COMMERCIAL LAW 1

2017 Bar Last Minute Lectures

110 Questions in Merc 1
SACP Rocille S. Aquino-Tambasacan1

CORPORATION CODE

Foreign Equity Computation

1. In the computation of the 60-40 ratio for foreign equity ownership, how should it be computed: is it on a
per class, with or without voting rights, or those with voting rights only?

It only refers to those with voting shares. The restrictive application proposed might result to
deprivation of capital if there were no Filipino takers. Roy III vs. Herbosa, November 22, 2016, J. Caguioa

Kinds of Corporations

2. Manila Economic and Cultural Office (MECO) was established to foster relations with Taiwan, pursuant to a
One China Policy. Considering its public functions, is it a GOCC whose accounts are subject to the audit
jurisdiction of the COA?

GOCCs are stock or non-stock corporations vested with functions relating to public needs that are
owned by the government directly or through its instrumentalities." Three attributes thus make an entity a
GOCC: first, its organization as stock or non-stock corporation; second, the public character of its function;
and third, government ownership over the same. The last element was not met here.
MECO is actually a sui generis entity. Though it has a special duty and authority to exercise certain
consular functions, it maintains its legal status as a non-governmental entity. Thus, only accounts
pertaining to the verification and consular fees may be audited by the COA. Funa vs. MECO, February 4,
2014; J. Perez

3. How do you determine if the government owns a stock or non-stock corporation?

If the government has controlling interest in the corporation. In a stock corporation, the controlling
interest of the government is assured by its ownership of at least 51% of the corporate capital stock. In a
non-stock corporation, the controlling interest of the government is affirmed when at least majority of the
members are government officials holding such membership by appointment or designation or there is
otherwise substantial participation of the government in the selection of the corporation's governing board.
Funa vs. MECO, February 4, 2014; J. Perez

Corporate Name

4. Royal Savings Bank was renamed as Comsavings Bank, Inc. and later as GSIS Family Bank, a Thrift Bank.
BPI Family Bank, which had been in existence 17 years ahead, opposed on the use of family bank. Is it
warranted?

Yes, as the proposed name is similar or deceptive or confusingly similar to that of any existing
corporation or to any other name already protected by law.
If there be identical, misleading or confusingly similar name to one already registered by another
corporation or partnership with the SEC, the proposed name must contain at least one distinctive word
different from the name of the company already registered.
The words "GSIS" and "thrift" are not sufficiently distinct words that differentiate the corporate
name from BPI. While "GSIS" is merely an acronym of the proper name by which petitioner is identified, the
word "thrift" is simply a classification of the type of bank that petitioner is. Even if the classification of the
bank as "thrift" is appended to petitioner's proposed corporate name, it will not make the said corporate
name distinct from BPI Family Bank because the latter is likewise engaged in the banking business. The
overriding consideration in determining whether a person, using ordinary care and discrimination, might
be misled is the circumstance that both petitioner and respondent are engaged in the same business of
banking. The likelihood of confusion is accentuated in cases where the goods or business of one corporation
are the same or substantially the same to that of another corporation. GSIS Family Bank vs. BPI Family
Bank, September 23, 2015; J. Jardeleza

1The author of this material is a Senior Assistant City Prosecutor of the City of Manila. She is also a Commercial Law Professor
and Bar Reviewer at San Sebastian College Recoletos-Manila, Polytechnic University of the Philippines, Academicus Review
Center and Albano Review Center. She also authored two books in Commercial Law Handbook in Insurance Law as well as
Negotiable Instruments in a Nutshell with Central Books. Her article Disneyfication vis--vis Copyright: Original Stories Lost,
appears in 795 SCRA 691.
5. What is the restriction on the exclusive right to use a corporate name?

A corporation has a right to the exclusive use of a corporate name except if:
1. the complainant corporation acquired a prior right over the use of such corporate name; and
2. the proposed name is either
a. identical or
b. deceptive or confusingly similar to that of any existing corporation or to any other name
already protected by law; or
c. patently deceptive, confusing or contrary to existing law. GSIS Family Bank vs. BPI Family
Bank, September 23, 2015; J. Jardeleza

6. Can an organization apply for registration of a corporate name Samahan ng Manggagawa sa Hanjin
Shipyard when some of the members of the Samahan are not employees of the shipyard?

No. The proposed name is identical or deceptively or confusingly similar to that of any existing
corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to
existing laws.
The policy underlying the prohibition against the registration of such a corporate name is the
avoidance of fraud upon the public which would have occasion to deal with the entity concerned, the
evasion of legal obligations and duties, and the reduction of difficulties of administration and supervision
over corporations.
It would be misleading for the members of Samahan to use "Hanjin Shipyard" in its name as it could
give the wrong impression that all of its members are employed by Hanjin. Samahan ng Manggagawa sa
Hanjin Shipyard vs. Bureau of Labor Relations, October 14, 2015; J. Mendoza

7. Would change of corporate name result to dissolution?

No. The Corporation Code defined and delineated the different modes of dissolving a corporation,
and amendment of the articles of incorporation was not one of such modes. Zuellig Freight and Cargo
Systems vs. NLRC, July 22, 2013, J. Bersamin

8. What is the effect of change of corporate name?

The effect of the change of name was not a change of the corporate being. The changing of the
name of a corporation is no more the creation of a corporation than the changing of the name of a natural
person is begetting of a natural person. There is only a change of name, and not a change of being.
A change in the corporate name does not make a new corporation, whether effected by a special act
or under a general law. It has no effect on the identity of the corporation, or on its property, rights, or
liabilities. The corporation, upon such change in its name, is in no sense a new corporation, nor the
successor of the original corporation. It is the same corporation with a different name, and its character is in
no respect changed. Zuellig Freight and Cargo Systems vs. NLRC, July 22, 2013; J. Bersamin

9. Can a corporation use as corporate name the name of a defunct corporation?

Yes. A corporation is ipso facto dissolved as soon as its term of existence expires. The name of a
dissolved firm shall not be allowed to be used by other firms within three (3) years after the approval of the
dissolution of the corporation by the Commission, unless allowed by the last stockholders representing at
least majority of the outstanding capital stock of the dissolved firm. Indian Chamber of Commerce, Phils.
Inc. vs. Filipino Indian Chamber of Commerce in the Phils., Inc., August 3, 2016, J. Jardeleza

Separate Juridical Personality and Piercing the Veil of Corporate Fiction

10. Can an officer and stockholder of the corporation be held liable for its debts?

No. 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. 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. Heirs of Uy vs. International Exchange Bank, February 13, 2013; J. Mendoza

11. When will the directors, officers or employees of the corporation be solidary liability with that of the
corporation?

a. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or
assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in
directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the
corporation, its stockholders or members, and other persons;
2
 b. When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;
c. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally
and solidarily liable with the corporation; or
d. When a director, trustee or officer is made, by specific provision of law, personally liable for his
corporate action. Heirs of Uy vs. International Exchange Bank, February 13, 2013; J. Mendoza

12. What are the requisites before a director or officer of a corporation can be held personally liable for
corporate obligations?

a. 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
b. the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
Heirs of Uy vs. International Exchange Bank, February 13, 2013; J. Mendoza

13. What are the probative factors of identity that will justify the application of the doctrine of piercing the
corporate veil?

a. Stock ownership by one or common ownership of both corporations;

b. Identity of directors and officers;
c. The manner of keeping corporate books and records;
d. Methods of conducting the business. Heirs of Uy vs. International Exchange Bank, February 13,
2013; J. Mendoza

14. What do you mean by acting in bad faith or with gross negligence in directing the corporate affairs?

Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, not
simply bad judgment or negligence. It means breach of a known duty through some motive or interest or ill
will; it partakes of the nature of fraud. Piercing the corporate veil in order to hold corporate officers
personally liable for the corporation's debts requires that the bad faith or wrongdoing of the director must
be established clearly and convincingly as bad faith is never presumed. Pioneer Insurance Surety Corp. vs.
Morning Star Travel & Tours, Inc., July 8, 2015; J. Leonen

15. Considering that the corporation itself must participate in the arbitration proceedings, could the officers be
likewise compelled to participate in it?

Yes.
When the directors are impleaded in a case against a corporation, alleging malice or bad faith on
their part in directing the affairs of the corporation, complainants are effectively alleging that the directors
and the corporation are not acting as separate entities. They are alleging that the acts or omissions by the
corporation that violated their rights are also the directors' acts or omissions. They are alleging that
contracts executed by the corporation are contracts executed by the directors. Complainants effectively
pray that the corporate veil be pierced because the cause of action between the corporation and the
directors is the same.
Thus, because the personalities of petitioners and the corporation may later be found to be
indistinct, petitioners may be compelled to submit to arbitration. Lanuza, Jr. vs. BF Corporation, October
1, 2014; J. Leonen

16. When the court disregards the corporation's distinct and separate personality from its directors or officers,
does it mean that the corporation, in all instances and for all purposes, is the same as its directors,
stockholders, officers, and agents?

No.
It does not result in an absolute confusion of personalities of the corporation and the persons
composing or representing it. Courts merely discount the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the contract and the liabilities for all damages to erring
corporate officials who participated in the corporation's illegal acts. This is done so that the legal fiction
cannot be used to perpetrate illegalities and injustices. Lanuza, Jr. vs. BF Corporation, October 1, 2014; J.
Leonen

17. What do you mean by separate entity theory?

A corporation has a personality separate and distinct from the persons acting for and in its behalf
and, in general, from the people comprising it. The obligations incurred by the corporate officers are the
direct accountabilities of the corporation they represent, and not theirs. Thus, a director, officer or
employee of a corporation is generally not held personally liable for obligations incurred by the
corporation; it is only in exceptional circumstances that solidary liability will attach to them. WPM
International Trading, Inc. vs. Labayen, September 17, 2014; J. Brion

3
18. What are the instances where the corporate veil is pierced?

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. WPM International Trading, Inc. vs. Labayen, September 17, 2014; J. Brion

19. What are the elements of piercing the corporate veil based on the alter ego theory?

a. Control, not mere majority or complete stock control, but complete domination, not only of finances
but of policy and business practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or existence of its own;
b. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiff's legal right; and
c. The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of. WPM International Trading, Inc. vs. Labayen, September 17, 2014; J. Brion

20. Can the writ be enforced against the officers who were not impleaded?

Yes. The veil of corporate fiction can be pierced, and responsible corporate directors and officers
or even a separate but related corporation, may be impleaded and held answerable solidarily in a labor
case, even after final judgment and on execution, so long as it is established that such persons have
deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have resorted to fraud,
bad faith or malice in doing so. When the shield of a separate corporate identity is used to commit
wrongdoing and opprobriously elude responsibility, the courts and the legal authorities in a labor case have
not hesitated to step in and shatter the said shield and deny the usual protections to the offending party,
even after final judgment. The key element is the presence of fraud, malice or bad faith. Bad faith, in this
instance, does not connote bad judgment or negligence but imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest
or ill will; it partakes of the nature of fraud. Guillermo vs. Uson, March 7, 2016; J. Peralta

21. Can a school secure loans of third persons?

No. As an educational institution, UM may not secure the loans of third persons. Securing loans of
third persons is not among the purposes for which it was established. The mortgage contracts executed do
not bind UM. They were executed without authority from UM as these were found to be spurious or non-
existent.
Corporations are artificial entities granted legal personalities upon their creation by their
incorporators in accordance with law. Unlike natural persons, they have no inherent powers. Third persons
dealing with corporations cannot assume that corporations have powers. It is up to those persons dealing
with corporations to determine their competence as expressly defined by the law and their articles of
incorporation.
A corporation may exercise its powers only within those definitions. Corporate acts that are outside
those express definitions under the law or articles of incorporation or those "committed outside the object
for which a corporation is created" are ultra vires.
The only exception to this rule is when acts are necessary and incidental to carry out a
corporation's purposes, and to the exercise of powers conferred by the Corporation Code and under a
corporation's articles of incorporation. University of Mindanao, Inc. vs. BSP, January 11, 2016, J. Leonen

22. What is ratification?

Ratification is a voluntary and deliberate confirmation or adoption of a previous unauthorized act.

It converts the unauthorized act of an agent into an act of the principal. It cures the lack of consent at the
time of the execution of the contract entered into by the representative, making the contract valid and
enforceable.
No act by UM can be interpreted as anything close to ratification. It was not shown that it issued a
resolution ratifying the execution of the mortgage contracts. It was not shown that it received proceeds of
the loans secured by the mortgage contracts. There was also no showing that it received any consideration
for the execution of the mortgage contracts. It even appears that petitioner was unaware of the mortgage
contracts until respondent notified it of its desire to foreclose the mortgaged properties.
Ratification must be knowingly and voluntarily done. UM's lack of knowledge about the mortgage
executed in its name precludes an interpretation that there was any ratification on its part. Acts of an
officer that are not authorized by the board of directors/trustees do not bind the corporation unless the

4
 corporation ratifies the acts or holds the officer out as a person with authority to transact on its behalf.
University of Mindanao, Inc. vs. BSP, January 11, 2016, J. Leonen

Exercise of Corporate Powers

23. Is the purchase of the property valid, absent any authority from the Board of Directors to enter into a
contract of sale?

No. The power to purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of real property needed by the corporation,
the final say will have to be with the board, whose approval will finalize the transaction. A corporation can
only exercise its powers and transact its business through its board of directors and through its officers and
agents when authorized by a board resolution or its by-laws. Absent such valid delegation/authorization,
the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in
the course of, or connected with, the performance of authorized duties of such director, are held not binding
on the corporation. Riosa vs. Tabaco La Suerte Corp., October 23, 2013; J. Mendoza

24. In a board special meeting, a director was not present because she was not notified. This resulted to the
sale of a property. The stockholder however had a meeting ratifying the sale. Is the sale valid?

A meeting of the board of directors is legally infirm if there is failure to comply with the
requirements or formalities of the law or the corporation's by laws and any action taken on such meeting
may be challenged as a consequence.
However, the actions taken in such a meeting by the directors or trustees may be ratified expressly
or impliedly. Ratification means that the principal voluntarily adopts, confirms and gives sanction to some
unauthorized act of its agent on its behalf. It is this voluntary choice, knowingly made, which amounts to a
ratification of what was theretofore unauthorized and becomes the authorized act of the party so making
the ratification. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a
prior authority. Ratification can be made either expressly or impliedly. Implied ratification may take various
forms like silence or acquiescence, acts showing approval or adoption of the act, or acceptance and
retention of benefits flowing therefrom. Lopez Realty, Inc. vs. Spouses Tanjangco, G.R. No. 154291,
November 12, 2014; J. Reyes

Disposition and Transfer of Shares

25. A stockholder sold his one common share in a golf and country club to a buyer. No stock certificate was
issued in the buyers name, prompting the buyer to sue for rescission, where he won. Can the club appeal
the ruling?

No. It was not a party to the sale even though the subject of the sale was its share of stock. The
corporation whose shares of stock are the subject of a transfer transaction (through sale, assignment,
donation, or any other mode of conveyance) need not be a party to the transaction. However, to bind the
corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation.
As party to the sale, the seller/stockholder is the one who may appeal the ruling rescinding the sale.
The remedy of appeal is available to a party who has a present interest in the subject matter of the litigation
and is aggrieved or prejudiced by the judgment. A party, in turn, is deemed aggrieved or prejudiced when
his interest, recognized by law in the subject matter of the lawsuit, is injuriously affected by the judgment,
order or decree." The rescission of the sale does not in any way prejudice the club in such a manner that its
interest in the subject matter the share of stock is injuriously affected. Thus, the club is in no position
to appeal the ruling rescinding the sale of the share. Forest Hills Golf and Country Club vs. Vertex Sales,
March 6, 2013; J. Brion

26. Can illegal acts be ratified?

No. Subsequent ratification made by the stockholders did not cure the substantive infirmity, the
defect having set in at the time the void act was done. The defect goes into the very authority of the persons
who made the call for the meeting. Illegal acts of a corporation which contemplate the doing of an act which
is contrary to law, morals or public order, or contravenes some rules of public policy or public duty are void.
They cannot serve as basis for a court action, nor acquire validity by performance, ratification or estoppel.
A distinction should be made between corporate acts or contracts which are illegal and those which
are merely ultra vires. The former contemplates the doing of an act which are contrary to law, morals or
public policy or public duty and are void. They cannot serve as basis of a court action nor acquire validity by
performance, ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not illegal
or void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable
and may become binding and enforceable when ratified by the stockholders. Bernas vs. Cinco, July 1,
2015; J. Perez

27. Would inheritance of the shares of stock automatically afford an heir the rights of a majority stockholder?
5
 No.
Under Sec. 63, all transfers of shares of stock must be registered in the corporate books in order to
be binding on the corporation. An owner of shares of stock cannot be accorded the rights pertaining to a
stockholder such as the right to call for a meeting and the right to vote, or be voted for if his
ownership of such shares is not recorded in the Stock and Transfer Book. F.S. Velasco Co., Inc. vs. Madrid,
November 10, 2015; J. Perlas-Bernabe

Right to Inspect Records

28. The newly-elected officers demanded from the previous officer the turnover of the corporate records of the
company. In case of refusal, will a complaint for violation of a stockholder's right to examine corporate
records under Section 74 prosper?

No.
Section 74 contemplates a situation wherein a corporation, acting thru one of its officers or agents,
denies the right of any of its stockholders to inspect the records, minutes and the stock and transfer book of
such corporation.
Petitioners are not actually invoking their right to inspect the records and the stock and transfer
book of STRADEC under Section 74. What they seek to enforce is the proprietary right of STRADEC to be in
possession of such records and book. Such right, though certainly legally enforceable by other means,
cannot be enforced by a criminal prosecution based on a violation of Section 74. Yujuico vs. Quiambao,
June 2, 2014; J. Perez

29. Is the presentation of a stock certificate a condition sine qua non for proving one's shareholding in a
corporation?

No.
A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, but
the possession of the certificate is not the sole determining factor of one's stock ownership. A certificate of
stock is merely the paper representative or tangible evidence of the stock itself and of the various interests
therein. The certificate is not stock in the corporation but is merely evidence of the holder's interest and
status in the corporation, his ownership of the share represented thereby, but is not in law the equivalent of
such ownership. It expresses the contract between the corporation and the stockholder, but it is not
essential to the existence of a share in stock or the creation of the relation of shareholder to the corporation.
Insigne vs. Abra Valley Colleges, Inc., July 29, 2015; J. Bersamin

30. What is the nature of a stock and transfer book (STB)?

STB is not the exclusive evidence of the matters and things that ordinarily are or should be written
therein, for parol evidence may be admitted to supply omissions from the records, or to explain ambiguities,
or to contradict such records, A stock and transfer book is the book which records the names and addresses
of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment thereof; a statement of every alienation, sale or
transfer of stock made, the date thereof and by and to whom made; and such other entries as may be
prescribed by law. A stock and transfer book is necessary as a measure of precaution, expediency and
convenience since it provides the only certain and accurate method of establishing the various corporate
acts and transactions and of showing the ownership of stock and like matters. However, a stock and transfer
book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive
evidence of the matters and things which ordinarily are or should be written therein. In fact, it is generally
held that the records and minutes of a corporation are not conclusive even against the corporation but are
prima facie evidence only, and may be impeached or even contradicted by other competent evidence. Thus,
parol evidence may be admitted to supply omissions in the records or explain ambiguities, or to contradict
such records. Insigne vs. Abra Valley Colleges, Inc., July 29, 2015; J. Bersamin

31. Is a corporate secretary mandated to record attachments in the stock and transfer book?

No. Only absolute transfers of shares of stock are required to be recorded in the corporation's
stock and transfer book in order to have force and effect as against third persons. Attachment of shares are
not considered "transfer" and need not be recorded in the corporations' stock and transfer book. Chattel
mortgage over shares of stock need not be registered in the corporation's stock and transfer book inasmuch
as chattel mortgage over shares of stock does not involve a "transfer of shares," and that only absolute
transfers of shares of stock are required to be recorded in the corporation's stock and transfer book in
order to have "force and effect as against third persons."
A 'transfer' is the act by which the owner of a thing delivers it to another with the intent of passing
the rights which he has in it to the latter, and a chattel mortgage is not within the meaning of such term.
6
 The requirement that the transfer shall be recorded in the books of the corporation to be valid as
against third persons has reference only to absolute transfers or absolute conveyance of the ownership or
title to a share." Ferro Chemicals vs. Garcia, October 5, 2016; J. Perez

32. What is the procedure to effect valid transfer of stocks?

(a) there must be delivery of the stock certificate; (b) the certificate must be endorsed by the owner
or his attorney-in-fact or other persons legally authorized to make the transfer; and (c) to be valid against
third parties, the transfer must be recorded in the books of the corporation.
It is the delivery of the certificate, coupled with the endorsement by the owner or his duly
authorized representative that is the operative act of transfer of shares from the original owner to the
transferee. In a sale of shares of stock, physical delivery of a stock certificate is one of the essential
requisites for the transfer of ownership of the stocks purchased. The delivery contemplated in Section 63,
however, pertains to the delivery of the certificate of shares by the transferor to the transferee, that is, from
the original stockholder named in the certificate to the person or entity the stockholder was transferring
the shares to, whether by sale or some other valid form of absolute conveyance of ownership. Shares of
stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be
vested in the transferee by the delivery of the duly indorsed certificate of stock. Teng vs. SEC, February 17,
2016, J. Reyes

33. Is surrender of the certificates of stock a requisite before registration of the transfer may be made in the
corporate books and for the issuance of new certificates in its stead?

No. Section 63 of the Corporation Code prescribes the manner by which a share of stock may be
transferred. The provision on the transfer of shares of stocks contemplates no restriction as to whom they
may be transferred or sold. As owner of personal property, a shareholder is at liberty to dispose of them in
favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of
law.
The right of a transferee/assignee to have stocks transferred to his name is an inherent right
flowing from his ownership of the stocks. A corporation cannot create restrictions in stock transfers. In
transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not try to
decide the question of ownership.
Nevertheless, to be valid against third parties and the corporation, the transfer must be recorded or
registered in the books of corporation. Teng vs. SEC, February 17, 2016, J. Reyes

34. Why is registration of the transfer necessary?

One, to enable the transferee to exercise all the rights of a stockholder; two, to inform the
corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and
subject to the liabilities of a stockholder; and three, to avoid fictitious or fraudulent transfers.
The only safe way to accomplish the hypothecation of share of stock is for the transferee to insist on
the assignment and delivery of the certificate and to obtain the transfer of the legal title to him on the books
of the corporation by the cancellation of the certificate and the issuance of a new one to him.
Upon registration of the transfer in the books of the corporation, the transferee may now then
exercise all the rights of a stockholder, which include the right to have stocks transferred to his name. From
the corporation's point of view, the transfer is not effective until it is recorded. Unless and until such
recording is made, the demand for the issuance of stock certificates to the alleged transferee has no legal
basis. The stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject
to the liabilities of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation
is under no specific legal duty to issue stock certificates in the transferee's name. Teng vs. SEC, February
17, 2016, J. Reyes

35. What is the procedure for the issuance of new certificates of stock in the name of a transferee?
First, the certificates must be signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the corporation. Second, delivery of the
certificate is an essential element of its issuance. Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must first be fully paid. Fourth, the original certificate must be
surrendered where the person requesting the issuance of a certificate is a transferee from a stockholder.
The surrender of the original certificate of stock is necessary before the issuance of a new one so
that the old certificate may be cancelled. A corporation is not bound and cannot be required to issue a new
certificate unless the original certificate is produced and surrendered. Surrender and cancellation of the old
certificates serve to protect not only the corporation but the legitimate shareholder and the public as well,
as it ensures that there is only one document covering a particular share of stock. Teng vs. SEC, February
17, 2016, J. Reyes

36. Can a stockholder who owns only 0.001% of a corporation ask for examination of corporate records?

Yes.

7
 Sec. 74 of the Corporation Code has granted to all stockholders the right to inspect the corporate
books and records, and in so doing has not required any specific amount of interest for the exercise of the
right to inspect.
Neither could the corporation arbitrarily deny the stockholders right to inspect the corporate
books and records on the basis that her inspection would be used for a doubtful or dubious reason. The only
time when the demand to examine and copy the corporation's records and minutes could be refused is
when the corporation puts up as a defense to any action that "the person demanding" had "improperly used
any information secured through any prior examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand."
The right of the shareholder to inspect the books and records should not be made subject to the
condition of a showing of any particular dispute or of proving any mismanagement or other occasion
rendering an examination proper, but if the right is to be denied, the burden of proof is upon the
corporation to show that the purpose of the shareholder is improper, by way of defense. Terelay
Investment and Development Corp. vs. Yulo, August 5, 2015; J. Bersamin

37. What are the purposes held to justify a demand for inspection?

a. To ascertain the financial condition of the company or the propriety of dividends;

b. the value of the shares of stock for sale or investment;
c. whether there has been mismanagement;
d. in anticipation of shareholders' meetings to obtain a mailing list of shareholders to solicit proxies or
influence voting;
e. to obtain information in aid of litigation with the corporation or its officers as to corporate
transactions. Terelay Investment and Development Corpo. vs. Yulo, August 5, 2015; J. Bersamin

38. What are the improper purposes which may justify denial of the right of inspection?
a. Obtaining of information as to business secrets or to aid a competitor;
b. to secure business "prospects" or investment or advertising lists;
c. to find technical defects in corporate transactions in order to bring "strike suits" for purposes of
blackmail or extortion. Terelay Investment and Development Corpo. vs. Yulo, August 5, 2015; J.
Bersamin

39. Will an action for injunction filed by a corporation generally lie to prevent the enforcement by a stockholder
of his right to inspection?

No. The Corporation Code provides that a stockholder has the right to inspect the records of all
business transactions of the corporation and the minutes of any meeting at reasonable hours on business
days. The stockholder may demand in writing for a copy of excerpts from these records or minutes, at his
expense. The right to inspect under Section 74 is subject to certain limitations. However, these limitations
are expressly provided as defenses in actions filed under Section 74. Thus, a corporation's objections to the
right to inspect must be raised as a defense.
The petition is a pre-emptive action unjustly intended to impede and restrain the stockholders'
rights. If a stockholder demands the inspection of corporate books, the corporation could refuse to heed to
such demand. When the corporation denies the stockholders of such right, the latter could then go to court
and enforce their rights. It is then that the corporation could set up its defenses and the reasons for the
denial of such right. Thus, the proper remedy available for the enforcement of the right of inspection is
undoubtedly the writ of mandamus to be filed by the stockholders and not a petition for injunction filed by
the corporation. Philippine Associated Smelting and Refining Corp. vs. Lim, October 5, 2016, J. Leonen

40. Does a stockholder still have the right to inspect after the expiration of the corporations term?

Yes. The corporation continues to be a body corporate for three (3) years after its dissolution for
purposes of prosecuting and defending suits by and against it and for enabling it to settle and close its
affairs, culminating in the disposition and distribution of its remaining assets. The termination of the life of
a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such
entity nor those of its owners and creditors.
Further, Sections 122 and 145 of the Corporation Code explicitly provide for the continuation of the
body corporate for three years after dissolution. The rights and remedies against, or liabilities of, the
officers shall not be removed or impaired by reason of the dissolution of the corporation. Corollarily then, a
stockholder's right to inspect corporate records subsists during the period of liquidation. Chua vs. People,
August 24, 2016, J. Reyes

41. What are the requirements for a stockholders' special meeting to be valid?

Certain requirements must be met with respect to notice, quorum and place. One of the
requirements is a previous written notice sent to all stockholders at least one (1) week prior to the
scheduled meeting, unless otherwise provided in the by-laws. Guy vs. Guy, April 19, 2016, J. Sereno

8
42. Was there compliance with the notice requirement when mail was sent in time but not received in time by
the stockholder?

Yes. No irregularity exists in the mailing of the notice calling for the special stockholders' meeting
since it abides by what is stated in the by-laws. Date of actual receipt by the addressee is immaterial. Guy
vs. Guy, April 19, 2016, J. Sereno

43. Who is a "stockholder of record"?

A person who desires to be recognized as stockholder for the purpose of exercising stockholders'
right must secure standing by having his ownership of share recorded on the stock and transfer book. Only
those whose ownership of shares are duly registered in the stock and transfer book are considered
stockholders of record and are entitled to all rights of a stockholder. Guy vs. Guy, April 19, 2016, J. Sereno

44. Is a transferee of shares whose shares are unrecorded a stockholder of record? What is the purpose of
registration?

No. Until registration is accomplished, the transfer, though valid between the parties, cannot be
effective as against the corporation. Thus, the unrecorded transferee cannot vote nor be voted for. The
purpose of registration is two-fold: to enable the transferee to exercise all the rights of a stockholder,
including the right to vote and to be voted for, and to inform the corporation of any change in share
ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a
stockholder. Until challenged in a proper proceeding, a stockholder of record has a right to participate in
any meeting; his vote can be properly counted to determine whether a stockholders' resolution was
approved, despite the claim of the alleged transferee. On the other hand, a person who has purchased stock,
and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by
having the transfer recorded on the corporate books. Until the transfer is registered, the transferee is not a
stockholder but an outsider. Guy vs. Guy, April 19, 2016, J. Sereno

45. A stockholder was notified 4 days before an election. Is this valid notice?

Yes. The by-laws may provide a period shorter than the 2 weeks notice provided for by the
Corporation Code, due to the use of the phrase unless a different period is required by the by-laws.
Ricafort vs. Dicdican, March 9, 2016, J. Reyes

Derivative Suit

46. What is a derivative suit?

A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce

corporate rights against the corporation's directors, officers or other insiders. Under Sections 23 and 36, the
directors or officers, as provided under the by-laws, have the right to decide whether or not a corporation
should sue. Since these directors or officers will never be willing to sue themselves, or impugn their
wrongful or fraudulent decisions, stockholders are permitted by law to bring an action in the name of the
corporation to hold these directors and officers accountable. In derivative suits, the real party in interest is
the corporation, while the stockholder is a mere nominal party. Ang vs. Spouses Ang, June 19, 2013; J.
Carpio

47. What is the basis of a derivative suit?

It is not based on any express provision of the Corporation Code, or even the Securities Regulation
Code, but is impliedly recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a
stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a special
injury to him for which he is otherwise without redress. In effect, the suit is an action for specific
performance of an obligation owed by the corporation to the stockholders to assist its rights of action when
the corporation has been put in default by the wrongful refusal of the directors or management to make
suitable measures for its protection. The basis of a stockholder's suit is always one in equity. Ang vs.
Spouses Ang, June 19, 2013; J. Carpio

48. What are the requirements for a derivative suit to prosper?

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits:
a. The person filing the suit must be a stockholder or member at the time the acts or transactions
subject of the action occurred and the time the action was filed;
b. He must have 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;
9
 c. No appraisal rights are available for the act or acts complained of; and
d. The suit is not a nuisance or harrassment suit. Ang vs. Spouses Ang, June 19, 2013; J. Carpio

49. In a derivative suit, a stockholder alleges that the acts of the BOD were detrimental to his individual interest
as a stockholder. Will it prosper?

No. It is an individual suit. He did not bring the action for the benefit of the corporation. Instead, he
was alleging that the acts of PPC's directors were detrimental to his individual interest as a stockholder. In
filing an action, therefore, his intention was to vindicate his individual interest and not PPC's or a group of
stockholders.
Individual suits are filed when the cause of action belongs to the individual stockholder personally,
and not to the stockholders as a group or to the corporation. Villamor, Jr. vs. Umale, September 24, 2014;
J. Leonen

50. What are the reasons for disallowing a direct individual suit?

a. A stockholder has no title legal or equitable to the corporate property;

b. The prior rights of the creditors may be prejudiced. The stockholders may not directly claim those
damages for themselves for that would result in the appropriation by, and the distribution among
them of part of the corporate assets before the dissolution of the corporation and the liquidation of
its debts and liabilities.
c. The filing of such suits would conflict with the duty of the management to sue for the protection of
all concerned;
d. It would produce wasteful multiplicity of suits; and
e. It would involve confusion in ascertaining the effect of partial recovery by an individual on the
damages recoverable by the corporation for the same act. Villamor, Jr. vs. Umale, September 24,
2014; J. Leonen

51. Can a derivative suit filed to curb the alleged mismanagement of a corporation prosper when the complaint
contained no allegation of any effort to avail of intra-corporate remedies?

No. Even if petitioners thought it was futile to exhaust intra-corporate remedies, they should have
stated the same in the complaint and specified the reasons for such opinion. The requirement of this
allegation in the complaint is not a useless formality which may be disregarded at will. Ching vs. Subic Bay
Golf and Country Club, Inc., September 10, 2014; J. Leonardo-de Castro

52. The transfer of shares to the different entities were being nullified via a class/individual suit by certain
stockholders, being against the law. They prayed that the entire capital structure be reconfigured. Is the
action by the stockholders via a class/individual suit warranted?

No. While the stockholders were permitted to seek relief, they should have done so not in their
unique capacity as individuals or as a group of stockholders but in place of the corporation itself through a
derivative suit. The specific provisions adverted to signify alleged wrongdoing committed against the
corporation itself and not uniquely to the stockholders. A violation of Sections 23 and 25 of the Corporation
Code on how decision-making is vested in the board of directors and on the board's quorum requirement
implies that a decision was wrongly made for the entire corporation, not just with respect to a handful of
stockholders. Section 65 specifically mentions that a director's or officer's liability for the issuance of
watered stocks in violation of Section 62 is solidary "to the corporation and its creditors," not to any specific
stockholder. Transfers of shares made in violation of the registration requirement in Section 63 are invalid
and, thus, enable the corporation to impugn the transfer. Florete vs. Florete, January 20, 2016, J. Leonen

53. What is the difference between an individual, class and derivative suit?

Individual suits are filed when the cause of action belongs to the individual stockholder personally,
and not to the stockholders as a group or to the corporation, e.g., denial of right to inspection and denial of
dividends to a stockholder. If the cause of action belongs to a group of stockholders, such as when the rights
violated belong to preferred stockholders, a class or representative suit may be filed to protect the
stockholders in the group.
A derivative suit is an action filed by stockholders to enforce a corporate action. A derivative suit,
therefore, concerns a wrong to the corporation itself. The real party in interest is the corporation, not the
stockholders filing the suit. The stockholders are technically nominal parties but are nonetheless the active
persons who pursue the action for and on behalf of the corporation.
The fact that stockholders suffer from a wrong done to or involving a corporation does not vest in
them a sweeping license to sue in their own capacity.
When the object is a specific stockholder or a definite class of stockholders, an individual suit or
class/representative suit must be resorted to. When the object of the wrong done is the corporation itself or
the whole body of its stock and property without any severance or distribution among individual holders, it
is a derivative suit that a stockholder must resort to. Florete vs. Florete, January 20, 2016, J. Leonen

10
Merger and Consolidation

54. Would transfer of all or substantially all the assets of a corporation carry with it the assumption of
corporate liabilities?

Yes, considering that YIL, Y-I Leisure Phils., Inc. and Y-I Club & Resorts, Inc. would only be
continuing the business of Mt. Arayat Development, and hence an exception under the Nell Doctrine. Y-I
Leisure Phils., Inc. vs. Yu, September 8, 2015

55. What is the Nell Doctrine?

The Nell Doctrine states the general rule that the transfer of all the assets of a corporation to
another shall not render the latter liable to the liabilities of the transferor except:
a. Where the purchaser expressly or impliedly agrees to assume such debts;
b. Where the transaction amounts to a consolidation or merger of the corporations;
c. Where the purchasing corporation is merely a continuation of the selling corporation (business
enterprise transfer); and
d. Where the transaction is entered into fraudulently in order to escape liability for such debts. Y-I
Leisure Phils., Inc. vs. Yu, September 8, 2015; J. Mendoza

56. What do you mean by business enterprise transfer?

In such transfer, the transferee corporation's interest goes beyond the assets of the transferor's
assets and its desires to acquire the latter's business enterprise, including its goodwill. In other words the
transferee purchases not only the assets of the transferor, but also its business. As a result of the sale, the
transferor is merely left with its juridical existence, devoid of its industry and earning capacity. The transfer
must be of such degree that the transferor corporation is rendered incapable of continuing its business or
its corporate purpose. Y-I Leisure Phils., Inc. vs. Yu, September 8, 2015; J. Mendoza

57. What is the purpose of the business-enterprise transfer?

It is to protect the creditors of the business by allowing them a remedy against the new owner of
the assets and business enterprise. Otherwise, creditors would be left "holding the bag," because they may
not be able to recover from the transferor who has "disappeared with the loot," or against the transferee
who can claim that he is a purchaser in good faith and for value. Based on the foregoing, as the exception of
the Nell doctrine relates to the protection of the creditors of the transferor corporation, and does not
depend on any deceit committed by the transferee corporation, then fraud is certainly not an element of the
business enterprise doctrine. Y-I Leisure Phils., Inc. vs. Yu, September 8, 2015; J. Mendoza

58. What is free and harmless clause?

In business-enterprise transfer, it is a contractual stipulation stating that the transferee shall not be
liable for any or all debts arising from the business which were contracted prior to the time of transfer. Such
stipulations are valid, but only as to the transferor and the transferee. These stipulations, though, are not
binding on the creditors of the business enterprise who can still go after the transferee for the enforcement
of the liabilities. Y-I Leisure Phils., Inc. vs. Yu, September 8, 2015

59. What are the effects of a merger?

Under Sec. 80, these are:

1. The constituent corporations shall become a single corporation which, in case of merger, shall be
the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be
the consolidated corporation designated in the plan of consolidation;
2. The separate existence of the constituent corporations shall cease, except that of the surviving or
the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities
and powers and shall be subject to all the duties and liabilities of a corporation organized under
this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations; and all property, real
or personal, and all receivables due on whatever account, including subscriptions to shares and
other choses in action, and all and every other interest of, or belonging to, or due to each
constituent corporation, shall be taken and deemed to be transferred to and vested in such
surviving or consolidated corporation without further act or deed;
5. The surviving or the consolidated corporation shall be responsible and liable for all the liabilities
and obligations of each of the constituent corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or obligations; and any claim, action or
proceeding pending by or against any of such constituent corporations may be prosecuted by or
against the surviving or consolidated corporation, as the case may be. Neither the rights of
11
 creditors nor any lien upon the property of any of such constituent corporations shall be impaired
by such merger or consolidation. Philippine Geothermal, Inc. Employees Union vs. Unocal Phils.,
Inc., September 28, 2016, J. Leonen

60. What is the effect of a merger on the employees of the absorbed corporation?

None. The surviving corporation automatically assumes the employment contracts of the absorbed
corporation, such that the absorbed corporation's employees become part of the manpower complement of
the surviving corporation. This acquisition of all assets, interests, and liabilities of the absorbed corporation
necessarily includes the rights and obligations of the absorbed corporation under its employment contracts.
Consequently, the surviving corporation becomes bound by the employment contracts entered into by the
absorbed corporation. These employment contracts are not terminated. They subsist unless their
termination is allowed by law. In short, they are not entitled to separation pay. Philippine Geothermal,
Inc. Employees Union vs. Unocal Phils., Inc., September 28, 2016, J. Leonen

Corporation Sole

61. Is the sale of property of a corporation sole valid notwithstanding failure to comply with its internal rules
on approval?

No. Under Sec. 113, any corporation sole may purchase and hold real estate and personal property
for its church, charitable, benevolent or educational purposes, and may receive bequests or gifts for such
purposes. Such corporation may mortgage or sell real property held by it upon obtaining an order for that
purpose from the CFI of the province where the property is situated; . . . Provided, That in cases where the
rules, regulations and discipline of the religious denomination, sect or church, religious society or order
concerned represented by such corporation sole regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such rules, regulations and discipline shall control, and the
intervention of the courts shall not be necessary. Iglesia Filipina Independiente vs. Heirs of Taeza,
February 3, 2014; J. Peralta

Liquidation and Winding-Up

62. Does revocation of the certificate of incorporation result in the termination of a corporations liabilities?

No. Section 122 provides for a three-year winding up period for a corporation whose charter is
annulled by forfeiture or otherwise to continue as a body corporate for the purpose, among others, of
settling and closing its affairs. Vigilla vs. Philippine College of Criminology, June 10, 2013, J. Mendoza

63. Can a dissolved corporation enter into agreements such as releases, waivers and quitclaims beyond the 3-
year winding up period?

Yes.
Although the time during which the corporation, through its own officers, may conduct the
liquidation of its assets and sue and be sued as a corporation is limited to 3 years from the time the period
of dissolution commences, there is no time limit within which the trustees must complete a liquidation
placed in their hands. What is provided in Section 122 is that the conveyance to the trustees must be made
within the 3-year period. But it may be found impossible to complete the work of liquidation within the 3-
year period or to reduce disputed claims to judgment. The trustees to whom the corporate assets have been
conveyed pursuant to the authority of Section 122 may sue and be sued as such in all matters connected
with the liquidation. Vigilla vs. Philippine College of Criminology, June 10, 2013; J. Mendoza

64. Who will continue to transact in behalf of the corporation if no trustee is appointed within the 3-year
period?

The board of directors may be permitted to complete the corporate liquidation by continuing as
"trustees" by legal implication. Vigilla vs. Philippine College of Criminology, June 10, 2013; J. Mendoza

65. A corporation whose papers were revoked by the SEC sued for the demolition of improvements on a land
owned by it. Will the suit prosper?

No. ADC lacks capacity to sue because it no longer possesses juridical personality by reason of its
dissolution and lapse of the three-year grace period provided under Section 122. Alabang Development
Corp. vs. Alabang Hills Village Association, June 2, 2014; J. Peralta

SECURITIES REGULATION CODE

Powers of the SEC

12
1. Are separate notices and hearings for suspension and revocation of registration of securities and permit to
sell them to the public required?

No. Due notice simply means the information that must be given or made to a particular person or
to the public within a legally mandated period of time so that its recipient will have the opportunity to
respond to a situation or to allegations that affect the individual's or public's legal rights or duties. The SRC
did not provide for any separate notice of hearing to revoke; there was already substantial compliance
when URPHI was given opportunity to be heard. SEC vs. Universal Rightfield Property Holdings, Inc.
(URPHI), July 20, 2015; J. Peralta

2. Is the revocation of registration of securities and permit to sell them to the public an exercise of the SEC's
quasi-judicial power or of regulatory power?

It is regulatory power.
A "quasi-judicial function" is a term which applies to the action, discretion, etc., of public
administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts,
hold hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion
of a judicial nature. Although Section 13.1 of the SRC requires due notice and hearing before issuing an
order of revocation, the SEC does not perform such quasi-judicial functions and exercise discretion of a
judicial nature in the exercise of such regulatory power. It neither settles actual controversies involving
rights which are legally demandable and enforceable, nor adjudicates private rights and obligations in cases
of adversarial nature. Rather, when the SEC exercises its incidental power to conduct administrative
hearings and make decisions, it does so in the course of the performance of its regulatory and law
enforcement function. SEC vs. Universal Rightfield Property Holdings, Inc. (URPHI), July 20, 2015; J.
Peralta

3. Does SEC possess jurisdiction to rule on validation of the proxies issued in favor of certain stockholders?

It has none.
This is an ancillary power which is now already vested with the RTC. 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 PD 902-A. However, when proxies are
solicited in relation to the election of corporate directors, the resulting controversy, even if it 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 PD 902-A. SEC vs. CA, October 22, 2014 ; J. Sereno

Intra-corporate Controversy

4. If a person is a stockholder and an officer at the same time, is the case one involving intra-corporate
controversy?

No.
Cosare was not a "corporate officer". 'Corporate officers' are those officers of the corporation who
are given that character by the Corporation Code or by the corporation's by-laws.
The mere fact that Cosare was a stockholder of Broadcom at the time of the case's filing did not
necessarily make the action an intra-corporate controversy. Not all conflicts between the stockholders and
the corporation are classified as intra-corporate. Considering that the pending dispute particularly relates
to Cosare's rights and obligations as a regular officer of Broadcom, instead of as a stockholder of the
corporation, the controversy cannot be deemed intra-corporate.
Although a blanket authority provides for the Board's appointment of such other officers as it may
deem necessary, the respondents failed to sufficiently establish that the position of AVP for Sales was
created by virtue of an act of the board, and that Cosare was specifically elected or appointed to such
position by the directors. No board resolutions were submitted; an enabling clause in the by-laws
empowering its board to create additional officers, even with the subsequent passage of a board resolution
to that effect, cannot make such position a corporate office. The board has no power to create other
corporate offices without first amending the corporate by-laws so as to include therein the newly created
corporate office. To allow the creation of a corporate officer position by a simple inclusion in the corporate
by-laws of an enabling clause empowering the board to do so can result in the circumvention of the right of
every employee to security of tenure. Cosare vs. Broadcom Asia, Inc., February 5, 2014; J. Reyes

5. What are the requirements for an individual to be considered a corporate officer, as against an ordinary
employee or officer?

a. the creation of the position is under the corporation's charter or by-laws; and
b. the election of the officer is by the directors or stockholders. Cosare vs. Broadcom Asia, Inc.,
February 5, 2014; J. Reyes

13
6. What is an intra-corporate controversy?

An intra-corporate controversy pertain to disputes that involve any of the following relationships:
a. between the corporation, partnership or association and the public;
b. between the corporation, partnership or association and the state in so far as its franchise, permit
or license to operate is concerned;
c. between the corporation, partnership or association and its stockholders, partners, members or
officers; and
d. among the stockholders, partners or associates, themselves. Cosare vs. Broadcom Asia, Inc.,
February 5, 2014; J. Reyes

7. What are the tests of determining intra-corporate controversy?

In determining the existence of an intra-corporate dispute, the status or relationship of the parties
and the nature of the question that is the subject of the controversy must be taken into account.
Under the nature of the controversy test, the incidents of that relationship must also be considered
for the purpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not
only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the
enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal
and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely
incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no
intra-corporate controversy exists. Cosare vs. Broadcom Asia, Inc., February 5, 2014; J. Reyes

8. Is the SEC empowered to constitute a management committee to oversee the corporate affairs?

Yes. Sections 5 and 53 of the SRC provides that the SEC can assume jurisdiction to determine if
there were administrative violations despite the complaint having raised intra-corporate issues. SEC may
investigate activities of corporations to ensure compliance with the law.
Beyond doubt is the authority of the SEC to hear cases regardless of whether an action involves
issues cognizable by the RTC, provided that the SEC could only act upon those which are merely
administrative and regulatory in character. In other words, the SEC was never dispossessed of the power to
assume jurisdiction over complaints, even if these are riddled with intra-corporate allegations, if their
invocation of authority is confined only to the extent of ensuring compliance with the law and the rules, as
well as to impose fines and penalties for violation thereof; and to investigate even motu proprio whether
corporations comply with the Corporation Code, the SRC and the implementing rules and regulations.
Roman, Jr. vs. SEC, June 1, 2016, J. Mendoza

9. What is the extent of the SECs power of supervision?

Under Section 5.1 (n) of the SRC, the SEC is permitted to exercise such other powers as may be
provided for by law as well as those which may be implied from, or which are necessary or incidental to the
carrying out, of the express powers granted the SEC to achieve the objectives and purposes of these laws.
With such broad authority, the SEC, as a regulator, has broad discretion to act on matters that relate
to its express power of supervision over all corporations, partnerships or associations who are the grantees
of primary franchises and/or a license or permit issued by the Government. Such grant of express power of
supervision, necessarily includes the power to create a management committee following the doctrine of
necessary implication.
The reason is simple. The creation of a management committee is one that is premised on the
immediate and speedy protection of the interest not only of minority stockholders, but also of the general
public from immediate danger of loss, wastage or destruction of assets or the paralyzation of business of a
concerned corporation or entity. No body is more competent to provide such a temporary relief other than
the regulatory body of these companies the SEC. Roman, Jr. vs. SEC, June 1, 2016, J. Mendoza

Exemption from Registration

10. If the securities of a corporation is exempted from registration, is it also exempted from complying with
reportorial requirements?

No. Though the securities issued by banking or financial institutions are exempted from
registration, it does not mean that as a listed corporation, it is exempt from complying with the reports
required by the SEC. As a bank, it is primarily subject to the control of the BSP; and as a corporation trading
its securities in the stock market, it is under the supervision of the SEC. There is no over-supervision here.
Each regulating authority operates within the sphere of its powers. That stringent requirements are
imposed is understandable, considering the paramount importance given to the interests of the investing
public. Union Bank vs. SEC, 358 SCRA 479

11. Is issuance of previously unissued authorized capital stock exempted from SEC registration?
14
 No. When capital stock is issued in the course of and in compliance with the requirements of
increasing its authorized capital stock, the SEC as a matter of course examines the financial condition of the
corporation, and hence there is no real need for exercise of SEC authority. Financial statements are likewise
submitted. Moreover, since approval of an increase in authorized capital stock by the stockholders holding
2/3 of the outstanding capital stock is required, the directors and officers of the corporation may be
expected to take pains to inform the shareholders of the financial condition and prospects of the
corporation and of the proposed utilization of the fresh capital sought to be raised.
Upon the other hand, issuance of previously authorized but unissued capital stock by the
corporation requires only Board of Directors approval. Neither notice to nor approval by the shareholders
or the SEC is required for such issuance. There would be no reasonable opportunity to inform the
stockholders about the very fact of such issuance and about the condition of the corporation and the
potential value of the shares of stock being offered. Nestle vs. CA, 203 SCRA 504

12. What is a "public company"?

It is defined as any corporation with a class of equity securities listed on an Exchange or with assets
in excess of P50M and having 200 or more holders, at least 200 of which are holding at least 100 shares of a
class of its equity securities.
A public company is not limited to a company whose shares of stock are publicly listed; even
companies like the Bank, whose shares are offered only to a specific group of people, are considered a
public company, provided they meet the requirements enumerated above. Philippine Veterans Bank vs.
Callangan, G.R. No. 191995, August 3, 2011; J. Brion

NEGOTIABLE INSTRUMENTS LAW

Elements of Negotiability

1. Are electronic messages containing instructions to debit their respective local or foreign currency accounts
in the Philippines and pay a certain named recipient also residing in the Philippines considered as
negotiable instruments?

No. The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is
supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order
or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange.
As there was no bill of exchange or order for the payment drawn abroad and made payable here in the
Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST
under Section 181 of the Tax Code. HSBC vs. CIR, June 4, 2014; J. Leonardo-de Castro

Fictitious-Payee Rule

2. When is a check considered a bearer instrument?

As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the
check is considered as a bearer instrument. PNB vs. Spouses Rodriguez, September 26, 2008; J. Reyes

3. Can an actual, existing, and living payee may also be "fictitious"?

Yes. An actual, existing, and living payee may also be "fictitious" if the maker of the check did not
intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places
a name of an existing payee on the check for convenience or to cover up an illegal activity.
In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be
negotiated by delivery. PNB vs. Spouses Rodriguez, September 26, 2008; J. Reyes

4. Is there any exception to the fictitious payee rule?

Yes. There is a commercial bad faith exception to the fictitious-payee rule. A showing of
commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will
work to strip it of this defense. The exception will cause it to bear the loss. Commercial bad faith is present if
the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
Because of a failure to show that the payees were "fictitious" in its broader sense, the fictitious-
payee rule does not apply. Thus, the checks are to be deemed payable to order. Consequently, the drawee
bank bears the loss. PNB vs. Spouses Rodriguez, September 26, 2008; J. Reyes

Holder in Due Course

15
5. Can the drawee bank of a manager's check have the option of refusing payment by interposing a personal
defense of the purchaser of the manager's check who delivered the check to a third party?

Yes, if the holder is not a holder in due course.

As a general rule, the drawee bank is not liable until it accepts. Prior to a bill's acceptance, no
contractual relation exists between the holder and the drawee. Acceptance, therefore, creates a privity of
contract between the holder and the drawee so much so that the latter, once it accepts, becomes the party
primarily liable on the instrument.
A manager's check is accepted by the bank upon its issuance. As compared to an ordinary bill of
exchange where acceptance occurs after the bill is presented to the drawee, the distinct feature of a
manager's check is that it is accepted in advance. Notably, the mere issuance of a manager's check creates a
privity of contract between the holder and the drawee bank, the latter primarily binding itself to pay
according to the tenor of its acceptance.
The drawee bank, as a result, has the unconditional obligation to pay a manager's check to a holder
in due course irrespective of any available personal defenses. However, while a manager's check is
automatically accepted, a holder other than a holder in due course is still subject to defenses. RCBC Savings
Bank vs. Odrada, October 19, 2016, J. Carpio

6. Who is a holder in due course?

Section 52 of the Negotiable Instruments Law defines a holder in due course as one who has taken
the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice that it has been
previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
To be a holder in due course, the law requires that a party must have acquired the instrument in
good faith and for value.
Good faith means that the person taking the instrument has acted with due honesty with regard to
the rights of the parties liable on the instrument and that at the time he took the instrument, the holder has
no knowledge of any defect or infirmity of the instrument. To constitute notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated
must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in
taking the instrument would amount to bad faith.
Value, on the other hand, is defined as any consideration sufficient to support a simple contract.
RCBC Savings Bank vs. Odrada, October 19, 2016, J. Carpio

7. What is the nature of a managers check?

A manager's check as a check drawn by the bank's manager upon the bank itself and accepted in
advance by the bank by the act of its issuance. It is really the bank's own check and may be treated as a
promissory note with the bank as its maker. Consequently, upon its purchase, the check becomes the
primary obligation of the bank and constitutes its written promise to pay the holder upon demand. It is
similar to a cashier's check both as to effect and use in that the bank represents that the check is drawn
against sufficient funds. RCBC Savings Bank vs. Odrada, October 19, 2016, J. Carpio

8. What are the liabilities of an acceptor?

Under Section 62 of the Negotiable Instruments Law, once he accepts, the drawee admits the
following: (a) existence of the drawer; (b) genuineness of the drawer's signature; (c) capacity and authority
of the drawer to draw the instrument; and (d) existence of the payee and his then capacity to endorse.
RCBC Savings Bank vs. Odrada, October 19, 2016, J. Carpio

9. What do you mean by acquisition in good faith?

Acquisition in good faith means taking without knowledge or notice of equities of any sort which
could be set up against a prior holder of the instrument. It means that he does not have any knowledge of
fact which would render it dishonest for him to take a negotiable paper. The absence of the defense, when
the instrument was taken, is the essential element of good faith. Patrimonio vs. Gutierrez, June 4, 2014; J.
Brion

10. If a party knew that the maker in the instrument is not a party to the loan yet he failed to verify the same, is
he a holder in due course?

No. Knowledge renders him dishonest, hence, in bad faith. His inaction and failure to verify, despite
knowledge that Patrimonio was not a party to the loan, may be construed as gross negligence amounting to
bad faith. Patrimonio vs. Gutierrez, June 4, 2014; J. Brion
16
Liabilities of Parties

11. What are the liabilities of the drawee, the intermediary banks, and the account holders for altered checks?

A depositary/collecting bank where a check is deposited, and which endorses the check upon
presentment with the drawee bank, is an endorser. An endorser warrants "that the instrument is genuine
and in all respects what it purports to be; that he has good title to it; that all prior parties had capacity to
contract; and that the instrument is at the time of his endorsement valid and subsisting." The
depositary/collecting bank or last endorser generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements. If any of the warranties made by the depositary/collecting bank turns out
to be false, then the drawee bank may recover from it up to the amount of the check. Areza vs. Express
Savings Bank, September 10, 2014; J. Perez

12. If the drawee bank fails to comply with the 24 hour period to return a forged or altered check to the
collecting bank, is the collecting bank is absolved from liability?

No. The 24-hour clearing rule does not apply to altered checks. These may be returned within the
prescriptive period fixed by law which is ten (10) years because a check or the endorsement thereon is a
written contract. Areza vs. Express Savings Bank, September 10, 2014; J. Perez

13. What is the nature of liability of an accommodation party?

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without
receiving value therefor and for the purpose of lending his name to some other person. Such person is liable
on the instrument to a holder for value, notwithstanding such holder, at the time of the taking of the
instrument knew him to be only an accommodation party. In lending his name to the accommodated party,
the accommodation party is in effect a surety for the latter. He lends his name to enable the accommodated
party to obtain credit or to raise money. He receives no part of the consideration for the instrument but
assumes liability to the other parties thereto because he wants to accommodate another. Aglibot vs. Santia,
December 5, 2012; J. Reyes

14. What is the relation between an accommodation party and the party accommodated?

It is one of principal and surety the accommodation party being the surety. It is a settled rule
that a surety is bound equally and absolutely with the principal and is deemed an original promisor and
debtor from the beginning. The liability is immediate and direct. It is not a valid defense that the
accommodation party did not receive any valuable consideration when he executed the instrument; nor is it
correct to say that the holder for value is not a holder in due course merely because at the time he acquired
the instrument, he knew that the indorser was only an accommodation party.
Unlike in a contract of suretyship, the liability of the accommodation party remains not only
primary but also unconditional to a holder for value, such that even if the accommodated party receives an
extension of the period for payment without the consent of the accommodation party, the latter is still liable
for the whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor. Aglibot vs. Santia, December 5, 2012; J. Reyes

15. What is No Erasure Rule?

Under CHOM No. 15-460 effective January 4, 2016, any check with erasure, alteration and/or
deficiency (with missing or unfilled-up portions) regardless of any signature or initial to indicate
authorization of erasures and alterations shall no longer be eligible or acceptable for clearing.

TRANSPORTATION LAW

Liability of Common Carriers

1. Should the common carrier be held liable if its passenger was shot by a co-passenger?
No. The law does not make the common carrier an insurer of the absolute safety of its
passengers. Where the injury sustained by the passenger was in no way due (1) to any defect in the means
of transport or in the method of transporting, or (2) to the negligent or willful acts of the common carrier's
employees with respect to the foregoing such as when the injury arises wholly from causes created by
strangers which the carrier had no control of or prior knowledge to prevent, the common carrier should not
be held liable.
A common carrier is responsible for injuries suffered by a passenger on account of the willful acts
or negligence of other passengers or of strangers, if the common carrier's employees through the exercise of
the diligence of a good father of a family could have prevented or stopped the act or omission. There was no
17
 showing that danger exists so as to impel the common carrier to implement heightened security measures
to ensure the safety of its passengers. G.V. Florida Transport, Inc. vs. Heirs of Battung, October 14,
2015; J. Perlas-Bernabe

2. Considering that a customs broker does not own a single truck to transport its shipment and it does not
offer transport services to the public for compensation, is it a common carrier?

Yes. A customs broker whose principal business is the preparation of the correct customs
declaration and the proper shipping documents is still considered a common carrier if it also undertakes
to deliver the goods for its customers. Delivery of the goods is an integral, albeit ancillary, part of its
brokerage services. The law does not distinguish between one whose principal business activity is the
carrying of goods and one who undertakes this task only as an ancillary activity. Torres-Madrid
Brokerage, Inc. vs. FEB Mitsui Marine Insurance Co, Inc., July 11, 2016; J. Brion

3. What is a common carrier?

Common carriers are persons, corporations, firms or associations engaged in the business of
transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to
the public. By the nature of their business and for reasons of public policy, they are bound to observe
extraordinary diligence in the vigilance over the goods and in the safety of their passengers. Torres-Madrid
Brokerage, Inc. vs. FEB Mitsui Marine Insurance Co, Inc., July 11, 2016; J. Brion

4. Is theft/robbery a fortuitous event?

Theft or the robbery of the goods is not considered a fortuitous event or a force majeure.
Nevertheless, a common carrier may absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it stipulated with the
shipper/owner of the goods to limit its liability for the loss, destruction, or deterioration of the goods to a
degree less than extraordinary diligence.
However, a stipulation diminishing or dispensing with the common carrier's liability for acts
committed by thieves or robbers who do not act with grave or irresistible threat, violence, or force is void
under Article 1745 of the Civil Code for being contrary to public policy. Robbery attended by "grave or
irresistible threat, violence or force" is a fortuitous event that absolves the common carrier from liability.
Torres-Madrid Brokerage, Inc. vs. FEB Mitsui Marine Insurance Co, Inc., July 11, 2016; J. Brion

5. Up to when should a common carrier's extraordinary responsibility over the shipper's goods last?

It lasts from the time these goods are unconditionally placed in the possession of, and received by,
the carrier for transportation, until they are delivered, actually or constructively, by the carrier to the
consignee. Torres-Madrid Brokerage, Inc. vs. FEB Mitsui Marine Insurance Co, Inc., July 11, 2016; J.
Brion

6. Up to when must there be observation of the degree of diligence required for by law?

This extraordinary diligence must be observed not only in the transportation of goods and services
but also in the issuance of the contract of carriage, including its ticketing operations.
When a common carrier, through its ticketing agent, has not yet issued a ticket to the prospective
passenger, the transaction between them is still that of a seller and a buyer. The obligation of the airline to
exercise extraordinary diligence commences upon the issuance of the contract of carriage. Ticketing, as the
act of issuing the contract of carriage, is necessarily included in the exercise of extraordinary diligence.
Manay, Jr. vs. Cebu Air, Inc., April 4, 2016; J. Leonen

7. What is a contract of carriage?

A contract of carriage is one whereby a certain person or association of persons obligate

themselves to transport persons, things, or news from one place to another for a fixed price. Once a plane
ticket is issued, the common carrier binds itself to deliver the passenger safely on the date and time stated
in the ticket. The contractual obligation of the common carrier to the passenger is governed principally by
what is written on the contract of carriage. Manay, Jr. vs. Cebu Air, Inc., April 4, 2016; J. Leonen

8. What is the correlative obligation on the part of the purchaser of a plane ticket?

Even if the ticketing agent encoded the incorrect flight information, it is incumbent upon the
purchaser of the tickets to at least check if all the information is correct before making the purchase. Once
the ticket is paid for and printed, the purchaser is presumed to have agreed to all its terms and conditions.
While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound by the
provisions thereof. Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation. It is
what is known as a contract of "adhesion," in regards which it has been said that contracts of adhesion
18
 wherein one party imposes a ready made form of contract on the other, as the plane ticket, are contracts not
entirely prohibited. Manay, Jr. vs. Cebu Air, Inc., April 4, 2016; J. Leonen

9. Can a beach resort be a common carrier?

Yes. Its ferry services are so intertwined with its main business as to be properly considered
ancillary thereto. The constancy of respondent's ferry services in its resort operations is underscored by its
having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be
availed of by anyone who can afford to pay the same. These services are thus available to the public.
That respondent does not charge a separate fee or fare for its ferry services is of no moment. It
would be imprudent to suppose that it provides said services at a loss. It is the practice of beach resort
operators offering tour packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondent's ferry services pay the same amount is likewise inconsequential.
These guests may only be deemed to have overpaid. Cruz vs. Sun Holidays, Inc., June 29, 2010; J. Carpio-
Morales

10. What is the degree of diligence imposed on common carriers?

Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence for the safety of the passengers transported by them, according to all the
circumstances of each case. They are bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances.
When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that
the common carrier is at fault or negligent. There is even no need for the court to make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence. Cruz vs. Sun Holidays, Inc., June 29, 2010; J.
Carpio-Morales

11. What are the elements of a "fortuitous event"?

a. the cause of the unforeseen and unexpected occurrence, or the failure of the debtors to comply with
their obligations, must have been independent of human will;
b. the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable,
impossible to avoid;
c. the occurrence must have been such as to render it impossible for the debtors to fulfill their
obligation in a normal manner; and
d. the obligor must have been free from any participation in the aggravation of the resulting injury to
the creditor.
To fully free a common carrier from any liability, the fortuitous event must have been the
proximate and only cause of the loss. And it should have exercised due diligence to prevent or minimize the
loss before, during and after the occurrence of the fortuitous event. Cruz vs. Sun Holidays, Inc., June 29,
2010; J. Carpio-Morales

12. Under what circumstances may a carrier be exempted from from liability for the loss of the goods?

Under Article 1734, these are:

a. Flood, storm, earthquake, lightning, or other natural disaster or calamity;
b. Act of the public enemy in war, whether international or civil;
c. Act or omission of the shipper or owner of the goods;
d. The character of the goods or defects in the packing or in the containers; and
e. Order or act of competent public authority. Loadstar Shipping vs. Pioneer Asia Insurance,
January 24, 2006

14. When is there a breach of contract of carriage?

When an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a
contract of carriage arises, and the passenger has every right to expect that he would fly on that flight and
on that date. If that does not happen, then the carrier opens itself to a suit for breach of contract of carriage.
In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the
common carrier was at fault or was negligent. All he has to prove is the existence of the contract and the fact
of its non-performance by the carrier, through the latter's failure to carry the passenger to its destination.
Ramos vs. China Southern Airlines Co. Ltd., September 21, 2016; J. Perez

15. The value of the cargoes was not incorporated in the bills of lading but the bills of lading made reference to
the invoices which specified the weight, quantity, description and value of the cargoes. Should the amount of
liability be limited only?

No. There was a compliance of the requirement provided by COGSA. The declaration requirement
does not require that all the details must be written down on the very bill of lading itself. It must be
19
 emphasized that all the needed details are in the invoice, which "contains the itemized list of goods shipped
to a buyer, stating quantities, prices, shipping charges," and other details which may contain numerous
sheets. Compliance can be attained by incorporating the invoice, by way of reference, to the bill of lading
provided that the former containing the description of the nature, value and/or payment of freight charges
is duly admitted as evidence. Eastern Shipping Lines, Inc.(ESLI) vs. BPI/MS Insurance Corp., January 12,
2015; J. Perez

16. What is the degree of diligence required of common carrier for carriage of goods?

Common carriers, from the nature of their business and on public policy considerations, are bound
to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain
exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. Eastern Shipping Lines, Inc. vs. BPI/MS Insurance Corp.,
January 12, 2015; J. Perez

17. How long would the required degree of diligence last?

The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them.
When the goods shipped are either lost or arrive 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 in the case of loss, destruction or
deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence. Phil
Charter Insurance Corp vs. Unknown Owner of the Vessel M/V National Honor, National Shipping Corp
and International Container Services Inc, July 8, 2005

18. What is a bill of lading?

A bill of lading is a written acknowledgment of the receipt of goods and an agreement to transport
and to deliver them at a specified place to a person named or on his order. It may also be defined as an
instrument in writing, signed by a carrier or his agent, describing the freight so as to identify it, stating the
name of the consignor, the terms of the contract of carriage, and agreeing or directing that the freight be
delivered to bearer, to order or to a specified person at a specified place. Designer Baskets, Inc. vs. Air Sea
Transport, Inc., March 9, 2016; J. Jareleza

19. Can a carrier release the goods to the consignee even without the latter's surrender of the bill of lading?

Yes. The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading
to the carrier and their respective obligations are considered canceled. The law, however, provides two
exceptions where the goods may be released without the surrender of the bill of lading because the
consignee can no longer return it. These exceptions are when the bill of lading gets lost or for other cause. In
either case, the consignee must issue a receipt to the carrier upon the release of the goods. Such receipt
shall produce the same effect as the surrender of the bill of lading.
Non-surrender of the original bill of lading does not violate the carrier's duty of extraordinary
diligence over the goods. The carrier exercised extraordinary diligence when it released the shipment to the
consignee, not upon the surrender of the original bill of lading, but upon signing the delivery receipts and
surrender of the certified true copies of the bills of lading. Surrender of the original bill of lading is not a
condition precedent for a common carrier to be discharged of its contractual obligation. Designer Baskets,
Inc. vs. Air Sea Transport, Inc., March 9, 2016; J. Jardeleza

20. What is a clean bill of lading?

It is one which has no notation of any defect or damage in the goods. A clean bill of lading
constitutes prima facie evidence of the receipt by the carrier of the goods as therein described. Eastern
Shipping Lines, Inc. vs. BPI/MS Insurance Corp., January 12, 2015; J. Perez

21. What are the laws regulating the liability of the common carrier for loss, destruction or deterioration of
goods?

Per 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. The Civil Code takes precedence
as the primary law over the rights and obligations of common carriers with the Code of Commerce and
COGSA applying suppletorily.
The New Civil Code provides that a stipulation limiting a common carrier's 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,

20
 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 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. Eastern Shipping Lines,
Inc. vs. BPI/MS Insurance Corp., January 12, 2015; J. Perez

22. What law will govern regarding the lost cargo from Ukraine to Albay?

According to the New 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. 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. Transimex Co. vs. Mafre Asian Insurance Corp., September
14, 2016; CJ Sereno

23. Was the loss a peril of the sea?

No. Strong winds and waves are not automatically deemed perils of the sea, if these conditions are
not unusual for that particular sea area at that specific time, or if they could have been reasonably
anticipated or foreseen. Transimex Co. vs. Mafre Asian Insurance Corp., September 14, 2016; CJ Sereno

24. What is a charter party?

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the
owner to another person for a specified time or use; a contract of affreightment by which the owner of a
ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight. Philam Insurance vs. Heung-A
Shipping and Wallem Phils., July 23, 2014; J. Reyes

25. What are the types of charter parties?

A charter party has two types. First, it could be a contract of affreightment whereby the use of
shipping space on vessels is leased in part or as a whole, to carry goods for others. The charter-party
provides for the hire of vessel only, either for a determinate period of time (time charter) or for a single or
consecutive voyage (voyage charter). The shipowner supplies the ship's stores, pay for the wages of the
master and the crew, and defray the expenses for the maintenance of the ship. The voyage remains under
the responsibility of the carrier and it is answerable for the loss of goods received for transportation. The
charterer is free from liability to third persons in respect of the ship.
Second, charter by demise or bareboat charter under which the whole vessel is let to the charterer
with a transfer to him of its entire command and possession and consequent control over its navigation,
including the master and the crew, who are his servants. The charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated and hence liable for damages
or loss sustained by the goods transported. Philam Insurance vs.Heung-A Shipping and Wallem Phils.,
July 23, 2014; J. Reyes

26. Does a voyage-charter convert a common into a private carrier?

No. The voyage-charter agreement did not in any way convert the common carrier into a private
carrier. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a
common carrier becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship,
although her holds may, for the moment, be the property of the charterer. Loadstar Shipping vs. Pioneer
Asia Insurance, January 24, 2006

27. Can a common carrier which enters into a time charter converted into a private carrier?

Fortune Sea was converted into a private carrier by reason of the time-charter with Northern
Transport. The time charter party agreement executed by Fortune Sea and Northern Transport clearly
shows that the charter includes both the vessel and its crew thereby making Northern Transport the owner
pro hac vice of M/V Ricky Rey during the whole period of the voyage.
Despite the denomination as Time Charter by the parties, their agreement undoubtedly reflected
that their intention was to enter into a Bareboat Charter Agreement. In determining the nature of a
contract, courts are not bound by the title or name given by the parties. The decisive factor in evaluating an
agreement is the intention of the parties, as shown, not necessarily by the terminology used in the contract
but by their conduct, words, actions and deeds prior to, during and immediately after executing the
agreement. Federal Phoenix Assurance Co. Ltd. vs. Fortune Sea Carrier, Inc., November 23, 2015; J.
Reyes

21
Registered Owner Rule

28. What is registered-owner rule?

Under the registered-owner rule, the registered owner of the motor vehicle involved in a
vehicular accident could be held liable for the consequences. Regardless of sales made of a motor vehicle,
the registered owner is the lawful operator insofar as the public and third persons are concerned;
consequently, it is directly and primarily responsible for the consequences of its operation.
However, MMTC could recover from Mina's Transit the actual employer of the negligent driver,
under the principle of unjust enrichment, by means of a cross-claim seeking reimbursement of all the
amounts that it could be required to pay as damages arising from the driver's negligence. Metro Manila
Transit Corp. vs. Cuevas, June 15, 2015; J. Bersamin

Good Luck to All

2017 Bar Candidates

From: ABRC Family

22