Justice Teresita Leonardo-De Castro Cases (2008-2015) : Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law
2015)
CORPORATION LAW
DOCTRINE OF SEPARATE LEGAL PERSONALITY
PHILIPPINE NATIONAL BANK vs. MERELO B. AZNAR et al.
G.R. No. 171805, May 30, 2011, J. Leonardo-De Castro
Stockholders cannot claim ownership over corporate properties by virtue of the Minutes of a
Stockholders meeting which merely evidence a loan agreement between the stockholders and the
corporation. As such, there interest over the properties are merely inchoate.
Facts:
In 1958, RISCO ceased operation due to business reverses. Due to Merelo B. Aznar, Matias B.
Aznar III, Jose L. Aznar, Rosario T. Barcenilla, Jose B. Enad and Ricardo Gabuyas (Aznar et al)desire
to rehabilitate RISCO, they contributed a total amount of P212,720.00 which was used in the
purchase of the three (3) parcels of land located in various areas in the Cebu Province.
After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned properties
as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO stating that;
And that the respective contributions above-mentioned shall constitute as their lien or
interest on the property described above, if and when said property are titled in the name of
RURAL INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in
pursuance of the Provisions of Land Registration Act, (Act No. 496, as amended) until such
time their respective contributions are refunded to them completely.
Thereafter, various subsequent annotations were made on the same titles in favor of PNB.
As a result, a Certificate of Sale was issued in favor of PNB, being the lone and highest bidder of the
three (3) parcels of land and was also issued Transfer Certificate of Title over the said parcels of
land.
This prompted Aznar et. al to file a complaint seeking the quieting of their supposed title to
the subject properties. They alleged that the subsequent annotations on the titles are subject to the
prior annotation of their liens and encumbrances. On the other hand, asserts that plaintiffs, as mere
stockholders of RISCO do not have any legal or equitable right over the properties of the
corporation. PNB posited that even if plaintiffs monetary lien had not expired, their only recourse
was to require the reimbursement or refund of their contribution.
Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings. Thus, the trial
court rendered the November 18, 1998 Decision, which ruled against PNB. It further declared that
the Minutes of the Special Meeting of the Board of Directors of RISCO annotated on the titles to
subject properties as an express trust whereby RISCO was a mere trustee and the above-mentioned
stockholders as beneficiaries being the true and lawful owners of Lots 3597, 7380 and 1323.
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On appeal, the CA set aside the ruling of the trial court and ruled that there was no trust
created. The lien is merely an evidence of the loan. Thus, it directed PNB to pay Aznar, et al., the
amount of their contributions plus legal interest from the time of acquisition of the property until
finality of judgment.
Issue:
Whether or not Aznar et al as stockholders has the legal or equitable rights over the subject
properties
Ruling:
No. Aznar et al do not have any legal or equitable rights over the properties.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the
properties at issue because they have no legal and/or equitable rights over the properties that are
derived from the previous registered owner which is RISCO.
As a consequence thereof, a corporation has a personality separate and distinct from those
of its stockholders and other corporations to which it may be connected. Thus, we had previously
ruled in Magsaysay-Labrador v. Court of Appeals that the interest of the stockholders over the
properties of the corporation is merely inchoate and therefore does not entitle them to intervene in
litigation involving corporate property.
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment of the corporate debts and
obligations.
In the case at bar, there is no allegation, much less any proof, that the corporate existence of
RISCO has ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities and Exchange Commission (SEC)
Certification dated June 18, 1997, the SEC merely suspended RISCOs Certificate of Registration
beginning on September 5, 1988 due to its non-submission of SEC required reports and its failure to
operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely evidence of a
loan agreement between them and the company. There is no indication or even a suggestion that
the ownership of said properties were transferred to them which would require no less that the
said properties be registered under their names. For this reason, the complaint should be dismissed
since Aznar, et al., have no cause to seek a quieting of title over the subject properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO.
Unfortunately, the right to seek repayment or reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION
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Development Bank of the Philippines vs. Hydro Resources Contractors Corporation
GR. No. 167603, 167561 & 167603, March 13, 2013, J. Leonardo-De Castro
In this connection, case law lays down a three-pronged test to determine the application of the
alter ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.
The first prong is the instrumentality or control test. This test requires that the
subsidiary be completely under the control and domination of the parent. It examines the parent
corporations relationship with the subsidiary. It inquires whether a subsidiary corporation is so
organized and controlled and its affairs are so conducted as to make it a mere instrumentality or
agent of the parent corporation such that its separate existence as a distinct corporate entity will be
ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in form and appearance, is operating the business
directly for itself.
The second prong is the fraud test. This test requires that the parent corporations conduct
in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of
the plaintiff to the corporation. It recognizes that piercing is appropriate only if the parent
corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a
showing of an element of injustice or fundamental unfairness.
The third prong is the harm test. This test requires the plaintiff to show that the defendants
control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm
suffered. A causal connection between the fraudulent conduct committed through the instrumentality
of the subsidiary and the injury suffered or the damage incurred by the plaintiff should be established.
The plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by
the defendants exercise of control and improper use of the corporate form and, thereby, suffer
damages.
Facts:
Petitioners Development Bank of the Philippines (DBP) and Philippine National Bank (PNB)
foreclosed on certain mortgages made on the properties of Marinduque Mining and Industrial
Corporation (MMIC). As a result of the foreclosure, DBP and PNB acquired substantially all the
assets of MMIC and resumed the business operations of the defunct MMIC by organizing Nonoc
Mining and Industrial Corporation (NMIC). DBP and PNB owned 57% and 43% of the shares of
NMIC, respectively, except for five qualifying shares. As of September 1984, the members of the
Board of Directors of NMIC were either from DBP or PNB.
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Subsequently, NMIC engaged the services of Hercon, Inc., for NMICs Mine Stripping and
Road Construction Program in 1985. After computing the payments of the contract price, it was
found out that NMIC still has an unpaid balance. Hercon, Inc. made several demands and these were
not heeded. Thus it filed a complaint for sum of money in the RTC.
After the complaint was filed, Hercon, Inc. was acquired by Hydro Resources Contractors
Corporation (HRCC) in a merger. Thus this prompted the amendment of the complaint to substitute
HRCC for Hercon, Inc.
In their defense, DBP, and PNB contended that NMIC is a corporate entity with a juridical
personality separate and distinct from both PNB and DBP. They insist that the majority ownership
by DBP and PNB of NMIC is not a sufficient ground for disregarding the separate corporate
personality of NMIC because NMIC was not a mere adjunct, business conduit or alter ego of DBP and
PNB. According to them, the application of the doctrine of piercing the corporate veil is
unwarranted as nothing in the records would show that the ownership and control of the
shareholdings of NMIC by DBP and PNB were used to commit fraud, illegality or injustice. In the
absence of evidence that the stock control by DBP and PNB over NMIC was used to commit some
fraud or a wrong and that said control was the proximate cause of the injury sustained by HRCC,
resort to the doctrine of piercing the veil of corporate entity is misplaced.
Issue:
Whether DPB and PNB can be held liable for the unpaid payment of NMIC against HRCC
Ruling:
No, DPB and PNB cannot be held liable for the unpaid payment of NMIC against HRCC
In this connection, case law lays down a three-pronged test to determine the application of
the alter ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of.
The first prong is the instrumentality or control test. This test requires that the
subsidiary be completely under the control and domination of the parent. It examines the parent
corporations relationship with the subsidiary. It inquires whether a subsidiary corporation is so
organized and controlled and its affairs are so conducted as to make it a mere instrumentality or
agent of the parent corporation such that its separate existence as a distinct corporate entity will be
ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in form and appearance, is operating the
business directly for itself.
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The second prong is the fraud test. This test requires that the parent corporations
conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the
relationship of the plaintiff to the corporation. It recognizes that piercing is appropriate only if the
parent corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it
requires a showing of an element of injustice or fundamental unfairness.
The third prong is the harm test. This test requires the plaintiff to show that the
defendants control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused
the harm suffered. A causal connection between the fraudulent conduct committed through the
instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff
should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have
been treated unjustly by the defendants exercise of control and improper use of the corporate form
and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or parent corporation,
fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the
plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements
prevents piercing the corporate veil. This Court finds that none of the tests has been
satisfactorily met in this case.
In this case, nothing in the records shows that the corporate finances, policies and practices
of NMIC were dominated by DBP and PNB in such a way that NMIC could be considered to have no
separate mind, will or existence of its own but a mere conduit for DBP and PNB. On the contrary,
the evidence establishes that HRCC knew and acted on the knowledge that it was dealing with
NMIC, not with NMICs stockholders.
On the second element, even assuming that DBP and PNB exercised control over NMIC,
there is no evidence that the juridical personality of NMIC was used by DBP and PNB to commit a
fraud or to do a wrong against HRCC. There being a total absence of evidence pointing to a
fraudulent, illegal or unfair act committed against HRCC by DBP and PNB under the guise of NMIC,
there is no basis to hold that NMIC was a mere alter ego of DBP and PNB.
As regards the third element, in the absence of both control by DBP and PNB of NMIC and
fraud or fundamental unfairness perpetuated by DBP and PNB through the corporate cover of
NMIC, no harm could be said to have been proximately caused by DBP and PNB on HRCC.
GOVERNMENT CORPORATIONS
DANTE V. LIBAN, REYNALDO M. BERNARDO and SALVADOR M. VIARI vs. RICHARD J. GORDON,
PHILIPPINE NATIONAL RED CROSS, Intervenor
G. R. No. 175352, January 18, 2011, J. Leonardo-De Castro
The PNRC enjoys a special status as an important ally and auxiliary of the government in the
humanitarian field in accordance with its commitments under international law. Its structure is sui
generis. The Court should not shake its existence to the core in an untimely and drastic manner that
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would not only have negative consequences to those who depend on it in times of disaster and armed
hostilities but also have adverse effects on the image of the Philippines in the international community.
Facts:
This resolves the Motion for Clarification and/or for Reconsideration filed by
respondent Richard J. Gordon (Gordon) of the Decision promulgated by this Court (the Decision).
In the Decision, the Court held that respondent did not forfeit his seat in the Senate when he
accepted the chairmanship of the PNRC Board of Governors, as the office of the PNRC Chairman is
not a government office or an office in a government-owned or controlled corporation for purposes
of the prohibition in Section 13, Article VI of the 1987 Constitution. The Decision, however, further
declared void the PNRC Charter insofar as it creates the PNRC as a private corporation and
consequently ruled that the PNRC should incorporate under the Corporation Code and register with
the Securities and Exchange Commission if it wants to be a private corporation.
Issue:
Whether or not PNRC Charter should be declared void insofar as it creates the PNRC as a
private corporation.
Ruling:
This Court should not have declared void certain sections of R.A. No. 95, as amended by
Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter.
A closer look at the nature of the PNRC would show that there is none like it not just in
terms of structure, but also in terms of history, public service and official status accorded to it by
the State and the international community. There is merit in PNRCs contention that its structure
is sui generis.
Although it is neither a subdivision, agency, or instrumentality of the government, nor a
government-owned or -controlled corporation or a subsidiary thereof, as succinctly explained in
the Decision of July 15, 2009, so much so that respondent, under the Decision, was correctly
allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a
conclusion does not ipso facto imply that the PNRC is a private corporation within the
contemplation of the provision of the Constitution, that must be organized under the Corporation
Code. As correctly mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires
us to approach controversies involving the PNRC on a case-to-case basis.
In sum, the PNRC enjoys a special status as an important ally and auxiliary of the
government in the humanitarian field in accordance with its commitments under international
law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of
the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing that
the PNRC has responded to almost all national disasters since 1947, and is widely known to provide
a substantial portion of the countrys blood requirements. Its humanitarian work is
unparalleled. The Court should not shake its existence to the core in an untimely and drastic
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manner that would not only have negative consequences to those who depend on it in times of
disaster and armed hostilities but also have adverse effects on the image of the Philippines in the
international community. The sections of the PNRC Charter that were declared void must
therefore stay.
BOY SCOUTS OF THE PHILIPPINES vs. COMMISSION ON AUDIT
G.R. No. 177131, June 7, 2011, J. Leonardo-De Castro
Not all corporations, which are not government owned or controlled, are ipso facto to be
considered private corporations as there exists another distinct class of corporations or chartered
institutions which are otherwise known as "public corporations." These corporations are treated by
law as agencies or instrumentalities of the government which are not subject to the tests of ownership
or control and economic viability but to different criteria relating to their public purposes/interests or
constitutional policies and objectives and their administrative relationship to the government or any
of its Departments or Offices.
Facts:
Commission on Audit (COA) issued Resolution No. 99-0115 on August 19, 1999 ("the COA
Resolution"), with the subject "Defining the Commissions policy with respect to the audit of the
Boy Scouts of the Philippines." In its whereas clauses, the COA Resolution stated that the Boy Scout
of the Philippines (BSP) was created as a public corporation under Commonwealth Act No. 111, as
amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the
Philippines v. National Labor Relations Commission, the Supreme Court ruled that the BSP, as
constituted under its charter, was a "government-controlled corporation within the meaning of
Article IX(B)(2)(1) of the Constitution"; and that "the BSP is appropriately regarded as a
government instrumentality under the 1987 Administrative Code."
The resolution further provides that COA shall conduct an annual financial audit of the BSP
in accordance with generally accepted auditing standards, and express an opinion on whether the
financial statements which include the Balance Sheet, the Income Statement and the Statement of
Cash Flows present fairly its financial position and results of operations. Also, for purposes of audit
supervision, the BSP shall be classified among the government corporations belonging to the
Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office I, to be
audited, similar to the subsidiary corporations, by employing the team audit approach.
BSP sought for a reconsideration of the said resolution. BSP argues that by virtue of the
amendment brought about by Republic Act 7278, BSP is not a public instrumentality under the
jurisdiction of COA due alteration of the composition of the National Board of the BSP. The said
alteration weakened the conclusion that BSP is a government-controlled corporation.
The motion for reconsideration of BSP was denied by COA. An annual financial audit shall
be undertaken. This led to the filing by the BSP of this petition for prohibition with preliminary
injunction and temporary restraining order against the COA.
Issue:
Whether or not the BSP is a government-owned and controlled corporation
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Ruling:
Yes. BSP is a government-owned and controlled corporation.
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as
presently constituted under Republic Act No. 7278, falls under the second classification.
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose created by
law; their personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner or
member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the
law creating it under Article 45 of the Civil Code. The purpose of the BSP as stated in its amended
charter shows that it was created in order to implement a State policy declared in Article II, Section
13 of the Constitution.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit
of a constitutional mandate, comes within the class of "public corporations" defined by paragraph 2,
Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the
same Code.
The Constitution emphatically prohibits the creation of private corporations except by a
general law applicable to all citizens. The purpose of this constitutional provision is to ban private
corporations created by special charters, which historically gave certain individuals, families or
groups special privileges denied to other citizens. (Emphasis added.)
It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of
"private corporations" by special law. The said constitutional provision should not be construed so
as to prohibit the creation of public corporations or a corporate agency or instrumentality of the
government intended to serve a public interest or purpose, which should not be measured on the
basis of economic viability, but according to the public interest or purpose it serves as envisioned
by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the Administrative
Code of 1987.
The BSP is a public corporation or a government agency or instrumentality with juridical
personality, which does not fall within the constitutional prohibition in Article XII, Section 16,
notwithstanding the amendments to its charter. Not all corporations, which are not government
owned or controlled, are ipso facto to be considered private corporations as there exists another
distinct class of corporations or chartered institutions which are otherwise known as "public
corporations." These corporations are treated by law as agencies or instrumentalities of the
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government which are not subject to the tests of ownership or control and economic viability but to
different criteria relating to their public purposes/interests or constitutional policies and objectives
and their administrative relationship to the government or any of its Departments or Offices.
Economic viability, as defined by Mr. Monsod in the deliberations of the 1986 Constitutional
convention, is Economic viability normally is determined by cost-benefit ratio that takes into
consideration all benefits, including economic external as well as internal benefits. These are what
they call externalities in economics, so that these are not strictly financial criteria. Economic
viability involves what we call economic returns or benefits of the country that are not quantifiable
in financial terms. x x x.
Thus, the test of economic viability clearly does not apply to public corporations dealing
with governmental functions, to which category the BSP belongs. The discussion above conveys the
constitutional intent not to apply this constitutional ban on the creation of public corporations
where the economic viability test would be irrelevant. The said test would only apply if the
corporation is engaged in some economic activity or business function for the government.
CORPORATE NAME
NM ROTHSCHILD & SONS (AUSTRALIA) LIMITED
vs. LEPANTO CONSOLIDATED MINING COMPANY
G.R. No. 175799, November 28, 2011, J. Leonardo-De Castro
While the SC stand by in its pronouncement on the importance of the corporate name to the
very existence of corporations and the significance thereof in the corporations right to sue, it shall not
go so far as to dismiss a case filed by the proper party using its former name when adequate
identification is presented.
Facts:
Lepanto Consolidated Mining Company (Lepanto) filed with the RTC of Makati City a
Complaint against NM Rothschild & Sons (Australia) Limited praying for a judgment declaring the
loan and hedging contracts between the parties void for being contrary to Article 2018 of the Civil
Code of the Philippines and for damages.
Upon Lepantos motion, the trial court authorized Lepantos counsel to personally bring the
summons and Complaint to the Philippine Consulate General in Sydney, Australia for the latter
office to effect service of summons on NM Rothschild & Sons. NM Rothschild & Sons filed a Special
Appearance With Motion to Dismiss praying for the dismissal of the Complaint on the ground that
the court has not acquired jurisdiction over the person of NM Rothschild & Sons due to the
defective and improper service of summons.
The RTC denied the Motion to Dismiss. According to the trial court, there was a proper
service of summons through the Department of Foreign Affairs (DFA) on account of the fact that the
NM Rothschild & Sons has neither applied for a license to do business in the Philippines, nor filed
with the Securities and Exchange Commission (SEC) a Written Power of Attorney designating some
person on whom summons and other legal processes maybe served. The CA affirmed the decision
of the RTC.
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Later, NM Rothschild & Sons filed a petition before the SC insisting that the trial court
committed grave abuse of discretion in not finding that it had not validly acquired jurisdiction over
NM Rothschild & Sons. Lepanto, on the other hand, posits that the Petition should be dismissed for
not being filed by a real party in interest.
Lepanto argues that the present Petition should be dismissed on the ground that NM
Rothschild & Sons no longer existed as a corporation at the time said Petition was filed on February
1, 2007. Lepanto points out that as of the date of the filing of the Petition, there is no such
corporation that goes by the name NM Rothschild and Sons (Australia) Limited. Thus, according to
respondent, the present Petition was not filed by a real party in interest.
In its Memorandum before the SC, NM Rothschild & Sons started to refer to itself as Investec
Australia Limited (formerly NM Rothschild & Sons [Australia] Limited) and captioned said
Memorandum accordingly. NM Rothschild & Sons claims that NM Rothschild and Sons (Australia)
Limited still exists as a corporation under the laws of Australia under said new name. It presented
before the SC documents evidencing the process in the Australian Securities & Investment
Commission on the change of NM Rothschild & Sons company name from NM Rothschild and Sons
(Australia) Limited to Investec Australia Limited.
Issue:
Is NM Rothschild & Sons a real party in interest?
Ruling:
Yes, it is.
The SC found the submissions of NM Rothschild & Sons on the change of its corporate name
satisfactory and resolved not to dismiss the Petition for Review on the ground of not being
prosecuted under the name of the real party in interest. While the SC stand by in its pronouncement
in Philips Export on the importance of the corporate name to the very existence of corporations and
the significance thereof in the corporations right to sue, it shall not go so far as to dismiss a case
filed by the proper party using its former name when adequate identification is presented.
In Philips Export it was declared that A name is peculiarly important as necessary to the
very existence of a corporation. Its name is one of its attributes, an element of its existence, and
essential to its identity. The general rule as to corporations is that each corporation must have a
name by which it is to sue and be sued and do all legal acts. The name of a corporation in this
respect designates the corporation in the same manner as the name of an individual designates the
person and the right to use its corporate name is as much a part of the corporate franchise as any
other privilege granted
A real party in interest is the party who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit.
There is no doubt that the party who filed the present Petition, having presented sufficient
evidence of its identity and being represented by the same counsel as that of the NM Rothschild &
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Sons in the case sought to be dismissed, is the entity that will be benefited if this Court grants the
dismissal prayed for.
BOARD OF DIRECTORS/CORPORATE OFFICERS
CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA vs. DEVELOPMENT BANK OF THE
PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA
Except for the powers which are expressly conferred on it by the Corporation Code and those
that are implied by or are incidental to its existence, a corporation has no powers. Physical acts, like
the signing of documents, can be performed only by natural persons duly authorized for the purpose
by corporate bylaws or by a specific act of the board of directors.
Facts:
Spouses Rudy Robles, Jr. and Elizabeth Robles (Spouses Robles) entered into a mortgage
contract with DBP in order to secure a loan from the said bank in the amount of P500,000.00. The
properties mortgaged were a parcel of land in Tabunoc, Talisay, Cebu, covered by TCT No. T- 47783
of the Register of Deeds of Cebu, together with all the existing improvements, and the commercial
building (subject properties) to be constructed thereon. Upon completion, the commercial building
was named the State Theatre Building.
Rudy Robles executed a contract of lease in favor of petitioner Cebu Bionic Builders Supply,
Inc. (Cebu Bionic), a domestic corporation engaged in the construction business, as well as the sale
of hardware materials. The said contract was not registered by the parties thereto with the Registry
of Deeds of Cebu. Then, spouses Robles failed to settle their loan obligation with DBP. The latter
was prompted to effect extrajudicial foreclosure on the subject properties. DBP was the lone bidder
in the foreclosure sale and thereby acquired ownership of the mortgaged subject properties.
Afterwards, a final Deed of Sale was issued in favor of DBP. DBP sent a letter to Bonifacio Sia, the
husband of petitioner Lydia Sia President of Cebu Bionic, notifying the latter of DBPs acquisition
of the State Theatre Building.
Thereafter, a Certificate of Time Deposit for P11,395.64 was issued in the name of Bonifacio
Sia and the same was allegedly remitted to DBP as advance rental deposit. However, no written
contract of lease was executed between DBP and Cebu Bionic.
Subsequent to the acquisition of the subject properties, DBP offered the same for sale along
with its other assets. Pursuant thereto, DBP published a series of invitations to bid on such
properties. As no interested bidder came forward, DBP publicized an Invitation on Negotiated
Sale/Offer. In the last day for the acceptance of negotiated offers, petitioners submitted through
their representative, Judy Garces, a letter-offer form, offering to purchase the subject properties
for P1,840,000.00. This offer of petitioners was not accepted by DBP, however, as the
corresponding deposit therefor was allegedly insufficient. After the lapse of the above-mentioned
15-day acceptance period, petitioners did not submit any other offer/proposal to purchase the
subject properties.
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Respondents To Chip, Yap and Balila presented their letter-offer to purchase the subject
properties on a cash basis for P1,838,100.00. Said offer was accompanied by a downpayment of
10% of the offered purchase price, amounting to P183,810.00. On even date, DBP acknowledged the
receipt of and accepted their offer. They paid the balance of the purchase price and DBP issued a
Deed of Sale over the subject properties in their favor. The counsel of the said respondents sent a
letter addressed to the proprietor of Cebu Bionic, informing the latter of the transfer of ownership
of the subject properties. Cebu Bionic was ordered to vacate the premises within thirty (30) days
from receipt of the letter and directed to pay the rentals from January 1, 1991 until the end of the
said 30-day period. To Chip wrote a letter to the counsel of Cebu Bionic, insisting that he and his corespondents Yap and Balila urgently needed the subject properties to pursue their business
plans. He also reiterated their demand for Cebu Bionic to vacate the premises. After some time, the
counsel of respondents To Chip, Yap and Balila sent its final demand letter to Cebu Bionic, warning
the latter to vacate the subject properties within 7 days from receipt of the letter, otherwise, a case
for ejectment with damages will be filed against it.
Petitioners filed against respondents DBP, To Chip, Yap and Balila a complaint for specific
performance, cancellation of deed of sale with damages, injunction with a prayer for the issuance of
a writ of preliminary injunction. Petitioners alleged that documents relating to the subject property
were initially accepted by DBP but later returned and the latter advised petitioners that there was
no urgent need for the same since the property will necessarily be sold to Cebu Bionic as a
preferred party. DBP denied the existence of a contract of lease between itself and petitioners.
RTC granted the prayer of petitioners for the issuance of a writ of preliminary injunction
and found meritorious the complaint of the petitioner. It also found that respondents To Chip, Yap
and Balila were aware of the lease contract involving the subject properties before they purchased
the same from DBP. DBP forthwith filed a Notice of Appeal.
The Court of Appeals found nothing erroneous with the judgment rendered by the trial
court. Petitioners filed Petition for Review on Certiorari under Rule 45 of the Rules of Court.
Respondents To Chip, Yap and Balila argue that the instant petition should be dismissed outright as
the verification and certification of non-forum shopping was executed only by Lydia Sia in her
personal capacity, without the participation of Cebu Bionic.
Issue:
Whether or not the instant petition should be dismissed outright as the verification and
certification of non-forum shopping was executed only by petitioner Lydia Sia in her personal
capacity, without the participation of Cebu Bionic.
Ruling:
The Court is not persuaded.
Except for the powers which are expressly conferred on it by the Corporation Code and
those that are implied by or are incidental to its existence, a corporation has no powers. It exercises
its powers through its board of directors and/or its duly authorized officers and agents. Thus, its
power to sue and be sued in any court is lodged with the board of directors that exercises its
corporate powers. Physical acts, like the signing of documents, can be performed only by natural
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persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of
directors.
In this case, respondents To Chip, Yap and Balila obviously overlooked the Secretarys
Certificate attached to the instant petition, which was executed by the Corporate Secretary of Cebu
Bionic. Unequivocally stated therein was the fact that the Board of Directors of Cebu Bionic held a
special meeting on July 26, 2002 and they thereby approved a Resolution authorizing Lydia Sia to
elevate the present case to this Court in behalf of Cebu Bionic.
SOUTH COTABATO COMMUNICATIONS CORPORATION and GAUVAIN J. BENZONAN vs. HON.
PATRICIA A. STO. TOMAS, SECRETARY OF LABOR AND EMPLOYMENT, ROLANDO FABRIGAR,
MERLYN VELARDE, VINCE LAMBOC, FELIPE GALINDO, LEONARDO MIGUEL, JULIUS RUBIN,
EDEL RODEROS, MERLYN COLIAO and EDGAR JOPSON
G.R. No. 173326, December 15, 2010, J. Leonardo-De Castro
The requirement of the certification of non-forum shopping is rooted in the principle that a
party-litigant shall not be allowed to pursue simultaneous remedies in different fora, as this practice is
detrimental to an orderly judicial procedure. However, the Court has relaxed, under justifiable
circumstances, the rule requiring the submission of such certification considering that, although it is
obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of
substantial compliance. Thus, a President of a corporation, among other enumerated corporate
officers and employees, can sign the verification and certification against of non-forum shopping in
behalf of the said corporation without the benefit of a board resolution.
Facts:
On the basis of a complaint, an inspection was conducted at the premises of DXCP Radio
Station where violations of labor standards laws were noted. The Regional Director issued the
assailed Order, directing appellants to pay appellees the aggregate amount of Php759, 752.00.
Petitioners appealed their case to then DOLE Secretary Sto. Tomas. However, this appeal
was dismissed. Undeterred, petitioners filed a Motion for Reconsideration with the DOLE Secretary
but this was denied. In light of this setback, petitioners elevated their case to the Court of Appeals
but their petition was dismissed because of several procedural infirmities, among others, that the
petition was not properly verified and the Certification of Non-Forum Shopping was not executed
by the plaintiff or principal party in violation of Sections 4 and 5 of Rule 7 of the 1997 Rules of Civil
Procedure, as the affiant therein was not duly authorized to represent the corporation. Such
procedural lapse renders the entire pleading of no legal effect and is dismissible.
Petitioners then filed a Motion for Reconsideration and the Court of Appeals also ruled that,
with regard to the procedural error on the execution of Certification of Non-Forum Shopping,
petitioners justification does not deserve merit reasoning that while it may be true that there are
two (2) petitioners and that petitioner Gauvain Benzonan signed the verification and the certificate
of non-forum shopping of the petition, the records show that petitioner Gauvain Benzonan did not
initiate the petition in his own capacity to protect his personal interest in the case but was, in fact,
only acting for and in the corporations behalf as its president. Thus, the Court of Appeals noted that
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having acted in the corporations behalf, petitioner Benzonan should have been clothed with the
corporations board resolution authorizing him to institute the petition.
The Court of Appeals likewise ruled that petitioners attachment of a Secretarys Certificate
to their Motion for Reconsideration was insufficient since their submission merely authorized
petitioner Benzonan to represent the corporation and cause the preparation and filing of a Motion
for Reconsideration before the Court of Appeals. Consequently, petitioners filed the instant petition.
Issue:
Whether or not the Court of Appeals committed grave abuse of discretion amounting to lack
or excess of jurisdiction when it dismissed the Petition for Certiorari and denied the Motion for
Reconsideration on its finding that the petition was not properly verified and the certification of
non-forum shopping was not executed by the principal party allegedly in violation of Sections 4 and
5, Rule 7 of the 1997 Rules of Civil Procedure.
Ruling:
It was error on the part of the Court of Appeals to dismiss petitioners special civil action
for certiorari despite substantial compliance with the rules on procedure. For unduly upholding
technicalities at the expense of a just resolution of the case, normal procedure dictates that the
Court of Appeals should be tasked with properly disposing the petition, a second time around, on
the merits.
The Court had summarized the jurisprudential principles on the matter in Cagayan Valley
Drug Corporation v. Commissioner of Internal Revenue. In said case, we held that a President of a
corporation, among other enumerated corporate officers and employees, can sign the verification
and certification against of non-forum shopping in behalf of the said corporation without the
benefit of a board resolution.
It must be stressed, however, that the Cagayan ruling qualified that the better procedure is
still to append a board resolution to the complaint or petition to obviate questions regarding the
authority of the signatory of the verification and certification.
Nonetheless, under the circumstances of this case, it bears reiterating that the requirement
of the certification of non-forum shopping is rooted in the principle that a party-litigant shall not be
allowed to pursue simultaneous remedies in different fora, as this practice is detrimental to an
orderly judicial procedure. However, the Court has relaxed, under justifiable circumstances, the
rule requiring the submission of such certification considering that, although it is obligatory, it is
not jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial
compliance.
In the case at bar, the Court holds that there has been substantial compliance with Sections
4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure on the petitioners part in consonance
with our ruling in the Lepanto Consolidated Mining Company v. WMC Resources International PTY
LTD. that we laid down in 2003 with the rationale that the President of petitioner-corporation is in
a position to verify the truthfulness and correctness of the allegations in the petition. Petitioner
Benzonan clearly satisfies the aforementioned jurisprudential requirement because he is the
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President of petitioner South Cotabato Communications Corporation. Moreover, he is also named as
co-respondent of petitioner-corporation in the labor case which is the subject matter of the special
civil action for certiorari filed in the Court of Appeals.
DERIVATIVE SUIT
NESTOR CHING and ANDREW WELLINGTON vs. SUBIC BAY GOLF AND COUNTRY CLUB, INC.,
HU HO HSIU LIEN alias SUSAN HU, HU TSUNG CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG
TZU and REYNALD R. SUAREZ
G.R. No. 174353, September 10, 2014, J. Leonardo-De Castro
A derivative suit cannot prosper without first complying with the legal requisites for its
institution. Thus, a complaint which contained no allegation whatsoever of any effort to avail of intracorporate remedies allows the court to dismiss it, even motu proprio. Indeed, even if petitioners
thought it was futile to exhaust intra-corporate remedies, they should have stated the same in the
Complaint and specified the reasons for such opinion. The requirement of this allegation in the
Complaint is not a useless formality which may be disregarded at will.
Facts:
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a
Complaint with the RTC of Olongapo City on behalf of the members of Subic Bay Golf and Country
Club, Inc. (SBGCCI) against the said country club and its Board of Directors and officers under the
provisions of Presidential Decree No. 902-A in relation to Section 5.2 of the Securities Regulation
Code. The complaint alleged that the defendant corporation sold shares to plaintiffs at
US$22,000.00 per share, presenting to them the Articles of Incorporation. However, on June 27,
1996, an amendment to the Articles of Incorporation was approved by the Securities and Exchange
Commission (SEC).
Petitioners claimed in the Complaint that SBGCCI did not disclose to them the above
amendment which allegedly makes the shares non-proprietary, as it takes away the right of the
shareholders to participate in the pro-rata distribution of the assets of the corporation after its
dissolution. According to petitioners, this is in fraud of the stockholders who only discovered the
amendment when they filed a case for injunction to restrain the corporation from suspending their
rights to use all the facilities of the club. Furthermore, petitioners alleged that the Board of
Directors and officers of the corporation did not call any stockholders meeting from the time of the
incorporation, in violation of Section 50 of the Corporation Code and the By-Laws of the
corporation. Neither did the defendant directors and officers furnish the stockholders with the
financial statements of the corporation nor the financial report of the operation of the corporation
in violation of Section 75 of the Corporation Code. Petitioners also claim SBGCCI presented to the
SEC an amendment to the By-Laws of the corporation suspending the voting rights of the
shareholders except for the five founders shares. Said amendment was allegedly passed without
any stockholders meeting or notices to the stockholders in violation of Section 48 of the
Corporation Code.
The Complaint furthermore enumerated several instances of fraud in the management of
the SBGCCI allegedly committed by the Board of Directors and officers of the corporation.
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The RTC issued an Order dismissing the Complaint. The RTC held that the action is a
derivative suit. Petitioners Ching and Wellington elevated the case to the Court of Appeals which
rendered the assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they argue that the
Complaint they filed with the RTC was not a derivative suit.
Issue:
Whether or not the Complaint is indeed a derivative suit.
Ruling:
The nature of an action, as well as which court or body has jurisdiction over it, is
determined based on the allegations contained in the complaint of the plaintiff, irrespective of
whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein.
While there were allegations in the Complaint of fraud in their subscription agreements,
such as the misrepresentation of the Articles of Incorporation, petitioners do not pray for the
rescission of their subscription or seek to avail of their appraisal rights. Instead, they ask that
defendants be enjoined from managing the corporation and to pay damages for their
mismanagement. Petitioners only possible cause of action as minority stockholders against the
actions of the Board of Directors is the common law right to file a derivative suit. The legal standing
of minority stockholders to bring derivative suits is not a statutory right, there being no provision
in the Corporation Code or related statutes authorizing the same, but is instead a product of
jurisprudence based on equity. However, a derivative suit cannot prosper without first complying
with the legal requisites for its institution.
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra Corporate Controversies
imposes the following requirements for derivative suits:
(1) He was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
The RTC dismissed the Complaint for failure to comply with the second and fourth
requisites above.
Upon a careful examination of the Complaint, this Court finds that the same should not have
been dismissed on the ground that it is a nuisance or harassment suit. Although the shareholdings
of petitioners are indeed only two out of the 409 alleged outstanding shares or 0.24%, the Court has
held that it is enough that a member or a minority of stockholders file a derivative suit for and in
behalf of a corporation.
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With regard, however, to the second requisite, we find that petitioners failed to state with
particularity in the Complaint that they had exerted all reasonable efforts to exhaust all remedies
available under the articles of incorporation, by-laws, and laws or rules governing the corporation
to obtain the relief they desire. The Complaint contained no allegation whatsoever of any effort to
avail of intra-corporate remedies. Indeed, even if petitioners thought it was futile to exhaust intracorporate remedies, they should have stated the same in the Complaint and specified the reasons
for such opinion. Failure to do so allows the RTC to dismiss the Complaint, even motu proprio, in
accordance with the Interim Rules. The requirement of this allegation in the Complaint is not a
useless formality which may be disregarded at will.
MERGER
BANK OF THE PHILIPPINE ISLANDS vs. BPI EMPLOYEES UNION-DAVAO CHAPTERFEDERATION OF UNIONS IN BPI UNIBANK
G.R. No. 164301, August 10, 2010, J. Leonardo-De Castro
FEBTC employees that were absorbed by petitioner upon the merger between FEBTC and BPI
should be covered by the Union Shop Clause found in the existing CBA between petitioner and
respondent Union. The Court believes that it is contrary to public policy to declare the former FEBTC
employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by
BPI in the Articles of Merger. Assets and liabilities, should be deemed to refer only to property rights
and obligations of FEBTC and do not include the employment contracts of its personnel. A corporation
cannot unilaterally transfer its employees to another employer like chattel. Even though FEBTC
employees had no choice or control over the merger of their employer with BPI, they had a choice
whether or not they would allow themselves to be absorbed by BPI. Employment is a personal
consensual contract and absorption by BPI of a former FEBTC employee without the consent of the
employee is in violation of an individuals freedom to contract.
Facts:
On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger
executed on January 20, 2000 by and between BPI, herein petitioner, and FEBTC. This Article and
Plan of Merger was approved by the Securities and Exchange Commission. Pursuant to the Article
and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI
as the surviving corporation. FEBTC employees, including those in its different branches across the
country, were hired by petitioner as its own employees, with their status and tenure recognized
and salaries and benefits maintained.
Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank is
the exclusive bargaining agent of BPIs rank and file employees in Davao City. The former FEBTC
rank-and-file employees in Davao City did not belong to any labor union at the time of the merger.
Some of the former FEBTC employees joined the Union, while others refused. Later, however, some
of those who initially joined retracted their membership. When these former FEBTC employees
refused to attend the hearing, the president of the Union requested BPI to implement the Union
Shop Clause of the CBA and to terminate their employment pursuant thereto. The issue remained
unresolved at this level and so it was subsequently submitted for voluntary arbitration by the
parties.
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Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision ruled in favor of petitioner
BPIs interpretation that the former FEBTC employees were not covered by the Union Security
Clause of the CBA between the Union and the Bank on the ground that the said employees were not
new employees who were hired and subsequently regularized. The Voluntary Arbitrator concluded
that the former FEBTC employees could not be compelled to join the Union, as it was their
constitutional right to join or not to join any organization. Court of Appeals reversed and set aside
the Decision of the Voluntary Arbitrator. Hence, BPI presents recourse.
Issue:
Whether or not the former FEBTC employees that were absorbed by petitioner upon the
merger between FEBTC and BPI should be covered by the Union Shop Clause found in the existing
CBA between petitioner and respondent Union.
Ruling:
No, former FEBTC employees should not be covered by the Union shop clause.
Section 2, Article II of the CBA is silent as to how one becomes a regular employee of the BPI
for the first time. There is nothing in the said provision which requires that a new regular employee
first undergo a temporary or probationary status before being deemed as such under the union
shop clause of the CBA. The purpose of a union shop or other union security arrangement is to
guarantee the continued existence of the union through enforced membership for the benefit of the
workers.
When certain employees are obliged to join a particular union as a requisite for continued
employment, as in the case of Union Security Clauses, this condition is a valid restriction of the
freedom or right not to join any labor organization because it is in favor of unionism. This Court, on
occasion, has even held that a union security clause in a CBA is not a restriction of the right of
freedom of association guaranteed by the Constitution. Indeed, the situation of the former FEBTC
employees in this case clearly does not fall within the first three exceptions to the application of the
Union Shop Clause. No allegation or evidence of religious exemption or prior membership in
another union or engagement as a confidential employee was presented by both parties. The sole
category therefore in which petitioner may prove its claim is the fourth recognized exception or
whether the former FEBTC employees are excluded by the express terms of the existing CBA
between petitioner and respondent. The CBA does not make a distinction as to how a regular
employee attains such a status. Moreover, there is nothing in the Corporation Law and the merger
agreement mandating the automatic employment as regular employees by the surviving
corporation in the merger.
The Articles of Merger and Plan of Merger dated April 7, 2000 did not contain any specific
stipulation with respect to the employment contracts of existing personnel of the non-surviving
entity which is FEBTC. This Court cannot uphold the reasoning that the general stipulation
regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of Merger
necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI nor
the FEBTC employees allegedly could do anything about it.
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Furthermore, this Court believes that it is contrary to public policy to declare the former
FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and
absorbed by BPI in the Articles of Merger. Assets and liabilities, should be deemed to refer only to
property rights and obligations of FEBTC and do not include the employment contracts of its
personnel. A corporation cannot unilaterally transfer its employees to another employer like
chattel. Certainly, if BPI as an employer had the right to choose who to retain among FEBTCs
employees, FEBTC employees had the concomitant right to choose not to be absorbed by BPI. Even
though FEBTC employees had no choice or control over the merger of their employer with BPI, they
had a choice whether or not they would allow themselves to be absorbed by BPI. Certainly nothing
prevented the FEBTCs employees from resigning or retiring and seeking employment elsewhere
instead of going along with the proposed absorption.
Employment is a personal consensual contract and absorption by BPI of a former FEBTC
employee without the consent of the employee is in violation of an individuals freedom to
contract. It would have been a different matter if there was an express provision in the articles of
merger that as a condition for the merger, BPI was being required to assume all the employment
contracts of all existing FEBTC employees with the conformity of the employees. In the absence of
such a provision in the articles of merger, then BPI clearly had the business management decision
as to whether or not employ FEBTCs employees. FEBTC employees likewise retained the
prerogative to allow themselves to be absorbed or not; otherwise, that would be tantamount to
involuntary servitude.
There appears to be no dispute that with respect to FEBTC employees that BPI chose not to
employ or FEBTC employees who chose to retire or be separated from employment instead of being
absorbed, BPIs assumed liability to these employees pursuant to the merger is FEBTCs liability to
them in terms of separation pay, retirement pay or other benefits that may be due them depending
on the circumstances.
Petitioner limited itself to the argument that its absorbed employees do not fall within the
term new employees contemplated under the Union Shop Clause with the apparent objective of
excluding all, and not just some, of the former FEBTC employees from the application of the Union
Shop Clause. However, in law or even under the express terms of the CBA, there is no special class
of employees called absorbed employees. In order for the Court to apply or not apply the Union
Shop Clause, we can only classify the former FEBTC employees as either old or new. If they are new
employees, the Union Shop Clause did not distinguish between new employees who are nonregular at their hiring but who subsequently become regular and new employees who are absorbed
as regular and permanent from the beginning of their employment. The Union Shop Clause did not
so distinguish, and so neither must we.
SECURITIES AND REGULATIONS CODE
PHILIPPINE STOCK EXCHANGE, INC. vs. THE MANILA BANKING CORPORATION et.al
G.R. No. 147778. July 23, 2008, J. Leonardo-De Castro
It is axiomatic that jurisdiction over the subject matter is conferred by law and is determined
by the allegations of the complaint or the petition irrespective of whether the plaintiff is entitled to all
or some of the claims or reliefs asserted therein.
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Facts:
On October 1, 1980, TMBC acquired Manila Stock Exchange (MSE) Seat No. 97, registered in
the name of Roberto K. Recio (Recio), through an execution sale which arose from a levy on
execution to satisfy a loan obligation of Recio to TMBC. According to MSE, its bylaws allow only
individuals or corporations engaged primarily in the business of stocks and bonds brokers and
dealers in securities to be a member or to hold a seat in the MSE. In the end, TMBC settled for a
mere acknowledgment from MSE of its legal or naked ownership of, or proprietary right over, MSE
Seat No. 97 which was done by MSE through its Acknowledgment Letter dated August 19, 1996.
Before the aforementioned acknowledgment of MSEs title, the Philippine Stock Exchange,
Inc. (PSEI) was incorporated unifying the MSE and the Makati Stock Exchange (MKSE) into one
exchange. On April 16, 1994, the PSEI issued a certificate of membership to Recio as Member No.
29. Believing that MSE Seat No. 97 became PSE Seat No. 29 of the unified exchanges and that the
certificate of membership to PSEI was issued to Recio on the basis of his previous ownership of
MSE Seat No. 97, TMBC sought to rectify the PSEIs listing of Recio as a member without any
reservation or annotation therein that TMBC owns proprietary rights over PSE Seat No. 29. Armed
with MSEs acknowledgment of its legal ownership or naked title over MSE Seat No. 97, TMBC
sought PSEIs recognition of its legal ownership of PSE Seat No. 29. However, TMBCs efforts were
met with PSEIs repeated refusal.
TMBC lodged a Petition for Mandamus with Claim for Damages, at the SEC SICD, against
herein petitioners PSEI and its Board of Governors. The petition prayed that the SEC order the PSEI
to acknowledge TMBCs proprietary interest or legal or naked ownership of PSE Seat No. 29 to
enable TMBC to register said seat to a qualified nominee or otherwise sell the same to a qualified
vendee.
SEC en banc sustained the order issued by its Securities Investigation and Clearing
Department (SICD) Hearing Panel denying PSEs motion to dismiss the Petition for Mandamus with
Claim for Damages lodged thereat by The Manila Banking Corporation (TMBC). PSE contented that
the SEC had no jurisdiction to try and hear the same the petition failed to state TMBCs cause of
action against petitioners and the remedy of mandamus was improper. CA dismissed the petition
for lack of merit.
Issue:
Whether CA correctly dismissed the petition
Ruling:
Yes
In the present case, it is our perception that what respondent TMBC alleged to be the device
and scheme utilized by petitioners, was in the petition expounded exhaustively enough as to
intelligently inform the petitioner about the overt acts therein referred to as constituting the device
or scheme. For this reason, the SEC committed no error in refusing to dismiss the petition filed
before it. x x x [T]he petition bristles with recitals of facts and statements demonstrating
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petitioners perpetration of devices and schemes amounting to fraud. The allegations would suffice
to constitute a cause of action against petitioners.
It is axiomatic that jurisdiction over the subject matter is conferred by law and is
determined by the allegations of the complaint or the petition irrespective of whether the plaintiff
is entitled to all or some of the claims or reliefs asserted therein. The three tribunals below are
unanimous in appreciating TMBCs cause of action against petitioners and that the same falls within
the ambit of Section 5(a) of P.D. 902A.
As to the propriety of mandamus as a remedy, petitioners claim it was not their ministerial
duty to acknowledge the proprietary, legal or naked ownership of TMBC over PSE Seat No. 29. True,
the Court has invariably ruled that generally, the performance of an official act or duty, which
necessarily involves the exercise of discretion or judgment, cannot be compelled by mandamus.
However, the Court has also declared that the general rule does not apply in cases where there is
gross abuse of discretion, manifest injustice, or palpable excess of authority. These exceptions apply
to the present case.
INTRA-CORPORATE CONTROVERSIES
DEE PING WEE, ARACELI WEE and MARINA U. TAN vs. LEE HIONG WEE and ROSALIND WEE
G.R. No. 169345, August 25, 2010, J. Leonardo-De Castro
Civil cases involving the inspection of corporate books are governed by the rules of procedure
set forth in the Interim Rules of Procedure for Intra-Corporate Controversies under Republic Act No.
8799 (Interim Rules). In order to assail the decision or order issued under the Interim order must be
sought from the appellate court to enjoin the enforcement or implementation of the decision or order,
and unless a restraining order is so issued, the decision or order rendered under the Interim Rules shall
remain to be immediately executory.
In the inspection of Corporate Books, the burden of proof lies with the corporation who refuses
to grant to the stockholder the right to inspect corporate records.
Supervening events refer to facts which transpire after judgment has become final and
executory or to new circumstances which developed after the judgment has acquired finality, including
matters which the parties were not aware of prior to or during the trial as they were not yet in
existence at that time, a supervening event affects or changes the substance of the judgment and
renders the execution thereof inequitable, impossible or unjust.
Facts:
Petitioners Dee Ping Wee and Marina Tan are the brother and sister of respondent Lee
Hiong Wee. Petitioner Araceli Wee is the spouse of Dee Ping Wee, while respondent Rosalind Wee is
the spouse of Lee Hiong Wee.
Petitioners Dee Ping Wee, Araceli Wee and Marina U. Tan were the majority stockholders
of: (1) Marcel Trading Corporation, a domestic corporation that is primarily engaged in the
business of cultivating, buying, selling at wholesale, exporting and manufacturing of seaweeds; (2)
Marine Resources Development Corporation, a domestic corporation that is primarily engaged in
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the business of cultivating, buying, selling and exporting on a wholesale basis seaweeds, seashells
and other marine products and (3) First Marcel Properties, Inc., a domestic corporation that is
primarily engaged in the business of acquisition, development and disposition of real estate and
other kinds of structures. On the other hand, Lee Hiong Wee and Rosalind Wee were minority
stockholders in the said corporations.
Respondents, through their counsel, sent a letter to Dee Ping Wee, demanding the
inspection of the corporate records of the above corporations. As their demand letter met an
unfavorable reply from Dee Ping Wee, respondents filed before the RTC of Quezon City, Branch 93
(RTC). Three separate Complaints against petitioners for the inspection of the corporate books of
the above-mentioned corporations. The complaint involving Marcel Trading Corporation was
docketed as Civil Case No. Q-04-091, while those pertaining to Marine Resources Development
Corporation and First Marcel Properties, Inc. were docketed, respectively, as Civil Case No. Q-04092 and Civil Case No. Q-04-093. Invoking similar causes of action in each of the complaints,
respondents claimed that petitioners violated their rights to gain access to and inspect the
corporate books, records and financial statements of the above corporations, which rights are
guaranteed by Sections 74 and 75 of the Corporation Code.
Petitioners filed separate Answers, praying for the dismissal of the complaints for lack of
merit and asserted that the letter of respondents counsel failed to specify the particular records or
documents they wished to inspect and the purpose for such inspection.
RTC, sitting as a special commercial court, rendered three separate, but similarly worded,
Decisions wherein it ruled that petitioners have not advanced any valid ground to warrant a denial
of the stockholders right to inspect corporate books and records as well as to copies of financial
statements of the corporation and ruled in favor of the respondents. The petitioners are accordingly
directed to allow the respondents to exercise their right to inspect corporate books and records
during business hours of any working day.
Petitioners filed before the Court of Appeals three separate Petitions for Certiorari under
Rule 65 of the Rules of Court, which contained the same arguments in impugning the judgments of
the RTC.
Issue:
Whether or not the decisions in CA-G.R. SP NO. 85880 and 85879 rendered by separate
divisions of the Court of Appeals declaring as improper the intended inspection of corporate
records of Marine Resource Development Corporation and First Marcel Properties Corporation,
constitute a supervening event which would warrant the suspension of execution of the decision of
RTC granting inspection of corporate records of Marcel Trading Corporation.
Ruling:
The instant petition is devoid of merit.
After a careful review of the facts and arguments in this case, the Court finds that
petitioners have already lost their right to question the RTC Decision dated June 23, 2004 in Civil
Case No. Q-04-091, much less to seek the suspension of the execution thereof.
Page 22 of 32

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In Natalia Realty, Inc. v. Court of Appeals, the Court had the occasion to discuss the nature of
supervening events, thus:
One of the exceptions to the principle of immutability of final judgments is
the existence of supervening events. Supervening events refer to facts which
transpire after judgment has become final and executory or to new circumstances
which developed after the judgment has acquired finality, including matters which
the parties were not aware of prior to or during the trial as they were not yet in
existence at that time.
A supervening event affects or changes the substance of the judgment and renders the
execution thereof inequitable. Should such an event occur after a judgment becomes final and
executory, which event may render the execution of the judgment impossible or unjust. Ramirez v.
Court of Appeals dictates that a stay or preclusion of execution may properly be sought.
Doubtless, the RTC Decisions dated June 23, 2004 in Civil Case Nos. Q-04-091, Q-04-092 and
Q-04-093 have since become final and executory.
Civil cases involving the inspection of corporate books are governed by the rules of
procedure set forth in A.M. No. 01-2-04-SC, otherwise known as the Interim Rules of Procedure for
Intra-Corporate Controversies under Republic Act No. 8799 (Interim Rules). Section 4, Rule 1 of the
Interim Rules defines the nature of the judgments rendered thereunder as follows:
SEC. 4. Executory nature of decisions and orders. - All decisions and orders
issued under these Rules shall immediately be executory, except the awards for
moral damages, exemplary damages and attorneys fees, if any. No appeal or
petition taken therefrom shall stay the enforcement or implementation of the
decision or order, unless restrained by an appellate court. Interlocutory orders
shall not be subject to appeal. (Emphases ours.)
Verily, the first part of Section 4, Rule 1 of the Interim Rules is categorical. Save for the
exceptions clearly stated therein, the provision enunciates that a decision and order issued under
the Interim Rules shall be enforceable immediately after the rendition thereof. In order to assail the
decision or order, however, the second part of the provision speaks of an appeal or petition that
needs to be filed by the party concerned. In this appeal or petition, a restraining order must be
sought from the appellate court to enjoin the enforcement or implementation of the decision or
order. Unless a restraining order is so issued, the decision or order rendered under the Interim
Rules shall remain to be immediately executory.
On September 14, 2004, the Court issued a Resolution in A.M. No. 04-9-07-SC to rectify the
situation wherein lawyers and litigants are in a quandary on how to prevent under appropriate
circumstances the execution of decisions and orders in cases involving corporate rehabilitation and
intra-corporate controversies. To address the need to clarify the proper mode of appeal in cases
involving corporate rehabilitation and intra-corporate controversies in order to prevent cluttering
the dockets of the courts with appeals and/or petitions for certiorari, the Court thereby resolved
that:
Page 23 of 32

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1.
All decisions and final orders in cases falling under the Interim Rules of
Corporate Rehabilitation and the Interim Rules of Procedure Governing
Intra-Corporate Controversies under Republic Act No. 8799 shall be
appealable to the Court of Appeals through a petition for review under Rule
43 of the Rules of Court.
2.
The petition for review shall be taken within fifteen (15) days from notice
of the decision or final order of the Regional Trial Court. Upon proper
motion and the payment of the full amount of the legal fee prescribed in Rule
141 as amended before the expiration of the reglementary period, the Court of
Appeals may grant an additional period of fifteen (15) days within which to file
the petition for review. No further extension shall be granted except for the most
compelling reasons and in no case to exceed fifteen (15) days. (Emphases ours.)
In the instant case, petitioners received the RTC Decisions dated June 23, 2004 in Civil Case
Nos. Q-04-091, Q-04-092 and Q-04-093 on July 7, 2004. Thereafter, petitioners filed with the Court
of Appeals three separate petitions for certiorari on August 23, 2004. On September 2, 2004, the
Court of Appeals (12th Division) resolved to dismiss the petition for certiorari in CA-G.R. SP No.
85878, holding that the same was a mere substitute for the lost remedy of appeal. Petitioners then
filed a Motion for Reconsideration on the said resolution. Thereafter, during the pendency of the
Motion for Reconsideration in CA-G.R. SP No. 85878, as well as the petitions for certiorari in CA-G.R.
SP Nos. 85880 and 85879, the Resolution in A.M. No. 04-9-07-SC took effect on October 15, 2004.
BANKING LAWS
PHILIPPINE TRUST COMPANY (also known as Philtrust Bank) vs. HON. COURT OF APPEALS
and FORFOM DEVELOPMENT CORPORATION
Banks, their business being impressed with public interest, are expected to exercise more care
and prudence than private individuals in their dealings, even those involving registered lands. The rule
that persons dealing with registered lands can rely solely on the certificate of title does not apply to
banks.
Facts:
Forfom Development Corporation (Forfom) is engaged in agricultural business and real
estate development and owns several parcels of land in Pampanga. It is the registered owner of two
(2) parcels of land subject of the present controversy, situated in Angeles City, Pampanga, under
Transfer Certificate of Title Nos. 10896 and 64884 consisting of 1,126,530 and 571,014 square
meters, respectively. Sometime in 1989, plaintiff received a letter from the Department of Agrarian
Reform with the names Ma. Teresa Limcauco and Ellenora Limcauco as addressees. Upon
verification with the DAR and the Register of Deeds made by Forfom Vice-President at that time,
Mr. Jose Marie L. Ramos, Forfom discovered that the subject properties had already been
transferred in the names of said Ma. Teresa Limcauco and Ellenora Limcauco who were never
known to plaintiff or its employees. Forform Board of Directors decided to seek the assistance of
the National Bureau of Investigation (NBI) to conduct an investigation on the matter. On November
Page 24 of 32

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23, 1989, Forfom caused the annotation of its adverse claim on TCT No. 75533 of the Registry of
Deeds of Angeles City.
The results of the NBI Investigation and plaintiffs own inquiry revealed the following acts
through which the subject parcels of land were transferred in the names of Ma. Teresa Limcauco
and Ellenora Vda. De Limcauco, fictitious names which were used by Honorata Dizon in the
questioned transactions:
(1) A Deed of Absolute Sale dated March 6, 1987 was executed over the lot
covered by TCT No. 64884 in favor of Ellenora Vda. De Limcauco. A separate Deed of
Absolute Sale dated October 5, 1987 was likewise executed over the property
covered by TCT No. 10896 in favor of Ma. Teresa Limcauco. In both instruments, the
signature of the plaintiffs President, Felix H. Limcauco was forged.
(2) On July 7, 1987, a petition for issuance of owners duplicate copy was
filed with the Regional Trial Court of Angeles City, Branch 57 by Ellenora Limcauco
who allegedly lost said owners duplicate copy of TCT No. 64884, which was
docketed as Cad. Case No. A-124-160. On January 10, 1989, a separate petition for
the issuance of a new owners duplicate copy was filed with the same court by
counsel for Ma. Teresa Limcauco who allegedly lost the owners duplicate copy of
TCT No. 10896, which was docketed as Cad. Case No. A-124-280. After due hearing,
the court in Cad. Case No. A-124-280 granted the petition in an Order which
directed the Register of Deeds to issue another owners duplicate copy of TCT No.
10896 in place of the lost one.
(3) As a consequence of the courts order in Cad. Case No. A-124-280, TCT
No. 10896 was cancelled and TCT No. 82760/T-414 was issued in the name of Ma.
Teresa Limcauco who had the property covered thereby subdivided into different
lots for which TCT Nos. 85585, 85587, 85589 and 85591 were issued in the name of
said Ma. Teresa Limcauco. As to TCT No. 64884, this was also cancelled by the
Register of Deeds of Angeles City, Honesto G. Guarin, by virtue of a purported court
order issued by Judge Eliodoro B. Guinto of RTC-Branch 57.
(4) As to the property covered by TCT No. 64884, said certificate of title was
cancelled and a new certificate of title, TCT No. 75436/T-378 was issued in the
name of Ellenora Vda. De Limcauco. On September 23, 1987, a Deed of Absolute Sale
was executed by Ellenora Vda. De Limcauco in favor of defendant Raul P. Claveria
whereby the property covered by TCT No. 64884 was supposedly sold to said Raul
P. Claveria for the sum of P5,139,126.00. On September 24, 1987, TCT No. 75436/T378 was cancelled and a new certificate of title, TCT No. 75533 was issued in the
name of Raul P. Claveria. On October 21, 1987, spouses Raul and Elea Claveria
mortgaged the property with the Philippine Trust Company (Philtrust) to guarantee
a loan which mortgage was duly registered and annotated as Entry No. 2858 in TCT
No. 75533.
Formom instituted the present action against the defendants Ma. Teresa Limcauco, Ellenora
D. Limcauco, spouses Raul P. Claveria and Elea R. Claveria, Philippine Trust Company and the
Register of Deeds of Angeles City (Philtrust). The Complaint alleged conspiratorial acts committed
Page 25 of 32

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by said defendants who succeeded in causing the fraudulent transfer of registration of plaintiffs
properties in the names of Ma. Teresa Limcauco and Ellenora D. Limcauco and the subdivision of
the land covered by TCT No. 10896 over which separate titles have been issued.
The RTC rendered its Decision in favor Forfom. Philtrust filed a Notice of Appeal, alleging
that the lower court erred in declaring Transfer Certificate of Title No. 75533-Angeles City void and
in concluding that it was a mortgagee in bad faith. The Court of Appeals rendered the assailed
Decision affirming the Decision of the RTC. The Court of Appeals denied Philtrusts Motion for
Reconsideration. Hence, this Petition for Certiorari.
Issue:
Whether Philtrust is a mortgagee in good or bad faith
Ruling:
Philtrust was in bad faith in the execution of the mortgage contract with the spouses
Claveria.
Indeed, the presence of anything which excites or arouses suspicion should prompt the
vendee or mortgagee to look beyond the certificate and investigate the title of the vendor appearing
on the face of said certificate. If the vendee or mortgagee failed to do so before the execution of the
contract, the vendee or mortgagee is deemed to be in bad faith and therefore cannot acquire any
title under the forged instrument.
Philtrust claims that the loans secured by the mortgage on the subject property were
granted to the spouses Claveria after Philtrust was satisfied regarding the spouses credit worthiness
and capacity to pay. In fact, according to Philtrust, the spouses Claveria were able to maintain a
satisfactory record of payment during the early period of their transactions with the bank. Philtrust
insists that prior to the constitution of the mortgage, it followed the standard operating procedures
in accepting property as security, including having investigators visit the subject property and
appraise its value.
It is settled that banks, their business being impressed with public interest, are expected to
exercise more care and prudence than private individuals in their dealings, even those involving
registered lands. The rule that persons dealing with registered lands can rely solely on the
certificate of title does not apply to banks. Consequently, Philtrust should prove that it exercised
extraordinary diligence required of it in approving the mortgage contract in favor of the spouses
Claveria.
It baffles us how Philtrust can argue that the promissory note and Deed of Mortgage
executed by the spouses Claveria, and the TCT of the subject property, can prove its allegations that
(a) the mortgage was granted after it was satisfied of the spouses credit worthiness; (b) the latter
was able to maintain a satisfactory record of payment early on; or (c) it followed the standard
operating procedures in accepting property as security, including having investigators visit the
subject property and appraise its value. The mere fact that Philtrust accepted the subject property
as security most certainly does not prove that it followed the standard operating procedure in doing
so.
Page 26 of 32

2015)
Philtrust, therefore, presented no evidence rebutting the badges of bad faith shown in the
records of the case. Even though circumstantial, the following adequately prove by preponderance
of evidence that Philtrust was aware of the fraudulent scheme perpetrated upon Forfom:
1. Within a period of less than one year, Philtrust extended unsecured loans
amounting to P7,300,000.00 to the spouses Claveria.
2. Although the spouses Claveria had declared their residence to be in the plush
subdivision in Ayala Alabang, Philtrust was content to receive as security a land outside
Metro Manila, which was only recently acquired by the said spouses. When asked about this
in the Request for Interrogatories, Philtrust merely responded evasively.
3. It is presumed that evidence willfully suppressed would be adverse if
produced. When pressed in the Request for Interrogatories for details of the investigation of
the bank, and for the names of the persons who allegedly visited the subject property and
the alleged home of the spouses Claveria, and the names of the bank officers who dealt with
said spouses, Philtrust refused to do so
4. Philtrust persistently refused to cooperate with the National Bureau of
Investigation (NBI) in its investigation of the fraudulent scheme perpetrated against Forfom,
as testified by NBI agents Alberto V. Ramos and Pastor T. Pangan.
5. Had Philtrust properly conducted a credit investigation of the spouses Claveria, it
would have easily discovered that they did not reside and never resided in the address
declared by them, as revealed in the investigation by the NBI and declared by the association
of homeowners in the New Alabang subdivision.
All the foregoing considered, we find that the Court of Appeals did not even err in finding
that Philtrust was in bad faith in the execution of the mortgage contract with the spouses Claveria.
PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. BUREAU OF INTERNAL REVENUE
G.R. No. 172892, June 13, 2013, J. Leonardo-De Castro
Bangko Sentral ng Pilipinas placed Rural Bank of Tuba (RBTI) under receivership with the
Philippine Deposit Insurance Corporation as the receiver. Accordingly, PDIC filed a petition for
assistance in the liquidation of RBTI which was approved by the trial court. As an incident of the
proceeding, BIR intervened as one of the creditors of RBTI. BIR contends that a tax clearance is
required before the approval of project of distribution of the assets of a bank. In denying their
contention, the Court held the law expressly provides that debts and liabilities of the bank under
liquidation are to be paid in accordance with the rules on concurrence and preference of credit under
the Civil Code. With reference to the other real and personal property of the debtor, sometimes
referred to as free property, the taxes and assessments due the National Government, other than
those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income tax, will come
only in ninth place in the order of preference. If the BIRs contention that a tax clearance be secured
first before the project of distribution of the assets of a bank under liquidation may be approved, then
the tax liabilities will be given absolute preference in all instances, including those that do not fall
under Articles 2241(1) and 2242(1) of the Civil Code.
Page 27 of 32

2015)
Facts:
In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko Sentral
ng Pilipinas (BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in
the Philippines, placed it under receivership in accordance with Section 30 of Republic Act No.
7653, otherwise known as the New Central Bank Act, and designated the Philippine Deposit
Insurance Corporation (PDIC) as receiver. Subsequently, PDIC conducted an evaluation of RBTIs
financial condition and determined that RBTI remained insolvent. Thus, the Monetary Board issued
Resolution No. 675 dated June 6, 1997 directing PDIC to proceed with the liquidation of RBTI.
Accordingly and pursuant to Section 30 of the New Central Bank Act, PDIC filed in the Regional Trial
Court (RTC) of La Trinidad, Benguet a petition for assistance in the liquidation of RBTI. The petition
was docketed as Special Proceeding Case No. 97-SP-0100 and raffled to Branch 8.5. In an Order
dated September 4, 1997, the trial court gave the petition due course and approved it. As an
incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as one of the creditors
of RBTI. The BIR prayed that the proceedings be suspended until PDIC has secured a tax clearance
required under Section 52(C) of Republic Act No. 8424, otherwise known as the Tax Reform Act of
1997 or the Tax Code of 1997,. In an Order dated February 14, 2003, the trial court found merit
in the BIRs motion and granted it. In its Decision dated December 29, 2005, the appellate court
agreed with the trial court that banks under liquidation by PDIC are covered by Section 52(C) of the
Tax Code of 1997. Thus, the Court of Appeals affirmed the Orders of the Trial Court and dismissed
PDICs petition. PDIC sought reconsideration but it was denied. Hence, this petition.
Issue:
Whether a bank placed under liquidation has to secure a tax clearance from the BIR before
the project of distribution of the assets of the bank can be approved by the liquidation court.
Ruling:
No. The position of the BIR, insisting on prior compliance with the tax clearance
requirement as a condition for the approval of the project of distribution of the assets of a bank
under liquidation, is contrary to both the letter and intent of the law on liquidation of banks by the
PDIC. The law expressly provides that debts and liabilities of the bank under liquidation are to be
paid in accordance with the rules on concurrence and preference of credit under the Civil Code.
Duties, taxes, and fees due the Government enjoy priority only when they are with reference to a
specific movable property, under Article 2241(1) of the Civil Code, or immovable property, under
Article 2242(1) of the same Code. However, with reference to the other real and personal property
of the debtor, sometimes referred to as free property, the taxes and assessments due the National
Government, other than those in Articles 2241(1) and 2242(1) of the Civil Code, such as the
corporate income tax, will come only in ninth place in the order of preference.
If the BIRs contention that a tax clearance be secured first before the project of distribution
of the assets of a bank under liquidation may be approved, then the tax liabilities will be given
absolute preference in all instances, including those that do not fall under Articles 2241(1) and
2242(1) of the Civil Code. In order to secure a tax clearance which will serve as proof that the
taxpayer had completely paid off his tax liabilities, PDIC will be compelled to settle and pay first all
tax liabilities and deficiencies of the bank, regardless of the order of preference under the pertinent
Page 28 of 32

2015)
provisions of the Civil Code. Following the BIRs stance, therefore, only then may the project of
distribution of the banks assets be approved and the other debts and claims thereafter settled,
even though under Article 2244 of the Civil Code such debts and claims enjoy preference over taxes
and assessments due the National Government. The BIR effectively wants the Court to ignore
Section 30 of the New Central Bank Act and disregard Article 2244 of the Civil Code. However, as a
court of law, the Court has the solemn duty to apply the law. It cannot and will not give its
imprimatur to a violation of the laws.
INTELLECTUAL PROPERTY LAW
GEMMA ONG a.k.a. MARIA TERESA GEMMA CATACUTAN vs. PEOPLE OF THE PHILIPPINES
The conviction of Gemma for trademark infringement under Section 155 of Republic Act No.
8293, as the counterfeit goods seized were not only found in her possession and control, but also in the
building registered under her business. The counterfeit cigarettes seized from Gemmas possession
were intended to confuse and deceive the public as to the origin of the cigarettes intended to be sold.
Facts:
On July 28, 2000, petitioner Gemma Ong a.k.a. Maria Teresa Gemma Catacutan was charged
before the RTC for Infringement under Section 155 in relation to Section 170 of Republic Act No.
8293 or the Intellectual Property Code. That sometime in September 25, 1998 and prior thereto at
Sta. Cruz, Manila, the Gemma engage in the distribution, sale, and offering for sale of counterfeit
Marlboro cigarettes which had caused confusion, deceiving the public that such cigarettes were
Marlboro cigarettes and those of the Telengtan Brothers and Sons, Inc., doing business under the
style of La Suerte Cigar and Cigarettes Factory, the exclusive manufacturer of Marlboro Cigarette in
the Philippines. On August 1, 2000, Judge Rebecca G. Salvador of RTC Manila, Branch 1, issued a
warrant of arrest against Gemma, but lifted and set aside the same after Gemma voluntarily
surrendered and filed a cash bond. Gemma pleaded not guilty to the charge upon arraignment on
October 17, 2000. After the pre-trial conference on February 13, 2001, trial on the merits ensued.
The prosecution called to the witness stand the following: Roger Sherman Slagle, the
Director of Operations of Philip Morris Philippines, Inc.s (PMPI) product/brand security expert, to
testify that according to his examination, the products they seized at the subject premises were
counterfeit cigarettes; as well as Jesse Lara, who, as then Senior Investigator III at the Intellectual
Property Rights Unit of the Economic Intelligence and Investigation Bureau (EIIB), led the
investigating team, to testify on the events that led to the arrest of Gemma. Jesse S. Lara, then Senior
Investigator III received reliable information that counterfeit Marlboro cigarettes were being
distributed and sold by two (2) Chinese nationals, Johnny Sia and Jessie Concepcion, in the areas of
Tondo, Binondo, Sta. Cruz and Quiapo, Manila.
During the surveillance, the container van delivering the Marlboro packed in black plastic
bags was seen parked at 1677 Bulacan corner Hizon Streets, Sta. Cruz, Manila. They also learned
that the place is owned by a certain Mr. Jackson Ong. Executive Judge Dolores L. Espaol issued a
search warrant after finding probable cause to believe that Mr. Jackson Ong has in his
possession/control in the premises. They proceeded to the subject premises but Jackson Ong, the
Page 29 of 32

2015)
alleged owner, was not there. It was accused, who is supposedly either the spouse or common-law
wife of Jackson Ong, who entertained them. At first, accused refused to allow them entry into the
premises but eventually the team was able to search the premises and found Marlboro cigarettes
stocked in several boxes containing fifty (50) reams inside each box which were packed in black
plastic sacks like in balikbayan boxes. On the basis of the results of the examination conducted by
PMPI on the samples obtained from the confiscated boxes of cigarettes bearing the Marlboro brand,
which confirmed the same to be unauthorized products and not genuine Marlboro cigarettes.
Gemma, as the lone witness for the defense, then took the witness stand. She said that she is
married to Co Yok Piao, a Chinese national, but she still uses her maiden name Catacutan. She
denied that she is the Gemma Ong accused in this case. She testified that she was arrested on
August 4, 2000, without the arresting officers asking for her name. She said that when she pleaded
to be released, she was instructed to post a cash bond, which she did in the amount
of 12,000.00. Gemma averred that when she posted her bond and signed her certificate of
arraignment, she did so under her real name Maria Teresa Gemma Catacutan, as opposed to the
signatures in the Inventory and Certification in the Conduct of Search (search documents), which
she denied signing.
On September 30, 2003, the RTC convicted Gemma of the crime as charged. The Court of
Appeals found Gemmas appeal to be unmeritorious. The Court of Appeals agreed with the RTCs
rejection of Gemmas defense of mistaken identity, as she should have raised it at the earliest
opportunity, which was at the time of her arrest, the posting of her bail bond, or during her
arraignment.
Issue:
Whether or not the Court of Appeals did not err in affirming petitioners conviction for
violation of Section 155 in relation to Section 170 of R.A. 8293 (Intellectual Property Code of the
Philippines)
Ruling:
Yes, the Court of Appeals did not err.
As the Court of Appeals affirmed the conviction of Gemma for trademark infringement
under Section 155 of Republic Act No. 8293, as the counterfeit goods seized by the EIIB were not
only found in her possession and control, but also in the building registered under her business,
Fascinate Trading. The Court of Appeals said that the prosecution had satisfactorily proven
Gemmas commission of the offense since the unauthorized use of the trademark Marlboro, owned
by PMPI, was clearly intended to deceive the public as to the origin of the cigarettes being
distributed and sold, or intended to be distributed and sold. The Court of Appeals further sustained
the penalty and damages imposed by the RTC for being in accord with the law and facts.
Gemma was charged and convicted of violating Section 155 in relation to Section 170 of
Republic Act No. 8293, or the Intellectual Property Code of the Philippines. A mark is any visible
sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise
and shall include a stamped or marked container of goods. To establish trademark infringement,
the following elements must be shown: (1) the validity of plaintiffs mark; (2) the plaintiffs
Page 30 of 32

2015)
ownership of the mark; and (3) the use of the mark or its colorable imitation by the alleged
infringer results in likelihood of confusion. Of these, it is the element of likelihood of confusion that
is the gravamen of trademark infringement.
A mark is valid if it is distinctive and not barred from registration. Once registered, not only
the marks validity, but also the registrants ownership of the mark is prima facie presumed. The
prosecution was able to establish that the trademark Marlboro was not only valid for being neither
generic nor descriptive, it was also exclusively owned by PMPI, as evidenced by the certificates of
registration issued by the Intellectual Property Office of the Department of Trade and Industry.
Anent the element of confusion, both the RTC and the Court of Appeals have correctly held that the
counterfeit cigarettes seized from Gemmas possession were intended to confuse and deceive the
public as to the origin of the cigarettes intended to be sold, as they not only bore PMPIs mark, but
they were also packaged almost exactly as PMPIs products.
NEGOTIABLE INSTRUMENTS LAW
BANK OF AMERICA NT & SA vs. PHILIPPINE RACING CLUB
G.R. No. 150228, July 30, 2009, J. Leonardo- De Castro
Banks are engaged in a business impressed with public interest, and it is their duty to protect
in return their many clients and depositors who transact business with them.
Facts:
PRCI is a domestic corporation which maintains several accounts with different banks in the
Metro Manila area. Among the accounts maintained was Current Account No. 58891-012 with
defendant-appellant BA. The authorized joint signatories with respect to said Current Account were
plaintiffappellees President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes). On
or about the 2nd week of December 1988, the President and Vice President of plaintiff-appellee
corporation were scheduled to go out of the country in connection with the corporations business.
In order not to disrupt operations in their absence, they pre-signed several checks. The intention
was to insure continuity of plaintiffappellees operations by making available cash/money
especially to settle obligations that might become due. It turned out that on December 16, 1988, a
John Doe presented to defendant-appellant bank for encashment a couple of plaintiff-appellee
corporations checks with the indicated value of P110,000.00 each. The two checks had similar
entries with similar infirmities and irregularities. Despite the highly irregular entries on the face of
the checks, defendant- appellant bank, without as much as verifying and/or confirming the
legitimacy of the checks considering the substantial amount involved and the obvious
infirmity/defect of the checks on their faces, encashed said checks. The checks appeared to have
come into the hands of an employee of PRCI (one Clarita Mesina who was subsequently criminally
charged for qualified theft) who eventually completed without authority the entries on the presigned checks.
Issue:
Whether the proximate cause of the wrongful encashment of the checks in question was due
to Bank of Americas failure to make a verification regarding the said checks with the respondent in
view of the misplacement of entries on the face of the checks.
Page 31 of 32

2015)
Ruling:
Yes, it is.
The presence of the irregularities on the face of the check should have alerted Bank of
America to be cautious before proceeding to encash them which it did not do. If the check had been
filled up by the person who customarily accomplishes the checks of respondent, it should have
occurred to Bank of Americas employees that it would be unlikely such mistakes would be made.
All these circumstances should have alerted the bank to the possibility that the holder or the person
who is attempting to encash the checks did not have proper title to the checks or did not have
authority to fill up and encash the same. It is well-settled that banks are engaged in a business
impressed with public interest, and it is their duty to protect in return their many clients and
depositors who transact business with them. They have the obligation to treat their clients account
meticulously and with the highest degree of care, considering the fiduciary nature of their
relationship. The diligence required of banks, therefore, is more than that of a good father of a
family. In the case at bar, extraordinary diligence demands that petitioner should have ascertained
from respondent the authenticity of the subject checks or the accuracy of the entries therein not
only because of the presence of highly irregular entries on the face of the checks but also of the
decidedly unusual circumstances surrounding their encashment. However, it should be conceded
that respondents officers practice of presigning of blank checks should be deemed seriously
negligent behavior and a highly risky means of purportedly ensuring the efficient operation of
businesses. Hence, in the interest of fairness, it is more proper to consider respondents own
negligence to mitigate petitioners liability.
Page 32 of 32

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Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

Justice Teresita Leonardo-De Castro Cases (2008- Mercantile Law

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