June 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select June 2013 rulings of the Supreme Court of the Philippines on commercial law:

Corporation; 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 of the Corporation Code, 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.  Juanito Ang, for and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang, G.R. No. 201675, June 19, 2013.

Corporation; shares of stock. 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.

Here, FEGDI clearly failed to deliver the stock certificates, representing the shares of stock purchased by Vertex, within  a reasonable time from the point the shares should have been delivered.  This was a substantial breach of their contract that entitles Vertex the right to rescind the sale under Article 1191 of the Civil Code.  It is not entirely  correct to say that a sale had already been consummated as Vertex already  enjoyed the rights a shareholder can exercise.  The enjoyment of these rights cannot suffice where the law, by its express terms, requires a specific form to transfer ownership.  Fil-Estate Gold and Development, Inc., et al. v. Vertex Sales and Trading, Inc., G.R. No. 202079, June 10, 2013.

November 2012 Philippine Supreme Court Decisions on Commercial Law

Here are select November 2012 rulings of the Supreme Court of the Philippines on commercial law:

Banks; level of diligence required. Primarily, it bears noting that the doctrine of “mortgagee in good faith” is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon. In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof. The apparent purpose of an ocular inspection is to protect the “true owner” of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.

In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered for mortgage, its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and abandoned her claim on the property. On the other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys which was intended to mislead Philbank into granting the loan application. Thus, no amount of diligence in the conduct of the ocular inspection could have led to the discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado). In fine, Philbank can hardly be deemed negligent under the premises since the ultimate cause of the mortgagors’ (the Dys’) defective title was the simulated sale to which Sps. Delgado were privies.

June 2011 Philippine Supreme Court Decisions on Commercial Law

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

Bank secrecy; foreign currency deposits.  Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development of the country.  It covers all bank deposits in the Philippines and no distinction was made between domestic and foreign deposits.  Thus, Republic Act No. 1405 is considered a law of general application.  On the other hand, Republic Act No. 6426 was intended to encourage deposits from foreign lenders and investors.  It is a special law designed especially for foreign currency deposits in the Philippines.  A general law does not nullify a specific or special law.  Generalia specialibus non derogant.  Therefore, it is beyond cavil that Republic Act No. 6426 applies in this case.

Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act.  Government Service Insurance System vs. Court of Appeals, et al., G.R. No. 189206. June 8, 2011.

Trademark; Harvard.  There is no question then, and this Court so declares, that “Harvard” is a well-known name and mark not only in the United States but also internationally, including the Philippines. The mark “Harvard” is rated as one of the most famous marks in the world. It has been registered in at least 50 countries. It has been used and promoted extensively in numerous publications worldwide. It has established a considerable goodwill worldwide since the founding of Harvard University more than 350 years ago. It is easily recognizable as the trade name and mark of Harvard University of Cambridge, Massachusetts, U.S.A., internationally known as one of the leading educational institutions in the world. As such, even before Harvard University applied for registration of the mark “Harvard” in the Philippines, the mark was already protected under Article 6bis and Article 8 of the Paris Convention. Again, even without applying the Paris Convention, Harvard University can invoke Section 4(a) of R.A. No. 166 which prohibits the registration of a mark “which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs x x x.”  Fredco Manufacturing Corporation vs. President and Fellows of Harvard College (Harvard University), G.R. No. 185917, June 1, 2011.

(This post will be updated when the remaining June 2011 cases are published.)

(Hector thanks Mowie Sison for his assistance to Lexoterica.)

October 2010 Philippine Supreme Court Decisions on Commercial Law

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

Corporation Law

Corporation; liability of corporate officers. With respect to the personal liability of Hartmannshenn and Schumacher, this Court has held that corporate directors and officers are only solidarily liable with the corporation for termination of employment of corporate employees if effected with malice or in bad faith.  Bad faith does not connote bad judgment or negligence; it imports dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of unknown duty through some motive or interest or ill will; it partakes of the nature of fraud.  To sustain such a finding, there should be evidence on record that an officer or director acted maliciously or in bad faith in terminating the employee.

Petitioners withheld respondent’s salary in the sincere belief that respondent did not work for the period in question and was, therefore, not entitled to it.  There was no dishonest purpose or ill will involved as they believed there was a justifiable reason to withhold his salary.  Thus, although they unlawfully withheld respondent’s salary, it cannot be concluded that such was made in bad faith.  Accordingly, corporate officers, Hartmannshenn and Schumacher, cannot be held personally liable for the corporate obligations of SHS.  SHS Perforated Materials, Inc., et al. vs. Manuel F. Diaz, G.R. No. 185814, October 13, 2010.

Corporation;  persons considered as corporate officers. Conformably with Section 25 of the Corporation Code, a position must be expressly mentioned in the By-Laws in order to be considered as a corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a position a corporate office. Guerrea v. Lezama, the first ruling on the matter, held that the only officers of a corporation were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could be considered only as employees or subordinate officials.

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the corporate officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-Laws. Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character either by the Corporation Code or by the corporation’s By-Laws.

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the creation of just any corporate officer position.

August 2010 Philippine Supreme Court Decisions on Commercial Law

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

Corporation; liability of directors and officers.  Elementary is the rule that a corporation is invested by law with a personality separate and distinct from those of the persons composing it and from that of any other legal entity to which it may be related. “Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.”

In labor cases, corporate directors and officers may be held solidarily liable with the corporation for the termination of employment only if done with malice or in bad faith. Bad faith does not connote bad judgment or negligence; it 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.  Wensha Spa Center, inc. and/or Xu Zhi Jie vs. Loreta T. Yung, G.R. No. 185122, August 16, 2010.

Crossed check;  effect. A check is a bill of exchange drawn on a bank payable on demand. There are different kinds of checks. In this case, crossed checks are the subject of the controversy.  A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. It may be crossed generally or specially.

A check is crossed specially when the name of a particular banker or a company is written between the parallel lines drawn. It is crossed generally when only the words “and company” are written or nothing is written at all between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following effects: (a) the check may not be encashed but  only  deposited  in the bank; (b) the check may be negotiated only once — to one who has an account with a bank; and (c) the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due  course.

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be  deposited and  not  converted  into cash.  The effect of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing of a check  is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only.   Vicente Go vs. Metropolitan Bank and Trust Co., G.R. No. 168842, August 11, 2010.

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.