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05-31-2019, 10:25 PM

2018 GOLDEN BEACON    MERCANTILE LAW

By: Dean MANUEL R.   BUSTAMANTE

1.    “DOING   BUSINESS   IN   THE   PHILIPPINES”

B. VAN ZUIDEN BROS. LTD. vs. GTVL MANUFACTURING INDUSTRIES, INC.
G.R. No. 147905, May 28, 2007,   523   SCRA   233

Q: What is the test for determining if an unlicensed foreign corporation is doing business in the Philippines?

A: To be doing or “transacting business in the Philippines” for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account.

Actual transaction of business within the Philippines is an essential requisite for the Philippines to acquire jurisdiction over a foreign corporation and thus require the foreign corporation to secure Philippine business license.

If a foreign corporation does not transact such kind of business in the Philippines, even if it exports its products to the Philippines, the Philippines has no jurisdiction to require such foreign corporation to secure a Philippine business license.

Considering that petitioner is not doing business in the Philippines, it does not need a license in order to initiate and maintain a collection suit against the respondent.

“Acts” constituting doing business in the Philippines under Section 3 (D) of RA 7042 otherwise known as “Foreign Investment Act of 1991:

1. soliciting orders

2. entering into service contracts

3. opening offices by whatever name

4. participating in the management, supervision or control of any domestic entity

5. appointing representatives or distributors, operating under the control of the foreign entity, who is domiciled in the Philippines or who stays in the country for a period or periods totaling at least 180 days in any calendar year.

2.   BANKING   LAWS

CITIBANK   N.A. vs.   SPOUSES LUIS   &   CARMELITA   CABAMONGAN
G.R. No. 146918,   May 2, 2006,   488   SCRA   517

Q: What degree is expected that must be exercised by banks for the protection of the interests of its depositors?

A: Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and the high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

Banks handle daily transactions involving millions of pesos. By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. Citibank, thru Account Officer San Pedro, openly courted disaster when despite noticing discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the pre-termination of the account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank is liable for damages.

Q: What is the nature of time deposit?

A: It is a simple loan or mutuum. The time deposit subject matter of herein petition is a simple loan. The provisions on the New Civil Code on simple loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides that “ … savings … deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

MACLARING LUCMAN   vs.   ALIMANTAR   MALAWI
G.R. No. 158794,   December   19,   2006,   511   SCRA   268

NATURE     OF     BANK     DEPOSITS

FACTS: Malawi, et. al. were Barangay Chairmen of various barangays of Lanao del Sur. From the 2nd quarter of 1997, the Land Bank was selected as the government depository bank of the Internal Revenue Allotments (IRAs) of the said barangays. After the failed 1997 elections, Malawi et. al. attempted to open their respective IRA bank accounts, but they were refused by Lucman, Land Bank manager, because the former needed to show their individual certifications showing their right to continue serving as Barangay Chairmen and the requisite Municipal Accountant’s Advice giving them the authority to withdraw the IRA deposits, which they were unable to show.

Later, five (5) other persons presented themselves before Lucman as the newly proclaimed Barangay chairmen each of them presenting certifications. Without verifying the authenticity of the certifications, Lucman proceeded to release the IRA funds to them. Malawi et. al. filed a petition for mandamus to compel Lucman to allow them to open and maintain deposit accounts covering the IRAs of their barangays and withdraw therefrom.

ISSUE: What is the nature of bank deposits?

HELD: Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings or current are to be treated as loans are to be covered by the law on loans. (Guingona, Jr. vs. City Fiscal of Manila, 96 SCRA 96 (1980)].

There exists between the barangay as depositors and Land Bank, as depository, a creditor-debtor relationship. Fixed, savings and current deposits of money in banks and similar institutions are governed by the provisions concerning simple loan. The barangays are the lenders while the bank is the borrower. Failure of the Land Bank to honor the time deposit is failure to pay its obligations as a debtor and not a breach of trust arising from a depositor’s failure to return the subject matter of the deposit. Thus, the relationship being contractual, mandamus is not an available remedy since mandamus does not lie to enforce the performance of contractual obligations.

A PURCHASER   OF    MANAGER’S   CHECK CAN   ASSERT   FORGERY

LAND   BANK   OF   THE   PHILIPPINES   vs.   NARCISO   L.   KHO
G.R.   No. 205840,   July 7, 2016,   796   SCRA   21

FACTS: Respondent Narciso Kho is a sole proprietor of oil trading business. Sometime in December 2006, he entered into a verbal agreement to purchase lubricants from Red Orange Trading. Red Orange insisted that it would only accept a Land Bank manager’s check for payment.

Kho, accompanied by Rudy Medel, opened a savings account at petitioner Land Bank Araneta branch. Kho the purchased a Land Bank manager’s check valued at P25,000,000 and made payable to Red Orange. Kho requested a photocopy of the manager’s check to give Red Orange a proof that he had available funds for their transaction.

Unfortunately, the deal with Red Orange did not push through. Sometimes later, BPI called Land Bank to inform them that Red Orange had deposited a Land Bank manager’s check. A faxed copy of the deposited check was then sent to the clearing office and upon examination, they thought the details matched the check purchased by Kho, Land Bank confirmed the check.

Land Bank informed Kho by phone that his check was cleared and paid the BPI. Shocked, Kho informed Land Bank that never negotiated the check because the deal did not materialize and the actual check was still in his possession. They discovered that what was deposited and encashed with BPI was a spurious manager’s check.

ISSUES

1) Whether a purchaser of manager’s check can assert forgery when the proximate cause of the loss is the negligence of the bank.

2) Whether the Land Bank is liable for the encashed P25,000,000 manager’s check.

RULINGS

1) YES, a purchaser of a manager’s check can assert forgery when the proximate cause of the loss is the negligence of the bank.

Kho’s failure to inform Land Bank that the deal did not push through does not justify Land Bank’s confirmation and clearing of a fake check bearing the forged signatures of its own officers. Whether or not the deal pushed through, the check remained in Kho’s possession. He was entitled to a reasonable expectation that the bank would not release any funds corresponding to the check.

2) YES, Land Bank breached its duty of diligence and assumed the risk of incurring a loss on account of a forged or counterfeit check.

The business of banking is imbued with public interest. It is an industry where the general public’s trust and confidence in the system is the paramount importance.

Consequently, banks are expected to exact the highest degree of, if not the utmost, diligence. They are obligated to treat their depositors’ accounts with meticulous care, always keeping in mind the fiduciary nature of their relationship.

Banks hold themselves out to the public as experts in determining the genuiness of checks and corresponding signatures thereon. Stemming from their primordial duty of diligence, one of a bank’s prime duties is to ascertain the genuineness of the drawer’s signature on check being encashed. This holds especially true for manager’s checks.

NATIVIDAD GEMPESAW vs. COURT OF APPEALS
G.R. No. 92244, February 9, 1993, 218 SCRA 682

Natividad Gempesaw, a businesswoman, completely placed her trust in her bookkeeper. She allowed her bookkeeper to prepare the checks payable to her suppliers. She signed the checks without verifying their amounts and their corresponding invoices. Despite receiving her bank statements, Gempesaw never verified the correctness of the returned checks nor confirmed if the payees actually received payment. This went on for over two years, allowing her bookkeeper to forge the indorsements of over 82 checks.

Gempesaw failed to examine her records with reasonable diligence before signing the checks and after receiving her bank statements. Her gross negligence allowed her bookkeeper to benefit from the subsequent forgeries for over two years.

Gempesaw’s negligence precluded her from asserting the forgery. Nevertheless, the Supreme Court adjudged the drawee Bank liable to share evenly in her loss for its failure to exercise utmost diligence, which amounted to a breach of is contractual obligations to the depositor.

ASSOCIATED BANK vs. COURT OF APPEALS
G.R. No. 107382, January 31, 1996, 252 SCRA 620

The Province of Tarlac (the depositor) released 30 checks payable to the order of a government hospital to a retired administrative officer/cashier of the hospital. The retired officer forged the hospital’s indorsement and deposited the checks into his personal account. This took place for over three years resulting in the accumulated loss of P203,300.00.

It was held that the Province of Tarlac was grossly negligent, to the point of substantially contributing to its loss. Nevertheless, the High Court apportioned the loss evenly between the Province of Tarlac and the drawee bank because of the bank’s failure to pay according to the terms of the check. It violated its duty to charge the customer’s account only for properly payable items.

3.   SECURITIES   REGULATION CODE

ABACUS   SECURITIES    CORPORATION     vs.    RUBEN    AMPIL
G.R. No.   160016,   February   27,    2006,     483   SCRA   315

Q: What      is       the       mandatory       close       out       rule       in       margin     trading?

A: The law places the burden of compliance with margin requirements primarily upon the brokers and dealers. Sections 23 & 25 and Rule 25-1, otherwise known as the “mandatory close-out rule,” clearly vest upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a customer’s order, if payment is not received within three days from the date of purchase. For transactions subsequent to an unpaid order, the broker should require its customers to deposit funds into the account sufficient to cover each purchase transaction prior to its execution. These duties are imposed upon the broker to ensure faithful compliance with the margin requirements of the law, which forbids a broker from extending undue credit to a customer.

Q: What is the macroeconomic purpose of the margin trading rule?

A: The margin requirements set out in the RSA are primarily intended to achieve a macro-economic purpose the protection of the overall economy from excessive speculation in securities. Their recognized secondary purpose is to protect small investors.

BAVIERA vs. PAGLINAWAN
G.R. No. 168380, February 8, 2007, 515 SCRA 170

A criminal charge for violation of the Securities Regulation Code is a specialized dispute which must be first be referred to an administrative agency of special competence, i.e., the SEC. The Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation and prosecution.

CEMCO   HOLDING,   INC.    vs.   NATIONAL   LIFE   INSURANCE
G.R. No.   171815,   August   7,    2007,   529    SCRA   2007

TENDER     OFFER    RULE

A tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. The Tender Offer Rule applies also in an indirect acquisition arising from the purchase of shares of a holding company of the listed firm. Tender offer is in place to protect minority stockholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders.

Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing provision was increased to thirty-five percent (35%). It is further provided therein that mandatory tender of is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stock or an indirect means, mandatory tender offer applies.

QUEENSLAND – TOKYO COMMODITIES   vs.   MATSUDA
G.R. No. 159008,   January   23,   2007,   512 SCRA 276

COMMODITY   FUTURES   TRADING

Before a future commodity merchant can be held liable under Section 20 of the Revised Rules and Regulations on Commodity Futures Trading, there must be proof that it “knowingly” permitted an unlicensed person to commit the prohibited acts. The law, therefore, prescribed an additional element to the offense. In this case, there is absolutely no evidence to show that Queensland knowingly allowed the unlicensed

persons to participate in the trading. Only Charlie Collado and Felix Sampaga had in fact, assented to the unlawful acts of respondent

corporation, and they should jointly and severally be liable for the payment of all damages sustained and which are sufficiently proven by the complainant.

4. SECRECY ON FOREIGN CURRENCY DEPOSIT

CHINA BANKING CORPORATION vs. COURT OF APPEALS
G.R. No. 140687, December 18, 2006, 511 SCRA 110

FACTS: Jose Gotianuy accused his daughter Mary Margaret Dee of stealing his US dollar deposits with Citibank N.A. amounting to not less than Php35,000,000.00 and US$864,000.00 and deposited the same to China Banking Corporation (CBC). Upon order of the court to divulge in whose name or names is in the foreign currency fund, CBC invoked RA 6426 as amended by PD 1246 which provides the absolute confidentially of foreign currency deposit which is beyond the compulsive process of the court.

ISSUE: Whether or not Jose Gotianuy being the owner of the questioned foreign currency deposit may compel CBC the disclosure of someone else’s foreign currency deposit.

HELD: YES. Under RA 6426 as amended considered absolute confidential in nature of foreign currency deposit and may not be inquired into. There is only exception to the secrecy of foreign currency deposits, that is, disclosure is allowed upon written permission of the depositor. As the owner of the funds unlawfully taken and which are undisputably now deposited with China Bank, Jose Gotianuy has the right into the said deposits.

5. BANK SECRECY LAW

*** Deposits in bank including government banks, may not be inquired into by any person, except:

a. if depositor agrees in writing;

b. impeachment cases;

c. by court order in cases of bribery and dereliction of duty against public officials;

d. deposit is subject of litigation;

e. anti-graft cases;

f. general and special examination of bank order of the Monetary Board of bank fraud or serious irregularity;

g. re-examination made by an independent auditor hired by a bank to conduct its regular trust.

EJERCITO vs. SANDIGANBAYAN
G.R. No. 157294-95, November 30, 2006, 509 SCRA 190

RA 1405 is broad enough to cover Trust Account No. 858 because the term “deposit” as used in RA 1405 is to be understood broadly and not limited only to accounts which give rise to a creditor-debtor relationship between the depositor and the bank. If the money deposited under an account may be used by banks for authorized loans to third persons, then such account, regardless of whether it creates a creditor-debtor relationship between the depositor and the bank, falls under the category of accounts which the law precisely seeks to protect for the purpose of boosting the economic development of the country.

However, there are two exceptions on the protection under RA 1405: (1) the examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and (2) the money deposited or nvested is the subject matter of litigation.

The first exception applies since the plunder case pending against the petitioner is analogous to bribery or dereliction of duty and the second because the money deposited in petitioner’s bank accounts from part of the subject matter of the same.

ANTI-MONEY LAUNDERING    ACT

REPUBLIC - AMLC   vs.   HON.   JUDGE   ANTONIO   M.   EUGENIO
545   SCRA   384,   G.R. No.   174629,   February   14,   2008

FACTS: A series of investigations concerning the awards of the NAIA 3 contracts to PIATCO were undertaken by the Ombudsman and Anti-Money Laundering Council (AMLC). Alvarez was already charged by the Ombudsman. As per intelligence database financial information, Alvarez maintained eight (8) bank accounts with six (6) different banks. AMLC filed an ex-parte application to examine the deposits of Alvarez as mandated by Section 11 of RA 9160 and such application was granted by the RTC.

ISSUE: Whether Section 11 of RA 9160 authorize ex parte application with respect to bank orders.

HELD: NO. Section 11 does not specifically authorize, as a general rule, the issuance ex parte of the bank inquiry order. Though, Section 11 allows the AMLC to inquire into bank accounts without having to obtain a judicial order in cases where there is a probable cause that the deposits or investments are related to kidnapping with ransom, certain violations of the Comprehensive Dangerous Drugs Act of 2002, hijacking and other violations under RA 6235, destructive arson and murder. Such special circumstances are not present in this case.

A bank inquiry order under Sec. 11 does not necessitate any form of physical seizure of property of the account holder. Said records are in the possession of the bank and therefore cannot be destroyed at the instance of the account holder alone as that would require the extraordinary cooperation and devotion of the bank.

FREEZE   ORDER

LT.   GEN.   JACINTO   C.   LIGOT   (Ret.)   vs.    REPUBLIC   (AMLC)
G.R.   No. 176944,   March   6,   2013,   692   SCRA   509

FACTS: On June 27, 2005, AMLC filed an application for the issuance of a freeze order with the CA against certain monetary instruments and properties of Lt. Gen. Ligot and his family based on the recommendation of the Office of the Ombudsman.

The CA issued a freeze order against the Ligots various bank accounts, web accounts and vehicles.

Subsequently, ALMC filed a motion for extension of effectivity of freeze order and the CA granted the said motion.

On November 2005, the Rule in Civil Forfeiture Cases took effect. Under this rule, a freeze order could be extended for a maximum period of six months.

On January 31, 2006, the Ligots filed a motion to lift the freeze order considering it has already expired six months after it was issued on July 5, 2005.

ISSUE: Whether the freeze order should be lifted after the expiration of six months period.

HELD: YES. A freeze order cannot be issued for an indefinite period. As a rule, the effectivity of a freeze order may be extended by the CA not exceeding six months. Before or upon the lapse of this period, ideally, the AMLC should have already filed a case for civil forfeiture against property owner with the proper court.

AMLC has not offered any explanation why it took six years from the time it secured a freeze order before a civil forfeiture case was filed in court despite the clear tenor of the Rules in Civil Forfeiture Cases allowing the extension of a freeze order for only a period of six months.

6. BULK SALES LAW

*** Types of transactions which are treated as “bulk sales.”

a. Sale, transfer, mortgage or assignments of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade;

b. Sale, transfer, mortgage or assignments of all or substantially all of the business of the vendor, mortgagor, transferor or assignor;

c. Sale, transfer, mortgage, or assignment of all, or substantially all, of all the fixtures and equipment used in the business of the vendor, mortgagor, transferor or assignor.

*** Only creditors at the time of the sale in violation of the law are within the protection of the laws and creditors subsequent to the sale are not covered.

7. LETTER OF CREDIT

Q - Distinguish Commercial Letter of Credit from Standby Letter of Credit

A - There are three significant differences between commercial and standby credits. First, commercial credits involve the payment of money under a contract of sale. Such credits become payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative steps to comply with the sales agreement. In the standby type, the credit is payable upon certification of a party’s non-performance of the agreement. The beneficiary of a commercial credit must demonstrate by documents that he has performed his contract. The beneficiary of the standby credit must certify that his obligor has not performed the contract. (Transfield Philippines, Inc. vs. Luzon Hydro Corporation, G.R. No. 146717, November 22, 2004, 443 SCRA 307).

Q: Whether the beneficiary has the right to call and draw on the securities under the letter of credit

A: YES. The independence principle liberates the issuing bank from the duty of ascertaining compliance by the parties in the main contract. The obligation under the letter of credit is independent of the related and originating contract. To say that the independence principle may only be invoked by the issuing banks would render nugatory the purpose of which the letter of credit are used in commercial transactions because the independence doctrine works to the benefit of both the issuing bank and the beneficiary.

Q - Is there any exception to the “independence principle”?

A - An exception to the independence principle would be fraud of the “fraud exception rule.” The untruthfulness of a certificate accompanying a demand for payment under a standby credit may qualify as a fraud sufficient to support an injunction against payment. The remedy for fraudulent abuse is an injunction. However, injunction should not be granted unless (a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement; and (c) irreparable injury might follow if injunction is not granted or the recovery of damages would be seriously damaged. (Transfield Philippines, Inc. vs. Luzon Hydro Corporation, supra).

LETTERS OF CREDIT vs. TRUST RECEIPT

While the trust receipt may been executed as a security on the letter of credit, still the two documents involve different undertakings and obligations. A letter of credit is an agreement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit.

By contrast, a trust receipt transaction is one where the entruster, who holds an absolute title or security interests over certain goods, documents or instruments, released the same to the entrustee, who executes a trust receipt binding himself to hold the goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents and instruments with the obligation to turn over the entruster the proceeds thereof to the extent of the amount owing to the entruster, or as appears in the trust receipt or return the goods, documents or instruments themselves if they are unsold, or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. (Bank of Commerce vs. Teresita Serrano, G.R. No. 151895, February 16, 2005, 451 SCRA 484).

8. SUSPENSION OF PAYMENTS AND REHABILITATION

Q: What is the objective of the suspension order against all actions against distressed corporation when a management committee or rehabilitation receiver is appointed?

A: The avowed objective of suspending all actions against a distressed corporation when a management committee or rehabilitation receiver is appointed, as enunciated by the Court in Rubberworld Phil., Inc. vs. NLRC and in RCBC vs. IAC is to enable such management committee or rehabilitation receiver to effectively exercise its power free from any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the distressed company. However, this purpose can no longer be effectively met in the present case as the proceedings herein have already been pending for almost ten years and have already reached this Court. The management committee has been unduly burdened enough, its time and resources wasted by the proceedings that took place before the RTC and the appellate court. Hence, to decree the annulment of the previous proceedings in the lower courts will only result in further delay. The greater interest of justice demands that we now dispose of the issues raised in the present petition. (Tyson’s Super Concrete, Inc. vs. Court of Appeals, G.R. No. 140081, June 23, 2005, 461 SCRA 69).

SY CHIM and FELICIDAD CHAN SY vs. SY SIY HO & SONS, INC.
G.R. No. 164958, January 27, 2006, 480 SCRA 465

FACTS: An intra-corporate dispute ensued between Sy Chim and his wife Felicidad Chan Sy, on the one hand, and their son, Sy Tiong Shiou, on the other, when a complaint for accounting and damages against the spouses was filed alleging that Felicidad, as custodian of all cash collections has been depositing amounts less than those appearing in the financial statements which are in the custody of the spouses.

The spouses averred in their answer that any unaccounted cash account and irregularities in the management of the corporation, if any, were the full responsibility of Sy Tiong, since he has direct and actual management of the corporation under the by-laws.

The RTC issued an Order granting the motion for the creation of a management committee pendente lite. It was stated therein that while the main case is yet to be heard, the fact remains that corporate assets, funds, properties and records were in imminent danger of further dissipation or total loss and that the appointment of a receiver was justified there having been sufficient allegations of misappropriation of corporate assets.

ISSUE: Whether the creation of a management committee/appointment of a receiver proper?

HELD: NO. The creation and appointment of a management committee and a receiver is an extraordinary and drastic remedy to be exercised with care and caution; and only when the requirements under the Interim Rules are shown. It is a drastic course for the benefit of the minority stockholders, the parties-litigants or the general public are allowed only under pressing circumstances and, when there is inadequacy, the ineffectual or exhaustion of legal or other remedies. The power to intervene before the legal remedy is exhausted and misused when it is exercised in aid of such purpose. The power of the court to continue a business of a corporation, partnership or association must be exercised with the greatest care and caution. There should be a full consideration of all the attendant facts, including the interest of all the parties concerned.

SOBREJUANITE vs. ASB DEVELOPMENT CORPORATION
G.R. No. 165675, September 30, 2005, 471 SCRA 763

Q: What is the purpose of Suspension of the Proceedings and Definition of Claim?

A: The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors. Such suspension is intended to give enough breathing space for the management committee or rehabilitation receiver to make the business viable again, without having to divert attention and resources to litigations in various fora.

The interim rules define a claim as referring to all claims or demands, of whatever against a debtor or its property, whether for money or otherwise. The definition is all encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or exemptions.

PUNONGBAYAN vs. PUNONGBAYAN
G.R. No. 157671, June 20, 2006, 491 SCRA 477

The RTC has the discretion to grant or deny an application for the creation of a management committee. Having the power to create a management committee, it follows that the RTC can order the reorganization of the existing management committee.

Such appointment of new members does not mean the creation of a new management committee. The existing management committee was not abolished. The RTC merely reorganized it by appointing new members. The management committee created by the SEC continues to exist. However, when it failed to function due to the division among the members, the RTC replaced them. Clearly, there was no revocation of the final Order of the SEC.

9.   INTELLECTUAL   PROPERTY

MIGHTY CORPORATION   &   LA   CAMPANA   vs.   E.   &   J.   GALLO   WINERY
G. R.   No.   154342,   July   14,    2004,   434   SCRA   473

FACTS: Petitioner herein is a domestic corporation producing and manufacturing GALLO cigarettes for local consumption since 1974, while the respondent is a foreign corporation having no license to do business in the country, but whose GALLO wines are being distributed in the country through an exclusive distributor.

The latter filed a complaint for unfair competition and infringement against that of the former. The respondent claimed their right under the trademark law (RA 166) and that of the Paris Convention. The petitioner, however, posed as a defense that the products are not the same so as to cause confusion to the consumers, and that he had a prior right over the trademark. The petitioner further questions the locus standi of the respondent to bring the action.

ISSUE: Whether the petitioner is liable for infringement and unfair competition.

HELD: NO. The subject goods herein are in fact, different from each other. There are (1) substantial differences on the trademark itself applying the dominancy and holistic test, (2) they are of different channels of trade, (3) they have different qualities and purpose, (4) there is a marked difference on the price of goods.

Distinguish Trademark Infringement from Unfair Competition.

A - (1) Infringement of trademark is the authorized use of a trademark, whereas unfair competition is the passing off of one’s goods as those of another.

(2) In infringement of trademark, fraudulent intent is unnecessary, whereas in unfair competition, fraudulent intent is essential.

(3) In infringement of trademark, the prior registration of the trademark is a prerequisite to the action, whereas in unfair competition, registration is not necessary. (Mighty Corporation vs. E.J. Gallo Winery, supra)

FACTORS to consider 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. (Mighty Corporation vs. E. J. Gallo Winery, supra).

MCDONALD’S CORPORATION vs. L. C. BIG MAK BURGER, INC.
G. R. No. 143993, August 18, 2004, 437 SCRA 10

FACTS: The petitioner herein is a foreign corporation organized under the laws of Delaware, USA, while the respondent is a domestic corporation. Both of them are engaged in the selling of fast food products, including the sale of hamburgers to which the petitioner claims protection for the use of the BIG MAC trademark over the same items, in contrast to the BIG MAK trademark of the latter.

The petitioner, as a result, filed a complaint for infringement and unfair competition against that of the respondent, to which the latter opposed on the ground that the former does not have exclusive right to use the said trademark for it was previously registered by two corporations prior to the 1985 registration of the petitioner.

ISSUE: Whether the respondent is liable for infringement and unfair competition.

HELD: YES. The evidence presented to the Court reveals that there is no distinction as to the use of BIG MAK as a trademark and as a corporate name of the respondent. The wrappers submitted as evidence only used the mark BIG MAK, without any showing that it was in fact part of the corporate name of the respondent. Further, the

respondent failed to substantiate the reason behind the use of the mark as its corporate name. Further still, there was no public notice made by the respondent so as to differentiate its products as against that of the petitioner. The said circumstances prove the intent of the respondent to defraud the petitioner and that of the public.

- - - On the determination of infringement, the dominance test was used as against the holistic test.

- - - Applying the dominancy test, the Court finds that respondent use of the “BIG MAK” mark results in likelihood of confusion. First, “BIG MAK” sounds exactly the same as “BIG MAC.” Second, the first word in BIG MAK is exactly the same as the first word in ‘BIG MAC,” Third, the first two letters in “MAK” are the same as the first two letters in MAC.” Fourth, the last letter in “MAK” while a “K” sounds the same as “C” when the word “MAK” is pronounced, Fifth, in Filipino, the letter “K” replaces “C” in spelling, thus Caloocan is spelled “Kalookan.”

Q - When does trademark infringement constitute competition?

A - Trademark infringement constitutes unfair competition when there is not merely likelihood of confusion, but also actual or probable deception on the public because of general appearance of the goods. ( McDonald’s Corp. vs. LC Bigmak Burger, Inc., supra).

Q - Can there be trademark infringement without unfair competition?

A - There can be trademark infringement without unfair competition as when the infringer discloses on the labels containing the mark that he manufactures the goods, thus preventing the public from being deceived that the goods originate from the trademark owner. (McDonald’s Corp. vs. LC BigMak Burger, Inc., supra).

Q - What is the doctrine of equivalents in patent infringement?

A - The doctrine of equivalents provides that an infringement also takes place when a device appropriates a prior invention by incorporating its innovative concept and, although with some modification and change, performs substantially the same function in substantially the same way to achieve substantially the same result. The doctrine equivalents thus require satisfaction of the function-means-and-result test, the patentee having the burden to show that all three components of such equivalency test are met. (Smith Kline Beckman Corp. vs. Court of Appeals, August 14, 2003, 409 SCRA 33).

MC DONALD’S CORPORATION vs. MAC JOY FAST FOOD CORPORATION
G.R. No. 166115, February 2, 2007, 514 SCRA 95

FACTS: Mac Joy Fastfood Corporation filed an application for the registration of the trademark “MACJOY & DEVICE” for fried chicken, chicken barbeque, burgers, fries, spaghetti, palabok, tacos, sandwiches, halo-halo and steaks. Mc Donald’s Corporation opposed the application claiming that the trademark “MACJOY & DEVICE” so resembles its corporate logo, otherwise known as the Golden Arches or “M” design, and its other marks which would confuse or deceive purchasers into believing that the goods originate from the same source or origin.

Mac Joy averred that it has used the mark “MACJOY” for the past many years in good faith and spent considerable amount for the mark’s promotion, especially in Cebu City where it has been doing business long before the Mc Donald’s opened its outlet thereat sometime in 1992.

ISSUE: Whether or not there is a confusing similarity between the MCDONALD’s marks and “MACJOY & DEVICE” trademark when applied to food and food ingredients.

HELD: YES. In determining similarity and likelihood, jurisprudence has developed two tests, the dominancy test and the holistic test. The dominancy test focuses on the similarity of the prevalent features of the competing trademarks that might cause confusion or deception. In contrast, the holistic test requires the court to consider the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing similarity.

Applying the dominancy test, “MCDONALD’S” and “MACJOY” marks the confusing similarity with each other such that an ordinary purchaser can conclude an association or relation between the marks. Both marks use the

corporate “M” design, logo and prefixes “Mc” and/or “Mac” as dominant features. Both trademarks are used in the sale of fastfood products. Furthermore MCDonald’s has the right claim over the marks since it has registered them successively in 1971 and 1977, while Macjoy’s application for the registration of its trademark was filed only in 1991.

REGISTRATION OF IDENTICAL MARKS

TAIWAN KOLIN CORPORATION vs. KOLIN ELECTRONICS COMPANY
G.R. No. 209843, March 25, 2015, 754 SCRA 556

FACTS: On February 29, 1996, Taiwan Kolin filed with the Intellectual Property Office (IPO) a trademark application for the use of “KOLIN” on its televisions and DVD players which are a combination of goods falling under Class 9 of the Nice Classification (NCL).

On July 13, 2006, Kolin Electronics opposed the application alleging that the mark Taiwan Kolin seeks to register is identical, if not confusing similar, with its “KOLIN” mark previously registered on November 23, 2003 covering products, e.g., automatic voltage regulator, converter, recharger and the like which are also under Class 9 of NCL.

Kolin Electronics “KOLIN” registration was the subject of a prior legal dispute between the same parties. Kolin Electronics “KOLIN” own application was opposed by Taiwan Kolin which claimed that Kolin was the prior registrant and user of the said trademark having registered the same in Taiwan in 1988.

ISSUE: Whether Taiwan Kolin is entitled to the registration of the mark “KOLIN” over its specific goods of television and DVD player.

HELD: YES. Taiwan Kolin is entitled to register the trademark “KOLIN.” The uniformity of categorization by itself does not automatically preclude the registration of what appears to be an identical mark. Such circumstance does not necessarily result in trademark infringement.

Categorization in the NCL is not the sole and decisive factor in determining a possible violation of intellectual property right.

The Hornbook Doctrine states that emphasis should be on the similarity of the products involved and not on the arbitrary classification of general description of their properties or characteristics.

The mere fact that one person has adopted and used a trademark on his goods would not, without more, prevent the adoption and the use of the same trademark by others on unrelated articles of a different kind.

In this case, the products covered by Taiwan Kolin’s application and Kolin Electrtonics’ registration are unrelated. Following the Mighty Corporation Doctrine, goods should be treated against several factors before arriving at a sound conclusion on the question of relatedness and the classification of the products under NCL is merely a part and parcel of the factors to be considered.

It is not sufficient to state that the goods under consideration are electronics products under Class 9 of the NCL. Furthermore, the ordinary intelligent buyer is not likely to be confused since the products are electronics products, relatively luxury items not easily considered affordable. The casual buyer is predisposed to be more cautious and discriminating in and would prefer to mull over his purchase.

Therefore, Taiwan Kolin is entitled to the registration of the mark “KOLIN” over its televisions and DVD players.

LEVI STRAUSS (PHIL.), INC. vs. VOGUE TRADERS CLOTHING COMPANY
462 SCRA 52, G.R. No. 132993, June 29, 2005

Q: What are the remedies of an owner of a registered mark?

A: Action for infringement and/or action for unfair competition or damages, with Injunction.

Q: May an action for infringement or unfair competition with Injunction and damages proceed independently of an administrative action for cancellation of the registered trademark?

A: YES. It bears stressing that an action for infringement or unfair competition, including the available remedies of injunction and damages, can be filed in the regular courts and can proceed independently or simultaneously with an action for the administrative cancellation of a registered trademark in the BPTTT. As applied to the present case, petitioner’s prior filing of two inter partes cases against the respondent before the BPTTT for the cancellation of the latter’s trademark registration, namely, “LIVE’S” and “LIVE’S Label Mark” does not preclude petitioner’s right (as a defendant) to include in its Answer (to respondent’s complaint for damages) a counterclaim for infringement with a prayer for the issuance of a writ of preliminary injunction.

Q: What is the nature of unfair competition?

A: More importantly, the crime of Unfair Competition punishable under Article 189 of the Revised Penal Code is a public crime. It is essentially an act against the State and it is the latter which principally stands as the injured party. The complainant’s capacity to sue in such case become immaterial. (Melbarose R. Sasot vs. People of the Philippines, G.R. No. 143193, June 29, 2005 462 SCRA 138).

UNFAIR    COMPETITION

SHANG   PROPERTIES     REALTY     CORPORATION    vs.    ST.   FRANCIS     DEVELOPMENT    CORPORATION
G.R.   No.   190706,    July   21,   2014,   730    SCRA    275

FACTS: St. Francis Development Corporation (SFDC), a domestic corporation engaged in the real estate business and the developer of St. Francis Square Commercial Center in Ortigas Center, filed complaint for unfair competition against Shang Properties Realty Corporation (Shang) before the IPO - Bureau of Legal Affairs due to Shang’s use and filing of applications for the registration of the marks “THE ST. FRANCIS TOWER” and “THE ST. FRANCIS SHANGRILA PLACE” for use relative to Shang’s business, particularly the construction of permanent buildings or structures for residential and office purposes.

SFDC alleged that (1) it used “ST. FRANCIS: to identify numerous property development projects in Ortigas Center and (2) as a use of its continuous projects in Ortigas Center and real estate business, it has gained substantial goodwill with the public that consumers and traders closely identify the mark with its property development projects.

On the other hand, Shang contended that the mark with its property cannot be exclusively owned by SFDC since the marks is geographically descriptive of the goods or services for which it is intended to be used.

ISSUES:

(1) Whether the Shang Properties is guilty of unfair competition.

(2) Whether the mark “ST. FRANCIS” acquires a secondary meaning warranting SFDC’s right to its exclusive use.

HELD: (1) NO. Shang is not guilty of unfair competition. Unfair competition is the passing off (of 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.

In other words, it is when he gives his goods the general appearance of the goods of his competitors with the intention of deceiving the public, that the goods are those of his competitor.

In this case, the elements of fraud is wanting, hence, there can be no unfair competition.

There is no evidence that (1) Shang gave their goods/services the general appearance that it was SFDC which offering the same to the public (2) Shang employed any means to induce SFDC’s goods/services;

and (3) Shang made any false statement or commit acts tending to discredit the goods/services offered by SFDC.

The mark “ST. FRANCIS” is geographically descriptive in nature, thus, it cannot be exclusively appropriated unless a secondary meaning is acquired. Therefore, Shang is not guilty of unfair competition.

(2) NO. The mark ‘ST. FRANCIS” did not acquire secondary meaning. Descriptive 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 geographical descriptive term is any noun or adjective that designates geographical location and would tend to be regarded by buyers as descriptive of 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.

Under Section 123.2 of the IP Code, specific requirements have to be met in order to conclude that geographically descriptive mark has acquired secondary meaning, to wit: (a) the secondary meaning must have arisen as a result of substantial commercial use of a mark in the Philippines; (b) such use must result in the distinctiveness of the mark insofar as the goods or the products are concerned; and (c) proof of substantially exclusive and continuous commercial use in the Philippines for five (5) years before the date on which the claim of distinctiveness is made. Unless secondary meaning has been established, a geographically descriptive mark, due to its general public domain classification, is perceptibly disqualified from trademark registration.

In this case, SFDC was not able to prove its compliance with the above-mentioned requirements. While it is true that SFDC had been using the mark since 1992, its use thereof has been merely confined to its realty projects within the Ortigas Center. As its use thereof has been merely confined to a certain locality.

JESSIE CHING vs. WILLIAM M. SALINAS
G.R. No. 161295, June 29, 2005, 462 SCRA 241

Q: Define trademark, copyright and patents and briefly distinguish them from each other.

A: Trademark, copyright and patents are different intellectual property rights that cannot be interchanged with one another. A trademark is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods. In relation thereto, a trade name means the name or designation identifying or distinguishing an enterprise. Meanwhile, the scope of a copyright is confined to literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of their creation. Patentable inventions, on the other hand, refer to any technical solution of a problem in any field of human activity which is new involves an inventive step and is industrially applicable.

Q: What is a utility model?

A: A utility model is a technical solution to a problem in any field of human activity which is new and industrially applicable. It may be, or may relate to, a product, or process, or an improvement of any of the aforesaid. Essentially, a utility model refers to an invention in the mechanical field. This is the reason why its object is sometimes described as a device or useful object. A utility model varies from an invention, for which a patent for invention is, likewise, available, on at least three aspects: first, the requisite of “inventive step” in a patent for invention is not required; second, the maximum term of protection is only seven years compared to a patent which is twenty years, both reckoned from the date of the application; and third, the provisions on utility model dispense with its substantive examination and prefer for a less complicated system.

Q: When are useful articles and works of industrial design copyrightable?

A: Indeed, while works of applied art, original intellectual, literary and artistic works are copyrightable, useful articles and works of industrial design are not. A useful article may be copyrightable only if and only to the extent that such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of the utilitarian aspects of the article.

ELIDAD   KHO    vs.    HON.   ENRICO   LANZANAS
G.R. No.   150877,   May   4,   2006, 489   SCRA 444

ONLY THE CREATOR OF   THE MARK MAY REGISTER   IT   IN   HIS   NAME

Kho is not the author of the trademark “Chin Chun Su” and his only claim to the use of the trademark is based on the Deed of Agreement executed in his favor by Quintin Cheng. By virtue thereof, he registered the trademark in his name. The registration was a patent nullity because Kho is not the creator of the trademark “Chin Chun Su” and, therefore, has no right to register the same in his name. Furthermore, the authority of Cheng to be the sole distributor of Chin Chun Su in the Philippine had already been terminated by Shun Yih Chemistry. Withal, he had no right to assign or to transfer the same to Kho.

COMPANIA GENERAL DE TABACOS DE FILIPINAS vs. SEVENDAL
G.R. No. 161051, July 23, 2009, 593 SCRA 593

FACTS: Tabacalera is a foreign corporation and duly registered with the Bureau of Patents and Trademarks Technology and is primarily engaged in the manufacture and sell of cigars and cigarettes using the Tabacalera trademarks. On the other hand, Gabriel Ripoli, Jr. was an employee of Tabacalera for 28 years and was General Manager before he retired in 1993. Upon retirement, he organized Tabaqueria, a domestic corporation engaged in the manufacture of tobacco products like cigars.

Tabacalera filed a complaint with the DTI and sought the issuance of a preliminary order requiring Tabaqueria to refrain from manufacturing, distributing and/or selling Tabaqueria products because the same attributed to the alleged 26% dropped of Tabacalera’s sales as a result of a confusion created in the minds of the public into believing that the Tabaqueria’s cigars are the same or are somehow connected with the Tabacalera.

However, Tabaqueria opposed the issuance of the injunctive relief on the ground that Tabacalera’s allegation of unfair competition is unproved and unsubstantiated. Besides, Tabacalera failed to establish the elements required for the issuance of an injunctive writ.

ISSUE: Whether Tabaqueria is guilty of unfair competition thus writ of preliminary injunction should be issued.

HELD: NO. In order that an injunctive relief may be issued, the applicant must show that: (1) the right of the complainant is clear and unmistakable; (2) the invasion of the right sought to be protected is material and substantial and; (3) there is an urgent and paramount necessity for the issuance of the writ to prevent serious damage.

In the case at bench, Tabacalera has failed to show that there is an urgent and paramount necessity for the issuance of the writ to prevent serious damage. Tabacalera failed to substantiate its claim that the abrupt drop in sales was the result of the acts complaint of against Tabaqueria from the alleged infringement of its trademark.

Clearly, it is incumbent upon Tabacalera to support with evidence its claim for the issuance of a preliminary injunction.

REPUBLIC GAS CORPORATION vs. PETRON CORPORATION
G.R. No. 194062, June 17, 2013, 698 SCRA 666

FACTS: Regasco is an entity duly licensed to engage in, conduct and carry on, the business of refilling, buying, selling, distributing and marketing at wholesale and retail of Liquefied Petroleum Gas (“LPG”).

The Regasco LPG Refilling Plant in Malabon was engaged in the refilling and sale of LPG cylinders bearing the registered marks of Gasul and Shellane.

ISSUE: Whether Regasco is liable for trademark infringement and unfair competition.

HELD: YES. The mere unauthorized use of a container bearing a registered trademark in connection with sale, distribution or advertising of goods or services which is likely to cause confusion, mistake or deception among the buyers or consumers can be considered as trademark infringement.

Passing 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. Thus, 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.

The mere use of those LPG cylinders bearing the trademarks “GASUL” and “SHELLANE” will give the LPGs sold by REGASCO the general appearance of its products.

VICTORIO P. DIAZ vs. PEOPLE & LEVI STRAUSSS PHIL. INC.
G.R. No. 180677, February 18, 2013, 691 SCRA 139

FACTS: Levi’s Philippines received information that Diaz was selling counterfeit LEVI’S 501 jeans in his tailoring shops and he was not authorized to make and sell these jeans.

On the other hand, Diaz claimed 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 IPO; 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 “LS” stood for “Latest Style;” and that the leather patch on his jeans had two buffaloes, not two horses.

ISSUE: Whether Diaz is guilty of trademark infringement.

HELD: NO. Diaz is not guilty of trademark infringement.

The likelihood of confusion is the gravamen of the offense of trademark infringement. There are two test to determine likelihood of confusion, namely: the dominance test and the holistic test. The holistic test is applicable here. Accordingly, the jeans trademarks of Levi’s Philippines and Diaz must be considered as a whole in determining the likelihood of confusion between them.

There was no likelihood of confusion between trademarks involved in this case:

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’S 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’S 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 boutique selling original LEVI’S 501 jeans to the consuming public.

Other remarkable difference between two trademarks that the consuming public would easily perceive is that LEVI’S used two horses design while Diaz used the “buffalo designs.” A horse and a buffalo are two different animals which an ordinary customer can easily distinguish.

DISTINCTIONS OF UNFAIR COMPETITION AND TRADEMARK INFRINGEMENT

ROBERTO CO vs. KENG HUAN JERRY YEUNG
G.R. No. 212705, September 10, 2014, 735 SCRA 66

FACTS: Greenstone Medicated Oil is a traditional Chinese medicine manufactured by Greenstone Pharmaceutical owned by Jerry Yeung and exclusively imported and distributed in the Philippines by Taka Trading owned by Yeung’s wife, Emma.

On April 24, 2000, Ruivivar, Emma’s brother, bought a bottle of Greenstone from Royal Chinese Drug Store. However, when he used the product, Ruivivar doubted its authenticity considering that it had a different smell and the heat it produced was not as strong as the original Greenstone he frequently used.

Investigations showed that Co offered the products in April 2000 as “Tienchi Fong Sap Oil Greenstone” to Royal Chinese Drug Store which caused confusion and deception to the public.

ISSUES: Is Co guilty of (1) Unfair Competition and (2) Trademark Infringement?

HELD: (1) YES. Unfair competition is the passing off (or palming off) or attempting to pass off upon the public of the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public.

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.

In this case, Co conspired with the Royal Chinese Drug Store in the sale/distribution of counterfeit Greenstone products to the public, which were packaged in bottles identical to that of the original, thereby giving rise to the presumption of fraudulent intent.

(2). NO. Trademark infringement and Unfair Competition are two distinct suits:

(a) the former is the unauthorized use of a trademark, whereas the latter is the passing off one’s goods as those of another.

(b) fraudulent intent is unnecessary in the former, while it is essential in the latter.

(c) in the former, prior registration of the trademark is pre-requisite to the action, while it is not necessary in the latter. Thus the registration of the trademark is essential in the trademark infringement case.

In this case, the registration of the mark “GREENSTONE” was not proven to have existed during the time the acts complained of were committed.

10. INSURANCE

TRIPLE-V FOOD SERVICES, INC. vs. FILIPINO MERCHANTS INSURANCE CO.
G. R. No. 160544, February 21, 2005

FACTS: A certain Mary Joanne De Asis dined at petitioner’s Kamayan Restaurant. De Asis was using the car assigned to her by her employer Crispa Textile Inc. On the said date, De Asis availed of the valet parking service of petitioner. A corresponding parking ticket was issued as receipt for the car. The car was then parked by petitioner’s valet attendant at the designated parking area. Few minutes later, Madridano noticed that the car was not in its parking slot and its key no longer in the box where valley attendants usually keep the keys of the cars entrusted to them. The car was never recovered. Thereafter, Crispa filed a claim against the insurer, herein respondent Filipino Merchants Insurance Co. Inc. (FMICI). Having indemnified Crispa for the loss of the subject vehicle, FMICI, as subrogee to Crispa’s rights, filed with the RTC an action for damages against petitioner Triple-V Food Services, Inc.

Petitioner challenged FMICI’s subrogation to Crispa’s right to file a claim for the loss of the car, arguing that theft is not a risk insured against under FMICI’s insurance policy for the subject vehicle.

ISSUE: Whether FMICI was validly subrogated to Crispa’s right against petitioner under the insurance policy it issued.

HELD: YES. Petitioner’s argument that there no valid subrogation of rights between Crispa and FMICI because theft was not a risk insured against under FMICI Insurance Policy holds no water because it contains among other things, the following item: “Insured Estimated Value of Scheduled Vehicle – P800,000”. On the basis of such item, the coverage includes a full comprehensive insurance of the vehicle in case of damage or loss. Besides, Crispa paid a premium of P10,304 to cover theft. This is clearly shown in the breakdown of premiums in the same policy. Thus, having indemnified CRISPA for the stolen car, FMICI, was properly subrogated to Crispa’s right against petitioner, pursuant to Article 2207 of the New Civil Code.

INSURABLE INTEREST

A vendor or seller retains an insurable interest in the property until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one’s interest is not determined by concept of title, but whether insured has substantial economic interest in the property. (Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No. 147839, June 8, 2006, 490 SCRA 286).

BURDEN IS UPON THE INSURER TO PROVE THAT
THE CAUSE OF LOSS WAS AN EXCEPTED RISK

The “burden of proof” refers to the duty of the insured to show that the loss/damages is covered by the policy. Thus, it is sufficient for the insured to prove the fact of damage/loss after or for which is not liable. (DBP Pool of Accredited Insurance Companies vs. Radio Mindanao Network, Inc. G.R. 147039, January 27, 2006, 480 SCRA 314).

BREACH OF WARRANTY; WAIVER; DOUBLE INTEREST

Section 74 of the Insurance Code provides that violation of a material warranty or other material provision of a policy on the part of either party thereto, entitles the other to rescind. However, for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer, but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention to do so. In that event his liability under the policy continues as before. The insurer’s renewal of the policy is a clear intention of its waiver of the alleged breach by the insured.

An award of double interest is lawful and justified under Section 243 and 244 of the Insurance Code. The term “double interest” can only be interpreted to mean twice the legal rate of interest of 12% per annum or 24% per annum interest. (Prudential Guarantee and Assurance Inc. vs. Trans-Asia Shipping Line, G.R. No. 151890, June 20, 2006, 491 SCRA 411).

PROBLEM: X wanted to procure life insurance over Y, his son, a new lawyer. X comes to you for advice as to whether he may still insure his son who is no longer a minor and is now married. What will be your advice?

ANSWER: X may insure the life of Y, his son. Every person has an insurable interest over the life of his child. The law does not distinguish whether the child is a minor or whether he is already married.

PROBLEM: A insured the life of his wife, B. Their relationship turned sour and they sought judicial dissolution of their marriage. B died after the degree of annulment was issued by the court.

QUESTIONS:

a. Can A claim the proceeds of the insurance policy?

b. Assume that what was sought by the parties was legal separation, and not annulment, can A claim the proceeds upon the death of B?

ANSWERS:

a. YES. A can recover the proceeds because he has insurable interest over the life of B at the time the insurance was obtained.

b. YES. A decree of legal separation does not severe the marital bond. It merely allows A & B to live separately from bed and board. A has insurable interest over B at the time the insurance took effect, and upon the latter’s death. A can claim the proceeds of the policy.

PROBLEM: John insured the life of his debtor, Peter, for P1 Million, the amount of the obligation. On April 1, 2013, Peter fully paid his debt. On May 12, 2013, Peter died of a car accident.

QUESTIONS:

a. Is the insurer bound to pay John the insurance proceeds?

b. May the heirs of Peter claim the proceeds?

ANSWERS:

a. NO. The insurable interest of John over the life of Peter ceased upon full payment of the debt.

b. The heirs of Peter cannot claim the proceeds. There is no privity of contract between them and the insurer.

INCONTESTABILITY    CLAUSE

MANILA     BANKERS    LIFE     INSURANCE   CORPORATION    vs.   CRESENCIA     P.    ABAN
G.R.   No.   175666,   July   29,   2013,   702    SCRA   417

FACTS: On July 3, 1993, Delia took out a life insurance policy from Bankers Life designating Cresencia, 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, Delia died.

Cresencia filed a claim for the insurance proceeds on July 9, 1996. Bankers Life conducted an investigation into the claim and came out with the finding that Delia did not personally apply for insurance coverage as she was illiterate and sickly.

ISSUE: Whether Bankers Life is barred by the incontestability clause provision of the Insurance Code.

HELD: YES. Section 48 of the Insurance Code provides that 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 rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

After the two-year period lapses, or when the insured died within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment or misrepresentation.

Section 48 regulates both the actions of the insurers and prospective takers of life insurance.

CONCEALMENT    MUST   BE   SATISFACTORILY   PROVED

MANULIFE   PHILIPPINES, INC. vs. HERMENEGILDA   YBANEZ
G.R. No. 204736,   November   28,   2016,   810   SCRA   516

FACTS: Petitioner Manulife issued in favor of insured Dr. Gumersindo Solidum Ybanez insurance policies. When one of the subject insurance policies had been in force for only one year and three months, the insured died.

Thus, respondent, the insured wife as beneficiary, filed a claim under the said insurance policies. Petitioner, upon investigation concluded that the insured misrepresented or concealed material facts at the time the subject insurance policies were applied for.

Averring that the insured concealed the fact that he was repeatedly confined in the Cebu Doctor Hospital within the last five years prior to the application of the insurance policy. Manulife prays for the rescission of the insurance contracts and denied the claims on those policies.

During trial, Manulife presented Ms. Victoriano, the senior manager of its Claims and Settlements Department, who identified several documents as evidence to prove concealment.

ISSUE

Whether Manulife’s complaint for rescission of the insurance contracts on ground of concealment and misrepresentation should prosper.

RULING

NO, Manulife utterly failed to prove that the insured had committed the alleged misrepresentation or concealment of material facts.

Concealment as a ground for rescission must be satisfactorily and convincing proved before Manulife can validly sue for rescission of insurance contracts.

Fraudulent intent on the part of the insured must be established 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.

The hospital’s medical records that might have established the insured’s purported misrepresentation or concealment was inadmissible for being hearsay. Manulife’s sole witness, Ms. Victoriano, merely perfunctorily identified the documentary exhibits, she never testified in regard to the circumstances attending the execution of these documentary exhibits much less in regard to its contents.

Manulife failed to present the physician or any responsible official of the hospital who could confirm or attest to the due execution and authenticity of the alleged medical records.

For failure of Manulife to prove intent to defraud on the part of the insured, it cannot validly sue for rescission of insurance contracts.

11.   NEGOTIABLE   INSTRUMENT

SAMSUNG CONSTRUCTION CO.   vs.   FAR   EAST   BANK   &   TRUST   CO.
G.R.    No.    129015,    August    13,    2004,    436     SCRA   402

FACTS: Plaintiff maintained a current account with respondent FEBTC. The sole signatory to plaintiff’s account was Jong, its Project Manager, while the checks remained in the custody of the company’s accountant, Kyu. A certain Roberto Gonzaga presented for payment FEBTC check payable to cash and drawn against the Samsung’s current account, in the amount of P999,500.00 had been encashed upon submission of proof of identity and three (3) identification cards. The following day, Kyu, examined the balance of the bank account and discovered that a check in the amount of P999,500.00 had been encashed. As the last blank check was missing, Jong learned that his signature was forged.

ISSUE: Whether a bank which pays out on a forged check is liable to reimburse the drawer from whose account the funds were paid out.

HELD: YES. The general rule is to the effect that a forged signature is “wholly inoperative” and payment made “through or under such signature” is ineffectual or does not discharge the instrument. If payment is made, the drawee cannot charge it to the drawer’s account. The traditional justification for the result is that the drawee is in a superior position to detect a forgery because he has the maker’s signature and is expected to know and compare it. The rule has a healthy cautionary effect on banks by encouraging care in the comparison of the signatures against those on the signature cards they have on file. Moreover, the very opportunity of the drawee to insure and to distribute the cost among its customers who use checks makes the drawee an ideal party to spread the risk to insurance.

- - - Under Section 23 of the Negotiable Instrument Law, forgery is a real or absolute defense by the party whose signature is forged. On the premise that Jong’s signature was indeed forged, FEBTC is liable for the loss since it authorized the discharge of the forged check. Such liability attaches even if the bank exerts due diligence and care in preventing such faulty discharge. Forgeries often deceive the eye of the

most cautious experts; and when a bank has been so deceived, it is a harsh rule which compels it to suffer although no one has suffered by its being deceived. The forgery may be so near like the genuine as to defy detection by the depositor himself and yet the bank is liable to the depositor if it pays the check.

- - - The general rule remains that the drawee who has paid upon the forged signature bears the loss. The exception to this rule arises only when negligence can be traced on the part of the drawer whose signature was forged, and the need arises to weigh the comparative negligence between the drawer and drawee to determine who should bear the burden of loss. The Court finds no basis to conclude that Samsung was negligent in the safekeeping of its checks. For one, the settled rule is that the mere fact that the depositor leaves his check book lying around does not constitute such negligence as will free the bank from liability to him, where a clerk of the depositor or other persons taking advantage of the opportunity, abstract some of the check blanks, forges the depositor’s signature and collect on the checks from the bank. And for another, in point of fact Samsung was not negligent at all since it reported the forgery almost immediately upon discovery.

VALIDITY AND NEGOTIABLE CHARACTER OF AN INSTRUMENT

With respect to Check No. 0084078, however, which was drawn against another account of Llano, albeit the date of issue bears only the year – 1999, its validity and negotiable character at the time the complaint was filed was not affected. Section 6 of the Negotiable Instrument Law provides that “the liability and negotiable character of an instrument are not affected by the fact that -- (a) it is not dated; or (b) Does not specify the value given, or that any value had been given therefore, or (c) Does not specify the place where it is drawn or the place where it is payable; or (d) Bears a seal; or (e) Designate a particular kind of current money in which payment is to be made (Victoria J. Ilano vs. Hon. Dolores Español, G.R. No. 161758, December 16, 2005, 478 SCRA 365)

AN    INCOMPLETE    BUT    DELIVERED    INSTRUMENT

ALVIN   PATRIMONIO    vs.    NAPOLEON   GUTIERREZ    &    MARASIGAN
G.R.   No.   187769,    June   4,   2014,   724    SCRA    636

FACTS: Alvin and Napoleon entered into a business venture under the name “Slam Dunk Corporation.”

In the course of their business, Alvin pre-signed several checks, which had no payee’s name, date or amount, to answer for the expenses of Slam Dunk.

The blank checks were entrusted to Napoleon with the specific instruction not to fill them out without previous notification to and approval by Alvin.

In the middle of 1993 without Alvin’s knowledge and consent, Napoleon went to Marasigan to secure a loan stating that Alvin needed the money for the construction of his house.

Marasigan acceded to Napoleon’s request and gave him P200,000.00. In exchange, Napoleon simultaneously delivered to Marasigan one of the blank checks pre-signed by Alvin with the blank portion filled out with the words “Cash,” “Two Hundred Thousand Pesos Only,” the amount “P200,000.00” and dated “May 24, 1994.”

When Marasigan deposited the check, it was dishonored for the reason “ACCOUNT CLOSED.”

Marasigan sought recovery from Napoleon and Alvin sending several demand letters for the payment of the loan but to no avail prompting Marasigan to file a criminal case for violation of B.P. 22 against Alvin.

Alvin filed a complaint for declaration of nullity of loan and damages against Napoleon and Marasigan. He denied authorizing the loan or the check’s negotiation and asserted that he was not privy to the parties’ loan agreement.

ISSUES:

(1) Whether Alvin is liable for the dishonor of the check he pre-signed.

(2) Whether Marasigan is a holder in due course.

HELD: (1) NO. Alvin is not liable. Under Section 14 of the Negotiable Instrument Law, if the maker or drawer delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is deemed to have prima facie authority to fill it up.

In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable time.

If it was proven that the instrument had not filled up strictly in accordance with the authority given and within a reasonable time, the maker can set this up as a personal defense and avoid liability.

In this case, Napoleon exceeded his authority to fill up the blanks and use the check which was limited to the use of the checks for the operation of their business and on condition that Alvin’s prior approval must be first secured.

While Napoleon had a prima facie authority to complete the check, such prima facie authority does not extend to its use, i.e., subsequent transfer or negotiation, once the check is complete. There is no evidence that Napoleon ever secured prior approval from Alvin to fill up the blank o r to use the check.

(2) NO. Marasigan is not a holder in due course. Under Section 52 (c) of the NIL, states that a holder in due course is one who takes the instrument “in good faith and for value.”

It also provides in Section 52 (d) that in order that one may be a holder in due course, it is necessary that at the time it was negotiated to him, he has no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Acquisition in good faith means taking without knowledge or notice of equities of any sort which could beset up against a prior holder of the instrument. It means that he does not have any knowledge of fact which would render it dishonored for him to take a negotiable paper. The abuse of the defense, when the instrument was taken, is the essential element of good faith.

In the present case, Marasigan’s knowledge that Alvin is not a party or a privy to the contract of loan, and correspondingly had no obligation to him, renders him dishonest, hence, in bad faith.

HOLDER NOT IN DUE COURSE

RCBC SAVINGS BANK vs. NOEL M. ODRADA
G.R. No. 219037, October 19, 2016, 806 SCRA 646

FACTS: In April 2002, respondent Odrada sold a second hand Mitsubishi Montero to Lim for P1,510,000. Lim initially paid P510,000 and the balance was to be paid by RCBC thru a car loan.

When RCBC received the OR and CR from Odrada, it issued two manager’s checks payable to Odrada for P900,000 and P13,500 and turned it over to Odrada.

Before the checks were presented to the bank, Lim notified Odrada that there was an issue regarding the roadworthiness and hidden defects of the Montero. Lim further instructed Odrada not to encash the manager’s checks until his complaints are clarified and satisfied.

Without addressing Lim’s concern, Odrada deposited the manager’s checks with IBank and redeposited them. However, the checks were dishonored both times apparently upon Lim’s instruction to RCBC. Odrada was also notified by RCBC the previous day of the cancellation of Lim’s auto loan.

ISSUES

1) Whether Odrada is a holder in due course.

2) Whether RCBC may interpose a personal defense to refuse payment.

RULINGS

1) NO, respondent Odrada is not a holder in due course because he did not acquire the instrument in good faith.

To be a holder in due course, the law requires that a party must have acquired the instrument in good faith and for value.

Good faith means that the person taking the instrument has acted with due honesty with regard to the rights of the parties liable on the instrument and that at the time he took the instrument, the holder has no knowledge of any defect or infirmity of the instrument. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of such facts that his action in taking the instrument would amount to bad faith.

Value, on the other hand, is defined as any consideration sufficient to support a simple contract.

In the present case, Odrada attempted to deposit the manager’s checks a day after Lim informed him that there was a serious problem with the Montero. Instead of addressing the issue, Odrada decided to deposit the manager’s checks. Odrada’s action in depositing the manager’s checks despite knowledge of the Montero’s defects amounted to bad faith.

2) YES, RCBC may refuse payment by interposing a personal defense of Lim that the title of Odrada had become defected when there arose a partial failure or lack of consideration.

When Odrada redeposited the manager’s checks, he was already formally notified by RCBC the previous day of the cancellation of Lim’s auto loan transaction.

MARCELO A. MESINA vs. INTERMEDIATE APPELLATE COURT
G.R. No. 70145, November 13, 1986, 229 Phil. 495

FACTS: Jose Go purchased a manager’s check from Associated Bank. As he left the bank, Go inadvertently left the check on top of the desk of the bank manager. The bank manager entrusted the check for

safekeeping to another bank official who at the time was attending to a customer named Alexander Lim.

After the bank official answered the telephone and returned from the men’s room, the manager’s check no longer be found.

After learning that his manager’s check was missing, Go immediately returned to the bank to give a stop payment order on the check.

A third party named Marcelo Mesina deposited the manager’s check with Prudential Bank but the drawee bank sent back the manager’s check to the collecting bank with the words “payment stopped.”

When asked how Mesina got hold of the check, he merely stated that Alexander Lim, who’s already at large, paid the check to him for “a certain transaction.”

ISSUE

Whether Mesina is a holder in due course.

RULING

NO. Admittedly, Mesina became the holder of the manager’s check as endorsed by Alexander Lim who stole the check. Mesina, however, refused to say how and why it was passed to him. He had therefore notice of the defect of his title over the check from the start.

The holder of a manager’s check who is not a holder in due course cannot enforce such check against the issuing bank which dishonors the same. The check in question suffers from the infirmity of not having been properly negotiated and for value by Jose Go, who is the real owner of the said instrument.

Therefore, the issuing bank could validly refuse payment because Mesina is not a holder in due course.

UCPB vs. INTERMEDIATE APPELLATE COURT
G.R. Nos. 72664-65, March 20, 1990, 262 Phil. 397

FACTS: Altura Investors, Inc. purchased a manager’s check from UCPB, which then issued a manager’s check in the amount of P494,000 to Makati Bel-Air Developers, Inc. The manager’s check represented the payment of Altura for a condominium unit it purchased from Makati Bel-Air Developers.

Subsequently, Altura instructed UCPB to hold payment due to material misrepresentations by Makati Bel-Air Developers regarding the condominium unit.

Pending negotiations, and while the stop payment order was in effect, Makati Bel-Air Developers insisted that UCPB pay the value of the manager’s check. UCPB refused to pay and filed an interpleader to allow Altuna and Makati Bel-Air Developers to litigate their respective claims.

ISSUE

Whether UCPB can validly refuse to pay the value of the manager’s check.

RULING

YES. UCPB can validly refuse to pay the value of the manager’s check since Makati Bel-Air Developers’ title to the instrument became defective when there arose a partial failure of consideration.

UCPB could validly invoke a personal defense of the purchaser against Makati Bel-Air Developers because the latter is not a holder in due course of the manager’s check.

NOTICE OF DISHONOR

The notice of dishonor of a check may be sent to the drawer or maker by the drawee bank, the holder of the check, or the

offended party either by personal delivery or by registered mail. The

notice of dishonor to the maker of a check must be in writing. (Alfredo Rigor vs. People of the Philippines, G.R. No. 144887, November 17, 2004).

INDORSEMENT      BY     TWO       OR       MORE      PAYEES

METROBANK    vs.    B.A.     FINANCE     CORPORATION
G.R.   No.   179952,   December   4,   2009,   607    SCRA    620

FACTS: Bitanga obtained from BA Finance a P329,280 loan. To secure the loan, he mortgaged his car to BA Finance and insured the car against loss, damage and theft with Malayan Insurance.

The car was stolen. On Bitanga’s claim, Malayan Insurance issued a check payable to the order of “B. A. Finance Corporation and Lamberto Bitanga” for P224,500 drawn against China Bank. The check was crossed with notation “For Deposit Payees’ Account.” Without the indorsement or authority of his co-payee, Bitanga deposited the check

to his bank account with Asianbank. He subsequently withdrew the entire proceeds of the check.

BA Finance thereupon demanded the payment of the value of the check from Asianbank but to no avail.

ISSUE: Whether Asianbank as collecting bank liable to BA Finance Corporation.

HELD: YES. The payment of an instrument over a missing indorsement is the equivalent of payment on a forged indorsement or an unauthorized indorsement in itself in the case of joint payees.

Section 41 of the Negotiable Instrument Law provides: “Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.

Clearly, Asianbank was negligent when it allowed the deposit of the crossed check despite the lone indorsement of Bitanga, ostensibly ignoring the fact that the check did not carry the indorsement of BA Finance.

MATERIAL    ALTERATION

BANK   OF    AMERICA   vs.   PHILIPPINE   RACING   CLUB,   INC. (PRCI)
G.R.   No.    150228,   July   30,   2009,   590   SCRA   301

FACTS: On the second week of December 1988, the President and Vice President of PRCI were scheduled to go out of the country in connection with the corporation’s business. They pre-signed several checks to insure continuity of PRCI’s operation to settle obligations that might become due. These checks were entrusted to the accountant with instructions to make use of the same as the need arises.

On December 16, 1988, a John Doe presented to Bank of America for encashment a couple of PRCI’s checks with indicated value of P110,000 each. The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line was the word “CASH” while the lower line had the following typewritten words, viz: “ONE HUNDRED TEN THOUSAND PESOS ONLY.” Despite the highly irregular entries on the face of the checks, Bank of America encashed said checks.

ISSUE: Whether Bank of America is liable to PRCI for wrongful encashment of the checks.

HELD: YES. Although not in the strict sense “material alterations,” the misplacement of typewritten entries for the payee and the amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the face of the check. Clearly, someone made a mistake in filling up the check and the repetition of the entries was possibly an attempt to rectify the

mistake. All these circumstances should have alerted the bank to the possibility that the holder or the person who is attempting to encash the check did not have proper title to the checks or did not have authority to fill up and encash the same.

PROBLEM - Amy borrowed P1,000.00 from Alice as evidenced by a promissory note. The note complied with all the requisites of negotiability, except that Amy did not affix her usual signature thereon as she was very ill at the time she prepared the instrument. Amy wrote “X” on the space intended for the signature of the maker. Is the instrument negotiable?

ANSWER: YES, the letter “X” complies with the requirement that the promissory note must be signed by the maker. In signing with “X,” Amy intended to authenticate the instrument and to be bound by the obligation. The law does not require that the maker affix her usual or customary signature in the promissory note.

QUESTION: State if the following instruments are negotiable or not. Give reasons.

a. “I promise to pay X or order P1,000.00 out of the proceeds of the sale of my house. (Signed) Y.”

b. “I promise to pay Rosario or order P1,000.00 pursuant to the Contract of Sale dated December 20, 2012. (Signed) Arnold.”

c. “I promise to pay to the order of X P1,000.00 subject to the terms and conditions of the contract of mortgage. (Signed) Y.”

d. “I promise to pay to the order of X P1,000.00 payable in two equal monthly installments. (Signed) Y.”

e. “To A: Pay to the order of the bearer P10,000.00 (Signed) X.”

f. “To A: Pay to X or order the sum of P50,000.00 five days after his pet cat, Twinkle, dies. (Signed) Y.”

g. “I promised to pay X or order P1,000.00 25 days after date. (Signed) Y.”

h. “To A: Pay to the order of X P1,000.00 25 days after sight. (Signed) Y.”

ANSWERS:

a. The instrument is non-negotiable because it fixes the fund out of which payment is to be made. Payment is subject to the condition that the sale would materialize, and that the proceeds of the sale would be sufficient to cover the obligations. The promise to pay is conditional, thereby violating Sec. 1 (b) of the NIL.

b. The instrument which was executed “pursuant to the Contract of Sale” is negotiable because this is merely statement of the transaction that gave rise to the obligation and not an indication of the fund from which payment shall be taken.

c. The instrument is burdened by a separate contract rendering it non-negotiable. The holder would have to go beyond the instrument and check the terms and conditions of the contract of mortgage. The separate agreement restricts the instrument.

d. The instrument is not negotiable as it did not comply with the rule on fixing maturity date by installments. If the obligation is payable in installments, the exact amount of each installment and the date when each installment is due must be stated in the instrument. Otherwise, the instrument is non-negotiable as in this case where the due date of each installment was not specified.

e. The instrument is negotiable. An instrument payable to the order of bearer is considered an order instrument. (American National Bank vs. Joe Kerley, 105 Or. 155, 220 Pac. 116; 32 A.L.R. 262).

f. The instrument is negotiable. It is payable at a fixed period after the occurrence of a specified event. The fact that the date when Twinkle would die is uncertain will not militate against negotiability. Death is certain to happen, though the time of happening is uncertain.

g. The instrument is negotiable. It is payable at a fixed period after date. The maturity date is counted 25 days from the date of the instrument. If undated, the 25-day period is reckoned from the date of issuance.

h. The instrument is negotiable. It is payable 25 days after the first presentment for acceptance.

PROBLEM: Lee, the President of SMX Corporation, issued a company check and signed it in his capacity as President as payment of a condominium unit which he purchased for his use. The check was later dishonored by the drawee bank.

QUESTIONS:

a. Is SMX Corporation liable for payment of the obligation?

b. Against whom can the seller of the condominium unit demand payment?

c. Can the seller recover payment from the drawee bank?

ANSWERS:

a. NO. The issuance of the check payment of the condominium unit is an ultra vires act, as it was made beyond the powers of SMX Corporation. This is a real defense that may be set up against any holder, even a holder in due course. SMX may not be held liable for the obligation of its President as it did not authorize the issuance of the check through a board resolution. (Sec. 22, NIL)

b. The seller can demand payment from President Lee. He is personally liable for the issuance of the check.

c. NO. A check by itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank. The bank is not liable to the holder, until and unless it accepts or certifies the check.

NO   RIGHT    TO    RESCIND   SALE   OF   MANAGER’S   CHECK

METROBANK,   BPI   &   GLOBAL   BANK   vs.   WILFRED   CHIOK
G.R.   Nos.   175652, 175302 & 175394,    November   28,   2014,   742   SCRA   835

FACTS: Chiok had been engaged in dollar trading for several years. He usually buys dollars from Nuguid at the exchange rate prevailing on the date of the sale.

Chiok pays Nuguid either in cash or manager’s check, to be picked up by the latter or deposited in the latter’s bank account. Nuguid delivers the dollars either on the same day or on a later date as may be agreed upon between them, up to a week later.

Chiok and Nuguid had been dealing in this manner for about six to eight years, with their transactions running into millions of pesos.

For this purpose, Chiok maintained accounts with Metrobank and Global Bank and entered into a Bills Purchase Line Agreement (BPLA).

On July 5, 1995, Chiok deposited the three (3) manager’s checks from Metrobank & Global Bank with an aggregate value of P26,068,035 in Nuguid’s account with BPI. Nuguid was supposed to deliver US$1,022,288.50 as agreed upon.

In the afternoon of the same day, Nuguid, however, failed to do so, prompting Chiok to request that payment on the three (3) checks be stopped.

Chiok was allegedly advised to secure a court order within the 24-hour clearing period, so he filed a complaint with an application for ex parte restraining order or TRO with the RTC against Metrobank and Global Bank.

ISSUES: (1) Is it legally possible for a purchaser of a manager’s check to stop payment?

(2) Can the court deviate from the general principles that manager’s checks are considered as substantially as good as the money they represent in the case?

HELD: (1) NO. Under Art. 1191 of the Civil Code, the right to rescind obligation is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him.

The cause of action, however, is predicated upon the reciprocity of the obligations of the injured party and the guilty party. Thus, the right of rescission can be exercised in accordance with the principle of relativity of contracts under Art. 1131 of the Civil Code.

In this case, when Nuguid failed to deliver the agreed amount to Chiok, the latter had a cause of action against Metrobank and Global Bank that would allow him to rescind the contract of sale of the manager’s checks, which would have resulted in the crediting of the amounts thereof back to Chiok’s checks. However, Metrobank and Global Bank are not parties to the contract.

Neither could Chiok be validly granted a writ of injunction against Metrobank and Global Bank to enjoin said banks from honoring the subject manager’s checks.

An injunction should never issue when an action for damages would adequately compensate the injuries caused. The very foundation of the jurisdiction to issue the writ of injunction rests in the fact that the damage caused are irreparable and that damages would not adequately compensate.

Chiok could have and should have proceeded directly against Nuguid to claim damages for breach of contract and to have the very account where he deposited the subject check be garnished.

If the intention of Chiok was for Nuguid to be allowed to withdraw the proceeds of the checks after clearing, he could have easily deposited personal checks, instead of going through the trouble of purchasing manager’s checks. Chiok actually intended that Nuguid be allowed to immediately withdraw the proceeds of the subject checks.

Therefore, Metrobank and Global Bank are not bound by such contract and cannot be prejudiced by the failure of Nuguid to comply with the terms thereof.

(2) NO. The well-settled concept and principle in commercial law is that manager’s check are primary obligation of the issuing bank and accepted in advance by mere issuance.

They are bank’s order to pay drawn itself, committing in effect its total resources, integrity and honors. Thus, they are regarded substantially as good as the money they represent.

In deviating from general banking principles and disposing the case base on equity, the courts should ensure that it is equitable.

In the case, it was observed that equity was not served. The disposition wherein Nuguid, the person who violated his contract, was absolved from his liability, leaving the banks, who were not parties to the contract, to suffer the losses is not equitable.

Thus, Chiok’s complaint should be denied insofar as it prayed for the withdrawal of the proceeds of the subject checks. Accordingly, the writ of preliminary enjoining Metrobank and Global Bank from honoring the said checks should be lifted.

12.   CORPORATION   LAW

FILIPINAS   BROADCASTING   NETWORK,    INC.    vs.    AGO    MEDICAL    & EDUCATIONAL    CENTER -   BICOL    CHRISTIAN   COLLEGE    OF    MEDICINE
G. R.   No.   141994,    January   17,   2005,   448    SCRA   413

FACTS: “Expose” is a radio documentary program aired over DZRC-AM which is owned by petitioner FBNI. In two (2) mornings, the program exposed various alleged complaints from students, teachers and parents against respondent AMEC and its administrators. Claiming that the broadcasts were defamatory, AMEC and Ago, Dean of AMEC’s College of Medicine, filed a complaint for damages against FBNI. Respondent corporation alleged, among others, that due to the libelous statements, it is entitled for moral damages.

ISSUE: Whether a corporation is entitled to moral damages.

HELD: YES. A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 of NCC. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219 (7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages. In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.

CORPORATION    NOT     LIABLE     FOR     THE     OBLIGATION
OF      ITS      SUBSIDIARY      DESPITE      BEING       A       MAJORITY
STOCKHOLDER        OF        THE      LATTER

A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those persons composing it as well as from any other legal entity to which it may be related. The veil of corporate fiction may only be disregarded in cases where the corporate vehicle is being used to defeat public convenience, justify a wrong, protect fraud or defend crime. Mere ownership by a single stockholder by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. To disregard the separate juridical personality of a corporation, the wrong doing must be clearly and convincingly established (Construction and Development Corporation vs. Rodolfo Cuenca, G.R. No. 163981, August 12, 2005, 446 SCRA 714 )

BOARD RESOLUTION AUTHORIZING CORPORATE OFFICERS
TO SELL PROPERTIES BELONGING TO THE CORPORATON NECESSARY TO MAKE THE SALE BINDING AGAINST THE CORPORATION

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by by-laws. An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority. (Eduardo Litonjua vs. Eternit Corporation, G.R. No. 144805, June 8, 2006, 490 SCRA 204).

**** The certificate of non-forum shopping may be signed, for and on behalf of a corporation, by a specifically authorized lawyer who has personal knowledge of the facts required to be disclosed in such document. (BPI Leasing vs. Court of Appeals, G.R. No. 127624, November 18, 2004)

QUESTION: X Corporation declared cash dividends, upon approval of the Board of Directors. A, a stockholder, questions the declaration on the ground that the approval of the stockholders representing not less than 2/3 of the outstanding capital is necessary for such act. Is A correct?

ANSWER: NO. A corporation may validly declare cash or property dividends, upon approval of the Board of Directors alone. It is only when stock dividends are declared that the consent of the stockholders is needed.

SOLE    PROPRIETORSHIP

ALPS   TRANSPORTATION   and/or   ALFREDO E.   PEREZ
vs.    ELPIDIO     M.   RODRIGUEZ
G.R.   No. 186732,   June   13,   2013,   698   SCRA   423

FACTS: Elpidio was employed as a bus conductor of ALPS Transportation, a sole proprietorship owned by Perez. During the course of his employment, Elpidio was terminated as allegedly he had collected bus fares without issuing corresponding tickets to passengers.

The court found that Elpidio was illegally dismissed and he is entitled to the twin remedies of reinstatement and payment of full backwages.

ISSUE: Whether Perez, the owner of ALPS Transportation, is liable for backwages.

HELD: YES. Since ALPS Transportation is a sole proprietorship owned by Perez, it is he who must be held liable for the payment of backwages to Elpidio.

The owner has unlimited personal liability for all the debts and obligations of the business and it is against him that a decision for illegal dismissal is to be enforced.

TRANSFER   OF     SHARES

FOREST   HILLS   GOLF   &   COUNTRY   CLUB   vs.    VERTEX    SALES   INC.
G.R.   No. 202205,   March   6,   2013,   692   SCRA   706

FACTS: Forest Hills operates and maintains a golf and country club facility in Antipolo City. Kings and FEGDI owned the shares of stocks of Forest Hills.

FEGDI sold to Asuncion Construction one (1) common share for P1.1 million. Prior to the full payment, Asuncion transferred its interest to Vertex. Asuncion advised FEGDI, in turn, requested Forest Hills to recognize Vertex as a shareholder.

Forest Hills acceded to the request, and Vertex was able to enjoy membership privileges in the gold and country club.

The share remained in the name of FEGDI, prompting Vertex to demand for the issuance of a stock certificate in its name. As its demand went unheeded, Vertex filed a complaint for rescission against Forest Hills and FEGDI.

Forest Hills denied transacting business with Vertex and claimed that it was not a party to the sale of the share.

ISSUE: Whether Forest Hills is under obligation to return the amount paid by Vertex by reason of the sale.

HELD: NO. A necessary consequence of rescission is restitution: the parties to a rescinded contract must be brought back to their original situation prior to the inception of the contract, hence FEGDI must return what it received pursuant to the contract.

Not being a party to the rescinded contract, Forest Hills is under no obligation to return the amount paid by Vertex by reason of the sale.

12. TRANSPORTATION LAW

JAPAN AIRLINES vs. MICHAEL ASUNCION
G.R. No. 161730, January 28, 2005, 449 SCRA 714

FACTS: Respondent left Manila on board Japan Airlines (JAL) Flight 742 bound for Los Angeles. His itinerary included a stopover in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed his application for shore pass and

directed him to the Japanese immigration official. A shore pass is required of a foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours.

During his interview, the Japanese immigration official noted that respondent Michael appeared shorter than his height as indicated in his passport. Because of this inconsistency, respondent was denied shore pass entries and was brought instead to the Narita Airport Rest House where he was billeted overnight.

Respondent filed a complaint for damages claiming that JAL did not fully apprise him of his travel requirements and he was rudely and forcibly detained at Narita Airport.

ISSUE: Whether Japan Airlines is guilty of breach of contract of carriage.

HELD: NO. JAL did not breach its contract of carriage with respondent. It may be true that JAL has the duty to inspect whether its passengers have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act, which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of respondent’s shore pass application.

JAL or any of its representatives have no authority to interfere with or influence the immigration authorities. The most that could be expected of JAL is to endorse respondent’s application.

It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot interfere with even by JAL.

JAPAN AIRLINES vs. JESUS SIMANGAN
552 SCRA 341, G.R. No. 170141, April 22, 2008

FACTS: Simangan decided to donate a kidney to his ailing cousin in Los Angeles, California, USA. He was granted an emergency US visa by the US consulate in Manila. A roundtrip ticket was bought from Japan Airlines (JAL) and was issued corresponding boarding pass. At the date of his flight, he was able to go through immigration and security procedures, but while inside the airplane, JAL’s airline crew suspected Simangan of carrying a falsified travel document and imputed that he would only use the trip to the United States as a pretext to stay and work in Japan. In short, he was haughtily ejected, embarrassed and humiliated in the presence of other passengers and was left behind at the airport. Afterwards, he was informed that his travel documents were, indeed, in order.

ISSUE: Whether JAL is guilty of breach of contract of carriage.

HELD: YES. The fact that Simangan’s plane ticket, boarding pass, travel authority and personal articles already passed the rigid immigration and security routines, JAL, as a common carrier, ought to know the kind of valid documents Simangan carried.

As provided in Article 1755 of the New Civil Code: “A common carrier is bound to carry the passenger safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

CORNELIO LAMPESA vs. DR. JUAN DE VERA, JR.
545 SCRA 290, G.R. No. 155111, February 14, 2008

FACTS: The passenger jeepney boarded by Dr. de Vera was hit by a truck owned by Lampesa and driven by Dario. The latter was employed by Lampesa as a driver. As a result of the accident, Dr. de Vera lost a finger. Dr. de Vera filed an action for damages against Lampesa, Dario, Felix and Modesto as the truck owner, truck driver, jeepney owner/operator and jeepney driver, respectively.

ISSUE: Whether an employer should be liable for the negligence of his driver while the latter is in the performance of his duty.

HELD: YES. Once negligent on the part of the employee is established, a presumption arises that the employer is negligent in the selection and/or supervision of said employee. To rebut this presumption, the employer must present adequate and convincing proof that he exercised care and diligence in the selection and supervision of his employees.

In this case, both the trial and appellate courts found Dario negligent in maneuvering the truck and ruled that his negligence was the proximate cause of the injury sustained by Dr. de Vera. Lampesa was also held accountable by both courts because he failed to exercise due diligence in the supervision of his driver.

HERMINIO MARIANO, JR. vs. ILDEFONSO C. CALLEJAS
G.R. No. 166640, July 31, 2009, 594 SCRA 569

FACTS: Dr. Frelinda Mariano was the passenger of Celyrosa Express bus. The passenger bus was cruising on its rightful lane along the Aguinaldo Highway when a trailer truck coming from the opposite direction, on full speed, suddenly swerved and encroached on its lane, and bumped the passenger bus on its left portion. Due to the impact, the passenger bus fell on its right side on the right shoulder of the highway and caused the death of Dr. Mariano.

ISSUE: Whether the registered owner and driver of the bus company are liable.

HELD: NO. While the law requires the highest degree of diligence from common carriers in the safe transport of their passengers and creates a presumption of negligence against them, it does not, however, make the carrier an insurer of the absolute safety of its passenger.

The totality of evidence shows that the death of Dr. Mariano was caused by the reckless negligence of the driver of the Isuzu trailer truck which lost its brakes and bumped the Celyrosa Express bus.

NORTHWEST AIRLINES, INC. vs. STEPHEN V. CHIONG
543 SCRA 308, G.R. No. 155555, January 31, 2008

FACTS: Philmare Shipping hired Steven Chiong as Third Engineer of M/V Elbia at San Diego, California. For this purpose, Philmare purchased for Chiong a Northwest plane ticket for San Diego, California.

At the scheduled time of departure at MIAA terminal 3, Chiong sought clearance from Philippine Coast Guard and after its compliance, he proceeded to queue at the Northwest check-in-counter. The Northwest personnel informed him that his name did not appear in the computer’s list of confirmed departing passengers. In order to obtain a boarding pass, a man in barong demanded US$100 in exchange therefor. Because of his refusal to such demand, Chiong was not allowed to board Northwest flight bound for San Diego and consequently was unable to work at M/V Elbia.

ISSUE: Whether Northwest Airlines is liable for breach of contract of carriage.

HELD: YES. Time and again, we have declared that a contract of carriage by air transport, is primarily intended to serve the traveling public and thus, imbued with public interest. The law governing common carriers consequently imposes an exacting standard of conduct. As the aggrieved party, Stephen Chiong only had to prove the existence of the contract and the fact of its non-performance by Northwest, as carrier, in order to be awarded compensatory and actual damages.

NORTHWEST AIRLINES, INC. vs. DELFIN S. CATAPANG
G.R. No. 174364, July 30, 2009, 594 SCRA 401

FACTS: Atty. Catapang was directed by UCPB to go to Paris on a business trip. As he intends to visit his siblings in USA, he was asked for additional US$50 for rerouting or booking of flight by the airlines.

Upon his arrival in New York, he was informed that his ticket was not rebookable or reroutable and was treated in a rude manner by an employee by the airlines since his ticket was of a “restricted type” and that unless he upgraded it by paying US$644, he could not rebook. Left with no choice, he paid that amount for rebooking.

ISSUE: Whether Northwest Airlines is liable for moral and exemplary damages for its rude treatment.

HELD: YES. Passengers have the right to be treated by a carrier’s employees with kindness, respect, courtesy and due consideration. They are entitled to be protected against personal misconduct, injurious language, indignities abuses from such employees. So it is that any discourteous conduct on the part of the employees toward a passenger, gives the latter, an action for damages against the carrier.

PHIL.   CHARTER   INSURANCE   vs.   NEPTUNE   ORIENT   AGENCY, INC.
554     SCRA     335,     G.R. No.   145044,   June     12,     2008

ISSUE:    What     is    the     liability    of      the     common    carrier?

HELD: Since the cargoes were lost while being transported to the Philippines, the Civil Code applies. The rights and obligations of the common carrier are thus governed by the provisions of the Civil Code and the COGSA, which is a special law, applies suppletorily. Art. 1749 states that “A stipulation that the common carrier’s liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value,” is binding. Art. 1750 states that “A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon.”

The COGSA provides that “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package . . . unless the nature and value of such goods have been declared by the shipper before the shipment and inserted in the bill of lading. Since in the bill of lading, the shipper did not declare the value of the goods and no additional value had been paid, the stipulation in the bill of lading that the carrier’s liability shall not exceed $500 per package applies.

PHILIPPINE   NATIONAL   RAILWAYS   vs.   COURT   OF   APPEALS
536   SCRA   147,   G.R.   No.   157658,   October   15,    2007

ISSUES:    1)    Whether    PNR    observes     due     diligence.

                2)    What      is      the     liability     of       PNR?

HELD: 1) NO. It was ascertained beyond doubt that the proximate cause of the collision is the negligence and imprudence of the PNR and its locomotive driver in operating the passenger train. The train was running at a high speed, there was no crossing bar or flagman and the signaling device was in a dilapidated condition. It is the responsibility of

the railroad company to use reasonable care to keep the signal devices in working order. Failure to do so would be an indication of negligence that the train has a right of way in a railroad crossing under Section 42 (d) Article III of RA 4136, otherwise known as the Land Transportation & Traffic Code can only be invoked if the street or crossing is so designated and sign posted.

2) Under Article 2180 of the NCC, the employer is primarily liable on the 0assumption of juris tantum that the employer failed to exercise diligentissimi patris families in the selection and supervision of its employees. Even the existence of hiring procedures and supervisory employees cannot be incidentally invoked to overturn the presumption of negligence on the part of employer.

A BROKERAGE   IS   CONSIDERED   A    COMMON   CARRIER

TORRES – MADRID   BROKERAGE,   INC.   vs.
FEB   MITSUI   MARINE   INSURANCE,   INC.   et.    al.
G.R. No. 194121,   July 11, 2016,   796 SCRA 142

FACTS: Sony Philippines engaged the services of petitioner Torres – Madrid Brokerage, Inc. (TMBI) to facilitate the release of its shipment and deliver the goods to its warehouse. In turn, TMBI subcontracted the services of BMT Trucking Service to transport the shipment from the port to the warehouse.

On the day of the scheduled delivery, four trucks left BMT’s garage, however, one of the trucks was found abandoned with both the driver and the shipment were missing.

Sony filed an insurance claim against the insurer of the goods, Mitsui. After being subrogated to Sonny’s rights, Mitsui demanded from TMBI payment of the lost goods. TMBI impleaded BMT as the proximate cause of the lost goods and said that in the event it is held liable to Mitsui, BMT should reimburse.

RTC and CA found TMBI and BMT jointly and solidarily liable. TMBI denied being a common carrier because it did not own a single truck and the service that it offered was limited to the processing of paperwork. It blamed BMT who had the full control and custody of the cargo when it was lost, and being a common carrier, is presumed negligent and shall be responsible for the loss.

BMT argued that it observed the required standard of care and that hijacking was a fortuitous event.

ISSUES

1) Whether a brokerage may be considered a common carrier if it also undertakes to deliver goods for its customers.

2) Whether TMBI and BMT are solidarily liable to Mitsui.

3) Distinguish culpa contractual from culpa aquilliana.

RULINGS

1) YES, a brokerage may be considered a common carrier if it also undertakes to deliver goods for its customers.

Common carrier are persons, corporations, firms or association engaged in the business of transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. By the nature of their business and for reasons of public policy, they are bound to observe extraordinary diligence in the vigilance over the goods and in the safety of their passengers.

The law does not distinguish between one whose principal business activity is the carrying of goods and one who undertakes this task only in an ancillary activity.

As long as an entity holds itself to the public for the transport of goods as a business, it is considered a common carrier regardless of whether it owns the vehicle used or has to actually hire one.

TMBI admitted that it was contracted to facilitate, process, and clear the shipments from the customs authorities, withdraw them from the pier, to transport and deliver them to Sony’s warehouse in Laguna. The fact that BMT does not own trucks and has to subcontract the delivery of its client’s goods, is immaterial.

2) NO, TMBI and BMT are not solidarily liable to Mitsui.

TMBI’s liability to Mitsui does not stem from a quasi-delict (culpa aquilliana) but from its breach of contract (culpa contractual). The tie that binds TMBI with Mitsui is contractual, albeit one that passed on to Mitsui as a result of TMBI’s contract of carriage with Sony to which Mitsui has been subrogated as an insurer who had paid Sony’s insurance claim.

The legal reality that results from this contractual tie precludes the application of quasi-delict based Article 2194.

While it is undisputed that the cargo was lost under the actual custody of BMT, no direct contractual relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui’s cause of action against BMT could only arise from quasi-delict, as a third party suffering damage from the action of another due to the latter’s fault or negligence, pursuant to Article 2176 of the Civil Code.

In the present case, Mitsui’s action is solely premised on TMBI’s breach of contract. Mitsui did not even sue BMT, much less prove any negligence on its parts. If BMT has entered the picture at all, it is because TMBI sued it for reimbursement for the liability that TMBI might incur from its contract of carriage with Sony/Mitsui for quasi-delict.

In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage. In turn, TMBI is entitled reimbursement from BMT due to latter’s own breach of contract of carriage with TMBI.

3) In culpa contractual, the plaintiff only needs to establish the existence of the contract and the obligor’s failure to perform his obligation. It is not necessary for the plaintiff to prove or even allege that the obligor’s non-compliance was due to fault or negligence because Article 1735 already presumes that the common carrier is negligent. The common carrier can only free itself from liability by proving that it observed extra-ordinary diligence. It cannot discharge this liability by shifting the blame on its agents or servants.

On the other hand, the plaintiff in culpa aquilliana must clearly establish the defendant’s fault or negligence because this is the very basis of the action. Moreover, if the injury to the plaintiff resulted from the act or omission of the defendant’s employee or servant, the defendant may absolve himself by proving that he observed the diligence of a good father of a family to prevent the damage.

BENITO MACAM vs. COURT OF APPEALS
G.R. No. 125524, August 25, 1999, 313 SCRA 77

Under special circumstances, it was not even required presentation of any form of receipt by the consignee, in lieu of the original bill of lading, for the release of the goods.

The carrier was absolved from liabilities for releasing the goods to the consignee without the bill of lading.

In clearing the carrier from liability, it takes into consideration that the shipper sent a telex to the carrier after the goods were shipped. The telex instructed the carrier to deliver the goods without need of presenting the bill of lading upon shipper’s request.

It is well noted the usual practice of the shipper to request the shipping lines to immediately release perishable cargoes through telephone calls.

VOYAGE CHARTER

Loadstar Shipping Co., Inc. remains a common carrier notwithstanding the existence of the charter agreement with Northern Mindanao Transport Company, Inc., since the said charter is limited to the ship only and does not involve both the vessel and its crew. Its charter is only

voyage-charter, not a bareboat charter. It is only when the charter

includes both vessel and its crew, as in a bareboat or demise charter that a common carrier becomes private.

As a common carrier, Loadstar is required to observe extraordinary diligence in the vigilance over the goods it transports. When the goods placed in its care are lost, it is presumed to have been at fault or to have acted negligently. Loadstar, therefore, has the burden of proving that it observed extraordinary diligence in order to avoid responsibility for the lost cargo. (Loadstar Shipping Co. Inc. vs. Pioneer Asia Insurance Corporation, G.R. No. 157481, January 24, 2006, 479 SCRA 655).

NEGLIGENCE IN A CONTRACT OF TOWAGE

A tug and its owner must observe ordinary diligence in the performance of its obligations under the contract of towage. The negligence of the obligor in the performance of the obligation renders him liable for damages for the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due care and prudence in the performance of the obligation as the nature of the obligation so demands.

The exercise of ordinary prudence by the owner means ensuring that its tugboat is free of mechanical problems. While adverse weather has always been a real threat to maritime commerce, the least that the owner could have done was to ensure that its other tugboats would be able to secure the barge at all times during the engagement. (Cargolift Shipping Inc. vs. Acuario Marketing Corporation, G.R. No. 146426, June 27, 2006, 493 SCRA 157)

WHEN CONSIGNEE BECOMES PARTY OF THE CONTRACT

A consignee, although not a signatory of the contract of carriage between the shipper and the carrier, becomes a party to the contract by reason either (a) the relationship of agency between the consignee and the shipper/consignor; b) the unequivocal acceptance of the bill of lading delivered to the consignee, with full knowledge of its contents or c) availment of the stipulated pur autrui. (MOF COMPANY, INC. vs. SHIN YANG BROKERAGE CORPORATION, G.R. No. 172822, December 18, 2009).

FREIGHT    FORWARDERS

UNSWORTH   TRANSPORT   INTERNATIONAL (PHIL) INC.   vs.   COURT   OF   APPEALS
G.R.   No.   166250,   July   26,   2010,   625   SCRA   357

Where the forwarder contracts to deliver goods to their destination instead of merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods.

A freight forwarder’s liability is limited to damages arising from its own negligence, including negligence in choosing the carrier, however, where the forwarder contracts to deliver goods to their destination instead of merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the merchandise itself.

The Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the rights and obligations of common carrier are governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code by establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill of lading.

TEMIC AUTOMATIVE PHILIPPINES vs. TAPI – EMPLOYEES UNION
G.R. No. 186965, December 23, 2009, 609 SCRA 355

Freight forwarders have been called travel agents for freight. Temic was within its right in entering the forwarding agreements with the forwarders as an exercise of its management prerogative.

COGSA - NOTICE OF LOSS

Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days from delivery. Under the same provision, however, a failure to file a notice of claim within three days will not bar recovery if a suit is nonetheless filed within one year from delivery of the goods or from the date when the goods should have been delivered. (WALLEM PHILIPPINES SHIPPING INC. vs. S.P. FARMS, INC., G.R. No. 161849, July 9, 2010, 624 SCRA 329).

SURRENDER OF GOODS BY A CARRIER

DESIGNER BASKETS, INC. vs. AIR SEA TRANSPORT, INC., et. al.
G.R. No. 184513, March 9, 2016, 787 SCRA 138

FACTS: Petitioner DBI is a domestic corporation engaged in the production of housewares and handicraft items for export. Ambiente, a foreign-based company, ordered from DBI 223 cartoons of assorted wooden items.

Ambiente designated ACCLI as the forwarding agent that will ship out its order from the Philippines to the United States. ACCLI is a domestic corporation acting as agent of ASTI, a US-based corporation engaged in carrier transport business in the Philippines.

DBI delivered the shipment to ACCLI for sea transport from Manila and delivery to Ambiente. ACCLI issued to DBI triplicate copies of ASTI Bill of Lading. DBI retained possession of the originals of the Bill of Lading pending payment of the goods by Ambiente.

Later on, Ambiente and ASTI entered into an Indemnity Agreement obligating the latter to deliver the shipment to the former or to its order “without the surrender of the relevant bill of ladings due to non-arrival or loss thereof. Thereafter, ASI released the shipment to Ambiente without the knowledge of DBI, and without it receiving payment for the total cost of the shipment.

DBI then made several demands to Ambiente for the payment of the shipment but to no avail. Then, DBI filed a complaint against ASTI and ACCLI. DBI claimed that under the Bill of Lading, it provides that the release and delivery of the cargo/shipment to the consignee only after the original copies of the Bill of Lading are surrendered, otherwise, they become liable to the shipper for the value of the shipment.

ISSUES

1) Whether ASTI and ACCLI be held solidarily liable with Ambiente for the value of the shipment.

2) Whether ASTI may surrender the goods to the assignee without the surrender of Original Bill of Lading.

RULINGS

1) NO, ASTI and ACCLI may not be held solidarily liable to DBI for the value of the shipment.

ASTI as the carrier cannot be held liable for the unpaid value of the goods, as it is not a party to the contract of sale. The carrier’s liability if any should be pursuant to the contract of carriage of goods and the law on the transportation of the goods, not on the contract of sale between the unpaid seller and buyer of the goods.

Articles 1733, 1734 and 1735 speak of the common carrier’s responsibility over the goods. They refer to the general liability of common carriers in case of loss, destruction or deterioration of goods and the presumption of negligence against them. This responsibility or duty of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation, until the same is delivered, actually or constructively, by the carrier to the consignee or to the person who has the right to receive them.

It is, in fact, undisputed that the goods were timely delivered to the proper consignee or to the one who was authorized to receive them.

2) YES, the carrier has no liability for releasing the goods without the surrender of the bill of lading.

Although the general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to the carrier and their respective obligations are considered canceled. Article 53 of the Code of Commerce provides for two exceptions: when the bill of lading gets lost or for any other cause. In either case, the consignee must provide a receipt to the carrier for the goods surrendered.

It is settled that the surrender of the original bill of lading is not absolute, that in case of loss or any other cause, a common carrier may release the goods to the consignee even without them.

REPUBLIC vs. LORENZO SHIPPING CORPORATION
G.R. No. 153563, February 7, 2005, 450 SCRA 550

It is ruled that the non-surrender of the original bill of lading does not violate the carrier’s duty of extraordinary diligence over the goods.

It was found that the carrier exercised extraordinary diligence when it released the shipment to the consignee, not upon the surrender of the original bill of lading is not a condition precedent for a common carrier to be discharged of its contractual obligation.

13. TRUTH IN LENDING ACT

HEIRS OF ZOILO ESPIRITU vs. SPS. LANDRITO
520 SCRA 383, G.R. No. 169617, April 4, 2007

FACTS: Spouses Landrito obtained a loan from Spouses Espiritu in the amount of P350,000 payable in 3 months and secured by a real estate mortgage. The Landritos actually received P325,000 after deducting 5% interest of the principal debt for the first month and service fee. The agreement, however, provided that the principal indebtedness earns “interest at the legal rate.”

Due to failure to pay the principal amount and interest, the Spouses Landrito and Espiritu agreed to an extension and restructuring of the loan agreement such that principal was increased to P874,125. Since the loan remained unpaid, Spouses Espiritu foreclosed the mortgage. At the auction sale, the property was sold to Spouses Espiritu as the lone bidder. Upon failure of Spouses Landrito to redeem the property, Spouses Espiritu consolidated ownership over said property and registered it in their name. Spouses Landrito filed an action for annulment/reconveyance of title against Spouses Espiritu alleging that they negotiated for the redemption of the property but Spouses Espiritu increased the price.

ISSUE: Whether the 5% interest rate imposed upon the Spouses Landrito for the first month and the varying interest rates imposed for the succeeding months are valid.

HELD: NO. The omission of interest rate in a contract, and a stipulation authorizing iniquitous or unconscionable interests are contrary to morals. The omission of the Spouses Espiritu in specifying in the contract the interest rate which was actually imposed, in contravention of the law, manifested bad faith. The real estate mortgage executed between the parties specified that “the principal indebtedness shall earn interest at the legal rate.” The agreement contained no other provision on interest or any fees or charges incident to the debt. Aside from lack of transparency of said agreements, the interest rates and the service charge imposed, at an average of 6.39% per month, are excessive.

In enacting RA 3765, otherwise known as the “Truth in Lending Act,” the State seeks to protect its citizens from a lack of awareness of the true cost of credit by assuring the full disclosure of such costs. Section 4, in connection with Section 3 (3) of the said law, gives a detailed enumeration of the specific information required to be disclosed, among which are the interest and other charges incident to the extension of credit. Section 6 of the same law imposes on anyone who willfully violates these provisions, sanctions which include civil liability, and a fine and/or imprisonment.

14.    TRUST    RECEIPTS    LAW -   PD   115

HUR   TIN   YANG   vs.   PEOPLE   OF   THE   PHILIPPINES
G.R.   No.   195117,   August   14,   2013,   703   SCRA   606

FACTS: On various occasions, Metrobank extended several commercial letters of credits to Supermax. These LCs were used by Supermax to pay for the delivery of several construction materials which will be used in their construction business.

Thereafter, Metrobank required Yang, as representative and Vice President for Internal Affairs of Supermax, to sign 24 trust receipts as security for the construction materials and to hold those materials or the products of the sale in trust for Metrobank.

When the trust receipts fell due and despite the receipt of demand letter, Supermax failed to pay or deliver the goods as proceeds to Metrobank.

Hence, Metrobank filed a criminal complaints for estafa against Yang.

For his defense, while admitting signing the trust receipts, Yang argued that said receipts were demanded by Metrobank as additional security for the loan extended to Supermax for the purchase of construction materials and equipment, and that the transactions do not constitute trust receipt agreements but rather of simple loan.

ISSUE: Whether Yang is liable for estafa for violation of trust receipt law.

HELD: NO. The dealing between Yang and Metrobank was not a trust receipt transaction but one of simple loan.

When both parties enter into an agreement knowing fully that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transactions penalizing under Sec. 13 of PD 115 in relation to Article 315 par. 1 (b) of RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction.

This transaction becomes a mere loan where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.

“NOTHING IS IMPOSSIBLE WITH GOD”

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