COMMERCIAL LAW CASE DIGESTS

G.R. No. 159108 June 18, 2012 ,GOLD LINE TOURS, INC., Petitioner, vs. HEIRS OF MARIA CONCEPCION
LACSA, Respondents.

Doctrine: The veil of corporate existence of a corporation is a fiction of law that should not defeat the ends of justice.

Brief Facts: Si Maria Concepcion nakasakay ng sa GOLDLINE bus na owned and operated ni Travel and Tours
Advisers. Pupunta siyang Manila parang magtake ng Nursing board exam. Naaksidente ang bus and namatay siya.
Nilelevy yung bus ni GOLDLINE but it says separate entity daw siya kay Travel and Tours kaya wag daw dapat ilevy ang
bus nila. SC said they are one and the same entity.

Facts:

Ma. Concepcion Lacsa and her sister, Miriam Lacsa, boarded a Goldline passenger bus owned and operated by Travel
&Tours Advisers, Inc. They were enroute from Sorsogon to Cubao, Quezon City .Concepcion, was proceeding to Manila
to take the nursing licensure board examination. Upon reaching the highway at Barangay San Agustin in Pili, Camarines
Sur, the Goldline bus, collided with a passenger jeepney with coming from the opposite direction As a result, a metal part
of the jeepney was detached and struck Concepcion in the chest, causing her instant death.

Concepcion’s heirs, instituted in the RTC a suit against Travel & Tours Advisers Inc. and Abania to recover damages
arising from breach of contract of carriage. It was alleged that the collision was due to the reckless and imprudent manner
by which the Goldline bus was driven.

During the trial, Goldline presented William Cheng as witness, the operator of the Goldline bus. Cheng attested that he
had exercised the required diligence in the selection and supervision of his employees; that he uses a total of 60 units of
Goldline buses. Cheng, who claimed to be the operator of Travel and Tours Advisers, Inc., was also the
President/Manager and an incorporator of the petitioner;

Petitioner submitted a so-called verified third party claim, claiming that the tourist bus bearing Plate No. NWW-883 be
returned to petitioner because it was the owner; that petitioner had not been made a party to Civil Case and that petitioner
was a corporation entirely different from Travel & Tours Advisers, Inc.. The main contention of Third Party Claimant is that
it is the owner of the Bus and therefore, it should not be seized by the sheriff because the same does not belong to the
defendant Travel & Tours Advises, Inc. (GOLDLINE) as the third party claimant and defendant are two separate
corporation with separate juridical personalities. It should be noted that there was an amendment of the AOI of the
corporation.

Issue: 1. Whether or not Goldline and Travel and Tours are separate and distinct entities. 2. Whether or not the levy of
GOldline Bus is proper.

Held: This Court had scrutinized the documents submitted by the Third party Claimant and found out that William Ching
who claimed to be the operator of the Travel & Tours Advisers, Inc. (GOLDLINE) is also the President/Manager and
incorporator of the Third Party Claimant Goldline Tours Inc. and he is joined by his co-incorporators who are "Ching" and
"Dy" thereby this Court could only say that these two corporations are one and the same corporations. This is of judicial
knowledge that since Travel & Tours Advisers, Inc. came to Sorsogon it has been known as GOLDLINE.

Where the main purpose in forming the corporation was to evade one’s subsidiary liability for damages in a
criminal case, the corporation may not be heard to say that it has a personality separate and distinct from its
members, because to allow it to do so would be to sanction the use of fiction of corporate entity as a shield to
further an end subversive of justice The Supreme Court can even substitute the real party in interest in place of
the defendant corporation in order to avoid multiplicity of suits and thereby save the parties unnecessary
expenses and delay.

1
This is what the third party claimant wants to do including the defendant in this case, to use the separate and distinct
personality of the two corporation as a shield to further an end subversive of justice by avoiding the execution of a final
judgment of the court.

As we see it, the RTC had sufficient factual basis to find that petitioner and Travel and Tours Advisers, Inc. were one and
the same entity, specifically:– (a) documents submitted by petitioner in the RTC showing that William Cheng, who claimed
to be the operator of Travel and Tours Advisers, Inc., was also the President/Manager and an incorporator of the
petitioner; and (b) Travel and Tours Advisers, Inc. had been known in Sorsogon as Goldline. William Ching disclosed
during the trial of the case that defendant Travel & Tours Advisers, Inc. (Goldline), of which he is an officer, is operating
sixty (60) units of Goldline buses. That the Goldline buses are used in the operations ofdefendant company is obvious
from Mr. Cheng’s admission. The Amended Articles of Incorporation of Gold Line Tours, Inc. disclose that the following
persons are the original incorporators thereof: Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita Dy
Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason why defendant company would be using Goldline buses
in its operations unless the two companies are actually one and the same.

The levy of the bus in question was proper.

2
G.R. No. 157900 July 22, 2013, ZUELLIG FREIGHT AND CARGO SYSTEMS, Petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION AND RONALDO V. SAN MIGUEL, Respondents.

Doctrine: The mere change in the corporate name is not considered under the law as the creation of a new corporation;
hence, the renamed corporation remains liable for the illegal dismissal of its employee separated under that guise.

Brief Facts: Zeta amended its AOI and changed its name to Zuellig. Ronaldo alleged that he was illegally dismissed due
to the closure of Zeta and that the change of its name does not make Zuellig a new corporation.

Facts: San Miguel brought a complaint for unfair labor practice, illegal dismissal, non-payment of salaries and moral
damages against petitioner, formerly known as Zeta Brokerage Corporation (Zeta). He alleged that he had been a
checker/customs representative of Zeta since December 16, 1985; that in January 1994, he and other employees of Zeta
were informed that Zeta would cease operations, and that all affected employees, including him, would be separated; that
by letter dated February 28, 1994, Zeta informed him of his termination effective March 31, 1994; that he reluctantly
accepted his separation pay subject to the standing offer to be hired to his former position by petitioner; and that on April
15, 1994, he was summarily terminated, without any valid cause and due process.

San Miguel contended that the amendments of the articles of incorporation of Zeta were for the purpose of changing the
corporate name, broadening the primary functions, and increasing the capital stock; and that such amendments could not
mean that Zeta had been thereby dissolved.3

On its part, petitioner countered that San Miguel’s termination from Zeta had been for a cause authorized by the Labor
Code; that its non-acceptance of him had not been by any means irregular or discriminatory; that its predecessor-in-
interest had complied with the requirements for termination due to the cessation of business operations; that it had no
obligation to employ San Miguel in the exercise of its valid management prerogative; that all employees had been given
sufficient time to make their decision whether to accept its offer of employment or not, but he had not responded to its
offer within the time set; that because of his failure to meet the deadline, the offer had expired; that he had nonetheless
been hired on a temporary basis; and that when it decided to hire another employee instead of San Miguel, such decision
was not arbitrary because of seniority considerations.

Issue: WON zeta and Zuellig are one and same entity. WON Ronaldo San Miguel was illegally dismissed.

Held:

The amendments of the articles of incorporation of Zeta to change the corporate name to Zuellig Freight and Cargo
Systems, Inc. did not produce the dissolution of the former as a corporation. For sure, the Corporation Code defined and
delineated the different modes of dissolving a corporation, and amendment of the articles of incorporation was not one of
such modes. The effect of the change of name was not a change of the corporate being, for, as well stated in Philippine
First Insurance Co., Inc. v. Hartigan:16 "The changing of the name of a corporation is no more the creation of a corporation
than the changing of the name of a natural person is begetting of a natural person. The act, in both cases, would seem to
be what the language which we use to designate it imports – a change of name, and not a change of being."

A change in the corporate name does not make a new corporation, whether effected by a special act or under a
general law. It has no effect on the identity of the corporation, or on its property, rights, or liabilities. The
corporation, upon to change in its name, is in no sense a new corporation, nor the successor of the original
corporation. It is the same corporation with a different name, and its character is in no respect changed.

In short, Zeta and petitioner remained one and the same corporation. The change of name did not give petitioner the
license to terminate employees of Zeta like San Miguel without just or authorized cause. The situation was not similar to
that of an enterprise buying the business of another company where the purchasing company had no obligation to rehire
terminated employees of the latter. Petitioner, despite its new name, was the mere continuation of Zeta's corporate being,
and still held the obligation to honor all of Zeta's obligations, one of which was to respect San Miguel's security of tenure.
The dismissal of San Miguel from employment on the pretext that petitioner, being a different corporation, had no
obligation to accept him as its employee, was illegal and ineffectual.

3
G.R. No. 160924, August 05, 2015, ,TERELAY INVESTMENT AND DEVELOPMENT
CORPORATION, Petitioner, v. CECILIA TERESITA J. YULO, Respondent.

Doctrine: The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and
in so doing has not required any specific amount of interest for the exercise of the right to inspect.

Brief Facts: Yulo, a shareholder (.001% interest) wants to inspect the corporate books to inquire into the financial
condition of Terelay. Terelay is blocking the inspection.

Facts: Asserting her right as a stockholder, Cecilia Teresita Yulo wrote a letter, dated September 14, 1999, addressed to
Terelay Investment and Development Corporation (TERELAY) requesting that she be allowed to examine its books and
records on September 17, 1999 at 1:30 o'clock in the afternoon at the latter's office on the 25th floor, Citibank Tower,
Makati City. In its reply-letter, dated September 15, 1999, TERELAY denied the request for inspection and instead
demanded that she show proof that she was a bona fide stockholder.

On September 16, 1999, Cecilia Yulo again sent another letter clarifying that her request for examination of the corporate
records was for the purpose of inquiring into the financial condition of TERELAY and the conduct of its affairs by the
principal officers. The following day, Cecilia Yulo received a faxed letter from TERELAY's counsel advising her not to
continue with the inspection in order to avoid trouble.

Petitioner insists that Yulo cannot be allowed to inspect the corporate records becaue her shareholding being a measly
.001% interest; that the RTC had no jurisdiction to determine whether or not she was a stockholder; that her purpose for
the inspection, which was to inquire into its financial condition and into the conduct of its affairs by its principal officers,
was not a valid ground to examine the corporate records; (e) in holding that her petition for mandamus was premature;

Respondent Yulo counters that the law does not require substantial shareholding before she can exercise her right of
inspection as a stockholder; that the RTC, sitting as a corporate court, was the proper court to declare that she was a
stockholder; that she has just and sufficient grounds to inspect its corporate records; that its officers are not indispensable
parties; that her petition for mandamus was not premature.

Issues: 1. WON has the right to inspect and examine TERELAY's corporate records, books of account and other financial
records. 2. Whether or not petitioner as stockholder and director of TERELAY has been unduly deprived of her right to
inspect and examine TERELAY's corporate records, books of accounts and other financial records. 3. whether or not
petitioner's mere desire to inquire into the financial condition of respondent corporation and conduct of the affairs of the
corporation is a just and sufficient ground for inspection of the corporate records.4

Held:

Regarding the issue of jurisdiction, TERELAY avers that it is not within the jurisdiction of the trial court to determine
whether or not petitioner-appellee is its stockholder. It contends that a petition for the probate of the will of Cecilia's father,
the late Luis A. Yulo, and the settlement of his estate was filed with the Regional Trial Court of Manila. The inventory of
the estate includes the five (5) shares which Cecilia is claiming. Being a court of limited jurisdiction, the court a quo could
not decide whether or not Luis A. Yulo donated five (5) shares to Cecilia during his lifetime. The position of TERELAY is
untenable. As correctly pointed out by Cecilia Yulo, the main issue in this case is the question of whether or not she is a
stockholder and therefore, has the right to inspect the corporate books and records. We agree with the ruling of the trial
court that the determination of this issue is within the competence of the Regional Trial Court, acting as a special court for
intra-corporate controversies, and not in the proceeding for the settlement of the estate of the late Luis Yulo.

On the matter of exhaustion of administrative remedies, TERELAY asserts that the petition for mandamus filed by
Cecilia Yulo was premature because she failed to exhaust all available remedies before filing the instant petition. The
Court disagrees. A writ of mandamus is a remedy provided by law where despite the stockholder's request for record
inspection, the corporation still refuses to allow the stockholder the right to inspect. In the instant case, Cecilia Yulo,
through counsel, sent a letter request, dated September 14, 1999, for inspection of corporate records, books of accounts
and other financial records, but the same was denied by TERELAY through counsel, in its reply-letter, dated September
15, 1999. Appellee Yulo sent another letter, dated September 16, 1999, reiterating the same request but the same was
again denied by TERELAY in a reply-letter dated September 17, 1999. Clearly then, appellee Yulo's right is not pre-
mature and may be enforced by a writ of mandamus.
4
Verily, petitioner-appellee has presented enough evidence that she is a stockholder of TERELAY. The corporate
documents presented support her claim that she is a registered stockholder in TERELAY's stock and transfer book thus
giving her the right, under Section 74 par. 2 and Section 75 of the Philippine Corporation Law, to inspect TERELAY's
books, records, and financial statements. Section 74, par. 2 and Section 75 of our Corporation Code reads as follows: x x
x

Accordingly, Cecilia Yulo as the right to be fully informed of TERELAY's corporate condition and the manner its affairs are
being managed. It is well-settled that the ownership of shares of stock gives stockholders the right under the law to be
protected from possible mismanagement by its officers. This right is predicated upon selfpreservation. In any case,
TERELAY did not adduce sufficient proof that Cecilia Yulo was in bad faith or had an ulterior motive in demanding her
right under the law.

Secondly, the petitioner's submission that the respondent's "insignificant holding" of only .001% of the petitioner's
stockholding did not justify the granting of her application for inspection of the corporate books and records is
unwarranted.

The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and
in so doing has not required any specific amount of interest for the exercise of the right to inspect. 15 Ubi lex non distinguit
nee nos distinguere debemos. When the law has made no distinction, we ought not to recognize any distinction.

Neither could the petitioner arbitrarily deny the respondent's right to inspect the corporate books and records on the basis
that her inspection would be used for a doubtful or dubious reason. Under Section 74, third paragraph, of the Corporation
Code, the only time when the demand to examine and copy the corporation's records and minutes could be refused is
when the corporation puts up as a defense to any action that "the person demanding" had "improperly used any
information secured through any prior examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in making his demand."

The right of the shareholder to inspect the books and records of the petitioner should not be made subject to the condition
of a showing of any particular dispute or of proving any mismanagement or other occasion rendering an examination
proper, but if the right is to be denied, the burden of proof is upon the corporation to show that the purpose of the
shareholder is improper, by way of defense.

Among the purposes held to justify a demand for inspection are the following: (1) To ascertain the financial
condition of the company or the propriety of dividends; (2) the value of the shares of stock for sale or investment; (3)
whether there has been mismanagement; (4) in anticipation of shareholders' meetings to obtain a mailing list of
shareholders to solicit proxies or influence voting; (5) to obtain information in aid of litigation with the corporation or its
officers as to corporate transactions. Among the improper purposes which may justify denial of the right of inspection are:
(1) Obtaining of information as to business secrets or to aid a competitor; (2) to secure business "prospects" or investment
or advertising lists; (3) to find technical defects in corporate transactions in order to bring "strike suits" for purposes of
blackmail or extortion.

In general, however, officers and directors have no legal authority to close the office doors against shareholders for whom
they are only agents, and withhold from them the right to inspect the books which furnishes the most effective method of
gaining information which the law has provided, on mere doubt or suspicion as to the motives of the shareholder. While
there is some conflict of authority, when an inspection by a shareholder is contested, the burden is usually held to
be upon the corporation to establish a probability that the applicant is attempting to gain inspection for a
purpose not connected with his interests as a shareholder, or that his purpose is otherwise improper. The burden
is not upon the petitioner to show the propriety of his examination or that the refusal by the officers or directors was
wrongful, except under statutory provisions.

5
G.R. No. 180677, February 18, 2013, VICTORIO P.DIAZ, Petitioner,
vs.PEOPLE OF THE PHILIPPINES AND LEVI STRAUSS [PHILS.], INC., Respondents.

Doctrine: It is the tendency of the allegedly infringing mark to be confused with the registered trademark that is the
gravamen of the offense of infringement of a registered trademark.

Brief Facts: Diaz nagmanufacture dawn g levis 501 jeans.

Facts: Two Informations were filed against Diaz for Trademark Infringement.Levi Strauss and Company (Levi’s), claims
that it did not authorize Diaz to make and sell Levis 501 Jeans; that each of the jeans were mere imitations of genuine
LEVI’S 501 jeans by each of them bearing the registered trademarks, like the arcuate design, the tab, and the leather
patch; and that the seized jeans could be mistaken for original LEVI’S 501 jeans due to the placement of the arcuate, tab,
and two-horse leather patch.8

Diaz denied any criminal liability. Diaz stated that he did not manufacture Levi’s jeans, and that he used the label "LS
Jeans Tailoring" in the jeans that he made and sold; that the label "LS Jeans Tailoring" was registered with the
Intellectual Property Office; that his shops received clothes for sewing or repair; that his shops offered made-to-order
jeans, whose styles or designs were done in accordance with instructions of the customers; that since the time his shops
began operating in 1992, he had received no notice or warning regarding his operations; that the jeans he produced were
easily recognizable because the label "LS Jeans Tailoring," and the names of the customers were placed inside the
pockets, and each of the jeans had an "LSJT" red tab; that "LS" stood for "Latest Style;" and that the leather patch on his
jeans had two buffaloes, not two horses.

RTC convicted him. CA denied the appeal.

Issue: WON infringement was committed.

Ruling: Section 155 of R.A. No. 8293 defines the acts that constitute infringement of trademark, viz:

Remedies; Infringement. — Any person who shall, without the consent of the owner of the registered mark:

155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the same
container or a dominant feature thereof in connection with the sale, offering for sale, distribution, advertising of any goods
or services including other preparatory steps necessary to carry out the sale of any goods or services on or in connection
with which such use is likely to cause confusion, or to cause mistake, or to deceive; or

155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and apply such
reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or
advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or
advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake,
or to deceive, shall be liable in a civil action for infringement by the registrant for the remedies hereinafter set forth:
Provided, That the infringement takes place at the moment any of the acts stated in Subsection 155.1 or this subsection
are committed regardless of whether there is actual sale of goods or services using the infringing material.

The elements of the offense of trademark infringement under the Intellectual Property Code are, therefore, the
following:

1. The trademark being infringed is registered in the Intellectual Property Office;

2. The trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer;

3. The infringing mark is used in connection with the sale, offering for sale, or advertising of any goods, business
or services; or the infringing mark is applied to labels, signs, prints, packages, wrappers, receptacles or
advertisements intended to be used upon or in connection with such goods, business or services;

6
 4. The use or application of the infringing mark is likely to cause confusion or mistake or to deceive purchasers or
others as to the goods or services themselves or as to the source or origin of such goods or services or the
identity of such business; and

5. The use or application of the infringing mark is without the consent of the trademark owner or the assignee
thereof.14

The dominancy test, and the holistic test.

As can be seen, the likelihood of confusion is the gravamen of the offense of trademark infringement. 15 There are two
tests to determine likelihood of confusion, namely: the dominancy test, and the holistic test. The contrasting concept of
these tests was explained in Societes Des Produits Nestle, S.A. v. Dy, Jr., thus:

x x x. The dominancy test focuses on the similarity of the main, prevalent or essential features of the competing
trademarks that might cause confusion. Infringement takes place when the competing trademark contains the essential
features of another. Imitation or an effort to imitate is unnecessary. The question is whether the use of the marks is likely
to cause confusion or deceive purchasers.

The holistic test considers the entirety of the marks, including labels and packaging, in determining confusing similarity.
The focus is not only on the predominant words but also on the other features appearing on the labels. 16

As to what test should be applied in a trademark infringement case, we said in McDonald’s Corporation v. Macjoy
Fastfood Corporation17 that:

In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to another, no set rules can
be deduced because each case must be decided on its merits. In such cases, even more than in any other litigation,
precedent must be studied in the light of the facts of the particular case. That is the reason why in trademark cases,
jurisprudential precedents should be applied only to a case if they are specifically in point.

The case of Emerald Garment Manufacturing Corporation v. Court of Appeals,18 which involved an alleged trademark
infringement of jeans products, is worth referring to. There, H.D. Lee Co., Inc. (H.D. Lee), a corporation based in the
United States of America, claimed that Emerald Garment’s trademark of "STYLISTIC MR. LEE" that it used on its jeans
products was confusingly similar to the "LEE" trademark that H.D. Lee used on its own jeans products. Applying the
holistic test, the Court ruled that there was no infringement.

The holistic test is applicable here considering that the herein criminal cases also involved trademark infringement in
relation to jeans products. Accordingly, the jeans trademarks of Levi’s Philippines and Diaz must be considered as a
whole in determining the likelihood of confusion between them. The maong pants or jeans made and sold by Levi’s
Philippines, which included LEVI’S 501, were very popular in the Philippines. The consuming public knew that the original
LEVI’S 501 jeans were under a foreign brand and quite expensive. Such jeans could be purchased only in malls or
boutiques as ready-to-wear items, and were not available in tailoring shops like those of Diaz’s as well as not acquired on
a "made-to-order" basis. Under the circumstances, the consuming public could easily discern if the jeans were original or
fake LEVI’S 501, or were manufactured by other brands of jeans. Confusion and deception were remote, for, as the Court
has observed in Emerald Garments:

First, the products involved in the case at bar are, in the main, various kinds of jeans. These are not your ordinary
household items like catsup, soy sauce or soap which are of minimal cost. Maong pants or jeans are not inexpensive.
Accordingly, the casual buyer is predisposed to be more cautious and discriminating in and would prefer to mull over his
purchase. Confusion and deception, then, is less likely. In Del Monte Corporation v. Court of Appeals, we noted that:

.... Among these, what essentially determines the attitudes of the purchaser, specifically his inclination to be cautious, is
the cost of the goods. To be sure, a person who buys a box of candies will not exercise as much care as one who buys an
expensive watch. As a general rule, an ordinary buyer does not exercise as much prudence in buying an article for which
he pays a few centavos as he does in purchasing a more valuable thing. Expensive and valuable items are normally
bought only after deliberate, comparative and analytical investigation. But mass products, low priced articles in wide use,
7
and matters of everyday purchase requiring frequent replacement are bought by the casual consumer without great
care....

Second, like his beer, the average Filipino consumer generally buys his jeans by brand. He does not ask the sales clerk
for generic jeans but for, say, a Levis, Guess, Wrangler or even an Armani. He is, therefore, more or less knowledgeable
and familiar with his preference and will not easily be distracted.

Ordinary purchaser

Finally, in line with the foregoing discussions, more credit should be given to the "ordinary purchaser." Cast in this
particular controversy, the ordinary purchaser is not the "completely unwary consumer" but is the "ordinarily intelligent
buyer" considering the type of product involved.

The definition laid down in Dy Buncio v. Tan Tiao Bok is better suited to the present case. There, the "ordinary purchaser"
was defined as one "accustomed to buy, and therefore to some extent familiar with, the goods in question. The test of
fraudulent simulation is to be found in the likelihood of the deception of some persons in some measure acquainted with
an established design and desirous of purchasing the commodity with which that design has been associated. The test is
not found in the deception, or the possibility of deception, of the person who knows nothing about the design which has
been counterfeited, and who must be indifferent between that and the other. The simulation, in order to be objectionable,
must be such as appears likely to mislead the ordinary intelligent buyer who has a need to supply and is familiar with the
article that he seeks to purchase.19

Diaz used the trademark "LS JEANS TAILORING" for the jeans he produced and sold in his tailoring shops. His
trademark was visually and aurally different from the trademark "LEVI STRAUSS & CO" appearing on the patch of original
jeans under the trademark LEVI’S 501. The word "LS" could not be confused as a derivative from "LEVI STRAUSS" by
virtue of the "LS" being connected to the word "TAILORING", thereby openly suggesting that the jeans bearing the
trademark "LS JEANS TAILORING" came or were bought from the tailoring shops of Diaz, not from the malls or boutiques
selling original LEVI’S 501 jeans to the consuming public.

There were other remarkable differences between the two trademarks that the consuming public would easily perceive.
Diaz aptly noted such differences, as follows:

The prosecution also alleged that the accused copied the "two horse design" of the petitioner-private complainant but
the evidence will show that there was no such design in the seized jeans. Instead, what is shown is "buffalo design."
Again, a horse and a buffalo are two different animals which an ordinary customer can easily distinguish. x x x.

The prosecution further alleged that the red tab was copied by the accused. However, evidence will show that the red tab
used by the private complainant indicates the word "LEVI’S" while that of the accused indicates the letters "LSJT" which
means LS JEANS TAILORING. Again, even an ordinary customer can distinguish the word LEVI’S from the letters LSJT.

The Court ACQUITS petitioner VICTORIO P. DIAZ of the crimes of infringement of trademark.

8
G.R. No. 166391, October 21, 2015, MICROSOFT CORPORATION, Petitioner, v. ROLANDO D. MANANSALA
AND/OR MEL MANANSALA, DOING BUSINESS AS DATAMAN TRADING COMPANY AND/OR COMIC
ALLEY, Respondent.

Doctrine: 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.

Brief Facts: Nagbebenta daw Microsoft programs si Rolando. Nagfile ng Case for copyright infringement sa DOJ
dismissed yung case. SC said may probable cause daw.

Facts: Petitioner Microsoft Corporation)is the copyright and trademark owner of all rights relating to all versions and
editions of Microsoft software computer programs such as Microsoft Encarta, Microsoft Windows, Microsoft Word,
Microsoft Excel etc. Private Respondent-Rolando Manansala is doing business under the name of DATAMAN TRADING
COMPANY and/or COMIC ALLEY.It is alleged that he is without authority from petitioner, was engaged in distributing and
selling Microsoft computer software programs. Mr. John Benedict A. Sacriz, a private investigator accompanied by an
agent from the National Bureau of Investigation (NBI) was able to purchase six (6) CD-ROMs containing various computer
programs belonging to petitioner. A search warrant was served on the private respondent's premises and yielded several
illegal copies of Microsoft programs.

Petitioner filed a case for copyright infringement in the DOJ. Public respondent State Prosecutor dismissed the charge
against private respondent for violation of Section 29 P.D. 49 stating that there is no proof that respondent was the one
who really printed or copied the products of complainant for sale in his store. Petitioner filed a Petition for Review with the
DOJ, which denied the petition for review. Petiotiner appealed to the CA which also denied his appeal.

The petitioner insists that printing or copying was not essential in the commission of the crime of copyright
infringement under Section 29 of Presidential Decree No. 49; hence, contrary to the holding of the DOJ, as upheld by the
CA, the mere selling of pirated computer software constituted copyright infringement.

Issue: WON copyright infringement was committed

Held: yes.

Section 5 of Presidential Decree No. 49 specifically defined copyright as an exclusive right in the following manner:
Section 5. Copyright shall consist in the exclusive right;

(A) To print, reprint, publish, copy, distribute, multiply, sell, and make photographs, photo-engravings, and pictorial
illustrations of the works;

(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.

Accordingly, the commission of any of the acts mentioned in Section 5 of Presidential Decree No. 49 without the copyright
owner's consent constituted actionable copyright infringement.

Infringement of a copyright is a trespass on a private domain owned and occupied by the owner of the copyright, and,
therefore, protected by law, and infringement of copyright, or piracy, which is a synonymous term in this connection,

9
consists in the doing by any person, without the consent of the owner of the copyright, of anything the sole right to do
which is conferred by statute on the owner of the copyright.

The "gravamen of copyright infringement," according to NBI-Microsoft Corporation v. Hwang:13 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.

The CA stated in the assailed decision as follows:

A reading of Section 5 (a) of the Copyright Law shows that the acts enumerated therein are punctuated by commas and
the last phrase is conjoined by the words 'and'. Clearly, the same should be interpreted to mean as 'relating to one
another' because it is basic in legal hermeneutics that the word 'and' is not meant to separate words but is a conjunction
used to denote a 'joinder' or 'union'.mHence the key to interpret and understand Section 5 (a) of P.D. 49 is the word 'and'.
From the foregoing definitions of the word 'and' it is unmistakable that to hold a person liable under the said provision of
law, all the acts enumerated therein must be present and proven. As such, it is not correct to construe the acts
enumerated therein as being separate or independent from one another.

In the case at bar, petitioner failed to allege and adduce evidence showing that the private respondent is the one who
copied, replicated or reproduced the software programs of the petitioner. In other words, 'sale' alone of pirated copies of
Microsoft software programs does not constitute copyright infringement punishable under P.D. 49.

The CA erred in its reading and interpretation of Section 5 of Presidential Decree No. 49. Under the rules on syntax, the
conjunctive word "and" denotes a "joinder or union" of words, phrases, or clause; 16 it is different from the disjunctive word
"or" that signals disassociation or independence.17However, a more important rule of statutory construction dictates that
laws should be construed in a manner that avoids absurdity or unreasonableness.

The conjunctive "and" should not be taken in its ordinary acceptation, but should be construed like the disjunctive "or" if
the literal interpretation of the law would pervert or obscure the legislative intent. 21 To accept the CA's reading and
interpretation is to accept absurd results because the violations listed in Section 5(a) of Presidential Decree No. 49 –

"To print, reprint, publish, copy, distribute, multiply, sell, and make photographs, photo-engravings, and pictorial
illustrations of the works" — cannot be carried out on all of the classes of works enumerated in Section 2 of Presidential
Decree No. 49,

Presidential Decree No. 49 thereby already acknowledged the existence of computer programs as works or creations
protected by copyright.22 To hold, as the CA incorrectly did, 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 invites ridicule. Such interpretation of Section 5(a) of Presidential Decree No. 49 defied logic and common
sense because it focused on terms like "copy," "multiply," and "sell," but blatantly ignored terms like "photographs,"
"photo-engravings," and "pictorial illustrations." Had the CA taken the latter words into proper account, it would have
quickly seen the absurdity of its interpretation.

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. Indeed, the public prosecutor and the DOJ gravely abused their discretion in dismissing the
petitioner's charge for copyright infringement against the respondents for lack of evidence. There was grave abuse of
discretion because the public prosecutor and the DOJ acted whimsically or arbitrarily in disregarding the settled
jurisprudential rules on finding the existence of probable cause to charge the offender in court. Accordingly, the CA erred
in upholding the dismissal by the DOJ of the petitioner's petition for review.

10
G.R. No. 159979, December 09, 2015, CAPITAL INSURANCE AND SURETY CO., INC., Petitioner, v. DEL MONTE
MOTOR WORKS, INC., Respondent.

Brief facts: Are the securities deposited by the insurance company pursuant to Section 203 of the Insurance
Code subject of levy by a creditor? The CA held that the securities were not covered by absolute immunity from liability,
but could be made to answer for valid and legitimate claims against the insurance company under its contract. SC said
that these security deposits are exempt from execution.

Facts: Respondent sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas to recover the unpaid billings related
to the fabrication and construction of 35 passenger bus bodies. Judgment was rendered in favor of respondent holding
then liable for . P11,835,375.50 including interest representing the balance of their service contracts with plaintiff on the
fabrication and construction of 35 passenger bus bodies. The judgment was enforceable against defendant’s
counterbond.To enforce the decision against the counterbond dated June 10, 1997, the respondent moved for execution.
The RTC granted the motion7 over the petitioner's opposition.Serving the writ of execution, the sheriff levied against the
petitioner's personal properties, and later issued the notice of auction sale. On August 15, 2002, the sheriff also served a
notice of garnishment against the security deposit of the petitioner in the Insurance Commission.

On September 11, 2002, the respondent moved to direct the release by the depositary banks of funds subject to the
notice of garnishment from the accounts of the petitioner, and to transfer or release the amount of P14,864,219.37 from
the petitioner's security deposit in the Insurance Commission. The sheriff served a copy of the assailed resolution on the
then Insurance Commissioner Edgardo T. Malinis, with the request for him to release the security deposit. However,
Insurance Commissioner Malinis turned down the request to release, citing Section 203 of the Insurance Code,
which expressly provided that the security deposit was exempt from execution.

Thus, the petitioner assailed the resolution to the CA which the CA dismissed.The CA opined that the security deposit
could answer for the depositor's liability, and be the subject of levy in accordance with Section 203 of
the Insurance Code, viz Section 203 of the Insurance Code is clear and unequivocal that the security deposit will be held
by the Insurance Commissioner for the faithful performance by the depositing insurer of all its obligations under its
insurance contracts. As aptly pointed out by the lower court, Section 203 does not provide for an absolute immunity of the
security deposit from liability. The security deposit under this section is not designed to shield the insurance companies
from valid and legitimate claims under its contract, for to do so would render bonds futile and useless.

Issue: WON the security deposit was immune from levy or execution.

Held: The security deposit was immune from levy or execution

Anent the security deposit, Section 203 of the Insurance Code provides as follows:
Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five per centum of the
minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to
the Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political
subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central
Bank of the Philippines: Provided, That such investments shall at all times be maintained free from any lien or
encumbrance; and Provided, further, That such securities shall be deposited with and held by the Commissioner for the
faithful performance by the depositing insurer of all its obligations under its insurance contracts. The provisions of section
one hundred ninety-two shall, as far as practicable, apply to the securities deposited under this section.

Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon
any securities of the insurer held on deposit under this section or held on deposit pursuant to the requirement of
the Commissioner.
The forthright text of provision indicates that the security deposit is exempt from levy by a judgment creditor or any other
claimant. To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders
have a right under the law to be equally protected by its security deposit. To allow the garnishment of that deposit would
impair the fund,by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained.
Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and
11
beneficiaries.

Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for
which it was enacted. That is, the securities are held as a contingency fund to answer for the claims against the
insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the
company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not
lay stake on the securities to the exclusion of all others. The other parties may have their own claims against the
insurance company under other insurance contracts it has entered into.

The simplistic interpretation of Section 203 of the Insurance Code by the CA ostensibly ran counter to the intention of the
statute and the Court's pronouncement on the matter. We cannot uphold the CA's interpretation, therefore, because the
holders or beneficiaries of the policies of an insolvent company would thereby likely end up becoming unpaid claimants.
Besides, denying the exemption would potentially pave the way for a single claimant, like the respondent, to short-circuit
the procedure normally undertaken in adjudicating the claims against an insolvent company under the rules on
concurrence and preference of credits in order to ensure that none could obtain an advantage or preference over another
by virtue of an attachment or execution. To allow the respondent to proceed independently against the security deposit of
the petitioner would not only prejudice the policy holders and their beneficiaries, but would also annul the very reason for
which the law required the security deposit.

What right, if any, did the respondent have in the petitioner's security deposit?

According to Republic v. Del Monte Motors, Inc.,32 the right to claim against the security deposit is dependent on the
solvency of the insurance company, and is subject to all other obligations of the insurance company arising from its
insurance contracts. Accordingly, the respondent's interest in the security deposit could only be inchoate or a mere
expectancy, and thus had no attribute as property.

Was the Insurance Commissioner's refusal to release the security deposit despite the garnishment on execution
legally justified?

The Insurance Commissioner's refusal to release was legally justified. Under Section 191 and Section 203 of
the Insurance Code, the Insurance Commissioner had the specific legal duty to hold the security deposits for the benefit of
all policy holders. In this regard, Republic v. Del Monte Motors, Inc.33 has also been clear, viz.:
The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority
over insurance matters.

The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows:
"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to
secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as
otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance."

Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections1191 and 203 of
the Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance
Code states:
"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the
policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to
collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of
such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal to
the market value of such as may be withdrawn. In the event of any company ceasing to do business in the Philippines the
securities deposited as aforesaid shall be returned upon the company's making application therefor and proving to the
satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines." (Emphasis
supplied)

Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so
as to protect the insuring public. The law specifically confers custody over the securities upon the commissioner,
with whom these investments are required to be deposited. An implied trust is created by the law for the benefit
of all claimants under subsisting insurance contracts issued by the insurance company.

12
G.R. No. 154069, June 06, 2016, INTERPORT RESOURCES CORPORATION, Petitioner, v. SECURITIES
SPECIALIST, INC., AND R.C. LEE SECURITIES INC., Respondents.

(read whole case,about novation and transfer of shares of stock, very recent case, june 6, 2016)

Facts:
Oceanic Oil & Mineral Resources, Inc. (Oceanic) entered into a subscription agreement with R.C. Lee, a domestic
corporation engaged in the trading of stocks and other securities, covering 5,000,000 of its shares with par value of P0.01
per share, for a total of P50,000.00. Thereupon, R.C. Lee paid 25% of the subscription, leaving 75% unpaid.
Consequently, Oceanic issued Subscription Agreements Nos. 1805, 1808, 1809, 1810, and 1811 to R.C. Lee.3

Later on, Oceanic merged with Interport, with the latter as the surviving corporation. Under the terms of the merger, each
share of Oceanic was exchanged for a share of Interport.

SSI, a domestic corporation registered as a dealer in securities, received in the ordinary course of business Oceanic
Subscription Agreements Nos. 1805, 1808 to 1811, all outstanding in the name of R.C. Lee, and Oceanic official receipts
showing that 25% of the subscriptions had been paid. The Oceanic subscription agreements were duly delivered to SSI
through stock assignments indorsed in blank by R.C. Lee.

Later on, R.C. Lee requested Interport for a list of subscription agreements and stock certificates issued in the name of
R.C. Lee and other individuals named in the request. In response, Atty. Rhodora B. Morales, Interpor’ s Corporate
Secretary, provided the requested list of all subscription agreements of Interport and Oceanic, as well as the requested
stock certificates of Interport.7 Upon finding no record showing any transfer or assignment of the Oceanic subscription
agreements and stock certificates of Interport as contained in the list, R.C. Lee paid its unpaid subscriptions and was
accordingly issued stock certificates corresponding thereto.

On February 8, 1989, Interport issued a call for the full payment of subscription receivables, setting March 15, 1989 as the
deadline. SSI tendered payment prior to the deadline through two stockbrokers of the Manila Stock Exchange. However,
the stockbrokers reported to SSI that Interport refused to honor the Oceanic subscriptions.

Still on the date of the deadline, SSI directly tendered payment to Interport for the balance of the 5,000,000 shares
covered by the Oceanic subscription agreements, some of which were in the name of R.C. Lee and indorsed in blank.
Interport originally rejected the tender of payment for all unpaid subscriptions on the ground that the Oceanic subscription
agreements should have been previously converted to shares in Interport.

SSI then required Interport to furnish it with a copy of any notice requiring the conversion of Oceanic shares to Interport
shares. However, Interport failed to show any proof of the notice. Thus, through a letter dated March 30, 1989, SSI asked
the SEC for a copy of Interport's board resolution requiring said conversion. The SEC, through Atty. Fe Eloisa C. Gloria,
Director of Brokers and Exchange Department, informed SSI that the SEC had no record of any such resolution.

Having confirmed the non-existence of the resolution, Francisco Villaroman, President of SSI, met with Pablo Roman,
President and Chairman of the Board of Interport, and Atty. Pineda, Interport's Corporate Secretary, at which meeting
Villaroman formally requested a copy of the resolution. However, Interport did not produce a copy of the resolution.

Despite that meeting, Interport still rejected SSI's tender of payment for the 5,000,000 shares covered by the
Oceanic Subscription Agreements Nos. 1805, and 1808 to 1811.

On March 31, 1989, or 16 days after its tender of payment, SSI learned that Interport had issued the 5,000,000
shares to R.C. Lee, relying on the latter's registration as the owner of the subscription agreements in the books of the
former, and on the affidavit executed by the President of R.C. Lee stating that no transfers or encumbrances of the shares
had ever been made.

Thus, on April 27, 1989, SSI wrote R.C. Lee demanding the delivery of the 5,000,000 Interport shares on the basis of
a purported assignment of the subscription agreements covering the shares made in 1979. R.C. Lee failed to return the
13
subject shares inasmuch as it had already sold the same to other parties. SSI thus demanded that R.C. Lee pay not only
the equivalent of the 25% it had paid on the subscription but the whole 5,000,000 shares at current market value. 15

SSI also made demands upon Interport and R.C. Lee for the cancellation of the shares issued to R.C. Lee and for
the delivery of the shares to SSI.

On October 6, 1989, after its demands were not met, SSI commenced this case in the SEC to compel the respondents to
deliver the 5,000,000 shares and to pay damages. The SEC ruled that to order the return of the five million shares or
the payment of the entire value thereof to the complainant, without requiring the latter to pay the balance of
seventy five percent will be inequitable.

Issue: WON INterport is liable to deliver the Oceanic shares of stock or the value thereof

Held: yes.

Interport was liable to deliver the Oceanic shares of stock, or the value thereof, under Subscription Agreements
Nos. 1805, and 1808 to 1811 to SSI

Interport argues that R.C. Lee should be held liable for the delivery of 25% of the shares under the subject subscription
agreements inasmuch as R.C. Lee had already received all the 5,000,000 shares upon its payment of the 75% balance
on the subscription price to Interport; that it was only proper for R.C. Lee to deliver 25% of the shares under the Oceanic
subscription agreements because it had already received the corresponding payment therefor from SSI for the
assignment of the shares; that R.C. Lee would be unjustly enriched if it retained the 5,000,000 shares and the 25%
payment of the subscription price made by SSI in favor of R.C. Lee as a result of the assignment; and that it merely relied
on its records, in accordance with Section 74 of the Corporation Code, when it issued the stock certificates to R.C. Lee
upon its full payment of the subscription price.

Interport's arguments must fail.

In holding Interport liable for the delivery of the Oceanic shares, the SEC explained: x x x [T]he Oceanic subscriptions
agreements were duly delivered to the Complainant SSI supported by stock assignments of respondent R.C. Lee
(Exhibits "B" to "B-4" of the petitioner) and by official receipts of Oceanic showing that twenty five percent of the
subscription had been paid (Exhibits "C" to "C-4"). To this date, respondent R.C. Lee does not deny having
subscribed and delivered such stock assignments to the Oceanic subscription agreements. Therefore, having
negotiated them by allowing to be in street certificates, respondent R.C. Lee, as a broker, cannot now legally and
morally claim any further interests over such subscriptions or the shares of stock they represent.

x x x x

Both respondents seek to be absolved of liability for their machinations by invoking both the rule on novation of the debtor
without the creditor's consent; as well as the Corporation Code rule of nonregistration of transfers in the corporation's
stock and transfer book. Neither will avail in the case at bar. Art. 1293 of the New Civil Code states:

"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one may be made even without
the knowledge or against the will of the latter but not without the consent of the creditor" x x x.

More importantly, the allusion by the respondents likening the subscription contracts to the situation of debtor-creditor
finds no basis in law. Indeed, as held by the Supreme Court, shareholders are not creditors of the corporation with respect
to the shareholdings (Garcia vs. Lim Chu Sing, 59 Phil. 562).

The Memorandum of R.C. Lee, likewise cites the Opinion of the SEC dated November 12, 1976, which states "that since
an assignment will involve a substitution of debtor or novation of contract, as such the consent of the creditor must be
obtained" has the same effect. The opinion, however, merely restated the general rule already embodied in the Codal
provision quoted above; it does not preclude previously authorized transfers. According to Tolentino -
"When the original contract authorizes the debtor to transfer his obligations to a third person, the novation by substitution
of debtor is effected when the creditor is notified that such transfer has been made" (IV Tolentino 392, 1991 ed, Emphasis
supplied)

14
But even following the argument of the respondents, when complainant SSI tendered the balance of the unpaid
subscription on the subject five (5) million shares on the basis of the existing subscription agreements covering
the same, respondents Interport was bound to accept payment even as the same were being tendered in the
name of the registered subscriber, respondent R.C. Lee and once the payment is fully accepted in the name of
respondent R.C. Lee, respondent Interport was then bound to recognize the stock assignment also tendered duly
executed by respondent R.C. Lee in favor of complainant SSI.2

The SEC correctly categorized the assignment of the subscription agreements as a form of novation by substitution of a
new debtor and which required the consent of or notice to the creditor. We agree. Under the Civil Code, obligations may
be modified by: (1) changing their object or principal conditions; or (2) substituting the person of the debtor; or (3)
subrogating a third person in the rights of the creditor. 26 Novation, which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent
of the creditor.27 In this case, the change of debtor took place when R.C. Lee assigned the Oceanic shares under
Subscription Agreement Nos. 1805, and 1808 to 1811 to SSI so that the latter became obliged to settle the 75% unpaid
balance on the subscription.

The SEC likewise did not err in appreciating the fact that Interport was duly notified of the assignment when SSI tendered
its payment for the 75% unpaid balance, and that it could not anymore refuse to recognize the transfer of the subscription
that SSI sufficiently established by documentary evidence.

Yet, Interport claims that SSI waived its rights over the 5,000,000 shares due to its failure to register the assignment in the
books of Interport; and that SSI was estopped from claiming the assigned shares, inasmuch as the assignor, R.C. Lee,
had already transferred the same to third parties.

Interport's claim cannot be upheld. It should be stressed that novation extinguished an obligation between two
parties.28 We have stated in that respect that:

x x x Novation may:Either be extinctive or modificatory, much being dependent on the nature of the change and the
intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases
where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old
and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test
of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are
irreconcilable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating
a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid
obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and
(4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent
agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this
instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant
some but not all of its provisions.29

Clearly, the effect of the assignment of the subscription agreements to SSI was to extinguish the obligation of R.C. Lee to
Oceanic, now Interport, to settle the unpaid balance on the subscription. As a result of the assignment, Interport was no
longer obliged to accept any payment from R.C. Lee because the latter had ceased to be privy to Subscription
Agreements Nos. 1805, and 1808 to 1811 for having been extinguished insofar as it was concerned. On the other hand,
Interport was legally bound to accept SSI's tender of payment for the 75% balance on the subscription price because SSI
had become the new debtor under Subscription Agreements Nos. 1805, and 1808 to 1811. As such, the issuance of the
stock certificates in the name of R.C. Lee had no legal basis in the absence of a contractual agreement between R.C. Lee
and Interport.

Under Section 63 of the Corporation Code, no transfer of shares of stock shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the
date of the transfer, the number of the certificate or certificates and the number of shares transferred. Hence:

15
[A] 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. From this time, the consequent obligation on the part of the corporation to recognize such rights as it is
mandated by law to recognize arises.30

This statutory rule cannot be strictly applied herein, however, because Interport had unduly refused to recognize the
assignment of the shares between R.C. Lee and SSI. Accordingly, we adopt with approval the SEC's following conclusion
that -
x x x To say that the ten years since the assignment had been made are a sufficient lapse of time in order for respondent
SSI to be considered to have abandoned its rights under the subscription agreements, is to ignore the rule -
"The right to have the transfer registered exists from the time of the transfers and it is to the transferee's benefit that the
right be exercised early. However, since the law does not prescribed (sic) any period within which the registration should
be effected the action to be enforced the right does not accrue until here has been a demand and a refusal to record the
transfer." (11 Campus 310, 1990 ed., citing Won v. Wack Wack Golf, 104 Phil. 466, Emphasis supplied).
Petitioner SSI was denied recognition of its subscription agreement on March 15, 1989; the complaint against the
respondents was filed before the SEC on October 6 of that same year. This is the period of time that is to be taken into
account, not the period between 1979 and 1989. The Commission thus finds that petitioner acted with sufficient dispatch
in seeking to enforce its rights under the subscription agreements, and sought the intervention of this Commission within a
reasonable period.

In the affidavit of respondent R.C. Lee's president, Ramon C. Lee, dated February 22, 1989, there are several averments
that need to be examined, in the light of respondent R.C. Lee's claim of having acted in good faith.

The first is the statement made in paragraph 3 thereof:

"That R.C. Lee Securities, Inc. has delivered to Interport its subscription Agreements for Twenty Five Million (25,000,000)
shares of Oceanic for conversion into Interport shares however, as of date, only twenty million (20,000,000) shares have
been duly covered by Interport Subscription Agreements and the Five million (5,000,000) shares still remains without
Subscription Agreements".

No explanation is given for the failure of respondent Interport to convert the five (5) million shares. As can be seen from
the letter of Interport to counsel of R.C. Lee, dated January 27, 1989, already mentioned above, these five (5) million
shares purportedly belonging to respondent R.C. Lee do not seem to be covered by any properly identified subscription
agreements. Yet respondent Interport issued the shares without respondent R.C. Lee having anything to show for the
same. On the other hand, respondent Interport refused to recognize complainant SSI's claim to five (5) millions (sic)
shares inspite of the fact that its claim was fully supported by duly issued subscription agreements, stock assignment and
receipts of payment of the initial subscription. x x x31

Subscription Agreements Nos. 1805, and 1808 to 1811 were now binding between Interport and SSI only, and only such
parties were expected to comply with the terms thereof. Hence, the CA did not err in relying on the findings of the SEC,
which was in a better position to pass judgment on whether or not Interport was liable to deliver to SSI the Oceanic shares
under Subscription Agreements Nos. 1805, and 1808 to 1811.

16