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March 2015)
CORPORATION LAW
NATIONALITY OF CORPORATIONS
GRANDFATHER RULE
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and McARTHUR MINING, INC., vs. REDMONT
CONCOLIDATED MINES CORP.
G.R. No. 195580, January 28, 2015, J. Velasco, Jr.
A corporation that complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino corporation if there is no doubt as to who
has the beneficial ownership and control of the corporation. In this case, a
further investigation as to the nationality of the personalities with the beneficial
ownership and control of the corporate shareholders in both the investing and
investee corporations is necessary. Doubt refers to various indicia that the
beneficial ownership and control of the corporation do not in fact reside in
Filipino shareholders but in foreign stakeholders. Even if at first glance the
petitioners comply with the 60-40 Filipino to foreign equity ratio, doubt exists in the
present case that gives rise to a reasonable suspicion that the Filipino shareholders
do not actually have the requisite number of control and beneficial ownership in
petitioners Narra, Tesoro, and McArthur. Hence, the Court is correct in using the
Grandfather Rule in determining the nationality of the petitioners.
Facts:
Petitioner Narra Nickel and Mining Development Corp. (Narra) filed this
Motion for Reconsideration of the Supreme Court's April 21, 2014 Decision wherein
it affirmed the appellate court's ruling that petitioners, being foreign corporations,
are not entitled to Mineral Production Sharing Agreements (MPSAs ). In reaching the
assailed decision, the Court upheld with approval the appellate court's finding that
there was doubt as to petitioners' nationality since a 100% Canadian-owned firm,
MBMI Resources, Inc. (MBMI), effectively owns 60% of the common stocks of the
petitioners by owning equity interest of petitioners' other majority corporate
shareholders.
To petitioners, the Courts application of the Grandfather Rule to determine
their nationality is erroneous and allegedly without basis in the Constitution, the
Foreign Investments Act of 1991 (FIA), the Philippine Mining Act of 1995, and the
Rules issued by the Securities and Exchange Commission (SEC). These laws and
rules supposedly espouse the application of the Control Test in verifying the
Philippine nationality of corporate entities for purposes of determining compliance
with Sec. 2, Art. XII of the Constitution that only corporations or associations at
least sixty per centum of whose capital is owned by such [Filipino] citizens may
enjoy certain rights and privileges, like the exploration and development of natural
resources
Issue:
Page 1 of 128
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Nationalit
y
Number of
Shares
Amount
Subscribed
Amount Paid
Madridejos Mining
Corporation
Filipino
5,997
PhP 5,997,000.00
PhP 825,000.00
MBMI Resources,
Inc.
Canadian
3,998
PhP 3,998,000.0
PhP 1,878,174.60
Lauro L. Salazar
Filipino
PhP 1,000.00
PhP 1,000.00
Fernando B. Esguerra
Filipino
PhP 1,000.00
PhP 1,000.00
Manuel A. Agcaoili
Filipino
PhP 1,000.00
PhP 1,000.00
Michael T. Mason
American
PhP 1,000.00
PhP 1,000.00
Kenneth Cawkell
Canadian
PhP 1,000.00
PhP 1,000.00
Total
10,000
PhP 10,000,000.00
PhP 2,708,174.60
Nationali Number
ty
Shares
Resources Filipino
of Amount
Subscribed
Amount Paid
6,596
PhP
6,596,000.00
PhP 0
MBMI Resources,
Inc.
Canadian
3,396
PhP
3,396,000.00
PhP
2,796,000.00
Filipino
PhP 1,000.00
PhP 1,000.00
Fernando B. Esguerra
Filipino
PhP 1,000.00
PhP 1,000.00
Henry E. Fernandez
Filipino
PhP 1,000.00
PhP 1,000.00
Page 6 of 128
Filipino
PhP 1,000.00
PhP 1,000.00
Manuel A. Agcaoili
Filipino
PhP 1,000.00
PhP 1,000.00
Bayani H. Agabin
Filipino
PhP 1,000.00
PhP 1,000.00
Michael T. Mason
American
PhP 1,000.00
PhP 1,000.00
Kenneth Cawkell
Canadian
PhP 1,000.00
PhP 1,000.00
Total
10,000
PhP
10,000,000.00
PhP
2,708,174.60
DOCTRINE
OF
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The burden of proving the presence of any of these probative factors lies with
the one alleging it. Unfortunately, Olongapo City simply claimed that Subic Water
took over OCWD's water operations in Olongapo City. Apart from this allegation,
Olongapo City failed to demonstrate any link to justify the construction that Subic
Water and OCWD are one and the same. Under this evidentiary situation, our duty is
to respect the separate and distinct personalities of these two juridical entities.
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single cause of action is prohibited. Institution of more than one suit for the same
cause of action constitutes splitting the cause of action, which is a ground for the
dismissal of the others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. A party may not institute
more than one suit for a single cause of action. (3a)
Section 4. Splitting a single cause of action; effect of. If two or more suits
are instituted on the basis of the same cause of action, the filing of one or a
judgment upon the merits in any one is available as a ground for the dismissal of
the others. (4a)
It is because the personalities of petitioners and the corporation may later be
found to be indistinct that we rule that petitioners may be compelled to submit to
arbitration.
FVR SKILLS AND SERVICES EXPONENTS, INC. (SKILLEX), FULGENCIO V.
RANA and MONINA R. BURGOS vs. JOVERT SEV A, JOSUEL V. V
ALENCERINA, JANET ALCAZAR, ANGELITO AMPARO, BENJAMIN ANAEN, JR.,
JOHN HILBERT BARBA, BONIFACIO BATANG, JR., VALERIANO BINGCO,JR.,
RONALD CASTRO, MARLON CONSORTE, ROLANDO CORNELIO, EDITO
CULDORA, RUEL DUNCIL, MERVIN FLORES, LORD GALISIM, SOTERO GARCIA,
JR., REY GONZALES, DANTE ISIP, RYAN ISMEN, JOEL JUNIO, CARLITO LATOJA,
ZALDY MARRA, MICHAEL PANTANO, GLENN PILOTON, NORELDO QUIRANTE,
ROEL RANCE, RENANTE ROSARIO and LEONARDA TANAEL
G.R. No. 200857, October 22, 2014, J. Arturo D. Brion
A corporation is a juridical entity with legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people comprising
it. The general rule is that, obligations incurred by the corporation, acting through
its directors, officers and employees, are its sole liabilities.
A director or officer shall only be personally liable for the obligations of the
corporation, if the following conditions concur: (1) the complainant alleged in the
complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2)
the complainant clearly and convincingly proved such unlawful acts, negligence or
bad faith.
In the present case, the respondents failed to show the existence of the first
requisite. They did not specifically allege in their complaint that Rana and Burgos
willfully and knowingly assented to the petitioner's patently unlawful act of forcing
the respondents to sign the dubious employment contracts in exchange for their
salaries. The respondents also failed to prove that Rana and Burgos had been guilty
of gross negligence or bad faith in directing the affairs of the corporation.
Facts:
The twenty-eight (28) respondents in this case were employees of petitioner
FVR Skills and Services Exponents, Inc. (petitioner), an independent contractor
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engaged in the business of providing janitorial and other manpower services to its
clients.
Skillex entered into a Contract of Janitorial Service (service contract) with
Robinsons Land Corporation (Robinsons). Both agreed that the petitioner shall
supply janitorial, manpower and sanitation services to Robinsons Place Ermita Mall
for a period of one year. Halfway through the service contract, the Skillex asked the
respondents to execute individual contracts which stipulated that their respective
employments shall end at the last day of the year.
The Skillex and Robinsons no longer extended their contract of janitorial
services. Consequently, the Skillex dismissed the respondents as they were project
employees whose duration of employment was dependent on the petitioner's
service contract with Robinsons.
Respondents filed a complaint for illegal dismissal with the NLRC. They
argued that they were not project employees; they were regular employees who
may only be dismissed for just or authorized causes. The LA ruled in the Skillex's
favor but was reversed by NLRC considering that the respondents had been under
the petitioner's employ for more than a year already and was affirmed by CA.
Issue:
Whether or not Rana and Burgos should be held solidarily liable with the
corporation for respondents' monetary claims having personalities separate and
distinct from the corporation.
Ruling:
No, Rana and Burgos, as the petitioner's president and general manager,
should not be held solidarily liable with the corporation for its monetary liabilities
with the respondents.
A corporation is a juridical entity with legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people comprising
it. The general rule is that, obligations incurred by the corporation, acting through
its directors, officers and employees, are its sole liabilities.
A director or officer shall only be personally liable for the obligations of the
corporation, if the following conditions concur: (1) the complainant alleged in the
complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2)
the complainant clearly and convincingly proved such unlawful acts, negligence or
bad faith.
In the present case, the respondents failed to show the existence of the first
requisite. They did not specifically allege in their complaint that Rana and Burgos
willfully and knowingly assented to the petitioner's patently unlawful act of forcing
the respondents to sign the dubious employment contracts in exchange for their
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salaries. The respondents also failed to prove that Rana and Burgos had been guilty
of gross negligence or bad faith in directing the affairs of the corporation.
To hold an officer personally liable for the debts of the corporation, and thus
pierce the veil of corporate fiction, it is necessary to clearly and convincingly
establish the bad faith or wrongdoing of such officer, since bad faith is never
presumed. Because the respondents were not able to clearly show the definite
participation of Burgos and Rana in their illegal dismissal, the Court upholds the
general rule that corporate officers are not personally liable for the money claims of
the discharged employees, unless they acted with evident malice and bad faith in
terminating their employment.
DOCTRINE OF PIERCING THE CORPORATE VEIL
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS vs. DAN T. LIM,
doing business under the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES
G.R. No. 206806, June 25, 2014, J. Leonen
The corporate existence may be disregarded where the entity is formed or
used for non-legitimate purposes, such as to evade a just and due obligation, or to
justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in which case, the fiction will
be disregarded and the individuals composing it and the two corporations will be
treated as identical. In the case at bar, when petitioner Arco Pulp and Papers
obligation to Lim became due and demandable, she not only issued an unfunded
check but also contracted with a third party in an effort to shift petitioner Arco Pulp
and Papers liability. She unjustifiably refused to honor petitioner corporations
obligations to respondent. These acts clearly amount to bad faith. In this instance,
the corporate veil may be pierced, and petitioner Santos may be held solidarily
liable with petitioner Arco Pulp and Paper.
Facts:
Dan T. Lim works in the business of supplying scrap papers, cartons, and
other raw materials, under the name Quality Paper and Plastic Products,
Enterprises, to factories engaged in the paper mill business. Lim delivered scrap
papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. through its Chief
Executive Officer and President, Candida A. Santos. The parties allegedly agreed
that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials
or deliver to him their finished products of equivalent value.
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and
Paper issued a post-dated check as partial payment, with the assurance that the
check would not bounce. When he deposited the check, it was dishonored for being
drawn against a closed account. On the same day, Arco Pulp and Paper and a
certain Eric Sy executed a memorandum of agreement where Arco Pulp and Paper
bound themselves to deliver their finished products to Megapack Container
Corporation, owned by Eric Sy, for his account. According to the memorandum, the
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raw materials would be supplied by Dan T. Lim, through his company, Quality Paper
and Plastic Products.
Despite repeated demands by Lim, Arco Pulp and Paper did not pay. Lim filed
a complaint for collection of sum of money with prayer for attachment with the RTC.
The trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed
the complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the
memorandum of agreement, novation took place, which extinguished Arco Pulp and
Papers obligation to. Lim. The CA reversed said decision.
Issue:
Whether or not Candida A. Santos was solidarily liable with Arco Pulp and
Paper Co., Inc.
Ruling:
Yes.
In Heirs of Fe Tan Uy v. International Exchange Bank, the Court has ruled:
Basic is the rule in corporation law that a corporation is a juridical entity
which is vested with a legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it. Following this
principle, obligations incurred by the corporation, acting through its directors,
officers and employees, are its sole liabilities. A director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the
corporation. Nevertheless, this legal fiction may be disregarded if it is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues.
Before a director or officer of a corporation can be held personally liable for
corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith.
As a general rule, directors, officers, or employees of a corporation cannot be
held personally liable for obligations incurred by the corporation. However, this veil
of corporate fiction may be pierced if complainant is able to prove, as in this case,
that (1) the officer is guilty of negligence or bad faith, and (2) such negligence or
bad faith was clearly and convincingly proven.
Here, Santos entered into a contract with respondent in her capacity as the
President and Chief Executive Officer of Arco Pulp and Paper. She also issued the
check in partial payment of petitioner corporations obligations to respondent on
behalf of petitioner Arco Pulp and Paper. This is clear on the face of the check
bearing the account name, "Arco Pulp & Paper, Co., Inc." Any obligation arising from
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these acts would not, ordinarily, be Santos personal undertaking for which she
would be solidarily liable with petitioner Arco Pulp and Paper.
The Court found, however, that the corporate veil must be pierced. In Livesey
v. Binswanger Philippines:
Piercing the veil of corporate fiction is an equitable doctrine developed
to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. Under the
doctrine, the corporate existence may be disregarded where the entity
is formed or used for non-legitimate purposes, such as to evade a just
and due obligation, or to justify a wrong, to shield or perpetrate fraud
or to carry out similar or inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction will be disregarded and
the individuals composing it and the two corporations will be treated as
identical.
We agree with the Court of Appeals. Petitioner Santos cannot be
allowed to hide behind the corporate veil. When petitioner Arco Pulp
and Papers obligation to respondent became due and demandable,
she not only issued an unfunded check but also contracted with a third
party in an effort to shift petitioner Arco Pulp and Papers liability. She
unjustifiably refused to honor petitioner corporations obligations to
respondent. These acts clearly amount to bad faith. In this instance,
the corporate veil may be pierced, and petitioner Santos may be held
solidarily liable with petitioner Arco Pulp and Paper.
WPM INTERNATIONAL TRADING , INC. and WARLITO P. MANLAPAZ vs. FE
CORAZON LABAYEN
G.R. No. 182770, September 17, 2014, J. Brion
When an officer owns almost all of the stocks of a corporation, it does not
ipso facto warrant the application of the principle of piercing the corporate veil
unless it is proven that the officer has complete dominion over the corporation.
Facts:
WPM International Trading, Inc. (WPM) is engaged in the restaurant business,
with Warlito P. Manlapaz as its president. WPM entered into a management
agreement with the Labayen, by virtue of which the Labayen was authorized to
operate, manage and rehabilitate Quickbite, a restaurant owned and operated by
WPM. As part of her tasks, the respondent looked for a contractor who would
renovate the two existing Quickbite outlets. She engaged the services of CLN
Engineering Services to renovate one of the outlets at the cost of P432,876.02.
However, out of the P432,876.02 renovation cost, only the amount of P320,000.00
was paid to CLN, leaving a balance of P112,876.02.
CLN filed a complaint for sum of money and damages before the RTC against
the respondent and Manlapaz. CLN later amended the complaint to exclude
Manlapaz as defendant. Labayen was declared in default for her failure to file a
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responsive pleading. The RTC found the respondent liable to pay CLN actual
damages in the amount of P112,876.02 with 12% interest per annum and 20% of
the amount recoverable as attorneys fees.
As a result, Labayen instituted a complaint for damages against WPM and
Manlapaz. She alleged that she should be entitled to reimbursement. Labayen also
contended that her participation in the management agreement was limited only to
introducing Manlapaz to CLNs general manager and that it was actually Manlapaz
and the general manager who agreed on the terms and conditions of the
agreement. Manlapaz, on the other hand, claimed Labayen had entered into the
renovation agreement with CLN in her own personal capacity and that since she had
exceeded her authority as agent of WPM, the renovation agreement should only
bind her. Further, WPM has a separate and distinct personality, Manlapaz cannot be
made liable for the Labayens claim.
RTC held that Labayen was entitled to indemnity from Manlapaz. The RTC
found that based on the records, there is a clear indication that WPM is a mere
instrumentality or business conduit of Manlapaz and as such, WPM and Manlapaz
are considered one and the same. The RTC also found that Manlapaz had complete
control over WPM considering that he is its chairman, president and treasurer at the
same time. The RTC thus concluded that Manlapaz is liable in his personal capacity
to reimburse the respondent the amount she paid to CLN in connection with the
renovation agreement. CA affirmed the decision of the RTC applying the principle of
piercing the veil of corporate fiction.
Issue:
Whether or not CA correctly applied the principle of piercing the veil of
corporate fiction
Ruling:
No, the CA erred in applying the doctrine.
The doctrine of piercing the corporate veil applies only in three (3) basic
instances, namely: a) when the separate and distinct corporate personality defeats
public convenience, as when the corporate fiction is used as a vehicle for the
evasion of an existing obligation; b) in fraud cases, or when the corporate entity is
used to justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego
cases, i.e., where a corporation is essentially a farce, since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and
controlled and its affairs so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
Piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements, 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
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Enterprises, Inc. and Manuel and Jose Marie Villanueva are one and the same. She
based her claim on the SSS form wherein Manuel Villanueva appeared as employer.
However, this does not prove, in any way, that the corporation is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or when it is
made as a shield to confuse the legitimate issues, warranting that its separate and
distinct personality be set aside.
Facts:
Rosario Lorezo received, upon inquiry, a letter from the Social Security
System, informing her that she cannot avail of their retirement benefits since per
their record she has only paid 16 months. Such is 104 months short of the
minimum requirement of 120 months payment to be entitled to the benefit.
Aggrieved, Lorezo then filed her Amended Petition before the SSC, alleging
that she was employed as laborer in Hda. Cataywa managed by Jose Marie
Villanueva in 1970 but was reported to the SSS only in 1978. She alleged that SSS
contributions were deducted from her wages from 1970 to 1995, but not all were
remitted to the SSS which, subsequently, caused the rejection of her claim. She also
impleaded Talisay Farms, Inc. by virtue of its Investment Agreement with Mancy and
Sons Enterprises. She also prayed that the veil of corporate fiction be pierced since
she alleged that Mancy and Sons Enterprises and Manuel and Jose Marie Villanueva
are
one
and
the
same.
Petitioners Manuel and Jose Villanueva refuted in their answer, the
allegation that not all contributions of respondent were remitted. Petitioners alleged
that all farm workers of Hda. Cataywa were reported and their contributions were
duly paid and remitted to SSS. It was the late Domingo Lizares, Jr. who managed
and administered the hacienda. While, Talisay Farms, Inc. filed a motion to dismiss
on the ground of lack of cause of action in the absence of an allegation that there
was an employer-employee relationship between Talisay Farms and respondent.
The SSC found that Lorezo was a regular employee subject to compulsory
coverage of Hda. Cataywa/Manuel Villanueva/ Mancy and Sons Enterprises, Inc.
within the period of 1970 to February 25, 1990. The SSC denied petitioners' Motion
for Reconsideration. The petitioners, then, elevated the case before the CA where
the case was dismissed outright because the signatory to the Verification failed to
attach his authority to sign for and in behalf of the other Petitioners and the
certified true copies of pleadings and documents relevant and pertinent to the
petition are incomplete.
Issues:
Whether or not the corporate veil should be pierced
Ruling:
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While a corporation may exist for any lawful purpose, the law will regard it as
an association of persons or, in case of two corporations, merge them into one,
when its corporate legal entity is used as a cloak for fraud or illegality. This is the
doctrine of piercing the veil of corporate fiction. The doctrine applies only when
such corporate fiction is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation. To disregard the separate juridical personality of a corporation,
the wrongdoing must be established clearly and convincingly. It cannot be
presumed.
This Court has cautioned against the inordinate application of this doctrine,
reiterating the basic rule that "the corporate veil may be pierced only if it becomes
a shield for fraud, illegality or inequity committed against a third person.
The Court has expressed the language of piercing doctrine when applied to
alter ego cases, as follows: Where the stock of a corporation is owned by one
person whereby the corporation functions only for the benefit of such individual
owner, the corporation and the individual should be deemed the same.
This Court agrees with the petitioners that there is no need to pierce the
corporate veil. Respondent failed to substantiate her claim that Mancy and Sons
Enterprises, Inc. and Manuel and Jose Marie Villanueva are one and the same. She
based her claim on the SSS form wherein Manuel Villanueva appeared as employer.
However, this does not prove, in any way, that the corporation is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or when it is made
as a shield to confuse the legitimate issues, warranting that its separate and distinct
personality be set aside. Also, it was not alleged nor proven that Mancy and Sons
Enterprises, Inc. functions only for the benefit of Manuel Villanueva, thus, one
cannot be an alter ego of the other.
BY-LAWS
FOREST HILLS GOLF AND COUNTRY CLUB, INC. vs. GARDPRO, INC.
G.R. No. 164686, October 22, 2014, J. Bersamin
The relevant provisions of the articles of incorporation and the by-laws of
Forest Hills governed the relations of the parties as far as the issues between them
were concerned. Indeed, the articles of incorporation of Forest Hills defined its
charter as a corporation and the contractual relationships between Forest Hills and
the State, between its stockholders and the State, and between Forest Hills and its
stockholder; hence, there could be no gainsaying that the contents of the articles of
incorporation were binding not only on Forest Hills but also on its shareholders. On
the other hand, the by-laws were the self-imposed rules resulting from the
agreement between Forest Hills and its members to conduct the corporate business
in a particular way. In that sense, the by-laws were the private statutes by which
Forest Hills was regulated, and would function. The charter and the by-laws were
thus the fundamental documents governing the conduct of Forest Hills corporate
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affairs; they established norms of procedure for exercising rights, and reflected the
purposes and intentions of the incorporators. Until repealed, the by-laws were a
continuing rule for the government of Forest Hills and its officers, the proper
function being to regulate the transaction of the incidental business of Forest Hills.
The by-laws constituted a binding contract as between Forest Hills and its members,
and as between the members themselves. Every stockholder governed by the bylaws was entitled to access them. The by-laws were self-imposed private laws
binding on all members, directors and officers of Forest Hills. The prevailing rule is
that the provisions of the articles of incorporation and the by-laws must be strictly
complied with and applied to the letter.
Facts:
Petitioner Forest Hills Golf and Country Club, Inc. (interchangeably Forest Hills
or Club), a non-profit stock corporation, was established to promote social,
recreational and athletic activities among its members. It was an exclusive and
private club organized for the sole benefit of its members. Fil-Estate Properties, Inc.,
a party to a Project Agreement to develop the Forest Hills Residential Estates and
the Forest Hills Golf and Country Club, undertook to market the golf club shares of
Forest Hills for a fee. In July 1995, Fil-Estate Properties, Inc. (FEPI) assigned its rights
and obligations under the Project Agreement to Fil- Estate Golf and Development,
Inc. (FEGDI).
In 1995, FEPI and FEGDI engaged Fil-Estate Marketing Associates Inc., (FEMAI)
to market and offer for sale the shares of stocks of Forest Hills. Leandro de Mesa,
the President of FEMAI, oriented the sales staff on the information that would
usually be inquired about by prospective buyers. He made it clear that membership
in the Club was a privilege, such that purchasers of shares of stock would not
automatically become members of the Club, but must apply for and comply with all
the requirements in order to qualify them for membership, subject to the approval
of the Board of Directors.
Gardpro, Inc. (Gardpro) bought class C common shares of stock, which were
special corporate shares that entitled the registered owner to designate two
nominees or representatives for membership in the Club. Subsequently, Ramon
Albert, the General Manager of the Club, notified the shareholders that it was
already accepting applications for membership. In that regard, Gardpro designated
Fernando R. Martin and Rolando N. Reyes to be its corporate nominees; hence, the
two applied for membership in the Club. Forest Hills charged them membership fees
of P50, 000.00 each, prompting Martin to immediately call up Albert and complain
about being thus charged despite having been assured that no such fees would be
collected from them. With Albert assuring that the fees were temporary, both
nominees of Gardpro paid the fees. At that time, the P45, 000.00 membership fees
of corporate members were increased to P75,000.00 per nominee by virtue of the
resolution of the Board of Directors. Any nominee who paid the fees within a
specified period was entitled to a discount of P25, 000.00. Both nominees of
Gardpro were then admitted as members upon approval of their applications by the
Board of Directors. Later, Gardpro decided to change its designated nominees, and
Forest Hills charged Gardpro new membership fees of P75, 000.00 per nominee.
When Gardpro refused to pay, the replacement did not take place.
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Later, Gardpro filed a complaint in the SEC. SEC Hearing Officer rendered
decision in favor of Gardpro which were later affirmed by both the SEC En Bank and
the CA.
Issue:
Whether or not the replacement nominees of Gardpro are required to pay
membership fees.
Ruling:
No. Forest Hills was not authorized under its articles of incorporation and bylaws to collect new membership fees for the replacement nominees of Gardpro.
There is no question that Gardpro held class C common stocks that entitled
it to two memberships in the Club. Its nominees could be admitted as regular
members upon approval of the Board of Directors but only one nominee for each
class C share as designated in the resolution could vote as such. A regular
member was then entitled to use all the facilities and privileges of the Club. In that
regard, Gardpro could only designate as its nominees/representatives its officers
whose functions and office were defined by its own by-laws.
The membership in the Club was a privilege, it being clear that the mere
purchase of a share in the Club did not immediately qualify a juridical entity for
membership. Admission for membership was still upon the favorable action of the
Board of Directors of the Club. Under Section 2.2.7 of its by-laws, the application
form was accomplished by the chairman of the board, president or chief executive
officer of the applicant juridical entity. The designated nominees also accomplished
their respective application forms, duly proposed and seconded, and the nominees
were evaluated as to their qualifications. The nominees automatically became
ineligible for membership once they ceased to be officers of the corporate member
under its by-laws upon certification of such loss of tenure by a responsible officer of
the corporate member.
Corporations buy shares in clubs in order to invest for earnings. Their
purchases may also be to reward their corporate executives by having them enjoy
the facilities and perks concomitant to the club memberships. When Gardpro
purchased and registered its ownership of the class C common shares, it did not
only invest for earnings because it also became entitled to nominate two of its
officers in the Club as set forth in its seventh purpose of the articles of incorporation
and Section 2.2.2 of the by-laws.
Golf clubs usually sell shares to individuals and juridical entities in order to
raise capital for the construction of their recreational facilities. In that regard, golf
clubs accept juridical entities to become regular members, and allow such entities
to designate corporate nominees because only natural persons can enjoy the sports
facilities. In the context of this arrangement, Gardpros two nominees held playing
rights. But the articles of incorporation of Forest Hills and Section 2.2.2 of its by-laws
recognized the right of the corporate member to replace the nominees, subject to
the payment of the transfer fee in such amount as the Board of Directors
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determined for every change. The replacement could take place for any of the
following reasons, namely: (a) if the nominee should cease to be an officer of the
corporate member; or (b) if the corporate member should request the replacement.
In case of a replacement, the playing rights would also be transferred to the new
nominees.
The relevant provisions of the articles of incorporation and the by-laws of
Forest Hills governed the relations of the parties as far as the issues between them
were concerned. Indeed, the articles of incorporation of Forest Hills defined its
charter as a corporation and the contractual relationships between Forest Hills and
the State, between its stockholders and the State, and between Forest Hills and its
stockholder; hence, there could be no gainsaying that the contents of the articles of
incorporation were binding not only on Forest Hills but also on its shareholders. On
the other hand, the by-laws were the self-imposed rules resulting from the
agreement between Forest Hills and its members to conduct the corporate business
in a particular way. In that sense, the by-laws were the private statutes by which
Forest Hills was regulated, and would function. The charter and the by-laws were
thus the fundamental documents governing the conduct of Forest Hills corporate
affairs; they established norms of procedure for exercising rights, and reflected the
purposes and intentions of the incorporators. Until repealed, the by-laws were a
continuing rule for the government of Forest Hills and its officers, the proper
function being to regulate the transaction of the incidental business of Forest Hills.
The by-laws constituted a binding contract as between Forest Hills and its members,
and as between the members themselves. Every stockholder governed by the bylaws was entitled to access them. The by-laws were self-imposed private laws
binding on all members, directors and officers of Forest Hills. The prevailing rule is
that the provisions of the articles of incorporation and the by-laws must be strictly
complied with and applied to the letter.
Anent the second issue, the Court disagrees with the contention of Forest
Hills that the CA encroached upon its prerogative to determine its own rules and
procedures and to decide all issues on the construction of its articles of
incorporation and by-laws. On the contrary, the CA acted entirely within its legal
competence to decide the issues between the parties. The complaint of Gardpro
stated a cause of action, and thus contained the operative acts that gave rise to its
remedial right against Forest Hills. The cause of action required not only the
interpretation of contracts and the application of corporate laws but also the
application of the civil law itself, particularly its tenets on unjust enrichment and
those regulating property rights arising from ownership. If Forest Hills were allowed
to charge nominees membership fees, and then to still charge their replacement
nominees every time a corporate member changed its nominees, Gardpro would be
unduly deprived of its full enjoyment and control of its property even as the former
would be unjustly enriched.
MEETINGS
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Since Quiambao and Pilapil still refused to turnover the stock and transfer
book, Blando again acceded to have the book deposited in a safety deposit box, this
time, with the Export and Industry Bank. Yujuico and Sumbilla theorize that the
refusal by the Quiambao, Pilapil and Casanova to turnover STRADEC's corporate
records and stock and transfer book violates their right, as stockholders, directors
and officers of the corporation, to inspect such records and book under Section 74
of the Corporation Code and may be held criminally liable pursuant to Section 144
of the Corporation Code.
The MeTC partially granted the Urgent Omnibus Motion. The MeTC ordered
the issuance of a warrant of arrest against Quiambao and Pilapil. The RTC issued a
TRO enjoining the MeTC from conducting further proceedings in Criminal Case No.
89724.
The RTC granted Quiambao and Pilapils certiorari petition and directing the
dismissal of Criminal Case No. 89724. According to the RTC, the MeTC committed
grave abuse of discretion in issuing a warrant of arrest against Quiambao and
Pilapil. The RTC opined that refusing to allow inspection of the stock and transfer
book, as opposed to refusing examination of other corporate records, is not
punishable as an offense under the Corporation Code. The petitioners moved for
reconsideration, but the RTC remained steadfast. Hence, this petition by Yujuico and
Sumbilla.
Issue:
Whether or not the RTCs refusal to allow inspection of the stock and transfer
book of a corporation is not a punishable offense under the Corporation Code, such
a refusal still amounts to a violation of Section 74 of the Corporation Code, for which
Section 144 of the same code prescribes a penalty.cra1aw
Ruling:
No, there is no violation of the Corporation, thus, dismissal of the complaint is
warranted.
The act of refusing to allow inspection of the stock and transfer book of a
corporation, when done in violation of Section 74(4) of the Corporation Code, is
punishable as an offense under Section 144 of the same code. In justifying this
conclusion, the RTC seemingly relied on the fact that, under Section 74 of the
Corporation Code, the application of Section 144 is expressly mentioned only in
relation to the act of "refusing to allow any director, trustees, stockholder or
member of the corporation to examine and copy excerpts from the
corporation's records or minutes" that excludes its stock and transfer book, the
same does not mean that the latter section no longer applies to any other possible
violations of the former section. It must be emphasized that Section 144 already
purports to penalize "violations" of "any provision" of the Corporation Code "not
otherwise specifically penalized therein." Hence, we find inconsequential the fact
that that Section 74 expressly mentions the application of Section 144 only to a
specific act, but not with respect to the other possible violations of the former
section.
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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 ByLaws 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 ByLaws 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.
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.
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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.
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 intracorporate remedies. 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. Failure to do so allows the RTC to dismiss the
Complaint, even motu proprio, in accordance with the Interim Rules. The
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requirement of this allegation in the Complaint is not a useless formality which may
be disregarded at will.
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The checks were given to Villamor who did not turn these or the equivalent amount
over to PPC, upon encashment. Hernando Balmores, stockholder and director of
PPC, wrote a letter addressed to PPJC's directors informing them that Villamor
should be made to deliver to PPC and account for MC Home Depot's checks or their
equivalent value. Due to the alleged inaction of the directors, respondent Balmores
filed with the RTC an intra-corporate controversy complaint against petitioners for
their alleged devices or schemes amounting to fraud or misrepresentation.
Respondent Balmores alleged that because of petitioners' actions, PPC's assets
were ". . . not only in imminent danger, but have actually been dissipated, lost,
wasted and destroyed." Respondent Balmores prayed that a receiver be appointed
from his list of nominees. He also prayed for petitioners' prohibition from "selling,
encumbering, transferring or disposing in any manner any of PPC's properties,
including the MC Home Depot checks and/or their proceeds." He prayed for the
accounting and remittance to PPC of the MC Home Depot checks or their proceeds
and for the annulment of the board's resolution "waiving PPC's rights in favor of
Villamor's law firm.
The RTC denied respondent Balmores' prayer for the appointment of a
receiver or the creation of a management committee. According to it, PPC's
entitlement to the checks was doubtful. The resolution issued by PPC's board of
directors; waiving its rights to the option to lease contract in favor of Villamor's law
firm, must be accorded prima facie validity. Balmores filed with CA a petition for
certiorari which was given due course. It reversed the trial court's decision, and
issued a new order placing PPC under receivership and creating an interim
management committee. The CA considered the danger of dissipation, wastage,
and loss of PPC's assets if the review of the trial court's judgment would be delayed.
It stated that the board's waiver of PPC's rights in favor of Villamor's law firm
without any consideration and its inaction on Villamor's failure to turn over the
proceeds of rental payments to PPC warrant the creation of a management
committee. Also, the CA ruled that the case filed by respondent Balmores with the
trial court "was a derivative suit because there were allegations of fraud or ultra
vires acts ... by PPC's directors.
Issues:
1. Whether the Court of Appeals correctly characterized respondent Balmores'
action as a derivative suit
2. Whether the Court of Appeals properly placed PPC under receivership and
created a receiver or management committee
Ruling:
1. No.
The requisites of a derivative suit are as follows:
a. 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;
b. He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available
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amounts from its other sub-lessees. Balmores did not prove otherwise. He,
therefore, failed to show at least one of the requisites for appointment of a
receiver or management committee.
INTRA-CORPORATE DISPUTE
ROBERTO L. ABAD, MANUEL D. ANDAL, BENITO V. ARANETA, PHILIP G.
BRODETT, ENRIQUE L. LOCSIN and ROBERTO V. SAN JOSE vs. PHILIPPINE
COMMUNICATIONS
SATELLITE CORPORATION
G.R. No. 200620, March 18, 2015, J. Villarama, Jr.
. Upon the enactment of Republic Act No. 8799, the jurisdiction of the SEC
over intra-corporate controversies and the other cases enumerated in Section 5 of
P.D. No. 902-A was transferred to the Regional Trial Court. The jurisdiction of the
Sandiganbayan has been held not to extend even to a case involving a sequestered
company notwithstanding that the majority of the members of the board of
directors were PCGG nominees.
Facts:
Respondent PHILCOMSA, along with Philippine Overseas Telecommunications
Corporation (POTC) were among those private companies sequestered by the PCGG
after the EDSA People Power Revolution in 1986. PHILCOMSAT owns 81% of the
outstanding capital stock of Philcomsat Holdings Corporation (PHC). The majority
shareholders of PHILCOMSAT are also the seven families who have owned and
controlled POTC.
During the administration of President Gloria Macapagal-Arroyo, Enrique L.
Locsin and Manuel D. Andal, along with Julio Jalandoni, were appointed nomineedirectors representing the Republic of the Philippines. These PCGG nominees have
aligned with the Nieto family (Nieto-PCGG) against the group of Africa and Ilusorio
(Africa-Bildner), in the ensuing battle for control over the respective boards of POTC,
PHILCOMSAT and PHC.
On August 31, 2004, the following were elected during the annual
stockholders meeting of PHC conducted by the Nieto-PCGG group wherein Locsin
was elected Chairman. Said election at PHC was the offshoot of separate elections
conducted by the two factions in POTC and PHILCOMSAT, the Africa-Bildner group
and the Nieto-PCGG group. In the July 28, 2004 stockholders meetings of POTC and
PHILCOMSAT, Victor Africa was among those in the Africa-Bildner group who were
elected as Directors. He was designated as the POTC proxy to the PHILCOMSAT
stockholders meeting. While Locsin, Andal and Nieto, Jr. were also elected as
Directors, they did not accept their election as POTC and PHILCOMSAT Directors.
Instead, the Nieto-PCGG group held the stockholders meeting for PHILCOMSAT on
August 9, 2004 at the Manila Golf Club. Immediately after the stockholders
meeting, an organizational meeting was held, and Nieto, Jr. and Locsin were
respectively elected as Chairman and President of PHILCOMSAT. At the same
meeting, they issued a proxy in favor of Nieto, Jr. and/or Locsin authorizing them to
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the SEC over intra-corporate controversies and the other cases enumerated in
Section 5 of P.D. No. 902-A was transferred to the Regional Trial Court.
The jurisdiction of the Sandiganbayan has been held not to extend even to a
case involving a sequestered company notwithstanding that the majority of the
members of the board of directors were PCGG nominees. The Court marked this
distinction clearly in Holiday Inn (Phils.), Inc. v. Sandiganbayan:
The original and exclusive jurisdiction given to the Sandiganbayan over
PCGG cases pertains to (a) cases filed by the PCGG, pursuant to the
exercise of its powers under Executive Order Nos. 1, 2 and 14, as
amended by the Office of the President, and Article XVIII, Section 26 of
the Constitution, i.e., where the principal cause of action is the
recovery of ill-gotten wealth, as well as all incidents arising from,
incidental to, or related to such cases and (b) cases filed by those who
wish to question or challenge the commissions acts or orders in such
cases.
The complaint concerns PHILCOMSATs demand to exercise its right of
inspection as stockholder of PHC but which petitioners refused on the ground of the
ongoing power struggle within POTC and PHILCOMSAT that supposedly prevents
PHC from recognizing PHILCOMSATs representative (Africa) as possessing such right
or authority from the legitimate directors and officers. Clearly, the controversy is
intra-corporate in nature as they arose out of intra-corporate relations between
and among stockholders, and between stockholders and the corporation.
DISSOLUTION AND LIQUIDATION
LIQUIDATION
ALABANG DEVELOPMENT CORPORATION vs. ALABANG HILLS VILLAGE
ASSOCIATION AND RAFAEL TINIO
G.R. No. 187456, June 02, 2014, J. Peralta
ADC filed its complaint not only after its corporate existence was terminated
but also beyond the three-year period allowed by Section 122 of the Corporation
Code. To allow ADC to initiate the subject complaint and pursue it until final
judgment, on the ground that such complaint was filed for the sole purpose of
liquidating its assets, would be to circumvent the provisions of Section 122 of the
Corporation Code. Thus, it is clear that at the time of the filing of the subject
complaint petitioner lacks the capacity to sue as a corporation.
Facts:
The case traces its roots to the Complaint for Injunction and Damages filed
with the RTC of Muntinlupa City on Alabang Development Corporation against
Alabang Hills Village Association, Inc. and Rafael Tinio Tinio, President of AHVAI. The
Complaint alleged that Alabang is the developer of Alabang Hills Village and still
owns certain parcels of land therein that are yet to be sold, as well as those
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considered open spaces that have not yet been donated to the local government of
Muntinlupa City or the Homeowner's Association. In September 2006, ADC learned
that AHVAI started the construction of a multi-purpose hall and a swimming pool on
one of the parcels of land still owned by ADC without the latter's consent and
approval, and that despite demand, AHVAI failed to desist from constructing the
said improvements. ADC thus prayed that an injunction be issued enjoining
defendants from constructing the multi-purpose hall and the swimming pool at the
Alabang Hills Village.
In its Answer With Compulsory Counterclaim, AHVAI denied ADC's
asseverations and claimed that the latter has no legal capacity to sue since its
existence as a registered corporate entity was revoked by the SEC on May 26, 2003;
that ADC has no cause of action because by law it is no longer the absolute owner
but is merely holding the property in question in trust for the benefit of AHVAI as
beneficial owner thereof; and that the subject lot is part of the open space required
by law to be provided in the subdivision. As counterclaim, it prayed that an order be
issued divesting ADC of the title of the property and declaring AHVAI as owner
thereof; and that ADC be made liable for moral and exemplary damages as well as
attorney's fees. On January 4, 2007, the RTC of Muntinlupa City, rendered judgment
dismissing ADCs complaint. ADC filed a Notice of Appeal of the RTC decision. The
RTC approved ADC's notice of appeal but dismissed respondent AHVAIs
counterclaim on the ground that it is dependent on ADC's complaint. Respondent
AHVAI then filed an appeal with the CA. The CA dismissed both appeals of ADC and
AHVAI, and affirmed the decision of the RTC. Thus, the instant petition.
Issue:
1. Whether or not the Court of Appeals erred in relying on the case of
Columbia Pictures, Inc. V. Court of appeals in resolving ADC's lack of
capacity
2. Whether or not the Court of Appeals erred in finding lack of capacity of the
ADC in filing the case contrary to the earlier rulings of this honorable court
Ruling:
1. No, the CA did not err.
The Court does not agree that the CA erred in relying on the case of Columbia
Pictures, Inc. v. Court of Appeals. The CA cited the case for the purpose of restating
and distinguishing the jurisprudential definition of the terms lack of capacity to
sue and lack of personality to sue; and of applying these definitions to the
present case. Unlike in the instant case, the corporations involved in the Columbia
case were foreign corporations is of no moment. The definition of the term lack of
capacity to sue enunciated in the said case still applies to the case at bar. Indeed,
as held by this Court and as correctly cited by the CA in the case of Columbia: lack
of legal capacity to sue means that the plaintiff is not in the exercise of his civil
rights, or does not have the necessary qualification to appear in the case, or does
not have the character or representation he claims; lack of capacity to sue' refers
to a plaintiff's general disability to sue, such as on account of minority, insanity,
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an issue by PWRDC and resolved with finality by the Court in its November 25, 2009
Decision in G.R. No. 180893 (consolidated with G.R. No. 178768). The Court
sustained therein the CAs affirmation of PALIs Revised Rehabilitation Plan,
including those terms which its creditors had found objectionable, namely, the 50%
"haircut" reduction of the principal obligations and the condonation of accrued
interests and penalty charges
Facts:
PALI is a domestic corporation engaged in the business of developing the
Puerto Azul Complex located in Ternate, Cavite into a "satellite city," described as a
"self-sufficient and integrated tourist destination community with residential areas,
resort/tourism, and retail commercial centers with recreation areas like golf courses,
jungle trails, and white sand lagoons." To finance the full operation of its business,
PALI obtained loans in the total principal amount of 640,225,324.00 from several
creditors, among which were East Asia Capital, Export and Industry Bank (EIB),
Philippine National Bank, and Equitable PCI Bank (EPCIB), secured by real estate
owned by PALI and by accommodation mortgagors under a Mortgage Trust
Indenture.
Foreseeing the impossibility of meeting its debts and obligations to its
creditors as they fall due, PALI, on September 14, 2004, filed a Petition for
Suspension of Payments and Rehabilitation before the RTC. On September 17, 2004,
the RTC, finding PALIs petition to be sufficient in form and substance, issued a Stay
Order pursuant to Section 6, Rule 4 of the Interim Rules on Corporate
Rehabilitation (Interim Rules). RTC approved PALIs Revised Rehabilitation Plan. CA
granted PWRDCs petition for review and reversed the December 13, 2005 RTC
Decision, thereby dismissing PALIs petition for rehabilitation. It held that the causes
of PALIs inability to pay its debts were not alleged in the petition with sufficient
particularity as to have allowed the RTC to properly evaluate whether or not to issue
a Stay Order and eventually approve its rehabilitation.
Issue:
Whether or not the CA erred in reversing the RTC Decision, thereby
dismissing PALIs Revised Rehabilitation Plan
Ruling:
Yes. CA erred in dismissing PALIS Rehabilitation Plan
The validity of PALIs rehabilitation was already raised as an issue by PWRDC
and resolved with finality by the Court in its November 25, 2009 Decision in G.R. No.
180893 (consolidated with G.R. No. 178768). The Court sustained therein the CAs
affirmation of PALIs Revised Rehabilitation Plan, including those terms which its
creditors had found objectionable, namely, the 50% "haircut" reduction of the
principal obligations and the condonation of accrued interests and penalty charges.
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Nation Granary, Inc. (now World Granary Corporation, or WGC) filed a Petition
for Rehabilitation with Prayer for Suspension of Payments, Actions and
Proceedings before the RTC.
WGC is engaged in the business of mechanized bulk handling, transport and
storage, warehousing, drying, and milling of grains. It incurred loans amounting
to P2.66 billion from RBC and other banks and entities such as Trade and
Investment Development Corporation of the Philippines (TIDCORP). It appears that
RBC is both a secured and unsecured creditor, while TIDCORP is a secured creditor.
The RTC issued a Stay Order staying the enforcement of creditors claims and
prohibiting WGC from disposing its properties and paying its outstanding liabilities.
The RTC gave due course to the Petition for Rehabilitation. Accordingly, the receiver
submitted his Report with a proposal of a pari passu or equal sharing between
the secured and unsecured creditors of the proceeds from WGCs cash flow made
available for debt servicing.
In its Comment, TIDCORP among others took exception to the proposed pari
passu sharing, insisting that as a secured creditor, it should enjoy preference over
unsecured creditors, citing law and jurisprudence to the effect that the law on
preference of credits shall be observed in resolving claims against corporations
under rehabilitation. It likewise claimed that WGC violated its Indemnity
Agreement with TIDCORP which required that while the agreement subsisted,
WGC shall not incur new debts without TIDCORPs approval by obtaining additional
loans without the knowledge and consent of the latter.
RBC filed an Opposition to TIDCORPs Comment, arguing that giving
preference to TIDCORP would violate the Stay Order and impair the powers of the
receiver; and that any change in the contractual relations between TIDCORP and
WGC relative to their Indemnity Agreement comes as a necessary consequence of
rehabilitation, which TIDCORP may not be heard to complain.
The RTC approved WGCs rehabilitation plan. TIDCORP filed a Petition for
review before the CA praying that the order directing that all WGC obligations be
settled on a pari passu basis be reversed and set aside. RBC filed an Urgent Motion
for Intervention with attached Comment in Intervention, which is anchored on its
original claim and objection to TIDCORPs position.
In its Opposition, TIDCORP maintained that intervention is not allowed in
rehabilitation proceedings, citing Rule 3, Section 1 of the Interim Rules of Procedure
on Corporate Rehabilitation. It argued that a final determination of the appeal does
not depend on RBCs participation since rehabilitation proceedings are in remand
binding on all interested and affected parties even if they did not participate in the
proceedings.
Issues:
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receiver, and required all creditors and interested parties, including the Securities
and Exchange Commission (SEC), to file their comments.
After the initial hearing and evaluation of the comments and opposition of the
creditors, including PBCOM, the RTC gave due course to the petition and referred it
to the rehabilitation receiver for evaluation and recommendation.
On October 18, 2007, the rehabilitation receiver submitted his report
recommending the approval of the rehabilitation plan. On December 19, 2007, the
rehabilitation receiver submitted his clarifications and corrections to his report and
recommendations.
On January 11, 2008, the RTC issued an order approving the rehabilitation
plan.
In the assailed decision promulgated on December 16, 2008, the CA affirmed
the questioned order of the RTC, agreeing with the finding of the rehabilitation
receiver that there were sufficient evidence, factors and actual opportunities in the
rehabilitation plan indicating that Basic Polyprinters could be successfully
rehabilitated in due time.
The PBCOM claims that the CA did not pass upon the issues presented in its
petition, that the rehabilitation plan did not contain the material financial
commitments required by Section 5, Rule 4 of the Interim Rules of Procedure for
Corporate Rehabilitation (Interim Rules); that, accordingly, the proposed repayment
scheme did not constitute a material financial commitment, and the proposed
dacion en pago was not proper because the property subject thereof had been
mortgaged in its favor;
Issue:
Whether or not Basic Polyprinters can be rehabilitated.
Ruling:
No. Basic Polyprinters cannot be rehabilitated.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness and good faith of the distressed corporation in financing
the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the
period of rehabilitation.
Basic Polyprinters presented financial commitments, as follows:
1. Additional P10 million working capital to be sourced from the insurance
claim;
2. Conversion of the directors and shareholders deposit for future
subscription to common stock;
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for the approval of the Rehabilitation Court. Under the ARP, the benefits under the
PEPTrads shall be translated into fixed-value benefits as of December 31, 2004,
which will be termed as Base Year-end 2004 Entitlement. The creditors/oppositors
did not oppose/comment on the Rehabilitation Receivers ARP. Respondent
commenced with the implementation of its ARP in coordination with, and with
clearance from, the Rehabilitation Receiver. In the meantime, the value of the
Philippine Peso strengthened and appreciated. In view of this development, and
considering that the trust fund of respondent is mainly composed of NAPOCOR
bonds that are denominated in US Dollars, respondent submitted a manifestation
with the Rehabilitation Court on February 29, 2008, stating that the continued
appreciation of the Philippine Peso has grossly affected the value of the U.S. Dollardenominated NAPOCOR bonds, which stood as security for the payment of the Net
Translated Values of the PEPTrads.
Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to
Admit dated March 7, 2008, echoing the earlier tenor and substance of respondents
manifestation, and praying that the Modified Rehabilitation Plan be approved by the
Rehabilitation Court. Under the MRP, the ARP previously approved by the
Rehabilitation Court is modified. The Rehabilitation Court issued a Resolution dated
July 28, 2008 approving the MRP. Marilyn questioned the approval of the MRP before
the CA on September 26, 2008.Unfortunately for her, despite motion for
reconsideration, the CA denied the same on July 21, 2010.
Hence, this Petition for Review on Certiorari.
Issue:
Whether the MRP is ultra vires insofar as it reduces the original claim and
even the original amount that Marilyn was to receive under the ARP.
Ruling:
No, it is not.
The cram-down power of the Rehabilitation Court has long been established
and even codified under Section 23, Rule 4 of the Interim Rules. Such prerogative
was carried over in the Rehabilitation Rules, which maintains that the court may
approve a rehabilitation plan over the objection of the creditors if, in its judgment,
the rehabilitation of the debtors is feasible and the opposition of the creditors is
manifestly unreasonable. In Bank of the Philippine Islands v. Sarabia Manor Hotel
Corporation, where the Court elucidated the rationale behind Section 23, Rule 4 of
the Interim Rules, the Court said that a rehabilitation plan may be approved even
over the opposition of the creditors holding a majority of the corporations total
liabilities if there is a showing that rehabilitation is feasible and the opposition of the
creditors is manifestly unreasonable.
Also known as the cram-down clause, this provision, which is currently
incorporated in the FRIA, is necessary to curb the majority creditors natural
tendency to dictate their own terms and conditions to the rehabilitation, absent due
regard to the greater long-term benefit of all stakeholders. Otherwise stated, it
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forces the creditors to accept the terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate but incomplete recovery.
Based on the aforequoted doctrine, petitioners outright censure of the
concept of the cram-down power of the rehabilitation court cannot be
countenanced. To adhere to the reasoning of petitioner would be a step backward
a futile attempt to address an outdated set of challenges. It is undeniable that there
is a need to move to a regime of modern restructuring, cram-down and court
supervision in the matter of corporation rehabilitation in order to address the
greater interest of the public. This is clearly manifested in Section 64 of Republic Act
No. 10142, otherwise known as Financial Rehabilitation and Insolvency Act of 2010.
BPI FAMILY SAVINGS BANKC, INC. vs. ST. MICHAEL MEDICAL CENTER, INC.
G.R. No. 205469, March 25, 2015, J. Perlas-Bernabe
It is well to emphasize that the remedy of rehabilitation should be denied to
corporations that do not qualify under the Rules. Neither should it be allowed to
corporations whose sole purpose is to delay the enforcement of any of the rights of
the creditors, which is rendered obvious by: (a) the absence of a sound and
workable business plan; (b) baseless and unexplained assumptions, targets, and
goals; and (c) speculative capital infusion or complete lack thereof for the execution
of the business plan. In this case, not only has the petitioning debtor failed to show
that it has formally began its operations which would warrant restoration, but also it
has failed to show compliance with the key requirements under the Rules, the
purpose of which are vital in determining the propriety of rehabilitation. Thus, for all
the reasons hereinabove explained, the Court is constrained to rule in favor of BPI
Family and hereby dismiss SMMCIs Rehabilitation Petition.
Facts:
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole
proprietors of St. Michael Hospital. With a vision to upgrade St. Michael Hospital into
a modern, well-equipped and full service tertiary 11-storey hospital, Sps. Rodil
purchased two (2) parcels of land adjoining their existing property and, on May 22,
2003, incorporated SMMCI, with which entity they planned to eventually consolidate
St. Michael Hospitals operations. In order to finance the expansion of the premises
of the hospital, the Spouses Rodil obtained load from BPI Family Savings Bank. The
Spouses thereafter incurred problems with the first contractor, so the building was
not completed. SMMCI was only able to pay the interest on its BPI Family loan, or
the amount of 3,000,000.00 over a two-year period, from the income of St. Michael
Hospital.
On September 25, 2009, BPI Family demanded immediate payment of the
entire loan obligation and, soon after, filed a petition for extrajudicial foreclosure of
the real properties covered by the mortgage. The auction sale was scheduled on
December 11, 2009, which was postponed to February 15, 2010 with the conformity
of BPI Family.
On August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation
(Rehabilitation Petition) before the RTC, with prayer for the issuance of a Stay Order
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as it foresaw the impossibility of meeting its obligation to BPI Family, its purported
sole creditor. In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI
Family (a) to defer foreclosing on the mortgage and (b) to agree to a moratorium of
at least two (2) years during which SMMCI either through St. Michael Hospital or its
successor will retire all other obligations. After which, SMMCI can then start
servicing its loan obligation to the bank under a mutually acceptable restructuring
agreement. 24 SMMCI declared that it intends to conclude pending negotiations for
investments offered by a group of medical doctors whose capital infusion shall be
used (a) to complete the finishing requirements for the 3rd and 5th floors of the new
building; (b) to renovate the old 5storey building where St. Michael Hospital
operates; and (c) to pay, in whole or in part, the bank loan with the view of finally
integrating St. Michael Hospital with SMMCI. Finding the Rehabilitation Petition to be
sufficient in form and substance, the RTC issued a Stay Order. In an Order 34 dated
August 4, 2011, the RTC approved the Rehabilitation Plan
Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that
the approval of the Rehabilitation Plan violated its rights as an unpaid
creditor/mortgagee and that the same was submitted without prior consultation
with creditors. In a Decision dated August 30, 2012, the CA affirmed the RTCs
approval of the Rehabilitation Plan. Hence, this petition.
Issue:
Whether or not the CA correctly affirmed SMMCIs Rehabilitation Plan as
approved by the RTC.
Ruling:
No. that SMMCIs Rehabilitation Plan, an indispensable requisite in corporate
rehabilitation proceedings, failed to comply with the fundamental requisites outlined
in Section 18, Rule 3 of the Rules, particularly, that of a material financial
commitment to support the rehabilitation and an accompanying liquidation analysis,
all of the petitioning debtor:
SEC. 18. Rehabilitation Plan. - The rehabilitation plan
shall include (a) the desired business targets or goals and the duration and
coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation
which shall include the manner of its implementation, giving due regard to the
interests of secured creditors such as, but not limited, to the nonimpairment of their
security liens or interests; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which
may include debt to equity conversion, restructuring of the debts, dacion en pago or
sale exchange or any disposition of assets or of the interest of shareholders,
partners or members; (e) a liquidation analysis setting out for each creditor that the
present value of payments it would receive under the plan is more than that which
it would receive if the assets of the debtor were sold by a liquidator within a sixmonth period from the estimated date of filing of the petition; and (f) such other
relevant information to enable a reasonable investor to make an informed decision
on the feasibility of the rehabilitation plan.
It is well to emphasize that the remedy of rehabilitation should be denied to
corporations that do not qualify under the Rules. Neither should it be allowed to
corporations whose sole purpose is to delay the enforcement of any of the rights of
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the creditors, which is rendered obvious by: (a) the absence of a sound and
workable business plan; (b) baseless and unexplained assumptions, targets, and
goals; and (c) speculative capital infusion or complete lack thereof for the execution
of the business plan. Unfortunately, these negative indicators have all surfaced to
the fore, much to SMMCIs chagrin. While the Court recognizes the financial
predicaments of upstart corporations under the prevailing economic climate, it must
nonetheless remain forthright in limiting the remedy of rehabilitation only to
meritorious cases. As above-mentioned, the purpose of rehabilitation proceedings is
not only to enable the company to gain a new lease on life but also to allow
creditors to be paid their claims from its earnings, when so rehabilitated. Hence,
the remedy must be accorded only after a judicious regard of all stakeholders
interests; it is not a one-sided tool that may be graciously invoked to escape every
position of distress.
In this case, not only has the petitioning debtor failed to show that it has
formally began its operations which would warrant restoration, but also it has failed
to show compliance with the key requirements under the Rules, the purpose of
which are vital in determining the propriety of rehabilitation. Thus, for all the
reasons hereinabove explained, the Court is constrained to rule in favor of BPI
Family and hereby dismiss SMMCIs Rehabilitation Petition.
BANK OF
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of shares of stock of the acquiring corporation. The acquiring corporation would end
up with the business enterprise of the target corporation; whereas, the target
corporation would end up with basically its only remaining assets being the shares
of stock of the acquiring corporation."
No de facto merger took place in the present case simply because the TRB
owners did not get in exchange for the banks assets and liabilities an equivalent
value in Bancommerce shares of stock. Moreover, Bancommerce and TRB agreed
with BSP approval to exclude from the sale the TRBs contingent judicial liabilities,
including those owing to RPN, et al. The Bureau of Internal Revenue (BIR) treated
the transaction between the two banks purely as a sale of specified assets and
liabilities when it rendered its opinion on the tax consequences of the transaction
given that there is a difference in tax treatment between a sale and a merger or
consolidation. Furthermore, what was "consolidated" was the banking activities and
transactions of Bancommerce and TRB, not their corporate existence. The BSP did
not remotely suggest a merger of the two corporations.
To end, since there had been no merger, Bancommerce cannot be considered
as TRBs successor-in-interest and against which the Courts Decision of October 10,
2002 in G.R. 138510 may be enforced. Bancommerce did not hold the former TRBs
assets in trust for it as to subject them to garnishment for the satisfaction of the
latters liabilities to RPN, et al. Bancommerce bought and acquired those assets and
thus, became their absolute owner.
SECURITIES REGULATION CODE
PROXY
SOLICITATION
SECURITIES AND EXCHANGE COMMISSION, vs. THE HONORABLE COURT OF
APPEALS, OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING
TIA
ASTRA SECURITIES CORPORATION, vs. OMICO CORPORATION, EMILIO S.
TENG AND TOMMY KIN HING TIA,
G.R. No. 187702, October 22, 2014, CJ. SERENO,
The power of the SEC to investigate violations of its rules on proxy
solicitation is unquestioned when proxies are obtained to vote on matters unrelated
to the cases enumerated under Section 5 of Presidential Decree No. 902-A.
However, when proxies are solicited in relation to the election of corporate
directors, the resulting controversy, even if it ostensibly raised the violation of the
SEC rules on proxy solicitation, should be properly seen as an election controversy
within the original and exclusive jurisdiction of the trial courts by virtue of Section
5.2 of the SRC in relation to Section 5 (c) of Presidential Decree No. 902-A
Indeed, the validation of proxies in this case relates to the determination of
the existence of a quorum. Nonetheless, it is a quorum for the election of the
directors, and, as such, which requires the presence in person or by proxy of the
owners of the majority of the outstanding capital stock of Omico. Also, the fact that
there was no actual voting did not make the election any less so, especially since
Astra had never denied that an election of directors took place.
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Facts:
Omico Corporation (Omico) is a company whose shares of stock are listed and
traded in the Philippine Stock Exchange, Inc. Astra Securities Corporation (Astra) is
one of the stockholders of Omico owning about 18% of the latters outstanding
capital stock.
Omico scheduled its annual stockholders meeting. It set the deadline for
submission of proxies on and the validation of proxies. Astra objected to the
validation of the proxies issued in favor of Tommy Kin Hing Tia (Tia) as well as the
inclusion of the proxies issued in favor of Tia and/or Martin Buncio.
Astra maintained that the proxy issuers, who were brokers, did not obtain the
required express written authorization of their clients when they issued the proxies
in favor of Tia. In so doing, the issuers were allegedly in violation of SRC or Republic
Act No. 8799 Rules. Despite the objections of Astra, Omicos Board of Inspectors
declared that the proxies issued in favor of Tia were valid.
Astra filed a Complaint before the Securities and Exchange Commission (SEC)
praying for the invalidation of the proxies issued in favor of Tia. Astra also prayed
for the issuance of a cease and desist order (CDO) enjoining the holding of Omicos
annual stockholders meeting until the SEC had resolved the issues pertaining to the
validation of proxies which SEC granted.
The stockholders meeting proceeded as scheduled prompting Astra to
institute before the SEC a Complaint for indirect contempt against Omico for
disobedience of the CDO. On the other hand, Omico filed before the CA a Petition for
Certiorari and Prohibition imputing grave abuse of discretion on the part of the SEC
for issuing the CDO. CA declared the CDO null and void since the controversy was
an intra-corporate dispute. The SRC expressly transferred the jurisdiction over
actions involving intracorporate controversies from the SEC to the regional trial
courts.
Issue:
Whether or not the SEC has jurisdiction over controversies arising from the
validation of proxies for the election of the directors of a corporation.
Ruling:
No, SEC has no jurisdiction over controversies arising from the validation of
proxies for the election of the directors of a corporation
In GSIS v. CA, it was necessary for the Court to determine whether the action
to invalidate the proxies was intimately tied to an election controversy. Hence, the
Court pronounced: Under Section 5(c) of Presidential Decree No. 902-A, in relation
to the SRC, the jurisdiction of the regular trial courts with respect to election related
controversies is specifically confined to "controversies in the election or
appointment of directors, trustees, officers or managers of corporations,
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From these findings, the SEC declared that Primanila committed a flagrant
violation of Republic Act No. 8799, otherwise known as The Securities Regulation
Code (SRC), particularly Section 16 thereof. The SEC then issued the subject cease
and desist order "in order to prevent further violations and in order to protect the
interest of its plan holders and the public."
Feeling aggrieved, Primanila filed a Motion for Reconsideration/Lift Cease and
Desist Order, arguing that it was denied due process as the order was released
without any prior issuance by the SEC of a notice or formal charge that could have
allowed the company to defend itself. The cease and desist order issued on April 9,
2008 was then made permanent. The CA affirmed in toto the issuances of the SEC.
Issue:
Whether or not Primanila was accorded due process notwithstanding the
SECs immediate issuance of the cease and desist order on April 9, 2008
Ruling:
Yes, the authority of the SEC and the manner by which it can issue cease and
desist orders are provided in Section 64 of the SRC.
The law is clear on the point that a cease and desist order may be issued by
the SEC motu proprio, it being unnecessary that it results from a verified complaint
from an aggrieved party. A prior hearing is also not required whenever the
Commission finds it appropriate to issue a cease and desist order that aims to
curtail fraud or grave or irreparable injury to investors. There is good reason for this
provision, as any delay in the restraint of acts that yield such results can only
generate further injury to the public that the SEC is obliged to protect.
To equally protect individuals and corporations from baseless and improvident
issuances, the authority of the SEC under this rule is nonetheless with defined
limits. A cease and desist order may only be issued by the Commission after proper
investigation or verification, and upon showing that the acts sought to be restrained
could result in injury or fraud to the investing public. Without doubt, these requisites
were duly satisfied by the SEC prior to its issuance of the subject cease and desist
order.
Records indicate the prior conduct of a proper investigation on Primanilas
activities by the Commissions CED. Investigators of the CED personally conducted
an ocular inspection of Primanilas declared office, only to confirm reports that it
had closed even without the prior approval of the SEC. Members of CED also visited
the company website of Primanila, and discovered the companys offer for sale
thereon of the pension plan product called Primasa Plan, with instructions on how
interested applicants and planholders could pay their premium payments for the
plan. One of the payment options was through bank deposit to Primanilas given
Metrobank account which, following an actual deposit made by the CED was
confirmed to be active.
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As part of their investigation, the SEC also looked into records relevant to
Primanilas business. Records with the SECs Non-Traditional Securities and
Instruments Department (NTD) disclosed Primanilas failure to renew its dealers
license for 2008, orto apply for a secondary license as dealer or general agent for
pre-need pension plans for the same year. SEC records also confirmed Primanilas
failureto file a registration statement for Primasa Plan, to fully remit premium
collections from planholders, and to declare truthfully its premium collections from
January to September 2007.
The SEC was not mandated to allow Primanila to participate in the
investigation conducted by the Commission prior to the cease and desist orders
issuance. Given the circumstances, it was sufficient for the satisfaction of the
demands of due process that the company was amply apprised of the results of the
SEC investigation, and then given the reasonable opportunity to present its defense.
Primanila was able to do this via its motion to reconsider and lift the cease and
desist order. After the CED filed its comment on the motion, Primanila was further
given the chance to explain its side to the SEC through the filing of its reply. "Trite to
state, a formal trial or hearing isnot necessary to comply with the requirements of
due process. Its essence is simply the opportunity to explain ones position."
The validity of the SECs cease and desist order is further sustained for
having sufficient factual and legal bases.
The acts specifically restrained by the subject cease and desist order were
Primanilas sale, offer for sale and collection of payments specifically for its Primasa
plans. Notwithstanding the findings of both the SEC and the CA on Primanilas
activities, the company still argued in its petition that it neither sold nor collected
premiums for the Primasa product. Primanila argued that the offer for sale of
Primasa through the Primanila website was the result of mere inadvertence, after
the website developer whom it hired got hold of a copy of an old Primasa brochure
and then included its contents in the company website even without the knowledge
and prior approval of Primanila.
In the instant case, the substantial evidence is derived from the results of the
SEC investigation on Primanilas activities. Specifically on the product Primasa
plans, the SEC ascertained that there were detailed instructions on Primanilas
website as to how interested persons could apply for a plan, together with the
manner by which premium payments therefor could be effected. A money deposit
by CED to Primanilas Metrobank account indicated in the advertisement confirmed
that the bank account was active.
There could be no better conclusion from the foregoing circumstances that
Primanila was engaged in the sale or, at the very least, an offer for sale to the
public of the Primasa plans. The offer for Primasa was direct and its reach was even
expansive, especially as it utilized its website as a medium and visits to it were, as
could be expected, from prospective clients.
It is beyond dispute that Primasa plans were not registered with the SEC.
Primanila was then barred from selling and offering for sale the said plan product. A
continued sale by the company would operate as fraud to its investors, and would
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cause grave or irreparable injury or prejudice to the investing public, grounds which
could justify the issuance of a cease and desist order under Section 64 of the SRC.
Furthermore, even prior to the issuance of the subject cease and desist order,
Primanila was already enjoined by the SEC from selling and/or offering for sale preneed products to the public. The SEC Order dated April 9, 2008 declared that
Primanila failed to renew its dealers license for 2008, prompting the SECs NTD to
issue a letter dated January3, 2008 addressed to Primanilas Chairman and Chief
Executive Officer Eduardo S. Madrid, enjoining the company from selling and/or
offering for sale pre-need plans to the public. It also had not obtained a secondary
license to act as dealer or general agent for pre-need pension plans for 2008.
In view of the foregoing, Primanila clearly violated Section 16 of the SRC and
pertinent rules which barred the sale or offer for sale to the public of a pre-need
product except in accordance with SEC rules and regulations.
COSMOS BOTTLING CORPORATION vs. COMMISSION EN BANC of the
SECURITIES AND EXCHANGE COMMISSION (SEC) and JUSTINA F.
CALLANGAN, in her capacity as Director of the Corporation Finance
Department of the SEC
G.R. No. 199028, November 12, 2014, J. Perlas- Bernabe
As an administrative agency with both regulatory and adjudicatory functions,
the SEC was given the authority to delegate some of its functions to, inter alia, its
various operating departments, such as the SECCFD, the Enforcement and Investor
Protection Department, and the Company Registration and Monitoring Department.
In this case, the Court disagrees with the findings of both the SEC En Banc and the
CA that the Revocation Order emanated from the SEC En Banc. Rather, such Order
was merely issued by the SEC-CFD as one of the SECs operating departments. In
other words, the Revocation Order is properly deemed as a decision issued by the
SEC-CFD as one of the Operating Departments of the SEC, and accordingly, may be
appealed to the SEC En Banc, as what Cosmos properly did in this case. Perforce,
the SEC En Banc and the CA erred in deeming Cosmoss appeal as a motion for
reconsideration and ordering its dismissal on such ground.
Facts:
The instant case stemmed from Cosmoss failure to submit its 2005 Annual
Report to the SEC within the prescribed period. In connection therewith, it requested
an extension of time within which to file the same. In response, the SEC-Corporation
Finance Department (SEC-CFD), through respondent Director Callangan, sent
Cosmos a letter denying the latters request and directing it to submit its 2005
Annual Report. The same letter also ordered Cosmos to show cause why the
Cosmoss Registration of Securities/Permit to Sell Securities to the Public (Subject
Registration/Permit) should not be revoked for violating Section 17.1 (a) of Republic
Act No. 8799, otherwise known as "The Securities Regulation Code" (SRC).
Cosmos sent a reply-letter to the SEC-CFD, explaining that its failure to file its
2005 Annual Report was due to the non-completion by its external auditors of their
audit procedures. For this reason, Cosmos implored the SEC-CFD to reconsider its
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previous denial of Cosmoss request for additional time to file its 2005 Annual
Report. Thereafter, hearings for the suspension of the Subject Registration/Permit
commenced, with Cosmos advancing the same reasons for the non- submission of
its 2005 Annual Report. The SEC-CFD ordered the suspension of the Subject
Registration/Permit (suspension order) for a period of 60 days from receipt of the
same, or until Cosmos files its 2005 Annual Report, whichever is earlier. The SECCFD also stated that Cosmoss failure to submit its 2005 Annual Report within the
60-day period shall constrain the SEC to initiate proceedings for revocation of the
Subject Registration/Permit.
On October 31, 2007, Cosmos finally submitted its 2005 and 2006 Annual
Reports to the SEC. In connection therewith, Cosmos requested SEC-CFD that the
latter lift the suspension order and abandon the revocation proceedings against the
former.
The SEC-CFD referred the matter to the SEC En Banc for its
consideration. After the said meeting, the SEC En Banc issued Resolution No. 87,
series of (s.) 2008 wherein they resolved to: (a) deny Cosmoss request for the
lifting of the suspension order; and (b) revoke the Subject Registration/Permit. On
the basis thereof, the SEC-CFD issued a Revocation Order echoing the
pronouncements indicated in the aforesaid resolution. On appeal, this resolution
was later on affirmed by SEC En Banc and CA stating that the Revocation Order was
a mere articulation of the SEC En Bancs Resolution No. 87, s. 2008, and thus,
should be considered an issuance of the SEC En Banc itself. The SEC En Banc
deemed Cosmoss appeal as a motion for reconsideration, a prohibited pleading
under Section 3-6, Rule III of the 2006 SEC Rules of Procedure. Furthermore, CA held
that Cosmoss appeal, which was treated as a prohibited motion for reconsideration
under the 2006 SEC Rules of Procedure, did not toll the reglementary period for
filing an appeal before it. As such, the SEC En Bancs Ruling, as well as the
Revocation Order, had already lapsed into finality and could no longer be disturbed.
Issue:
Whether or not the CA correctly treated Cosmoss appeal before the SEC En
Banc as a motion for reconsideration, and consequently, affirmed its dismissal for
being a prohibited pleading under the 2006 SEC Rules of Procedure.
Ruling:
No.
As an administrative agency with both regulatory and adjudicatory functions,
the SEC was given the authority to delegate some of its functions to, inter alia, its
various operating departments, such as the SECCFD, the Enforcement and Investor
Protection Department, and the Company Registration and Monitoring Department,
pursuant to Section 4.6 of the SRC. Naturally, the aforesaid provision also gives the
SEC the power to review the acts performed by its operating departments in the
exercise of the formers delegated functions. This power of review is squarely
addressed by Section 11-1, Rule XI of the 2006 SEC Rules of Procedure.
In this case, the Court disagrees with the findings of both the SEC En Banc
and the CA that the Revocation Order emanated from the SEC En Banc. Rather, such
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Order was merely issued by the SEC-CFD as one of the SECs operating
departments, as evidenced by the following: (a) it was printed and issued on the
letterhead of the SEC-CFD, and not the SEC En Banc; (b) it was docketed as a case
under the SEC-CFD as an operating department of the SEC, since it bore the serial
number "SEC-CFD Order No. 027, [s.] 2008;" and (c) it was signed solely by Director
Callangan as director of the SEC-CFD, and not by the commissioners of the SEC En
Banc. Further, both the SEC En Banc and the CA erred in holding that the
Revocation Order merely reflected Resolution No. 87, s. 2008, and thus, should
already be considered as the ruling of the SEC En Banc in this case. As admitted by
respondents, the SEC-CFDs referral of the case to the SEC En Banc for its
consideration in its March 13, 2008 meeting, which eventually resulted in the
issuance of Resolution No. 87, s.2008, was merely an internal procedure inherent in
the exercise by the SEC of its administrative and regulatory functions.
In sum, the Revocation Order is properly deemed as a decision issued by the
SEC-CFD as one of the Operating Departments of the SEC, and accordingly, may be
appealed to the SEC En Banc, as what Cosmos properly did in this case. Perforce,
the SEC En Banc and the CA erred in deeming Cosmoss appeal as a motion for
reconsideration and ordering its dismissal on such ground. In view thereof, the Court
deems it prudent to reinstate and remand the case to the SEC En Banc for its
resolution on the merits.
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substance, issued an order declaring Doa Adela as insolvent and staying all civil
proceedings against it.
Thereafter, Atty. Arlene Gonzales was appointed as receiver. Subsequently,
Atty. Gonzales filed a Motion for Parties to Enter Into Compromise Agreement
incorporating her proposed terms of compromise.
Creditors Trade and Investment Development Corporation (TIDCORP) and
Bank of the Philippine Islands (BPI) also filed a Joint Motion to Approve the
Compromise Agreement.
One of the stipulations of the agreement was the waiver of confidentiality in
which Doa Adela shall waive all rights to confidentiality provided under the
provisions of Republic Act No. 1405, as amended, otherwise known as the Law on
Secrecy of Bank Deposits, and Republic Act No. 8791, otherwise known as The
General Banking Law of 2000. Furthermore Doa Adela will grant TIDCORP and BPI
access to any deposit or other accounts maintained by them with any bank.
The RTC approved the Compromise Agreement filed by TIDCORP and BPI.
Doa Adela filed a motion for partial reconsideration and claimed that
TIDCORP and BPIs agreement imposes on it several obligations such as waiver of
confidentiality of its bank deposits but it is not a party and signatory to the said
agreement. Furthermore, there must be an express and written waiver from the
depositor concerned as required by law before any third person or entity is allowed
to examine bank deposits or bank records.
BPI counters that Doa Adela is estopped from questioning the BPI-TIDCORP
compromise agreement because Doa Adela and its counsel participated in all the
proceedings involving the subject compromise agreement and did not object when
the compromise agreement was considered by the RTC.
The RTC denied the motion and held that Doa Adelas silence and
acquiescence to the joint motion to approve compromise agreement while it was set
for hearing by creditors BPI and TIDCORP is tantamount to admission and
acquiescence.
Issue:
Whether the waiver of confidentiality provision in the Agreement between
TIDCORP and BPI is valid despite Doa Adela not being a party and signatory to the
same.
Ruling:
No.
Section 2 of R.A. No. 1405, the Law on Secrecy of Bank Deposits, provides for
exceptions when records of deposits may be disclosed. These are under any of the
following instances: (a) upon written permission of the depositor, (b) in cases of
impeachment, (c) upon order of a competent court in the case of bribery or
dereliction of duty of public officials or, (d) when the money deposited or invested is
the subject matter of the litigation, and (e) in cases of violation of the Anti-Money
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Laundering Act, the Anti-Money Laundering Council may inquire into a bank account
upon order of any competent court.
In this case, the Joint Motion to Approve Agreement was executed by BPI and
TIDCORP only. There was no written consent given by Doa Adela or its
representative, Epifanio Ramos, Jr., that Doa Adela is waiving the confidentiality of
its bank deposits. The provision on the waiver of the confidentiality of Doa Adelas
bank deposits was merely inserted in the agreement. It is clear therefore that Doa
Adela is not bound by the said provision since it was without the express consent of
Doa Adela who was not a party and signatory to the said agreement.
Neither can be Doa Adela deemed to have given its permission by failure to
interpose its objection during the proceedings. It is an elementary rule that the
existence of a waiver must be positively demonstrated since a waiver by implication
is not normally countenanced. The norm is that a waiver must not only be
voluntary, but must have been made knowingly, intelligently, and with sufficient
awareness of the relevant circumstances and likely consequences.
Furthermore, it is basic in law that a compromise agreement, as a contract, is
binding only upon the parties to the compromise, and not upon non-parties. This is
the doctrine of relativity of contracts. The sound reason for the exclusion of nonparties to an agreement is the absence of a vinculum or juridical tie which is the
efficient cause for the establishment of an obligation. Hence, a court judgment
made solely on the basis of a compromise agreement binds only the parties to the
compromise, and cannot bind a party litigant who did not take part in the
compromise agreement.
BPI FAMILY SAVINGS BANKC, INC. vs. ST. MICHAEL MEDICAL CENTER, INC.
G.R. No. 205469, March 25, 2015, J. Perlas-Bernabe
It is well to emphasize that the remedy of rehabilitation should be denied to
corporations that do not qualify under the Rules. Neither should it be allowed to
corporations whose sole purpose is to delay the enforcement of any of the rights of
the creditors, which is rendered obvious by: (a) the absence of a sound and
workable business plan; (b) baseless and unexplained assumptions, targets, and
goals; and (c) speculative capital infusion or complete lack thereof for the execution
of the business plan. In this case, not only has the petitioning debtor failed to show
that it has formally began its operations which would warrant restoration, but also it
has failed to show compliance with the key requirements under the Rules, the
purpose of which are vital in determining the propriety of rehabilitation. Thus, for all
the reasons hereinabove explained, the Court is constrained to rule in favor of BPI
Family and hereby dismiss SMMCIs Rehabilitation Petition.
Facts:
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole
proprietors of St. Michael Hospital. With a vision to upgrade St. Michael Hospital into
a modern, well-equipped and full service tertiary 11-storey hospital, Sps. Rodil
purchased two (2) parcels of land adjoining their existing property and, on May 22,
2003, incorporated SMMCI, with which entity they planned to eventually consolidate
St. Michael Hospitals operations. In order to finance the expansion of the premises
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of the hospital, the Spouses Rodil obtained load from BPI Family Savings Bank. The
Spouses thereafter incurred problems with the first contractor, so the building was
not completed. SMMCI was only able to pay the interest on its BPI Family loan, or
the amount of 3,000,000.00 over a two-year period, from the income of St. Michael
Hospital.
On September 25, 2009, BPI Family demanded immediate payment of the
entire loan obligation and, soon after, filed a petition for extrajudicial foreclosure of
the real properties covered by the mortgage. The auction sale was scheduled on
December 11, 2009, which was postponed to February 15, 2010 with the conformity
of BPI Family.
On August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation18
(Rehabilitation Petition) before the RTC, with prayer for the issuance of a Stay Order
as it foresaw the impossibility of meeting its obligation to BPI Family, its purported
sole creditor. In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI
Family (a) to defer foreclosing on the mortgage and (b) to agree to a moratorium of
at least two (2) years during which SMMCI either through St. Michael Hospital or its
successor will retire all other obligations. After which, SMMCI can then start
servicing its loan obligation to the bank under a mutually acceptable restructuring
agreement. 24 SMMCI declared that it intends to conclude pending negotiations for
investments offered by a group of medical doctors whose capital infusion shall be
used (a) to complete the finishing requirements for the 3rd and 5th floors of the new
building; (b) to renovate the old 5storey building where St. Michael Hospital
operates; and (c) to pay, in whole or in part, the bank loan with the view of finally
integrating St. Michael Hospital with SMMCI. Finding the Rehabilitation Petition to be
sufficient in form and substance, the RTC issued a Stay Order. In an Order 34 dated
August 4, 2011, the RTC approved the Rehabilitation Plan
Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that
the approval of the Rehabilitation Plan violated its rights as an unpaid
creditor/mortgagee and that the same was submitted without prior consultation
with creditors. In a Decision dated August 30, 2012, the CA affirmed the RTCs
approval of the Rehabilitation Plan. Hence, this petition.
Issue:
Whether or not the CA correctly affirmed SMMCIs Rehabilitation Plan as
approved by the RTC.
Ruling:
No. that SMMCIs Rehabilitation Plan, an indispensable requisite in corporate
rehabilitation proceedings, failed to comply with the fundamental requisites outlined
in Section 18, Rule 3 of the Rules, particularly, that of a material financial
commitment to support the rehabilitation and an accompanying liquidation analysis,
all of the petitioning debtor:
SEC. 18. Rehabilitation Plan. - The rehabilitation plan
shall include (a) the desired business targets or goals and the duration and
coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation
which shall include the manner of its implementation, giving due regard to the
interests of secured creditors such as, but not limited, to the nonimpairment of their
security liens or interests; (c) the material financial commitments to support the
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rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which
may include debt to equity conversion, restructuring of the debts, dacion en pago or
sale exchange or any disposition of assets or of the interest of shareholders,
partners or members; (e) a liquidation analysis setting out for each creditor that the
present value of payments it would receive under the plan is more than that which
it would receive if the assets of the debtor were sold by a liquidator within a sixmonth period from the estimated date of filing of the petition; and (f) such other
relevant information to enable a reasonable investor to make an informed decision
on the feasibility of the rehabilitation plan.
It is well to emphasize that the remedy of rehabilitation should be denied to
corporations that do not qualify under the Rules. Neither should it be allowed to
corporations whose sole purpose is to delay the enforcement of any of the rights of
the creditors, which is rendered obvious by: (a) the absence of a sound and
workable business plan; (b) baseless and unexplained assumptions, targets, and
goals; and (c) speculative capital infusion or complete lack thereof for the execution
of the business plan. Unfortunately, these negative indicators have all surfaced to
the fore, much to SMMCIs chagrin. While the Court recognizes the financial
predicaments of upstart corporations under the prevailing economic climate, it must
nonetheless remain forthright in limiting the remedy of rehabilitation only to
meritorious cases. As above-mentioned, the purpose of rehabilitation proceedings is
not only to enable the company to gain a new lease on life but also to allow
creditors to be paid their claims from its earnings, when so rehabilitated. Hence,
the remedy must be accorded only after a judicious regard of all stakeholders
interests; it is not a one-sided tool that may be graciously invoked to escape every
position of distress.
In this case, not only has the petitioning debtor failed to show that it has formally
began its operations which would warrant restoration, but also it has failed to show
compliance with the key requirements under the Rules, the purpose of which are
vital in determining the propriety of rehabilitation. Thus, for all the reasons
hereinabove explained, the Court is constrained to rule in favor of BPI Family and
hereby dismiss SMMCIs Rehabilitation Petition.
SPOUSES EDUARDO AND LYDIA SILOS vs. PHILIPPINE NATIONAL BANK
G.R. No. 181045, July 2, 2014, J. Del Castillo
Plainly, with the subject credit agreement, the element of consent or
agreement by the borrower is now completely lacking, which makes [PNBs]
unlawful act all the more reprehensible.
Accordingly, [Spouses Silos] are correct in arguing that estoppels should not
apply to them, for estoppels cannot be predicated on an illegal act. As between the
parties to a contract, validity cannot be given to it by estoppels if it is prohibited by
law or public policy. It appears that by its acts, PNB violated the Truth in Lending Act
or Republic Act No. 3765 which was enacted to protect citizens from a lack of
awareness of the true cost of credit to the use by using a full disclosure of such cost
with a view of preventing the uninformed use of credit to the detriment of the
national economy.
Facts:
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Spouses Silos were engaged in retail business since 1980s and for which they
secured several loans from PNB. Consequently, the following agreements were
executed, to wit:
1. Real Estate Mortgage to secure the credit line of PhP150,000.00;
2. Supplement to the Real Estate Mortgage to secure the credit line which
was first raised to PhP1.8 Million then to PhP2.5 Million;
3. Credit Agreement of July 1989 and Eight (8) Promissory Notes; and,
4. Amendment to Credit Agreement of August 1991 and Eighteen (18)
Promissory Notes.
The original Credit Agreement provided an interest of 19.5% per annum and
authorized PNB to modify the interest rate without need of notice to Spouses Silos
and depending on whatever policy the Bank may adopt. All of the agreements and
promissory notes contained stipulations respecting this unilateral modification of
interest rate.
PNB renewed the credit line from 1990 up to 1997 and Spouses Silos
religiously paid their accounts. In 1997, due to the Asian Financial Crisis, Spouses
Silos failed to make good on their outstanding promissory note for PhP2.5 Million,
which provided for a penalty clause equivalent to 24% per annum in case of default.
Thus, PNB prepared a Statement of Account showing aggregate accountabilities in
the amount of PhP3,620,541.60 against Spouses Silos. Failing to heed PNBs
demand, the mortgages were foreclosed and sold to the Bank at auction for the
amount of PhP4,324,172.96.
Spouses Silos commenced a complaint for annulment of foreclosure sale with
prayer for accounting of their credit with PNB. After hearing the opposing arguments
of the parties on the disputed stipulations, the trial court ruled in favor of PNB and
upheld the accounting of debts, foreclosure sale and agreements between the
parties among others. On appeal, the CA affirmed the judgment of the trial court but
with modifications respecting the applicable interest on the unpaid promissory note,
attorneys fees of 10% and reimbursement of the difference between the bid price
and the total amount due.
Issues:
1. Whether or not the provision conferring upon PNB the power to solely
determine and change the interest rate stated in the subject credit
agreement is contrary to law.
2. What is the appropriate interest that may be applied to the remaining
monetary obligation of Spouses Silos?
3. Whether or not the penalty charge in the still unpaid promissory note is
also covered by the security.
Ruling:
1. YES, the provision runs counter to Article 1308 of the Civil Code and the
Truth in Lending Act.
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In a long line of cases, the Court has struck down provisions in credit
documents issued by PNB to its borrowers, which allow it to increase or decrease
interest rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future. In the cases of PNB vs. CA circa 1991 and 1994,
the Court took the position that P.D. No. 1684 and C.B. Circular No. 905, respecting
the non-application of the usury law in loans and certain forbearances, no more
than allow contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or forbearance of money,
goods or credits. In other words, the parties can agree to adjust, upward or
downward, the interest stipulated. Nevertheless, the Court pointed out that the
said law and circular did not authorize either party to unilaterally raise the interest
rate without the others consent. Thus, it was held that such clause introduced by
PNB ran afoul with the principle of mutuality of contracts ordained in Article 1308 of
the Civil Code.
In Spouses Almeda vs. CA, the Court also invalidated the very same
provisions in PNBs prepared Credit Agreement and mainly ratiocinated that
[e]scalation clauses are not basically wrong or legally objectionable so long as they
are not solely potestative but based on reasonable and valid grounds [and in this
case] not only are the increases of the interest rates on the basis of escalation
clause patently unreasonable and unconscionable, but also there are no valid and
reasonable standards upon which the increases are anchored.
In another PNB vs. CA case, circa 1996, the disquisition went in this wise:
while the Usury Law ceiling on interest rates was lifted by C.B. No. 905, nothing in
the said circular could possibly be read as granting PNB carte blanche authority to
raise interest rates to levels which would either enslave its borrowers or lead to a
hemorrhaging of their assets.
An equally relevant case, New Sampaguita Builders Construction, Inc. vs.
PNB, this Court pronounced that excessive interests, penalties and other charges
not revealed in the disclosure statements issued by banks, even it stipulated in the
promissory notes, cannot be given effect under the Truth in Lending Act.
Withal, in the light of these cases, the stipulations found in the Credit
Agreement, Amendment to the Credit Agreement and the promissory notes
prepared by PNB in the instant case must be once more invalidated. The lack of
consent by Spouses Silos has been made obvious by the fact that they signed the
promissory notes in blank for PNB to fill. The witness for PNB, Branch Manager Aspa,
admitted that interest rates were fixed solely by its Treasury Department in Manila,
which were then simply communicated to all PNB branches for imple-mentation. If
this were the case, then this would explain why Spouses Silos had to sign the
promissory notes in blank, since the imposable interest rates have yet to be
determined and fixed by PNB Treasury Department.
Further, in Aspas enumeration of factors that determine the interest rates, it
can be seen that considerations which affect PNBs borrowers are ignored. A
borrowers current financial state, his feedback or opinions, the nature and purpose
of his borrowings, the effect of foreign currency values or fluctuations on his
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business or borrowing, etc. these are not factors which influence the fixing of
interest rates to be imposed on him. Clearly, PNBs method of fixing interest rates
based on one-sided, indeterminate, and subjective criteria such as profitability, cost
of money, bank cost etc. is arbitrary for there is no fixed standard or margin above
or below these considerations.
To repeat what has been said in the cited cases, any modification in the
contract, such as interest rates must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if not the most important
component. Thus, any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.
What is even more glaring in the present case is that, the stipulations in
question no longer provide that the parties shall agree upon the interest rate to be
fixed; instead, they are worded in such a way that Spouses Silos shall agree to
whatever interest rate PNB fixes. Plainly, with the subject credit agreement, the
element of consent or agreement by Spouses Silos is now completely lacking, which
makes PNBs unlawful act all the more reprehensible.
Accordingly, Spouses Silos are correct in arguing that estoppels should not
apply to them, for estoppels cannot be predicated on an illegal act. As between the
parties to a contract, validity cannot be given to it by estoppels if it is prohibited by
law or public policy. It appears that by its acts, PNB violated the Truth in Lending Act
or Republic Act No. 3765 which was enacted to protect citizens from a lack of
awareness of the true cost of credit to the use by using a full disclosure of such cost
with a view of preventing the uninformed use of credit to the detriment of the
national economy.
However, the one-year period within which an action for violation of the Truth
in Lending Act may be filed evidently prescribed long ago, or sometime in 2001, one
year after Spouses Silos received the March 2000 demand letter which contained
the illegal charges.
The fact that Spouses Silos later received several statements of account
detailing its outstanding obligations does not cure PNBs breach. To repeat, the
belated discovery of the true cost of credit does not reverse the ill effects of an
already consummated business decision. Neither may the statements be considered
proposals sent to secure Spouses Silos conformity; they were sent after the
imposition and application of the interest rate, and not before.
2. The loan shall be subject to the original or stipulated rate of interest and
upon maturity, the amount due shall be subject to legal interest at the
rates of 12% and then 6% per annum.
Since the escalation clause is annulled, the principal amount of the loan is
subject to the original or stipulated rate of interest and upon maturity, the amount
due shall be subject to legal interest at the rate of 12% per annum. The interests
paid by Spouses Silos should be applied first to the payment of the stipulated or
Page 76 of 128
legal and unpaid interest, as the case may be and later, to the capital or principal.
PNB should then refund the excess amount of interest that it has illegally imposed
upon Spouses Silos; the amount to be refunded refers to that paid by Spouses Silos
when they had no obligation to do so. Thus, the parties original agreement
stipulated the payment of 19.5% interest; however, this rate was intended to apply
only to the first promissory note which expired in November 1989 and was paid by
Spouses Silos; it was not intended to apply to the whole duration of the loan.
Subsequent higher interest rates have been declared illegal; but because only the
rates are found to be improper, the obligation to pay interest subsists, the same to
be fixed at the legal rate of 12% per annum. However, the 12% interest shall apply
only until June 30, 2013. Starting July 01, 2013, the prevailing rate of interest shall
be 6% per annum pursuant to BSP Monetary Board Circular No. 799.
3. NO, the penalty charge must be excluded for not being expressly covered
by the credit agreement.
The unpaid promissory note provides that failure to pay it or any installment
thereon, when due, shall constitute default, and a penalty charge of 24% per
annum based on the defaulted principal amount shall be imposed. This penalty
charge can no longer be sustained based on the above disquisition. Having found
the credit agreements and promissory notes to be tainted, the mortgages must
likewise be accorded with the same treatment. After all, a mortgage and a note
secured by it are deemed parts of one transaction and are construed together.
Being so tainted and having attributes of a contract of adhesion as the principal
credit documents, the mortgages must be construed strictly and against the party
who drafted it. An examination of the mortgage agreements reveals that nowhere it
is stated that penalties are to be included in the secured amount. Construing the
silence strictly against PNB, the Court can only conclude that the parties did not
intend to include the penalty allowed under the subject note as part of the secured
amount.
PHILIPPINE AMANAH BANK (NOW AL-AMANAH ISLAMIC INVESTMENT BANK
OF THE PHILIPPINES, ALSO KNOWN AS ISLAMIC BANK) vs. EVANGELISTA
CONTRERAS
G.R. No. 173168, September 29, 2014, J. Brion
In the present case, however, nothing in the documents presented by
Calinico would arouse the suspicion of PAB to prompt a more extensive inquiry.
When the Ilogon spouses applied for a loan, they presented as collateral a parcel of
land evidenced by an OCT issued by the Office of the Register of Deeds and
registered in the name of Calinico. This document did not contain any inscription or
annotation indicating that Contreras was the owner or that he has any interest in
the subject land. In fact, he admitted that there was no encumbrance annotated on
Calinicos title at the time of the latters loan application. Any private arrangement
between Calinico and him regarding the proceeds of the loan was not the concern
of PAB, as it was not a privy to this agreement. If Calinico violated the terms of his
agreement with Contreras on the turn-over of the proceeds of the loan, then the
latter's proper recourse was to file the appropriate criminal action in court.
Facts:
Page 77 of 128
Page 78 of 128
arrangement between Calinico and [him] regarding the proceeds of the loan was not
the concern of [PAB], as it was not a privy to this agreement. If Calinico violated the
terms of his agreement with [Contreras] on the turn-over of the proceeds of the
loan, then the latter's proper recourse was to file the appropriate criminal action in
court.
[Contreras] also failed to prove its allegation that the petitioner bank knew,
thru a letter sent by the formers lawyer, Atty. Crisanto Mutya, Jr., that the sale of
the subject land between him and Calinico was made only for loan purposes, and
that failure of Calinico to turn over the proceeds of the loan will invalidate the sale.
Even assuming, for the sake of argument, that the petitioner bank received a
copy of Atty. Mutyas letter, it was still well-within its discretion to grant or deny the
loan application after evaluating the documents submitted for loan applicant. As
earlier stated, [the certificate of title]issued in Calinicos favor was free from any
encumbrances. [PAB] is not anymore privy to whatever arrangements the owner
entered into regarding the proceeds of the loan.
Finally, [the Court points] out that [PAB] is a [GOCC]. While [the OCT] issued
in favor of Calinico by virtue of the deed of confirmation of sale contained a
prohibition against the alienation and encumbrance from the date of the patent,
the CA failed to mention that by the express wordings of the OCT itself, the
prohibition does not cover the alienation and encum-brance in favor of the
Government or any of its branches, units or institutions.
PHILIPPINE BANK OF COMMUNICATIONS vs. BASIC POLYPRINTERS AND
PACKAGING CORPORATION
G.R. No. 187581, October 20, 2014, J. Bersamin
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness and good faith of the distressed corporation in financing
the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtorcorporation indicating their readiness, willingness and ability to contribute funds or
property to guarantee the continued successful operation of the debtor corporation
during the period of rehabilitation.
In this case, the financial commitments
presented by Basic Polyprinters were insufficient for the purpose of rehabilitation.
Thus, its petition for corporate rehabilitation must necessarily fail.
Facts:
Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a
domestic corporation engaged in the business of printing greeting cards, gift
wrappers, gift bags, calendars, posters, labels and other novelty items.
On February 27, 2004, Basic Polyprinters, along with the eight other
corporations belonging to the Limtong Group of Companies (namely: Cuisine
Connection, Inc., Fine Arts International, Gibson HP Corporation, Gibson Mega
Corporation, Harry U. Limtong Corporation, Main Pacific Features, Inc., T.O.L. Realty
Page 79 of 128
& Development Corp., and Wonder Book Corporation), filed a joint petition for
suspension of payments with approval of the proposed rehabilitation in the RTC.
Included in its overall Rehabilitation Program was the full payment of its
outstanding loans in favor of Philippine Bank of Communications (PBCOM), RCBC,
Land Bank, EPCIBank and AUB via repayment over 15 years with moratorium of twoyears for the interest and five years for the principal at 5% interest per annum and
a dacion en pago of its affiliate property in favor of EPCIBank.
Finding the petition sufficient in form and substance, the RTC issued the stay
order dated August 31, 2006. It appointed Manuel N. Cacho III as the rehabilitation
receiver, and required all creditors and interested parties, including the Securities
and Exchange Commission (SEC), to file their comments.
After the initial hearing and evaluation of the comments and opposition of the
creditors, including PBCOM, the RTC gave due course to the petition and referred it
to the rehabilitation receiver for evaluation and recommendation.
On October 18, 2007, the rehabilitation receiver submitted his report
recommending the approval of the rehabilitation plan. On December 19, 2007, the
rehabilitation receiver submitted his clarifications and corrections to his report and
recommendations.
On January 11, 2008, the RTC issued an order approving the rehabilitation
plan.
In the assailed decision promulgated on December 16, 2008, the CA affirmed
the questioned order of the RTC, agreeing with the finding of the rehabilitation
receiver that there were sufficient evidence, factors and actual opportunities in the
rehabilitation plan indicating that Basic Polyprinters could be successfully
rehabilitated in due time.
The PBCOM claims that the CA did not pass upon the issues presented in its
petition, that the rehabilitation plan did not contain the material financial
commitments required by Section 5, Rule 4 of the Interim Rules of Procedure for
Corporate Rehabilitation (Interim Rules); that, accordingly, the proposed repayment
scheme did not constitute a material financial commitment, and the proposed
dacion en pago was not proper because the property subject thereof had been
mortgaged in its favor;
Issue:
Whether or not Basic Polyprinters can be rehabilitated.
Ruling:
No. Basic Polyprinters cannot be rehabilitated.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness and good faith of the distressed corporation in financing
Page 80 of 128
the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the
period of rehabilitation.
Basic Polyprinters presented financial commitments, as follows:
5. Additional P10 million working capital to be sourced from the insurance
claim;
6. Conversion of the directors and shareholders deposit for future
subscription to common stock;
7. Conversion of substituted liabilities, if any, to additional paid-in capital to
increase the companys equity; and
8. All liabilities (cash advances made by the stockholders) of the company
from the officers and stockholders shall be treated as trade payables.
However, these financial commitments were insufficient for the purpose.
The commitment to add P10,000,000.00 working capital appeared to be
doubtful considering that the insurance claim from which said working capital would
be sourced had already been written-off by Basic Polyprinterss affiliate, Wonder
Book Corporation. A claim that has been written-off is considered a bad debt or a
worthless asset, and cannot be deemed a material financial commitment for
purposes of rehabilitation. At any rate, the proposed additional P10,000,000.00
working capital was insufficient to cover at least half of the shareholders deficit that
amounted to P23,316,044.00 as of June 30, 2006.
The Supreme Court also declared in Wonder Book Corporation v. Philippine
Bank of Communications (Wonder Book) that the conversion of all deposits for
future subscriptions to common stock and the treatment of all payables to officers
and stockholders as trade payables was hardly constituting material financial
commitments. Such conversion of cash advances to trade payables was, in fact, a
mere re-classification of the liability entry and had no effect on the shareholders
deficit. On the other hand, the Supreme Court cannot determine the effect of the
conversion of the directors and shareholders deposits for future subscription to
common stock and substituted liabilities on the shareholders deficit because their
amounts were not reflected in the financial statements contained in the rollo.
Basic Polyprinterss rehabilitation plan likewise failed to offer any proposal on
how it intended to address the low demands for their products and the effect of
direct competition from stores like SM, Gaisano, Robinsons, and other malls. Even
the P245 million insurance claim that was supposed to cover the destroyed
inventories worth P264 million appears to have been written-off with no probability
of being realized later on.
The Supreme Court observes, too, that Basic Polyprinterss proposal to enter
into the dacion en pago to create a source of fresh capital was not feasible
because the object thereof would not be its own property but one belonging to its
affiliate, TOL Realty and Development Corporation, a corporation also undergoing
rehabilitation. Moreover, the negotiations (for the return of books and magazines
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from Basic Polyprinterss trade creditors) did not partake of a voluntary undertaking
because no actual financial commitments had been made thereon.
Worthy of note here is that Wonder Book Corporation was a sister company of
Basic Polyprinters, being one of the corporations that had filed the joint petition for
suspension of payments and rehabilitation in SEC. Both of them submitted identical
commitments in their respective rehabilitation plans. As a result, as the Court
observed in Wonder Book, the commitments by Basic Polyprinters could not be
considered as firm assurances that could convince creditors, future investors and
the general public of its financial and operational viability.
Due to the rehabilitation plan being an indispensable requirement in
corporate rehabilitation proceedings, Basic Polyprinters was expected to exert a
conscious effort in formulating the same, for such plan would spell the future not
only for itself but also for its creditors and the public in general. The contents and
execution of the rehabilitation plan could not be taken lightly.
The Supreme Court is not oblivious to the plight of corporate debtors like
Basic Polyprinters that have inevitably fallen prey to economic recession and
unfortunate incidents in the course of their operations. However, the Supreme
Court must endeavor to balance the interests of all the parties that had a stake in
the success of rehabilitating the debtors. In doing so here, the Supreme Court
cannot now find the rehabilitation plan for Basic Polyprinters to be genuine and in
good faith, for it was, in fact, unilateral and detrimental to its creditors and the
public.
INTELLECTUAL PROPERTY LAW
GMA NETWORK, INC. vs. CENTRAL CATV, INC.
G.R. No. 176694, July 18, 2014, J. Brion
The mustcarry rule mandates that the local television (TV) broadcast signals
of an authorized TV broadcast station, such as the GMA Network, Inc., should be
carried in full by the cable antenna television (CATV) operator, without alteration or
deletion. In this case, the Central CATV, Inc. was found not to have violated the
must-carry rule when it solicited and showed advertisements in its cable television
(CATV) system. Such solicitation and showing of advertisements did not constitute
an infringement of the television and broadcast markets under Section 2 of E.O.
No. 205.
Facts:
Sometime in February 2000, GMA Network, Inc. (GMA), together with the
Kapisanan ng mga Brodkaster ng Pilipinas, Audiovisual Communicators,
Incorporated, Filipinas Broadcasting Network and Rajah Broadcasting Network, Inc.
(complainants), filed with the NTC a complaint against Central CATV, Inc. (Central
CATV) to stop it from soliciting and showing advertisements in its cable television
(CATV) system, pursuant to Section 2 of Executive Order (EO) No. 205. Under this
provision, a grantees authority to operate a CATV system shall not infringe on the
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television and broadcast markets. GMA alleged that the phrase television and
broadcast markets includes the commercial or advertising market.
In its answer, Central CATV admitted the airing of commercial advertisement
on its CATV network but alleged that Section 3 of EO No. 436 expressly allowed
CATV providers to carry advertisements and other similar paid segments provided
there is consent from their program providers.
After GMA presented and offered its evidence, Central CATV filed a motion to
dismiss by demurrer to evidence claiming that the evidence presented by the
complainants failed to show how Central CATVs acts of soliciting and/or showing
advertisements infringed upon the television and broadcast market.
The NTC granted Central CATVs demurrer to evidence and dismissed the
complaint. It ruled that since EO No. 205 does not define infringement, EO No.
436 merely clarified or filled in the details of the term to mean that the CATV
operators may show advertisements, provided that they secure the consent of their
program providers. In the present case, the documents attached to Central CATVs
demurrer to evidence showed that its program providers have given such consent.
The NTC added that since the insertion of advertisements under EO No. 436
would result in the alteration or deletion of the broadcast signals of the consenting
television broadcast station, its ruling necessarily results in the amendment of these
provisions. The second paragraph 9 of Section 3 of EO No. 436 is deemed to amend
the previous provisional authority issued to Central CATV, as well as Sections 6.2.1
and 6.4 of the NTCs Memorandum Circular (MC) 40888. Sections 6.2.1 and 6.4
require the CATV operators within the Grade A or B contours of a television
broadcast station to carry the latters television broadcast signals in full, without
alteration or deletion. This is known as the must-carryrule.
GMA went to the CA, which, in turn, upheld the NTC ruling. Hence, GMA filed a
petition for review on certiorari before the Supreme Court.
GMA alleges that the NTC gravely erred in failing to differentiate between EO
No. 205, which is a law, and EO No. 436 which is merely an executive issuance. An
executive issuance cannot make a qualification on the clear prohibition in the law,
EO No. 205.
On the other hand, Central CATV contends that EO No. 205 does not
expressly prohibit CATV operators from soliciting and showing advertisements. The
non-infringement limitation under Section 2 thereof, although couched in general
terms, should not be interpreted in such a way as to deprive CATV operators of
legitimate business opportunities. Also, EO No. 436, being an executive issuance
and a valid administrative legislation, has the force and effect of a law and cannot
be subject to collateral attack.
Issue:
Whether Central CATV, as a CATV operator, could show commercial
advertisements in its CATV networks.
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Ruling:
Yes. Central CATV could show commercial advertisements in its CATV
networks.
First, EO No. 205 is a law while EO No. 436 is an executive issuance. The NTC
and the CA proceeded from the wrong premise that both EO No. 205 and EO No.
436 are statutes.
EO No. 205 was issued by President Corazon Aquino. At the time of the
issuance of EO No. 205, President Aquino was still exercising legislative powers. EO
No. 436, on the other hand, is an executive order which was issued by President
Ramos in the exercise purely of his executive power. In short, it is not a law. In
considering EO No. 436 as a law, the NTC and the CA hastily concluded that it has
validly qualified Section 2 of EO No. 205 and has amended the provisions of MC 40888. Following this wrong premise, the NTC and the CA ruled that Central CATV has a
right to show advertisements under Section 3 of EO No. 436. While Central CATV
indeed has the right to solicit and show advertisements, the NTC and the CA
incorrectly interpreted and appreciated the relevant provisions of the law and rules.
The Court seeks to correct this error by ruling that MC 40888 alone sufficiently
resolves the issue on whether Central CATV could show advertisements in its CATV
networks. In other words, EO No. 436 is not material in resolving the substantive
issue before us.
Second, the CATV operators are not prohibited from showing advertisements
under EO No. 205 and its implementing rules and regulations, MC 40888.
MC 40888 has sufficiently filled in the details of Section 2 of EO No. 205,
specifically the contentious proviso that the authority to operate [CATV] shall not
infringe on the television and broadcast markets. It is clear from Section 6.1 of MC
040888 that the phrase television market connotes audience or viewers in
geographic areas and not the commercial or advertising market as what GMA
claims.
The kind of infringement prohibited by Section 2 of EO No. 205 was
particularly clarified under Sections 6.2, 6.2.1, 6.4(a)(1) and 6.4(b) of MC 040888,
which embody the mustcarry rule. This rule mandates that the local TV broadcast
signals of an authorized TV broadcast station, such as GMA, should be carried in full
by the CATV operator, without alteration or deletion.
MC 40888 mirrored the legislative intent of EO No. 205 and acknowledged the
importance of the CATV operations in the promotion of the general welfare. The
circular provides in its whereas clause that the CATV has the ability to offer
additional programming and to carry much improved broadcast signals in the
remote areas, thereby enriching the lives of the rest of the population through the
dissemination of social, economic and educational information, and cultural
programs. Unavoidably, however, the improved broadcast signals that CATV offers
may infringe or encroach upon the audience or viewer market of the freesignal TV.
This is so because the latters signal may not reach the remote areas or reach them
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with poor signal quality. To foreclose this possibility and protect the freeTV market
(audience market), the mustcarry rule was adopted to level the playing field. With
the mustcarry rule in place, the CATV networks are required to carry and show in full
the free-local TVs programs, including advertisements, without alteration or
deletion. This, in turn, benefits the public who would have a wide range of choices of
programs or broadcast to watch. This also benefits the freeTV signal as their
broadcasts are carried under the CATVs much-improved broadcast signals thus
expanding their viewers share.
The Court finds that the Sections 6.2, 6.2.1, 6.4(a)(1) and 6.4(b) of MC 4 0888,
which embody the mustcarry rule, are the governing rules in the present case.
Under these rules, the phrase television and broadcast markets means viewers or
audience market and not commercial advertisement market as claimed by GMA.
Therefore, Central CATVs act of showing advertisements does not constitute an
infringement of the television and broadcast markets under Section 2 of EO No.
205.
SHANG PROPERTIES REALTY CORPORATION (formerly THE SHANG GRAND
TOWER CORPORATION) and SHANG PROPERTIES, INC. (formerly EDSA
PROPERTIES HOLDINGS, INC.), vs. ST. FRANCIS DEVELOPMENT
CORPORATION
G.R. No. 190706, July 21, 2014, J. Perlas-Bernabe
Section 168 of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of the Philippines (IP Code), provides for the rules and regulations
on unfair competition. Section 168.2 proceeds to the core of the provision,
describing forthwith who may be found guilty of and subject to an action of unfair
competition that is, any person who shall employ deception or any other means
contrary to good faith by which he shall pass off the goods manufactured by him or
in which he deals, or his business, or services for those of the one having
established such goodwill, or who shall commit any acts calculated to produce said
result x x x. In this case, the Court finds the element of fraud to be wanting hence,
there can be no unfair competition.
Facts:
St. Francis Development Corporation (SFDC) a domestic corporation
engaged in the real estate business and the developer of the St. Francis Square
Commercial Center, built sometime in 1992, located at Ortigas Center,
Mandaluyong City, Metro Manila (Ortigas Center) filed an intellectual property
violation case for unfair competition, false or fraudulent declaration, and damages
arising from Shang Properties use and filing of applications for the registration of
the marks THE ST. FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA PLACE
against Shang Properties before the IPO Bureau of Legal Affairs (BLA).
In its complaints, SFDC alleged that it has used the mark ST. FRANCIS to
identify its numerous property development projects located at Ortigas Center.
SFDC added that as a result of its continuous use of the mark ST. FRANCIS in its
real estate business, it has gained substantial goodwill with the public that
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consumers and traders closely identify the said mark with its property development
projects.
Shang Properties contended that SFDC is barred from claiming ownership and
exclusive use of the mark ST. FRANCIS because the same is geographically
descriptive of the goods or services for which it is intended to be used. This is
because SFDCs as well as Shang Properties real estate development projects are
located along the streets bearing the name St. Francis, particularly, St. Francis
Avenue and St. Francis Street (now known as Bank Drive), both within the vicinity of
the Ortigas Center.
The BLA rendered a decision and found that Shang Properties committed acts
of unfair competition against SFDC by its use of the mark THE ST. FRANCIS
TOWERS but not with its use of the mark THE ST. FRANCIS SHANGRI-LA PLACE.
The BLA considered SFDC to have gained goodwill and reputation for its mark,
which therefore entitles it to protection against the use by other persons, at least, to
those doing business within the Ortigas Center.
Both parties appealed the BLA decision. The IPO Director-General reversed
the BLAs finding that Shang Properties committed unfair competition through their
use of the mark THE ST. FRANCIS TOWERS, thus dismissing such charge. He found
that SFDC could not be entitled to the exclusive use of the mark ST. FRANCIS,
even at least to the locality where it conducts its business, because it is a
geographically descriptive mark, considering that it was Shang Properties as well as
SFDCs intention to use the mark ST. FRANCIS in order to identify, or at least
associate, their real estate development projects/businesses with the place or
location where they are situated/conducted, particularly, St. Francis Avenue and St.
Francis Street (now known as Bank Drive), Ortigas Center.
SFDC elevated the case to the CA. The appellate court found Shang
Properties guilty of unfair competition not only with respect to their use of the mark
THE ST. FRANCIS TOWERS but also of the mark THE ST. FRANCIS SHANGRI-LA
PLACE. It ruled that SFDC which has exclusively and continuously used the mark
ST. FRANCIS for more than a decade, and, hence, gained substantial goodwill and
reputation thereby is very much entitled to be protected against the
indiscriminate
usage by other companies of the trademark/name it has so painstakingly tried to
establish and maintain.
Issue:
Whether or not Shang Properties companies are guilty of unfair competition
in using the marks THE ST. FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA
PLACE.
Ruling:
No. Shang Properties are not guilty of unfair competition in using the marks
THE ST. FRANCIS TOWERS and THE ST. FRANCIS SHANGRI-LA PLACE.
Page 86 of 128
Section 168 of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of the Philippines (IP Code), provides for the rules and regulations on
unfair competition. Section 168.2 proceeds to the core of the provision, describing
forthwith who may be found guilty of and subject to an action of unfair competition
that is, any person who shall employ deception or any other means contrary to
good faith by which he shall pass off the goods manufactured by him or in which he
deals, or his business, or services for those of the one having established such
goodwill, or who shall commit any acts calculated to produce said result x x x.
The true test of unfair competition has thus been whether the acts of the
defendant have the intent of deceiving or are calculated to deceive the ordinary
buyer making his purchases under the ordinary conditions of the particular trade to
which the controversy relates. It is therefore essential to prove the existence of
fraud, or the intent to deceive, actual or probable, determined through a judicious
scrutiny of the factual circumstances attendant to a particular case.
Here, the Court finds the element of fraud to be wanting hence, there can be
no unfair competition. What the CA appears to have disregarded or been mistaken
in its disquisition, however, is the geographically-descriptive nature of the mark ST.
FRANCIS which thus bars its exclusive appropriability, unless a secondary meaning
is acquired.
Under Section 123.2 of the IP Code, specific requirements have to be met in
order to conclude that a geographically-descriptive mark has acquired secondary
meaning, to wit: (a) the secondary meaning must have arisen as a result of
substantial commercial use of a mark in the Philippines (b) such use must result in
the distinctiveness of the mark insofar as the goods or the products are concerned
and (c) proof of substantially exclusive and continuous commercial use in the
Philippines for five (5) years before the date on which the claim of distinctiveness is
made. Unless secondary meaning has been established, a geographicallydescriptive mark, due to its general public domain classification, is perceptibly
disqualified from trademark registration.
The records are bereft of any showing that Shang Properties gave their
goods/services the general appearance that it was SFDC which was offering the
same to the public. Neither did Shang Properties employ any means to induce the
public towards a false belief that it was offering SFDCs goods/services. Nor did
Shang Properties make any false statement or commit acts tending to discredit the
goods/services offered by SFDC. Accordingly, the element of fraud which is the core
of unfair competition had not been established.
Besides, SFDC was not able to prove its compliance with the requirements
stated in Section 123.2 of the IP Code to be able to conclude that it acquired a
secondary meaning and, thereby, an exclusive right to the ST. FRANCIS
mark, which is, as the IPO Director-General correctly pointed out, geographicallydescriptive of the location in which its realty developments have been built. While it
is true that SFDC had been using the mark ST. FRANCIS since 1992, its use thereof
has been merely confined to its realty projects within the Ortigas Center. As its use
of the mark is clearly limited to a certain locality, it cannot be said that there was
substantial commercial use of the same recognized all throughout the country.
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Facts:
At the core of the controversy is the product Greenstone Medicated Oil Item No.
16 (Greenstone) which is manufactured by Greenstone Pharmaceutical, a traditional
Chinese medicine manufacturing firm based in Hong Kong and owned by Keng Huan
Jerry Yeung (Yeung), and is exclusively imported and distributed in the Philippines by
Taka Trading owned by Yeungs wife, Emma Yeung (Emma).
On July 27, 2000, Sps. Yeung filed a civil complaint for trademark infringement
and unfair competition before the RTC against Ling Na Lau, her sister Pinky Lau (the
Laus), and Cof or allegedly conspiring in the sale of counterfeit Greenstone products to
the public. In the complaint, Sps. Yeung averred that on April 24, 2000, Emmas brother,
Jose Ruivivar III (Ruivivar), bought a bottle of Greenstone from Royal Chinese Drug Store
(Royal) in Binondo, Manila, owned by Ling Na Lau. However, when he used the product,
Ruivivar doubted its authenticity considering that it had a different smell, and the heat it
produced was not as strong as the original Greenstone he frequently used. Having been
informed by Ruivivar of the same, Yeung, together with his son, John Philip, went to
Royal on May 4, 2000 to investigate the matter, and, there, found seven (7) bottles of
counterfeit Greenstone on display for sale. He was then told by Pinky Lau (Pinky) the
stores proprietor thatthe items came from Co of Kiao An Chinese Drug Store.
According to Pinky, Co offered the products on April 28, 2000 as "Tienchi Fong Sap Oil
Greenstone" (Tienchi) which she eventually availed from him. Upon Yeungs prodding,
Pinky wrote a note stating these events.
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Issue:
Whether or not the CA correctly upheld Cos liability for unfair competition.
Ruling:
The petition is without merit.
Unfair competition is defined as the passing off (or palming off) or attempting to
pass off upon the public of the goods or business of one person as the goods or
business of another with the end and probable effect of deceiving the public. This takes
place where the defendant gives his goods the general appearance of the goods of his
competitor with the intention of deceiving the public that the goods are those of his
competitor.
Here, it has been established that Co conspired with the Laus in the
sale/distribution of counterfeit Greenstone products to the public, which were even
packaged in bottles identical to that of the original, thereby giving rise to the
presumption of fraudulent intent. In light of the foregoing definition, it is thus clear that
Co, together with the Laus, committed unfair competition, and should, consequently, be
held liable therefor.
Although liable for unfair competition, the Court deems it apt to clarify that Co
was properly exculpated from the charge of trademark infringement considering that
the registration of the trademark "Greenstone" essential as it is in a trademark
infringement case was not proven to have existed during the time the acts complained
of were committed, i.e., in May 2000. In this relation, the distinctions between suits for
trademark infringement and unfair competition prove useful: (a) the former is the
unauthorized use of a trademark, whereas the latter is the passing off of one's goods as
those of another; (b) fraudulent intent is unnecessary in the former, while it is essential
in the latter; and (c) in the former, prior registration of the trademark is a pre-requisite
to the action, while it is not necessary in the latter.
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are differing features between the two, registration of the said mark could be
granted. It is hornbook doctrine that emphasis should be on the similarity of the
products involved and not on the arbitrary classification or general description of
their properties or characteristics. The mere fact that one person has adopted and
used a trademark on his goods would not, without more, prevent the adoption and
use of the same trademark by others on unrelated articles of a different kind.
Facts:
Taiwan Kolin filed with the IPO, then BPTTT, a trademark application, for the
use of
KOLIN on a combination of goods, including colored televisions,
refrigerators, window-type and split-type air conditioners, electric fans and water
dispensers with Taiwan Kolin electing Class 9 as the subject of its application. Kolin
Electronics opposed Taiwan Kolins application arguing that the mark Taiwan Kolin
seeks to register is identical, if not confusingly similar, with its registered KOLIN
mark covering products under Class 9 of the NCL.
BLA-IPO denied Taiwan Kolins application, citing Sec. 123(d) of the IP Code
that a mark cannot be registered if it is identical with a registered mark belonging to
a different proprietor in respect of the same or closely-related goods. Accordingly,
Kolin Electronics, as the registered owner of the mark KOLIN for goods falling
under Class 9 of the NCL, should then be protected against anyone who impinges on
its right, including Taiwan Kolin who seeks to register an identical mark to be used
on goods also belonging to Class 9 of the NCL.
Taiwan Kolin appealed the above Decision to the Office of the Director
General of the IPO which gave due course to the appeal ratiocinating that product
classification alone cannot serve as the decisive factor in the resolution of whether
or not the goods are related and that emphasis should be on the similarity of the
products involved and not on the arbitrary classification or general description of
their properties or characteristics.
Kolin Electronics elevated the case to the CA which found for Kolin Electronics
on the strength of the following premises: (a) the mark sought to be registered by
Taiwan Kolin is confusingly similar to the one already registered in favor of Kolin
Electronics; (b) there are no other designs, special shape or easily identifiable
earmarks that would differentiate the products of both competing companies; and
(c) the intertwined use of television sets with amplifier, booster and voltage
regulator bolstered the fact that televisions can be considered as within the normal
expansion of Kolin Electronics, and is thereby deemed covered by its trademark as
explicitly protected under Sec. 138 of the IP Code.
Issue:
Whether or not Taiwan Kolin is entitled to its trademark registration of
KOLIN over its specific goods of television sets and DVD players.
Ruling:
Yes, Taiwan Kolin is entitled.
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Page 91 of 128
products under Class 9 in order to establish relatedness between the goods, for this
only accounts for one of many considerations enumerated in Mighty Corporation.
Clearly then, it was erroneous for Kolin Electronics to assume over the CA to
conclude that all electronic products are related and that the coverage of one
electronic product necessarily precludes the registration of a similar mark over
another. In this digital age wherein electronic products have not only diversified by
leaps and bounds, and are geared towards interoperability, it is difficult to assert
readily, as Kolin Electronics simplistically did, that all devices that require plugging
into sockets are necessarily related goods.
As a matter of fact, while both competing marks refer to the word KOLIN
written in upper case letters and in bold font, the Court at once notes the distinct
visual and aural differences between them: Kolin Electronics mark is italicized and
colored black while that of Taiwan Kolin is white in pantone red color background.
The differing features between the two, though they may appear minimal, are
sufficient to distinguish one brand from the other.
Finally, in line with the foregoing discussions, more credit should be given to
the ordinary purchaser. Cast in this particular controversy, the ordinary purchaser
is not the completely unwary consumer but is the ordinarily intelligent buyer
considering the type of product involved
All told, We are convinced that Taiwan Kolins trademark registration not only
covers unrelated good, but is also incapable of deceiving the ordinary intelligent
buyer. The ordinary purchaser must be thought of as having, and credited with, at
least a modicum of intelligence to be able to see the differences between the two
trademarks in question.
TRANSPORTATION LAW
VIGILANCE OVER GOODS
ASIAN TERMINALS, INC. vs. FIRST LEPANTO-TAISHO INSURANCE
CORPORATION
G.R. No. 185964, June 16, 2014, J. Reyes
The shipment received by the ATI from the vessel of COCSCO was found to
have sustained loss and damages. An arrastre operators duty is to take good care
of the goods and to turn them over to the party entitled to their possession. It must
prove that the losses were not due to its negligence or to that of its employees.
The Court held that ATI failed to discharge its burden of proof. ATI blamed COSCO
but when the damages were discovered, the goods were already in ATIs custody for
two weeks. Witnesses also testified that the shipment was left in an open area
exposed to the elements, thieves and vandals.
Facts:
About 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo
bags were loaded on M/V Da Feng owned by China Ocean Shipping Co. (COSCO) in
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favor of Grand Asian Sales, Inc. (GASI). It was insured by GASI with FIRST LEPANTO
for P7,959,550.50 under Marine Open Policy No. 0123.
The shipment arrived in Manila and was discharged into the custody of ATI,
which was engaged in arrastre business. It remained at ATIs storage area until
withdrawen by broker, Proven Customs Brokerage Corporation (PROVEN) for
delivery to GASI.
Upon receipt, GASI found that the goods incurred shortages of 8,600 kg. and
spillages of 3,315 kg. for a total of loss valued at P166,722.41. GASI sought
recompense from COSCO through its Philippine agent Smith Bell Shipping Lines, Inc.
(SMITH BELL), ATI, and PROVEN, but was denied. Thus, FIRST LEPANTO paid
P165,772.40 as insurance indemnity.
Then GASI executed a Release of Claim, discharging FIRST LEPANTO from any
and all liabilities pertaining to the damaged shipment and subrogating it to all the
rights of recovery and claims the former may have against any person or
corporation in relation to the damaged shipment.
FIRST LEPANTO demanded reimbursement from COSCO through SMITH BELL,
PROVEN, and ATI. When denied, it filed a Complaint for sum of money before the
MeTC.
ATI denied liability and claimed it exercised due diligence and care in
handling the goods. ATI alleged that upon arrival, it was discovered that one jumbo
bag sustained loss/damage while in custody of COSCO as evidenced by Turn Over
Survey of Bad Order Cargo No. 47890. During withdrawal of PROVEN, it was reexamined and the goods were found to be in the same condition as when it was
turned over to ATI such that one jumbo bag was damaged. ATI also averred that
even if it was liable, its contract for cargo handling service limits its liability to not
more than P5,000 per package.
PROVEN also denied liability and claimed that the damages were sustained
before they were withdrawn from ATIs custody under which the shipment was left in
an open area exposed to the elements, thieves and vandals. Despite receipt of
summons, COSCO and SMITH BELL failed to file an answer to the complaint.
MeTC dismissed the claim, absolving ATI and PROVEN of liability and finding
COSCO to be liable but ruling that it had no jurisdiction over it since it was a foreign
corporation and it was not established that SMITH BELL is its Philippine Agent. On
appeal, the RTC reversed this decision, by which it held ATI liable. ATI challenged the
RTCs decision before the Court of Appeals in which it argued that there was no valid
subrogation because FIRST LEPANTO failed to present a valid and existing Marine
Open Policy or insurance contract. The CA dismissed the appeal.
Issue:
1. Is ATI liable for the damages of the shipment?
Page 93 of 128
Page 94 of 128
Page 95 of 128
Facts:
An Isuzu Elf truck (Isuzu truck) owned by Leonora J. Gomez (Leonora) and
driven by Antenojenes Perez (Perez), was hit by a Mayamy Transportation bus
(Mayamy bus) with registered under the name of Elvira Lim (Lim) and driven by
Mariano C. Mendoza (Mendoza). Mendoza was charged with reckless imprudence
resulting in damage to property and multiple physical injuries, however, he eluded
arrest, prompting the spouses Gomez to file a separate complaint for damages
against Mendoza and Lim, seeking actual damages, compensation for lost income,
moral damages, exemplary damages, attorneys fees and costs of the suit.
At the trial, it was found out that the Isuzu truck was on its right lane when
the Mayamy bus intruded the lane which caused the collision. As a result, the
helpers on board the truck sustained injuries necessitating medical treatment
amounting to P11,267.35, which amount was shouldered by spouses Gomez. The
spouses also contended that the collision deprived them the daily income of
P1,000.00 as they were engaged in buying plastic scraps and delivering them to
recycling plants, truck was vital in the furtherance of the business. Lastly, the
spouses claimed that the Isuzu truck sustained extensive damages on its cowl,
chassis, lights and steering wheel, amounting to P142,757.40.
Lim raised the issue of ownership of the bus in question that although the
registered owner was Lim, the actual owner of the bus was one SPO1 Cirilo
Enriquez, who had the bus attached with Mayamy Transportation Company under
the so-called "kabit system."
The RTC found Mendoza liable for direct personal negligence under Article
2176 of the Civil Code, and it also found Lim vicariously liable under Article 2180 of
the same Code. The RTC relied on the Certificate of Registration in concluding that
she is the registered owner of the bus in question. Although actually owned by
Enriquez, following the established principle in transportation law, Lim, as the
registered owner, is the one who can be held liable. Mendoza and Lim were ordered
to pay spouses Gomez 1) the costs of repair of the damaged vehicle in the amount
of P142,757.40; 2) the amount ofP1,000.00 per day from March 7, 1997 up to
November 1997 representing the unrealized income of the spouses Gomez when
the incident transpired up to the time the damaged Isuzu truck was repaired; 3)
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Issues:
1. Whether or not Lim is liable as the employer despite the fact that the original
owner of the bus is Enriquez
2. Whether or not the award of moral and exemplary damages as well as
attorneys fees and costs of suit is proper
Ruling:
As early as Erezo v. Jepte, the Court, speaking through Justice Alejo Labrador
summarized the justification for holding the registered owner directly liable, to wit:
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Moral Damages. Moral damages are awarded to enable the injured party to
obtain means, diversions or amusements that will serve to alleviate the moral
suffering he has undergone, by reason of the defendant's culpable action. In fine,
an award of moral damages calls for the presentation of 1) evidence of besmirched
reputation or physical, mental or psychological suffering sustained by the claimant;
2)a culpable act or omission factually established; 3) proof that the wrongful act or
omission of the defendant is the proximate cause of the damages sustained by the
claimant; and 4) the proof that the act is predicated on any of the instances
expressed or envisioned by Article 2219 and Article 2220 of the Civil Code.
A review of the complaint and the transcript of stenographic notes yields the
pronouncement that respondents neither alleged nor offered any evidence of
besmirched reputation or physical, mental or psychological suffering incurred by
them.
Spouses Gomez cannot rely on Article 2219 (2) of the Civil Code which allows
moral damages in quasi-delicts causing physical injuries because in physical
injuries, moral damages are recoverable only by the injured party, and in the case
at bar, herein respondents were not the ones who were actually injured. In B.F.
Metal (Corp.) v. Sps. Lomotan, et al., the Court, in a claim for damages based on
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Neither can respondents rely on Article 21 of the Civil Code as the RTC
erroneously did. Article 21 deals with acts contra bonus mores, and has the
following elements: (1) There is an act which is legal; (2) but which is contrary to
morals, good custom, public order, or public policy; (3) and it is done with intent to
injure. In the present case, it can hardly be said that Mendozas negligent driving
and violation of traffic laws are legal acts. Moreover, it was not proven that Mendoza
intended to injure Perez, et al. Thus, Article 21 finds no application to the case at
bar. All in all, we find that the RTC and the CA erred in granting moral damages to
respondents.
Exemplary Damages. Article 2229 of the Civil Code provides that exemplary
or corrective damages are imposed, by way of example or correction for the public
good, in addition to moral, temperate, liquidated or compensatory damages. Article
2231 of the same Code further states that in quasi-delicts, exemplary damages may
be granted if the defendant acted with gross negligence.
In motor vehicle accident cases, exemplary damages may be awarded where the
defendants misconduct is so flagrant as to transcend simple negligence and be
tantamount to positive or affirmative misconduct rather than passive or negative
misconduct. In characterizing the requisite positive misconduct which will support a
claim for punitive damages, the courts have used such descriptive terms as willful,
wanton, grossly negligent, reckless, or malicious, either alone or in combination.
Page 99 of 128
Attorneys Fees. Article 2208 of the Civil Code enumerates the instances
when attorneys fees may be recovered:
In Spouses Agustin v. CA, we held that, the award of attorneys fees being an
exception rather than the general rule, it is necessary for the court to make findings
of facts and law that would bring the case within the exception and justify the grant
of such award. Thus, the reason for the award of attorneys fees must be stated in
the text of the courts decision; otherwise, if it is stated only in the dispositive
portion of the decision, the same must be disallowed on appeal.
In the case at bar, the RTC Decision had nil discussion on the propriety of
attorneys fees, and it merely awarded such in the dispositive portion. Following
established jurisprudence, however, the CA should have disallowed on appeal said
award of attorneys fees as the RTC failed to substantiate said award.
Costs of suit. The Rules of Court provide that, generally, costs shall be
allowed to the prevailing party as a matter of course, thus:
Here, HEUNG-A failed to rebut this prima facie presumption when it failed to
give adequate explanation as to how the shipment inside the container van was
handled, stored and preserved to forestall or prevent any damage or loss while the
same was in its possession, custody and control.
2. Yes. Under Article 1753 of the Civil Code, the law of the country to which
the goods are to be transported shall govern the liability of the common carrier for
their loss, destruction or deterioration. Since the subject shipment was being
transported from South Korea to the Philippines, the Civil Code provisions shall
apply. In all matters not regulated by the Civil Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws
such as the COGSA. While the Civil Code contains provisions making the common
carrier liable for loss/damage to the goods transported, it failed to outline the
manner of determining the amount of such liability. Article 372 of the Code of
Commerce fills in this gap, thus:
Article 372. The value of the goods which
cases if loss or misplacement shall be determined
declared in the bill of lading, the shipper not being
that among the goods declared therein there were
and money.
In case, however, of the shippers failure to declare the value of the goods in
the bill of lading, Section 4, paragraph 5 of the COGSA provides:
Neither the carrier nor the ship shall in any event be or become liable
for any loss or damage to or in connection with the transportation of goods in
an amount exceeding $500 per package lawful money of the United States,
or in case of goods not shipped in packages, per customary freight unit, or
the equivalent of that sum in other currency, unless the nature and value of
such goods have been declared by the shipper before shipment and inserted
in the bill of lading. This declaration, if embodied in the bill of lading shall be
prima facie evidence, but shall be conclusive on the carrier.
Hence, when there is a loss/damage to goods covered by contracts of
carriage from a foreign port to a Philippine port and in the absence a shippers
declaration of the value of the goods in the bill of lading, as in the present case, the
foregoing provisions of the COGSA shall apply. The CA, therefore, did not err in
ruling that HEUNG-A, WALLEM and PROTOPs liability is limited to $500 per package
or pallet.
DILIGENCE REQUIRED OF COMMON CARRIERS
NEDLLOYD LIJNEN B.V. ROTTERDAM AND THE EAST ASIATIC CO., LTD. vs.
GLOW LAKS ENTERPRISES, LTD.
G.R. No. 156330, November 19, 2014, J. Perez
There is no dispute that the custody of the goods was never turned over to
the consignee or his agents but was lost into the hands of unauthorized persons
who secured possession thereof on the strength of falsified documents. When the
goods shipped are either lost or arrived in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable. To overcome the presumption of
negligence, the common carrier must establish by adequate proof that it exercised
extraordinary diligence over the goods. In the present case, Nedlloyd failed to prove
that they did exercise the degree of diligence required by law over the goods they
transported, it failed to adduce sufficient evidence they exercised extraordinary
care to prevent unauthorized withdrawal of the shipments.
Facts:
Nedlloyd Lijnen B.V. Rotterdam is a foreign corporation engaged in the
business of carrying goods by sea, whose vessels regularly call at the port of Manila.
It is doing business in the Philippines thru its local ship agent, co-petitioner East
Asiatic Co., Ltd. Glow Laks Enterprises, Ltd., is likewise a foreign corporation
organized and existing under the laws of Hong Kong. It is not licensed to do, and it
is not doing business in, the Philippines. On or about 14 September 1987, Glow
loaded on board M/S Scandutch at the Port of Manila a total 343 cartoons of
garments, complete and in good order for pre-carriage to the Port of Hong Kong.
The goods covered by Bills of Lading Nos. MHONX-2 and MHONX-34 arrived in good
condition in Hong Kong and were transferred to M/S Amethyst for final carriage to
Colon, Free Zone, Panama. Both vessels, M/S Scandutch and M/S Amethyst, are
owned by Nedlloyd represented in the Phlippines by its agent, East Asiatic. The
goods which were valued at US$53,640.00 was agreed to be released to the
consignee, Pierre Kasem, International, S.A., upon presentation of the original copies
of the covering bills of lading. Upon arrival of the vessel at the Port of Colon on 23
October 1987, Nedlloyd purportedly notified the consignee of the arrival of the
shipments, and its custody was turned over to the National Ports Authority in
accordance with the laws, customs regulations and practice of trade in Panama. By
an unfortunate turn of events, however, unauthorized persons managed to forge the
covering bills of lading and on the basis of the falsified documents, the ports
authority released the goods.
On 16 July 1988, Glow filed a formal claim with Nedlloyd for the recovery of
the amount of US$53,640.00 representing the invoice value of the shipment but to
no avail. Claiming that Nedlloyd are liable for the misdelivery of the goods, Glow
initiated Civil Case before the RTC of Manila, seeking for the recovery of the amount
of US$53,640.00, including the legal interest from the date of the first demand.
After the Pre-Trial Conference, trial on the merits ensued. The RTC rendered a
Decision ordering the dismissal of the complaint but granted Nedlloyd
counterclaims. The Court of Appeals reversed the findings of the RTC and held that
foreign laws were not proven in the manner provided by Section 24, Rule 132 of the
Revised Rules of Court, and therefore, it cannot be given full faith and credit.
Issue:
Whether or not Nedllyod are liable for the misdelivery of goods under
Philippine laws.
Ruling:
that the contract of carriage still subsists and Nedlloyd could be held liable for the
breach thereof.
Petitioners could have offered evidence before the trial court to show that they
exercised the highest degree of care and caution even after the goods was turned
over to the custom authorities, by promptly notifying the consignee of its arrival at
the Port of Cristobal in order to afford them ample opportunity to remove the
cargoes from the port of discharge. This court have scoured the records and found
that neither the consignee nor the notify party was informed by Nedlloyd of the
arrival of the goods, a crucial fact indicative of Nedlloyds failure to observe
extraordinary diligence in handling the goods entrusted to their custody for
transport.
LIABILITIES OF COMMON CARRIERS
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR
INTERNATIONAL SHIPPING COMPANY, INCORPORATED vs. MALAYAN
INSURANCE COMPANY, INCORPORATED
G.R. No. 185565, November 26, 2014, J. Reyes
Under the Code of Commerce, if the goods are delivered but arrived at the
destination in damaged condition, the remedies to be pursued by the consignee
depend on the extent of damage on the goods. If the effect of damage on the
goods consisted merely of diminution in value, the carrier is bound to pay only the
difference between its price on that day and its depreciated value as provided
under Article 364. Malayan, as the insurer of PASAR, neither stated nor proved that
the goods are rendered useless or unfit for the purpose intended by PASAR due to
contamination with seawater. Hence, there is no basis for the goods rejection under
Article 365 of the Code of Commerce. Clearly, it is erroneous for Malayan to
reimburse PASAR as though the latter suffered from total loss of goods in the
absence of proof that PASAR sustained such kind of loss.
Facts:
Loadstar International Shipping (Loadstar Shipping) and PASAR entered into a
contract of affreightment of the latters copper concentrates. A shipment of cooper
concentrates were loaded in MV Bobcat, the vessel of Loadstar International
Shipping Co., Inc. (Loadstar International), with Philex as shipper and PASAR as
consignee. The cargo was insured by Malayan Insurance Company, Inc. (Malayan).
While out in the sea, the crew of the vessel found a crack on the vessel which
caused seawater to enter and wet the copper concentrates.
Immediately after the vessel arrived at port, PASAR and Philexs tested the
copper concentrates and found them to be contaminated. PASAR sent a formal
notice of claim to Loadstar Shipping, and surveyors recommended the value of the
claim at P 32,351,102.32. Malayan paid PASAR said amount.
Meanwhile, Malayan wrote Loadstar Shipping informing the latter of a
prospective buyer for the damaged copper concentrates and the opportunity to
nominate/refer other salvage buyers to PASAR. Malayan later wrote Loadstar
Shipping informing the latter of the acceptance of PASARs proposal to take the
of that portion, PASAR bought back the contaminated copper concentrates from
Malayan at the price of US$90,000.00. The fact of repurchase is enough to conclude
that the contamination of the copper concentrates cannot be considered as total
loss on the part of PASAR.
[Under the Code of Commerce], if the goods are delivered but arrived at the
destination in damaged condition, the remedies to be pursued by the consignee
depend on the extent of damage on the goods.
If the goods are rendered useless for sale, consumption or for the intended
purpose, the consignee may reject the goods and demand the payment of such
goods at their market price on that day pursuant to Article 365. In case the
damaged portion of the goods can be segregated from those delivered in good
condition, the consignee may reject those in damaged condition and accept merely
those which are in good condition. But if the consignee is able to prove that it is
impossible to use those goods which were delivered in good condition without the
others, then the entire shipment may be rejected. To reiterate, under Article 365,
the nature of damage must be such that the goods are rendered useless for sale,
consumption or intended purpose for the consignee to be able to validly reject
them.
If the effect of damage on the goods consisted merely of diminution in value,
the carrier is bound to pay only the difference between its price on that day and its
depreciated value as provided under Article 364.
Malayan, as the insurer of PASAR, neither stated nor proved that the goods
are rendered useless or unfit for the purpose intended by PASAR due to
contamination with seawater. Hence, there is no basis for the goods rejection under
Article 365 of the Code of Commerce. Clearly, it is erroneous for Malayan to
reimburse PASAR as though the latter suffered from total loss of goods in the
absence of proof that PASAR sustained such kind of loss. Otherwise, there will be no
difference in the indemnification of goods which were not delivered at all; or
delivered but rendered useless, compared against those which were delivered
albeit, there is diminution in value.
Malayan also failed to establish the legal basis of its decision to sell back the
rejected copper concentrates to PASAR. It cannot be ascertained how and when
Malayan deemed itself as the owner of the rejected copper concentrates to have
these validly disposed of. If the goods were rejected, it only means there was no
acceptance on the part of PASAR from the carrier. Furthermore, PASAR and Malayan
simply agreed on the purchase price of US$90,000.00 without any allegation or
proof that the said price was the depreciated value based on the appraisal of
experts as provided under Article 364 of the Code of Commerce.
BILL OF LADING
EASTERN SHIPPING LINES, INC. vs. BPI/MS INSURANCE CORP., &MITSUI
SUMITOMO INSURANCE CO., LTD.,
G.R. No. 182864, January 12, 2015, J. Perez
Mere proof of delivery of the goods in good order to a common carrier and of
their arrival in bad order at their destination constitutes a prima facie case of fault
or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the transporter shall be
held responsible. In this case, the fault is attributable to ESLI.
Facts:
BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan,
Sumitomo Corporation shipped on board Eastern Shipping Lines vessel M/V
Eastern Venus 22 22 coils of various Steel Sheet weighing in good order and
condition for transportation to and delivery at the port of Manila in favor of
consignee Calamba Steel Center, Inc. The declared value of the shipment was
US$83,857.59. The shipment was insured with the BPI/MS and Mitsui against all
risks under Marine Policy No. 103-GG03448834. The complaint alleged that the
shipment arrived and upon withdrawal of the shipment by the Calamba Steels
representative, it was found out that part of the shipment was damaged and was in
bad order condition such that there was a Request for Bad Order Survey. It was
found out that the damage amounted to US$4,598.85 prompting Calamba Steel to
reject the damaged shipment for being unfit for the intended purpose. On 12 May
2004, Sumitomo Corporation again shipped on board ESLIs vessel M/V Eastern
Venus 25 50 coils in various Steel Sheet weighing 383,532 kilograms in good order
and condition for transportation to and delivery at the port of Manila, Philippines in
favor of the same consignee Calamba Steel. The shipment was insured with the
BPI/MS and Mitsui against all risks under Marine Policy No. 104-GG04457785. ESLIs
vessel with the second shipment arrived at the port of Manila partly damaged and in
bad order. The coils sustained further damage during the discharge from vessel to
shore until its turnover to ATIs custody for safekeeping. Upon withdrawal from ATI
and delivery to Calamba Steel, it was found out that the damage amounted to
US$12,961.63. As it did before, Calamba Steel rejected the damaged shipment for
being unfit for the intended purpose.
Calamba Steel attributed the damages on both shipments to ESLI as the
carrier and ATI as the arrastre operator in charge of the handling and discharge of
the coils and filed a claim against them. When ESLI and ATI refused to pay, Calamba
Steel filed an insurance claim for the total amount of the cargo against BPI/MS and
Mitsui as cargo insurers. As a result, BPI/MS and Mitsui became subrogated in place
of and with all the rights and defenses accorded by law in favor of Calamba Steel.
BPI/MS and Mitsui filed a Complaint before the RTC of Makati City against ESLI
and ATI to recover actual damages amounting to US$17,560.48 with legal interest,
attorneys fees and costs of suit. ATI, in its Answer, denied the allegations and
insisted that the coils in two shipments were already damaged upon receipt from
ESLIs vessels. It likewise insisted that it exercised due diligence in the handling of
the shipments and invoked that in case of adverse decision. On its part, ESLI denied
the allegations of the complainants and averred that the damage to both shipments
was incurred while the same were in the possession and custody of ATI and/or of the
consignee
or
its
representatives.
BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1)
Manuel, the Cargo Surveyor of Philippine Japan Marine Surveyors and Sworn
Measurers Corporation who personally examined and conducted the surveys on the
two shipments; (2) Richatto P. Almeda, the General Manager of Calamba Steel who
oversaw and examined the condition, quantity, and quality of the shipped steel
coils, and who thereafter filed formal notices and claims against ESLI and ATI; and
(3) Virgilio G. Tiangco, Jr., the Marine Claims Supervisor of BPI/MS who processed the
insurance claims of Calamba Steel. Along with the Affidavits were the Bills of Lading
covering the two shipments, Invoices, Notices of Loss of Calamba Steel, Subrogation
Form, Insurance Claims, Survey Reports, Turn Over Survey of Bad Order
Cargoes and Request for Bad Order Survey.
ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte, who
monitored in coordination with ATI the discharge of the two shipments, and Rodrigo
Victoria who personally surveyed the subject cargoes on board the vessel as well as
the manner the ATI employees discharged the coils. Lastly, ATI submitted the
Affidavits of its Bad Order Inspector Ramon Garcia and Claims Officer Ramiro De
Vera.
RTC Makati City rendered a decision finding both the ESLI and ATI liable for
the damages sustained by the two shipments. On appeal, ESLI argued that the trial
court erred when it found BPI/MS has the capacity to sue and when it assumed
jurisdiction over the case. It also questioned the ruling on its liability since the
Survey Reports indicated that the cause of loss and damage was due to the rough
handling of ATIs stevedores during discharge from vessel to shore and during
loading operation onto the trucks. It invoked the limitation of liability of US$500.00
per package as provided in Commonwealth Act No. 65 or the Carriage of Goods by
Sea Act (COGSA). The CA denied the appeal of ESLI while granted that of ATI .
Issue:
Whether or not CA correctly ruled that ESLI is liable.
Ruling:
On the liability of ESLI
ESLI bases of its non-liability on the survey reports prepared by BPI/MS and
Mitsuis witness Manuel which found that the cause of damage was the rough
handling on the shipment by the stevedores of ATI during the discharging
operations. However, Manuel does not absolve ESLI of liability. The witness in fact
includes ESLI in the findings of negligence. As stated in the affidavit of Manuel:
During the aforesaid operations, the employees and forklift operators of
ESLI and ATI were very negligent in the handling of the subject cargoes.
ESLI cites the affidavit of its witness Rodrigo who stated that the cause of the
damage was the rough mishandling by ATIs stevedores. As Rodrigo admits, it was
also his duty to inspect and monitor the cargo on-board upon arrival of the vessel.
ESLI cannot invoke its non-liability solely on the manner the cargo was discharged
and unloaded. The actual condition of the cargoes upon arrival prior to discharge is
equally important and cannot be disregarded. Proof is needed that the cargo arrived
at the port of Manila in good order condition and remained as such prior to its
handling by ATI.
Based on the bills of lading issued, it is undisputed that ESLI received the two
shipments of coils from shipper Sumitomo Corporation in good condition at the
ports of Yokohama and Kashima, Japan. However, upon arrival at the port of Manila,
some coils from the two shipments were partly dented and crumpled as evidenced
turn over survey of bad cargoes signed by ESLIs representatives, a certain Tabanao
and Rodrigo together with ATIs representative Garcia. According to the report, four
coils and one skid were partly dented and crumpled prior to turnover by ESLI to
ATIs possession while a total of eleven coils were partly dented and crumpled prior
to turnover.
Mere proof of delivery of the goods in good order to a common carrier and of
their arrival in bad order at their destination constitutes a prima facie case of fault
or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the transporter shall be
held responsible. From the foregoing, the fault is attributable to ESLI.
Limitation of Liability
ESLI assigns as error the appellate courts finding and reasoning that the
package limitation under the COGSA is inapplicable even if the bills of lading
covering the shipments only made reference to the corresponding invoices. ESLI
argues that the value of the cargoes was not incorporated in the bills of lading and
that there was no evidence that the shipper had presented to the carrier in writing
prior to the loading of the actual value of the cargo, and, that there was a no
payment of corresponding freight
The New Civil Code provides that a stipulation limiting a common carriers
liability to the value of the goods appearing in the bill of lading is binding, unless the
shipper or owner declares a greater value. In addition, a contract fixing the sum that
may be recovered by the owner or shipper for the loss, destruction, or deterioration
of the goods is valid, if it is reasonable and just under the circumstances, and has
been fairly and freely agreed upon. COGSA, on the other hand, provides under
Section 4, Subsection 5 that an amount recoverable in case of loss or damage shall
not exceed US$500.00 per package or per customary freight unless the nature
and value of such goods have been declared by the shipper before
shipment and inserted in the bill of lading. The Code takes precedence as the
primary law over the rights and obligations of common carriers with the Code of
Commerce and COGSA applying suppletorily.
ESLI contends that there must be an insertion of this declaration in the bill of
lading itself to fall outside the statutory limitation of liability.
The bills of lading represent the formal expression of the parties rights,
duties and obligations. It is the best evidence of the intention of the parties which is
to be deciphered from the language used in the contract, not from the
unilateral post facto assertions of one of the parties, or of third parties who are
strangers to the contract.
In order however that one who is not a holder in due course can enforce the
instrument against a party prior to the instruments completion, two requisites must
exist: (1) that the blank must be filled strictly in accordance with the authority
given; and (2) it must be filled up within a reasonable time. If it was proven that the
instrument had not been filled up strictly in accordance with the authority given and
within a reasonable time, the maker can set this up as a personal defense and avoid
liability. However, if the holder is a holder in due course, there is a conclusive
presumption that authority to fill it up had been given and that the same was not in
excess of authority.
While under the law, Gutierrez had a prima facie authority to complete the
check, such prima facie authority does not extend to its use (i.e., subsequent
transfer or negotiation) once the check is completed. In other words, only the
authority to complete the check is presumed. Further, the law used the term "prima
facie" to underscore the fact that the authority which the law accords to a holder is
a presumption juris tantum only; hence, subject to subject to contrary proof. Thus,
evidence that there was no authority or that the authority granted has been
exceeded may be presented by the maker in order to avoid liability under the
instrument.
Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to pay the loan
he supposedly contracted for the construction of Patrimonio's house. This is a clear
violation of Patrimonio 's instruction to use the checks for the expenses of Slam
Dunk. It cannot therefore be validly concluded that the check was completed strictly
in accordance with the authority given by Patrimonio.
Considering that Marasigan is not a holder in due course, Patrimonio can
validly set up the personal defense that the blanks were not filled up in accordance
with the authority he gave. Consequently, Marasigan has no right to enforce
payment against Patrimonio and the latter cannot be obliged to pay the face value
of the check.
MATERIAL ALTERATION
CESAR V. AREZA and LOLITA B. AREZA vs. EXPRESS SAVINGS BANK, INC.
and MICHAEL POTENCIANO
G.R. No. 176697, September 10, 2014, J. PEREZ
When the drawee bank pays a materially altered check, it violates the terms
of the check, as well as its duty to charge its clients account only for bona fide
disbursements he had made. If the drawee did not pay according to the original
tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous
payment it made from the drawers account which it was expected to treat with
utmost fidelity. The drawee, however, still has recourse to recover its loss. The
Page 116 of 128
collecting banks are ultimately liable for the amount of the materially altered check.
It cannot further pass the liability back to Cesar and Lolita absent any showing in
the negligence on the part of Cesar and Lolita which substantially contributed to the
loss from alteration.
Facts:
Cesar V. Areza and Lolita B. Areza maintained two bank deposits with Express
Savings Banks Bian branch (the Bank).
They were engaged in the business of "buy and sell" of brand new and
second-hand motor vehicles. On 2 May 2000, they received an order from a certain
Gerry Mambuay (Mambuay) for the purchase of a second-hand Mitsubishi Pajero and
a brand-new Honda CRV.
The buyer, Mambuay, paid Cesar and Lolita with nine (9) Philippine Veterans
Affairs Office (PVAO) checks payable to different payees and drawn against the
Philippine Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos
(P200,000.00) for a total of One Million Eight Hundred Thousand Pesos
(P1,800,000.00).
About this occasion, Cesar and Lolita claimed that Michael Potenciano
(Potenciano), the branch manager of the Bank was present during the transaction
and immediately offered the services of the Bank for the processing and eventual
crediting of the said checks to Cesar and Lolita account. On the other hand,
Potenciano countered that he was prevailed upon to accept the checks by way of
accommodation of Cesar and Lolita who were valued clients of the Bank.
On 3 May 2000, Cesar and Lolita deposited the said checks in their savings
account with the Bank. The Bank, in turn, deposited the checks with its depositary
bank, Equitable-PCI Bank, in Bian, Laguna. Equitable-PCI Bank presented the
checks to the drawee, the Philippine Veterans Bank, which honored the checks.
On 6 May 2000, Potenciano informed Cesar and Lolita that the checks they
deposited with the Bank were honored. He allegedly warned Cesar and Lolita that
the clearing of the checks pertained only to the availability of funds and did not
mean that the checks were not infirmed. Thus, the entire amount of P1,800,000.00
was credited to Cesar and Lolita savings account. Based on this information, Cesar
and Lolita released the two cars to the buyer.
Sometime in July 2000, the subject checks were returned by PVAO to the
drawee on the ground that the amount on the face of the checks was altered from
the original amount of P4,000.00 to P200,000.00. The drawee returned the checks
to Equitable-PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank
was informed by Equitable-PCI Bank that the drawee dishonored the checks on the
ground of material alterations. Equitable-PCI Bank initially filed a protest with the
Philippine Clearing House. In February 2001, the latter ruled in favor of the drawee
Philippine Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of
the Bank in the amount of P1,800,000.00.
The Bank insisted that they informed Cesar and Lolita of said development in
August 2000 by furnishing them copies of the documents given by its depositary
bank. On the other hand, Cesar and Lolita maintained that the Bank never informed
them of these developments.
Express Savings Bank and Potenciano filed a motion for reconsideration while
Cesar and Lolita filed a motion for execution from the Decision of the RTC. On
appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the
award of damages. Hence, Cesar and Lolita filed the present petition for review on
certiorari.
Issues:
1. Whether or not the Bank had the right to debit P1,800,000.00 from Cesar and
Lolita accounts.
2. What are the liabilities of the drawee, the intermediary banks, and the Cesar
and Lolita for the altered checks?
Ruling:
The Bank cannot debit the savings account of Cesar and Lolita.
When the drawee bank pays a materially altered check, it violates the terms
of the check, as well as its duty to charge its clients account only for bona fide
disbursements he had made. If the drawee did not pay according to the original
tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous
payment it made from the drawers account which it was expected to treat with
utmost fidelity. The drawee, however, still has recourse to recover its loss. It may
pass the liability back to the collecting bank which is what the drawee bank exactly
did in this case. It debited the account of Equitable-PCI Bank for the altered amount
of the checks.
When Cesar and Lolita deposited the check with the Bank, they were
designating the latter as the collecting bank. This is in consonance with the rule that
a negotiable instrument, such as a check, whether a manager's check or ordinary
check, is not legal tender. As such, after receiving the deposit, under its own rules,
the Bank shall credit the amount in Cesar and Lolita account or infuse value
thereon only after the drawee bank shall have paid the amount of the check or the
check has been cleared for deposit.
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the
amount of the materially altered checks. Since Equitable-PCI Bank is not a party to
Page 119 of 128
this case and the Bank allowed its account with Equitable PCI Bank to be debited, it
has the option to seek recourse against the latter in another forum.
As the rule now stands, the 24-hour rule is still in force, that is, any check
which should be refused by the drawee bank in accordance with long standing and
accepted banking practices shall be returned through the PCHC/local clearing office,
as the case may be, not later than the next regular clearing (24-hour). The
modification, however, is that items which have been the subject of material
alteration or bearing forged endorsement may be returned even beyond 24 hours so
long that the same is returned within the prescriptive period fixed by law. The
consensus among lawyers is that the prescriptive period is ten (10) years because a
check or the endorsement thereon is a written contract. Moreover, the item need
not be returned through the clearing house but by direct presentation to the
presenting bank. In short, the 24-hour clearing rule does not apply to altered
checks.
The Bank cannot debit the savings account of Cesar and Lolita. A
depositary/collecting bank may resist or defend against a claim for breach of
warranty if the drawer, the payee, or either the drawee bank or depositary bank
was negligent and such negligence substantially contributed to the loss from
alteration. In the instant case, no negligence can be attributed to Cesar and Lolita.
The drawee bank, Philippine Veterans Bank in this case, is only liable to the
extent of the check prior to alteration. Since Philippine Veterans Bank paid the
altered amount of the check, it may pass the liability back as it did, to Equitable-PCI
Bank, the collecting bank. The collecting banks, Equitable-PCI Bank and the Bank,
are ultimately liable for the amount of the materially altered check. It cannot further
pass the liability back to the Cesar and Lolita absent any showing in the negligence
on the part of the Cesar and Lolita which substantially contributed to the loss from
alteration.
CHECKS
METROPOLITAN BANK AND TRUST COMPANY vs. WILFRED N. CHIOK
BANK OF THE PHILIPPINE ISLANDS vs. WILFRED N. CHIOK
Chiok then deposited the three checks (Asian Bank MC Nos. 025935 and
025939, and Metrobank CC No. 003380), with an aggregate value of
P26,068,350.00 in Nuguids account with Far East Bank & Trust Company (FEBTC),
the predecessor-in-interest of
Bank of the Philippine Islands (BPI). Nuguid was supposed to deliver
US$1,022,288.50, the dollar equivalent of the three checks as agreed upon, in the
afternoon of the same day. Nuguid, however, failed to do so, prompting Chiok to
request that payment on the three checks be stopped. Chiok was allegedly advised
to secure a court order within the 24-hour clearing period.
On the following day, July 6, 1995, Chiok filed a Complaint for damages with
application for ex parterestraining order and/or preliminary injunction with the
Regional Trial Court (RTC) of Quezon City against the spouses Gonzalo and Marinella
Nuguid, and the depositary banks, Asian Bank and Metrobank, represented by their
respective managers, Julius de la Fuente and Alice Rivera. The complaint was
docketed as Civil Case No. Q-95-24299 and was raffled to Branch 96. The complaint
was later amended to include the prayer of Chiok to be declared the legal owner of
the proceeds of the subject checks and to be allowed to withdraw the entire
proceeds thereof.
On the same day, July 6, 1995, the RTC issued a temporary restraining order
(TRO) directing the spouses Nuguid to refrain from presenting the said checks for
payment and the depositary banks from honoring the same until further orders from
the court.
Asian Bank refused to honor MC Nos. 025935 and 025939 in deference to the
TRO. Metrobank claimed that when it received the TRO on July 6, 1995, it refused to
honor CC No. 003380 and stopped payment thereon. However, in a letter also dated
July 6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao-Araneta Branch informed Metrobank
that the TRO was issued a day after the check was presented for payment. Thus,
according to Paz, the transaction was already consummated and FEBTC had already
validly accepted the same. In another letter, FEBTC informed Metrobank that the
restraining order indicates the name of the payee of the check as GONZALO
NUGUID, but the check is in fact payable to GONZALO BERNARDO. We believe there
is a defect in the restraining order and as such should not bind your bank. Alice
Rivera of Metrobank replied to said letters, reiterating Metrobanks position to
comply with the TRO lest it be cited for contempt by the trial court. However, as
would later be alleged in Metrobanks Answer before the trial court, Metrobank
eventually acknowledged the check when it became clear that nothing more can be
done to retrieve the proceeds of the check. Metrobank furthermore claimed that
since it is the issuer of CC No. 003380, the check is its primary obligation and
should not be affected by any prior transaction between the purchaser (Chiok) and
the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed a complaint against
Asian Bank before the Philippine Clearing House Corporation (PCHC) Arbitration
Committee for the collection of the value of Asian Bank MC No. 025935 and 025939,
which FEBTC had allegedly allowed Nuguid to withdraw on July 5, 1995, the same
day the checks were deposited. The case was docketed as Arbicom Case No. 95-
082. The PCHC Arbitration Committee later relayed, in a letter dated August 4,
1995, its refusal to assume jurisdiction over the case on the ground that any step it
may take might be misinterpreted as undermining the jurisdiction of the RTC over
the case or a violation of the July 6, 1995 TRO. On July 25, 1995, the RTC issued
an Order directing the issuance of a writ of preliminary prohibitory injunction. On
May 5, 2006, the Court of Appeals rendered the assailed Decision affirming the RTC
Decision with modifications.
Global Bank and BPI filed separate Motions for Reconsideration of the May 5,
2006 Court of Appeals Decision. On November 6, 2006, the Court of Appeals denied
the Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302), and Global Bank (G.R.
No. 175394) filed with this Court separate Petitions for Review on Certiorari. In
Resolutions dated February 21, 2007 and March 12, 2007, this Court resolved to
consolidate the three petitions.
Issues:
1. Whether or not payment of managers and cashiers checks are subject to the
condition that the payee thereof should comply with his obligations to the
purchaser of the checks.
2. Whether or not the purchaser of managers and cashiers checks has the right
to have the checks cancelled by filing an action for rescission of its contract
with the payee.
3. Whether or not the peculiar circumstances of this case justify the deviation
from the general principles on causes and effects of managers and cashiers
checks.
Ruling:
1.
The legal effects of a managers check and a cashiers check are the same. A
managers check, like a cashiers check, is an order of the bank to pay, drawn upon
itself, committing in effect its total resources, integrity, and honor behind its
issuance. By its peculiar character and general use in commerce, a managers
check or a cashiers check is regarded substantially to be as good as the money it
represents.
The RTC effectively ruled that payment of managers and cashiers checks are
subject to the condition that the payee thereof complies with his obligations to the
purchaser of the checks.
The dedication of
such
checks pursuant to specific reciprocal undertakings between their purchasers and
payees authorizes rescission by the former to prevent substantial and material
damage to themselves, which authority includes stopping the payment of the
checks.
rescission of their contract. On the other hand, Chiok did not have a cause of action
against Metrobank and Global Bank that would allow him to rescind the contracts of
sale of the managers or cashiers checks, which would have resulted in the
crediting of the amounts thereof back to his accounts.
Otherwise stated, the right of rescission under Article 1191 of the Civil Code
can only be exercised in accordance with the principle of relativity of contracts
under Article 1131 of the same code.
3.
In view of the peculiar circumstances of this case, and in the interest of
substantial justice, the Court is constrained to rule in the affirmative.
The Court does not detract from well-settled concepts and principles in
commercial law regarding the nature, causes and effects of a managers check and
cashiers check. Such checks are primary obligations of the issuing bank and
accepted in advance by the mere issuance thereof. They are a banks order to pay
drawn upon itself, committing in effect its total resources, integrity, and honor. By
their peculiar character and general use in the commercial world, they are regarded
substantially as good as the money they represent. However, in view of the peculiar
circumstances of the case at bench, the Court is constrained to set aside the
foregoing concepts and principles in favor of the exercise of the right to rescind a
contract upon the failure of consideration thereof.
In deviating from general banking principles and disposing the case on the
basis of equity, the courtsa quo should have at least ensured that their dispositions
were indeed equitable. This Court observes that equity was not served in the
dispositions below wherein Nuguid, the very person found to have violated his
contract by not delivering his dollar obligation, was absolved from his liability,
leaving the banks who are not parties to the contract to suffer the losses of millions
of pesos.
Asian Bank, which is now Global Bank, obeyed the TRO and denied the
clearing of the managers checks. As such, Global Bank may not be held liable on
account of the knowledge of whatever else Chiok told them when he asked for the
procedure to secure a Stop Payment Order. On the other hand, there was no
mention that Metrobank was ever notified of the alleged failure of consideration.
Only Asian Bank was notified of such fact. Furthermore, the mere allegation of
breach on the part of the payee of his personal contract with the purchaser should
not be considered a sufficient cause to immediately nullify such checks, thereby
eroding their integrity and honor as being as good as cash.
INSURANCE LAW
PRESCRIPTION OF ACTION
H.H. HOLLERO CONSTRUCTION, INC. vs. GOVERNMENT SERVICE INSURANCE
SYSTEM and POOL OF MACHINERY INSURERS
loss" basis, it appearing from its records that the policies were not renewed before
the onset of the said typhoon.
Hollero filed a Complaint for Sum of Money and Damages before the RTC
which was opposed by the GSIS through a Motion to Dismiss on the ground that the
causes of action stated therein are barred by the twelve-month limitation provided
under the policies, i.e., the complaint was filed more than one (1) year from the
rejection of the indemnity claims. The RTC granted Hollero Constructions indemnity
claims. The CA set aside and reversed the RTC Judgment.
Issue:
Whether or not the CA committed reversible error in dismissing the complaint on
the ground of prescription.
Ruling:
No. Contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary, and popular sense.
Section 10 of the General Conditions of the subject CAR Policies commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is made or used
in support thereof, or if any fraudulent means or devices are used by the Insured or
anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is
made and rejected and no action or suit is commenced within twelve months after
such rejection or, in case of arbitration taking place as provided herein, within
twelve months after the Arbitrator or Arbitrators or Umpire have made their award,
all benefit under this Policy shall be forfeited.
In this relation, case law illumines that the prescriptive period for the
insureds action for indemnity should be reckoned from the "final rejection" of the
claim.
A perusal of the letter dated April 26, 1990 shows that the GSIS denied
Hollero Constructions indemnity claims wrought by Typhoons Biring and Huaning, it
appearing that no amount was recoverable under the policies. While the GSIS gave
Hollero Construction the opportunity to dispute its findings, neither of the parties
pursued any further action on the matter; this logically shows that they deemed the
said letter as a rejection of the claims. Lest it cause any confusion, the statement in
that letter pertaining to any queries Hollero Construction may have on the denial
should be construed, at best, as a form of notice to the former that it had the