April 2010 Philippine Supreme Court Decisions on Commercial Law

Here are selected April 2010 rulings of the Supreme Court of the Philippines on commercial law:

Negotiable Instruments Law

Holder in due course;  crossed check. Section 52 of the Negotiable Instruments Law defines a holder in due course, thus:  “A holder in due course is a holder 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.”

In the case of a crossed check, as in this case, the following principles must additionally be considered: A crossed check (a) may not be encashed but only deposited in the bank; (b) may be negotiated only once — to one who has an account with a bank; and (c) warns the holder that it has been issued for a definite purpose so that the holder thereof must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.

Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable Instruments Law.  Hence, respondents are not deemed holders in due course of the subject check.  Roberto Dino vs. Maria Luisa Judal-Loot, joined by her husband Vicente Loot, G.R. No. 170912, April 19, 2010.

Holder in due course; recourse if not holder in due course.  The fact that respondents are not holders in due course does not automatically mean that they cannot recover on the check. The Negotiable Instruments Law does not provide that a holder who is not a holder in due course may not in any case recover on the instrument. The only disadvantage of a holder who is not in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Among such defenses is the absence or failure of consideration, which petitioner sufficiently established in this case.  Petitioner issued the subject check supposedly for a loan in favor of Consing’s group, who turned out to be a syndicate defrauding gullible individuals.  Since there is in fact no valid loan to speak of, there is no consideration for the issuance of the check. Consequently, petitioner cannot be obliged to pay the face value of the check.

Respondents can collect from the immediate indorser, in this case Lobitana.  Significantly, Lobitana did not appeal the trial court’s decision, finding her solidarily liable to pay, among others, the face value of the subject check.  Therefore, the trial court’s judgment has long become final and executory as to Lobitana.  Roberto Dino vs. Maria Luisa Judal-Loot, joined by her husband Vicente Loot, G.R. No. 170912, April 19, 2010.

Intellectual Property Code

Trademark; right to file action for infringement.  Section 22 of RA 166 states that only a registrant of a mark can file a case for infringement.  Corollary to this, Section 19 of RA 166 provides that any right conferred upon the registrant under the provisions of RA 166 terminates when the judgment or order of cancellation has become final.  The  cancellation of registration of a trademark has the effect of depriving the registrant of protection from infringement from the moment judgment or order of cancellation has become final.

In the present case, by operation of law, specifically Section 19 of RA 166, the trademark infringement aspect of SUPERIOR’s case has been rendered moot and academic in view of the finality of the decision in the Registration Cancellation Case.  In short, SUPERIOR is left without any cause of action for trademark infringement since the cancellation of registration of a trademark deprived it of protection from infringement from the moment judgment or order of cancellation became final.   To be sure, in a trademark infringement, title to the trademark is indispensable to a valid cause of action and such title is shown by its certificate of registration.  With its certificates of registration over the disputed trademarks effectively cancelled with finality, SUPERIOR’s case for trademark infringement lost its legal basis and no longer presented a valid cause of action.  Superior Commercial Enterprises, Inc. vs. Kunnan Enterprises Ltd. and Sports Concept & Distributor, Inc., G.R. No. 169974, April 20, 2010.

Trademark;  unfair competition. From jurisprudence, unfair competition has been defined as the passing off (or palming off) or attempting to pass off upon the public of the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public.  The essential elements of unfair competition are (1) confusing similarity in the general appearance of the goods; and (2) intent to deceive the public and defraud a competitor.

Jurisprudence also formulated the following “true test” of unfair competition:  whether the acts of the defendant have the intent of deceiving or are calculated to deceive the ordinary buyer making his purchases under the ordinary conditions of the particular trade to which the controversy relates. One of the essential requisites in an action to restrain unfair competition is proof of fraud; the intent to deceive, actual or probable must be shown before the right to recover can exist.

In the present case, no evidence exists showing that KUNNAN ever attempted to pass off the goods it sold (i.e. sportswear, sporting goods and equipment) as those of SUPERIOR.  In addition, there is no evidence of bad faith or fraud imputable to KUNNAN in using the disputed trademarks. Specifically, SUPERIOR failed to adduce any evidence to show that KUNNAN by the above-cited acts intended to deceive the public as to the identity of the goods sold or of the manufacturer of the goods sold.  In McDonald’s Corporation v. L.C. Big Mak Burger, Inc., we held that there can be trademark infringement without unfair competition such as when the infringer discloses on the labels containing the mark that he manufactures the goods, thus preventing the public from being deceived that the goods originate from the trademark owner.    In this case, no issue of confusion arises because the same manufactured products are sold; only the ownership of the trademarks is at issue.  Furthermore, KUNNAN’s January 29, 1993 notice by its terms prevents the public from being deceived that the goods originated fromSUPERIOR since the notice clearly indicated that KUNNAN is the manufacturer of the goods bearing the trademarks “KENNEX” and “PRO KENNEX.”   Superior Commercial Enterprises, Inc. vs. Kunnan Enterprises Ltd. and Sports Concept & Distributor, Inc., G.R. No. 169974, April 20, 2010.

Corporate Rehabilitation

Corporate rehabilitation; function.  Corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continued operation is economically feasible and its creditors can recover by way of the present value of payments projected in the rehabilitation plan, more if the corporation continues as a going concern than if it is immediately liquidated. It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.

An essential function of corporate rehabilitation is the mechanism of suspension of all actions and claims against the distressed corporation, which operates upon the due appointment of a management committee or rehabilitation receiver. The governing law concerning rehabilitation and suspension of actions for claims against corporations is P.D. No. 902-A, as amended. Section 6(c) of the law mandates that, upon appointment of a management committee, rehabilitation receiver, board, or body, all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, tribunal, board, or body shall be suspended.  Ricardo V. Castillo vs. Uniwide Warehouse Club, Inc. and/or Jimmy Gow, G.R. No. 169725, April 30, 2010.

Corporate rehabilitation; labor claim.  The term “claim” has been construed to refer to debts or demands of a pecuniary nature, or the assertion to have money paid.  It was referred to, in Arranza v. B.F. Homes, Inc., as an action involving monetary considerations and in Philippine Airlines v. Kurangking, the term was identified as the right to payment, whether or not it is reduced to judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, and secured or unsecured.  Furthermore, the actions that were suspended cover all claims against a distressed corporation whether for damages founded on a breach of contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature.  More importantly, the new rules on corporate rehabilitation, as well as the interim rules, provide an all-encompassing definition of the term and, thus, include all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise.  There is no doubt that petitioner’s claim in this case, arising as it does from his alleged illegal dismissal, is a claim covered by the suspension order issued by the SEC, as it is one for pecuniary consideration.  Ricardo V. Castillo vs. Uniwide Warehouse Club, Inc. and/or Jimmy Gow, G.R. No. 169725, April 30, 2010.

Corporate rehabilitation; suspension of proceedings.   Jurisprudence is settled that the suspension of proceedings referred to in the law uniformly applies to “all actions for claims” filed against a corporation, partnership or association under management or receivership, without distinction, except only those expenses incurred in the ordinary course of business.  In the oft-cited case of Rubberworld (Phils.) Inc. v. NLRC, the Court noted that aside from the given exception, the law is clear and makes no distinction as to the claims that are suspended once a management committee is created or a rehabilitation receiver is appointed. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos. Philippine Airlines, Inc. v. Zamora declares that the automatic suspension of an action for claims against a corporation under a rehabilitation receiver or management committee embraces all phases of the suit, that is, the entire proceedings of an action or suit and not just the payment of claims.

The reason behind the imperative nature of a suspension or stay order in relation to the creditors’ claims cannot be downplayed, for indeed the indiscriminate suspension of actions for claims intends to expedite the rehabilitation of the distressed corporation by enabling the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation, instead of being directed toward its restructuring and rehabilitation.

At this juncture, it must be conceded that the date when the claim arose, or when the action was filed, has no bearing at all in deciding whether the given action or claim is covered by the stay or suspension order.  What matters is that as long as the corporation is under a management committee or a rehabilitation receiver, all actions for claims against it, whether for money or otherwise, must yield to the greater imperative of corporate revival, excepting only, as already mentioned, claims for payment of obligations incurred by the corporation in the ordinary course of business.

It is, thus, not difficult to see why the subject action for illegal dismissal and damages against respondent corporation ought to have been suspended at the first instance respondents submitted before the Labor Arbiter their motion to suspend proceedings in the illegal dismissal case.  This, considering that at the time the labor case was filed on August 26, 2002, respondent corporation was undergoing proceedings for rehabilitation and was later on declared to be in a state of suspension of payments.  Ricardo V. Castillo vs. Uniwide Warehouse Club, Inc. and/or Jimmy Gow, G.R. No. 169725, April 30, 2010.