent officerships, including secondments, damages. The provisions under Title
may be allowed for “concurrent officiership XVIII on “Damages” of the Civil Code
positions as corporate secretary or assistance govern in determining the measure of
corporate secretary between bank/s, quasi-bank/s recoverable damages.
and non-bank financial institutions,” provided that
proof of disclosure to and consent from all of the II. With regard particularly to an award of
involved financial institutions, on the concurrent interest in the concept of actual and
officership positions, shall be submitted to the BSP. compensatory damages, the rate of
Likewise, concurrent officership positions in the interest, as well as the accrual thereof, is
same capacity which do not involve management imposed, as follows:
functions, i.e. internal auditors, corporate
secretary, assistant corporate secretary and 1. When the obligation is breached, and it
security officer, between a quasi-bank and one or consists in the payment of a sum of money,

- 54 -
i.e., a loan or forbearance of money, the have become final and executory prior to
interest due should be that which may have July 1, 2013, shall not be disturbed and shall
been stipulated in writing. Furthermore, the continue to be implemented applying the
interest due shall itself earn legal interest rate of interest fixed therein.
from the time it is judicially demanded. In
the absence of stipulation, the rate of [Dario Nacar v. Gallery Frames and/or Felipe
interest shall be 6% per annum to be Bordey, Jr., G.R. No. 189871, August 13, 2013.]
computed from default, i.e., from judicial or
extrajudicial demand under and subject to 8. M obtained a loan with time deposit from
the provisions of Article 1169 of the Civil Prubank evidenced by a promissory note,
Code. wherein it was stipulated that the loan was
subject to 21% p.a., attorney's fees
6. When an obligation, not constituting a loan equivalent to 15% of the total amount due
or forbearance of money, is breached, an but not less than P200.00 and, in case of
interest on the amount of damages awarded default, a penalty and collection charges of
may be imposed at the discretion of the 12% p.a. of the total amount due, with
court at the rate of 6% per annum. No maturity date of 10 January 1985. The loan
interest, however, shall be adjudged on was renewed up to 17 February 1985.
unliquidated claims or damages, except Through a deed of assignment, M
when or until the demand can be authorized BPI to pay his loan obligations
established with reasonable certainty. with Prubank. M and his wife again
obtained a loan from BPI covered by a
Accordingly, where the demand is established with promissory note with maturity date of 22
reasonable certainty, the interest shall begin to run March 1990, to bear interest at 23% p.a.,
from the time the claim is made judicially or with attorney's fees equivalent to 15% p.a.
extrajudicially (Art. 1169, Civil Code), but when such of the total amount due. To secure such
certainty cannot be so reasonably established at loan, M mortgaged his land in favor of BPI.
the time the demand is made, the interest shall M failed to pay his loan obligations, thus
begin to run only from the date the judgment of the BPI sought to have the mortgage
court is made (at which time the quantification of extrajudicially foreclosed. Thereafter, M
damages may be deemed to have been reasonably and his wife filed an action for annulment
ascertained). The actual base for the computation of mortgage. Are the interest rate of 23%
of legal interest shall, in any case, be on the amount p.a. and the penalty charge of 12% p.a.,
finally adjudged. excessive or unconscionable?
7. When the judgment of the court awarding a No. Jurisprudence establish that the 24% p.a.
sum of money becomes final and executory, stipulated interest rate was not considered
the rate of legal interest, whether the case unconscionable, thus, the 23% p.a. interest rate
falls under paragraph 1 or paragraph 2, imposed on M’s loan in this case can by no means
above, shall be 6% per annum from such be considered excessive or unconscionable. In
finality until its satisfaction, this interim Medel v. Court of Appeals, the Court found the
period being deemed to be by then an stipulated interest rate of 66% p.a. or a 5.5% per
equivalent to a forbearance of credit. And, month on a P500,000.00 loan excessive,
in addition to the above, judgments that unconscionable and exorbitant, hence, contrary to

- 55 -
morals if not against the law and declared such interest payment. Also referred to as a penalty
stipulation void. In Toring v. Spouses Ganzon-Olan, clause, it is expressly recognized by law. It is an
the stipulated interest rates involved were 3% and accessory undertaking to assume greater liability on
3.81% per month on a P10 million loan, which the the part of an obligor in case of breach of an
Court found under the circumstances excessive and obligation. The obligor would then be bound to pay
reduced the same to 1% per month. While in Chua the stipulated amount of indemnity without the
v. Timan, where the stipulated necessity of proof on the existence and on the
interest rates were 7% and 5% a month, which are measure of damages caused by the breach. The
equivalent to 84% and 60% p.a., respectively, the enforcement of the penalty can be demanded by
Court reduced the same to 1% per month or 12% the creditor only when the non-performance is due
p.a. the Court said that it need not unsettle the to the fault or fraud of the debtor. The non-
principle it had affirmed in a plethora of cases that performance gives rise to the presumption of fault;
stipulated interest rates of 3% per month and in order to avoid the payment of the penalty, the
higher are excessive, unconscionable and debtor has the burden of proving an excuse - the
exorbitant, hence, the stipulation was void for failure of the performance was due to either force
being contrary to morals. However, in Spouses majeure or the acts of the creditor himself. In the
Zacarias Bacolor and Catherine Bacolor v. Banco instant case, petitioners defaulted in the payment
Filipino Savings and Mortgage Bank, Dagupan City of their loan obligation with respondent bank and
Branch, this Court held that the interest rate of 24% their contract provided for the payment of 12% p.a.
per annum on a loan of P244,000.00, agreed upon penalty charge, and since there was no showing
by the parties, may not be considered as that petitioners' failure to perform their obligation
unconscionable and excessive. As such, the Court was due to force majeure or to respondent bank's
ruled that the borrowers cannot renege on their acts, petitioners cannot now back out on their
obligation to comply with what is incumbent upon obligation to pay the penalty charge. [Mallari v.
them under the contract of loan as the said Prudential Bank, G.R. No. 197861, 5 June 2013]
contract is the law between the parties and they
are bound by its stipulations. 9. The Lims obtained a loan from DBP to
Also, in Garcia v. Court of Appeals, the Court finance their business. It was covered by a
sustained the agreement of the parties to a 24% promissory note wherein it was stipulated
per annum interest on an P8,649,250.00 loan that the loan is subject to an interest rate
finding the same to be reasonable and clearly of 9% per annum and penalty charge of
evidenced by the amended credit line agreement 11% per annum. Another loan was
entered into by the parties as well as two obtained by the Lim, covered by another
promissory notes executed by the borrower in promissory note with an interest rate of
favor of the lender. 12% per annum and a penalty charge of
1/3% per month on the overdue
Likewise, the stipulated 12% p.a. penalty charge is amortization. The loans were covered by
not excessive or unconscionable. In Ruiz v. CA, the mortgages on the properties of the Lims.
Court has held that 1% surcharge on the principal They failed to pay their loans as a result of
loan for every month of default is valid. This the collapse of their business. DBP sought
surcharge or penalty stipulated in a loan agreement to foreclose the mortgage and sell the
in case of default partakes of the nature of properties, but the Lims asked for an
liquidated damages under Art. 2227 of the New extension of the period within which they
Civil Code, and is separate and distinct from could pay. They were granted an extension,

- 56 -
subject to the condition that they will be No. It is now settled that an escalation clause is
liable for an additional interest of 18.5%, void where the creditor unilaterally determines and
and other additional penalties. Is the imposes an increase in the stipulated rate of
imposition of additional penalties and interest without the express conformity of the
interests allowed under the law? debtor. Such unbridled right given to creditors to
adjust the interest independently and upwardly
No. The imposition of additional interest and would completely take away from the debtors the
penalties not stipulated in the Promissory Notes, right to assent to an important modification in their
this should not be allowed. Article 1956 of the Civil agreement and would also negate the element of
Code specifically states that "no interest shall be mutuality in their contracts. While a ceiling on
due unless it has been expressly stipulated in interest rates under the Usury Law was already
writing." Thus, the payment of interest and lifted under Central Bank Circular No. 905, nothing
penalties in loans is allowed only if the parties therein "grants lenders carte blanche authority to
agreed to it and reduced their agreement in raise interest rates to levels which will either
writing. In this case, the Lims never agreed to pay enslave their borrowers or lead to a hemorrhaging
additional interest and penalties. Hence, the of their assets." The provision in the promissory
imposition of additional interest and penalties are notes of the Spouses J authorizing DBP to increase,
illegal, and thus, void. [Lim v. Development Bank of decrease or otherwise change from time to time
the Philiipines, G.R. No. 177050, July 01, 2013] the rate of interest and/or bank charges "without
advance notice" to the spouses, "in the event of
10. The Spouses J obtained a loan from change in the interest rate prescribed by law or the
Chinabank covered by two promissory Monetary Board of the Central Bank of the
notes, secured by real estate mortgage Philippines," does not give DBP unrestrained
over their property in White Plains. They freedom to charge any rate other than that which
failed to pay their loan, thus the mortgage was agreed upon. Here, the monthly
was foreclosed. Since the proceeds of the upward/downward adjustment of interest rate is
sale of the mortgage property did not cover left to the will of respondent bank alone. It violates
the entire amount of the loan, Chinabank the essence of mutuality of the contract.
filed and action against the Spouses J for Modifications in the rate of interest for loans
collection of the remaining balance. During pursuant to an escalation clause must be the result
the trial it was found that the interest rate of an agreement between the parties. Unless such
on the loan changes every month based on important change in the contract terms is mutually
the prevailing market rate and DBP agreed upon, it has no binding effect. In the
allegedly notified the spouses of the absence of consent on the part of the spouses to
prevailing rate by calling them monthly the modifications in the interest rates, the adjusted
before their account became past due. DBP rates cannot bind them. Monthly telephone calls to
also alleged that the spouses agreed to a the spouses advising them of the prevailing interest
changing interest rate by signing the rates would not suffice. A detailed billing statement
promissory note, indicating that they based on the new imposed interest with
agreed to pay interest at the prevailing corresponding computation of the total debt should
rate. Can DBP subject the loan of the have been provided by the DBP to enable the
spouses to a changing rate of interest? spouses to make an informed decision. An
appropriate form must also be signed by the
spouses to indicate their conformity to the new

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rates. Compliance with these requisites is essential of the Governor of the BSP on 21 June 2013, and in
to preserve the mutuality of contracts. For indeed, accordance with the ruling of the Supreme Court in
one-sided impositions do not have the force of law the recent case of Dario Nacar v. Gallery Frames
between the parties, because such impositions are and/or Felipe Bordey, Jr., effective 1 July 2013, the
not based on the parties’ essential equality. Hence, rate of interest for the loan or forbearance of any
the interest charged over the interest rate indicated money, goods or credits and the rate allowed in
in the promissory notes is invalid. [Juico v. China judgments, in the absence of an express contract as
Banking Corporation, G.R. No. 187678, April 10, to such rate of interest, shall be six percent (6%)
2013] per annum. Accordingly, the rate of interest of 12%
per annum on petitioners-spouses’ obligation shall
11. Spouses A obtained a loan from PNB, apply from the date of default – until 30 June 2013
secured by a real estate mortgage, and only. From 1 July 2013 until fully paid, the legal rate
covered by 12 promissory notes providing of 6% per annum shall be applied to the Spouses’
for varying interest rates of 17.5% to 27% unpaid obligation. [Andal v. Philippine National
per interest period. It was agreed upon by Bank, G.R. No. 194201, November 27, 2013]
the parties that the rate of interest may be
increased or decreased for the subsequent 12. ECBI was a banking institution which
interest periods, with prior notice to the underwent BSP’s general examination. It
spouses in the event of changes in interest was issued a cease and desist order and
rates prescribed by law or the Monetary enjoined it from pursuing certain acts and
Board, or in the bank’s overall cost of transactions that were considered unsafe
funds. Can PNB impose varying rates of or unsound banking practices, and from
interest on the loan of the spouses? doing such other acts or transactions
constituting fraud or might result in the
No. The interest rates imposed by DBP are dissipation of its assets. This was the result
excessive and arbitrary. Thus, the foregoing interest of the continuing refusal of ECBI’s BOD to
rates imposed on the Spouse’s loan obligation allow the examination of the BSP.
without their knowledge and consent should be Thereafter, for defying the cease and desist
disregarded, not only for being iniquitous and order, BSP issued as resolution placing it
exorbitant, but also for being violative of the under receivership. Was the action of the
principle of mutuality of contracts. In the instant BSP proper?
case, it is clear from the contract of loan between
the spouses and the bank that the spouses, as Yes. The Monetary Board (MB) may forbid a bank
borrowers, agreed to the payment of interest on from doing business and place it under receivership
their loan obligation. That the rate of interest was without prior notice and hearing. This is called the
subsequently declared illegal and unconscionable “close now, hear later” doctrine. It must be
does not entitle the spouses to stop payment of emphasized that R.A .No. 7653 is a later law and
interest. It should be emphasized that only the rate under said act, the power of the MB over banks,
of interest was declared void. The stipulation including rural banks, was increased and expanded.
requiring the Spouses to pay interest on their loan The Court, in several cases, upheld the power of the
remains valid and binding. They are, therefore, MB to take over banks without need for prior
liable to pay interest from the time they defaulted hearing. Prior hearing is not necessary inasmuch as
in payment until their loan is fully paid. Pursuant to the law entrusts to the MB the appreciation and
Circular No. 799, series of 2013, issued by the Office determination of whether any or all of the statutory

- 58 -
grounds for the closure and receivership of the tranches, but DBP eventually refused to
erring bank are present. The MB, under R.A. No. release the balance thereof, alleging that it
7653, has been invested with more power of failed to develop the said resort complex.
closure and placement of a bank under receivership DBP then foreclose the mortgages, which
for insolvency or illiquidity, or because the bank’s prompted G Corp. to file an action for
continuance in business would probably result in specific performance against DBP. Was it
the loss to depositors or creditors. proper for DBP to foreclose the mortgages?
Accordingly, the MB can immediately implement its No. Considering that it had yet to release the entire
resolution prohibiting a banking institution to do proceeds of the loan, DBP could not yet make an
business in the Philippines and, thereafter, appoint effective demand for payment upon G Corp. to
the PDIC as receiver. The procedure for the perform its obligation under the loan. Being a
involuntary closure of a bank is summary and banking institution, DBP owed it to G Corp. to
expeditious in nature. Such action of the MB shall exercise the highest degree of diligence, as well as
be final and executory, but may be later subjected to observe the high standards of integrity and
to a judicial scrutiny via a petition for certiorari to performance in all its transactions because its
be filed by the stockholders of record of the bank business was imbued with public interest. The high
representing a majority of the capital stock. standards were also necessary to ensure public
Obviously, this procedure is designed to protect the confidence in the banking system. The stability of
interest of all concerned, that is, the depositors, banks largely depends on the confidence of the
creditors and stockholders, the bank itself and the people in the honesty and efficiency of banks. Thus,
general public. The protection afforded public DBP had to act with great care in applying the
interest warrants the exercise of a summary stipulations of its agreement with G Corp., lest it
closure. erodes such public confidence. Yet, DBP failed in its
duty to exercise the highest degree of diligence by
Management take-over under Section 11 of R.A. prematurely foreclosing the mortgages and
No. 7353 was no longer feasible considering the unwarrantedly causing the foreclosure sale of the
financial quagmire that engulfed ECBI showing mortgaged properties despite G Corp. not being yet
serious conditions of insolvency and illiquidity. in default. [Development Bank of the Philippines
Besides, placing ECBI under receivership would (DBP) v. Guariña Agricultural and Realty
effectively put a stop to the further draining of its Development Corporation, G.R. No. 160758. January
assets. [Alfeo D. Vivas, on his behalf and on behalf 15, 2014]
of the Shareholders or Eurocredit Community Bank
v. The Monetary Board of the Bangko Sentral ng 14. The spouses S applied for a loan which was
Pilipinas and the Philippine Deposit Insurance granted by BPI for a term of six months,
Corporation, G.R. No. 191424, August 7, 2013] secured by a mortgage over land owned by
the Spouses S. the Spouses S later on
13. G Corp. obtained a loan from DBP bank to obtained a credit line from BPI in the
finance its development of a resort amount of P5.7 million. The mortgage was
complex. To secure it, a promissory note released on the representation of the
was executed by the G Corp. and spouses that the proceeds will be used to
mortgages were constituted on its pay the loans, but the same remained
properties. Also, a cash equity was put up. unpaid. Having defaulted on their loan
The loan was released to G Corp. in obligations, BPI demanded payment.

- 59 -
However, the spouses filed a complaint 15. ABC is a trust corporation which is a
against BPI, to maintain the status quo, and subsidiary of Z Corp., a quasi-bank. Are the
alleged that BPI "deliberately refused to assets held in trust by ABC included in the
comply with the condition/undertaking of computation of the single borrower’s limit
the loan for IGLF endorsement and for Z Corp.?
approval" until the maturity date of the
loan lapsed to their great prejudice and No. In case a stand-alone trust corporation is a
irreparable damage. They further alleged subsidiary or an affiliate of a quasi-bank, the asset
they neither executed any P5.7 Million under management of the trust corporation shall
promissory note nor did they receive P5.7 not form part of the relevant exposures of the
Million from BPI. Thus, there is no existing parent quasi-bank for purposes of calculating the
P5.7 Million Credit Line Facility Agreement single borrower’s limit and the ceilings for
as far as they are concerned. Is the accommodation to DOSRI of the parent quasi-bank.
contention of the Spouses correct? Likewise, the purchase by the trust corporation, in
behalf of its client, of securities and instruments
No. It appears from the allegations that Spouses S issued by its parent quasi-bank shall not form part
have misconstrued the concept of a Credit Line of the relevant exposure of the trust corporation
Facility Agreement. A credit line is "that amount of for purposes of the single borrower’s limits and
money or merchandise which a banker, merchant, DOSRI ceilings of the said trust corporation. [BSP
or supplier agrees to supply to a person on credit Circular No. 849, Series of 2014]
and generally agreed to in advance." It is the fixed
limit of credit granted by a bank, retailer, or credit
card issuer to a customer, to the full extent of
which the latter may avail himself of his dealings
with the former but which he must not exceed and
is usually intended to cover a series of transactions
in which case, when the customer’s line of credit is
nearly exhausted, he is expected to reduce his
indebtedness by payments before making any
further drawings.
Thus, contrary to the belief and understanding of

Spouses S, BPI does not have to require the
execution of promissory note of the entire P5.7
Million since a credit line as stated above, is merely
a fixed limit of credit. Furthermore, still applying
the above quoted definition, a credit line usually
presupposes a series of transactions until the credit
line is nearly exhausted. BPI is not obliged to
release the amount of P5.7 Million to Spouses S all
at once, in a single transaction. [Spouses Pio Dato
and Sonia Y. Sia v. Bank of the Philippine Islands,
G.R. No. 181873, November 27, 2013]

- 60 -
Anti-Money Laundering Law months after it was issued; and (c) the
freeze order is provisional in character and
1. The AMLC filed an Urgent Ex-Parte not intended to supplant a case for money
Application for the issuance of a freeze laundering. Should L’s Motion for
order with the CA against certain monetary Reconsideration be granted?
instruments and properties of the L et al.,
pursuant to the Anti-Money Laundering Act Yes. A freeze order is an extraordinary and interim
of 2001. This application was based on the relief issued by the CA to prevent the dissipation,
February 1, 2005 letter of the Office of the removal, or disposal of properties that are
Ombudsman to the AMLC, recommending suspected to be the proceeds of, or related to,
that the latter conduct an investigation on unlawful activities as defined in Section 3(i) of RA
L and his family for possible violation of the No. 9160, as amended. The primary objective of a
law. The CA granted the application and freeze order is to temporarily preserve monetary
issued the freeze order. Thereafter, an instruments or property that are in any way related
Urgent Motion for Extension of Effectivity to an unlawful activity or money laundering, by
of Freeze Order was filed, arguing that if preventing the owner from utilizing them during
the bank accounts, web accounts and the duration of the freeze order. The relief is pre-
vehicles of L not continuously frozen, they emptive in character, meant to prevent the owner
could be placed beyond the reach of law from disposing his property and thwarting the
enforcement authorities and the State’s effort in building its case and eventually
government’s efforts to recover the filing civil forfeiture proceedings and/or prosecuting
proceeds of the L’s unlawful activities the owner.
would be frustrated. In support of the
motion, it was alleged that various cases The Anti-Money Laundering Act of 2001, as
against L were presently being investigated amended, from the point of view of the freeze
by the Ombudsman. The motion for order that it authorizes, shows that the law is silent
extension was also granted by the CA. L on the maximum period of time that the freeze
sought to have the extended freeze order order can be extended by the CA. The final
lifted, arguing that there was no evidence sentence of Section 10 of the Anti-Money
to support the extension of the freeze Laundering Act of 2001 provides, "the freeze order
order, and that the extension not only shall be for a period of twenty (20) days unless
deprived them of their property without extended by the court." In contrast, Section 55 of
due process; it also punished them before the Rule in Civil Forfeiture Cases qualifies the grant
their guilt could be proven. The CA of extension "for a period not exceeding six
subsequently denied this motion. The Rules months" "for good cause" shown.
on Civil Forfeiture took effect and stated
that an extension of a freeze order was Nothing in the law grants the owner of the "frozen"
only for a maximum period of 6 months. property any substantive right to demand that the
Thus, L asked the CA to reconsider its freeze order be lifted, except by implication, i.e., if
resolution denying his motion, insisting he can show that no probable cause exists or if the
that the freeze order should be lifted 20-day period has already lapsed without any
considering: (a) no predicate crime has extension being requested from and granted by the
been proven to support the freeze order’s CA. Notably, the Senate deliberations on RA No.
issuance; (b) the freeze order expired six 9160 even suggest the intent on the part of our

- 61 -
legislators to make the freeze order effective until case. A freeze order is meant to have a temporary
the termination of the case, when necessary. effect; it was never intended to supplant or replace
the actual forfeiture cases where the provisional
The silence of the law, however, does not in any remedy - which means, the remedy is an adjunct of
way affect the Court’s own power under the or an incident to the main action – of asking for the
Constitution to "promulgate rules concerning the issuance of an asset preservation order from the
protection and enforcement of constitutional rights court where the petition is filed is precisely
xxx and procedure in all courts." Pursuant to this available. For emphasis, a freeze order is both a
power, the Court issued A.M. No. 05-11-04-SC, preservatory and preemptive remedy.
limiting the effectivity of an extended freeze order
to six months – to otherwise leave the grant of the Thus, as a rule, the effectivity of a freeze order may
extension to the sole discretion of the CA, which be extended by the CA for a period not exceeding
may extend a freeze order indefinitely or to an six months. Before or upon the lapse of this period,
unreasonable amount of time – carries serious ideally, the Republic should have already filed a
implications on an individual’s substantive right to case for civil forfeiture against the property owner
due process. This right demands that no person be with the proper courts and accordingly secure an
denied his right to property or be subjected to any asset preservation order or it should have filed the
governmental action that amounts to a denial. The necessary information. Otherwise, the property
right to due process, under these terms, requires a owner should already be able to fully enjoy his
limitation or at least an inquiry on whether property without any legal process affecting it.
sufficient justification for the governmental action. However, should it become completely necessary
for the Republic to further extend the duration of
In this case, the law has left to the CA the authority the freeze order, it should file the necessary motion
to resolve the issue of extending the freeze order it before the expiration of the six-month period and
issued. Without doubt, the CA followed the law to explain the reason or reasons for its failure to file
the letter, but it did so by avoiding the fundamental an appropriate case and justify the period of
law’s command under its Section 1, Article III. This extension sought. The freeze order should remain
command sought to implement through Section effective prior to the resolution by the CA, which is
53(b) of the Rule in Civil Forfeiture Cases which the hereby directed to resolve this kind of motion for
CA erroneously assumed does not apply. The extension with reasonable dispatch. [Ligot v.
extension granted by the CA effectively bars L from Republic of the Philippines, G.R. No. 176944, March
using any of the property covered by the freeze 6, 2013]
order until after an eventual civil forfeiture ---ooOoo---
proceeding is concluded in their favor and after
they shall have been adjudged not guilty of the
crimes they are suspected of committing. These
periods of extension are way beyond the intent and
purposes of a freeze order which is intended solely
as an interim relief; the civil and criminal trial courts
can very well handle the disposition of properties
related to a forfeiture case or to a crime charged
and need not rely on the interim relief that the
appellate court issued as a guarantee against loss of
property while the government is preparing its full

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conclusively prove that the transaction was, indeed,

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