March 2011 Philippine Supreme Court Decisions on Commercial Law

Here are selected March 2011 rulings of the Supreme Court of the Philippines on commercial law:

Corporations; liability of officers in general.  Obligations incurred by corporate officers, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent. As such, they should not be generally held jointly and solidarily liable with the corporation, except:

1.  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;

(c)  are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons;

2.   When the director or officer has consented to the issuance of watered stock or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto;

3.   When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation;

4.  When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.

The general rule is grounded on the theory that a corporation has a legal personality separate and distinct from the persons comprising it. To warrant the piercing of the veil of corporate fiction, the officer’s bad faith or wrongdoing must be established clearly and convincingly as bad faith is never presumed. Harpoon Marine Services, Inc., et al. v. Fernan H. Francisco, G.R. No. 167751, March 2, 2011.

Corporations; liability of officers for labor claims.  The Court of Appeals’ basis for petitioner Rosit’s liability was that he acted in bad faith when he approached respondent and told him that the company could no longer afford his salary and that he will be paid instead his separation pay and accrued commissions. This finding, however, could not substantially justify the holding of any personal liability against petitioner Rosit. The records are bereft of any other satisfactory evidence that petitioner Rosit acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. Indeed, petitioner Rosit informed respondent that the company wishes to terminate his services since it could no longer afford his salary. Moreover, the promise of separation pay, according to petitioners, was out of goodwill and magnanimity. At the most, petitioner Rosit’s actuations only show the illegality of the manner of effecting respondent’s termination from service due to absence of just or valid cause and non-observance of procedural due process but do not point to any malice or bad faith on his part. Besides, good faith is still presumed. In addition, liability only attaches if the officer has assented to patently unlawful acts of the corporation.

Thus, it was error for the Court of Appeals to hold petitioner Rosit solidarily liable with petitioner Harpoon for illegally dismissing respondent.  Harpoon Marine Services, Inc., et al. v. Fernan H. Francisco, G.R. No. 167751, March 2, 2011.

Corporations; liability of officers for labor claims.  There is solidary liability when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires.  In  MAM Realty Development Corporation v. NLRC,  the solidary liability of corporate officers in labor disputes was discussed in this wise:

A corporation, being a juridical entity, may act only through its directors, officers and employees.  Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent.  True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases:

1.   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;

x x x x

In labor cases, for instance, the Court has held corporate directors and officers solidarily liable with the corporation for the termination of employment of employees done with malice or in bad faith.

From the decisions of the LA, the NLRC, and the CA, there is no indication that Estrella’s dismissal was effected with malice or bad faith on the part of Grandteq’s officers. Their liability for Estrella’s illegal dismissal, the consequential monetary award arising from such dismissal and the other money claims awarded in the LA’s decision, as correctly affirmed by the CA,  could  thus  only  be joint,  not solidary.  This pronouncement does not extend to Estrella’s claims for commissions, allowances, and incentives, as the same are still subject to the LA’s scrutiny.  Grandteq Industrial Steel Products, Inc., et al. vs. Annaliza M. Estrella, G.R. No. 192416. March 23, 2011

Intellectual property; infringement.  The essential element of infringement under R.A. No. 8293 is that the infringing mark is likely to cause confusion. In determining similarity and likelihood of confusion, jurisprudence has developed tests the Dominancy Test and the Holistic or Totality Test. The Dominancy Test focuses on the similarity of the prevalent or dominant features of the competing trademarks that might cause confusion, mistake, and deception in the mind of the purchasing public. Duplication or imitation is not necessary; neither is it required that the mark sought to be registered suggests an effort to imitate. Given more consideration are the aural and visual impressions created by the marks on the buyers of goods, giving little weight to factors like prices, quality, sales outlets, and market segments.

In contrast, the Holistic or Totality Test necessitates a consideration of the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing similarity. The discerning eye of the observer must focus not only on the predominant words, but also on the other features appearing on both labels so that the observer may draw conclusion on whether one is confusingly similar to the other.

Relative to the question on confusion of marks and trade names, jurisprudence has noted two (2) types of confusion, viz.: (1) confusion of goods (product confusion), where the ordinarily prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other; and (2) confusion of business (source or origin confusion), where, although the goods of the parties are different, the product, the mark of which registration is applied for by one party, is such as might reasonably be assumed to originate with the registrant of an earlier product, and the public would then be deceived either into that belief or into the belief that there is some connection between the two parties, though inexistent.

Applying the Dominancy Test to the case at bar, this Court finds that the use of the stylized “S” by respondent in its Strong rubber shoes infringes on the mark already registered by petitioner with the IPO. While it is undisputed that petitioner’s stylized “S” is within an oval design, to this Court’s mind, the dominant feature of the trademark is the stylized “S,” as it is precisely the stylized “S” which catches the eye of the purchaser.  Thus, even if respondent did not use an oval design, the mere fact that it used the same stylized “S”, the same being the dominant feature of petitioner’s trademark, already constitutes infringement under the Dominancy Test.  Skechers, U.S.A., Inc. vs. Inter Pacific Industrial Trading Corp., et al.,  G.R. No. 164321, March 28, 2011.

(Hector thanks Gerard Joseph M. Jumamil for his assistance to Lexoterica.)

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