Commercial Laws: Larry P. Ignacio ©

COMMERCIAL LAWS pointers & cases larry p. ignacio © INTELLECTUAL PROPERTY *************************************** Principle of automatic protection: - Works are protected by the sole fact of their creation, irrespective of their mode or form of expression, as well as their content, quality and purpose (Sec. 172.2, IPC). - The copyright of a work is acquired by an intellectual creator from the moment of creation even in the absence of registration and deposit (Columbia Pictures v. CA, 261 SCRA 144 [1966]). Fair use (Sec. 185, IPC)/ Fair use doctrine: - The fair use of a copyrighted work for criticism, comment, news reporting, teaching, including multiple copies for classroom use, scholarship, research, and similar purposes is not an infringement of copyright. - A privilege in others than the owner of a copyright to use the copyrighted material in a reasonable manner without the owner’s consent, notwithstanding the monopoly granted to the owner. To determine whether fair use has been made of copyrighted material, the quantity and value of material used and extent to which the use may diminish the value of the original work must be considered (Black’s Law Dictionary, 6th ed.). 4-fold test in fair use 1. The purpose and character of the use, including whether such use is of a commercial nature or is for non-profit educational purposes; 2. The nature of the copyrighted work; 3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and 4. The effect of the use upon the potential market for or value of the copyrighted work. The "transformative test" in fair use: is generally used in reviewing the purpose and character of the usage of the copyrighted work. This court must look into whether the copy of the work adds "new expression, meaning or message" to transform it into something else. Good faith or lack of knowledge is not a valid defense in infringement of copyright - A copyright is infringed by the mere fact of the repetition of it or a substantial portion of it, without authority from the author or writer of the copyrighted work. Good faith or lack of knowledge is not a valid defense.  Offenses involving infringement of copyright protections should be considered malum prohibitum. It is the act of infringement, not the intent, which causes the damage. To require or assume the need to prove intent defeats the purpose of intellectual property protection. (ABS-CBN v. Gozon, GR No. 195956, 11 March 2015) A news report expressed in a video footage is entitled to copyright protection. - News or the event itself is not copyrightable. However, an event can be captured and presented in a specific medium. News as expressed in a video footage is entitled to copyright protection. Broadcasting organizations have not only copyright on but also neighboring rights over their broadcasts. Copyrightability of a work is different from fair use of a work for purposes of news reporting. (ABS-CBN Co. v. Gozon, G.R. No. 195956, March 11, 2015).

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the "gravamen of copyright infringement" - It is not merely the unauthorized manufacturing of intellectual works but rather the unauthorized performance of any of the acts covered by Section 5. Hence, any person who performs any of the acts under Section 5 without obtaining the copyright owners prior consent renders himself civilly and criminally liable for copyright infringement. Section 5 of Presidential Decree No. 49 specifically defined copyright as an exclusive right in the following manner: (A) To print, reprint, publish, copy, distribute, multiply, sell, and make photographs, photoengravings, and pictorial illustrations of the works;

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(B) To make any translation or other version or extracts or arrangements or adaptations thereof; to dramatize it if it be a non-dramatic work; to convert it into a non-dramatic work if it be a drama; to complete or execute if it be a model or design; (C) To exhibit, perform, represent, produce, or reproduce, the work in any manner or by any method whatever for profit or otherwise; it not reproduced in copies for sale, to sell any manuscript or any record whatsoever thereof; (D) To make any other use or disposition of the work consistent with the laws of the land. 

After a test-buy operation where an NBI agent was able to purchase softwares of Microsoft from the store of Manansala who is doing business under the name and style Dataman Trading, a search and seizure was conducted on the store of Manansala where it yielded several illegal copies of Microsoft programs. Microsoft then filed before the DOJ a complaint-affidavit against Manansala for copyright infringement, among others. The charge for copyright infringement was dismissed. The investigating prosecutor resolved that although Manansala is selling Microsoft computer software programs bearing the copyrights and trademarks owned by Microsoft Corporation without authority from latter, there is no proof that Manansala was the one who really printed or copied the products of Microsoft for sale in his store. The CA upheld the DOJ and ruled that the legislative intent was to require that the computer programs be first photographed, photo-engraved, or pictorially illustrated as a condition for the commission of copyright infringement.

 The dismissal is not proper. The mere sale of the illicit copies of the software programs was enough by itself to show the existence of probable cause for copyright infringement. There was no need for the petitioner to still prove who copied, replicated, or reproduced the software programs (Microsoft Corporation vs. Manansala, 773 SCRA 345, G.R. No. 166391 October 21, 2015)

Copyright is distinct from the property and the material object subject to it. - The copyright is distinct from the property and the material object subject to it. Consequently, the transfer or assignment of the copyright shall not itself constitute a transfer of the material object. Nor shall a transfer or assignment of the sole copy or of one or several copies of the work imply transfer or assignment of the copyright. Ownership of copyright or inventions in the course of employment Employee: if copyright/work or inventive activity is NOT part of his regular duties, even if employee uses time, facilities and materials of employer. Employer: if copyright or invention results from performance of his regularly-assigned duties, unless there is an agreement express or implied, to the contrary. First to file rule  If two or more persons have jointly made an invention separately and independently of each other, right shall belong to the applicant who has earliest filing date or earliest priority date. - RA 8293 espouses the “first-to-file” rule x x x. Under this provision, the registration of a mark is prevented with the filing of an earlier application for registration. This must, not, however, be interpreted to mean that ownership should be based upon an earlier filing date. While RA 8293 removed the previous requirement of proof of actual use prior to the filing of an application for registration of a mark, proof of prior and continuous use is necessary to establish ownership of a mark. Such ownership constitutes sufficient evidence to oppose the registration of a mark (E.Y. Industrial Sales, Inc. v. Shen Dar Electricity and Machinery Co., Ltd., 634 SCRA 363, 20 October 2010).

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Ownership of a trademark is acquired by its registration and its actual use - The ownership of a trademark is acquired by its registration and its actual use by the manufacturer or distributor of the goods made available to the purchasing public. Sec. 122 of RA 8293 provides that the rights in a mark shall be acquired by means of its valid registration with the IPO. A certificate of registration of a mark, once issued constitutes prima facie evidence of the validity of the registration, of the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same in connection with the goods or services and those that are related thereto specified in the certificate (Berris Agricultural Co., Inc. v. Abyadang, 633 SCRA 196, 13 October 2010; W LAND HOLDINGS, INC. v. STARWOOD HOTELS & RESORT WORLWIDE, GR No. 222366, 04 December 2017) 

A trade name need not be registered with the IPO before an infringement suit maybe filed by its owners against the owner of an infringing trade mark. All that is required is that the trade name be previously used in trade or commerce in the Philippines (Coffee Partners, Inc. v. San Francisco Coffee & Roastery, Inc., GR No. 169504, 03 March 2010).

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Foreign marks which are not registered are still accorded protection against infringement and/or unfair competition (Ecole de Cuisine Manille (Cordon Bleu of the Philippines), Inc. v. Renaud Caintreau & Cie, 697 SCRA 345, 05 June 2013).

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Courts will protect trade names or marks, although not registered or properly selected as trademarks, on the broad ground of enforcing justice and protecting one in the fruits of his toil (Ecole de Cuisine Manille (Cordon Bleu of the Philippines), Inc. v. Renaud Caintreau & Cie, 697 SCRA 345, 05 June 2013).

Territoriality principle - A mark must be used in commerce in the Philippines to be entitled to protection.

 While under the territoriality principle a mark must be used in commerce in the Philippines to be entitled to protection, internationally well-known marks are the exceptions to this rule (Fredco Mfg. Corp. v. President and Fellows of Harvard College (Harvard University), 650 SCRA 232, 01 June 2011).

Section 123.1(e) does not require that the well-known mark be used in commerce in the Philippines but only that it be well-known in the Philippines (ibid.). Case: Registration of a trademark, by itself, is NOT a mode of acquiring ownership. Registration merely creates a prima facie presumption of the: a) validity of the registration, b) of the registrant's ownership of the trademark, c) and of the exclusive right to the use thereof. Birkenstock Orthopaedie GMBH and Co. KG vs. Philippine Shoe Expo Marketing Corporation, G.R. No. 194307, November 20, 2013, J. Perlas-Bernabe Birkenstock Orthopaedic, a German corporation, applied for various trademark registration before the IPO. However, the registration proceedings were suspended in view of the existing registration of the mark “BIRKENSTOCK AND DEVICE” under Registration No. 56344 by Shoe Town International and Industrial Corp., Phil. Shoe Expo Marketing Corp’s predecessor-in-interest. During the pendency of the cancellation of such registration proceedings, Phil Shoe Expo failed to file the required 10 th Year Declaration of Actual Use (DAU) for Registration No. 56344 on the required date, resulting in the cancellation of the mark and the case. When Birkenstock’s Co.’s application for such mark was approved, Phil. Shoe Expo filed separate oppositions claiming that Birkenstock Co. has no right to the registration of the marks. The BLA sustained the opposition, opining that while Registration No. 56344 was cancelled, it does not follow that prior right over the mark was lost, as proof of continuous and uninterrupted use in trade and business in the Philippines as presented. Upon appeal, the IPO Director General reversed the BLA, holding that the evidence presented by Birkenstock Co. proved that they are the rightful owner of the marks. The CA reinstated the BLA’s decision upon the same ground.

Will abandonment result in case of failure to file the declaration of actual use (DAU)? YES. RA No. 166, the governing law for Registration No. 56334, requires the filing of Declaration of Actual Use (DAU) on specific periods. The law reveals that failure to file the DAU within the requisite period results in the automatic cancellation of registration of a trademark. In turn, such failure is tantamount to the abandonment or withdrawal of any right or interest the registrant has over his trademark. Phil. Shoe Expo failed to file the DAU within the requisite period. Hence, it was deemed to have abandoned or withdrawn any right or interest over the mark “Birkenstock.” Neither can it invoke Sec. 236 of the IP Code which pertains to intellectual property rights obtained under previous intellectual property laws, e.g., RA 166, precisely because it already lost any right or interest over the said mark.

Is the registration of a trademark, by itself, a mode of acquiring ownership? No. It is not the application or registration of a trademark that vests ownership thereof , but it is the ownership of a trademark that confers the right to register the same. A trademark is an industrial property over which its owner is entitled to property rights which... cannot be appropriated by unscrupulous entities that, in one way or another, happen to register such trademark ahead of its true and lawful owner. The presumption of ownership accorded to a registrant must then necessarily yield to superior evidence of actual and real ownership of a trademark.

It must be emphasized that registration of a trademark, by itself, is not a mode of acquiring ownership. If the applicant is not the owner of the trademark, he has no right to apply for its registration. Registration merely creates a prima facie presumption of the validity of the registration, of the registrant's ownership of the trademark, and of the exclusive right to the use thereof. Such presumption, just like the presumptive regularity in the performance of official functions, is rebuttable and must give way to evidence to the contrary.

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W Land Holdings, Inc. v. Starwood Hotels & Resort Worldwide GR No. 222366, 04 December 2017, J. Perlas-Bernabe Does a trade mark owner have to be physically present in the Philippines to show genuine use of the mark? NO need. W Land Holding, Inc. (“W Land”) sought to cancel Starwood Hotels and Resorts Worldwide, Inc.’s (“Starwood”) trademark “W” for non-use of its mark in the Philippines to owing to the absence of an actual hotel or establishment in the Philippines offering services covered by its registration. Starwood denied having abandoned its W mark, and alleged that it had already filed a Declaration of Actual Use in 2008 which was accepted by the IPOPHIL. It asserted that it operates an interactive website for its W Hotels that allows Philippine residents to make reservations and bookings, which amount to an actual use of its registered “W” trademark in the Philippines.

Is the mere use/display of the mark in the website actual use? • • •

Mere exhibition of goods or services over the internet, without more, is not enough to constitute actual use. The “use” contemplated by law is genuine use—that is, a bonafide kind of use tending towards a commercial transaction in the ordinary course of trade. Mere use of the mark on a website which can be accessed anywhere in the world will not automatically mean that the mark has been used in the ordinary course of trade of a particular country. There must be an actual commercial transaction through the website or at the very least, the website must show that it intends to target local consumers by containing specific details geared towards a commercial activity or interaction. These details may constitute a local contact phone number for local consumers to call for information or other local concerns, a specific local webpage, whether domestic language and currency is used on the website, and/or whether domestic payment methods are accepted.

1) There must be bona fide use of the mark, not token use. This may be characterized as use which results or tends to result, in one way or another, in a commercial interaction or transaction in the ordinary course of business. The mere exhibiting of goods or services over the internet is not enough to constitute actual use. It must be shown that the trade mark owner has actually transacted or intentionally targeted customers of a particular jurisdiction. Showing an actual commercial link to the country is imperative. 2) Starwood proved its use of the mark in the Philippines. It owns Philippine registered domain names, i.e., www.whotels.ph, www.wreservations.ph, www.whotel.ph, www.wreservation.ph. These websites are readily accessible to Philippine citizens and residents that they can use to instantaneously book and pay for their accommodations, with immediate confirmation, in any W hotels. It further presented data of the growing number of internet users in the Philippines visiting its website since 2003, and thus, taken together, Starwood showed that use of the mark through its interactive website was intended to produce and establish commercial interaction with Philippine consumers. 3) Starwood submitted in 2008 its Declaration of Actual Use (DAU), which the IPOPHIL accepted and recognized as valid. There is no reason to disturb this recognition.

 Apart from its commercial utility, the benchmark of trademark registrability is distinctiveness.

Great White Shark v. Caralde, Jr. GR No. 192294, 21 November 2012, J. Perlas-Bernabe Caralde filed before the Bureau of Legal Affairs (BLA), IPO a trademark application seeking to register the mark “SHARK & LOGO” for his manufactured goods under Class 25, such as slippers, shoes and sandals. Great White Shark Enterprises opposed Caralde’s application for trademark registration by claiming to be the owner of the mark consisting of a representation of a colored shark. When compared, the only similarity in the competing marks is in the word “shark.” Great White Shark's mark was used in clothing and footwear, among others, while Caralde's mark is used on similar goods like shoes and slippers. Great White Shark’s mark consisted of an illustration of a shark while Caralde's mark had a composite figure forming a silhouette of a shark.

Is Caralde’s mark registrable? Will there be confusion? YES. NO confusion will arise. Apart from its commercial utility, the benchmark of trademark registrability is distinctiveness. Thus, a generic figure, as that of a shark in this case, if employed and designed in a distinctive manner, can be a registrable trademark device, subject to the provisions of the IP Code. In determining similarity and likelihood of confusion, case law has developed the Dominancy Test and the Holistic or Totality Test.

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NO confusing similarity between the subject marks. While both marks use the shape of a shark, there are distinct visual and aural differences between them. In Great White Shark's “GREG NORMAN LOGO,” there is an outline of a shark formed with the use of green, yellow, blue and red lines/strokes. In contrast, the shark in Caralde's “SHARK & LOGO” mark is illustrated in letters outlined in the form of a shark with the letter “S” forming the head, the letter “H” forming the fins, the letters “A” and “R” forming the body, and the letter “K” forming the tail. In addition, the latter mark includes several more elements such as the word “SHARK” in a different font underneath the shark outline, layers of waves, and a tree on the right side, and liberally used the color blue with some parts in red, yellow, green and white. The visual dissimilarities between the two marks are evident and significant, negating the possibility or confusion in the minds of the ordinary purchaser.

Doctrine of secondary meaning/doctrine of distinctiveness (Sec. 123.2, IPC) - A long time exclusive and continuous use of a mark or name which is unregistrable for being geographical, descriptive or a surname, such that the mark or name has lost its primary meaning and it becomes associated in the public mind with particular goods, entitles the user to have said mark or name registered. Properties Realty Corp. (formerly The Shang Grand Tower Corp.) v. St. Francis Development Corp., 730 SCRA 275, 21 July 2014, J. Perlas-Bernabe St. Francis Dev’’t. Corp. (SFDC) assailed before the intellectual property office the use by Properties Realty Corp. (PRC) of the mark "ST. FRANCIS" to identify its numerous property development projects located at Ortigas Center, such as the St. Francis Square Commercial Center, a shopping mall called the "St. Francis Square," and a mixed-use realty project plan that includes the St. Francis Towers. SFDC added that as a result of the continuous use of the mark "ST. FRANCIS" in its real estate business, it has gained substantial goodwill with the public that consumers and traders closely identify the said mark with its property development projects. Accordingly, SFDC claimed that PRC could not have the mark "THE ST. FRANCIS TOWERS" registered in their names, and that the use of the marks "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" in their own real estate development projects constitutes unfair competition as well as false or fraudulent declaration. PRC denied committing unfair competition and false or fraudulent declaration, maintaining that they could register the mark "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" under their names. They contended that SFDC is barred from claiming ownership and exclusive use of the mark "ST. FRANCIS" because the same is geographically descriptive of the goods or services for which it is intended to be used. This is because SFDC’s as well as PRC’ real estate development projects are located along the streets bearing the name "St. Francis," particularly, St. Francis Avenue and St. Francis Street (now known as Bank Drive), both within the vicinity of the Ortigas Center. The element of fraud is wanting; there can be no unfair competition and SFDC has no right to the exclusive use of the mark "ST. FRANCIS.“ The use of the marks "THE ST. FRANCIS TOWERS" and "THE ST. FRANCIS SHANGRI-LA PLACE" was meant only to identify, or at least associate, their real estate project/s with its geographical location. The geographically descriptive nature of the mark "ST. FRANCIS" bars its exclusive appropriability, unless a secondary meaning is acquired. As deftly explained in the U.S. case of Great Southern Bank v. First Southern Bank: "[d]escriptive geographical terms are in the ‘public domain’ in the sense that every seller should have the right to inform customers of the geographical origin of his goods. A ‘geographically descriptive term’ is any noun or adjective that designates geographical location and would tend to be regarded by buyers as descriptive of the geographic location of origin of the goods or services. A geographically descriptive term can indicate any geographic location on earth, such as continents, nations, regions, states, cities, streets and addresses, areas of cities, rivers, and any other location referred to by a recognized name. In order to determine whether or not the geographic term in question is descriptively used, the following question is relevant: (1) Is the mark the name of the place or region from which the goods actually come? If the answer is yes, then the geographic term is probably used in a descriptive sense, and secondary meaning is required for protection “

A generic or descriptive of the goods they seek to identify cannot be exclusively appropriated. - Following Section 123, paragraph (h) of Republic Act (RA) No. 8293 which prohibits exclusive registration of generic marks, the word “COFFEE” cannot be exclusively appropriated by either Nestle or Puregold since it is generic or descriptive of the goods they seek to identify (Societe des Products, Nestle, S.A. v. Puregold Price Club, Inc., 839 SCRA 177, 06 September 2017).

Actual sale of counterfeit goods not essential for trademark infringement

6 - Under the IPC, preparatory steps necessary to carry out the sale of any goods or services or in connection with which such use is likely to cause confusion. Or to cause mistake, or to deceive (Sec. 155.1) and to reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such reproduction, counterfeit, copy or colorable imitation to label, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce (Sec. 155.2) are acts of infringement regardless of whether there is actual sale of goods or services using the infringing material (Gemma Ong a.k.a. Ma. Theresa Gemma Catacutan v. People, GR COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

No. 169440, 23 Nov. 2011).

 The likelihood of confusion is the gravamen of the offense of trademark infringement

(Philip Morris v. Fortune, 493 SCRA 437).

Factors to be considered in determining the likelihood of confusion [a] the resemblance between the trademarks; [b] the similarity of the goods to which the trademarks are attached; [c] the likely effect on the purchaser and [d] the registrant's express or implied consent and other fair and equitable considerations. (Seri Soomboonsakdikul, G.R. No. 188996. February 1, 2017, Jardeleza, J.) 2 minimum conditions for confusion to arise 1) The prospective mark must nearly resemble or be similar to an earlier mark; and 2) The prospective mark must pertain to goods or services that are either identical, similar or related to the goods or services represented by the earlier mark. (Mang Inasal v. IFP Mfg. Corp., GR No. 221717, 19 June 2017 (Velasco, Jr., J.)

 use of trademark in UNRELATED articles of a different kind ALLOWED • Registration of the trademark “SHELL” or “ESSO” for cigarettes was allowed although there is a prior registrant for gasoline and petroleum products (Shell v. CA, GR No. L49145, 21 May 1979; Esso Standard Eastern, Inc. v. CA, 116 SCRA 336 [19982]). • “CANNON” for sandals was allowed despite prior registration

of the same for paints, chemical products, toner and dyestuff (Canon Kabushki Kaisha v. CA & NSR Rubber Corp., 336 SCRA 266 [2001]). • “GALLO”

can be used for cigarettes without infringing the rights of the owner of another mark which also contains the same word for wine (Mighty Corporation v. E & J Gallo, 434 SCRA 473 [2004]). • “BRUTE” for

briefs was allowed although similar to the symbol “BRUT” for aftershave lotion, shaving cream, deodorant, talcum powder and toilet soap (Faberge, Inc. v. IAC, 215 SCRA 316 [1992]).

Unfair Competition: essential elements 1. Confusing similarity in the general appearance of the goods; and 2. Intent to deceive the public and defraud the creator.  Registration of mark NOT required ** Actual fraudulent intent need not be shown (Mcdonalds v. LC BigMak, 437 SCRA 10 [2004])  The element of intent to deceive maybe inferred from the similarity of the goods or their appearance (NBI-Microsoft v. Huang, 460 SCRA 428)  An act may still constitute UC even if the element of selling has not been proved (Proline v. CA, 281 SCRA 162).

 The test of UC is whether certain goods have been intentionally clothed with an appearance which is likely to deceive the ordinary purchasers exercising ordinary care (Proline v. CA, 281 SCRA 162). passing off (or palming off)/Unfair Competition 

Passing off (or palming off) takes place where the defendant by imitative devices on the general appearance of the goods, misleads prospective purchasers into buying his merchandise under the impression that they are buying that of his competitors (Properties Realty Corp. (formerly The Shang Grand Tower Corp.) v. St. Francis Development Corp., 730 SCRA 275, 21 July 2014).

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Unfair competition has been defined as the passing (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 (Republic Gas Corp. v. Petron Corp., 698 SCRA 666, 17 June 2013).

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This takes place where the defendant gives his goods the general appearance of the goods of his competitor with the intention of deceiving the public that the goods are those of his competitor

Case: ROBERTO CO vs. KENG HUAN JERRY YEUNG and EMMA YEUNG, G.R. No. 212705, September 10, 2014, J. Perlas-Bernabe

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Co conspired with Laus in the sale/distribution of counterfeit Greenstone products to the public, which were even packaged in bottles identical to that of the original, thereby giving rise to the presumption of fraudulent intent. Co, together with Laus, committed unfair competition. Although liable for unfair competition, Co was properly exculpated from the charge of trademark infringement considering that the registration of the trademark "Greenstone" – essential as it is in a trademark infringement case – was not proven to have existed during the time the acts complained of were committed. *************** NEGOTIABLE INSTRUMENTS LAW *********************************************** Presumption of consideration; complete and delivered instruments Case: Manuel C. Ubas, Sr., v. Wilson Chan, G.R. No. 215910, 06 February 2017, J. PerlasBernabe Manuel sued Wilson for collection of sum of money in the amount of P1.5Million representing the price of boulders, sand, gravel, and other construction materials purchased by Wilson from Manuel for the construction of the Macagtas Dam in Catarman, Samar. Wilson likewise issued 3 checks payable to cash but were dishonored because of a stop payment order. Wilson failed to pay in spite of demands. Wilson admitted singing the checks and drawn by Unimasters, Inc. that were issued not to Manuel but to the project engineer of Unimasters for the replenishment of its revolving fund. The checks were lost and unlawfully obtained. As president of Unimasters, Wilson issued a Stop Payment Order. Wilson alleged that there are no supporting proofs of the deliveries of aggregates and materials. Is Wilson liable? Yes. When the creditor, such as Manuel, who possesses and submits in evidence an instrument (like the 3checks) showing the indebtedness, a presumption that the credit has not been satisfied arises in [his] (Manuel/creditor) favor. Thus, the defendant (Wilson in this case) is, in appropriate instances, required to overcome the said presumption and present evidence to prove the fact of payment so that no judgment will be entered against him. This presumption stems from Section 24 of the NIL, which provides that: Section 24. Presumption of Consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

The claim that the checks were lost and used as replenishment of revolving fund has no merit. It would have been contrary to human nature and experience for Manuel to send Wilson a demand letter detailing the particulars of the said checks if he indeed unlawfully obtained the same. Besides, Section 16 of the NIL provides that when an instrument is no longer in the possession of the person who signed it and it is complete in its terms, "a valid and intentional delivery by him is presumed until the contrary is proved," as in this case. Wilson did not overcome the foregoing presumption. Case: BDO UNIBANK, INC., vs. ENGR. SELWYN LAO G.R. No. 227005. June 19, 2017, Mendoza, J. Lao issued two (2) BDO crossed checks (Check No. 0127-242249 and Check No. 0127-242250 in the amounts of ₱273,300.00 and ₱336,500.00, respectively) in favor of EverLink as down payment for the supply of sanitary wares. The sanitary wares were not delivered and Lao learned that the checks were deposited in two different bank accounts at Union Bank belonging to New Wave. BDO paid the value of Check No. 0127-242250 to Union Bank, which, in turn, credited the amount to New Wave's account. UnionBank endorsed the check by stamping at the back of the subject check the phrase "all prior endorsements and/or lack of it guaranteed." Who between BDO and UnionBank is liable?

In check transactions, the collecting bank generally suffers the loss

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In check transactions, the collecting bank 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 collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check. The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter's accounts only those payables authorized by him. A drawee bank is under strict liability to pay the check only to the payee or to the payee's order. When the drawee bank pays a person other than the payee named in the check, it does not comply with the terms of the check and violates its duty to charge the drawer's account only for properly payable items. On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66 of the Negotiable Instruments Law, 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."

crossed check A crossed check is one where two parallel lines are drawn across its face or across the corner thereof. A check may be crossed generally or specially. A check is crossed especially when the name of a particular banker or company is written between the parallel lines drawn. It is crossed generally when only the words "and company" are written between the parallel lines or none at all. effects of crossing a check Jurisprudence dictates that the effects of crossing a check are: (1)

that the check may not be encashed but only deposited in the bank;

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that the check may be negotiated only once--to one who has an account with a bank; and

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that the act of crossing the check serves as a 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.

The effects of crossing a check, thus, relate 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. (BDO UNIBANK, INC., vs. ENGR. LAO G.R. No. 227005. June 19, 2017, Mendoza, J.)

****************** Alvin entrusted several pre-signed blank checks to Nap Gutierrez to answer for the expenses of a business venture (Slam Dunk) co-owned between them. Further, that Gutierrez could only use the checks upon prior approval of Alvin. Gutierrez, without the knowledge and consent of Alvin, however delivered one of the checks to Marasigan as security for a loan in the amount of P200,000.00. Gutierrez misrepresented that the loan is for the construction of Alvin’s house. The blank portions of the check were filled out with the words “Cash” “Two Hundred Thousand Pesos Only,” the amount of “P200,000.00” and the date “May 23, 1994.” When Marasigan deposited the check, it was dishonored or the reason “ACCOUNT CLOSED.” A) Is Alvin liable? B) Is Marasigan a holder in due course (HDC)? A) Alvin is NOT liable and Marasigan is not a HDC. The check is incomplete but delivered. It was not completed strictly under the authority given by Alvin to Gutierrez. Gutierrez was limited to the authority to fill up the blank pre-signed checks to be used in the operation of their business and on the condition that Alvin’s prior approval be first secured. The authority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is completed. Gutierrez exceeded his authority. He used the check to pay the loan he supposedly contracted for the construction of Alvin’s house. B) Marasigan is NOT a HDC. The rule that a possessor of the instrument is prima facie a holder in due course is inapplicable. Marasigan is aware that Alvin is not a party or privy to the loan. The inaction and failure to verify, despite knowledge that Alvin was not a party to the loan, may be construed as gross negligence amounting to bad faith. Alvin had no obligation or liability to him, rendered him dishonest, hence, in bad faith.

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio) (PATRIMONIO v. GUTIERREZ & MARASIGAN, GR No. 187769, 14 June 2014)

9

Are electronic messages negotiable instruments? HSBC performs custodial services in behalf of its investor-clients as regards their passive investments in the Philippines mainly involving shares of stocks in domestic corporations. These investor-clients maintain Philippine peso and/or foreign currency accounts with HSBC. Should they desire to purchase shares of stock and other investments securities in the Philippines, the investor-clients send their instructions and advises via electronic messages from abroad to HSBC directing the latter to debit their local or foreign currency account and to pay the purchase price upon receipt of the securities. 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. (HSBC v. CIR, GR Nos. G.R. Nos. 166018 & 167728, June 4, 2014, Leonardo-de Castro)

********* TRANSPORTATION *************************** *A beach resort operator who has boats (called Coco Beach boats) that ferry resort guests and crew members is a common carrier. The definition of a common carrier in Article 1732 of the Civil Code makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as “a sideline”). The ferry services are so intertwined with its main business as to be properly considered ancillary thereto.  The constancy of the ferry services in the resort operations is underscored by its having its own Coco Beach boats.   And the tour packages offered, 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 the operator 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.  The Court is aware of 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 the ferry services pay the same amount is likewise inconsequential.  These guests may only be deemed to have overpaid. (Spouses Dante Cruz and Leonora Cruz v. Sun Holidays, Inc., G.R. No. 186312, June 29, 2012) 

****** Law of Destination Under 1753 of the 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 (Phil-am Insurance Co., Inc. (now Chartis Philippines Insurance, Inc.) v. Heung-A Shipping Corp., 730 SCRA 512, 23 July 2014; Eastern Shipping Lines vs. IAC, 150 SCRA 464 [1984]).



does NOT APPLY if the goods were NEVER transported  If the UNPAID SELLER exercises his RIGHT OF STOPPAGE IN TRANSITU, the new destination will be the country of the seller.

Safety of passengers (Arts. 1755-1763) Carrier not an insurer against all risk  the law does not make the common carrier an insurer of the absolute safety of its passengers.  It is imperative for a party claiming against a common carrier to show that the injury or death to the passenger/s arose from the negligence of the common carrier and/or its employees in providing safe transport to its passengers. Case: GV Florida v. Heirs of Battung, Sr., GR No. 208802, 14 October 2015, J. Perlas-Bernabe Romeo boarded GV Bus in Delfin Albano, Isabela, bound for Manila. He was seated at the first row behind the driver and slept during the ride. In San Jose City, four (4) men with hidden arms boarded the bus. The conductor or the bus driver observed nothing about these 4-men which would rouse their suspicion that the men were armed or were to carry out an unlawful activity. With no such indication, there was no need for them to conduct a more stringent search (i.e., bodily search) on the aforesaid men. When the bus reached the Philippine Carabao Center in Muñoz, Nueva Ecija, the bus driver, Duplio, stopped the bus and alighted to check the tires. At this point, one of the 4 armed men who were seated at the fourth row of the bus stood up, shot

10 Romeo at his head, and then left with his companions. The bus conductor, Daraoay, and the driver Duplio brought Romeo to the hospital, but the latter was pronounced dead on arrival. COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

It was found that GV Bus, et al. were unable to rebut the presumed liability of common carriers in case of injuries/death to its passengers due to their failure to show that they implemented the proper security measures to prevent passengers from carrying deadly weapons inside the bus which, resulted in the killing of Romeo. As such, GV Bus, et al. were held civilly liable for the latter's death based on culpa contractual. The CA affirmed the ruling of the trial court in toto. It held that the killing of Romeo cannot be deemed as a fortuitous event, considering that such killing happened right inside petitioner's bus and that GV Bus, et al. did not take any safety measures in ensuring that no deadly weapon would be smuggled inside the bus. Is the CA correct in affirming the ruling of the trial court finding GV Bus et al. for damages to the heirs of Romeo arising from culpa contractual? NO. Since the passenger’s death was caused by a co-passenger, the applicable provision is Article 1763 of the Civil Code, which states that "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." Notably, for this obligation, the law provides a lesser degree of diligence, i.e., diligence of a good father of a family, in assessing the existence of any culpability on the common carrier's part. Caravan Travel v. Abejar GR No. 170631, 10 February 2016 (Leonen, J.) Caravan Travel is the registered owner of a van driven by Bautista that hit a pedestrian, Reyes, causing her hospitalization and death. Abejar, the paternal aunt of Reyes, filed a case for damages against Caravan and Bautista. Bautista was eventually dropped as a party-defendant as he is nowhere to be found and summons cannot be served. The complaint is anchored on an employer's liability for quasi-delict provided in Article 2180, in relation to Article 2176 of the Civil Code. Abejar claims that since Caravan is the registered owner of the van, it is directly, primarily, and solidarity liable for the tortious acts of Bautista, its driver. Caravan contends that it is not liable since there is no proof that Bautista, the driver, acted "within the scope of his assigned tasks" when the accident occurred. Caravan alleged that Bautista’s tasks only pertained to the transport of company personnel or products, and when the accident occurred, he had not been transporting personnel or delivering products of and for the company. Caravan adds that it should not be held solidarily liable with Bautista since Bautista was already dropped as a party. The trial court found Bautista negligent and directed Caravan and Bautista jointly and solidary liable to pay Abejar. Art. 2180 and the registered owner rule  Article 2180 (Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry) requires proof of two things: first, an employment relationship between the driver and the owner; and second, that the driver acted within the scope of his or her assigned tasks. 

On the other hand, the registered-owner rule only requires proof that the employer is the registered owner of the vehicle.

Whether or not there is a need to establish that the driver acted within the scope of his assigned tasks (pursuant to Art. 2180 in relation to Art. 2176) to render the registered owner liable. There is NO need. In cases where both the registered-owner rule and Article 2180 apply, the plaintiff must establish that the employer is the registered owner of the vehicle in question. Once the plaintiff successfully proves ownership, there arises a disputable presumption that the requirements of Article 2180 have been proven. As a consequence, the burden of proof shifts to the defendant to show that no liability under Article 2180 has arisen.

11 Whether or not the driver/employee is required to be impleaded as a party in the case to render the registered owner liable. COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

There is no need to implead the driver/employee in the case. The liability imposed on the registered owner is direct and primary. It does not depend on the inclusion of the negligent driver in the action. Otherwise, it would render impotent the rationale of the motor registration law in fixing liability on a definite person. The employer's interest and liability is distinct from that of its driver. Regardless of the employeremployee relationship, liability attaches to the employer on account of its being the registered owner of a vehicle that figures in a mishap. This alone suffices. A determination of its liability as owner can proceed independently of a consideration of how the employee conducted himself as a driver. While certainly it is desirable that a determination of the driver’s liability be made alongside that of the owner of the vehicle he was driving, his non-inclusion in the case does not absolutely hamper a judicious resolution of the victim’s plea for relief. The WARSAW CONVENTION (WC) • •

It provides for rules applicable to international transportation by air (Mapa v. CA, 275 SCRA 286) It applies to all international transportation of persons performed by aircraft for hire (Santos v. Northwest, 210 SCRA 256)

•

The WC has the force and effect of a law in the PH being a treaty commitment assumed by the Philippine government. However, the WC does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of liability (Mapa v. CA, 275 SCRA 286)

 What is “INTERNATIONAL TRANSPORTATION BY AIR”? •

Two (2) categories

1) Where the place of departure and the place of destination are situated within the territories of two (2) HIGH CONTRACTING PARTIES (HCP) regardless of whether or not there be a break in the transportation or a transshipment; and 2) Where the place of departure and the place of destination are within the territory of a HCP if there be an agreed stopping place within a territory subject to the sovereignty, mandate or authority of another power, even though the power is not a party to the WC. 

What is a HIGH CONTRACTING PARTY? A signatory to the WC and subscribed to it.

Where should an action for violation of a contract of international transportation by air be brought? •

It must be brought, at the OPTION OF THE PLAINTIFF, in one of the territories of the HCPs before: 1) the court of the domicile of the carrier 2) the court of the carrier’s principal place of business 3) the court where it has a place of business through which the contract had been made 4) the court of the place of destination (Art. 28 [l], WC); (Santos v. Northwest, 210 SCRA 256)



Allegations of tortious conduct committed against an airline passenger during the course of the international carriage do not bring the case outside the ambit of the WC (Lluillier v. British Airways, Inc., GR No. 171092, 15 March 2010).

When is the WC NOT applicable? •

The WC is not applicable if the damage is caused by the willful misconduct of the carrier or by such default on its part which may be considered to be equivalent to willful misconduct, or if the damage is similarly caused by any agent of the carrier acting within the scope of his employment (Sabena v. CA, 255 SCRA 38)

•

The carrier’s liability may not be limited to that prescribed in the WC. The WC is not an exclusive enumeration of the instances of an airline’s liability. The WC should be deemed a limit of liability only in cases where the cause of death, injury to a person, or destruction, loss or damage to property or delay in transport, is not attributable to or attended by any willful misconduct, bad faith, recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and there is no special or extraordinary form of resulting injury. (Northwest v. CA, 284 SCRA 408)

•

The WC does not “regulate or exclude liability for other breaches of contract by the carrier” or misconduct of its officers and employers, or for some particular or exceptional type of damage (ibid.)

12

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

COGSA: Carriage of Goods by Sea Act Contracts covered by COGSA • The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74 th US Congress, was accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine Ports in foreign trade by virtue of Commonwealth Act (C.A.) No. 65 (Asian Terminals, Inc. v. Philam Insurance Co., Inc., 702 SCRA 88, 24 July 2013). Prescriptive period to file a claim for loss or damage The suit must be brought within one year after delivery of the goods or the date when the goods should have been delivered. (Section 3(6); Cua v. Wallem Phils. Shipping, Inc., GR No. 171337, 11 July 2012; Phil-am Ins. Co., Inc. (now Chartis Phil. Ins. Inc.) v. Heung-A Shipping Corp., 730 SCRA 512, 23 July 2014).

*The filing of a notice of claim/loss is NOT a condition precedent *It is NOT interrupted or tolled by an extrajudicial demand (DOLE v. Maritime Co.,148 SCRA 118) 

Prescriptive period may be extended by agreement Jurisprudence, however, recognized the validity of an agreement between the carrier and the shipper/consignee extending the one-year period to file a claim (Cua v. Wallem Phils. Shipping, Inc., GR No. 171337, 11 July 2012).

 A stipulation reducing the one (1) year prescriptive period is null and void. “loss or damage” under the COGSA

 “Loss or Damage” as applied to the COGSA contemplates a situation where no delivery at all was made by the shipper of the goods because the same had perished, gone out of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered.

 Thus, it is inapplicable in case of misdelivery or conversion.

(Ang v. American Steamship

and damage arising from delay or late delivery (Mitsui O.S.K. Lines Ltd. vs. CA). In such instance the, Civil Code rules on prescription shall apply. When the prescriptive is not applicable Agencies, Inc., 19 SCRA 122; Art. 1189, Civil Code; par. 4, Sec 3[6], COGSA)

 Does NOT APPLY to conversions or misdeliveries America, 19 SCRA 1223; Ang v. CIA Maritima, 133 SCRA 600).

(CIA Maritima v. Insurance Co. of North

***In such cases the Civil Code provision on prescription will apply: ten (10) years is there is a written contract or bill of lading; six (6) years if contract is oral 

The one-year prescriptive period for filing an action for the loss or damage of goods may not be invoked by an arrastre operator. (Insurance Company of North America v. Asian Terminals, Inc., GR No. 180784, 12 February 2012)



(SHIPPER vs. INSURER) Where the shipper or the consignee files the suit against the insurer for payment under the insurance policy, the one (1) year period does not apply but the ten (10) year prescriptive period under the Civil Code because the suit is not against the carrier arising from the contract of carriage (Mayer Steel Pipe Corp. v. CA, 274 SCRA 432).

***(INSURER vs. CARRIER) If the suit is filed by an insurer under its subrogatory rights, the one (1) year prescriptive period applies (Fil-Merchants v. Alejandro, 145 SCRA 42) *************

CORPORATION *********************

 Purpose of piercing the corporate veil •

The purpose behind piercing a corporation’s identity is to remove the barrier between the corporation and the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities (Mayor v. Tiu, GR No. 203770, 23 November 2016, 810 SCRA 256).

liability when corporate fiction is pierced

13 When a corporate veil is pierced, the corporation’s liability becomes personal to the person directly responsible for and who acted in bad faith in committing the illegal dismissal or any act violative of the Labor Code (Jose Emmanuel Guillermo v. Crisanto Uson, GR No. 198967, 07 March 2016). The responsible persons maybe impleaded and be held solidarily liable (Dutch Movers, Movers, Inc. v. Lequin, 824 SCRA 310, COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

25 April 2017).

When the separate personality of the corporation is disregarded, the corporation will be treated merely as an association of persons and the stockholders or members will be considered as the corporation, i.e., liability will attach personally or directly to the officers and stockholders (Yao, Sr. v. People, GR No. 168306, 19 June 2007).

Case: International Academy of Management and Economics (I/AME), vs. Company, Inc., GR No.191525, 13 Dec. 2017 (CJ Sereno)

Litton and

Atty. Emmanuel T. Santos was a lessee of a property belonging to Litton. Due to the failure to pay the lease rentals, Litton filed and won an ejectment case against Santos. Atty. Santos was likewise directed to pay rental arrears, realty taxes, penalties and attorney’s fees. The judgment was not executed immediately but was later revived and became final and executory. A property registered in the name of I/AME—TCT No. 187565— TCT was levied to pay the money judgment. It was indicated that such was "only up to the extent of the share of Emmanuel T. Santos." I/AME opposed the levy and moved for its cancellation on the following grounds: 1) It has a separate and distinct personality from Santos; hence, its properties should not be made to answer for the latter's liabilities. 2) Its right to due process was violated when it was dragged into the case and its real property made an object of a writ of execution in a judgment against Santos. 3) Since it was not impleaded in the main case, the trial court never acquired jurisdiction over it. 4) The doctrine of piercing the corporate veil applies only to stock corporations, and not to nonstock, nonprofit corporations such as I/AME since there are no stockholders to hold liable in such a situation but instead only members. Hence, they do not have investments or shares of stock or assets to answer for possible liabilities. Thus, no one in a non-stock corporation can be held liable in case the corporate veil is disregarded or pierced. 5) The piercing of the corporate veil cannot be applied to a natural person—in this case Santos— simply because as a human being, he has no corporate veil shrouding or covering his person.

No violation of due process • Facts show that piercing of the corporate veil is merited.  It was shown "by clear and convincing proof that the separate and distinct personality of the corporation was purposefully employed to evade a legitimate and binding commitment and perpetuate a fraud or like wrongdoings. “  Santos had an existing obligation that he owed monthly rentals and unpaid realty taxes under a lease contract he entered into as lessee with Litton as lessor. He was not able to comply with this particular obligation, and in fact, refused to comply therewith. Santos used I/AME as a means to defeat judicial processes and to evade his obligation to Litton. Thus, even while I/AME was not impleaded in the main case and yet was so named in a writ of execution to satisfy a court judgment against Santos, it is vulnerable to the piercing of its corporate veil. Piercing the corporate veil applicable to all kinds of corporations

 The Supreme Court (SC) did not put in issue whether the corporation is a nonstock, nonprofit, nongovernmental corporation in considering the application of the doctrine of piercing of corporate veil - Non-profit corporations are not immune from the doctrine of piercing the corporate veil. - Piercing applies to any organization however organized and in whatever manner it operates. - Control of ownership does not hinge on stock ownership.  In a US case it was held that: [t]he mere fact that the corporation involved is a nonprofit corporation does not by itself preclude a court from applying the equitable remedy of piercing the corporate veil. The equitable character of the remedy permits a court to look to the substance of the organization, and its decision is not controlled by the statutory framework under which the corporation was formed and operated. While it may appear to be impossible for a person to exercise ownership control over a nonstock, not-for-profit corporation, a person can be held personally liable under the alter ego theory if the evidence shows that the person controlling the corporation did in fact exercise control, even though there was no stock ownership.

Concept of equitable ownership in non-stock corporation 

An equitable owner is an individual who is a non-shareholder defendant, who exercises sufficient control or considerable authority over the corporation to the point of completely disregarding the corporate form and acting as though its assets are his or her alone to manage and distribute.

Piercing is applicable to natural persons

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

14

a) When the Corporation is the Alter Ego of a Natural Person b) Reverse Piercing of the Corporate Veil

When the corporation is the alter ego of the natural person 

I/AME is the alter ego of Santos and Santos - the natural person - is the alter ego of I/AME. Santos falsely represented himself as President of I/AME in the Deed of Absolute Sale when he bought the Makati real property, at a time when I/AME had not yet existed. Santos even admitted in its pleadings before that trial court that he is an alter ego of I/AME. I/AME is the alter ego of the natural person, Santos, which the latter used to evade the execution on the Makati property, thus frustrating the satisfaction of the judgment won by Litton.

 REVERSE CORPORATE PIERCING • • •

In a traditional veil-piercing action, a court disregards the existence of the corporate entity so a claimant can reach the assets of a corporate insider. In a reverse piercing action, however, the plaintiff seeks to reach the assets of a corporation to satisfy claims against a corporate insider. Reverse piercing flows in the opposite direction (of traditional corporate veil-piercing) and makes the corporation liable for the debt of the shareholders.

OUTSIDER & INSIDER REVERSE PIERCING  Outsider reverse piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or substantially controlled by defendant.

In insider reverse piercing, the controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of personal assets. Here, outsider reverse veil-piercing is applicable. Litton, as judgment creditor, seeks to pierce the corporate veil of I/AME in order to make its Makati real property answer for a judgment against Santos, who formerly owned and still substantially controls I/AME. A US case held that "[o]utsider reverse veil-piercing extends the traditional veil-piercing doctrine to permit a third-party creditor to pierce the veil to satisfy the debts of an individual out of the corporation's assets."

Reverse corporate piercing is an equitable remedy and should be used cautiously. The enforcement of judgment under the Rules shall be preferred.

 Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may lead to disastrous consequences for both stock and non-stock corporations. The ordinary judgment collection procedures or other legal remedies are preferred. But to avoid injustice and not to unwittingly condone the act of Santos in trying to frustrate the decades-old judgment by hiding behind the corporate form to evade paying his obligation under the judgment, the reverse piercing of the corporate veil of I/AME to enforce the levy on execution of the Makati real property where the school now stands is applied.

Effect of transfer of shares not recorded in the STB All transfers of share of stock must be registered in the corporate books in order to be binding on the corporation (F & S Velasco Company, Inc. v. Madrid, 774 SCRA 388, 10 November 2015). A transfer of a share of stock not recorded in the stock and transfer book is non-existent as far as the corporation is concerned. From the corporation’s point of view, the transfer is not effective until it is recorded (VC Ponce v. Cement, GR No. 139802, 10 Dec. 2002, 393 SCRA 602). Right to transfer/sell shares • • •

Right of transferee to have stocks transferred in his name is an inherent right of ownership of stocks to be valid against third parties and the corporation, the transfer must be recorded in the books of corporation Surrender of the original certificate of stock is necessary before the issuance of a new one so that the old certificate may be cancelled

Grace Borgoña Insigne, et al. vs. Abra Valley Colleges, Inc. and Francis Borgoña, G.R. No. 204089, July 29, 2015 Insigne, et al. filed a complaint (with application for preliminary injunction) and damages in the RTC against Abra Valley, praying, among others, that the RTC direct Abra Valley to allow them to inspect its corporate books and records, and the minutes of meetings, and to provide them with its financial statements. Abra Valley moved to dismiss the complaint on the ground that Insigne, et al. are not stockholders; their proofs as such are certificates of stock still in the name of the original owners and they are not listed as shareholders in the STB.

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

15

Insigne, et al. supported their claim of being stockholders by presenting the secretary’s certificate that they are listed as shareholders, the official receipts of their payments for their subscriptions of the shares of Abra Valley, SEC certifications stating that Abra Valley had issued shares in favor of Insigne, et al., letters, GIS and minutes of stockholders meetings. The RTC dismissed the complaint which the CA sustained on the ground that Insigne, et al. have no stock certificate.

Are petitioners Insigne, et al. stockholders of Abra Valley; the nature of a certificate of stock YES. Although Insigne et al. failed to produce a stock certificate in their names, they were able to prove that they are stockholders of Abra Valley.

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: – x x x 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. To establish their stock ownership, Insigne duly established that they are stockholders through: the secretary’s certificate that they are listed as shareholders, the official receipts of their payments for their subscriptions of the shares of Abra Valley, SEC certifications stating that Abra Valley had issued shares in favor of Insigne, et al., letters, GIS and minutes of stockholders meetings. Insigne are entitled to demand the production of the STB of Abra Valley Indeed, transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are.  It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. Nonetheless, the 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. Since Insigne, et al. established that they are stockholders, they are entitled to demand the production of the STB. *************************** RA # 10142: THE FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA) of 2010 ***************************************************************** 2-pronged purpose of rehabilitation (a)

to sufficiently and equitably distribute the assets of the insolvent debtor to its creditors; (EQUITABLE PURPOSE) and to provide the debtor with a fresh start (Phil. Bank of Communications v. Basic Polyprinters and Packaging

(b)

Corp., 738 SCRA 561, 20 October 2014; Asiatrust Dev’t. Bank v. First Aikka Dev’t. Inc., 650 SCRA 172 [2011]). •

(REHABILITATIVE PURPOSE) The purpose of rehabilitation proceedings is not only to enable the company to gain a new lease on life but also to allow creditors to be paid their claims from its earnings, when so rehabilitated (BPI Family Savings Bank, Inc. v. St. Michael Medical Center, Inc., GR No. 205469, 25 March 2015, J. Perlas-Bernabe).

MATERIAL FINANCIAL COMMITMENT: essential in rehabilitation A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith of the distressed corporation in financing the proposed rehabilitation plan. This commitment may include the voluntary undertakings of the stockholders or the wouldbe investors of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to guarantee the continued successful operation of the debtor

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

corporation during the period of rehabilitation

16

(BPI Family Savings Bank, Inc. v. St. Michael Medical Center, Inc.,

GR No. 205469, 25 March 2015).

Without it, the petition for corporate rehabilitation must necessarily fail.

(PHILIPPINE BANK OF COMMUNICATIONS vs. BASIC POLYPRINTERS AND PACKAGING CORPORATION, G.R. No. 187581, October 20, 2014)

Basic Polyprinters commitment was insufficient for the following reasons: • •

• •

The commitment to add P10,000,000.00 working capital appeared to be doubtful considering that the insurance claim from which said working capital would be sourced had already been writtenoff. The conversion of all deposits for future subscriptions to common stock and the treatment of all payables to officers and stockholders as trade payables was hardly constituting material financial commitments. Such “conversion” of cash advances to trade payables was, in fact, a mere reclassification of the liability entry and had no effect on the shareholders’ deficit. Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to address the low demands for their products and the effect of direct competition from stores like SM, Gaisano, Robinsons, and other malls.  Basic Polyprinters’s proposal to enter into the dacion en pago to create a source of “fresh capital” was not feasible because the object thereof would not be its own property but one belonging to its affiliate, TOL Realty and Development Corporation, a corporation also undergoing rehabilitation.

Verified notice of claim and the failure of the creditor to file a notice of claim Every creditor of the debtor or any interested party whose claim is not yet listed in the schedule of debts and liabilities shall file his verified notice of claim not later than five (5) days before the first initial hearing date fixed in the Commencement Order. (Sec. 12, Rule 1, F-Rules). TIME-BAR RULE If a creditor files a belated claim (Sec. 12, Rule 1, F-Rules) or a creditor fails to file its claim, he shall not be entitled to participate in the rehabilitation proceedings, but shall be entitled to receive distributions therefrom (Sec. 23, FRIA). (Bustos v. Millians Shoe, GR No. 185024, 24 April 2017, Sereo, CJ) Issuance of commencement order & suspension or stay order/effects The commencement order (Sec. 16, FRIA) shall also include a suspension or stay order suspending all actions or proceedings for the enforcement of claims or judgments against the debtor and prohibiting debtor from selling, encumbering or disposing of any of its properties and from making any payment of its liabilities (Sec. 16q). In Section 8V, Rule 1, FRIA Rules, the Stay or Suspension Order shall: (i) (ii) (iii) (iv)

suspend all actions or proceedings in court or otherwise, for the enforcement of all claims against the debtor; suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor; prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.

The suspension order, however shall not apply (Sec. 18, FRIA): a) b) c) d)

to cases on appeal in the Supreme Court at the time of the issuance of the commencement order (Sec. 18a, FRIA); the enforcement of claims against sureties and other persons solidarily liable with the debtor and third party/accommodation mortgagors (Sec. 18c, FRIA); the sale by licensed brokers or dealers of pledged securities pursuant to a securities pledge or margin agreement (Sec. 18e, FRIA); and any criminal action against the individual debtor or owner, partner, director or officer of a debtor (Sec. 18g, FRIA).

There shall be no diminution of security or lien; they are merely suspended during the stay order (Sec. 60, FRIA).

The issuance of stay order cannot suspend foreclosure of accommodation mortgages

(Situs Dev.

Corp. v. Asiatrust Bank, 688 SCRA 621, 16 January 2013).

Case: BIR v. Misajon, G.R. No. 224764. April 24, 2017, Perlas-Bernabe Can the BIR proceed to collect deficiency taxes in spite of the issuance of a commencement order? NO

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

17

LCI filed a petition for corporate rehabilitation. Finding the same to be sufficient in form and substance, the Rehabilitation Court issued a Commencement Order dated January 13, 2012 which, inter alia: (a) declared LCI to be under corporate rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from making any payment of its outstanding liabilities as of even date, except as may be provided under RA 10142; and (d) directed the BIR to file and serve on LCI its comment or opposition to the petition, or its claims against LCI. The BIR personally and by publication - was notified of the rehabilitation proceedings involving LCI and the issuance of the Commencement Order related thereto. Instead of filing a comment or opposition, the BIR, through Misajon, still opted to send LCI: (a) a notice of informal conference dated May 27, 2013, informing the latter of its deficiency internal tax liabilities for the Fiscal Year ending June 30, 2010; and (b) a Formal Letter of Demand dated May 9, 2014, requiring LCI to pay deficiency taxes in the amount of P567,51 9,348.39, notwithstanding the written reminder coming from LCI's court-appointed receiver of the pendency of rehabilitation proceedings concerning LCI and the issuance of a commencement order. The Rehabilitation court cited the BIR and Misajon in contempt of court for defying the commencement order. The BIR justified their action by claiming that they only performed such acts to toll the prescriptive period for the collection of deficiency taxes and (b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given any credence.

A) Can the BIR proceed to collect deficiency taxes in spite of the issuance of a commencement order? NO. Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order – which includes a Stay or Suspension Order – all actions or proceedings, in court or otherwise, for the enforcement of “claims” against the distressed company shall be suspended. Under the same law, claim “shall refer to all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the government, whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors and officers of the debtor arising from acts done in the discharge of their functions falling within the scope of their authority:  Provided,  That, this inclusion does not prohibit the creditors or third parties from filing cases against the directors and officers acting in their personal capacities.”

B) What is the remedy of creditors in pursuing their claims against a distressed debtor in case of issuance of a commencement order? The remedy of creditors of the distressed debtor is to submit their claims to the rehabilitation court for proper consideration so that they may participate in the proceedings, keeping in mind the general policy of the law “to ensure or maintain certainty and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated.” In other words, the creditors must ventilate their claims before the rehabilitation court, and any “[a]ttempts to seek legal or other resource against the distressed corporation shall be sufficient to support a finding of indirect contempt of court.” x x x The insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes; and (b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given any credence. BIR could have easily tolled the running of such prescriptive period, and at the same time, perform their functions as officers of the BIR, without defying the Commencement Order and without violating the laudable purpose of RA 10142 by simply ventilating their claim before the Rehabilitation Court. After all, they were adequately notified of the LCI’s corporate rehabilitation and the issuance of the corresponding Commencement Order. It was improper for Misajon, et al. to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings concerning the latter, and in the process, willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the rehabilitation court correctly cited them for indirect contempt.

Parri Passu Principle • During rehabilitation, the assets of the distressed corporation are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another. All creditors should stand on equal footing. •

Both secured and unsecured creditors shall suffer a write-off of penalties and default interest and the escalating interest rates shall equally be imposed on them. (Express Investments III Private Ltd. and Export Dev't. Canada v. Bayantel, Inc., 687 SCRA 50, 05 December 2012)

the rehabilitation plan and the “cram-down” power • The court may exercise its cram-down power and approve the rehabilitation plan over the objection of any class of creditors (Sec. 64, second par., FRIA). • The provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or stockholders of the insolvent debtor (Sec. 68 last par., FRIA).

18 Court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor (Pacific Wide Realty and Dev’t. Corp. v. Puerto Azul Land Inc.,

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

•

605 SCRA 503, 25 November 2009).

Case: Umale v. ASB Realty Corp., GR No. 181126, 15 June 2011 (J. del Castillo) ***Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property. Due to the termination of the lease and the continued illegal occupation, ASB Realty Corporation (ASB Realty) filed a case for unlawful detainer seeking to recover from Umale a parcel of land identified as Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City which was originally owned by Amethyst Pearl Corporation (Amethyst Pearl), a company that is, in turn, wholly-owned ASB Realty.   Umale challenged ASB Realty’s personality to recover the subject premises considering that ASB Realty had been placed under receivership by the Securities and Exchange Commission (SEC) and a rehabilitation receiver had been duly appointed. Umale claims that it is the rehabilitation receiver that has the power to take possession, control and custody of the debtor’s assets. Hence, it is the duly-appointed receiver of ASB Reatly that should sue to recover possession of the property.

  Can a corporate officer of ASB Realty (duly authorized by the Board of Directors) file suit to recover an unlawfully detained corporate property despite the fact that the corporation had already been placed under rehabilitation? YES. Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in the law. Among the general powers granted by law to a corporation is the power to sue in its own name. This power is granted to a dulyorganized corporation, unless specifically revoked by another law. The question becomes: Do the laws on corporate rehabilitation particularly PD 902-A, as amended, and its corresponding rules of procedure forfeit the power to sue from the corporate officers and Board of Directors? Corporate rehabilitation is defined as the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern than if it is immediately liquidated. The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated. This concept of preserving the corporations business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of its business and properties, subject only to the monitoring of the appointed rehabilitation receiver. The concept of debtor-in-possession, is carried out more particularly in the SEC Rules, the rule that is relevant to the instant case. It states therein that the interim rehabilitation receiver of the debtor corporation does not take over the control and management of the debtor corporation. Likewise, the rehabilitation receiver that will replace the interim receiver is tasked only to monitor the successful implementation of the rehabilitation plan. There is nothing in the concept of corporate rehabilitation that would ipso facto deprive the Board of Directors and corporate officers of a debtor corporation, such as ASB Realty, of control such that it can no longer enforce its right to recover its property from an errant lessee.

 Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation and its corporate officers of the power to recover its unlawfully detained property.  

CONTRA: Bank officers/directors have no power over the bank and its operation when a receiver is appointed. • The bank officers/directors have no power over the bank and its operation when a receiver is appointed. • The receivership is equivalent as an injunction to restrain bank officers from intermeddling with the property of the bank in any way. • When a bank is placed under receivership, its officers, including its acting president, are no longer authorized to transact business in connection with the bank’s assets and property. SUSPENSION OF PAYMENT OF INSOLVENT INDIVIDUAL DEBTORS  only individual debtors are covered  a natural person who is a resident and citizen of the Philippines who has become insolvent (Sec. 4(o), FRIA) • NOT available to non-resident citizens and aliens  NO more corporate suspension of payment proceedings Who may refrain from attending creditor’s meeting?

19 Secured creditors and creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred within sixty (60) days immediately prior to the filing of the petition may refrain from attending the creditors’ meeting and from voting therein. Such persons shall not be bound by any agreement arrived at in such meeting. Unless, being aware of this right, they attend the meeting, participate in the discussions and vote therein. COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

Residual power of court The court, upon motion of any affected party, may issue any order which may be necessary or proper to enforce the agreement. If the debtor fails, wholly or in part, to perform his obligations under the agreement, or to comply with any order of the court, the court, upon motion of any creditor, shall declare the agreement terminated, and all the rights which the creditors had against the debtor before the agreement shall revest in them. ************ INSURANCE ***************** “CASH TO CARRY” principle (Sec. 77) - This principle requires payment of the premium before the contract of insurance can be valid and binding. - The philosophy behind this principle is that the insurer, upon issuance of the policy, is immediately exposed to liability for the risks insured against, hence, it is entitled to be paid the premium for extending protection to the insured immediately upon such exposure. The payment of premium is a condition precedent to, and essential for, the efficacy of the contract of insurance. Unless premium is paid, the policy shall not be valid and binding notwithstanding any agreement to the contrary (Sec. 77, Ins. Code; Valenzuela v. CA, 191 SCRA 1 [1990]).

- There is no excuse for non-payment of premium; even the failure of the insurer to notify the insured of the change of address. - Premium and risk are the very essence of a contract of insurance and each is dependent and inseparable from the other. The premium is the elixir vitae or source of life of the insurance business This risk-distributing mechanism operates under a system where, by prompt payment of the premiums, the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the insurance business x x x. (Gaisano v. Dev’t. Insurance, G.R. No. 190702, 27 February 2017) PAYMENT OF PREMIUM: salary deduction Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities, and government-owned or-controlled corporations, may pay their insurance premiums and loan obligations through salary deduction (Sec. 78) EXCEPTIONS to the rule that no insurance contract takes effect unless premium is paid (1) in case of life or industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77 itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3) where the parties agreed that premium payment shall be in installments and partial payment has been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;  (4) where the insurer granted the insured a credit term for the payment of the premium, and loss occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums. (Gaisano v. Dev’t. Ins, G.R. No. 190702, 27 Feb. 2017) Collateral source rule As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the defendant is prevented for benefitting from the plaintiff’s receipt of money from other sources. Under this rule, if an injured person receives compensation for his injuries from a source wholly independent of the tortfeasor, the payment should not be

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

deducted from the damages which he would otherwise collect from the torfeasor

20 (Mitsubishi

Motors Phils. Salaried Employees Union (MMPSEU) v. Mitsubishi Motors Phils. Corp., 698 SCRA 599, 17 June 2013).

collateral source rule cannot be invoked in indemnity contracts/no fault insurance contracts The dispute here is on whether employees of Mitsubishi Motors may recover from an insurance clause in a CBA the full amount of hospital bills that was already paid by a Health Maintenance Organization (HMO) or by an insurance company offering health insurance. The collateral source rule was invoked to justify a second recovery from the insurance clause of the CBA. The collateral source rule is intended “to place the responsibility for losses on the party causing them.” The Rule has “no application to cases involving no-fault insurances under which the insured is indemnified for losses by insurance companies, regardless of who was at fault in the incident generating the losses.” Accordingly, the company obligated to provide health insurance under the CBA “cannot be obliged to pay the hospitalization expenses of the dependents of its employees which had already been paid by separate health insurance providers of said dependents.” It was also noted that “the conditions set forth in the CBA provision indicate an intention to limit MMPC’s liability only to actual expenses incurred by the employees’ dependents, that is, excluding the amounts paid by dependents’ other health insurance providers.” The payment of amount already paid under other insurance policies would constitute double recovery which is not allowed under the law. “Being in the nature of a nonlife insurance contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify the covered employees’ medical expenses incurred by their dependents but only up to the extent of the expenses actually incurred. This is consistent with the principle of indemnity which proscribes the insured from recovering greater than the loss. Indeed, to profit from a loss will lead to unjust enrichment and therefore should not be countenanced.” ***Non-presentation of the insurance contract or policy is not necessarily fatal. The presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of the insurer and the insured shipper of the lost cargo, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. ASIAN TERMINALS, INC. vs. MALAYAN INS. CO., INC. GR No. 171406, 04 April 2011 60,000 plastic bags of soda ash dense (each bag weighing 50 kilograms) were shipped from China to Manila. Malayan Insurance Company, Inc. insured the shipment under Marine Risk Note No. RN-000121430 with Philippine Banking Corporation as the consignee. Asian Terminals Inc. handled the unloading and storing of the cargoes from the vessel. Due to the negligent handling of the stevedores of ATI, a total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the contents. Malayan, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount of P643,600.25. Malayan, as subrogee of the consignee, thereafter filed before the Regional Trial Court (RTC) of Manila, a Complaint for damages against ATI. The RTC, which the CA sustained on appeal, found ATI liable for the damage/loss sustained by the shipment. ATI questioned the ruling claiming that Malayan as insurer is not entitled to the relief granted as it failed to establish its cause of action against ATI since, as the alleged subrogee, it never presented any valid, existing, enforceable insurance policy or any copy thereof in court covering the shipment. ATI argues that the Subrogation Receipt presented by Malayan is not sufficient to prove that the shipment was insured and that Malayan was validly subrogated to the rights of the consignee. ATI submits that without proof of a valid subrogation, Malayan is not entitled to any reimbursement.

Whether the non-presentation of the insurance contract or policy is fatal to Malayan’s cause of action. Non-presentation of the insurance contract or policy is not necessarily fatal. The presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of the insurer and the insured shipper of the lost cargo, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. In addition, ATI never questioned Malayan’s right to subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue regarding the validity of the insurance contract or policy, or any provision thereof, Malayan had no reason to present the insurance contract or policy as evidence during the trial.

21 ***An insurer is given two years – from the effectivity of a life insurance contract and while the insured is alive – to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

***If insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then they should cease doing business. If they could not properly screen their agents or salesmen before taking them in to market their products, or if they do not thoroughly investigate the insurance contracts they enter into with their clients, then they have only themselves to blame. Otherwise said, insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the same through the years, generating profits and returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by questioning the authority or integrity of their own agents or the insurance policies they issued to their premium-paying clients. MANILA BANKERS LIFE INS. CORP. vs. ABAN GR No. 175666, 29 July 2013 Sotero took out a life insurance policy from Manila Bankers Life Insurance Corporation designating Aban, her niece, as her beneficiary. On April 10, 1996, when the insurance policy had been in force for more than two years and seven months, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996. Manila Bankers conducted an investigation and found the claim spurious, as it appeared that Sotero did not actually apply for insurance coverage, was unlettered, sickly, and had no visible source of income to pay for the insurance premiums; and that Aban was an impostor, posing as Sotero and fraudulently obtaining insurance in the latter’s name without her knowledge and consent. Manila Bankers further found that the insurance underwriter who solicited the insurance is a cousin of Aban’s husband. Manila Bankers denied the claim and refunded the premiums paid. Manila Bankers then filed a civil case for rescission and annulment of the policy as it was obtained by fraud, concealment and/or misrepresentation. The trial court dismissed the case as it was barred by prescription pursuant to Section 48 of the Insurance Code. The CA sustained the ruling of the trial court. Manila Bankers assailed the ruling before the SC. It argued that Section 48 cannot apply to a case where the beneficiary under the insurance contract posed as the insured and obtained the policy under fraudulent circumstances. Aban, who was merely Sotero’s niece, had no insurable interest in the life of her aunt. Manila Bankers adds that the policy was void ab initio and could not have given rise to rights and obligations; as such, the action for the declaration of its nullity or inexistence does not prescribe.

1) Whether or not that policy may still be rescinded. 2) Whether or not the policy may be assailed on the claim that the insurance underwriter who solicited the insurance is a cousin of the insured’s husband. 1) The policy can no longer be rescinded. It has become incontestable. After two years as contemplated in Section 48, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer lie. The "incontestability clause" is a provision in law that after a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent. The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or provide insurance coverage only to legitimate and bona fide clients, by requiring them to thoroughly investigate those they insure within two years from effectivity of the policy and while the insured is still alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of fraud, concealment or misrepresentation. The law assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and accepting insurance business from any Tom, Dick and Harry. Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two years – from the effectivity of a life insurance contract and while the insured is alive – to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the public in general.

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

22

The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the contract of insurance on the ground of fraudulent concealment or misrepresentation to a period of only two (2) years from the issuance of the policy or its last reinstatement.

2) On the claim that the insurance underwriter who solicited the insurance is a cousin of Aban’s husband This will not affect the policy. If insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then they should cease doing business. If they could not properly screen their agents or salesmen before taking them in to market their products, or if they do not thoroughly investigate the insurance contracts they enter into with their clients, then they have only themselves to blame. Otherwise said, insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the same through the years, generating profits and returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by questioning the authority or integrity of their own agents or the insurance policies they issued to their premium-paying clients. This is exactly one of the schemes which Section 48 aims to prevent.

***"The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer." MANULIFE PHILS. vs. YBAÑEZ, GR No. 204736, 28 Nov. 2016 Manulife Philippines, Inc. (Manulife) instituted a Complaint for Rescission of Insurance Contracts against Hermenegilda Ybañez (Hermenegilda). Manulife alleged that the insurance policies in favor of Dr. Gumersindo Solidum Ybañez (insured), where Hermenegilda was designated as revocable beneficiary, were void due to concealment or misrepresentation about the true health of the insured. Hermenegilda countered that Manulife's own insurance agent, Ms. Elvira Monteclaros herself assured that there would be no problem regarding the application for the insurance policy. It was Monteclaros who likewise filled up everything in the questionnaire, answered the queries and checked all the boxes in the form, which the insured simply signed. Manulife presented only one witness who gave no first-hand, direct evidence at all relative to the particulars of the alleged misrepresentation/s or concealment/s that the insured allegedly practiced or committed against it. This witness did not testify at all in respect to the circumstances under which the documentary exhibits were executed, nor yet about what these documentary exhibits purported to embody. He only identified the documents relative to the policies. Can the policies be rescinded due to concealment or misrepresentation on the basis of the testimony of the sole witness of Manulife? NO. Manulife had utterly failed to prove by convincing evidence that it had been beguiled, inveigled, or cajoled into selling the insurance to the insured who purportedly with malice and deceit passed himself off as thoroughly sound and healthy, and thus a fit and proper applicant for life insurance. Manulife's sole witness gave no evidence at all relative to the particulars of the purported concealment or misrepresentation allegedly perpetrated by the insured. In fact, the sole witness merely perfunctorily identified the documentary exhibits adduced by Manulife; she never testified in regard to the circumstances attending the execution of these documentary exhibits much less in regard to its contents. The mere mechanical act of identifying the documentary exhibits, without the testimonies of the actual participating parties thereto, adds up to nothing. These documentary exhibits did not automatically validate or explain themselves. "The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer." For failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for rescission of insurance contracts.

*******

THE ANTI-MONEY LAUNDERING ACT [AMLA]

23 (RA No. 9160, as amended by RA No. 9194, RA 10167, RA 10365 & RA 10927, the Revised Implementing Rules and Regulations [RIRR]), and the Casino Implementing Rules and Regulations (CIRR) of RA 10927

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

Who are the “covered persons” under the AMLA? - ‘Covered persons’, natural or juridical, refer to: 1)     Persons supervised or regulated by BSP 2) Persons supervised or regulated by IC 3) Persons supervised or regulated by SEC 4) Designated Non-Financial Businesses and Professions (DNFBPs) (Rule 3 E. 2016, RIRR; Sec. 3a, RA 10365)

5)

Casinos, including internet and ship-based casinos, with respect to their casino cash transactions related to the gaming operations (Sec. 1, RA 10927). Included are other entities as may be determined by the AGA (Appropriate Government Agency) (Section 5, Rule II, CIRR).

Are lawyers and accountants included in the term "covered persons?" - The term ‘covered persons’ shall exclude lawyers and accountants acting as independent legal professionals in relation to information concerning their clients or where disclosure of information would compromise client confidences or the attorney-client relationship: Provided, That these lawyers and accountants are authorized to practice in the Philippines and shall continue to be subject to the provisions of their respective codes of conduct and/or professional responsibility or any of its amendments. (Sec. 3a, RA 10365)

HOWEVER, persons, including lawyers and accountants, who provide any of the following services are covered: i.     ii.     iii.     iv.    

Managing of client money, securities or other assets; Management of bank, savings, securities or other assets; Organization of contributions for the creation, operation or management of companies; and Creation, operation or management of juridical persons or arrangements, and buying and selling business entities. (Rule III, 2016 RIRR)

What is a “covered transaction?” • It

•

is a transaction in cash or other equivalent monetary instrument involving a total amount in excess of Five Hundred Thousand Pesos (P500,000.00) within one (1) banking day (Sec. 3b, AMLA). Covered transaction in casinos refers to a single casino cash transaction involving an amount in excess of Five Million Pesos (P5,000,000.00) or its equivalent in any other currency (Sec. 6M, Rule III, CIRR).

•

jewelry dealers in precious metals or precious stones, who, as a business, trade in precious metals/stones, for transactions in excess of One million pesos (P1,000,000.00)

What court has jurisdiction over money laundering cases? The Regional Trial Courts shall have jurisdiction to try all cases on money laundering. Those committed by public officers and private persons who are in conspiracy with such pubic officers shall be under the jurisdiction of the Sandiganbayan (Sec. 5, AMLA; Rule 5.1., RIRR). SAFE HARBOR PROVISION No administrative, criminal or civil proceedings shall lie against any person for having made a covered or suspicious transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law (Rule 9.3.e, AMLA IRR). The AMLC may inquire, look into, & examine bank deposits Notwithstanding the provisions of RA No. 1405 (Secrecy of Bank Deposits), RA No. 6426 (Foreign Currency Deposits Acts), RA No. 8791 (General Banking Law) and other laws, the

24 AMLC may inquire or examine any particular deposit or investment, including related accounts, with any banking institution or non-bank financial institutions (Sec. 11, AMLA, as amended by RA 10167).

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)



Bank inquiry may be with or without a court order.

AMLC bank inquiry WITHOUT a court order 

inquiry of bank deposits WITHOUT a court-order 1.    Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended; 2.    Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic Act No. 9165, otherwise known as the Comprehensive Dangerous Drugs Act of 2002; 3.    Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended; 4.    Felonies or offenses of a nature similar to those mentioned in Section 3(i) (1), (2) and (12) of the AMLA which are punishable under the penal laws of other countries; (1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code, as amended. (2) Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of Republic Act No. 9165, otherwise known as the Comprehensive Dangerous Drugs Act of 2002. (12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined under the Revised Penal Code, as amended. 5.    Terrorism and conspiracy to commit terrorism as defined and penalized under Republic Act No. 9372; and 6.      Financing of terrorism under Section 4 and offenses punishable under Sections 5, 6, 7 and 8 of Republic Act No. 10168, otherwise known as the Terrorism Financing Prevention and Suppression Act of 2012. (Rule 11B, 2016, RIRR).

Bank inquiry order is EX-PARTE Bank inquiry order maybe availed of ex parte premised on the existence of probable cause for violation of an unlawful activity under Sec. 3 (i) or money laundering offense under Sec. 4 of the AMLA. - inquiry includes related accounts which shall refer to accounts, the funds and sources of which originated from and/or are materially linked to the monetary instruments(s) or property(ies) subject of the freeze order(s). -The Court of Appeals shall act on the application to inquire into or examine any deposit or investment with any banking institution or non-bank financial institution within twenty-four (24) hours from filing of the application. (RA 10167) Republic v. Bolante, GR No. 190357, 17 April 2017 (Sereno, CJ) Acting on a suspicious transaction report from the PNB and based on a Senate Committee Report, the AMLC conducted an investigation on several NGOs—LIVECOR, Molugan and AGS—of which former Agriculture Usec. Jocelyn Bolante was a former officer, came out with a Resolution finding probable cause to believe that the accounts of the NGOs were related to what became known as the "fertilizer fund scam." The AMLC then filed an ex-parte petition for bank inquiry of the account of the NGOs and for the issuance of a freeze order. The RTC found no probable cause to believe that the deposits and investments of respondents were related to an unlawful activity. It pointed out that the Republic, in support of the latter's application, relied merely on two pieces of evidence: Senate Committee Report and the court testimony of witness Thelma Espina of the AMLC Secretariat.

A) Is the application ex parte for a bank inquiry order pursuant to Section 11 of RA 9160 Constitutional? B) Is it a violation of right to privacy or right to due process?

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It is Constitutional and does not violate substantive due process. - There is no physical seizure of the targeted corporeal property. - The AMLC ex parte inquiry into bank accounts, is merely in pursuance of its investigative functions akin to those of the NBI. The AMLC does not exercise quasi-judicial functions. - The account holder can then question the finding of probable cause for the issuance of the bank inquiry order. NO violation of the right to privacy. - The source of the right to privacy governing bank deposits is statutory, not constitutional. The legislature may validly carve out exceptions to the rule on the secrecy of bank deposits, and one such legislation is Section 11 of R.A. 9160. What is the basis of bank inquiry? •

When it has been established that there is probable cause that the deposits or investments, including related accounts involved, are related to an unlawful activity as defined in Section 3(i) or a money laundering offense under Section 4. (RA 10167)

•

Bank inquiry maybe made in the event of violation of the AMLA and does not presuppose the pre-existence of a money laundering offense case already filed in court. (Republic v. Eugenio, Jr. (545 SCRA 384 [2008])

The AMLC must show specific facts and circumstances that provide a link between an unlawful activity or a money laundering offense. For the issuance of a bank inquiry order, it is necessary for the AMLC to be able to show specific facts and circumstances that provide a link between an unlawful activity or a money laundering offense, on one hand, and the account or monetary instrument or property sought to be examined on the other hand. In the absence of any proof to that effect, the bank inquiry order will not be issued. (Republic v. Bolante, GR No. 190357, 17 April 2017) The owner of the account has the right to ascertain from the CA the basis for the issuance of the bank inquiry order ex-parte. In 2015, a year before the 2016 presidential elections, reports abounded on the supposed disproportionate wealth of then Vice President Jejomar Binay and the rest of his family, some of whom were likewise elected public officers. The Office of the Ombudsman and the Senate conducted investigations and inquiries thereon ostensibly based on their respective powers delineated in the Constitution. News reports announced the AMLC inquiry into then VP Binay's bank accounts, including accounts of members of his family, and the law firm of Subido Pagente Certeza Mendoza & Binay (SPCMB) where a family member was a partner. The SPCMB then wrote the CA about the bank inquiry with a request to be furnished with copies of the petition for bank inquiry. The CA denied the letter request citing the ex-parte nature and the confidentiality of the proceedings. The SPCMB assailed the CA denial and questioned the Constitutionality of Section 11 of the AMLA on the ex-parte bank inquiry. Although the bank inquiry order ex-parte passes constitutional muster, there is nothing in Section 11 nor the implementing rules and regulations of the AMLA which prohibits the owner of the bank account, to ascertain from the CA, post issuance of the bank inquiry order ex-parte, if his account is indeed the subject of an examination. There is nothing in Section 11 which precludes the owner of the account from challenging the basis for the issuance thereof. (Subido Pagente Certeza Mendoza and Binay Law Offices v. CA, G.R. No. 216914, 06 December 2016)

What action may the AMLC interpose against proceeds of any unlawful activity? The AMLC shall apply via a verified ex parte petition before the Court of Appeals (CA) for a FREEZE ORDER of any monetary instrument or property alleged to be proceeds of any unlawful activity (Rule 7.2. par. 6, RIRR; Section 4, RA 10967). The AMLC may also apply for an asset preservation order before the Regional Trial Court having jurisdiction over the appropriate anti-money laundering case or civil forfeiture case regarding the same account (Section 4, RA 10967). What is the basis in obtaining a freeze order?

26 Upon a determination that probable cause exist that any monetary instrument or property is in any way related to an unlawful activity in Sec. 3(i). (RA 10365; Sec. 4, RA 10967) COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

What is the effective period of the freeze order? - The freeze order shall be effective immediately, for a period of twenty (20) days. Within the twenty (20)-day period, the CA shall conduct a summary hearing, with notice to the parties, to determine whether or not to modify or lift the freeze order, or extend its effectivity. The total period of the freeze order issued by the CA under this provision shall not exceed six (6) months.

 If there is no case filed against a person whose account has been frozen within the period determined by the CA, not exceeding six (6) months, the freeze order shall be seemed ipso facto lifted (Section 4, RA 10967). On motion of the AMLC filed before the expiration of the original period of the freeze order, the court may, for good cause shown, extend its effectivity. Upon the timely filing of such motion and pending resolution by the Court of Appeals, the freeze order shall remain effective (Rule 10A3, 2016, RIRR).

Within what period will the CA act on the application for a freeze order? CA shall act on the application within 24-hours from filing of the petition. If the application is filed a day before a nonworking day, the computation of the 24-hour period shall exclude the nonworking days (Section 4, RA 10967). What is the remedy of a person whose account was frozen? A person whose account has been frozen may file a motion to lift the freeze order and the court must resolve this motion before the expiration of the freeze order. May a court issue a TRO/injunction against a freeze order? No court shall issue a temporary restraining order or a writ of injunction against any freeze order except the Supreme Court (SC) (Sec. 10, RA 10365). ***********

THE DATA PRIVACY ACT [DPA] RA 10173 What is the data privacy act (DPA)?  Republic Act No. 10173, otherwise known as the Data Privacy Act is a law that seeks to protect all forms of information, be it private, personal, or sensitive. It is meant to cover both natural and juridical persons involved in the processing of personal information. Data privacy  Refers to the act of protecting the integrity, confidentiality and availability of personal information that are collected, processed and stored.  Also known as information privacy. What is the scope of the DPA? • applies to any natural or juridical persons involved in the processing of personal information • in the government of private sector • applies to an act done or practice engaged in and outside of the Philippines  use equipment located in the Philippines, or those who maintain an office, branch, or agency in the Philippines Requisites  Must involve any processing of personal information  By either natural or juridical persons  Either acting as a controller or processor  Whether or not found in the Philippines that uses equipment or maintains an office, branch or agency in the Philippines. Extraterritorial application (Sec. 6) Applies to entities within and outside of the Philippines when

27 Processing of personal information about a Philippine citizen or resident Processing of personal information when the entity has a link with the Philippines and such personal information is about a Philippine citizen or resident. Examples:  Contract entered in the Philippines  A foreign company with central management and control in the Philippines  A Philippine subsidiary of a foreign company where the latter has access to personal information in the Philippines.  Entity is doing business in the Philippines  Personal information is collected by an entity in the Philippines

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

 

The data subject • An individual information, sensitive personal information is processed  natural person  could include employees and customers

whose

personal

Consent of data subject Data subject agrees to the collection and processing of his personal information, sensitive personal information or privileged information. - need to be proven - informed consent - mechanical act required - freely given, & unambiguous indication of the data subject’s wishes. 3 forms of information under the DPA 1) personal information 2) sensitive personal information 3) privileged information Personal information • any information which can be linked to your identity, thus making you readily identifiable • any information from which the identity of an individual is apparent or certain • any information that would directly and certainly identify an individual when put together with other information • applies to both paper-based and electronic records.  If such information can be reasonably traced back to an individual, then it is personal information. sample of personal information: • a person's name, address, phone number or email address. • ID number, online usernames, stage names. • a photograph of a person. • a video recording of a person, whether CCTV or otherwise, for example, a recording of events in a classroom, at a train station, or at a family barbecue. Privileged information • refers to any and all forms of data which under the Rules of Court and other pertinent laws constitute privileged communication.” (Sec.3k) • • • • • •

Conversation that takes places within the context of a protected relationship attorney and client husband and wife priest and penitent a doctor and patient communications made to a public officer in official confidence

Sensitive personal information Refers to personal information: (1) About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or political affiliations; (2) About an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any offense committed or alleged to have been committed by such person, the disposal of such proceedings, or the sentence of any court in such proceedings;

28 (3) Issued by government agencies peculiar to an individual which includes, but not limited to, social security numbers, previous or current health records, licenses or its denials, suspension or revocation, and tax returns; and (4) Specifically established by an executive order or an act of Congress to be kept classified. COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

(Sec. 3l)

Sample of SPI • Health information such as medical diagnosis or prognosis by itself is not sensitive personal information unless there is a Patient ID or name of the patient together with the health information that will be used to trace back to an individual.

•

-

BIR, SSS, GSIS, PhilHealth and other government r

Processing “Processing refers to any operation or any set of operations performed upon personal information including, but not limited to, the collection, recording, organization, storage, updating or modification, retrieval, consultation, use, consolidation, blocking, erasure or destruction of data.” (Sec. 3j) - any operation where personal information is involved. Whenever information is, among other things, collected, modified, or used for some purpose, processing already takes place.  The list is not exhaustive. Hence, “any” kind of operation upon personal information is included in the word “processing.” What the definition in the DPA provided is an example of operations performed upon personal information but the DPA did not limit the definition to the said list. • Processing is mechanical • includes any non-traditional collection of data ex. texting, delivery via phone • by any mode or medium

 The processing of sensitive personal information & privileged information is prohibited. Processing of sensitive and personal information is prohibited except in certain circumstances. The exceptions are: 1) Consent of the data subject; 2) Pursuant to law that does not require consent; 3) Necessity to protect life and health of a person; 4) Necessity for medical treatment; 5) Necessity to protect the lawful rights of data subjects in court proceedings, legal proceedings, or regulation. 3 principles in processing of personal information 1) Transparency The data subject  must be aware of the nature, purpose, and extent of the processing of his or her personal data,  including the risks and safeguards involved,  the identity of personal information controller,  his or her rights as a data subject, and  how these can be exercised. Any information and communication relating to the processing of personal data should be easy to access and understand, using clear and plain language. 2) Legitimate purpose The processing of information shall be compatible with a declared and specified purpose which must not be contrary to law, morals, or public policy. 3) Proportionality The processing of information shall be adequate, relevant, suitable, necessary, and not excessive in relation to a declared and specified purpose. Personal data shall be processed only if the purpose of the processing could not reasonably be fulfilled by other means. The data protection officer (DPO) All organizations are required to appoint a Data Protection Officer (“DPO”). The DPO shall be accountable for ensuring compliance with the appropriate data protection laws and regulations.

COMMERCIAL LAWS – pointers & cases (19 September 2019 (l.p. ignacio)

**designation is MANDATORY  If no DPO is designated, the head of the agency is the default DPO

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compliance officer for privacy (COP)  In case of component units in the government or private sector, a COP maybe designated or appointed COP for each sub-unit or component unit  shall be under the supervision of the DPO (NPC Advisory No. 2017-01)  Requirements should be a full-time or organic employee of the PIC or PIP. In the government or public sector, the DPO or COP may be a career or appointive position. • In the private sector, the DPO or COP should ideally be a regular or permanent position. Where DPO or COP is employed based on a contract, the term or duration should at least be two (2) years.  A PIC or PIP may outsource or subcontract the functions of its DPO or COP • •

(NPC Advisory No. 2017-01) 

Personal information controller (PIC) • Controls the collection, holding, processing or use of personal information. (CHUP) • Includes one who instructs another person or organization to collect, hold, process, use, transfer or disclose personal information. • Determines the purpose of data processing. • Natural or juridical Personal information processor (PIP) • Any person “qualified to act as such to whom a personal information controller may outsource the processing of personal data pertaining to a data subject.” • Anyone who processes personal data in behalf of the data controller. • Takes instructions only from PIC; cannot share information • Holds information with strict confidence EXCEPT: a) for scientific & statistical research; and b) for criminal, administrative investigation involving data subject Example (of processing on behalf of a Data Controller) UNO runs a grocery store, he uses a POS (Point-of-sale) system for complying with BIR for tax purposes, issuance of receipt and reporting to the manufacturer for warranty purposes, when DOS buys goods from UNO’s store, he is asked his name, address, contact number and signature to which the cashier inputs on their POS for warranty purposes. After the cashier processes the transaction and the receipt is printed out, the POS saves the data on the local hard drive. UNO did not personally collect the information. It was the cashier who typed it on the POS, but the cashier is not the data controller but it is still UNO. Why? Because UNO determines how the data is used and how is it collected. The cashier is under authorization by UNO to process the personal information of DOS for warranty purposes. The cashier’s clerical act on behalf of UNO is considered an activity of a Data Processor. Example (of a Data Controller also acting as a Data Processor) An airline CEBU PAK processes its ticket sales via a travel agency GALA which in turn asks for your personal information in order to book your flight. First, GALA processes the transaction of booking of flights of CEBU PAK, which makes it a processor on behalf of CEBU PAK. Second, GALA keeps your personal information for the purposes of sending you periodic newsletters, emails and updates regarding new and upcoming ticket sales. In this regard, GALA is deemed a Data Controller for such purposes.

Rights of the data subject The following are the substantive rights of the Data Subject: 1. Right to be Informed 2. Right of Access 3. Right to Correction 4. Right to Suspend, Withdraw, or Order the Removal of Personal Information from the Controller’s Filing System 5. Right to Indemnity 6. Right to Data Portability The Data Subject has the following auxiliary rights: 7. Right to Lodge a Complaint before the Commission 8. Right to Know the Identity of Accountable Individuals

Right to be informed (Sec. 16(a) and Sec. 16(b)) As a data subject, you have the right to be informed that your personal data will be, are being, or were, is being collected and processed. (Sec. 16(a))

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Data subjects also has the right to be furnished information prior or upon the next practicable opportunity to be informed about how personal information will be stored, access, shared, contained, methods, period, contact details of the controller, and existence of the rights under the Data Privacy Act . (Sec. 16(b))

Right to Access (Sec. 16(c)) : You have a right to obtain from an organization a copy of any information relating to you that they have on their computer database and/or manual filing system. It should be provided in an easy-to-access format, accompanied with a full explanation executed in plain language.

Right to Rectify (Sec. 16(d)) : You have the right to dispute and have corrected any inaccuracy or error in the data a personal information controller (PIC) hold about you.

Right to Erasure/Blocking/Right to be forgotten (Sec. 16(e)) Right to Suspend, withdraw or order the blocking, removal or destruction of his or her personal information from the personal information controller’s filing system upon discovery and substantial proof that the personal information are incomplete, outdated, false, unlawfully obtained, used for unauthorized purposes or are no longer necessary for the purposes for which they were collected.

Right to Object (Sec.

16(e)) : You can exercise your right to withdraw or object if the personal data processing involved is based on consent or on legitimate interest.

Right to Damages (Sec. 16(f)) : You may claim compensation if you suffered damages due to inaccurate, incomplete, outdated, false, unlawfully obtained or unauthorized use of personal data, considering any violation of your rights and freedoms as data subject.

Transmissibility Rights (Sec.

17) : The lawful heirs and assigns of the data subject may invoke the rights of the data subject upon death or incapacity.

Right to File Complaints (Sec. 7(b)) : The right to file a complaint with the National Privacy Commission. Right to Data Portability (Sec. 18): Data portability allows you to obtain and electronically move, copy or transfer your data in a secure manner, for further use.

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