2015 Points to Ponder in Commercial Law by Prof. Erickson H. Balmes.docx

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JURISTS BAR REVIEW CENTER™

2015 POINTS TO PONDER COMMERCIAL PROF. E.H. BALMES

HAND OUT NO. 1, SERIES OF 2015

Call to me and I will answer you, rand will tell you great and hidden things that you have not known.

(Jeremiah 33:3)

SECURITIES AND EXCHANGE COMMISSION vs. PROSPERITY.COM, INC

G.R. No. 164197 / January 25, 2012ABAD

Facts – Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing

internet service. To make a profit, PCI devised a scheme in which, for the price of US$234.00 a buyer could acquire from it an internet website of a 15-Mega Byte capacity. At the same time, by referring to PCI his own down-line buyers, a first-time buyer could earn commissions, interest in real estate in the Philippines and in the United States, and insurance coverage worth P50,000.00. Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company stopped operations after the Securities and Exchange Commission issued a cease and desist order (CDO) against it. As it later on turned out, the same persons who ran the affairs of GVI directed PCI’s actual operations.

In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had taken over GVI’s operations. After hearing, the SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC ruled that PCI’s scheme constitutes an Investment contract and, following the Securities Regulations Code, it should have first registered such contract or securities with the SEC.

Issue – 1. Whether or not PCI’s scheme constitutes an investment contract that requires registration under

R.A. 8799.

Ruling – The Securities Regulation Code treats investment contracts as "securities" that have to be

registered with the SEC before they can be distributed and sold. An investment contract is a contract, transaction, or scheme where a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.

Member, Law Faculty, University of Batangas, Far Eastern University, Polytechnic University of the Philippines, Philippine Christian University, Universidad de Manila. MCLE and Bar Reviewer in Legal Ethics and Commercial Law - Jurists Bar Review Center, Cosmopolitan Review Center, CPRS Bar Review Center, Luminous Bar Review, Dagupan, Powerhaus Review Center, Chan Robles Internet Review, PCU Bar Review, Albano Review Center and UP LAW Center. . The compiler wishes to thank MARDANE DE CASTRO, ATTY. JANICE COLOMA, ATTY. KRISTINE BERNADETTE GUEVARRA, ATTY. JP ROXAS, JOVEN JALOS, SARGE AGCAOILI, MA. ANGELICA GALVE, JP HABANA, APOL SABANAL, VANESSA CARPIO AND ANNA MARIELLA MARIFOSQUE for their valued contribution in researching this compilation through the years.

2015 Points to Ponder in Commercial Law for Jurists Bar Review Center by Prof. Erickson H. Balmes. All rights reserved 2015 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to the full extent of the law, including administrative complaints with the Office of the Bar Confidant, Supreme Court.

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The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that, for an investment contract to exist, the following elements, referred to as the Howey Test must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others.

Here, PCI’s clients do not make such investments. They buy a product of some value to them: an Internet website of a 15-MB capacity. The buyers of the website do not invest money in PCI that it could use for running some business that would generate profits for the investors. The price of US$234.00 is what the buyer pays for the use of the website, a tangible asset that PCI creates, using its computer facilities and technical skills.

The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to down-line sellers to bring in other customers. These can hardly be regarded as profits from investment of money under the Howey test.

FIRST LEPANTO-TAISHO INSURANCE CORP. vs. CHEVRON PHILIPPINES, INC.

G.R. No. 177839 / January 18, 2012VILLARAMA, JR.

Facts – Fumitechniks Corporation as distributor for petitioner First Lepanto-Taisho Insurance

Corporation had applied for and was issued Surety Bond by the latter. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the respondent Chevron Philippines, Inc., "to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with the terms and conditions of the agreement."

On February 6, 2002, respondent notified petitioner of Fumitechniks’ unpaid purchases in the total amount of P15,084,030.30. Petitioner requested that it be furnished copies of the documents and respondent complied by sending copies of invoices showing deliveries of fuel and petroleum. Fumitechniks however informed the petitioner that it cannot submit the requested agreement since no such agreement was executed between them and respondent. Consequently, petitioner advised respondent of the non-existence of the principal agreement as confirmed by Fumitechniks. Petitioner explained that being an accessory contract, the bond cannot exist without a principal agreement as it is essential that the copy of the basic contract be submitted to the proposed surety for the appreciation of the extent of the obligation to be covered by the bond applied for.

Issue – 1. Whether or not a surety is liable to the creditor in the absence of a written contract with the

principal.

Ruling – Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a

party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. Suretyship arises upon the solidary binding of a person – deemed the surety – with the principal debtor, for the purpose of fulfilling an obligation. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. And notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.

The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication, beyond the terms of the contract. Thus, to determine


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whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine the terms of the contract itself.

Necessarily, the stipulations in such principal agreement must at least be communicated or made known to the surety particularly in this case where the bond expressly guarantees the payment of respondent’s fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Moreover, being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. Having accepted the bond, respondent as creditor must be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety contract but on the creditor’s right to demand performance.

ADVENT CAPITAL AND FINANCE CORPORATION vs. NICASIO I. ALCANTARA and EDITHA I. ALCANTARA

G.R. No. 183050 / January 25, 2012ABAD

Facts –On July 16, 2001 petitioner Advent Capital and Finance Corporation filed a petition for

rehabilitation with the Regional Trial Court of Makati City. Subsequently, Atty. Danilo L. Concepcion was named as rehabilitation receiver. Upon audit of Advent Capital’s books, Atty. Concepcion found that respondents Nicasio and Editha Alcantara owed Advent Capital P27,398,026.59, representing trust fees that it supposedly earned for managing their several trust accounts.

Atty. Concepcion requested Belson Securities, Inc. to deliver to him, as Advent Capital’s rehabilitation receiver, the P7,635,597.50 in cash dividends that Belson held under the Alcantaras’ Trust Account. The Alcantaras objected and claimed that the money in the trust account belonged to them under their Trust Agreement with Advent Capital. The latter, they said, could not claim any right or interest in the dividends generated by their investments since Advent Capital merely held these in trust for the Alcantaras, the trustors-beneficiaries.

Issue – 1. Whether or not the cash dividends held by Belson Securities constitute corporate assets of the

Advent Capital that the rehabilitation court may, upon motion, require to be conveyed to the rehabilitation receiver for his disposition.

Ruling – Paragraph 9 of the Trust Agreement provides that Advent Capital could automatically deduct

its trust fees from the Alcantaras’ portfolio, "at the end of each calendar quarter." But the problem is that the trust fees that Advent Capital’s receiver was claiming were for past quarters. Based on the stipulation, these should have been deducted as they became due. As it happened, at the time Advent Capital made its move to collect its supposed management fees, it neither had possession nor control of the money it wanted to apply to its claim. Having failed to collect the trust fees as stated in the contract, all it had against the Alcantaras was a claim for payment which is a proper subject for an ordinary action for collection. It cannot enforce its money claim by simply filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but in the possession of a third party.


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Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the corporate debtor, its creditors and other interested parties.

Advent Capital cannot say that the filing of a separate action would defeat the purpose of corporate rehabilitation. In the first place, the Interim Rules do not exempt a company under rehabilitation from availing of proper legal procedure for collecting debt that may be due it. Secondly, Court records show that Advent Capital had in fact sought to recover one of its assets by filing a separate action for replevin involving a car that was registered in its name.

TIMOTEO H. SARONA vs. NLRC, ROYALE SECURITY AGENCY (FORMERLY SCEPTRE SECURITY AGENCY) and CESAR S. TAN

G.R. No. 185280 / January 18, 2012REYES

Facts – On June 20, 2003, the petitioner, who was hired by Sceptre as a security guard, was asked by

Karen Tan, Sceptre’s Operation Manager, to submit a resignation letter as the same was supposedly required for applying for a position at Royale. The petitioner was also asked to fill up Royale’s employment application form. After several weeks of being in floating status, the petitioner was assigned at Highlight Metal Craft, Inc. Thereafter, the petitioner was transferred and assigned to Wide Wide World Express, Inc. On September 17, 2003, the petitioner was informed that his assignment at WWWE, Inc. had been withdrawn because Royale had allegedly been replaced by another security agency. The petitioner, however, shortly discovered thereafter that Royale was never replaced as WWWE, Inc.’s security agency. He likewise learned that his fellow security guard was not relieved from his post.

On September 21, 2003, the petitioner was once again assigned at Highlight Metal, albeit for a short period from September 22 to 30 2003. Thereafter he was subsequently informed by Royale’s Security Officer that he would no longer be given any assignment per the instructions of Aida Sabalones-Tan, general manager of Sceptre. This prompted him to file a complaint for illegal dismissal.

Issue – 1. Whether or not Royale’s corporate fiction should be pierced for the purpose of compelling it to

recognize the petitioner’s length of service with Sceptre and for holding it liable for the benefits that have accrued to him.

Ruling – A corporation is an artificial being created by operation of law. It possesses the right of

succession and such powers, attributes, and properties expressly authorized by law or incident to its existence. It has a personality separate and distinct from the persons composing it, as well as from any other legal entity to which it may be related. This is basic.

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil pierced when the corporation is just an alter ego of a person or of another corporation. For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against third persons

Aida’s control over Sceptre and Royale does not, by itself, call for a disregard of the corporate fiction. However, the manner by which the petitioner was made to resign from Sceptre and how he


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became an employee of Royale suggest the perverted use of the legal fiction of the separate corporate personality. It is undisputed that the petitioner tendered his resignation and that he applied at Royale on the impression they created that these were necessary for his continued employment. They took advantage of their ascendancy over the petitioner and the latter’s lack of knowledge of his rights and the consequences of his actions. The respondents’ scheme reeks of bad faith and fraud and compassionate justice dictates that Royale and Sceptre be merged as a single entity, compelling Royale to credit and recognize the petitioner’s length of service with Sceptre. The respondents cannot use the legal fiction of a separate corporate personality for ends subversive of the policy and purpose behind its creation or which could not have been intended by law to which it owed its being.

INSURANCE COMPANY OF NORTH AMERICA vs. ASIAN TERMINALS, INC.

G.R. No. 180784 / February 15, 2012PERALTA

Facts – On November 9, 2002, Macro-Lite Korea Corporation shipped to San Miguel Corporation, one

hundred eighty-five (185) packages of electrolytic tin free steel, complete and in good order condition. The shipment was insured with petitioner Insurance Company of North America against all risks. The shipment arrived at Manila on November 19, 2002 but when was discharged therefrom, it was noted that seven (7) packages thereof were damaged and in bad order. The shipment was then turned over to the custody of respondent Asian Terminals, Inc. (ATI) for storage and safekeeping. On November 29, 2002, prior to the last withdrawal of the shipment, a joint inspection of the said cargo was conducted and the examination report showed that an additional five (5) packages were found to be damaged and in bad order.

The petitioner, as insurer of the said cargo, paid the consignee for the damage caused to the shipment as evidenced by the Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally demanded reparation against respondent but failed to satisfy the same. Petitioner filed an action for damages with the RTC of Makati City, however, the trial court dismissed the complaint on the ground that the petitioner’s claim was already barred by the statute of limitations. It held that COGSA applies to this case, since the goods were shipped from a foreign port to the Philippines.

Issues – 1. Whether or not the one-year prescriptive period for filing a suit under the COGSA applies to

respondent arrastre operator.

Ruling –

It is noted that the term "carriage of goods" under the law, covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the COGSA.

Under the COGSA, the carrier and the ship may put up the defense of prescription if the action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered. It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the prescriptive period. However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator.


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MA. LOURDES S. FLORENDO vs. PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE

G.R. No. 186983 / February 22, 2012ABAD

Facts – On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan

with respondent Philam Plans, Inc. after some convincing by respondent Perla Abcede.Manuel signed the application and left to Perla the task of supplying the information needed in the application. Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. Under the master policy, if the plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price.

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, beneficiary Lourdes Florendo, filed a claim with Philam Plans for the payment of the benefits under her husband’s plan. On May 3, 1999 Philam Plans wrote Lourdes a letter, declining her claim. Philam Life found that Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin.

Issues – 1. Whether or not Manuel Florendo is guilty of concealment when he signed the policy and failed

to provide answer to the question regarding the ailments he suffered from.2. Whether or not the insured is bound by the failure of respondents to declare the condition of

Manuel’s health in the pension plan application.3. Whether or not Philam Plans’ approval of Manuel’s pension plan application and acceptance of

his premium payments precluded it from denying Lourdes’ claim.

Ruling – I. Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years preceding his application. When Manuel signed the pension plan application, he adopted as his own the written representations and declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans.

II. Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under his direction. As the Court said in New Life Enterprises v. Court of Appeals:

It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.

The same may be said of Manuel, a civil engineer and manager of a construction company. He could be expected to know that one must read every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him and to his wife in his twilight years.


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III. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period.

The policy’s incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance. Since Manuel died on the eleventh month following the issuance of his plan, the one-year incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.

PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A.

G.R. No. 170290 / April 11, 2012MENDOZA

Facts – In 1977 and 1979, PDIC conducted an examination of the books of account of respondents

Citibank and Bank of America (BA), respectively. It discovered that the respondents, in the course of its banking business, received from its head office and other foreign branches a total of P11,923,163,908.00 and P629,311,869.10 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates. These funds were not reported to PDIC as deposit liabilities that were subject to assessment for insurance. As such PDIC assessed Citibank and BA for deficiency premium assessments for dollar deposits.

Issue – 1. Whether or not the funds placed in the Philippine branch by the head office and foreign

branches of Citibank and BA are insurable deposits under the PDIC Charter and, as such, are subject to assessment for insurance premiums.

Ruling – The Court begins by examining the manner by which a foreign corporation can establish its

presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate and independent legal personality to conduct business in the country. In the alternative, it may create a branch in the Philippines, which would not be a legally independent unit, and simply obtain a license to do business in the Philippines.

In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its business interests in the Philippines. Their Philippine branches are, as the name implies, merely branches, without a separate legal personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under the PDIC Charter. Moreover, Pursuant to Section 3(f) of the PDIC Charter:

Sec. 3(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by its certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of said bank or deposit in another bank, together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be deposit liabilities of the Bank; Provided, that any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposits; Provided further, that any insured bank which is incorporated under the laws of the Philippines may elect to include for insurance its deposit obligation payable only at such branch. [Emphasis supplied]


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All things considered, the Court finds that the funds in question are not deposits within the definition of the PDIC Charter and are, thus, excluded from assessment.

STEELCASE, INC. vs. DESIGN INTERNATIONAL SELECTIONS, INC.


Facts – Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan, United

States of America, and engaged in the manufacture of office furniture with dealers worldwide. Respondent Design International Selections, Inc. (DISI) is a corporation existing under Philippine Laws and engaged in the furniture business, including the distribution of furniture. Sometime in 1986 or 1987, Steelcase and DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and service its products to end-user customers within the Philippines. The business relationship continued smoothly until it was terminated sometime in January 1999 after the agreement was breached with neither party admitting any fault.

On January 18, 1999, Steelcase filed a complaint for sum of money against DISI alleging, among others, that DISI had an unpaid account of US$600,000.00.

Issues – 1. Whether or not Steelcase is doing business in the Philippines without a license.2. Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.

Ruling – I. Steelcase is an unlicensed foreign corporation NOT doing business in the Philippines.The appointment of a distributor in the Philippines is not sufficient to constitute "doing business" unless it is under the full control of the foreign corporation. On the other hand, if the distributor is an independent entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own account, the latter cannot be considered to be doing business in the Philippines. It should be kept in mind that the determination of whether a foreign corporation is doing business in the Philippines must be judged in light of the attendant circumstances.

In the case at bench, it is undisputed that DISI was founded in 1979 and is independently owned and managed by the spouses Leandro and Josephine Bantug. In addition to Steelcase products, DISI also distributed products of other companies including carpet tiles, relocatable walls and theater settings. All things considered, it has been sufficiently demonstrated that DISI was an independent contractor which sold Steelcase products in its own name and for its own account. As a result, Steelcase cannot be considered to be doing business in the Philippines by its act of appointing a distributor

II. If indeed Steelcase had been doing business in the Philippines without a license, DISI would nonetheless be estopped from challenging the former’s legal capacity to sue.

Unquestionably, entering into a dealership agreement with Steelcase charged DISI with the knowledge that Steelcase was not licensed to engage in business activities in the Philippines. This Court has carefully combed the records and found no proof that, from the inception of the dealership agreement in 1986 until September 1998, DISI even brought to Steelcase’s attention that it was improperly doing business in the Philippines without a license. It was only towards the latter part of 1998 that DISI deemed it necessary to inform Steelcase of the impropriety of the conduct of its business without the requisite Philippine license. It should, however, be noted that DISI only raised the issue of the absence of a license with Steelcase after it was informed that it owed the latter US$600,000.00 for the sale and delivery of its products under their special credit arrangement.


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By acknowledging the corporate entity of Steelcase and entering into a dealership agreement with it and even benefiting from it, DISI is estopped from questioning Steelcase’s existence and capacity to sue.

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM vs. DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC.


Facts – Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim are registered individual owners of

condominium units in Phoenix Heights Condominium. Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation existing under the laws of the Philippines. It was incorporated as a real estate developer, engaged in the development of condominium projects, among which was the Phoenix Heights Condominium.

In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI, executed a Master Deed and Declaration of Restrictions (MDDR) of Phoenix Heights Condominium, which was filed with the Registry of Deeds. As the developer, DPDCI undertook, among others, the marketing aspect of the project, the sale of the units and the release of flyers and brochures.

Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and incorporated. In August 2008, petitioners, as condominium unit-owners, filed a complaint before the HLURB against DPDCI for unsound business practices and violation of the MDDR. They alleged that DPDCI committed misrepresentation in their circulated flyers and brochures as to the facilities or amenities that would be available in the condominium and failed to perform its obligation to comply with the MDDR.

Issue – 1. Whether or not HLURB has jurisdiction over the instant case?

Ruling –Considering that petitioners, who are members of PHCC, are ultimately challenging the

agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body corporate. This action, therefore, partakes the nature of an "intra-corporate controversy," the jurisdiction over which used to belong to the Securities and Exchange Commission, but transferred to the courts of general jurisdiction or the appropriate Regional Trial Court, pursuant to Section 5b of P.D. No. 902-A, as amended by Section 5.2 of Republic Act No. 8799.

An intra-corporate controversy is one which "pertains to any of the following relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders, partners or associates themselves."

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially intra-corporate in character, for being between a condominium corporation and its members-unit owners.


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GOLD LINE TOURS, INC. vs. HEIRS OF MARIA CONCEPCION LACSA

G.R. No. 159108 / June 18, 2012BERSAMIN

Facts – On August 2, 1993, Ma. Concepcion Lacsa and her sister, Miriam Lacsa, boarded a Goldline

passenger bus owned and operated by Travel &Tours Advisers, Inc. They were enroute from Sorsogon to Cubao, Quezon City. Upon reaching the highway at Barangay San Agustin in Pili, Camarines Sur, the Goldline bus, collided with a passenger jeepney coming from the opposite direction. As a result, a metal part of the jeepney was detached and struck Concepcion in the chest, causing her instant death.

The RTC found the Travel & Tours Advisers, Inc. liable for damages in violation of the contract of carriage. The judgment became final and was partially executed, a tourist bus bearing Plate No. NWW-883 was levied.

On April 20, 2001, petitioner Gold Line Tours Inc. submitted a verified third party claim, asserting that the levied tourist bus be returned to petitioner because it was the owner; that petitioner had not been made a party to the previous civil case; and that petitioner was a corporation entirely different from Travel & Tours Advisers, Inc.

Issue – 1. Whether or not petitioner Gold Line Tours Inc. is an independent entity from Travel & Tours

Advisers, Inc.

Ruling – This Court is not persuaded by the proposition of the third party claimant that a corporation has

an existence separate and/or distinct from its members insofar as this case at bar is concerned, for the reason that whenever necessary for the interest of the public or for the protection of enforcement of their rights, the notion of legal entity should not and is not to be used to defeat public convenience, justify wrong, protect fraud or defend crime.

The RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and the same entity, specifically: – (a) documents submitted by petitioner in the RTC showing that William Cheng, who claimed to be the operator of Travel and Tours Advisers, Inc., was also the President/Manager and an incorporator of the petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline.

The RTC thus rightly ruled that petitioner might not be shielded from liability under the final judgment through the use of the doctrine of separate corporate identity. Truly, this fiction of law could not be employed to defeat the ends of justice.

LAND BANK OF THE PHILIPPINES vs. LAMBERTO C. PEREZ, NESTOR C. KUN, MA. ESTELITA P. ANGELES-PANLILIO, and NAPOLEON O. GARCIA

G.R. No. 166884 / June 13, 2012BRION

Facts – On June 7, 1999, Land Bank of the Philippines filed a complaint for Estafa or violation of

Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. 115, against the officers and representatives of Asian Construction and Development Corporation (ACDC), a corporation


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incorporated under Philippine law and engaged in the construction business, before the City prosecutor’s Office in Makati City.

The petitioner alleged that they extended a credit accommodation to ACDC through the execution of an Omnibus Credit Line Agreement on October 29, 1996. In various instances, ACDC used the Letters of Credit/Trust Receipts Facility of the Agreement to buy construction materials. The respondents, as officers and representatives of ACDC, executed trust receipts in connection with the construction materials, with a total principal amount of P52,344,096.32. The trust receipts matured, but ACDC failed to return to LBP the proceeds of the construction projects or the construction materials subject of the trust receipts.

Issue –1. Whether or not the disputed transaction is covered by Trust Receipts Law.

Ruling – In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative

– the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.

We note in this regard that at the onset of these transactions, LBP knew that ACDC was in the construction business and that the materials that it sought to buy under the letters of credit were to be used for the construction site of two government projects. LBP had in fact authorized the delivery of the materials on the construction sites for these projects, as seen in the letters of credit it attached to its complaint. Clearly, they were aware of the fact that there was no way they could recover the buildings or constructions for which the materials subject of the alleged trust receipts had been used.

Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares v. CA that the industry or line of work that the borrowers were engaged in was construction. We pointed out that the borrowers were not importers acquiring goods for resale. Indeed, goods sold in retail are often within the custody or control of the trustee until they are purchased. In the case of materials used in the manufacture of finished products, these finished products – if not the raw materials or their components – similarly remain in the possession of the trustee until they are sold. But the goods and the materials that are used for a construction project are often placed under the control and custody of the clients employing the contractor, who can only be compelled to return the materials if they fail to pay the contractor and often only after the requisite legal proceedings. The contractor’s difficulty and uncertainty in claiming these materials (or the buildings and structures which they become part of), as soon as the bank demands them, disqualify them from being covered by trust receipt agreements.

VIVIAN T. RAMIREZ ET. AL. vs. MAR FISHING CO., INC., MIRAMAR FISHING CO., INC., ROBERT BUEHS AND JEROME SPITZ

G.R. No. 168208 / June 13, 2012SERENO

Facts – On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing), engaged in the business of

fishing and canning of tuna, sold its principal assets to co-respondent Miramar Fishing Co., Inc. (Miramar). The proceeds of the sale were paid to the Trade and Investment Corporation of the Philippines to cover Mar Fishing’s outstanding obligation. In view of that transfer, Mar Fishing issued a Memorandum informing all its workers that the company would cease to operate by the end of the


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month. On 29 October 2001 or merely two days prior to the month’s end, it notified the Department of Labor and Employment (DOLE) of the closure of its business operations.

Thereafter, Mar Fishing’s labor union and Miramar entered into a Memorandum of Agreement. The Agreement provided that the acquiring company, shall absorb Mar Fishing’s regular rank and file employees whose performance was satisfactory, without loss of seniority rights and privileges previously enjoyed. Unfortunately, petitioners, who worked as rank and file employees, were not hired or given separation pay by Miramar. Thus, petitioners filed Complaints for illegal dismissal with money claims before the Arbitration Branch of the National Labor Relations Commission.

The Labor Arbiter found that Mar Fishing had necessarily closed its operations, considering that Miramar had already bought the tuna canning plant. By reason of the closure, petitioners were legally dismissed for authorized cause. Consequently, the LA ordered Mar Fishing to give separation pay to its workers.

Issue – 1. Whether or not Mar Fishing Co. and Marimar Fishing Co. are one and the same entity.

Ruling – This Court sustains the ruling of the LA as affirmed by the NLRC that Miramar and Mar

Fishing are separate and distinct entities, based on the marked differences in their stock ownership. Also, the fact that Mar Fishing’s officers remained as such in Miramar does not by itself warrant a conclusion that the two companies are one and the same. As this Court held in Sesbreño v. Court of Appeals, the mere showing that the corporations had a common director sitting in all the boards without more does not authorize disregarding their separate juridical personalities.

Neither can the veil of corporate fiction between the two companies be pierced by the rest of petitioners’ submissions, namely, the alleged take-over by Miramar of Mar Fishing’s operations and the evident similarity of their businesses. At this point, it bears emphasizing that since piercing the veil of corporate fiction is frowned upon, those who seek to pierce the veil must clearly establish that the separate and distinct personalities of the corporations are set up to justify a wrong, protect a fraud, or perpetrate a deception. This, unfortunately, petitioners have failed to do.

Having been found by the trial courts to be a separate entity, Mar Fishing – and not Miramar – is required to compensate petitioners. Indeed, the back wages and retirement pay earned from the former employer cannot be filed against the new owners or operators of an enterprise.

LEGASPI TOWERS 300, INC., LILIA MARQUINEZ PALANCA, ROSANNA D. IMAI, GLORIA DOMINGO and RAY VINCENT vs. AMELIA P. MUER, SAMUEL M. TANCHOCO,

ROMEO TANKIANG, RUDEL PANGANIBAN, DOLORES AGBAYANI, ARLENEDAL A. YASUMA, GODOFREDO M. CAGUIOA and EDGARDO M. SALANDANAN

G.R. No. 170783 / June 18, 2012PERALTA

Facts – Pursuant to the by-laws of Legaspi Towers 300, Inc., the petitioners, the incumbent Board of

Directors, set the annual meeting of the members of the condominium corporation and the election of the new Board of Directors for the years 2004-2005. However, on the day of election, petitioners adjourned the meeting for lack of quorum. The group of respondents challenged the adjournment of the meeting.

Despite petitioners' insistence that no quorum was obtained during the annual meeting, respondents pushed through with the scheduled election and were elected as the new Board of Directors and officers of Legaspi Towers 300, Inc.Petitioners filed a Complaint for the Declaration of Nullity of Elections and later on amended the complaint to implead Legaspi Towers 300, Inc. as plaintiff, which motion was denied.


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Issue – 1. Whether or not a derivative suit is proper in the present case.

Ruling – A derivative suit must be differentiated from individual and representative or class suits, thus:Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other persons may be classified into individual suits, class suits, and derivative suits. Where a stockholder or member is denied the right of inspection, his suit would be individual because the wrong is done to him personally and not to the other stockholders or the corporation. Where the wrong is done to a group of stockholders, as where preferred stockholders' rights are violated, a class or representative suit will be proper for the protection of all stockholders belonging to the same group. But where the acts complained of constitute a wrong to the corporation itself, the cause of action belongs to the corporation and not to the individual stockholder or member. Although in most every case of wrong to the corporation, each stockholder is necessarily affected because the value of his interest therein would be impaired, this fact of itself is not sufficient to give him an individual cause of action since the corporation is a person distinct and separate from him, and can and should itself sue the wrongdoer. Otherwise, not only would the theory of separate entity be violated, but there would be multiplicity of suits as well as a violation of the priority rights of creditors.

Since it is the corporation that is the real party-in-interest in a derivative suit, then the reliefs prayed for must be for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the corporation, then it is an improper derivative suit.

As stated by the Court of Appeals, petitioners’ complaint seeks to nullify the said election, and to protect and enforce their individual right to vote. Petitioners seek the nullification of the election of the Board of Directors for the years 2004-2005, composed of herein respondents, who pushed through with the election even if petitioners had adjourned the meeting allegedly due to lack of quorum. Petitioners are the injured party, whose rights to vote and to be voted upon were directly affected by the election of the new set of board of directors. The party-in-interest are the petitioners as stockholders, who wield such right to vote. The cause of action devolves on petitioners, not the condominium corporation, which did not have the right to vote. Hence, the complaint for nullification of the election is a direct action by petitioners, who were the members of the Board of Directors of the corporation before the election, against respondents, who are the newly-elected Board of Directors. Under the circumstances, the derivative suit filed by petitioners in behalf of the condominium corporation in the Second Amended Complaint is improper.

EQUITABLE BANKING CORPORATION, INC. vs. SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO

G.R. No. 175350 / June 13, 2012DEL CASTILLO

Facts – Respondent Special Steel Products, Inc. (SSPI) sold welding electrodes to International Copra

Export Corporation (Interco). In payment for the above welding electrodes, Interco issued three checks payable to the order of SSPI. Each check was crossed with the notation "account payee only" and was drawn against Equitable Banking Corporation. The records do not identify the signatory for these three checks, or explain how Uy, Interco’s purchasing officer, came into possession of these checks.


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The records only disclose that Uy presented each crossed check to Equitable on the day of its issuance and claimed that he had good title thereto. He demanded the deposit of the checks in his personal accounts in Equitable. The bank acceded to Uy’s demands on the assumption that Uy, as the son-in-law of Interco’s majority stockholder, was acting pursuant to Interco’s orders. The bank also relied on Uy’s status as a valued client. Thus, Equitable accepted the checks for deposit in Uy’s personal accounts and stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT GUARANTEED" on their dorsal portion. Uy promptly withdrew the proceeds of the checks.

In October 1991, SSPI reminded Interco of the unpaid welding electrodes. Interco replied that it had already issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these checks.

Issue – 1. Whether or not Equitable Banking Corporation is guilty of gross negligence.

Ruling – The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order,

and contained the notation "account payee only." This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other. At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account. It is well to remember that “the banking system has become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. In this connection, it is important that banks should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it."

The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him. Considering however, that the named payee does not have an account with Equitable (hence, the latter has no specimen signature of SSPI by which to judge the genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uy’s word that he had a good title to the three checks. Such misplaced reliance on empty words is tantamount to gross negligence, which is the "absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to avoid them."

Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances.

RIZAL COMMERCIAL BANKING CORPORATION VS. HI-TRI DEVELOPMENT CORPORATION AND LUZ R. BAKUNAWA

G.R. No. 192413 / June 13, 2012SERENO

Facts – Luz Bakunawa and her husband Manuel, are registered owners of six (6) parcels of land.

Sometime in 1990, a certain Teresita Millan, offered to buy said lots, with the promise that she will take care of clearing whatever preliminary obstacles there may be to effect a "completion of the sale".


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Millan made a downpayment of "P 1,019,514.29" for the intended purchase. However, for one reason or another, Millan was not able to clear said obstacles. As a result, the Spouses Bakunawa rescinded the sale and offered to return to Millan her downpayment. Consequently, the Spouses Bakunawa, through their company, the Hi-Tri Development Corporation took out on October 28, 1991, a Manager’s Check from RCBC-Ermita, payable to Millan’s company Rosmil Realty and Development Corporation. Upon advice of their counsel, Spouses Bakunawa retained custody of RCBC Manager’s Check and refrained from canceling or negotiating it until the settlement of their case against Millan.

On January 31, 2003, during the pendency of the case and without the knowledge of Hi-Tri and Spouses Bakunawa, RCBC reported the "P 1,019,514.29-credit existing in favor of Rosmil" to the Bureau of Treasury as among its "unclaimed balances". On December 14, 2006, the Republic filed an escheat proceeding covering the amount in RCBC’s Manager’s Check. On April 30, 2008, the parties settled amicably. Manuel Bakunawa, inquired from RCBC-Ermita the availability of the P1,019,514.29 under RCBC Manager’s Check, they were however dismayed when informed that the amount was already subject of the escheat proceedings before the RTC.

Issue – 1. Whether or not the mere issuance of a manager’s check work as an automatic transfer of funds

to the account of the payee?

Ruling – An ordinary check refers to a bill of exchange drawn by a depositor (drawer) on a bank

(drawee), requesting the latter to pay a person named therein (payee) or to the order of the payee or to the bearer, a named sum of money. The issuance of the check does not of itself operate as an assignment of any part of the funds in the bank to the credit of the drawer. Here, the bank becomes liable only after it accepts or certifies the check. After the check is accepted for payment, the bank would then debit the amount to be paid to the holder of the check from the account of the depositor-drawer.

There are checks of a special type called manager’s or cashier’s checks. These are bills of exchange drawn by the bank’s manager or cashier, in the name of the bank, against the bank itself. Typically, a manager’s or a cashier’s check is procured from the bank by allocating a particular amount of funds to be debited from the depositor’s account or by directly paying or depositing to the bank the value of the check to be drawn. Since the bank issues the check in its name, with itself as the drawee, the check is deemed accepted in advance. Ordinarily, the check becomes the primary obligation of the issuing bank and constitutes its written promise to pay upon demand.

Nevertheless, the mere issuance of a manager’s check does not ipso facto work as an automatic transfer of funds to the account of the payee. Since there was no delivery, presentment of the check to the bank for payment did not occur. An order to debit the account of respondents was never made. In fact, petitioner confirms that the Manager’s Check was never negotiated or presented for payment to its Ermita Branch, and that the allocated fund is still held by the bank. As a result, the assigned fund is deemed to remain part of the account of Hi-Tri, which procured the Manager’s Check. The doctrine that the deposit represented by a manager’s check automatically passes to the payee is inapplicable, because the instrument – although accepted in advance – remains undelivered. Hence, respondents should have been informed that the deposit had been left inactive for more than 10 years, and that it may be subjected to escheat proceedings if left unclaimed.

No one will be able to stand against you all the days of your life. As I was with Moses, so I will be with you;

I will never leave you nor forsake you.(Joshua 1: 5-6)


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GOOD LUCK!GOD BLESS

ALL RIGHTS RESERVEDBatangas City and Manila

2015


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Documents

2015 Points to Ponder in Commercial Law by Prof. Erickson H. Balmes.docx