5-Mercantile-Law-Justice-Del-Castillo-Digests.pdf

DE LA SALLE UNIVERSITY COLLEGE OF LAW Lasallian Commission on Bar Operations 2018

MERCANTILE LAW Justice Del Castillo Castill o Digests

Chel Sy

Tet Valeza

Tetel Guillermo

LCBO Chairperson

Academic Affairs Chairperson

Negotiable Instruments Law Subject Head

LCBO Vice Chair for Internals

Janine Tutanes Rod Zantua

Louise Dadivas

Steph Griar

Academic Affairs Deputy Chairpersons

LCBO Vice Chair for Externals

Thad Taliño

Nico Garcia

Corporation Law Subject Head

Vin Delgado Mercantile Law Chairperson

Intellectual Property Law Subject Head

LCBO Executive Secretary

Renzo Santos

Chesca Cabral

Ces Naga

Mercantile Law Deputy Chairperson

Transportation Law Subject Head

Pat Costales

LCBO Executive Treasurer

Keren Del Rosario Insurance Subject Head

Jiro Dela Rosa Banking Subject Head

Isa Hernandez Special Commercial Laws Subject Head

Mercantile Law

Justice Del Castillo Digests

NEGOTIABLE INSTRUMENTS LAW SAN MIGUEL CORPORATION v. BARTOLOME PUZON, JR. G.R. No. 167567 | 22 September 2010 Completion and Delivery DOCTRINE: When a check is delivered, the intent/purpose of the act of delivery determines whether the same is given effect or given merely as a security. The first situation transfers ownership to the payee, while the latter does not.

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Puzon was a dealer of San Miguel beer products, buying t he same on credit. To ensure payment, and as a business practice, San Miguel required Puzon to issue postdated checks equivalent to the value of the products purchased on credit. The checks are then returned after full payment of the value of the transaction. Following this arrangement, Puzon purchased products to which he issued two checks to cover the transaction. A month later, Puzon visited San Miguel’s Sales Office to reconcile his account with the latter. Puzon allegedly requested to see one of the checks. When he got hold of both checks (attached to a bond paper), he immediately left the office, bringing the check with him. San Miguel then sent a demand letter asking for the checks back. After being ignored, San Miguel filed a criminal complaint for theft against Puzon. DOJ dismissed the case on the ground that the non-payment of a debt cannot give rise to a criminal case. It also established that the relationship between the two is one of creditor -debtor. CA found that the postdated checks issued were merely as a security of his purchases and not intended to be encashed. It concluded that SMC did not acquire ownership of the checks. San Miguel then argued that the checks’ ownership were transferred to it because the y were issued in payment of the purchases and not merely for security.

ISSUE: Whether or not the delivery of the checks to SMC vested it ownership over the checks. HELD: No, the delivery of the check did not make SMC the owner thereof. The check was not given as payment, there being no intent to give effect to the instrument. “Delivery” as a term used in Sec. 12 means that the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. The purpose of the delivery will determine if ownership is transferred: (1) If the purpose is the give effect to the instrument, title or ownership transfers upon delivery. (2) If the intent to give effect is missing, ownership is retained by the person who delivered. The check was only meant to cover the transactions in the meantime, and Puzon was to pay for the transaction by some other means other than the check. •

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EQUITABLE BANKING CORPORATION, INC. v. SPECIAL STEEL PRODUCTS and AUGUSTO L. PRADO G.R. No. 175350 | 13 June 2012 Liabilities of Acceptor DOCTRINE: •

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Banks have the duty to scrutinize the checks deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to the public as experts in the field. The nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account

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Special Steel Products (SSP) sells steel products. Internatio nal Copra Export Corp. (Interco) is it’s regular customer. Jose Uy is Interco’s employee in charge of purchasing department, and son -inlaw of Interco’s majority stockholder. In 1991, SSP sold welding electrodes to Interco. Corresponding Sales Invoices were issued for the transactions In payment for the welding electrodes, Interco issued 3 Equitable checks payable to the order of SSP. Each check was crossed with t he notation “account payee only.” The case records disclose that Uy presented each crossed check to Equitable, claiming that he had good title over them. The records do not identify the signatory for the checks, nor explain how Uy came into possession of the checks. Uy demanded the deposit of the checks to his personal accounts with Equitable, which was allowed by Equitable on the assumption that Uy – as the son-in-law of the majority stockholder, was acting pursuant to Interco’s orders. Equitable also relied on his status as a valued client. SSP then reminded Interco of the unpaid welding electrodes. Interco replied saying it already issued 3 checks payable to SSP. After Interco found out about Uy’s scheme, it issued 3 mo re checks covering the payment but only some of the interest amount, it not being the cause of the delay. SSP then filed a complaint for damages and writ of preliminary attachment against Uy and Equitable alleging negligence on Equitable’s part when they ignored the restrictive nature of the checks and the subsequent depositing of the amount in Uy’s account. Equitable moved to dismiss for lack of cause of action, maintaining that, since Equitable and SSP did not enter into any contract, the former cannot be liable for actual damages. Equitable further argued that it is not liable because it accepted the 3 crossed checks in good faith. Due to Uy’s close relations with the drawer of the checks, it had basis to assume that the o drawer authorized Uy to countermand the original order. The RTC ruled that the crossed checks belonged solely to the payee named therein, SSPI. Since SSPI did not authorize anyone to receive payment in its behalf, Uy clearly had no title to the checks and Equitable had no right to accept the said checks from Uy. Equitable was negligent in permitting Uy to deposit the checks in his account without o verifying Uy’s ri ght to endorse the crossed checks. It reiterated that banks have the duty to scrutinize the checks deposited with it, for a o determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to the public as experts in the field.

ISSUE: Whether or not Equitable is grossly negligent when it allowed Uy’s demands in having the checks deposited to his personal account?

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HELD: Yes, banks have the duty to scrutinize the checks deposited with it, for a determination of their genuineness and regularity. The law holds banks to a high standard because banks hold themselves out to the public as experts in the field. The checks that Interco issu ed in favor of SSP were all crossed, made payable to SSP’s order, and contained the notation “account payee only.” This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other. At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on t he check has authorized the holder to deposit the same in a different account. Since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it.” •

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INSURANCE CODE ASIAN TERMINALS, INC. v. MALAYAN INSURANCE CO., INC. G.R. No. 171406 | 4 April 2011 Characteristics/Nature of Insurance Contracts DOCTRINE: The presentation in evidence of the marine insurance policy is not indispensable before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right.

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Shandong Weifang Soda Ash Plant shipped on board the vessel MV Jinlian I 60,000 plastic bags of soda ash dense (each bag weighing 50 kg) from China to Manila. The shipment has an invoice value of US$456,000, and was insured by Malayan Insurance Company under a marine policy. Upon arrival of the shipment at Manila, the stevedores of petitioner Asian Terminals unloaded the shipment and brought them to an open storage area for temporary storage and safekeeping pending clearance from the Bureau of Customs. Upon completion of clearance, around 2,702 bags were found to be in bad or der condition. The stevedores of petitioner began loading the bags in th e trucks of MEC Customs Brokerage for transport and delivery to consignee. After unloading all the bags, a total of 2,881 bags were in bad condition due to spillage, caking, and hardening of the contents Respondent, as insurer, paid the value of the lost/damaged cargoes to the consignee in the amount of Php 643,600.25 A complaint for damages was filed by respondent-insurer, as subrogee of the consignee against the shipper Inchcape Shipping Services, cargo broker MEC Customs Broker, and petitioner stevedoring company Asian Terminals, Inc.

ISSUE: Whether or not the non-presentation of the marine insurance policy is fatal i n recovering the value under the policy.

HELD: No, the non-presentation of the insurance contract or policy does not render such as fatal; the subrogation receipt is sufficient to establish a relationship.

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As ruled in the case of Delsan Transport Lines, Inc. v. Court of Appeals, we ruled that: the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and the assured shipper of the lost cargo, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.

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COUNTRY BANKERS LIFE INSURANCE CORP. v. CRESENCIA P. ABAN G.R. No. 175666 | 29 July 2013 Rescission of Insurance Contracts DOCTRINE: Section 48 of the Insurance Code gives an insurer is given two years from the effectivity of a life insurance contract and while the insured is alive — to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent

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Sotero took out a life insurance on her own life designating respondent Aban as the beneficiary for the amount of Php 100,000. When the insurance policy was in force for more than 2 years and 7 months, Sotero died. Aban, the beneficiary, filed a claim for the insurance. Petitioner-Insurer denied the claim. ○ It was claimed that Sotero was not the one who took the insurance because he was illiterate and sickly at the time of the supposed signing of the insurance contract. Insurer filed an action to rescind the insurance contract on the ground of fraud. Insurer presented their own insurance underwriter who claimed that it is not Sotero who signed the insurance policy. RTC granted Aban’s motion to dismiss. CA affirmed the decision of the RTC.

ISSUE: Whether or not Insurance Contract should be rescinded HELD: No, the insurance contract in this case cannot be rescinded because it is already bared by prescription. Section 48 regulates both the actions of the insurers and prospective takers of life insurance. Under the Insurance Code, the insurer is given 2 years from the effectivity of a life insurance contract and while the insured is alive. This gives insurers enough time to inquire whether the policy was obtained by fraud, concealment, ▪ or misrepresentation. On the other hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered — thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.

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INSULAR LIFE ASSURANCE COMPANY v. PAZ Y. KHU, FELIPE Y. KHU JR., FREDERICK Y. KHU G.R. No. 195176 | 18 April 2016 Characteristics/Nature of Insurance Contracts DOCTRINES: (1) The reinstatement of an insurance contract shall be reckoned from the date when t he same was approved by the insurer. (2) A contract of insurance, being a contract of adhesion, should be resolved against the insurer in case of obscurities/ambiguities in its language.

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Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life. Felipe did not declare any illness or adverse medical condition. Insular Life thereafter issued him a policy with a face value of Php 1 million. This took effect on June 22, 1997. Felipe’s policy lapsed due to nonpayment of the premium covering the p eriod from June 22, 1999 to June 23, 2000. On Sept. 7, 1999, Felipe applied for the reinstatement of his policy and paid Php 25,020.00 as premium. The new policy had identical information as to that of the original policy. Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed to certain conditions such as payment of additional premium and the cancellation of the riders pertaining to premium waiver and accidental death benefits, wherein Felipe agreed to those terms. Insular Life issued an Endorsement, which reads: ○ This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following changes are made on the policy effective June 22, 1999. Felipe paid the annual premiums for the years 2000 to 20 02. On Sept. 22, 2001, Felipe died. The respondents filed with Insular Life a claim for the benefits under the reinstated policy. But it was denied by Insular, and it rescinded the policy because of concealment and misrepresentation by Felipe. The respondents instituted an action for specific performance with damages. RTC: Ruled in favor of respondents. It stated that any ambiguity in an insurance contract must be construed in favor of the insured and against t he insurer. It also held that the reinstated insurance policy had already become incontestable by the time of Felipe's death on Sept. 22, 2001 since more than 2 years had already lapsed from the date of the policy's reinstatement on June 22, 1999. CA: Upheld the decision of the RTC

ISSUE: Whether or not the reinstated life insurance policy was already considered incontestable at the time of Felipe’s death.

HELD: Yes. The insurance contract is considered to have been reinstated on June 22, 1999. The reinstatement of an insurance contract should be reckoned from the date when the same was approved by the insurer. The date of last reinstatement mentioned in Sec. 48 of the Insurance Code pertains to the date t hat the insurer approved the application for reinstatement. •

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Therefore, the insurance contract was deemed to be reinstated on June 22, 1999 and considered as incontestable at the time of Felipe’s death on Sept. 22, 2001.

ISSUE: Whether or not insurance contracts are strictly construed against the insurer. HELD: Yes, ambiguity should be taken against Insular Life – it being the insurer. •

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In the Endorsement, there is an ambiguity in the phrase “effective June 22, 1999” where it is not clear if it refers to the reinstatement of the policy or to the phrase “changes are made in the policy”. Given the obscurity in the language, the construction favorable to the accused should be applied, in line with the rule on the interpretation of insurance contracts which by nature are contracts of adhesion. In light of the ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable to the insured in determining the date when the reinstatement was approved.

MANULIFE PHILIPPINES, INC. v. HERMENEGILDA YBAÑEZ G.R. No. 204736 | 28 November 2016 Rescission of Insurance Contracts DOCTRINE: The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer.

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Manulife instituted a Complaint for Rescission of Insurance Contracts against Ybañez and the B PI Family Savings Bank (BPI Family). ○ It was alleged that the Insurance Policies which Manulife issued in favor of Dr. Gumersindo Ybañez (insured), were void due to concealment or misrepresentation of material facts in the latter's applications for life insurance. ○ For this reason, Manulife accordingly denied Hermenegilda's death claims and refunded the premiums that the insured paid on the subject insurance policies. In her Answer, Hermenegilda (beneficiary) countered that: ○ Manulife's own insurance agent, Monteclaros assured that there would be no problem regarding the application for the insurance policy. ○ In fact, it was Monteclaros who filled up everything in the questionnaire, so that all that the insured needed to do was signed and it's done. ○ It was also Monteclaros who herself checked in advance all the boxes that the insured was required to answer. ○ Manulife accepted the insured's application, and now that a claim for the benefits is made, Manulife now says that the insured misrepresented and concealed his past illnesses. ➢ In the form filled up by Dr. Lumapas, Manulife's company physician, the insured checked the column which says ''yes" to the question: Have you seen a doctor, or had treatment operation on hospital case during the last five years? ○ Hermenegilda asserts that Manulife ought to have noted the fact that the insured was at that time already 65 years old, that he had a previous operation, and that his health was "below average.

ISSUE: Whether or not there was concealment.

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HELD: No. Manulife failed to prove concealment on the part of the insured. The RTC correctly held that the medical records that might have established the insured’s purported misrepresentation/s or concealment/s was inadmissible for being hearsay, given the fact that Manulife failed to present the physician or any responsible official who could confirm or attest to the due execution and authenticity of the alleged medical records. For failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for rescission of insurance contracts.

TRANSPORTATION LAWS G&S TRANSPORT CORPORATION v. HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA B. OCHOA and JOMAR B. OCHOA G.R. No. 170125 | 9 March 2011 Common Carriers DOCTRINE: Acquittal of a common carrier’s employee in a criminal case does not release the common carrier from civil liability.

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The incident happened on the night of March 1995, when the taxicab boarding Ochoa was traversing along EDSA flyover. The taxicab was supposed to take over a cargo truck but the space was narrow so this caused the car to turn over to the left. The taxicab hit the railing throwing itself off the flyover and fell on the middle surface of EDSA. Ochoa was declared dead on arrival from the accident. This caused his heirs to demand damages from G&S, but it was unheeded. Hence a complaint for damages was filed on the ground of breach of contract of common carriage. It was alleged that a common carrier is under legal obligation to observe and exercise extraordinary diligence in transporting is passengers to their destination safely and securely. Yet, G&S failed to exercise that in this case. The defense of G&S from escaping liability is fortuitous event. Arguing that the proximate cause of Ochoa’s death was the fault of another van that b umped the taxicab, causing it to fall off the flyover..

ISSUE: Whether or not acquittal of employee in a criminal case excuses the employer-common carrier from being civilly liable

HELD: No, in a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a passenger dies or is injured. In fact, there is even no need for the court to make an express finding of fault or negligence on the ▪ part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. Unfortunately, G&S miserably failed to overcome this presumption. Having established that, the civil liability of a common carrier is separate and distinct from the ▪ criminal case. The liability of a common carrier arises from breach of contract of carriage and from its negligence in selection and supervision of employees. Therefore, acquittal of the driver in a criminal case is not acquittal of the employer in a civil case ▪ for damages.

MARINA PORT SERVICES, INC. v. AMERICAN HOME ASSURANCE CORPORATION

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G.R. No. 201822 | 12 August 2015 Common Carriers DOCTRINE: When there is claim for loss filed by the consignee or the insurer as subrogee, the arrastre operator must establish that it observed the required diligence in handling th e shipment.

FACTS: 10 container vans of soft wheat flour were insured against all risks by AHAC and consigned to MSC Distributor. Shipment was discharged in good and complete order condition with arrastre operator, MPSI. After breaking the seals and examining the shipment for tax evaluation purposes by the Bureau of Customs, MPSI iss ued gate passes to AD’s Customs Services (ACS) for turnover of 5 container vans. When it was delivered to MSC, the latter discovered substantial shortages in the number of bags of flour delivered. Hence, filing of formal claim for loss with MPSI. Upon receipt of MSC of the remaining 5 container vans, it once more discovered substantial shortages. Hence, it filed another claim with MPSI. AHAC paid MSC the value of P257,083 of the 1,650 missing bags. It filed a complaint against MPSI. RTC dismissed AHAC’s co mplaint. It ruled that AHAC's evidence failed to clearly show that the loss happened while the subject shipment was still under MPSI's responsibility. CA reversed the decision of the RTC and ruled that in a claim for loss filed by a consignee, the burden of proof to show due compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. In consonance with this, a presumption of fault or negligence for the loss of the goods arises against the arrastre operator pursuant to Arts. 1265 and 1981 of the Civil Code. In this case, the CA found that MPSI failed to discharge such burden and to rebut the aforementioned presumption.

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ISSUE: Whether or not MPSI is liable for the loss of the bags of flour. HELD: No, MPSI was able to prove delivery of shipment to MSC in good and complete condition. It presented 10 gate passes signed by ACS which serves as evidence of receipt of shipment in good order and condition. The testimonies of MPSI’s employees who were directly involved in the processing of the subject shipment established that such shipment to ACS was in good and complete condition and with lock and seals intact. It is clear that ACS accepted the container vans on behalf of MSC without any qualification. Its claim that stripping of container van is not allowed in pier area is a mere allegation without proof. There was no other competent evidence that the container vans were reopened or that their locks and seals were broken for the second time, thus MPSI cannot be held liable for damages.

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SPOUSES DIONISIO ESTRADA and JOVITA R. ESTRADA v. PHILIPPINE RABBIT BUS LINES, INC., and EDUARDO R. SAYLAN G.R. No. 203902 | 19 July 2017 Safety of Passengers DOCTRINE: As a general rule, moral damages are not recoverable in an action for damages predicated on breach of contract of carriage.

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Petitioners filed with RTC of Urdaneta, Pangasinan a complaint against Philippine Rabbit Bus due to a collision with the latter’s bus driven by Saylan, and an Isuzu truck driven by Willy Urez, registered to Rogelio Cuyton. Petitioner Dionisio was one of the passengers of the bus. As a result of the collision, his right arm was amputated. Petitioner is claiming moral and act ual damages for the loss of Dionisio’s right arm, arguing that it caused physical suffering, mental anguish, besmirched reputation, social humiliation, and similar injury to his person. RTC ruled in favour of petitioners, stating that Saylan was negligent in driving the bus and that Philippine Rabbit Bus failed to observe the diligence of a good father of the family in the selection and supervision of its drivers. Hence, Saylan and Philippine Rabbit Bus are jointly and severally liable. CA affirmed the decision of the RTC but deleted the award of moral damages and ruled that Philippine Rabbit Bus is solely liable.

ISSUE: Whether or not the award of moral damages and actual damages can be recovered. HELD: No, petitioner cannot be rewarded moral damages because it failed to prove fraud and bad faith on the part of Philippine Rabbit Bus. Neither can they claim actual damages because they failed to present evidence based on loss or impairment of earning capacity. As to moral damages, they are not recoverable in an action for damages predicated on breach of contract of carriage. The exceptions to that would be in cases of mishap which resulted to death of passenger, or when the carrier is guilty of fraud or bad faith. This case however did not fall under any of the exceptions since no proof was presented to that effect. As to actual damages, documentary evidence is necessary to substantiate the claim for damages for loss of earning capacity. Exception to this rule is when the deceased was earning less than minimum wage, either through self-employment or as daily worker. In this case, the petitioner failed to present evidence to prove their claim. •

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JUDITH D. DARINES and JOYCE D. DARINES v. EDUARDO QUIÑONES and ROLANDO QUITAN G.R. No. 206468| 2 August 2017 Safety of Passengers DOCTRINE: In an action for breach of contract of carriage, moral damages may be recovered only when a) death of a passenger results; or b) the carrier was guilty of fraud and bad faith even if death does not result.

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Petitioners (mother and daughter) were passengers of the Amianan Bus Line bus driven by Quitan and operated by Quiñones . On their way to their destination, the bus crashed into a truck parked at the shoulder of the road which led to the injury of the petitioners. They claimed a breach of the contract of carriage, contending that the reckless and negligent driving caused the collision. Consequently, they prayed for moral, exemplary and temperate damages. Respondents countered by alleging that during the incident, Quitan was careful and prudent, and the incident was due to the negligence of the truck driver who parked the truck at the roadside right after the curve without installing any early warning device. Moreover, they also added that

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they exercised due diligence in the selection of their employees by making their drivers attend road safety seminars. To support her claim for moral damages, Petitioner Judith testified that she suffered sleepless nights since she worried about the result and possible effect of her operation. RTC ordered the respondents to pay petitioners moral and exemplary damages. CA reversed the decision of the RTC and ruled that respondents did not dispute that they were liable for breach of contract of carriage; in fact, they paid for the medical and hospital expenses of petitioners. Nonetheless, the CA deleted the award of moral damages because petitioners failed to prove that respondents acted fraudulently or in bad faith, as shown by the fact that respondents paid petitioners' medical and hospitalization expenses. The CA held that, since no moral damages was awarded, then there was no basis to grant exemplary damages.

ISSUE: Whether or not the petitioners are entitled to moral damages. HELD: No, in an action for breach of contract, moral damages may be recovered only when a) death of a passenger results; or b) the carrier was guilty of fraud and bad faith even if death does not result. In this case, such circumstances were not present. Petitioners propounded on the negligence of respondents, but did not discuss or impute fraud or bad faith, or such gross negligence which would amount to bad faith, against respondents. There being neither allegation nor proof that respondents acted in fraud or in bad faith in performing their duties arising from their contract of carriage, they are then not liable for moral damages. •

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MOF COMPANY v. SHIN YANG BROKERAGE G.R. No. 172822 | 18 December 2009 Bill of Lading DOCTRINE: As a general rule, a consignee is not privy to the Bill of Lading unless any of the following instances occur: a) There is an agency relationship between the shipper and the consignee b) When the consignee demands the fulfillment of the stipulation of the bill drawn up in its favor c) Unequivocal acceptance of the bill of lading delivered to the consignee with full knowledge of its contents

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Shin Yang is named the consignee of secondhand cars to be shipped in Manila through Hanjin Busan’s Vessel. The goods then arrived in Manila. MOF Company, being Hanjin’s exclusive general agent in Manila, demanded from Shin Yang the payment of ocean freight, documentation fee, and terminal handling charges. Shin Yang refused payment saying that it was not privy to the contract of afreightment. It argued being merely a consolidator and not the ultimate consignee. Also forwarded by Shin Yang is that the bill of lading named under it was prepared without its consent. If any, the freight charges are born by the shipper and not the consignee. Hence a complaint for collection of sum of money. MeTC favored MOF. RTC affirmed. CA reversed and dismissed MOF’s case because no other evidence were presented but the Bill of Lading. Only when the bill of lading is accepted can the contract between parties be perfected. In this case, Shin Yang did not accept the Bill of Lading and disowned the shipment.

ISSUE: Whether or not a consignee who is not a signatory to the bill of lading is bound by the stipulations thereof

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HELD: No, because MOF was unable to prove the instances where Shin Yang may be bound. Bill of lading is drawn up by the shipper/consignor and the carrier without intervention of consignee. However, it does not necessarily mean that the consignee could not be bound thereof. In this case, Shin Yang denied in all its pleadings that it is the consignee of the goods and the instances mentioned were not present. Therefore, the burden to prove that Shin Yang is bound by the Bill of Lading is upon MOF. However, MOF failed to prove the same. Hence, Shin Yang could not be ordered to pay the obligation of a consignee as required in the Bill.

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THE CORPORATION CODE RENATO REAL v. SANGU PHILIPPINES, INC. G.R. No. 168757|09 January 2011 Corporate Juridical Personality DOCTRINE: To determine whether a case involves an intra-corporate controversy, two elements must concur: (a) the status or relationship of the parties, and (2) the nature of the question that is the subject of their controversy.

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Sangu Philippines, Inc. is engaged in the business of providing manpower for general services, like janitors, janitresses and other maintenance personnel, to various clients. Renato Real was its manager. Real together with 29 others who were either janitors, janitresses, leadmen and maintenance men of Sangu, filed for illegal dismissal against Sangu and Kiichi Abe, (Vice-President and General Manager) Real was removed from his position as Manager through a board resolution adopted by Sangu’s BOD. He was not notified of such the Board Meeting. He just received a letter that he has been terminated from service effective: Continuous absences at his post at Ogino Philippines, Inc. for several months which was o detrimental to the corporation’s operation; Loss of trust and confidence; and o To cut down operational expenses to reduce further losses being experienced by respondent o corporation. Sangu’s defense: Real committed gross acts of misconduct detrimental to the company; o He is always absent himself from work without informing the corporation of his whereabouts and o that he would come to the office only to collect his salaries; o While apparently drunk, he went to the premises of one of Sangu’s clients, Epson and engaged in a heated argument with the employees therein; and Real also established a company engaged in the same business as Sangu and submitted proposals o for janitorial services to two of its clients. LA: There was illegal dismissal and it ordered Sangu to reinstate complainants to their former positions without loss of seniority rights and other privileges and to pay their full backwages from the time of their dismissal until actually reinstated NLRC: Real is a stockholder and a corporate officer. Hence, his action is an intra-corporate controversy over which the LA has no jurisdiction.

ISSUE: Whether or not the Real’s complaint for illegal dismissal constitutes an intra -corporate controversy and thus, beyond the jurisdiction of the Labor Arbiter?

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HELD: No, this is a clear case of termination of employment which is a labor controversy and not an intra-corporate dispute. ▪

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Applying the Relationship Test: the number of corporate officers is thus limited by law (Corporation Code) and by the corporation’s by -laws. In this case, there is no proof that Real’s appointment was made pursuant to Sangu’s By-Laws. No copy of board resolution appointing him as Manager or any other document showing that he was appointed to said position by action of the board was submitted by Sangu. While Sangu repeatedly claim that Real was appointed as Manager pursuant to the corporations By-Laws, there are inconsistencies in their allegations as to how petitioner was placed in said position, coupled by the fact that they failed to produce any documentary evidence to prove that petitioner was appointed thereto by action or with approval of the board. It has been consistently held that [a]n office is created by the charter of the corporation and the officer is elected (or appointed) by the directors or stockholders. Applying the Nature of Controversy Test: Real’s continuous absences in his post relates to his performance as Manager. Second, Sangu’s loss of trust and confidence in Real stemmed from his alleged acts of establishing a company engaged in the same line of business and submitting proposals to the latter’s clients while he was still serving as its Manager. Third, when Real sought for reinstatement, he wanted to recover his position as Manager, a position which declared to be not a corporate position. He is not trying to recover a seat in the board of directors or to any appointive or elective corporate position which has been declared vacant by the board.

HARPOON MARINE SERVICES, INC. v. FERNAN H. FRANCISCO G.R. No. 167751| 2 March 2011 Corporate Juridical Personality DOCTRINE: Corporate officers cannot be held solidarily liable with the corporation except if such officers acted in bad faith and gross negligence.

FACTS: •

•

•

• •

•

Harpoon, a company engaged in ship building and ship repair, with Rosit as its President and CEO, originally hired Francisco in 1992 as its Yard Supervisor tasked to oversee and supervise all projects of the company. Francisco averred that he was unceremoniously dismissed by Rosit. He was informed that the company could no longer afford his salary and that he would be paid his separation pay and accrued commissions. A few days later, however, Francisco was barred from entering the company premises. Harpoon explained that Rosit indeed talked to Francisco on June 15, 2001 not to dismiss him but only to remind and warn him of his excessive absences and tardiness, as evinced by his Time Card covering the period June 1-15, 2001. LA: Ruled that Francisco was validly dismissed for unjustified absences and tardiness. NLRC: Reversed such ruling stating that Francisco only incurred 3 absences which cannot be considered as gross or habitual. CA: Affirmed the NLRC’s decision and further ruled that Rosit acted in bad faith and should be held solidarily liable.

ISSUE: Whether or not Rosit, as President and CEO, should be held solidarily liable with Harpoon. HELD: No , as ruled in MAM Realty Development Corporation v. NLRC , obligations incurred by corporate officers, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. As such, they should not be generally held jointly and solidarily liable with the corporation. The Court, however, cited circumstances when solidary liabilities may be imposed, as exceptions ▪ o When directors and trustees or, in appropriate cases, the officers of a corporation

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•


a. vote for or assent to [patently] unlawful acts of the corporation b. act in bad faith or with gross negligence in directing the corporate affairs c. are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons. When the director or officer has consented to the issuance of watered stock or who, o having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto. When a director, trustee or officer has contractually agreed or stipulated to hold himself o personally and solidarily liable with the corporation. When a director, trustee or officer is made, by specific provision of law, personally liable o for his corporate action. The general rule is grounded on the theory that a corporation has a legal personality separate and distinct from the persons comprising it. To warrant the piercing of the veil of corporate fiction, the officers’ bad faith or wrongdoing must be established clearly and convincingly as bad faith is never presumed.

VITALIANO N. AGUIRRE II and FIDEL N. AGUIRRE v. FQB+7, INC., NATHANIEL D. BACOBO, PRISCILA BACOBO, and ANTONIO DE VILLA G.R. No. 170770|9 January 2013 Board of Directors/Intra-Corporate Disputes DOCTRINE: (1) A corporation’s board of directors is not rendered functus officio by its dissolution. The board of directors still has actual legal authority to direct the affairs of the corporation with respect to the winding up and liquidation of corporate affairs. (2) A cause of action involving an intra-corporate controversy remains and must be filed as an intra-corporate dispute despite the subsequent dissolution of the corporation.

FACTS: •

Oct. 5, 2004: Vitaliano filed in his individual capacity and on behalf of FQB+7 a Complaint for intra-corporate dispute, injunction, inspection of corporate books and records, and damages, against Nathaniel D. Bocobo, Priscila D. Bocobo, and Antonio De Villa. Vitaliano discovered a General Information Sheet (GIS) of FQB+7 in the records. This GIS o was filed by the heirs of Francisco Q. Bocobo’s, N athaniel (President) and Priscila (Secretary/treasurer) o GIS reported that FQB+7’s stockholders held their annual meeting on Sept. 3, 2002. There were substantive changes found in the GIS respecting the composition of directors o and subscribers of FQB+7 which prompted Vitaliano to write to the "real" Board of Directors (the directors reflected in the Articles of Incorporation) represented by Fidel Aguirre. The first GIS did not include Nathaniel and Priscilla. Vitaliano asked the "real" Board to rectify what he perceived as erroneous entries in the o GIS, and to allow him to inspect the corporate books and records. The "real" Board allegedly ignored Vitaliano’s request. Antonio was appointed by Nathaniel as attorney-in-fact and sought to take over the o corporate farm in Quezon. But this was prevented by Fidel. o Nathaniel’s, Priscila’s, and Antonio’s continuous representation of the corporation as a usurpation of the management powers and prerogatives of the "real" Board of Directors is the subject of the complaint.

ISSUE: Whether or not a corporation’s board is rendered functus officio after dissolution?

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HELD: No, a corporation’s board of directors is not rendered functus officio by its dissolution. Since Sec. 122 allows a corporation to continue its existence for a limited purpose, necessarily there must be a board that will continue acting for and on behalf of the dissolved corporation for that purpose. The board of directors still has actual legal authority to direct the affairs of the corporation with respect to the winding up and liquidation of corporate affairs. Sec. 122 of the Corporation Code prohibits a dissolved corporation from continuing its business, but allows it to continue with a limited personality in order to settle and close its affairs, including its complete liquidation. In fact, Sec. 122 authorizes the dissolved corporation’s board of directors to conduct its liquidation within 3 years from its dissolution. Jurisprudence has even recognized the board’s authority to act as trustee for persons in interest beyond the said 3-year period. •

•

ISSUE: Whether or not the RTC has jurisdiction over an intra-corporate dispute involving a dissolved corporation?

HELD: Yes, RTC has jurisdiction over intra-corporate disputes involving dissolved corporations. RA 8799 has conferred jurisdiction of intra-corporate disputes with the RTC. In Intra-corporate disputes, the case: ▪ a. must arise out of intra-corporate or partnership relations; and b. the nature of the question subject of the controversy must be such that it is intrinsically connected with the regulation of the corporation or the enforcement of the parties’ rights and obligations under the Corporation Code and the internal regulatory rules of the corporation. So long as these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as a ▪ special commercial court, has jurisdiction over it. In this case, it obviously arose from the intra-corporate relations between the parties, and the ▪ questions involved pertain to their rights and obligations under the Corporation Code and matters relating to the regulation of the corporation.

ROBINSON'S BANK CORPORATION v. HON. SAMUEL H. GAERLAN, G.R. No. 195289 | 24 September 2014 Corporate Rehabilitation DOCTRINE: Intervention is a prohibited pleading under the Rules of Procedure On Corporate Rehabilitation. However, when a creditor’s standing or status would be somewhat downgraded, they should be given the opportunity to be heard by way of comment or opposition to afford them due process.

FACTS: •

•

•

•

WGC filed a Petition for Rehabilitation with Prayer for Suspension of Payments, Actions and Proceedings before the RTC WGC incurred loans amounting to Php 2.66 billion from RBC and other banks and entities such as Trade and Investment Development Corporation of the Philippines (TIDCORP). RBC is both a secured and unsecured creditor while TIDCORP is a secured creditor. RTC gave due course to the Petition for Rehabilitation and directed the receiver to evaluate the rehabilitation plan submitted by WGC and thereafter submit his recommendations thereon. It proposed a pari passu or equal sharing between the secured and unsecured creditors of the proceeds from WGC’s cash flow made available for debt servicing. TIDCORP took exception to the proposed pari passu sharing: as a secured creditor, it should enjoy preference over unsecured creditors. o

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WGC violated its Indemnity Agreement with TIDCORP which required that while the agreement subsisted, WGC shall not incur new debts without TIDCORP’s approval by obtaining additional loans without the knowledge and consent of the latter. RBC filed an Opposition to TIDCORP’s Comment: Both secured and unsecured creditors stand on equal footing and that it is only when o rehabilitation is no longer feasible and liquidation is the remaining option that secured creditors shall enjoy preference over unsecured creditors RTC approved WGC’s rehabilitation plan TIDCORP filed CA-G.R. SP No. 104141 (Petition for Review) RBC filed an Urgent Motion for Intervention CA: Intervention is a prohibited pleading under Rule 3, Section 1 par 2 (g) of the Rules of o Procedure On Corporate Rehabilitation RBC may not resort to intervention as a substitute for a lost appeal, occasioned by its failure o to file a Petition for Review within fifteen (15) days from notice of the trial court’s June 6, 2008 Order – which is the sanctioned procedure under Rule 8,Section 2 of the Rules of Procedure on Corporate Rehabilitation o

•

• • • •

ISSUE: Whether or not RBS, as an unsecured creditor, may resort to intervene in corporate rehabilitation proceedings?

HELD: No, intervention is not a proper remedy as it is not allowed under the Rules of Procedure on Corporate Rehabilitation. However, the Court directed to allow RBC to file its comment and participate in CA-G.R. SP No. 104141 Rule 3, Section 5 of the Rules of Procedure on Corporate Rehabilitation: the review of any order or decision of the rehabilitation court or on appeal therefrom shall be in accordance with the Rules of Court, unless otherwise provided. There is no visible objection to RBC’s participation in CA -G.R. SP No. 104141 as it stands to be injured or benefited by the outcome of TIDCORP’s P etition for Review. It should be noted that RBC is both a secured and unsecured creditor of WGC. TIDCORP’s Petition for Review in CA -G.R. SP No. 104141 undoubtedly affects not merely the rights of RBC but of all the other WGC creditors as well, as their standing or status as creditors would be somewhat downgraded and the manner of recovery of their respective credits will be altered if TIDCORP’s prayer is granted. Hence, if TIDCORP’s arguments are to be c onsidered and its remedies granted, the other creditors should be given the opportunity to be heard by way of comment or opposition; they are entitled to due process. The nature of TIDCORP’s Petition in CA -G.R. SP No. 104141 is such that the other creditors like RBC must be allowed to participate in the proceedings. They have an interest in the controversy where a final decree would necessarily affect their rights. CA could have ordered RBC to file its comment in CA-G.R. SP No. 104141 and allowed to participate therein. If TIDCORP must pursue its Petition for Review, then RBC should be allowed to comment and participate in the proceedings. •

•

•

•

•

FOREST HILLS GOLF AND COUNTRY CLUB vs. FIL-ESTATE PROPERTIES, INC. G.R. No. 206649| 20 July 2016 Derivative Suits DOCTRINE: The stockholder should have exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to

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obtain the relief he desires with particularity in the complaint as one of the requirements of filing a derivative suit.

FACTS: •

•

•

•

•

•

Kingsville Construction and Development Corporation (Kingsville) and Kings Properties Corporation (KPC) entered into a project agreement with Fil-Estate Properties, Inc. (FEPI) FEPI agreed to finance and cause the development of several parcels of land owned by o Kingsville into Forest Hills Residential Estates and Golf and Country Club (first-class residential area/golf-course/commercial center) FEPI was tasked to incorporate Forest Hills Golf and Country Club, Inc. (FHGCCI) with o an authorized stock of 3,600 shares and to perform the development and construction work and other undertakings as full payment of its subscription to the authorized capital stock of the club. The remaining shares of the should be retained by Kingsville in exchange for the parcels o of land used for the golf course development. FEPI assigned its rights and obligations over the project to Fil-Estate Golf Development, Inc. (FEGDI) Madrid purchased two Class "A" shares at the s econdary price of Php 380,000 each and applied for a membership to the club for Php 25,000. Due to the delayed construction of the second 18-Hole Golf Course, Madrid wrote two demand letters to the BOD of FHGCCI to initiate the appropriate legal action against FEPI and FEGDI. BOD failed and/or refused to act on the demand letters. Madrid on behalf of FHGCCI, filed with the RTC a Complaint for Specific Performance with Damages against FEPI and F EGDI (derivative suit) FEPI and FEGDI’s argument: no cause of action; FHGCCI failed to state the contractual and/or legal bases of their o alleged obligation; that no prior demand was made to them; o action is not a proper derivative suit as FHGCCI failed to exhaust all remedies available o under the articles of incorporation and by-laws; and FHGCCI failed to implead its BOD as indispensable parties. o RTC: dismissed the case for lack of jurisdiction

ISSUE: Whether or not RTC has jurisdiction over derivative suits and intra-corporate disputes? HELD: Yes, RTC has jurisdiction over derivative suits under RA 8799. However, the RTC in this case is not a Special Commercial Court. A derivative suit is a remedy designed by equity as a principal defense of the minority shareholders against the abuses of the majority. Under the Corporation Code, the corporation's power to sue is lodged with its board of directors or trustees. However, when its officials refuse to sue or are the ones to be sued, or hold control of the corporation, an individual stockholder may be permitted to institute a derivative suit to enforce a corporate cause of action on behalf of a corporation in order to protect or vindicate its rights. In such actions, the corporation is the real party in interest, while the stockholder suing on behalf of the corporation is only a nominal party. Hence, the derivative suit for specific performance against FEPI and FEGDI falls under the jurisdiction of special commercial courts. However, the fact that FHGCCI denominated the Complaint as a derivative suit for specific performance is sufficient reason for the RTC to dismiss it for lack of jurisdiction, as the RTC where the Complaint was raffled is not a special commercial court. Upon the enactment of RA No. 8799, jurisdiction over intra-corporate disputes including derivatives suits is now vested in the RTCs designated as special commercial courts by this Court pursuant to A.M. No. 00- 11-03-SC. •

•

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If the RTC has no internal branch designated as a Special Commercial Court, the proper recourse is to refer the case to the nearest RTC with a designated Special Commercial Court branch within the judicial region. Upon referral, the RTC to which the case was referred to should re -docket the case as a commercial case. And if the said RTC has only one branch designated as a Special Commercial Court, it should assign the case to the sole special branch.

ISSUE: Whether or not the derivative suit is proper in this case? HELD: No, the derivative suit is not proper for failure to exhaust all remedies available. •

•

It is apparent on the face of the Complaint that FHGCCI failed to comply with the requisites for a valid derivative suit. For a derivative suit to prosper, it is required that: The minority stockholder suing for and on behalf of the corporation must allege in his o complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit The stockholder "should have exerted all reasonable efforts to exhaust all remedies o available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires [and that such fact is alleged] with particularity in the complaint. The stockholder is also required "to allege, explicitly or otherwise, the fact that there were o no appraisal rights available for the acts complained of, as well as a categorical statement that the suit is not a nuisance or a harassment suit." In this case, Madrid, as a shareholder of FHGCCI, failed to allege that he exerted all reasonable efforts to exhaust all remedies available under the articles of incorporation, by-laws, or rules governing the corporation; that no appraisal rights are available for the acts or acts complained of; and that the suit is not a nuisance or a harassment suit.

FEDERATED LPG DEALERS ASSOCIATION v. MA. CRISTINA L. DEL ROSARIO G.R. No. 202639 | 9 November 2016 Board of Directors DOCTRINE: The Board of Directors of a corporation is generally a policy making body, and it is of common knowledge and practice that the board of directors is not directly engaged or charged with the running of the recurring business affairs of the corporation.

FACTS: ▪

▪ ▪

Federated LPG Dealers Association sought assistance from the PNP in the investigation and prosecution of certain persons and establishments within Metro Manila reportedly committing acts violative of BP 33, as amended by PD 1865, to wit: refilling of LPG without any written authorization from the companies which own the LPG o tanks; underfilling of LPG products or possession of underfilled LPG cylinders for the purpose o of sale, distribution, transportation, exchange or barter; and refilling LPG cylinders without giving any receipt therefor. o A test-buy operation was held and further investigations revealed that they were underfilled by 0.4 kg to 1.3 kg. Complaints-Affidavits against the officers of ACCS Ideal Gas Corporation, namely: Antonio G. Del Rosario and, respondents Ma. Cristina L. Del Rosario, Celso E. Escobido II, and Shiela M. Escobido were filed for illegal trading of petroleum products and for underfilling of LPG cylinders under Section 2(a) and 2(c), respectively, of BP 33, as amended.

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▪

▪


THE DOJ approved the finding of probable cause against Antonio only for the charge of illegal trading. It also ruled that the other respondents may not be prosecuted for the offense because the law specifies the persons to be charged in case where violations of B.P. Blg. 33 are committed by a corporation. The record fails to disclose who among the respondents were the president, officer charged with the management of the business affairs of ACCS Ideal Gas, or the employee responsible for the commission of the offense. The CA affirmed this decision.

ISSUE: Whether or not respondents, as members of the BOD of ACCS, can be criminally prosecuted for the violating provisions of B.P. Blg. 33?

HELD: No, a member of the Board of Directors of a corporation, cannot, by mere reason of such membership, be held liable for the corporation ’s probable violation of BP 33. Section 4(3) of BP 33, as amended provides that: “When the offender is a corporation, partnership, or other juridical person, the president, the general manager, managing partner, or such other officer charged with the management of the business affairs thereof, or employee responsible for the violation shall be criminally liable.” As ruled in the case of Ty v. NBI Supervising Agent De Jemil, a member of the Board of Directors of a corporation, cannot, by mere reason of such membership, be held liable for the corporation ’s probable violation of BP 33. If one is not the President, General Manager or Managing Partner, it is imperative that it first be shown that he/she falls under the catch-all "such other officer charged with the management of the business affairs," before he/she can prosecuted. However, it must be stressed, that the matter of being an officer charged with the management of the business affairs is a factual issue which must be alleged and supported by evidence. Clearly, therefore, it is only Antonio who undisputedly was the General Manager - a position among those expressly mentioned as criminally liable under Section 4(3) of BP 33, as amended can be prosecuted for ACCS' perceived violations of the said law. •

•

DUTCH MOVERS, INC. v. EDILBERTO LEQUIN G.R. No. 210032| 25 April 2017 Piercing the Veil of Corporate Fiction DOCTRINE: Piercing the veil of corporate fiction is allowed where a corporation is a mere alter ego or a conduit of a person, or another corporation.

FACTS: •

• •

•

Illegal dismissal complaint filed by Edilberto Lequin (Lequin) et. al against Dutch Movers, Inc. (DMI) and/or spouses Cesar Lee and Yolanda Lee, the alleged President/Owner, and Manager: DMI (domestic corporation): engaged in hauling liquefied petroleum gas, employed o Lequin as truck driver and the rest of complainants as helpers 12/28/2004: Cesar Lee informed them that DMI would cease its hauling operation for no o reason. They requested DMI to issue a formal notice regarding the matter but to no avail. DOLE NCR issued a certification (upon request by Lequin) that DMI did not file any notice o of business closure. Hence, complainants argued that they were illegally dismissed as their termination was o without cause and only on the pretext of closure. LA: dismissed the case for lack of cause of action. NLRC: reversed and set aside the LA Decision. There was an illegal dismissal. DMI is liable. (The decision became final and executory) Lequin et. al filed a Motion for Writ of Execution but they discovered that DMI no longer operates.

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o

o

o

o


Sps. Lee, who owned, managed, and operated DMI, continued to work at Toyota Alabang which they also own and operate. The Articles of Incorporation of DMI ironically did not include Sps. Lee as its directors or officers and those named directors and officers were persons unknown to them. DMI did not file any notice of business closure, and the creation and operation of DMI was attended with fraud making it convenient for Sps. Lee to evade their legal obligations. Lequin et. al prayed that Sps. Lee and the officers named in DMI's AOI (Sps. Smith) be impleaded and be held solidarity liable with DMI in paying the judgment awar ds.

ISSUE: Whether or not there was a legal basis to pierce the veil of corporate fiction of DMI and hold Sps. Lee liable?

HELD: Yes, the veil of corporate fiction may be pierced attaching personal liability against responsible person if the corporation's personality "is used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws. Piercing the veil of corporate fiction is allowed where a corporation is a mere alter ego or a conduit of a person, or another corporation. In this case, the veil of corporate fiction must be pierced because the peculiarity of the situation shows that Sps. Lee controlled DMI and they actively participated in its operation such that DMI existed not as a separate entity but only as business conduit of Sps. Lee. They controlled DMI by making it appear to have no mind of its own and used DMI as shield in evading legal liabilities, including payment of the judgment awards in favor of Lequin et. al. The Court considered the ff. circumstances: Sps. Lee along with DMI collectively raised arguments on the illegal dismissal case against o them. They were aware of and disclosed the circumstances surrounding Lequin’s employment, o and propounded arguments refuting that they were illegally dismissed. They revealed the annual compensation of Lequin et. al and their length of service o They also set up the defense that Lequin et. al were merely project employees and were o not terminated but that DMI's contract with its client was discontinued resulting in the absence of hauling projects. Sps. Smith’s services as lawyers had long been dispensed by the Sps. Lee and had no hand o whatsoever in the management of the company. After the incorporation they assigned and transferred all their purported participation in the company to Sps. Lee who acted as managers and are the real owners of the corporation. •

•

BANKING LAWS HILARIO P. SORIANO v. PEOPLE OF THE PHILIPPINES G.R. No. 162336 | 1 February 2010 Restrictions on Bank Exposure to DOSRI DOCTRINE: Violation of DOSRI law and Estafa under th e RPC may be prosecuted simultaneously. FACTS: •

The Office of Special Investigation (OSI) of the Bangko Sentral ng Pilipinas (BSP), through its officers, transmitted a letter to Jovencito Zuo, the Chief State Prosecutor of the Department of Justice (DOJ). The said letter were accompanied with five affidavits which would allegedly serve as basis for filing criminal charges for Estafa thru Falsification of Commercial Documents, in relation to P.D. No. 1689, and for Violation of Sec. 83 of R.A. 337, as amended, against the petitioner herein.

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The five affidavits, along with other documents stated that Sps. Enrico and Amalia Carlos appeared to have an outstanding loan of Php 8 million with the Rural Bank of San Miguel (RBSM), but had never applied nor received such loan; and that it was petitioner, who was the president of RBSM, who had ordered, facilitated, and received the proceeds of the loans; and that the said Php 8 million loan had never been authorized by the RBSM Board of Directors and no report thereof had been submitted to the Department of Rural Banks, Supervision and Examination Sector of the BSP. The State Prosecutor acted on the letters as well the annexes that were transmitted by the BSP. The first information filed against petitioner was for the crime of Estafa through o falsification of commercial documents. It alleged that petitioner, in abuse of the confidence reposed in him as president of RBSM, caused the falsification of a number of loan documents, making it appear that one Enrico Carlos filled up the same, and thereby succeeded in securing a loan and converting the loan proceeds for his personal gain and benefit. The second information filed against petitioner was for the violation of Sec. 83 of R.A. 337 o as amended. The said provision refers to the prohibition against DOSRI loans. The information alleged that, in his capacity as president of RBSM, petitioner indirectly secured an Php 8 Million loan with RBSM, for his personal use and benefit, without the written consent and approval of RBSM’s Board of Directors, without entering the said transaction into the bank’s records, and without transmitting a copy of the transaction to the supervising department of the BSP. Upon the basis of the two informations, petitioner moved to quash them on two grounds, namely: that the court had no jurisdiction over the offense charged, and that the facts charged do not constitute an offense. (Related to Banking law): On to the second ground, petitioner contended that the o commission of Estafa under Art. 315 of the RPC is inherently incompatible with the violation of DOSRI law under Sec. 83 of R.A. 337, as amended. Thus a person cannot be charged for both offenses. Petitioner argues that a violation of DOSRI law requires the offender to obtain a loan from his bank, without complying with the procedural, reportorial, or ceiling requirements. On the other hand, Estafa requires the offender to misappropriate or convert something that he holds in trust, or on commission, or for administration, or under any obligation involving the duty to return the same. o

•

•

ISSUE: Whether or not a loan transaction within the ambit of DOSRI law could be the subject of Estafa under Art. 315 of the RPC?

HELD: Yes, the filing of a case for violation of the DOSRI law does not bar a subsequent case for Estafa under the RPC. As to the Estafa: The bank money which came to the possession of petitioner was money held in ▪ trust or administration by him for the bank, in his fiduciary capacity as the President of said bank. It is not accurate to say that petitioner became the owner of the Php. 8 million because it was the proceeds of a loan. That would have been correct if the bank knowingly extended the loan to petitioner himself. But that is not the case here. According to the information for Estafa, the loan was supposed to be for another person, a certain Enrico Carlos; petitioner, through falsification, made it appear that said Enrico Carlos applied for the loan when in fact he (Enrico Carlos) did not. Through such fraudulent device, petitioner obtained the loan proceeds and converted the same. Under these circumstances, it cannot be said that petitioner became the legal owner of the Php 8 million. Thus, petitioner remained the bank’s fiduciary with respect to that money, which makes it capable of misappropriation or conversion in his hands. As to the DOSRI violation: Petitioner is liable due to the reason that he indirectly borrowed the Php ▪ 8 Million from RBSM. (DOSRI law prohibits the direct and in direct borrowing of a bank’s DOSRI without compliance with the requirements) Petitioner indirectly borrowed from RBSM in his

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capacity as its president, knowing fully well that the same has been done by him without the written consent and approval of the majority of the board of directors, and which consent and approval the said accused deliberately failed to obtain and enter the same in the records of RBSM and transmit a copy thereof to BSP’s supervising and examining department, by using Enrico Carlos’ name, the latter having no knowledge of the said loan, and once in possession of the said Php 8 Million, petitioner converted the same to his own personal use and benefit.

PHILIPPINE NATIONAL BANK v. F.F. CRUZ and CO, INC. G.R. No. 173259 | 25 July 2011 Diligence Required of Banks DOCTRINE: As between the bank and its depositor, where the bank’s negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence, the greater proportion of the loss shall be borne by the bank. (Banks are imbued with public interest. They must exercise a degree higher than bonus paterfamilias)

FACTS: ▪

▪

▪

Respondent is a depositor of PNB where the former owned a savings/current account (combo account) and a dollar savings account. The president, Felipe Cruz and the secretary-treasurer, Angelita Cruz were the named signatories for the said accounts. While both the signatories were out of the country, applications for cashier’s check and manager’s check bearing Felipe’s signature were presented an d subsequently approved by PNB. The first check was for Php 9,950,000.00, payable to a certain Gene B. Sangalang and the other check was for Php 3,260,500.31 payable to one Paul Bautista. The amounts of the said checks were debited by PNB against respondent’s combo account. Upon the return of the signatories, Angelita noticed the amounts deducted and stated that such were fraudulently debited. Angelita then requested PNB to credit the amounts deducted but PNB refused prompting Angelita to file a case for damages. PNB countered stating lack of cause of action. It alleged that it exercised due diligence in o handling the combo account of respondent. The applications for the manager’s and cashier’s check have passed through the standard bank procedures and it was only after finding no infirmity that these applications were given due course. In fact, it was respondent’s accountant the confirmed the regularity of the transaction. The delay of the respondent in picking up and going over the bank statements was the proximate cause of its self-proclaimed injury. Had respondent been conscientious in this regard, the alleged chicanery would have been detected early on and Caparas effectively prevented from absconding with its millions. It prayed for the dismissal of the complaint.

ISSUE: Whether or not PNB shall suffer the loss? HELD: Yes , banking institutions are required the utmost level of diligence as compared to the depositor. As correctly found by the CA, PNB failed to make the proper verification because the applications for the managers check do not bear the signature of the bank verifier. Gallego admitted that PNB’s employees received training on detecting forgeries from the NBI. However, ▪ Emmanuel Guzman, then NBI senior document examiner, testified, as an expert witness, that the forged signatures in the subject applications for managers check contained noticeable and significant differences from the genuine signatures of FFCCI’s authorized signatories and that the forgeries should have been detected or observed by a trained signature verifier of any bank.

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▪

▪


Given the foregoing, we find no reversible error in the findings of the CA that PNB was negligent in the handling of FFCCI’s combo account, specifically, with respect to PNB’s failure to detect the forgeri es in the subject applications for managers check which could have prevented the loss. As we have often ruled, the banking business is impressed with public trust. A higher degree of diligence is imposed on banks relative to the handling of their affairs than that of an ordinary business enterprise. Thus, the degree of responsibility, care and trustworthiness expected of their officials and employees is far greater than those of ordinary officers and employees in other enterprises.

SPECIAL LAWS LEONARDO S. UMALE v. ASB REALTY CORPORATION G.R. No. 181126 | 15 June 2011 Financial Rehabilitation and Insolvency Act DOCTRINE: Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property.

FACTS: ▪ ▪

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ASB commenced an action for unlawful detainer against Umale to recover previously leased premises. Umale argues that the ASB is incapacitated to file the suit considering it had been placed under receivership by the SEC and a rehabilitation receiver had been duly appointed. The rehabilitation receiver has the power to take possession, control and custody of the debtor’s assets. Thus, the receiver is the real party-in-interest. MTC: Dismissed the complaint of ASB. RTC: ruled that ASB retained all its corporate powers, including the power to sue, despite the appointment of a rehabilitation receiver. Citing the Interim Rules, the it noted that the rehabilitation receiver was not granted therein the power to file complaints on behalf of the corporation. CA: affirmed the decision of the RTC.

ISSUE: Whether or not a receiver has the exclusive right to sue in behalf of a corporation undergoing rehabilitation

HELD: No, being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property. A corporation is granted the power to sue in its own name unless specifically revoked by another ▪ law. Corporate rehabilitation imposes several restrictions on the debtor corporation, most of which concern the disposition or encumbrance of corporate assets. None, however, touch on its r ight to sue for the recovery of assets and collection of receivables. The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering ▪ business as a going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated. This concept of preserving the corporations business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor corporation, through its Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitating receiver.

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Mercantile Law

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The receiver has to be notified of the developments of the case so that corporate assets would be managed in accordance with the approved rehabilitation plan.

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5-Mercantile-Law-Justice-Del-Castillo-Digests.pdf

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